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International Economic Issues and U.S. Foreign Policy

By the Honorable Lee H. Hamilton
Director of the Woodrow Wilson International Center for Scholars And Former Member of the U.S. House of

The key challenge for the United States in foreign economic policy is to use America's great influence to maintain an open and prosperous global economy and deepen and extend the benefits of globalization. Inherent in this challenge is also the opportunity to have a great impact on America's capacity to meet its political, strategic, and humanitarian foreign policy goals. The evolution of the global economy will affect our national security, the spread of democracy and human rights, the environment, terrorism, illegal drug trade, organized crime, health and disease, population pressures, and most other major international challenges.

American strategic interests are now tightly intertwined with U.S. economic interests. Economic issues greatly affect our relationships with the other great powers: Europe, Japan, China, and Russia. They proliferate on the U.S. foreign policy agenda, from NAFTA (North American Free Trade Agreement) and fast track legislation to the Asian financial crisis and Chinese entrance into the WTO (World Trade Organization). U.S. economic sanctions against Cuba, Iran, and Libya have been a source of major contention with some of our closest allies. There are few foreign policy threats on the horizon as great as a world financial meltdown.

Globalization is the preeminent international economic phenomenon of our time. American prosperity is inextricably linked to global prosperity. The volume and pace of international trade and investment are increasing tremendously. Communications and information technologies are transforming the way the world does business, and connecting people and firms as never before. The integration of the production and marketing of goods and services across international borders is changing the structure of the private sector. New international mergers, networks, and alliances are emerging daily.

Globalization brings with it both benefits and costs, opportunities and challenges. The overall economic impact of globalization has been positive, producing gains in productivity, efficiency, and growth. Globalization has played a major role in the remarkable economic expansion our country has enjoyed over the past nine years, and has contributed to rapid economic growth in parts of Asia, Europe, and Latin America. It holds the promise of bringing great benefits to people all around the globe.

Yet globalization also spawns many problems. The increased competition of globalization means that some people, and some countries, lag behind. Globalization can lead to reduced protection for workers and the environment when companies move their operations to jurisdictions with weaker labor and environmental standards. Global capital markets can be dangerously volatile. Political authority and international institutions sometimes struggle to keep up with the fast-paced economic trends. Developing nations are frustrated that they do not participate more fully in international economic decision-making and the prosperity enjoyed by other parts of the world.

Despite these problems created by globalization, we cannot, and should not, try to turn it back. The trend toward increasing integration among the economies of the world will likely continue.

The United States has a historic opportunity to lead the charge to meet the challenges of globalization and thereby help create a more prosperous, peaceful, and democratic world. How should we use our political and economic power to spread the benefits of the global economy and advance many of our other foreign policy goals?

First, we should continue to set an example of prosperity by maintaining a strong domestic economy. The success of our economy encourages other countries to pursue liberalization, free trade, and other policies conducive to growth. The American public and private sectors can spur technological innovation, promote exports, and help maintain our position as a leader in science and information technology by investing heavily in research and development. Our lead in these industries of the future represents one of our greatest foreign policy assets.

Second, we should vigorously promote free markets and open trade, while developing more effective international economic institutions. Reductions in barriers to trade promote growth, advance the integration of national economies, and foster international political cooperation. Yet free trade also creates problems, which effective international institutions can help resolve. We should strengthen the World Trade Organization by making it more accountable, transparent, and inclusive of a wide range of economic concerns. We should also build a stronger international financial architecture able to prevent crises and respond to them.

Third, we should invest in sustainable development, education, and promoting the rule of law in poorer countries and in countries making a transition to free markets and democracy. It is important that globalization not be seen by many as a phenomenon imposed by economic elites on the rest of the world's population without offering any protection or assistance to them. To help spread globalization's benefits, we should provide economic assistance and debt relief to those countries committed to responsible economic policies, support exchange programs that bring foreign students and future leaders to the United States and send Americans to other countries, and help train foreign judges, lawyers, and leaders of civil society so that the rule of law and accountable government are strengthened. All of these activities promote our foreign policy goals of advancing prosperity, democracy, and international economic and political cooperation.

