Economics as an instrument of Foreign Policy
Diplomacy and military power are the most common and direct means to project American influence internationally but American economic power potentially produces the long-lasting influence and impact.
Traditionally, economic power leverages a nation’s wealth to influence the behavior of others. Our interpretation of economic power includes sanctions, tariffs/taxes, trade policies, economic coercion, and economic aid. These elements are limited means to influence allies and adversaries. With a globally connected world, "traditional" elements of economic power become less influential. Countries are more inclined to turn their backs on international norms and instead worry about bolstering their own internal economic advantages. Instead of an international community in lock step, countries are more apt to work in their singular self-interest.
This is evident in how China continues to placate North Korean aggression and maintain economic ties even though there are significant sanctions against the Hermit Kingdom. So rather than continue with coercive and punitive economic power, the U.S. should view it's economic might through the lens of multi-national corporations and American-based products and services.
Starbucks and McDonalds are symbols of American capitalism and, in this day in age, ubiquitous across the globe. As countries became liberalized and markets opened, American companies expanded to take advantage of new opportunities. Through these multi-national companies, American influence and culture spreads.
But in the current political environment, protectionism is seen as panacea for what ails the American economy. The travails of the blue collar middle class are blamed on unfair trade practices of developing countries and mass immigration, both legal and illegal. What is loss in the shuffle is how American power and influence is projected through globalism.
Protectionism and capitalist nationalism is not going to bring back lost manufacturing and blue collar jobs. Either through lower labor cost or technological innovation, those jobs will not be coming back and in the case of technological innovation, some white collar jobs will be in jeopardy in the future. The automobile industry is a template for the pervasiveness of technological disruptors. At its peak 48,000 people worked the assembly line at Ford’s Michigan Assembly Line Plant, today it is 500 people. The number of people it takes to build a car today has dropped as increased automation, computers, and robotics are advancing to a state where they can conduct more complex tasks.
Technology is beginning to disrupt what were once seen as “protected” industries. As artificial intelligence (AI) continues to advance, numerous office tasks will become less labor intensive. IBM's Watson shows the possibility of AI to query federal and state laws and rapidly execute complex mathematical equations. This type of technology allows for tax preparation and review to ensure tax returns are accurate and meet the newest tax policies and guidelines and to audit returns without humans to crunch numbers. With improving driver-less vehicle technology or on demand app technology, in the near-future you can do away with taxi drivers or, more significantly, long haul truck drivers.
As technology continues to disrupt the job market, pressures will be place on government to do something. The simple solution will isolationism and protectionism but government needs to accept that its own policies are culpable. There is an economic term creative destruction (refers to the incessant product and process innovation mechanism by which new production units replace outdated ones) that is going to be in play for the future of the U.S. economy and creative destruction creates short term losers who will need retraining.
Government have stymied creative destruction in favor of protecting special interests. In its infinite wisdom, governments have instituted a myriad of complex regulations to protect favored industries. Take, as an example, the Dodd-Frank Wall Street Reform and Consumer Protection Act with its 2,300 pages of financial regulations. Implementation of Dodd-Frank cost $36 billion over a six year period and small businesses are not exempt from the provisions. So why should a young entrepreneur start her/his own business knowing that red tape could choke their dream before it gets off the ground?
Instead of trying to protect the American economy, we should be unleashing U.S. market forces as an economic diplomatic tool. U.S. foreign policy needs to incorporate economic factors to influence allies and more importantly adversaries. One way to increase U.S. economic soft power are trade pacts which allow for a liberalized movement of goods, services, capital, and labor.
Let us take a look at the rise of China in the Asia-Pacific region. Under the current administration, the answer seems to be increased military presence to bound China. As an means of national power, U.S. military forces have limited reach into the region. And unless we are able to spend significant more on increased basing in the region, military power will remain limited. But through a robust Trans-Pacific Partnership (TPP), with tariff barriers eliminated, U.S. influence in the region would be grow through elimination of barriers for multi-national companies to operate in the region. The U.S. International Trade Commission report on the overall impacts of the TPP are: "It would remove most tariffs, some tariff-rate quotas (TRQs), and many nontariff barriers to goods and services trade and investment between the 12 parties to the agreement."
Elimination of trade barriers will allow for U.S. companies to set up operations in TPP member countries to provide wanted American goods and services. For all of the angst currently focused against the U.S., people want American products. Besides Starbucks and McDonalds, on what seems to be every street corner, people all over the world have an insatiable appetite to consume U.S. products, such as movies, motorcycles, jeans, and Google. So let's take advantage of those built in economic advantages to further influence other countries (and I am not talking about propaganda here). Instead continue to interact and integrate into the global economy so U.S. corporations can innovate into local markets and deliver an influential form of soft power to allies and adversaries.
