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The Nation : Clinton's Search for a Foreign Economic Policy

July 31, 1994|James A. Baker III | James A. Baker III was the 61st secretary of state and also served as Treasury secretary

WASHINGTON — Eighteen months and two G-7 Summits into his Administration, President Bill Clinton has yet to implement a strategy of trade, investment and exchange-rate policies that ef fectively promote U.S. interests in the international economic arena. Instead, the Administration's international economic policies seem confused, even schizophrenic. Its uncertain signals seem to reflect a mixed mind about the value of free trade and investment.

True, two of the Administration's most noteworthy successes--passing the North American Free Trade Agreement and concluding the Uruguay Round of the General Agreement on Tariffs and Trade--reflect firm free trade principles. Both initiatives, however, were begun and brought to near-fruition by Republican Administrations.

In contrast, the Administration's own policies--especially those leading to near-crises with Japan on trade and China over most-favored-nation status--suggest a less-than-steadfast belief in economic liberalism and a dangerous tendency to look at everything through the prism of domestic politics.

The fate of the Administration's first major free-trade initiative of its own devising--the "Open Markets 2000" proposal offered at the recent Naples Summit--has not enhanced its credibility. The initiative would have committed G-7 leaders to build on the achievements of the Uruguay Round by further expanding trade and investment. But the manner in which the Administration put forward the initiative--at the last minute and with poor coordination--undermined its seriousness and ensured its rejection by the other G-7 governments.

International financial markets also have trouble taking the Administration's rhetoric seriously. The current dollar crisis, for example, was triggered, at least in part, by Administration signals that it was prepared to drive down the dollar to "punish" Tokyo for its recalcitrance in trade talks. Attempting damage control, Clinton declared in Naples, "No one has tried to talk down the market." The markets, unfortunately, knew better.

It will take more than mere declarations to restore the Administration's international economic credibility. Rather, it will require a practical, multipart strategy aimed at reasserting international economic leadership:

Pass GATT. The Administration cannot blithely assume congressional passage of the GATT agreement by the Jan. 1, 1995 deadline set in Naples. Powerful environmental and labor lobbies oppose it. Identifying budget cuts to offset the estimated $12-billion loss in tariff revenues over the next five years makes GATT ratification a potentially contentious legislative issue. Senate Finance Chairman Daniel Patrick Moynihan (D-N.Y.) has publicly chided the Administration for dragging its feet.

Given the Administration's ambitious legislative agenda, including health-care and welfare reform, it will require discipline--not this Administration's forte--to ensure passage on time. Once GATT passes, however, the Administration can and should reintroduce its Open Markets 2000 proposal, perhaps at this fall's Washington meeting of G-7 ministers.

Stop publicly bashing Japan. The Administration's hard-line stance toward trade with Japan did much to cause the current collapse of the dollar. Dismissing the crisis as a "problem with the yen," as some in the Administration have, will do little to ease it. Given the magnitude of the U.S.-Japanese economic relationship, there is no such thing as a "dollar problem"--or a "yen problem." But there is a "dollar and yen" problem that can only be resolved by negotiation.

Pressuring Japan to open its markets and stimulate consumption must remain top U.S. goals. Our negotiating positions must be tough--but are only effective if pushed privately. Instead of grabbing headlines by publicly pillorying Japan, the Administration should pursue a longer-term strategy of negotiation and sustained support for powerful reform forces within Japan itself.

Expand trade and investment regionally. The Administration should build on NAFTA and the Bush Administration's Enterprise for the Americas Initiative to move toward a truly hemispheric free-trade zone. Argentina and Chile are both suitable candidates for free-trade agreements.

But U.S. regional trade initiatives should not be limited to our own hemisphere. Free-trade agreements with Poland, Hungary and the Czech Republic would not only bolster the cause of reform in three of the former Soviet bloc's "success stories" but open up a growing market of 60-million consumers to U.S. goods and services.

Finally, the President should also use the forum for Asia-Pacific Economic Cooperation, a Bush initiative, to intensify our relationship with dynamic Pacific Rim countries. The development of an investment code for APEC members should be a high priority.

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