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WESTERN CULTURE AND SOCIETY: THE UNITED STATES OF
AMERICA (USA) -
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
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.
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.
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
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
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.
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
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
Current U.S. Trade
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
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.
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
interdependence of world markets prompted world leaders to attempt a
more systematic approach to regulating agricultural trade among nations
in the 1980s and 1990s.
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.
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.
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