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Building a Fortress Americas

by

Jock O'Connell

www.jockoconnell.com

(This article originally appeared in the Sacramento Bee Forum section on Sunday, October 27, 1991.)

The familiar bipolar world in which the US and USSR confronted each other at virtually every turn is fast giving way to a conceivably less stable system dominated by the United States, the European Community, and the nation most likely to succeed the Soviet Union as the primary focus of American angst -- Japan.

Although such a tripolar system will seethe with its own tensions and discords, competition among the major powers, at least initially, will be mercantile rather than military in nature. Whether this should be an altogether comforting prospect is another question. Just as the single-minded quest for Cold War superiority frequently led to actions inconsistent with principles we otherwise championed, the goal of maintaining US primacy in this more commercial world is already producing the kinds of pressure that may similarly warp some of our most cherished political and economic values. Apart from heightening the prospects for devastating trade wars between erstwhile allies, these pressures are currently propelling the United States toward a more aggressive posture against its major trading partners and into a dangerous economic liaison with Latin America. In the process, the laissez-faire principles which have traditionally guided US economic policies both at home and abroad risk being distorted beyond recognition amidst a rising tide of economic nationalism in American politics.

Of the numerous concerns facing world leaders in the post-Cold War era, the most critical may be whether the historic commitment to free trade embodied in the General Agreement on Tariffs and Trade (GATT) will survive. Since its establishment in 1947, the GATT has stood as the world's chief hedge against a return to the rampant and destructive protectionism of the dismal 1930s.

Among those nations whose economic progress has been fueled by the liberalized trading rules promoted under the GATT has been the United States. Since 1986, over half of all economic growth in this country has been attributable to gains in exports. Last year, increased exports accounted for over 90 percent of the nation's economic growth.

Yet the present round of GATT negotiations is in limbo following the failure of the US and the EC to resolve a key dispute over agricultural trade subsidies last December in Brussels. With the principal economic powers seemingly more interested in extending their commercial domains by creating regional trading blocs than reviving negotiations, the world is in danger of being dragged into a protectionist vortex.

The current momentum toward an international system overshadowed by three major economic blocs was precipitated when the European Community set out in 1985 to rid itself of the remaining obstacles to commerce among its dozen member-nations by the end of 1992. No sooner had EC Commission President Jacques Delors unveiled the new "Single-Market" scheme than the EC's trading partners began to fret that something much more sinister than a more dynamic and competitive European Common Market might be in the offing. Indeed, it was feared that the EC was laying the foundation for an economic Fortress Europe that could exclude goods and services produced by other nations, especially those with which the EC did not enjoy an amicable trading relationship.

But the Europeans were not alone in shoring up their economic positions. No less imposing for being less formal is the East Asian trading bloc that has been emerging under Japanese auspices. Over the past decade, the Japanese have woven a potent commercial network closely linking Japan to the four Dragons of Asia (South Korea, Taiwan, Hong Kong and Singapore) and three other rapidly developing economies (Indonesia, Malaysia and Thailand). As former international banker Steven Schlossstein observes in his new book "Asia's New Little Dragons:" "Through commerce, economic policy, trade, technology, and capital, Japan has succeeded in creating for itself a kinder, gentler co-prosperity sphere throughout Asia."

The Japanese not surprisingly prefer to regard their activities in East Asia as merely a reaction to what others have been doing. According to Yoshio Suzuki, vice chairman of the Nomura Research Institute in Tokyo, Japan is forming not a trading bloc but rather "a negotiating bloc with enough leverage to negotiate entry to the United States and the European Community." Although Suzuki's claim seems a trifle disingenuous, Japanese concerns about being isolated in a world of powerful trading blocs are not entirely without foundation. Despite strenuous denials from officials in Washington and Brussels, there is no question that both the US and the EC view Japan as their most dangerous and resourceful adversary.

EC officials have generally been much less coy than their American colleagues about engaging in a brand of hardball trade negotiations with the Japanese. For the Europeans, success is to be measured by the value of the tangible concessions won rather than the abstract economic principles upheld. What is unusual is the extent to which senior officials of the US Government have lately been signaling a desire to become similarly assertive in countering Japan's commercial clout.

