Free Resources for Students and Teachers of English as a Foreign Language in China - by Paul Sparks

Read and write messages for me!

 About Me
 World News
 ICQ Chat
 Contact Me





Now Watch TV Online for free with my new site -

Click Here to return to the previous page


Paul Sparks - Online English Lesson Plans, Lesson Material and Ideas for "Culture of English Speaking Countries Lessons" for Xiangtan Normal University...




American Trade and Foreign Policy

Foreign Trade and Global Economic Policies:

  • U.S. foreign trade and global economic policies have changed direction since the Great Depression of the 1930s and World War II, the country generally has sought to reduce trade barriers and coordinate the world economic system. This commitment to free trade has both economic and political roots; the United States increasingly has come to see open trade as a means not only of advancing its own economic interests but also as a key to building peaceful relations among nations.

  • By the 1970s, the gap between the United States' and other countries' export competitiveness was narrowing. What's more, oil price shocks, worldwide recession, and increases in the foreign exchange value of the dollar all combined during the 1970s to hurt the U.S. trade balance. U.S. trade deficits grew larger still in the 1980s and 1990s as the American appetite for foreign goods consistently outstripped demand for American goods in other countries. This reflected both the tendency of Americans to consume more and save less than people in Europe and Japan and the fact that the American economy was growing much faster during this period than Europe or economically troubled Japan.

  • The end of the Cold War saw Americans impose a number of trade sanctions against nations that it believed were violating acceptable norms of behavior concerning human rights, terrorism, narcotics trafficking, and the development of weapons of mass destruction.

  • Despite the setbacks to free trade, the United States continued to advance trade liberalization in international negotiations in the 1990s, ratifying a North American Free Trade Agreement (NAFTA), completing the so-called Uruguay Round of multilateral trade negotiations, and joining in multilateral agreements that established international rules for protecting intellectual property and for trade in financial and basic telecommunications services.

  • Still, at the end of the 1990s, the future direction of U.S. trade policy was uncertain. Officially, the nation remained committed to free trade as it pursued a new round of multilateral trade negotiations; worked to develop regional trade liberalization agreements involving Europe, Latin America, and Asia; and sought to resolve bilateral trade disputes with various other nations. But political support for such policies appeared questionable.

  • The United States has not always been a forceful advocate of free trade. At times in its history, the country has had a strong impulse toward economic protectionism (the practice of using tariffs or quotas to limit imports of foreign goods in order to protect native industry).

  • Congress enacted the Trade Agreements Act of 1934, which provided the basic legislative mandate to cut U.S. tariffs.

  • Following World War II, many U.S. leaders argued that the domestic stability and continuing loyalty of U.S. allies would depend on their economic recovery. U.S. aid was important to this recovery, but these nations also needed export markets -- particularly the huge U.S. market -- in order to regain economic independence and achieve economic growth. The United States supported trade liberalization and was instrumental in the creation of the General Agreement on Tariffs and Trade (GATT), an international code of tariff and trade rules that was signed by 23 countries in 1947. By the end of the 1980s, more than 90 countries had joined the agreement.

American Trade Principles:

  • The United States believes in a system of open trade subject to the rule of law. Since World War II, American presidents have argued that engagement in world trade offers American producers access to large foreign markets and gives American consumers a wider choice of products to buy.

  • Americans contend that free trade benefits other nations as well. Economists have long argued that trade allows nations to concentrate on producing the goods and services they can make most efficiently -- thereby increasing the overall productive capacity of the entire community of nations. What's more, Americans are convinced that trade promotes economic growth, social stability, and democracy in individual countries and that it advances world prosperity, the rule of law, and peace in international relations.

  • The United States and members of the Organization for Economic Cooperation and Development (OECD) took a step toward greater transparency in the 1990s by agreeing to outlaw the practice of bribing foreign government officials to gain a trade advantage.

  • The administration of President Bill Clinton (1993-2001) added another dimension to U.S. trade policy. It contend that countries should adhere to minimum labor and environmental standards. In part, Americans take this stance because they worry that America's own relatively high labor and environmental standards could drive up the cost of American-made goods, making it difficult for domestic industries to compete with less-regulated companies from other countries. But Americans also argue that citizens of other countries will not receive the benefits of free trade if their employers exploit workers or damage the environment in an effort to compete more effectively in international markets.

  • The Clinton administration raised these issues in the early 1990s when it insisted that Canada and Mexico sign side agreements pledging to enforce environmental laws and labor standards in return for American ratification of NAFTA. Under President Clinton, the United States also worked with the International Labor Organization to help developing countries adopt measures to ensure safe workplaces and basic workers' rights, and it financed programs to reduce child labor in a number of developing countries. Still, efforts by the Clinton administration to link trade agreements to environmental protection and labor-standards measures remain controversial in other countries and even within the United States.

