Our So-Called Foreign Policy: Putting the “Dip” in U.S. Diplomacy

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bailouts, Brazil, China, China meltdown, China stock markets, CNN, Congress, coupling, decoupling, Denise Labott, emerging markets, Exim, Export-Import Bank, export-led growth, free trade agreements, global leadership, Hillary Clinton, IMF, International Monetary Fund, international organizations, Iran, Iran deal, Jackie Calmes, Obama, Our So-Called Foreign Policy, Russia, The New York Times, TPP, Trans-Pacific Partnership, Wendy Sherman

It was unintentional to be sure, but the establishment media should get some credit for providing the following two reminders of how positively dippy American foreign policy, and the analysis of this diplomacy, has become.

The latest came just yesterday, in New York Times correspondent Jackie Calmes’ article titled “I.M.F. Breakthrough Is Seen to Bolster U.S. on World Stage.” And in the likely case that Calmes isn’t responsible for the headline, the thrust of the piece is clear from the lead paragraph:

“A string of agreements between the White House and Congress, capped by last month’s surprise accord that ended a five-year impasse over the International Monetary Fund [IMF] has eased, though not dispelled, concern that America is retreating from global economic leadership.”

I’ve already explained here and here (among other places) why Calmes decision to include on this list Mr. Obama’s Trans-Pacific Partnership trade deal and Congress’ decision to restore to life the Export-Import Bank makes no sense. So I’ll concentrate on the development she focuses on: Congress’ agreement to approve reform of the International Monetary Fund that grants more voting power to so-called “emerging market” (EM) countries like Russia, India, and especially China.

The IMF decision itself is idiotic enough. The rationale – supported by virtually every other member of the Fund – has been that these countries represent the rising powers in the global economic system, and therefore deserve more clout in one of the international organizations charged with overseeing this system. The trouble is, these countries’ wherewithal was greatly exaggerated even when they were growing strongly. The main reason is that their growth depended heavily on exporting to wealthier countries like the United States.

They’re still largely export-dependent, but rather than global growth leaders, they’ve become global growth laggards. Brazil, for example, is facing the prospect of its worst recession in more than a century. On top of its geopolitical trouble-making, Russia’s an economic mess. And China looks not only to be slowing dramatically, but completely incompetent in regulating its financial markets (not to mention its own aggressive regional moves). Even acknowledging that the United States, the European Union countries, and Japan haven’t been economic standouts either for many years, what’s the merit case now for augmenting these countries’ international influence?

But Calmes’ thesis is inane on many more fundamental levels, too. Chiefly, it parrots a series of commonplaces that, though endlessly repeated by mainstream foreign policy analysts and the politicians that bewilderingly still listen to them, keep undermining the effectiveness of American diplomacy. They start with the idea that the IMF, or any other international organization, has counted for much in world affairs. These institutions are logistically useful in providing fora (i.e., “buildings”) in which leading powers that communicate, negotiate, and otherwise deal with each other. But they have no autonomous ability to affect the course of events.

The Fund is often seen as an exception even by avowedly realist thinkers who normally take a dim view of international organizations, but contrary to Calmes’ claim, it per se has never served as “an international lender of last resort to foster global stability.” After all, it has no capacity to create wealth or other resources. In the last analysis, its lending function has always been carried out by the United States and the other major powers, who have used the Fund as a conduit. For two decades starting in the 1970s, the Fund addressed a series of financial crises in developing countries with a series of bailouts (again, financed ultimately by its members) that were conditioned on economic reform programs. But even the Fund’s staff now acknowledges that much of the advice it dispensed was lousy.

And since institutions like the Fund don’t serve as significant force multipliers for strong, wealthy countries like the United States, they’re anything but indispensable for American world leadership, economic or otherwise. As with the case of all countries aspiring to this goal, that flows from America’s own capabilities. Indeed, given America’s still crucial role as the world’s market and consumer of last resort, we’ll know that its economic leadership is at risk when its trade partners figure out another way to grow adequately.

