Bush’s Confrontational Foreign Policy Invades the World Economic Arena

George W. Bush is about to bring his doctrine of preemption to the global economy. Watch out.

Having concluded that his go-it-alone, brook-no-opposition strategy has had its desired effect (for now) on the diplomatic and military fronts, the president has signaled his intent to take the same tack on international economic issues.

In recent weeks, Bush and his top aides have helped send the dollar into a swan dive against other major currencies, making U.S. exports cheaper at the expense of the French, Germans and Japanese, among others.

The Bush team has turned a long-simmering dispute over European Union reluctance to buy U.S. genetically modified crops into a full-blown complaint to the World Trade Organization.

And the administration has escalated the arcane crops issue by turning it into a moral crusade in which the U.S. is painted as trying to combat world hunger while, in Bush’s words, “our partners in Europe are impeding this effort.”

All this in the run-up to an economic summit in Evian, France, next week that many hoped would keep the bad blood between the U.S. and most of its traditional allies over Iraq from spilling into the economic realm.

“This administration played hardball on terror and rogue nations, and it looks like it’s going to play hardball on trade and economics,” said Allen Sinai, chief global economist with Decision Economics in New York.

That’s not altogether surprising; countries pursue their economic interests when and where they can. And just as there were good reasons for the president’s outrage over Iraqi leader Saddam Hussein, so there are strong arguments for some of Bush’s tough positions on key international economic issues.

On the dollar, for instance, most economists have concluded that what had been the chief danger to the U.S. of letting the buck slide -- that it will feed inflation by raising import prices -- no longer applies. Indeed, as deflation threatens, a little inflation might be a good thing.

On genetically modified crops, Europe’s preeminent scientific societies have concluded there is little evidence to support their own countries’ rejection of the American crops as unsafe.

Besides, preemption has worked well for Bush to date. So why stop now?

The answer, say analysts from across the political spectrum, is that economics is very different from war. Global commerce and economic integration aren’t foregone conclusions but the product of trust and trade agreements. Going it alone could turn out very badly for America.

“Nobody can hold a candle to the U.S. militarily so we can act unilaterally,” said Jay Bryson, global economist for Wachovia Corp. in Charlotte, N.C. “But the power gap between the U.S. and Europe, or for that matter Japan, is much narrower when it comes to economics.”

The most immediate danger from the administration’s playing economic hardball is that it will rattle global financial markets -- the very markets on which the U.S. depends for something like $1.5 billion a day to finance its huge trade deficit and ballooning budget deficit.

On a good day, global financial market players “don’t like to see the big countries in conflict with each other,” said C. Fred Bergsten, who held senior positions in the Nixon and Carter administrations and is director of the Institute for International Economics, a Washington think tank. And they like it even less when a declining dollar threatens to scramble the financial rules.

After all, though the dollar decline makes U.S. exports cheaper, it also shrinks the euro value of a European investor’s U.S. Treasury bond and the yen value of a Japanese auto maker’s American profit.

“Capital inflows are our Achilles’ heel,” Bryson said. The U.S. needs them, but deteriorating relations among major economies and a declining dollar could staunch their flow.

The next danger of the administration’s approach involves the “cats and dogs” of international trade -- nettlesome conflicts that must be resolved for the smooth running of the global economy but are so complicated they probably can be settled only by the quiet bargaining of trade experts. Examples include Asian objections to American steel tariffs and a matched set of complaints by the European Union and the U.S. over whose corporate regulations apply to which countries’ firms under what circumstances.

Even some of the administration’s warmest supporters warn that its hardball tactics are unlikely to work on these kinds of disputes.

“This administration’s style is the push and the pushback, and none of us can say this hasn’t gotten results,” said William C. Niskanen, a veteran Washington economist and chairman of the conservative Cato Institute. But in trade relations, Niskanen added, “I’m not sure it’s going to get Bush what he wants.

“Ultimately, I don’t think we can bully the Europeans or the Japanese.”

In trying to do so, the administration may run the biggest risk of all: unraveling the open global economy that has served the U.S. so well for more than half a century.

As a candidate and during the eight months of his presidency before the Sept. 11 attacks, Bush extolled the virtues of free trade. And his trade team has worked hard to expand commerce in areas such as farm products and services, which most countries wall off from foreign competition with tariffs, subsidies and dizzyingly complex regulations.

But the president has shown himself more than ready to put aside his free trade scruples either for political convenience (as many believe he did in imposing tariffs on imported steel) or to pursue the war on terror.

In addition to its recent hardball tactics on the dollar and the disputed farm products, the administration has pushed trade deals with nations that backed the U.S. war against Iraq and delayed those with nations that did not. In doing so, it appeared oblivious to the fact it is nudging the world away from an open economy and toward a very different one of trading blocs and, potentially, trade wars.

Niskanen, among others, wonders whether Bush’s economic aides are telling the president about the danger of his current path or, for that matter, providing much advice about any aspect of the economy. “I don’t see a lot of economic leadership,” he said.

But there’s almost certainly a deeper reason for the tack the president has taken. The U.S. is faced with how to advance international trade without a Cold War imperative to link the free world economically. In essence, the president’s international economic choices have become more difficult as his military and diplomatic maneuvering room has grown.

Analysts say that a good first step toward maintaining an open global economy would be to use the upcoming summit to ensure that the clashes between the U.S. and its traditional allies on terror and Iraq remain confined to the diplomatic and military arenas.

But to date, the president appears intent on heading in the opposite direction.