America's Two-Front Economic Conflict

C. Fred Bergsten

From Foreign Affairs, March/April 2001

Article preview: first 500 of 4,145 words total.

Summary:  America now faces the prospect of economic conflicts with both Europe and East Asia. The United States and the European Union have already fired the first shots of retaliatory sanctions over their ever-growing trade disputes. On the other side of the world, meanwhile, Asian countries are creating a bloc of their own that could include preferential trade arrangements and an Asian Monetary Fund. These developments could produce a tripolar world and hamper global economic integration. To avert this outcome, the United States must quell its domestic backlash against globalization and reassert its economic leadership in the world. The new Bush administration should make multilateral trade liberalization a top priority -- or it will face unpleasant economic and political consequences as the U.S. and foreign economies slow.

C. Fred Bergsten is Director of the Institute for International Economics and former Assistant Secretary of the Treasury (1977-81) and Assistant for International Economic Affairs to the National Security Council (1969-71). (c) 2001 by the Institute for International Economics.

DOUBLE TROUBLE

Since the end of the Cold War, the perceived threats to U.S. security have been mainly from "rogue states" such as Iraq and North Korea -- none of which are superpowers or likely allies of each other in confronting the United States. But the United States now faces the real possibility of economic conflict with both Europe and East Asia -- the commercial and financial equivalent of two-front combat. In this domain, both potential rivals are superpowers. Moreover, they have already demonstrated their ability to coalesce against the United States, as they did to help torpedo the Seattle ministerial meeting of the World Trade Organization (WTO) in December 1999.

Peaceful and effective resolution of these potential conflicts is one of the most important and difficult issues facing the new U.S. administration and the world. The American and global economies are slowing sharply, and their futures may be heavily affected by the outcomes. In a post-Cold War world in which economic issues are central to international relations, those outcomes will also be crucial for U.S. foreign policy and global stability. Compounding the complexity of the situation is the fact European and East Asian nations are not only the United States' economic competitors but also its economic partners -- and many of them are close security allies as well.

CONTINENTAL DIVIDE

The United States and the European Union (EU) are on the brink of a major trade and economic conflict. Washington has already retaliated against European import restrictions on American beef and bananas -- each retaliation accounting for a hundred million dollars or so of annual trade -- and has rejected all European efforts to resolve these disputes. Europe in turn threatens to retaliate against several billion dollars of U.S. export subsidies, as well as new U.S. trade laws that would channel the proceeds of antidumping penalties from the Treasury Department to the complaining industries and would force the president to continually change the products being retaliated against, thus intensifying the impact of U.S. punitive sanctions.

Still larger trade clashes loom. The troubled U.S. steel industry will likely file additional antidumping cases against European firms or even an industry-wide safeguard action that would restrict all European imports. In addition, a major dispute over commercial aircraft is brewing as the two sides quarrel over whether direct European governmental subsidies for Airbus or indirect Pentagon subsidies for Boeing are more egregious. Europe's outcry over U.S. sanctions against European firms that deal with American adversaries such as Cuba and Iran has only been swept under the rug. And just over the horizon lies the biggest battle of all: the debates over farm subsidies, genetically modified products, and overall agricultural trade that will explode in 2003, when the U.S.-EU "peace clause" (a moratorium on new complaints in the agricultural sector) expires.

The United States and Europe also differ on global trade issues for which they share leadership responsibility. They remain divided, for example, on whether to include competition policy and investment issues in ...

End of preview: first 500 of 4,145 words total.