The headline on yesterday’s Reuters article said it all: “Bruised and grumbling, foreign banks bend to U.S. rules.”
As the news agency reported, foreign banks are increasingly angry about the U.S. government exercising its territorial reach and enforcing its banking laws against certain of their dealings outside U.S. territory – namely, the business they do with rogue states like Iran and Sudan, and with communist Cuba, in violation of various U.S. embargos and sanctions.
Washington’s policies are “imperialistic,” these European and Asian finance firms are charging. In the words of one outraged British banker, “You … Americans! Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” Foreign governments have joined the chorus as well, with France’s finance minister openly calling in response for an end to the U.S. dollar-denominated system of paying for international transactions.
Let’s leave aside the morally disgusting free-riding attitudes revealed by these complaints. Like British and French banks, and their entire national economies, would be better off in world in which Iran’s theocrats could access all the financing they wanted to build nuclear weapons and finance terrorism? Of course not – and surely the banks – and especially the French government – realize this. The latter in particular simply seems to be counting on the United States to keep footing most of the resulting global security bill.
Let’s focus instead on the actual deeds of these furious banks so far. And guess what? For all their expressed indignation, they realize they have no choice. According to Reuters, “major lenders in Europe and Asia are reacting to the steady flow of punishments from the United States by doing ever more to comply with U.S. laws and by cutting business ties in countries Washington dislikes….” Plenty of examples are provided.
The reason? There’s simply no substitute available now for the dollar’s global role, and for all the reported desire to end the reign of King Dollar, none are remotely in sight.
Now it’s time for Washington to recognize and start using its clout to press another worthy cause – rebalancing today’s increasingly lopsided world trade and financial flows and thus reducing the odds that these bubble-inflating imbalances will help trigger a repeat of the last financial crisis.
No one can reasonably doubt that the clout is abundant. As shown in the World Trade Organization’s newest (2013) annual survey of global trade, U.S. imports adjusted for inflation are once again rising faster than the real U.S. economy – just as before the crisis. The entire world’s real imports, however, are now (as of 2012) rising faster than its inflation-adjusted economic output – and those global totals of course include the U.S. figures.
So obviously, accessing the American market remains vital for its trade competitors, and its importance doubtless has only grown since then, as even historically weak U.S. growth has proceeded faster than that of Europe and Japan, and the gap with China and other so-called emerging markets is narrowing, too. Even better, the U.S. economy retains subtantial potential to substitute domestic for imported goods and services without losing much long-term efficiency.
Yet when it comes to trade diplomacy, Washington still shies away from the kinds of unilateralism that is so succeeding so inarguably in finance diplomacy. It’s tempting to blame this unwarranted timidity on the lobbying of offshoring-happy multinational corporations, which also need to access the U.S. market from all the factories they’ve sent overseas. But it’s not like Wall Street is shy about pressuring the executive branch and Congress, as made clear by the titanic efforts needed to pass middling financial reform legislation even in the crisis’ aftermath.
Trade policy timidity probably fundamentally stems from an official consensus holding that purposeful government intervention is legitimate when it comes to protecting the national security interests at stake in relations with rogue states, but not when it comes to safeguarding the economic interests at stake in trade relations.
It’s long past time to scrap this outdated mindset. The damage inflicted by the financial crisis, ensuing recession, and anemic recovery has been every bit as dangerous to America’s future as, say, an Iranian nuke or even a repeat of 9-11. Forgetting the close relationship between national security and national prosperity can only ensure that America enjoys neither. And its too-often-feckless allies won’t escape the consequences, either.