For example, in an address last summer to the Conference on Peace and Security in Europe in Berlin, Secretary of State James Baker spoke approvingly of a "Euro-Atlantic community that extends from Vancouver to Vladivostok." The fact that Japan is the only major industrial power not included in Baker's formulation of a Euro- Atlantic community escaped no one, least of all the Japanese. And that is precisely why Baker's remarks were so exceptional. Ever since the imbalances in US-Japanese trade first became a serious issue a decade ago, administration officials have tacitly encouraged Congress to periodically vent its exasperation with Japan's commercial practices, thus permitting the White House to stake out the diplomatic high ground. So long as the Cold War continued, the strategic alliance between the two nations was considered much too valuable to disrupt with harsh rhetoric or reproachful actions by high-ranking administration officials.

But in the post-Cold War era, attitudes in Washington are swiftly changing. Despite public pronouncements to the contrary, some elements within the US Government are already behaving as though Japan has replaced the USSR as the most serious, long-term threat to American interests. And just as every US administration from Truman on sought to contain Soviet Communism, there is every reason to expect that forces within the Bush administration would prefer to do the same with regard to Japan. According to an article in the September 22 Forum by Christopher Hitchens of Harper's magazine, US intelligence agencies have been busily redefining their primary role from one of assessing the Soviet military and political threat to Western security to one of analyzing the economic threat now posed by Japan. But the intelligence community would not be the only beneficiary of current efforts to propagate a more antagonistic image of Japan.

Consider, for example, how a campaign to portray Japan as an unreliable ally could affect how the US copes with its diminishing industrial competitiveness. One particularly disconcerting facet of this problem came to light during the Gulf War. Much of the electronic wizardry responsible for the astonishing success of US forces would not have been possible without key components designed and manufactured in Japan. It goes without saying that a nation convinced that Japan cannot be trusted with such leverage over its national security could be willing to "pay any price and bear any burden" to ensure that US military power could not be held hostage to the whimsy of foreign governments.

Among the most likely beneficiaries of such public largesse would be those US- owned companies in industries ranging from machine tools to advanced electronics that are critical to national defense but where Japanese and other foreign firms have gained substantial technical and commercial advantages in recent years.

Sacramentans got a foretaste of this sort of maneuvering last summer, courtesy of Northrup Corporation. Through a series of newspaper ads and television commercials featuring legendary test pilot Chuck Yeager, Northrup set out to build popular support for its B-2 "Stealth" bomber. But with even the Secretary of the Air Force testifying that this $850 million-a-copy airplane is something of a lemon, Northrup's campaign took a novel tack. Instead of providing an upbeat justification of the B-2 as an indispensable weapon system, the ads glumly focused on the several thousand California defense workers who would lose their jobs if Congress terminates the project's funding.

What is astonishing is that Northrup all but conceded a point that critics have long maintained: that the defense budget reflects a de facto industrial policy whose priorities are too often dictated by political and commercial considerations that bear little relationship to the objective requirements of national defense. Since it is clear that many of those like Northrup and Yeager who normally tout the virtues of the American free enterprise system are not above lobbying for generous government hand-outs, can a more overt industrial policy based on the presumed need to recapture America's economic edge against overseas competitors be far behind?

Not to be outdone by the politics of corporate greed, the exigencies of electoral politics are also forcing a reappraisal of US policies. As even the most loyal White House aide would acknowledge, the one issue on which George Bush is most vulnerable in next year's presidential race is the state of the nation's economy. In their efforts to win back the support of working-class voters and others troubled by an apparent US reluctance to deal more aggressively with unfair foreign competition, several of the President's Democratic challengers seem eager to turn US trade policy into a potent populist issue, thus clinging to a venerable American political tradition of fixing the responsibility for the country's more intractable domestic ills on some foreign bogeyman. In this context, the President's customary espousal of free trade, however principled and justified it may be, could undermine his re-election bid.

For many years, a strong domestic constituency for free trade had routinely challenged anyone bold enough to flirt publicly with economic nationalism. Today, however, that constituency seems to be weakening. Even such normally thoughtful conservative commentators like George F. Will have been deserting the free trade camp. In a recent column, Will denounced the huge government subsides that enable Airbus, Europe's chief aircraft manufacturer, to compete aggressively against Boeing and McDonald-Douglas for the world's commercial airliner market. Arguing that free trade is not a game of solitaire, Will wrapped up his essay with classic fighting words: "The Airbus dispute is a suitable occasion for America to say what Americans said about some overbearing Europeans 216 years ago. If they mean to have war, let it begin here."