One region of the world where U.S. economic policy can have a potentially broader foreign policy impact is Africa. Poverty and underdevelopment are certainly not the only problems facing that continent. But economic growth is essential to boosting African living standards and successfully confronting Africa's political, security, and health challenges over the long term.

Currently, much of Africa lacks the modern infrastructure and resources necessary to take advantage of globalization. The United States can help remedy these deficiencies by providing well-targeted foreign aid, debt relief, technical assistance, loans, and a more open market for African goods. American companies could reap substantial profits from investments in the development of modern communications and transportation systems in Africa if the right political climate and backing were in place. Public and private sector partnerships offer the best hope for improving the living standards of Africans and advancing U.S. political, security, and economic interests in Africa.

The international political and economic environment has changed during the past several decades, and the evolution of the U.S. foreign policy-making process has been influenced by that transition.

When I first entered Congress 35 years ago, U.S. foreign policy was dominated by the single goal of defeating the communist threat. Policy was made by a small circle of people, including the President, the Secretaries of State and Defense, the National Security Advisor, and a few others. International economic issues were considered only peripherally, or as a subordinate element of broader geopolitical concerns.

Today, U.S. foreign policy deals with a wide array of issues, from terrorism and illegal drugs to the environment and sustainable development. Congress is much more involved in the policy process. And economics have become more central to our foreign policy than ever before.

The process of making foreign economic policy is more diffuse today. The number of actors in the policy process has grown tremendously and now includes many executive branch agencies and congressional committees, as well as trade groups, non-profit organizations, international organizations, and universities. In the executive branch, the locus of government activity on foreign economic policy can shift among the Departments of State, Treasury, Commerce, Energy, and Agriculture, and the U.S. Trade Representative, to name just a few of the agencies involved. On IMF (International Monetary Fund) funding and the Asian financial crisis, for instance, Treasury has played the leading role.

In Congress, dozens of committees and ad hoc caucuses now influence the development of foreign economic policy. The president can no longer consult with only the leadership in Congress and be assured of congressional support for a presidential initiative. On the issue of economic sanctions against India and Pakistan, for instance, the India Caucus and members of Congress with strong agriculture interests in their districts have exerted great influence.

Many special interest groups, particularly business and labor organizations, have a substantial impact on U.S. policy. On fast track, permanent normal trade relations with China, and many other issues, advocacy groups have taken center stage. They have a greater impact today because more Americans recognize that they are affected by foreign economic policy. Exports - from aviation to information technology to entertainment - are a growing sector of the economy. The livelihood of American businesses and workers is heavily shaped by trade agreements and economic developments around the world.

The United States needs a coherent and unified policy-making apparatus to promote the kind of multifaceted foreign economic policy that today's complex international environment demands. It is appropriate for many agencies and congressional committees to be involved in foreign economic policy on issues that clearly affect their interests. But we must ensure that our overall national interests are considered first and foremost in the development of our policy. The State Department and the main foreign policy congressional committees should maintain a central role in these areas of policy-making.

The growing importance of economic issues in foreign policy offers new opportunities to the State Department. While the United States will continue to rely on State's traditional skills of overseas political and economic reporting and diplomatic negotiation, the United States also will benefit from proficiency in linking America's broad political and security interests to the trends and challenges of globalization. As many people inside and outside the U.S. government have already come to recognize, the American national interests in international politics, economics, and security simply cannot be properly understood or dealt with in isolation.

I am confident that the American people and U.S. policy-makers will continue to support a foreign policy that promotes free trade and growth, advances international economic integration, and encourages the spread of democracy and the rule of law. Such a foreign policy bolsters our own economic health and contributes to the making of a more peaceful and prosperous world.