Traditionally, economic power leverages a nation’s wealth to influence the behavior of others. Our interpretation of economic power includes sanctions, tariffs/taxes, trade policies, economic coercion, and economic aid. These elements are limited means to influence allies and adversaries. With a globally connected world, "traditional" elements of economic power become less influential. Countries are more inclined to turn their backs on international norms and instead worry about bolstering their own internal economic advantages. Instead of an international community in lock step, countries are more apt to work in their singular self-interest.
This is evident in how China continues to placate North Korean aggression and maintain economic ties even though there are significant sanctions against the Hermit Kingdom. So rather than continue with coercive and punitive economic power, the U.S. should view it's economic might through the lens of multi-national corporations and American-based products and services.
Starbucks and McDonalds are symbols of American capitalism and, in this day in age, ubiquitous across the globe. As countries became liberalized and markets opened, American companies expanded to take advantage of new opportunities. Through these multi-national companies, American influence and culture spreads.
But in the current political environment, protectionism is seen as panacea for what ails the American economy. The travails of the blue collar middle class are blamed on unfair trade practices of developing countries and mass immigration, both legal and illegal. What is loss in the shuffle is how American power and influence is projected through globalism.
Protectionism and capitalist nationalism is not going to bring back lost manufacturing and blue collar jobs. Either through lower labor cost or technological innovation, those jobs will not be coming back and in the case of technological innovation, some white collar jobs will be in jeopardy in the future. The automobile industry is a template for the pervasiveness of technological disruptors. At its peak 48,000 people worked the assembly line at Ford’s Michigan Assembly Line Plant, today it is 500 people. The number of people it takes to build a car today has dropped as increased automation, computers, and robotics are advancing to a state where they can conduct more complex tasks.
Technology is beginning to disrupt what were once seen as “protected” industries. As artificial intelligence (AI) continues to advance, numerous office tasks will become less labor intensive. IBM's Watson shows the possibility of AI to query federal and state laws and rapidly execute complex mathematical equations. This type of technology allows for tax preparation and review to ensure tax returns are accurate and meet the newest tax policies and guidelines and to audit returns without humans to crunch numbers. With improving driver-less vehicle technology or on demand app technology, in the near-future you can do away with taxi drivers or, more significantly, long haul truck drivers.
As technology continues to disrupt the job market, pressures will be place on government to do something. The simple solution will isolationism and protectionism but government needs to accept that its own policies are culpable. There is an economic term creative destruction (refers to the incessant product and process innovation mechanism by which new production units replace outdated ones) that is going to be in play for the future of the U.S. economy and creative destruction creates short term losers who will need retraining.
Government have stymied creative destruction in favor of protecting special interests. In its infinite wisdom, governments have instituted a myriad of complex regulations to protect favored industries. Take, as an example, the Dodd-Frank Wall Street Reform and Consumer Protection Act with its 2,300 pages of financial regulations. Implementation of Dodd-Frank cost $36 billion over a six year period and small businesses are not exempt from the provisions. So why should a young entrepreneur start her/his own business knowing that red tape could choke their dream before it gets off the ground?
Instead of trying to protect the American economy, we should be unleashing U.S. market forces as an economic diplomatic tool. U.S. foreign policy needs to incorporate economic factors to influence allies and more importantly adversaries. One way to increase U.S. economic soft power are trade pacts which allow for a liberalized movement of goods, services, capital, and labor.
Let us take a look at the rise of China in the Asia-Pacific region. Under the current administration, the answer seems to be increased military presence to bound China. As an means of national power, U.S. military forces have limited reach into the region. And unless we are able to spend significant more on increased basing in the region, military power will remain limited. But through a robust Trans-Pacific Partnership (TPP), with tariff barriers eliminated, U.S. influence in the region would be grow through elimination of barriers for multi-national companies to operate in the region. The U.S. International Trade Commission report on the overall impacts of the TPP are: "It would remove most tariffs, some tariff-rate quotas (TRQs), and many nontariff barriers to goods and services trade and investment between the 12 parties to the agreement."
Elimination of trade barriers will allow for U.S. companies to set up operations in TPP member countries to provide wanted American goods and services. For all of the angst currently focused against the U.S., people want American products. Besides Starbucks and McDonalds, on what seems to be every street corner, people all over the world have an insatiable appetite to consume U.S. products, such as movies, motorcycles, jeans, and Google. So let's take advantage of those built in economic advantages to further influence other countries (and I am not talking about propaganda here). Instead continue to interact and integrate into the global economy so U.S. corporations can innovate into local markets and deliver an influential form of soft power to allies and adversaries.
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