Will's complaint -- albeit patently hypocritical in view of the massive amounts of Pentagon dollars that have been funneled into "civilian" aircraft programs over the past half-century -- are more commonly and vehemently directed at our other principal commercial rival, Japan. Here a problem already aggravated by race is made even more acute by the vexing fact that, despite years of repeated assurances that Japan's home market was being opened to more and more foreign goods and services, the US trade deficit with Japan (over $41 billion last year) remains intolerably high. By contrast, US-EC trade has been roughly balanced, with the US even running a $6.2 billion surplus last year.

With polls showing that the public's antipathy toward Japan is increasing while support for free trade is diminishing, the Bush administration now seems poised to take a more aggressive tack. While perhaps falling short of an explicit tongue-lashing of Japan during the commemoration of the 50th anniversary of the attack on Pearl Harbor, this new stance will be designed to demonstrate the President's firm resolve in dealing with threats to American security, whether they be commercial or military in nature.

Among the steps the Bush administration is apt to take is that of extending and consolidating US economic influence over the Western Hemisphere, creating a Fortress Americas in anticipation of an outbreak of trade wars with other regional blocs.

Even though implementation of the 1988 free trade accord between the US and Canada has been proving a good deal more contentious than anticipated, Bush has been pushing an increasingly ambitious hemispheric agenda ever since taking office. In early June of 1990, he endorsed a similar free trade pact with Mexico. Although the mere idea of opening trade talks with Mexico instantly became a matter of considerable controversial on both sides of the border, the President persevered. (The White House finally secured congressional approval last May to undertake formal discussions with Mexico and Canada aimed at creating a North America Free Trade Area that, with a population of some 360 million and a combined GNP of $7.6 trillion, would be even larger economic power than the 12-nation European Community.)

But Bush was not content to stop there. As if to demonstrate his infinite impatience with the pace of history, the President -- just two weeks after first broaching the topic of free trade pact with Mexico -- broadened the economic horizon even more by revealing an audacious proposal for expanding US ties with the rest of the Americas.

Unlike the Free Trade Agreement with Canada and the current NAFTA negotiations, almost no attention has been devoted to the President's hemispheric proposal.

After a decade of sharply negative growth, Latin America desperately needed help in rescuing the region's faltering economies. Bush pledged that the US would closely cooperate with Latin American nations in the round of multilateral trade negotiations then being conducted under the auspices of the General Agreement on Tariffs and Trade. He also stated that the US was ready to enter into free trade agreements with Latin America and Caribbean nations, "particularly those groups of countries that have associated for trade liberalization."

The other portion of the initiative addressed Latin America's crippling external debt obligations, currently pegged at somewhere over $400 billion. To stimulate new private investment in the region, the President called upon Latin American governments to adopt policies that would make it easier (and presumably less risky) for foreign companies to invest in the region and for the residents of these countries to repatriate some of the estimated $170 billion they had stashed in overseas bank accounts. Bush also offered to renegotiate the terms of some $12 billion owed the US Government by Latin governments and to provide $100 million annually over the next five years to help underwrite the costs of market-oriented reforms.

In spite of the fanfare surrounding its announcement, the initiative disappointed many US observers. The Wall Street Journal was quick to point out the obvious: "The plan sets large goals while pledging relatively small financial commitments."

Still, Latin American leaders seemed genuinely pleased by the President's gesture. Although the actual amount of assistance was modest in comparison to the region's daunting needs, the initiative helped draw attention to Latin America's economic plight at a time when Eastern Europe's new democracies were grabbing all the headlines and, more importantly, most of the commitments of Western aid.

It also indicated the administration's pleasure with the growing number of Latin American leaders who had taken to chanting the free-market mantra of Reaganomics. Since the mid-1980s, nations from Mexico to Argentina had been rejecting economic policies which had featured tight controls on imports, price controls and subsidies, government ownership of key industries, and onerous restrictions on foreign ownership. And if conversion to the economically correct faith was not enough to earn the goodwill of Washington, democracy had suddenly become fashionable in a region where authoritarian military regimes had been the rule. Apparently gone were the bad old days of Latin American politics when a condescending headline in The New York Times could read, as one actually did in the early 1970s: "Bolivia's Coup Is Late This Year."

