In international economic affairs, America's primacy at the dawn of the 21^st century is undoubted. At a time of rapidly growing commercial and financial interdependence among nations - conventionally described by the popular term "globalization" - the United States stands out as a remarkable, if not unique, success story. During the 1990s Americans enjoyed the longest expansion in the history of the republic, avoiding the high unemployment that plagued Europe, the stagnation that dragged down Japan, and the financial crises that disrupted emerging markets from East Asia to Russia to Latin America. If not once again a "Gulliver among the Lilliputians," as the U.S. at the end of World War II could accurately be described (Keohane 1979), America has nonetheless clearly reclaimed its lead among the economies of the world. The aging hegemon has gained a new lease on life.

But this does not mean that America's primacy has been or will go unquestioned. Quite the contrary, in fact. Around the world threats of backlash are intensifying, reflecting spreading discontent with what has come to be known as the "Washington consensus" - a newly triumphant "neoliberal" economics emphasizing the virtues of privatization, deregulation, and liberalization wherever possible, which has been widely promoted by the American government together with the Washington-based International Monetary Fund (IMF) and World Bank. The material benefits of globalization are obvious. Growth of output, in the aggregate, has been promoted as economies have opened up to the opportunities of international trade and investment. Millions of people around the world have experienced substantial increases in living standards. But what about the costs of globalization, ask a growing number of critics. What about the losers from economic change, the growing inequality of incomes, the alleged environmental decay or cultural degradation? Increasingly, by many, globalization is seen as not benevolent but malign - not a friend to be welcomed but an enemy to be resisted. And since America is identified with globalization as its patron and principal beneficiary, that means that America is the enemy too. The Washington consensus appears to privilege, above all, U.S. interests and values. As a result, the United States has become a kind of handy scapegoat for all the diverse social groups hurt by globalization.

Can a backlash against globalization be contained? Can today's open, multilateral system be defended against the forces of protectionism and economic nationalism? Therein lies the central challenge for U.S. foreign economic policy today. The costs of globalization cannot be denied. Plainly there are indeed losers as well as winners from market liberalization; and this is true not only in America's overseas relations but inside the U.S. as well. Backlash against globalization is growing among Americans too. As one source puts it, globalization "is becoming a four-letter word in American politics" (Ullman 1998: 41). But the benefits of globalization cannot be denied either. Uncontained backlash, clearly, would put world prosperity at risk, in effect throwing out the baby with the bath water. The challenge for U.S. policymakers is to preserve the gains of a system that has so obviously worked to America's advantage, as well as to the advantage of millions elsewhere, while at the same time responding constructively to the system's many critics at home and abroad. Needless to say, the task will not be an easy one.

The purpose of this chapter is to explore that task in some detail: to ask what, in reality, the American government can do to contain the threatened backlash against globalization. A fundamental premise of the chapter is that if the world economy's strengths are to be preserved, it will require determined leadership from the United States. One does not have to be a fanatical devotee of the familiar theory of hegemonic stability to acknowledge the centrality of this country's global role. In economic affairs even more than in most other dimensions of foreign policy, as Robert Lieber contends in his opening chapter (Lieber 2001), America really is the "indispensable nation" - the only country with the clout needed to organize timely and effective remedies for systemic weaknesses. Primacy generates not only privilege but also responsibility. The world watches the United States carefully; and if the biggest economy of all is inclined to behave irresponsibly, pursuing its own interests unilaterally at the expense of others, governments elsewhere cannot be blamed for succumbing to the forces of protectionism or economic nationalism too. Responsibility means taking the lead in response to legitimate criticisms in circumstances where the only alternative might be inaction or decay. America may not always be able to impose its will on economic issues. But as I argued in the previous volume in this series, the U.S. still enjoys disproportionate influence in relation to other states:

Across a broad range of issues, the initiative clearly remains with the United States. Few governments are willing to pursue programs for long that openly contravene key U.S. interests or preferences. Even fewer feel that they can safely ignore pressures or demands from Washington (Cohen 1997: 80-81).