  • The United States sometimes departs from its general policy of promoting free trade for political purposes, restricting imports to countries that are thought to violate human rights, support terrorism, tolerate narcotics trafficking, or pose a threat to international peace. Among the countries that have been subject to such trade restrictions are Burma, Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria. But in 2000, the United States repealed a 1974 law that had required Congress to vote annually whether to extend "normal trade relations" to China. The step, which removed a major source of friction in U.S.-China relations, marked a milestone in China's quest for membership in the World Trade Organization.

Current U.S. Trade Agenda:

  • Despite some successes, efforts to liberalize world trade still face formidable obstacles. Trade barriers remain high, especially in the service and agricultural sectors, where American producers are especially competitive. The Uruguay Round addressed some service-trade issues, but it left trade barriers involving roughly 20 segments of the service sector for subsequent negotiations. Meanwhile, rapid changes in science and technology are giving rise to new trade issues. American agricultural exporters are increasingly frustrated, for instance, by European rules against use of genetically altered organisms, which are growing increasingly prevalent in the United States.

  • The emergence of electronic commerce also is opening a whole new set of trade issues. In 1998, ministers of the World Trade Organization issued a declaration that countries should not interfere with electronic commerce by imposing duties on electronic transmissions, but many issues remain unresolved. The United States would like to make the Internet a tariff-free zone, ensure competitive telecommunications markets around the world, and establish global protections for intellectual property in digital products.

  • The United States also is seeking trade liberalization agreements with Asian countries through the Asia-Pacific Economic Cooperation (APEC) forum; APEC members reached an agreement on information technology in the late 1990s.

  • The United States continues to seek resolution to specific trade issues involving individual countries. Its trade relations with Japan have been troubled since at least the 1970s, and at the end of the 1990s, Americans continued to be concerned about Japanese barriers to a variety of U.S. imports, including agricultural goods and autos and auto parts. Americans also complained that Japan was exporting steel into the United States at below-market prices (a practice known as dumping), and the American government continued to press Japan to deregulate various sectors of its economy, including telecommunications, housing, financial services, medical devices, and pharmaceutical products.

  • Americans also were pursuing specific trade concerns with other countries, including Canada, Mexico, and China. In the 1990s, the U.S. trade deficit with China grew to exceed even the American trade gap with Japan. From the American perspective, China represents an enormous potential export market but one that is particularly difficult to penetrate. In November 1999, the two countries took what American officials believed was a major step toward closer trade relations when they reached a trade agreement that would bring China formally into the WTO. As part of the accord, which was negotiated over 13 years, China agreed to a series of market-opening and reform measures; it pledged, for instance, to let U.S. companies finance car purchases in China, own up to 50 percent of the shares of Chinese telecommunications companies, and sell insurance policies. China also agreed to reduce agricultural tariffs, move to end state export subsidies, and takes steps to prevent piracy of intellectual property such as computer software and movies. The United States subsequently agreed, in 2000, to normalize trade relations with China, ending a politically charged requirement that Congress vote annually on whether to allow favorable trade terms with Beijing.

The American Dollar and the World Economy:

  • Before World War I, the world economy operated on a gold standard, meaning that each nation's currency was convertible into gold at a specified rate. This system resulted in fixed exchange rates -- that is, each nation's currency could be exchanged for each other nation's currency at specified, unchanging rates.

  • Nations attempted to revive the gold standard following World War I, but it collapsed entirely during the Great Depression of the 1930s. Representatives of most of the world's leading nations met at Bretton Woods, New Hampshire, in 1944 to create a new international monetary system. Because the United States at the time accounted for over half of the world's manufacturing capacity and held most of the world's gold, the leaders decided to tie world currencies to the dollar, which, in turn, they agreed should be convertible into gold at $35 per ounce.

  • Under the Bretton Woods system, central banks of countries other than the United States were given the task of maintaining fixed exchange rates between their currencies and the dollar. They did this by intervening in foreign exchange markets. If a country's currency was too high relative to the dollar, its central bank would sell its currency in exchange for dollars, driving down the value of its currency. Conversely, if the value of a country's money was too low, the country would buy its own currency, thereby driving up the price.

  • The Bretton Woods system lasted until 1971. By that time, inflation in the United States and a growing American trade deficit were undermining the value of the dollar. Americans urged Germany and Japan, both of which had favorable payments balances, to appreciate their currencies. But those nations were reluctant to take that step, since raising the value of their currencies would increases prices for their goods and hurt their exports. Finally, the United States abandoned the fixed value of the dollar and allowed it to "float" -- that is, to fluctuate against other currencies. The dollar promptly fell. World leaders sought to revive the Bretton Woods system with the so-called Smithsonian Agreement in 1971, but the effort failed. By 1973, the United States and other nations agreed to allow exchange rates to float.

  • Central banks still intervene to prevent sharp changes. As in 1971, countries with large trade surpluses often sell their own currencies in an effort to prevent them from appreciating (and thereby hurting exports). By the same token, countries with large deficits often buy their own currencies in order to prevent depreciation, which raises domestic prices.