Even though the initiative was more warmly received in Latin American than in the US, it is not without supporters in this country. Foremost among them are those US banks to whom Latin American countries owe enormous amounts of money. US exporters are likewise delighted by the prospect of reopening once lucrative markets which were effectively vaporized when the debt crisis erupted nearly ten years ago. Between 1980 and 1985, US exports to Central and South America fell by nearly half. And while matters improved somewhat over the second half of the decade, US exports to Latin America in 1990 still remained well below what they were ten years earlier. By comparison, US exports worldwide in 1990 were over 40 percent higher than they were in 1980.

(Whether California firms would similarly gain from the revival of these markets is an open question. Although the Golden State is America's foremost trading state, its exporters seem to have gone out of their way to avoid selling to customers in Central and South America. According to the figures obtained from the California State World Trade Commission, California firms accounted for a mere 4.9 percent of the $26.8 billion in total US exports to the region last year, far below the state's 14.9 percent share of all US exports worldwide in 1990. With the exception of Mexico, none of California's biggest export markets lie to the south. Only Brazil figured in the state's Top 30 list last year, placing 26th. For a state with a sizeable Latino population and with a strong record of trade with neighboring Mexico, the failure of California industry to develop more substantial export markets elsewhere in Latin America is perplexing.)

Despite the apparent benefits to be gained by encouraging more extensive trade among hemispheric nations, there are ample reasons to view the President's effort to build a Fortress Americas with skepticism. For all the talk of "Good Neighbor" policies, hemispheric relations have been characterized more by turmoil and mutual suspicion than by peace and cooperation. Moreover, even that old saw about being neighbors is a convenient distortion. The fact is that every European capital -- including Moscow -- is closer to Sacramento than is Rio de Janeiro or Buenos Aires. (So, for that matter are Tokyo and Beijing.) On top of this, there are the reservations raised by National Review editor John O'Sullivan. Observing the abysmal economic plight and the inconsistent political history of Latin America, this conservative journalist asks why, if we are moving into a world of competing regional blocs, George Bush seems so insistent on captaining the weakest team. Strong doubts about the Bush initiative are also being expressed on the other side of the political spectrum. Citing the long and generally unhappy record of US involvement in Latin America, many liberals, while eager to furnish aid to Latin Americans, are apprehensive about any arrangement that would provide even greater pretexts for US intervention in the region's affairs.

What makes these latest developments so disturbing is that they come at a time when America's commitment to the GATT process seems to have waned, perhaps permanently. When the latest round of GATT talks collapsed in failure last December, President Bush was not in the White House busily conferring by telephone with US trade negotiators in Brussels. He was off on a six-day, five-nation tour of South America to promote his new regional initiative.

To some observers, the administration's willingness to allow the GATT talks to slide off track comes as no surprise. There has always been a strong suspicion among revisionist historians that US support for the GATT immediately after World War II had as much to do with a desire to eliminate the remnants of the preferential trading arrangements Britain and France still maintained with their far-flung and frequently resource-rich colonies and dominions as it did with an ideological predisposition toward laissez-faire economics. (In many ways, both the basic objectives and tactics were similar to those deployed in arguing for an "Open Door" policy in China earlier in the century. Though trussed up in the rhetoric of righteousness, it too was a ploy to gain US entry into a market already carved up by other powers.) As by far the largest player in a more diffused multilateral trading system, the US could readily dictate the terms of international commerce. But, as Japan and Europe arose to contest America's economic preeminence, the appeal of the GATT system began to wear thin. As a consequence, the chances increase that both regional trading blocs and individual non- aligned nations will have to devise a new and possibly less satisfactory set of rules for governing the future course of international trade.

Even though some prominent economists like MIT's Paul Krugman believe that there is nothing inherently wrong with regional trading blocs, the always difficult challenge of sustaining global economic growth would be dramatically compounded. Trade disputes between nations seldom damage anyone but those directly engaged. A falling out among powerful regional blocs would likely have far wider and graver consequences on living standards everywhere.

Some 499 years after Columbus stumbled across the New World, George Bush is seeking to shape a New World Order in which the US maintains a dominant role. Apparently content to let the GATT system lapse, the administration is drifting in a direction likely to guarantee an increase of commercial conflict involving the world's principal economic powers. But a world in which powerful trading blocs face off against each other is inevitable only so long as world leaders plan for its eventuality. Moreover, if the Cold War's crusade against Communism was frequently capable of distorting basic American values, no less harm should be expected of racially compromised attempts to cast Japan in the arch-villain role in this New World Order. Before going any further along this perilous road, it might be prudent for the Bush administration to think things through a little bit more thoroughly.

Copyright (c) 1991 by J. A. O'Connell



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