After the Midterms, What Next for International Economic Policy?
SOURCE: AP/Ng Han Guan
Pundits and politicians across the ideological spectrum predict gridlock in Washington on most domestic issues in the wake of the U.S. midterm elections. But there is a glimmer of hope that the Obama administration will be able to give international economic issues due attention now and perhaps even find common ground on these issues with newly empowered conservatives in Congress. If it happens, such bipartisanship would be good for domestic economic growth.
The recent global financial crisis, America’s still declining share of worldwide manufacturing output, and the steady but slow pace of economic recovery in the United States now challenge our preeminence on the global economic stage. To restore our lost economic luster our economic policy must become more international in its focus. The United States became a major manufacturing exporter after World War I by supporting Britain and France during that bloody conflict. Then, in the aftermath of World War II, the United States led the charge to coordinate global economic recovery after widespread devastation, which fueled our own economy while adding to its heft on the global stage.
Now, we must once again think beyond our own borders. To do this the Obama administration and Congress must focus on three priorities.
First, policymakers and the public must recognize that in a globalized world the dichotomy between the domestic and international economies is not straightforward. The United States must craft a competitiveness strategy that takes other countries into account. Second, the United States must address its complicated and co-dependent relationship with China. And third, America must bolster exports to create more jobs here at home while simultaneously cultivating new markets and consumers for our products and services. Let’s examine each of these priorities in turn.
Crafting a new competitiveness strategy
The belief that focusing on international economic issues is good for the United States and for American workers must become an inherent part of our economic policymaking. Why? Because in a globalized world, the dichotomy between domestic and international economics is somewhat false.
The waves emanating from America’s recent financial crisis travelled across Europe to Africa and Asia just as the currency misalignments and consumption decisions in China affect other Asian countries, Europe, and the United States. When an American worker gets a good deal on a pair of shoes made in Brazil, a Brazilian worker gets employed. And when a Chinese company buys a hydraulic excavator made by Caterpillar in America, an American assembly line worker finds a job. In an era where value chains are global, goods, services, capital, and people flow across borders and technology makes it easier to accomplish all of this.
That’s why a focus on domestic policy alone—often at the exclusion of sufficient attention to the international economic landscape—is misguided and in part why the American economy is starting to lag. We need to figure out how America fits in with the rest of the world, not wait for the world to fit in with us—because the rest of the world isn’t trying to anymore.
We are the biggest economy in the world. But for being the biggest economy in the world we do not have a unified vision for how to adapt and enhance the competitiveness of our economic sectors, workforce, products, and services relative to other, especially new and emerging players, on the global stage. Competitiveness is about making U.S.-based economic activity competitive. This means creating an environment where U.S. workers, factories, and cities can hold their own in the global marketplace.
There has been a lot of talk about balancing our budget and decreasing spending, but decreasing spending on training and educating our workforce, or infrastructure and innovation while other nations are charging ahead will have serious negative consequences for our competitiveness.
Addressing the China challenge
As the United States crafts a competitiveness strategy, it is critical we ensure that actions by other countries comply with international norms and regulations so we are competing on a level playing field. China’s misaligned currency, the renminbi, excessive subsidies, capital controls, and government control over bank lending are in violation of fair international competition and are all elements that introduce distortions into the global financial and trading systems. We need to address these imbalances.
But doing so is a delicate dance in which we need to work with other international allies that are also affected. The United States and China share a complicated and deeply intertwined bilateral relationship. America is China’s top trading partner and its top destination for exports. Beijing is the biggest purchaser of U.S. government debt, with net holdings worth about $799 billion. The Chinese have accumulated vast reserves of foreign assets, valued at approximately $2.27 trillion, 65 percent of which is in U.S. dollar-denominated assets. This co-dependency mandates that we handle the relationship with China keeping the multifaceted nature of our co-dependencies in mind.
We also need to work with China to address a whole host of challenges including nuclear nonproliferation, climate change, and terrorism. Working within a multilateral system, through the Group of 20 developed and developing countries forum and the International Monetary Fund, for example, takes some of the pressure off of the United States to go it alone.
Improving competitiveness at home and growing markets abroad
At the same time, we must deepen our relationships including our trade ties with a wider range of countries to counterbalance our trade relationship with China. Deepening our trade relationships with a broader group of countries and strategic regions will help bolster our exports to create more jobs here in the United States. Our exports, however, will only increase when there are consumers in other countries with the capacity to buy our products and services. Washington can help support government institutions in developing and emerging countries to raise living standards, expand the global middle class, and cultivate aggregate demand.
Enhancing competitiveness, addressing China, and global trade done right can restore America’s strength and influence on the global stage. All of these steps benefit America’s entrepreneurial strengths and create more jobs for American workers. This is an agenda that Republicans and Democrats, progressives and conservatives can and should get behind.
President Obama heads to India this week and then to the Group of 20 leaders’ summit meeting in Seoul. The president and his administration understand the importance of engaging with the world beyond our borders. Will Congress show the same astuteness? The world will be watching America; now America needs to watch the world more closely, too.
Sabina Dewan is Associate Director of International Economic Policy at the Center for American Progress.
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