Some would argue -- somewhat optimistically -- that no special initiatives are needed. The threat of backlash, it is alleged, is really more smoke than fire. Both globalization and U.S. primacy are supposedly here to stay, whatever their critics say; and in any event American policymakers, ever conscious of their leadership responsibilities, can always be counted upon to resist any significant erosion of past gains. So why worry? Such optimism, however, is misplaced. The threat, I contend, is real and could indeed be highly damaging to American interests unless countered by effective responses in the spheres of both trade and finance. Pride in our good fortune to date is no excuse for either triumphalism or passivity in the future.

In economic discourse, the term globalization is used as a shorthand expression for the increasing integration of national economies around the world -- a process of commercial and financial interpenetration driven by the forces of market competition and technological innovation as well as by governmental policies of deregulation and liberalization. In trade, globalization can be seen in the growing openness of markets for goods and services: greater and greater dependence on foreign commerce as a source of domestic prosperity. In finance, it is manifest in a rising level of capital mobility: ever higher volumes of private lending and investment across national frontiers.

True, we are still far from anything that might be described as a fully globalized world economy. Numerous national markets, particularly in developing areas, remain well insulated from outside influence; and even in more developed regions, the industrial centers of North America, Europe and Japan - the so-called Triad countries - as well as in the emerging markets of East Asia and Latin America, significant divergences persist. Cross-border integration is limited not only by formal restrictions imposed by governments (tariffs and other trade or capital controls) but by all kinds of informal barriers as well, including exchange-rate uncertainties, informational asymmetries, and linguistic and cultural differences. As economist Dani Rodrik, a leading expert on globalization, has written, "international markets for goods, services, and capital are not nearly as 'thick' as they would be under complete integration" (Rodrik 2000: 179). Still, the direction of change is unmistakable. Even if not yet completely integrated, markets clearly are growing ever "thicker" in terms of both the range of transactions encompassed and the number of people affected.

For some, the trend is also inexorable, akin to letting the genie out of the bottle. Once unleashed, it is suggested, the forces of competition are too powerful to be reversed. Governments cannot resist the tides of international trade and finance. Rather, the best they can do is adapt to the new world economy that is emerging, competing for the benefits of globalization by accommodating themselves as much as possible to the preferences of market agents. In trade, this means opening the economy to foreign competition through both commercial exchange and direct investment. In finance, it means creating an environment of "sound" monetary and fiscal policies that will sustain the confidence of creditors and portfolio managers. That is what political scientist Philip Cerny intends by the notion of the "competition state." "The very concept of the national interest," he contends, "is expanding to embrace the transnational dimension in new ways: the so-called competition state is obliged by the imperatives of global competition to expand transnationalization" (Cerny 1994: 225). The competition state, from this perspective, is simply an acceptance of reality -- an acknowledgment that the genie cannot be put back in the bottle.

But is that in fact reality? History suggests otherwise, despite the evident power of market forces. The present era, after all, is not the first time that a seemingly inexorable process of transnational integration has taken hold. A century ago the world economy also seemed to be well on its way toward something approximating globalization. Indeed, by some measures national markets were even more closely tied together prior to World War I than they are now. Investment funds moved freely between countries, tariffs were comparatively low, and non-tariff barriers and capital controls had still not even been invented. Yet when circumstances seemed to warrant, governments felt little inhibition in sacrificing the presumed benefits of trade and finance for the sake of other policy objectives. During the interwar period and beyond, the seemingly irresistible momentum of economic integration was decisively reversed, before the start of what some are now calling the second age of globalization. If the genie could be put back into the bottle once, it does not seem implausible to assume that it might happen again, as economic historians have frequently noted (James 1999).

The reason lies in the logic of politics - specifically, in the logic of national sovereignty, which remains the core organizing principle of world politics. However challenged they may feel by the forces of global competition, states remain, in the most fundamental sense, masters of their own destiny - still capable, when motivated, of exercising their legal authority to limit the openness and vulnerability of their economies. In the pithy phrase of political scientist Louis Pauly, "states can still defy markets" if they wish (Pauly 1995: 373). Governments are not condemned simply to accommodate the preferences of multinational corporations. The competition state is not the only choice. Other policy options exist, including overt limitations on trade or capital flows. Globalization will never be irreversible so long as sovereignty continues to reside at the national level.