Finally, there’s the question of whether the United States needs world leadership in the first place. I’ve explained in detail why a country this strong, wealthy, and geographically secure can remain more-than-adequately safe and prosperous even in a deeply troubled world. Indeed, America’s matchless capacity for self-sufficiency nowadays argues for less of what foreign policy types call world leadership by Washington – and therefore less exposure to the world’s woes – not more. I’m not saying that these views are beyond criticism. I am saying that they were worth debating even during the Cold War, they’re worth debating more now, and it’s dismaying that no one relying on Calmes or her Mainstream Media counterparts for their news in 2016 would have a clue that it’s not still 1956 strategically.

The second example of foreign policy dippiness came during the summer, from CNN’s Denise Labott’s August profile of Wendy Sherman, the chief staff-level U.S. negotiator of the nuclear weapons deal signed with Iran. Although I’m not enthusiastic about the agreement, I still view it as the best possible option available to America to keep Iran bomb-free short of military strikes. My confidence, however, has definitely been shaken having read Labott’s cheery revelation that “Her first career as a social worker and community organizer may seem like odd training for nuclear negotiations. But Sherman said she actually drew upon those experiences with her Iranian counterparts.”

Continued Labott : “Her ‘caseload’ may be more global, but she said the work is similar — involving the complex relationship and budding detente between Washington and Tehran, as well as managing a series of clients both inside and outside the meeting room.

“‘That skill set came in handy,’ she said. ‘You have to see all the parts in front of you. You really learn how to understand people.'”

Meaning no disrespect for the profession, but I can’t think of a background less suitable than social work for dealing with regimes like Iran’s (or North Korea’s – which was a Sherman responsibility under former President Clinton). Unless you think that the ruthless mullahs in Tehran or the arguably sociopathic leadership in Pyongyang have anything in common with a troubled American individual or family? And that the assignment is providing relief?

From another standpoint, social work and comparable activity are defined by enhancing a client’s well-being. Self-interest doesn’t even enter the picture. Is that how Sherman viewed her priorities? At least judging from this article, that’s how it seems. And Labott apparently considered this nothing less than delightful.

An optimist could finish Labott’s profile relieved that Sherman is now esconced in the academic world. A pessimist, though, could note that she’s a close confidante of her former Foggy Bottom superior, Hillary Clinton, and that she’s being talked about as a possible Secretary of State herself should the Democratic front-runner win the White House.

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(What’s Left of) Our Economy: The Exim Bank Fight is Much Ado About Very Little

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Adam Smith, conservatives, Exim, Export-Import Bank, exports, financing, manufacturing, Mitch McConnell, subsidies, Ted Cruz, The Race to the Bottom, Trade

The fight in Washington over resurrecting the Export-Import Bank has gotten so heated that it’s responsible for Texas Republican Senator (and presidential candidate) Ted Cruz calling his Kentucky colleague (and Senate leader) Mitch McConnell a liar, and has the nation’s major business groups lobbying furiously for reauthorization. For the life of me, I still can’t figure out what the big deal is.

In principle, I like the idea of the Bank – which has been forced to suspend most of its operations since its authorizing legislation ran out on June 30. It helps promote U.S. overseas sales by providing low-cost, taxpayer-backed financing for American businesses that want to do business with foreign customers that are sort of risky. The financing needed to clinch sales to these customers – in effect, a subsidy – enables the exporters to compete effectively with foreign rivals that receive similarly “attractive financing” from their governments.

It’s hardly free markets – but America faces a world of trade competitors that aggressively intervene to support their own firms and workers all the time. Matching this particular form of subsidy is simply a variation on Adam Smith’s maxim that an appropriate way to fight foreign trade barriers is to create bargaining chips by erecting your own.

At the same time, as I originally pointed out in my book The Race to the Bottom, by fostering trade with partners that aren’t terribly creditworthy, the Bank’s operations have reinforced the illusory claim that the supposedly “emerging markets” of the third world have become keys to future U.S. prosperity, and that reaching and cultivating these markets should trump other possible trade policy goals (like, say, recapturing the import-controlled portions of America’s home market). After all, if exports to a certain country need to be subsidized, that market probably isn’t very sustainable, and businesses should be wary of relying on them.

