from Global Economy in Crisis

A Warning That Stimulus Plan Could Undermine U.S. Foreign Policy

Award-winning historian Walter Russell Mead says, "The key political question of the twenty-first century is, ’How does the U.S.-China relationship develop?’"

February 2, 2009 12:17 pm (EST)

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

Walter Russell Mead, an award-winning historian, says the backlash against free-market capitalism being embraced in the United States and elsewhere right now endangers America’s standing in the world. He says these protectionist fears are most significant in relation to China: "The key political question of the twenty-first century is, ’How does the U.S.-China relationship develop?’" Relations with China have steadily improved, Mead says, but if China thinks the United States is shutting its doors to Chinese exports, the potential for bitterness and rivalry could dog this planet for decades to come.

In the Great Depression, most countries looked inward to solve their economic ailments, and at the same time, there was very little worldwide cooperation to stem the growth of fascism and Nazism. What’s the outlook today? There’s clearly much greater worldwide cooperation in economic affairs than there ever was before, but countries, including the United States, are beginning to look inward and are inclining toward protectionism. In the United States, can the Obama administration handle its rather far-reaching foreign policy goals and also deal with the economic problems at home?

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Economic cooperation didn’t collapse in 1929. In fact, from 1929 through most of the first four years of the Depression, there were a lot of efforts which ended up not being successful. There were strong efforts to try to put together some kind of a united front on economic issues. Unfortunately, in some ways, protectionism on trade undermined everything else. And when Franklin Roosevelt came in [in 1933], he torpedoed the London Economic Conference, which was portrayed as the last grand effort to get some kind of currency agreement, because he wanted the freedom to try to raise U.S. prices without regard for other countries. So, what happened really was that economic cooperation was the first thing that people looked to as the Depression began to break out, because it was obviously an international crisis in many respects. But the long, grinding pressure of the downturn drove countries more and more inward. So, if you wanted to be a pessimist, what you would say is, at this stage we’re all still talking very brightly about the need for cooperation and so on, but if things continue to worsen, you might well see, as you did before, an erosion of the cooperation, which would then deepen the depression and which would then lead to further erosion in international relations and cooperation. That for me is the nightmare scenario.

When they campaigned in the primaries, Democrats were often skeptical about free trade, and apparently the House bill that passed on the stimulus plan includes provisions such as  "buy American steel." How damaging is this?

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We’re going to have to see what emerges from the Senate. This is one of those times where I’m grateful that we have a bicameral legislature, because there has been a real public outcry over the protectionism of the House bill, and let’s hope that there are enough senators who can deal with some of these things. Now, to some degree this will cause a big problem, because we’ve signed treaties like the WTO [World Trade Organization] agreement, which actually allows countries to retaliate against us. Provisions like "Buy American" in these infrastructure projects --we’d have to look at the technicalities--are likely to systematically violate agreements that the United States has signed. The consequences of giving other countries the right to discriminate against American goods, or charge higher tarrifs on American imports, would amount to shooting ourselves in the foot.

Obama’s first trip overseas may very well be the next G-20 meeting in London on April 2, to be followed by a NATO summit on April 3 and 4 honoring the sixty years of its existence.  He’s going to want to talk about cooperation in both forums.

One of the problems I’ve noticed about the way Americans approach foreign policy is that to a certain extent we’re all unilateralist under the skin. I’m a member of the Episcopal church, where we’ve been having a lot of battles. A lot of my Episcopal friends here in the United States were always attacking the Bush administration, often rightly so, for being unilateral and arrogant. But then in the fight over the ordination of a gay bishop, you would say to them "Well, you know the African bishops don’t like this and it’s causing a huge international problem in the church." They’d say, "Yes, but it’s the right thing to do. It’d be wrong for us to not do the right thing just because there isn’t an international consensus for it." And that’s a very American attitude, that we have to follow our sense of what’s right. There’s a Democratic unilateralism as there is a Republican unilateralism, and some of it is exactly this suspicion of free trade, and a willingness to sacrifice free trade on the altar of domestic recovery or domestic equity. And there’s something to be said for it. I’m not saying that it’s an inherently immoral approach. But how do you reconcile the commitments that we’ve made to other countries and the need for hundreds of millions and billions of people around the world to raise their living standard by selling goods in our market with our own concerns about our own workers and so on. This is a very difficult problem for any society to face, and America’s instincts in times of crisis tend not to be very multilateral.

To be fair, individual countries in the European Union, like France, take very protectionist approaches, particularly on agricultural products.