The argument for the presumed irreversibility of globalization rests implicitly on an assumption that governments value the material benefits of economic integration above all else. Typical is Rodrik's sanguine remark that "short of global wars or natural disasters of major proportions, it is hard to envisage that a substantial part of the world's population will want to give up the goodies that an increasingly integrated (hence efficient) world market can deliver" (Rodrik 2000: 184). In fact it is not so hard to envisage at all, since the "goodies" are not the only things that matter to much of the world's population. Numerous other core goals and values also figure prominently in the calculations of rational policymakers. Economic nationalism, therefore, could easily come to take precedence over international integration. Time and again, governments have demonstrated their willingness to limit market openness, sacrificing the benefits of globalization, when deemed necessary for the sake of national security, cultural preservation, or environmental protection. Mercantilism lives.

Most important, policymakers could feel driven to limit openness abroad by popular discontent at home. Workers and companies may lobby for protection against lost income or jobs. Public-interest groups may protest risks to the environment, human rights, or a traditional way of life. A prime example is provided by France where, in early 1999, an obscure farmer named José Bové bulldozed a McDonald's restaurant to protest the perceived invasion of foreign (particularly American) corporations -- and became a national hero. The event unleashed a torrent of anti-globalization sentiment across the country to which politicians felt compelled to respond. Never particularly loath to criticize the United States, which French leaders have taken to calling the world's "hyperpower" (hyperpuissance), France now has happily accepted the mantle of leadership in the opposition to globalization. "France feels that nothing short of its identity is at stake," writes one observer. "The debate has been recast as 'Anglo-Saxon globalization' versus the preservation of France's national and cultural values" (Meunier 2000: 105). In turn, French opposition to "Anglo-Saxon globalization" has resonated with other countries, such as Canada and Japan, which are also known to be sensitive to the cultural consequences of what they see as the McDonaldization of the world. ⁽¹⁾

Another example came later in 1999 in the notorious Battle of Seattle, where a coalition of non-governmental organizations successfully disrupted a meeting of the World Trade Organization (WTO) intended to launch a new round of trade liberalization. Grievances ranged from targeted complaints about labor conditions and pollution to more inchoate concerns about social justice and alleged capitalist exploitation. Similar demonstrations also erupted a few months later in Washington at a joint meeting of the IMF and World Bank, where again many grievances were aired. Among the aims of the self-styled Mobilization for Global Justice was international debt relief. The enemy, in the words of the New York Times, was a system seen as "hooking lower-income nations on cheap debt and then insisting that they adopt free markets, unlimited investment, privatization and restrained government spending, or risk a cutoff in new aid." ⁽²⁾ Such is the stuff of the backlash against globalization. "Globalism is the new 'ism' that everyone loves to hate," said the former director general of the WTO. ⁽³⁾ Demonstrations also occurred at the IMF-World Bank annual meeting in Prague, capital of the Czech Republic, in October 2000.

Admittedly, fears for the future can be overdone. Ever since the Cold War ended more than a decade ago, specialists have bewailed the risk of renewed protectionism around the world. With the waning of the Soviet threat, we have repeatedly been told, the major industrial powers could fall to squabbling among themselves, no longer willing to restrain their mercantilist impulses for the sake of the Western alliance. That dour theme has been developed most recently by Robert Gilpin in his jeremiad, The Challenge of Global Capitalism (Gilpin 2000), which worries that the clock could soon be turned back to the interwar period when economic rivalries similarly raged unchecked. Faith in the irreversibility of globalization, Gilpin writes, "may turn out to be valid, but it is important to recall that world has passed this way before" (Gilpin 2000: 12).