In addition, the share of U.S. exports aided by the Bank is miniscule. During fiscal year 2014, Exim says it supported $27.4 billion worth of these transactions. That works out to 1.68 percent of total goods exports. It’s true that, just as not all goods and services produced necessarily have the same long-term value to a national economy, not all exports are created equal. As I’ve repeatedly written, manufacturing plays a special role due to its heavy reliance on research and development, the high wages it pays, and its economy-leading productivity growth. Exim overwhelmingly works with manufacturers, but those $27.4 billion worth of 2014 fiscal year Bank-aided manufactures exports come to only 2.30 percent of the U.S. total that calendar year.

I’m kind of sympathetic to the argument that cutting smallish programs can create outsized political benefits by demonstrating will. In other words, how can politicians who can’t even agree on eliminating trifles ever hope to agree on meaningful spending reductions? In addition, the Bank has had a not-trivial scandal problem in recent years, reinforcing conservative charges that it embodies “crony capitalism.”

Yet the Bank has experienced only very low default rates on its loans, and largely as a result, it’s actually a net contributor to the U.S. Treasury. Its minor role makes clear that the Bank is anything but a game-changer – as its sometimes fevered corporate supporters often imply. (In fact, if they were really concerned about leveling the global playing field for domestic producers, they’d drop their opposition to unilateral U.S. sanctions on currency manipulation and other predatory foreign trade practices.) But Exim’s record adds force to supporters’ arguments that the nation’s economy is better off with its activities than without them.

By the same token, however, although conservatives are right to worry about official overreach and its dangers, Exim is anything but a poster child for government corruption or inefficiency. If their leaner government campaign is serious, Congressional Republican hardliners will target much more appropriate targets than the Export-Import Bank.

(What’s Left of) Our Economy: Delta’s Exim Bank Hypocrisy

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Airbus, airlines, Boeing, Delta, Exim, Export-Import Bank, subsidies

It’s no accident that I’ve been ignoring the raging Washington debate over reauthorizing the Export-Import bank – which will determine whether the official trade financing agency lives on or dies. I sympathize with the idea that the U.S. government should fight foreign subsidies with subsidies of its own. Unfortunately, the overall scale of foreign subsidies (especially from competitors whose national finances are much stronger than America’s) renders this option completely unaffordable; therefore, the best U.S. response is imposing tariffs. (The widely supported belief that the nation can offset foreign tax breaks and lower corporate rates with comparable measures suffers similarly fatal flaws.)

Then there’s the actual magnitude of Exim’s operations – they facilitate only a small fraction of U.S. export sales. If supporters like President Obama were really interested in addressing trade market rigging by foreign governments, they’d be thinking way beyond Exim. Ditto for major beneficiaries of the Bank, like Boeing and General Electric. But these multinational firms strongly back the U.S. trade policy status quo mainly because they benefit hugely from foreign subsidies and other predatory practices like currency manipulation when they manufacture abroad or procure foreign parts and components. Of course, these practices are now central to multinationals’ business models.

Still, one aspect of the Exim debate is so hypocritical that it cries out for spotlighting: the claim by U.S. airlines that Exim subsidies for Boeing disadvantage them versus their foreign competitors by enabling these rival carriers to buy new jets from Boeing for a song. This complaint is hypocritical because U.S. airlines get the same kind of price break when they buy from Boeing’s European rival, Airbus.

Despite numerous trade cases filed by Washington in the World Trade Organization and its predecessor global trade body. Airbus has continued to enjoy major European government support. In fact, it wouldn’t exist in the first place if not for an official European decision to create a viable commercial aircraft industry practically from scratch.

But Delta, which has spearheaded the corporate anti-Exim lobbying drive in Washington, has been happy to free ride off of European taxpayers, as the company’s own data shows. All those jets whose model names start with “A” come from Airbus. Obviously, the same is true for other U.S. carriers.

Tea Party-oriented Republicans and other conservative reformers in particular have portrayed the Exim fight both as a battle over principle, and as a great political opportunity to show voters that they’re much more strongly opposed to crony capitalism than Democrats. In fact, the Exim controversy is best explained as a clash of opposing business lobbies. And if reform conservatives want to establish truly impressive anti-cronyism bona fides, they’ll need to take on much more important targets than the Exim Bank.