How a Sluggish Economy Hurts US Foreign Policy

June 5, 2014 3:24 am Last Updated: June 5, 2014 7:27 am

In a major address at West Point last week, President Obama once again sought to articulate a foreign policy that places greater emphasis on diplomacy, economic leverage, and recourse to international law.

Facing crises, “U.S. military action cannot be the only or even primary component of our leadership,” Obama said.

That assumes the United States has a strong economy that can deliver opportunities to nations that cooperate and withhold benefits from those that don’t.

Too often, however, the Democratic or Republican president has sacrificed U.S. economic interests in international trade and investment deals that have neither adequately supported U.S. businesses and workers nor effectively supported U.S. foreign policy objectives.

For example, the United States and its allies in the European Union opened their markets and access to technology to China in 2001 and Russia in 2012 by approving entry of those two countries into the World Trade Organization. The deals were part of broader strategies to integrate former Cold War adversaries in a system of global commerce and shared prosperity that has made war unthinkable among former foes in Europe, Japan, and the South Pacific. Sadly, some of the actors did not get the script.

China is using money it earns trading with the West to rapidly modernize its navy and bully Japan, the Philippines, Vietnam, and others in Asia to cede sovereignty over disputed territory in the East and South China Seas.

Russia has taken the dividends from selling natural gas, nonferrous metals, and machinery to Europe to modernize its army, steal Crimea from Ukraine, and bully other former Soviet states to think twice about closer ties with the EU and North Atlantic Treaty Organization.

Similarly, Russia is using its natural gas sales to Europe and stated-controlled Gazprom’s control of critical choke points in the eastern EU’s pipeline infrastructure to blackmail Ukraine and warn others in Europe of very cold winters if they don’t let it keep what it has stolen in the Crimea.

Opening U.S. markets to Chinese products and other trade deals has proven no bonanza for the U.S. economy. For example, thanks to Beijing’s high tariffs and administrative barriers to imports; currency manipulation and other subsidies to its exports; and piracy of intellectual property, the U.S. economy is burdened with a $275 billion bilateral trade deficit that is killing about 4 million jobs.

Of course, the United States has failed to play to its strengths by failing to develop its own abundant offshore oil. The resulting $230 billion petroleum trade deficit is killing at least another 3 million jobs.

Consequently, the U.S. economy has grown a paltry 1.7 percent annually since 2000—half the pace accomplished during the prior two decades. Obama, short on revenue but eager to finance national health care, food stamps, and other entitlements, has sacrificed vital investments in troop strength and equipment modernization.

Now, U.S. foreign policy has a double deficit—resources and courage. In Europe, the United States lacks assets on the ground to effectively challenge Russia’s incursions into Ukraine. And German Chancellor Angela Merkel can’t rally domestic support for stronger economic sanctions against Moscow, because German multinationals are fearful of losing too much business.

In the Pacific, the president is refusing to commit American naval resources to confront Chinese ships that run off Philippine fishermen and harass Japanese vessels, and generally violate international law guaranteeing freedom of navigation.

Moscow wants back several parts of its lost empire and to challenge U.S. objectives in places such as Syria and Iran. Beijing is seeking dominance in the western Pacific and to assert its authoritarian political system as a viable alternative to American-style democracy.

Unless American diplomacy is backed up by a credible U.S. military commitment and an economy that can support it, Moscow and Beijing will succeed, to the peril of U.S. interests and our allies in Europe and the Pacific.

In the end, U.S. presidents can’t continue to pursue foolish international trade and energy policies and sacrifice military spending to increase entitlements popular with voters, without living in a much more dangerous world.

Peter Morici, professor at the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Previously he served as director of the Office of Economics at the U.S. International Trade Commission. Follow @pmorici1

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