In fact, however, as I suggested in an earlier Eagle volume (Cohen 1992), much has changed in the last half century to lessen the risk of systemic disintegration or breakdown. Most important are the many international regime structures that have been constructed to help promote inter-governmental cooperation and collective management, in most instances formally institutionalized in multilateral organizations like the IMF, World Bank, and WTO or in regularized procedures such as those of the well known Group of Seven (G-7). In any event globalization continues to move forward, seemingly inexorably, despite its diverse critics. "So far," as one informed observer comments, "the manifestations of a backlash are more likely to be found in speeches than in legislative or executive actions" (Naím 2000: 12). Columnist Bruce Stokes speaks of the protectionist myth. "Free trade is not in retreat," he insists. "Crying wolf about false chimeras of protectionism impugns credibility" (Stokes 1999-2000: 89).

Nonetheless, there are valid grounds for concern. As The Economist writes, "it would be a great mistake to dismiss this global militant tendency as nothing more than a public nuisance." ⁽⁴⁾ That the clock has not yet been turned back is no guarantee that popular protests will not be more successful in the future, as more McDonald's restaurants get bulldozed and more Seattles hit the TV screens. Globalization may be powerful, but neither history nor the logic of politics gives comfort to the view that a liberal world economy is truly irreversible. Even Stokes acknowledges that "if these problems are not dealt with, protectionism could return with a vengeance in the first years of the new millennium, with devastating consequences" (Stokes 1999-2000: 101-102). The threat of backlash, it is clear, cannot be ignored.

Even if the threat of backlash is real, however, are American interests at risk? The U.S. is universally recognized today as the world's dominant national economy - a born-again hegemon, propelled by productivity gains made possible by the flexibility of domestic labor and capital markets, by the stimulus of intense competition, and above all by the epochal revolution in information technologies. Once again, America has demonstrated its remarkable capacity for self-renewal. Moreover, with no serious rival on the horizon, the country's primacy would seem set to endure indefinitely. For some, this is more than enough reason to believe that U.S. prosperity will persist whatever other governments do. In the words of Lloyd Cutler, an influential Washington figure: "Our technological leadership and the size of our economy give us every chance to maintain our position," ⁽⁵⁾ boding well for the future.

Certainly it is true that America faces no serious rival to its economic leadership at present. That is a big change from just a few years back, when both East Asia and Europe appeared poised to challenge U.S. hegemony in the world economy. Across the Pacific, Japan was being widely touted as the next "Number One," an emerging China was seen as not far behind, and the smaller "tiger" economies of Korea and Southeast Asia were developing at double-digit rates of expansion. But then Japan's "bubble economy" burst in 1989, leading to a decade of bankruptcies and stagnation. China's prospects were clouded by inefficient state-owned industries, persistent rural poverty, and an insolvent banking sector. And in 1997-98 the tigers were hit by major financial crisis, causing severe recession and soaring unemployment. Much less is heard today about the imminence of a possible new Asian Century.

Nor does Europe now seem quite the same threat it did following the Single Europe Act of 1986, which removed most remaining barriers to free trade on the continent, and then the Maastricht Treaty of 1991 laying the foundation for a new common currency, the euro, for the renamed European Union (EU). At long last, Europeans seemed set to put aside past antagonisms to create an economic powerhouse in the same league as the United States. "Future historians," economist Lester Thurow predicted, "will record that the twenty-first century belonged to the House of Europe" (Thurow 1992: 258). But ensuing years of slow growth and high unemployment sapped European self-confidence and eroded the social and political cohesion needed make Thurow's prediction a reality. Much less is heard today of the imminence of a European Century, either.

None of this, however, guarantees that America's born-again hegemony will endure indefinitely. Arguably, as Paul Krugman (2000) has suggested, the recent turn of events may be attributed as much to the failures of others as to the success of the United States. The Japanese economy, still the second largest in the world, has demonstrated great resilience in the past and could once again bounce back from domestic travails. China and the other East Asian tigers have already, in many respects, put the 1997-98 financial crisis behind them. And Europe, impelled by the unifying effect of the euro, could still succeed in overcoming its own internal divisions. Over the longer term, challenges to U.S. leadership in economic affairs will persist and no doubt even intensify.

