Diplomacy : Competing Trade Blocs Need an Economic NATO

Warren Christopher has made it official. The United States is interested in a new kind of relationship with the Soviet Union. With the secretary of state’s announcement that the United States wants to consider various proposals for free trade and other economic cooperation that have been floating on both sides of the Atlantic, the new world order came a step closer to completion. It isn’t quite what President George Bush had in mind.

The world order President Bush tried to establish was a legal and political order shaped by U.S. interests and values and depend on U.S. military might. It didn’t pan out. The new world order now emerging is based on the existence of three economic blocs: a U.S.-led group in the Western hemisphere, a European grouping based around the Franco-German alliance, and an Asian group that Japan and China both want to lead. Outside of these groups lie three large and potentially powerful states or groups of states: Russia, India and the Islamic world.

“TAFTA,” a new and weird acronym that stands for Trans-Atlantic Free Trade Area, is the code word for a new relationship between Europe and the United States that would make sense in this new world of regional blocs.

The new world order is far different from the old one of the Cold War era. Then, the world was divided between the American and Soviet blocs, and the primary issues in world politics were military. Now, the Soviet bloc has disappeared, the U.S. bloc has split into three and the competition between blocs is primarily about economics.

That economic competition is also a competition between ways of life. Each of the three blocs has a different social and economic organization. The United States is the most individualistic, least social of the three regions. Individuals in the United States are more free to start a new business, and businesses are more free to compete without government interference, than in Europe or the Pacific Rim.

Western Europe is the most “social” of the three blocs. The welfare states of Western Europe offer more protection to individuals than the U.S. system, and the government plays a larger role in managing the economy and relations between management and labor than Americans would accept.

The Asian bloc is organized in a third way. While both Europe and the United States are economies geared toward mass consumption by affluent populations, the Asian bloc is oriented toward production and savings. Asian governments can be as interventionist as European governments, but they tend to intervene on the side of business against both labor and consumers.

Potentially, this world of blocs could be a better world than the one we have known. Economic competition can become quite intense, but it doesn’t have to lead to war. As long as the United States, Europe and East Asia can agree on rules for economic competition, and as long as the world economy is dynamic enough to provide decent jobs and reasonable living standards for increasing numbers of people around the world, then the new world could be more peaceful than the old. But if the United States, Europe and Asia fail to agree on rules for their competition, or if the world economy stagnates with rising unemployment and misery around the world, then we will quickly see a return to military competition among the great powers.

This is where TAFTA comes in. The United States and Europe are both increasingly haunted by competition from Asia. Whatever their other differences, both the United States and Europe are relatively high-wage, high-regulation and high-consumption economies. Asian economies are organized differently. To generalize broadly, their lower wages, lower tax burdens, subsidies for industries and closed domestic markets give them enormous competitive advantages against U.S. and European producers. The result is that both Europe and the United States suffer worrisome trade deficits in their Asia trade, and these deficits are expected to grow as Asia develops.

The discussions about TAFTA are basically discussions about how to cope with this problem. There are some in both Europe and America who want to use TAFTA as a means of closing the door to Asian competition. Free trade between Europe and North America would mean the erection of joint tariff walls against Asian goods.

This would be a mistake. There are billions of people in Asia who long to join the modern economy--to have decent jobs at decent wages so that they and their children can have access to education, housing and medical care. To develop a closed, whites-only economic bloc that kept Asians poor would be immoral. It would also be unwise--and it would almost certainly lead to an era of military confrontation between Asia and the West. Moreover, as Californians and other Westerners well know, U.S.-Asia trade is profitable for both sides. There is no way an expanded U.S.-European trade relationship, however successful, could ever replace the Pacific trade in the U.S. economy.

The sensible proponents of TAFTA understand this, and want to use a closer U.S.-European trade relationship to reform Asia, not to shut it out. The idea is that combined U.S.-European pressure could force the necessary reforms on Asian economies so the world economy could continue to open up and to grow.

The place to start is with combined U.S.-European pressure on Japan. Japan is rich enough to increase its consumption without financial strain; its stagnant economy badly needs the stimulus of increased domestic consumption and important elements in the Japanese business and political communities already favor this kind of policy shift. Furthermore, Japan remains so politically isolated and unpopular in Asia that other Asian governments are unlikely to resent Western pressure on the island nation.

Right now, Europe and the United States both want the same things from Japan, but they disagree on how to get them. The United States wants to impose unilateral trade sanctions; the Europeans want to use the dispute-settlement mechanisms of the World Trade Organization. The result: European support for the Japanese position against the Americans, even though the Europeans resent Japanese trade practices as much as Washington does.

TAFTA proponents see the negotiations for a TransAtlantic Free Trade Area as a method of working out these and similar disagreements so Europe and the United States can speak with one voice on trade. The just-finished Uruguay Round of trade talks left many matters unsettled. In agriculture, aerospace, entertainment and other key industries, Europe and the United States still have different approaches. Trade in services, and the right of Europeans and North Americans to live and work freely in each other’s countries are also more restricted than they need to be. As trade negotiators work through these and similar issues, they would also, in effect, be working out a joint U.S.-European economic policy toward the Asian bloc--and toward Russia, the Islamic world and India.

As long as TAFTA is about opening markets--both within and outside the TAFTA zone of Western Europe and North America--it is a constructive idea. The danger is that it will become a “white people’s union” of rich, white countries against poor, yellow, black and brown ones. At best, TAFTA will work like an economic NATO: an alliance of a small group of countries that helps keep the peace for the whole world.

Interestingly, on both sides of the Atlantic, support for this proposal comes from liberal and conservative figures alike. In the United States, former Secretary of State Henry A.Kissinger and AFL-CIO President Lane Kirkland have both endorsed this approach; in Europe, support ranges from German and French conservatives to British socialists.

The negotiations to create a trade-North Atlantic Treaty Organization will be complicated and difficult. There are contentious issues on both sides of the ocean. But progress toward a combined US-European world economic strategy--one that offers Asia a place at the table--is the single most important item on the international agenda today. In the meantime, the closer that Europeans and Americans can coordinate their approach to world trade, the better off everyone will be.