Bush Team Scrambles in a New World of Trade Blocs and Barriers

Secretary of State James A. Baker III made it official in New York recently: “The postwar era is over. In Asia, as in Europe, a new order is taking shape.” These portentous words, uttered on the eve of Baker’s Asian tour, marked the completion of the Bush Administration’s strategic review of U.S. foreign policy. The Bush Administration has acknowledged that critics like Paul Kennedy were right: The relative decline of U.S. power continued unchecked during the Reagan years.

The postwar era was one of U.S. hegemony. Europe and Japan were putty in our hands; the Third World begged for handouts. The Pacific was an American lake, so was the Atlantic and the Mediterranean. That was what Ronald Reagan labored to restore: U.S. hegemony, he seemed to argue, was like Tinker Bell--it would live if we would only clap our hands and believe.

Now the applause is over and the Bush team is feeling its way to a new U.S. policy in a new international climate. So far, Administration policy owes less to Reagan than to Jimmy Carter and Gerald R. Ford--trilateralism and human rights are watchwords of the new U.S. diplomacy.

But if some themes are old, the most important problems the Administration faces are new. The erosion of the Soviet Empire--we are not the only superpower in a period of relative decline--is one. Less noticed, but even more important, is the tendency for the world to split into competing economic blocs.

Among market economies, the postwar world was first and foremost one world. Americans never liked Europe’s colonial empires and competing trade blocs and, when World War II gave us the chance, we demolished them. Franklin D. Roosevelt and Henry Morgenthau Jr., his Treasury secretary, succeeded where Hitler and Napoleon failed: They broke the British empire’s economic power.

Before World War II, the world was divided into blocs. The pound, franc, mark, yen and dollar each ran supreme in its sphere. Trade between blocs was difficult; tariffs were high, and jealous imperial governments gave special privileges to their own nationals. Ultimately the economic rivalries led to war. Japan blamed the “ABCD”--American, British, Chinese and Dutch--powers for strangling its economy, and Germany charged the West with conspiring to deny its “place in the sun.”

The United States, too, disliked the blocs; many government and business leaders blamed the old system for both world wars and the Depression. The achievement of Bretton Woods, and the cornerstone of the postwar era from the U.S. point of view, was the creation of a genuinely international system of trade. But now, with the end of U.S. supremacy, there are signs that the old bloc system is reviving. In Europe, the rushed integration by the Common Market countries may result in the birth of an ECU (European currency union) bloc; in East Asia there are signs of a yen bloc; in North America, the U.S.-Canada Free Trade Agreement is regarded as the foundation of a new dollar bloc.

What to do about these blocs is emerging as a critical question for the Bush Administration. Does the return of economic blocs mean a return to the trade rivalries and barriers of the ‘30s, or will these blocs serve as cornerstones for a new and open world economic order?

The coming years will see this question raised in many forms. The Uruguay Round of the General Agreement of Tariffs and Trade negotiations is one; so are the intense bilateral trade discussions between the United States and Japan on the one hand, and the United States and the Common Market on the other.

Signs suggest the Administration is hovering between two alternatives in international economic policy. It would, if it could, preserve the open global system Americans created in the ‘40s. This would mean a policy that sought to limit the development of blocs, and to keep barriers between them as low as possible. The alternative view is that the blocs are here to stay, and that U.S. interests would be served by integrating the dollar and yen blocs in trans-Pacific strategy.

Baker’s Asian agenda incorporated elements of both strategies. In Tokyo, Baker the globalist upheld the emerging partnership between the United States and Japan, while signing an accord that included European, as well as Japanese and U.S. assistance for the Philippines.

In Brunei, attending a meeting of the Assn. of Southeast Asian Nations, Baker shifted to a regional mode. He called for new regional institutions where the United States and Japan would play a part.

The idea of a U.S.-Pacific pact has a long American ancestry with advocates today in both parties. Turning our backs on decadent Europe, and our faces toward the rising Pacific sun, is an old but dangerous American dream. The truth is that the United States does not need to choose between Europe and Asia--it needs partnerships in East and West.

Geographically, economically and demographically, the United States occupies a position between Europe and Asia. The intermediary position is one of the abiding sources of U.S. national strength--Japan looks mostly to the Pacific, Europe to the Atlantic. The United States alone has a global outlook and interests.

America’s Pacific policy cannot do without Europe; its Atlantic policy needs Japan. The peaceful evolution of East Asia depends on the continued openness of world markets to its products--but the United States alone cannot absorb the volumes of exports from the Pacific Rim. It will not help U.S. trade problems to lock America in a room with the four tigers and Japan. The United States needs to keep Europe’s markets open to Asian goods.

On the Atlantic side, the United States needs Japan’s involvement--along with Europe’s--to solve the debt problems of such West-facing nations as Argentina and Brazil. Global cooperation, not competing blocs, is the key to U.S. policy.

The Bush Administration has a difficult and intricate job ahead, to exercise U.S. leadership without relying on U.S. supremacy. In these conditions, it is more important than ever that we have a clear and steady vision of U.S. national interests. The postwar era may be over but these interests have not changed. The United States still needs an open global trading system and a trans-Pacific bloc is not a substitute for global free trade.