Moreover the U.S. economy is not without its frailties of its own, which in time could take their toll. The revolution in information technologies, for instance, may be a source of sustained productivity growth, but it is also contributing to a significant widening of income gaps - the so-called digital divide between more fortunate "knowledge workers" and the computer illiterate. Likewise, American financial markets may be among the most efficient anywhere, but they have also encouraged a dangerously high rate of leveraging on the part of both individuals and business enterprise. Many observers worry that a prolonged decline of U.S. stock prices could, via a negative "wealth effect," greatly dampen future growth prospects. The wealth effect refers to the relationship between consumption and investment expenditures, on the one hand, and changes of asset prices on the other. With a high level of leveraging, even a mild stock-market setback may lead debtors to cut spending sharply in order to service or reduce liabilities.

Most critical of all, from an international point of view, is the deficit in the U.S. balance of payments. America may still be the world's largest exporting nation, but it also has by far the biggest negative balance in foreign trade, requiring ever greater dependence on financing from abroad. Over the course of the 1990s the excess of imports over exports of goods and services (technically, the current-account deficit) more than tripled, to a level well above $300 billion a year, equivalent to a record four percent of gross domestic product (GDP). America's net external debt, already greater than that of any other nation, swelled in the same period from under $250 billion to more than $1.5 trillion, around 20 percent of GDP. For many, the foreign deficit is the Achilles heel of the U.S. economy, reflecting an extraordinarily low (at times, even negative) personal savings rate among Americans. In effect America is living beyond its means, ignoring the future costs of servicing its accumulating liabilities. For others, by contrast, it is more a mark of America's success, reflecting the strength of our growth in recent years relative to most other countries. ⁽⁶⁾ Rising income at home naturally increased demand for imports, even as exports were constrained by stagnation and crisis abroad. Indeed, from this perspective the U.S. deficit can even be said to have served as a sort of international public good, insofar as employment and production elsewhere have been sustained by sales in the U.S. market. America has functioned, in effect, as a "buyer of last resort" for troubled foreign economies.

Can the deficit be sustained? In a very real sense, an excess of imports over exports can be understood as merely the accounting counterpart of a massive inflow of capital, reflecting both the superior attractiveness of investment opportunities in the United States and the worldwide appeal of the dollar as an international currency. Much rests, therefore, on the continued willingness of foreign investors to acquire U.S. assets, which is a weak reed at best. In reality, it is easy to envisage a substantial reallocation of investment portfolios that might be triggered by any number of reasonably plausible developments -- a sustained renewal of growth in Asia or Europe, for instance, or the gradual emergence of a strong euro as a global rival to the greenback. Economist Catherine Mann is not alone in predicting that "at some point...global investors will decide that U.S. assets account for a big enough share of their portfolios and so will stop acquiring more of them.... The United States cannot live beyond its long-term means forever" (Mann 2000: 43). ⁽⁷⁾ Should such predictions prove accurate, Americans will find that they can no longer ignore the burden of external debt service or the vulnerabilities that come with the need to cultivate and sustain the good will of international financial markets.

Prudence suggests, therefore, that America's born-again hegemony might not in fact endure - and if it does not, neither can U.S. prosperity be guaranteed in the face of a serious backlash against globalization. Like it or not, U.S. interests are seriously at risk.

What, then, can be expected of U.S. policymakers as globalization increasingly becomes a four-letter word? The United States has long been committed to maintaining an open world economy and America's leaders generally understand the responsibilities that go with economic primacy. Many observers thus believe that Washington can always be counted on to resist any erosion of past gains even if other governments succumb to the temptations of protectionism and economic nationalism. U.S. policymakers, it seems logical to assume, will fight to preserve a system from which the United States appears to benefit disproportionately.

