That’s what America has to show for its role as a benevolent banker to the world, hell-bent on a dogmatic pursuit of unfettered free trade in a world where the German-led European Union, Japan and lately China based their economic policies on mercantilist export-driven growth.
The U.S. is now stuck on a trade treadmill: This year and next, the Treasury is expected to sell to foreign creditors $1.2 trillion worth of debt instruments to finance America’s sharply widening trade gap.
Those numbers will hit U.S. public finances at a time when the budget deficit by the end of next year could be approaching 7 percent of GDP — with the public debt, currently at $21.5 trillion, rising to 110 percent of GDP.
If those numbers are not enough to convince people that foreign trade problems are inseparable from national security considerations, maybe some events from recent economic history could help to provide more food for thought.
The U.S. decided in August 1971 to cease dollar redemptions for gold by countries running dollar-denominated trade surpluses. The European allies — whose security was underwritten, and still is, by Washington’s military protection — were the ringleaders of a relentless onslaught on the U.S. gold window. France started the process in February 1965 by asking that its dollar reserves be exchanged for the yellow metal at the official price of $35.5 per ounce of fine gold.
Four years later, in November 1975, the French and German leaders organized the first G-6 meeting in France, because the weakening dollar was pushing up their currencies and threatening their external trade accounts. They wanted the U.S. to drastically reduce its money supply, raise interest rates and drive up the relative price of the dollar. That was a recipe for a deep and intractable U.S. recession — or something much worse.
Fortunately, then-President Gerald Ford refused to oblige.
Those seminal events underscored the importance of continuing to search for international economic policy coordination. Such efforts aimed at enforcing an elusive process of trade adjustment, where systematic surplus countries were expected to stimulate their domestic spending and open up their markets so that deficit countries could correct their external accounts without going through periods of severe recessions and rising unemployment.