The Global Economy:

  • To help countries with unmanageable balance-of-payments problems, the Bretton Woods conference created the International Monetary Fund (IMF). The IMF extends short-term credit to nations unable to meet their debts through conventional means (generally, by increasing exports, taking out long-term loans, or using reserves). The IMF, to which the United States contributed 25 percent of an initial $8,800 million in capital, often requires chronic debtor nations to undertake economic reforms as a condition for receiving its short-term assistance.

  • Countries generally need IMF assistance because of imbalances in their economies. Traditionally, countries that turned to the IMF had run into trouble because of large government budget deficits and excessive monetary growth -- in short, they were trying to consume more than they could afford based on their income from exports.

  • The Bretton Woods conference that created the IMF also led to establishment of the International Bank for Reconstruction and Development, better known as the World Bank, a multilateral institution designed to promote world trade and economic development by making loans to nations that otherwise might be unable to raise the funds necessary for participation in the world market. The World Bank receives its capital from member countries, which subscribe in proportion to their economic importance.

Farm Policies and World Trade:

  • The growing interdependence of world markets prompted world leaders to attempt a more systematic approach to regulating agricultural trade among nations in the 1980s and 1990s.

  • Almost every agriculture-producing country provides some form of government support for farmers. In the late 1970s and early 1980s, as world agricultural market conditions became increasingly variable, most nations with sizable farm sectors instituted programs or strengthened existing ones to shield their own farmers from what was often regarded as foreign disruption. These policies helped shrink international markets for agricultural commodities, reduce international commodity prices, and increase surpluses of agricultural commodities in exporting countries.

  • By the mid-1980s, governments began working to reduce subsidies and allow freer trade for farm goods. In July 1986, the United States announced a new plan to reform international agricultural trade as part of the Uruguay Round of multilateral trade negotiations. The United States asked more than 90 countries that were members of the world's foremost international trade arrangement, known then as the General Agreement on Tariffs and Trade (GATT), to negotiate the gradual elimination of all farm subsidies and other policies that distort farm prices, production, and trade. The United States especially wanted a commitment for eventual elimination of European farm subsidies and the end to Japanese bans on rice imports.

  • Other countries or groups of countries made varying proposals of their own, mostly agreeing on the idea of moving away from trade-distorting subsidies and toward free markets. But as with previous attempts to get international agreements on trimming farm subsidies, it initially proved extremely difficult to reach any accord. Nevertheless, the heads of the major Western industrialized nations recommitted themselves to achieving the subsidy-reduction and freer-market goals in 1991. The Uruguay Round was finally completed in 1995, with participants pledging to curb their farm and export subsidies and making some other changes designed to move toward freer trade (such as converting import quotas to more easily reducible tariffs). They also revisited the issue in a new round of talks (the World Trade Organization Seattle Ministerial in late 1999). While these talks were designed to eliminate export subsidies entirely, the delegates could not agree on going that far. The European Community, meanwhile, moved to cut export subsidies, and trade tensions ebbed by the late 1990s.

  • Farm trade disputes continued, however. From Americans' point of view, the European Community failed to follow through with its commitment to reduce agricultural subsidies. The United States won favorable decisions from the World Trade Organization, which succeeded GATT in 1995, in several complaints about continuing European subsidies, but the EU refused to accept them. Meanwhile, European countries raised barriers to American foods that were produced with artificial hormones or were genetically altered -- a serious challenge to the American farm sector.

  • In early 1999, U.S. Vice President Al Gore called again for deep cuts in agricultural subsidies and tariffs worldwide. Japan and European nations were likely to resist these proposals, as they had during the Uruguay Round. Meanwhile, efforts to move toward freer world agricultural trade faced an additional obstacle because exports slumped in the late 1990s.

Foreign Policy:

  • The fundamental purpose of America's foreign policy has not changed in more than two centuries. It is to protect our citizens, our territory, our livelihood, and our friends. 

  • But the making of American foreign policy has changed because the world has changed. With the Cold War behind us and the global economy encompassing us, there is no clear dividing line between domestic and international affairs. And on many issues, the question of where one agency's responsibility ends and another's begins is increasingly blurred. 

  • For example, countering terrorism is both a domestic and international law enforcement imperative, requiring vigorous diplomacy, good intelligence, preparations for emergency response, and the possibility of military action. Fighting HIV/AIDS is a medical challenge, an educational and developmental priority, and a foreign policy necessity. Protecting the global environment demands sound science, sophisticated economic expertise, and hard international bargaining. 

  • On most issues, our diplomats must understand and work well not only with foreign counterparts, but also legislators, nongovernmental organizations, outside experts, and representatives from the private sector, both business and labor. The old geopolitical chessboard is no longer two-dimensional. 

Click Here to Return to Top of Page