There is much evidence for this point of view. Survey results, as Ole Holsti reports in this volume (Holsti 2001), consistently demonstrate that the top ranks of both major political parties remain committed to the Washington consensus. Republican and Democrat leaders alike continue to oppose broad new trade barriers; and when in control of the executive branch, each party has tended to pursue the same kind of agenda of commercial and financial liberalization. The Tokyo Round of trade negotiations, begun in 1973 under the Nixon Administration, was concluded when Jimmy Carter was president. Likewise, the subsequent Uruguay Round as well as the North American Free Trade Agreement (NAFTA), both initiatives of Republican presidents, were pushed through to completion by a Democrat, Bill Clinton. During the presidential campaign of 2000, little substantive difference could be found between candidates Al Gore and George W. Bush on issues of foreign economic policy. ⁽⁸⁾

But all this discounts the role of domestic politics, which can significantly alter the cost-benefit calculus of even the most fervently pro-market politician. In the United States today, domestic politics is becoming increasingly hostile to Washington's traditional commitment to globalization. The survey results reviewed by Holsti (2001) show that far more Americans support trade barriers than oppose them, and for the general public "protecting the jobs of American workers" continues to rank among the highest of all foreign-policy priorities. Below the level of party leaderships, there is growing activism in opposition to globalization's perceived costs.

Most prominent is the U.S. labor movement, led by the AFL-CIO, which has undergone a tidal shift over the last generation in its stance on protectionism. Unions were once avid backers of free trade. Today, however, blue-collar workers find themselves among the most threatened by an increasingly open world economy. America's comparative advantage, driven by the technology revolution, is rapidly shifting away from low-skill labor-intensive manufactures, which can now be produced at much lower cost elsewhere. Thus in spite of record employment growth throughout the 1990s, labor has become ever more vocal in its opposition to market liberalization. The free flow of goods and capital is seen as biased against workers, favoring instead corporations that are able to shift output to areas abroad where labor costs are cheaper -- Ross Perot's notorious "giant sucking sound." Globalization, asserts one union leader, "works only for multinationals, not for workers." ⁽⁹⁾ For blue-collar Americans, the result seems nothing more than lost jobs, increasing insecurity, and a widening gap between rich and poor. The unions see themselves as fighting for social justice - for some consideration for the losers from economic change. Their hope, in the words of the president of the AFL-CIO, is "to make the global economy work for working families." ⁽¹⁰⁾

Joining the labor movement is a growing assortment of other increasingly well organized lobbyists, each highlighting its own catalog of grievances against spreading globalization. Environmental groups lament degradation of the world's forests, rivers, oceans, and atmosphere, which they see as the direct consequence of an economic system that places profit above all else. Likewise, human-rights organizations protest abhorrent social practices, such as child or prison labor, while cultural activists deplore the adverse impact of increasing economic integration on cherished local traditions. Leftists attack what they perceive as an illegitimate transfer of decision-making from elected governments to impersonal market forces. Conservatives take up arms against the alleged surrender of national sovereignty to anonymous bureaucrats in distant institutions like the IMF or WTO. Not all these complaints are necessarily on target; many, in fact, are exaggerated or misleading, blaming globalization for ills that really stem from other causes. But that does nothing to deter the enthusiasm of the groups that espouse them.

Such groups are not new, of course. What is different today is their growing success in making their voices heard, symbolized most vividly by the Battle for Seattle and Mobilization for Global Justice. Both protests were carefully planned by increasingly professional activists such as Lori Wallach of Public Citizen, a consumer-interest group; as TV spectacles, they and later demonstrations have been highly effective in heightening public consciousness of the issues involved in globalization. For the first time, a broad-based coalition of like-minded movements has been brought together around a common set of themes - all committed, in Wallach's words, to "looking at the public interest, and trying to balance that against the corporate interests." ⁽¹¹⁾ Though doubts have been raised whether the momentum generated by such demonstrations can be sustained, protest leaders express confidence that this is only the beginning of a grand new mobilization of opposition forces.

In the face of such mounting hostility, can U.S. policymakers really be counted on to defend globalization at all costs? Complacency would not appear to be justified, as Gilpin (2000) and others have rightly warned. At a minimum, America's leaders might feel obliged to offer marginal concessions in order to avoid yet more noisy street demonstrations. At a maximum, if they sense their own electoral prospects at risk, they might abandon the liberal world economy altogether, however much that might contradict their personal beliefs. Lieber, in his opening chapter (Lieber 2001), suggests that in the 21^st century the domestic consensus needed for a coherent foreign policy is becoming ever more elusive. In no dimension of policy is that more true than in economic affairs. Policymakers will find it increasingly difficult to preserve the gains of the past in the face of the backlash against globalization. The threat, to repeat, is real. Effective responses are called for in the spheres of both trade and finance.