You’re right. We need to look at how this is going to affect China’s view of the world and China’s view of us. Because in many ways, the key political question of the twenty-first century is, "How does the U.S.-China relationship develop?" And basically, anti-Americanism in China has been declining, and China’s approach to America has been becoming much deeper and much more integrated with the kinds of goals that we have for the world. But that is all based on the idea that the open trading system is going to allow China the opportunity to achieve affluence and greatness through cooperation. If at this time of crisis we slam the door in China’s face, or China thinks that that’s what we’re doing and the Europeans are doing, that is a foreign policy blunder far more dangerous than anything George W. Bush did. Alienating Asia and China and setting up the potential for bitterness and rivalry could dog this planet for decades to come. That is probably the most dangerous thing we could do.

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Is it necessary, do you think, for the president to preach free trade and the advantages of it from his pulpit?

The president is going to have to talk about the global economy, and how we’re in this together, and we cannot as the United States be an island of prosperity in a global sea of poverty. That will not work in the twenty-first century. Our fates are linked. That does not mean that the average American family needs to be sacrificed in order to create prosperity overseas, but it does mean that the United States has a duty to keep the promises that we’ve made about open trade and to work with other countries to keep the doors of opportunity open for the global poor.

And I guess the president should try to influence the same attitudes in Europe.

Yes. In Europe the protectionist instincts can be stronger than they are in the United States. On agriculture they’re very strong, but manufacturing is actually where America’s been more open than Europe. And it will be a difficult thing, but American leadership here is really important. It’s clear that in the long term, Asia has to move away from an export-oriented growth strategy, because the problem for a country like China is that you can’t grow three times faster than your market forever. That is to say, China would like to  grow at 10 percent for the next thirty years while America is growing at 3 percent. It’s a nice concept, but if China ultimately depends to a very large degree on American consumption of Chinese exports, that will not hold. So for China to continue to grow, its development strategy has to change. And again, America needs to be helping China figure that out and working with China on that adjustment. We need a middle course. And that’s what President Obama and his administration are going to have to chart.

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And that doesn’t leave them much time to deal with those crises like the Middle East, which of course are crying out to be dealt with in some way.

One thing about being president is that your inbox is full every day. Yes, the United States faces a number of crises. We’re very, very fortunate, maybe more fortunate than we deserve, that in Iraq things seem to be continuing to get better. And in Afghanistan, the early signs that the administration is looking for a way to improve the security situation short term while coming up with an intelligent political agenda for moving toward an end to the war is very encouraging and is good. You know, there are other hot spots that could become much hotter. If the financial crisis should disrupt Ukraine more than it already has, given the sort of state of Russian relations with Ukraine and some of the rivalries there, you could see a crisis very suddenly erupt. In some ways, it may be that the economic crisis is going to help us with Iran because President Mahmoud Ahmadinejad has a lot less money to throw around than he used to, and the fallout from the drop in the price of oil may encourage the Iranians to move toward some kind of a reasonable accommodation and arrangement with the West.

And the Russians seem to have softened a bit too.

The Russians have a way of giving out mixed signals, but the Russians are aware that they may have misjudged the high price of petroleum for a recovery of the Russian economy. Russia probably now does not have the financial resources to adopt the kind of military strategy that the leadership was hoping to do. So yes, Russia is open to looking again at its relations with the United States.

And coming back to the Arab-Israeli confrontation, most people I’ve talked to are rather gloomy about the prognosis.

This problem has been going on for a very long time, and it would take a bigger optimist than I am to think  that we are just a few short months and a couple of smart ideas away from settling this problem. To me the root problem, in some ways, is that on the one side, for a lot of the Palestinians, the two-state solution just isn’t a viable solution. It will leave them poor, it will leave them refugees, especially in Gaza. Being told that now it’s going to be under your own flag as part of a state is not nearly as exciting as we would like it to be. So we have to come up with a strategy, a political and economic agenda, that makes more Palestinians feel genuinely enthusiastic about what a compromise two-state solution would look like. And unless we can do that, we’re just going to continue to find ourselves trapped in this cycle of hostility.

What should the Israelis do?

The Israelis and the Palestinians are in a situation where neither one can be happy unless the other is happy long term. So they both have to make sacrifices to enable that to happen. But from the Israeli point of view, they say, "We withdrew from Gaza, and what happened, rockets come over the border." Now they’re saying, "We make peace with the Palestinians, and now rockets start coming over from the Palestinian state? What are we supposed to do?" And again, from the Israeli point of view, a peace that doesn’t satisy Palestinian aspirations can’t really be trusted. And what are those aspirations and how can we satisfy them within the framework of a two-state agreement based on UN Resolution 242? That is the nut of the problem, and we have to spend more intellectual energy and programmatic creativity to begin to figure out what that might look like.


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