The threat is certainly evident in the trade sphere, where mercantilist impulses are never very far from the surface. Over the last decade, the scale of import liberalization around the world has been impressive - but so too has been the scale of resistance to further opening of markets, both in the United States and elsewhere. Not all the growing pressures for protectionism can be dismissed as mere self-interested parochialism or narrow economic nationalism. Broader issues are implicated, involving inter alia legitimate questions of income distribution, cultural diversity, the global environment, and national sovereignty. Finding effective responses to the diverse concerns of trade's many critics while preserving the benefits of closer international integration will not be easy.

Past achievements

Trade liberalization was high on America's diplomatic agenda throughout the 1990s, with many noteworthy results. For the Clinton Administration, coming into office in January 1993, it was "the economy, stupid." Nothing was more vital to the preservation of America's primacy, officials reasoned, than economic expansion; and nothing was more likely to sustain expansion than an opening of foreign markets to U.S. exports. Dismantling trade barriers, an essential element of the Washington consensus, became one of the core themes of U.S. foreign policy. Previous administrations too had placed emphasis on trade liberalization, combining elements of multilateralism, regionalism, and unilateralism (Cohen 1997). But few had placed such a high priority on market expansion as a sine qua non for national success. Consistent with past practice, the assault on import barriers was broad based, carried out in regional fora and bilaterally as well as in global negotiations.

At the global level, the Administration acted decisively to push completion in late 1993 of the Uruguay Round, which had begun when Ronald Reagan was still president, and then to gain ratification from a reluctant Congress a year later. Easily the broadest and most comprehensive trade agreement in history, incorporating no fewer than twenty-nine separate accords in a document running to over 22,000 pages, the Uruguay Round represented a new high in the globalization of the world economy. In the industrialized Triad economies, numerous import quotas were liberalized or eliminated, while tariffs on most manufactured goods were reduced to not much more than nuisance levels. On a broader scale, traditional rules previously embodied in the General Agreement on Tariffs and Trade (GATT) were extended to whole new economic sectors such as agriculture, services, intellectual property rights, and foreign investment. And perhaps most importantly of all, the old GATT was folded into the newly created WTO, an agency endowed with much wider powers to govern the multilateral trading system. Subsequent negotiations produced further opening in several key sectors, including information technology products in 1996 and financial services and telecommunications in 1997. U.S. Trade Representative Charlene Barshefsky was particularly pleased with the telecommunications agreement, which she said would "save billions of dollars for American consumers." ⁽¹²⁾

At the regional level, liberalization was promoted on several fronts. In North America, NAFTA's negotiation and ratification were completed in 1993, creating a major new free-trade zone between the United States and neighbors Canada and Mexico. And soon after, in newer initiatives, the Administration won agreement with two other groups of states to start building even wider regional accords. In November 1994, the U.S. and seventeen other countries of the Asia-Pacific region, under the auspices of the recently established Asia-Pacific Economic Cooperation (APEC), declared their intention to achieve full mutual free trade within twenty five years. Then, a month later at a Summit of the Americas in Miami, thirty-four Western Hemisphere governments agreed to negotiate a Free Trade Area of the Americas (FTAA), aiming for a full and open market within ten years to stretch from Alaska to Tierra del Fuego. For a brief moment there was even talk of a Transatlantic Free Trade Agreement (TAFTA), combining the U.S. and European Union (EU), though the idea never gained much political momentum. Instead, at a 1995 summit meeting in Madrid, Washington and the EU settled for a vaguer new Transatlantic Marketplace, rephrased in 1998 as a Transatlantic Economic Partnership, involving few commitments on either side (Frost 1997, 1998).

Finally, in diverse bilateral negotiations, the Clinton Administration brought new vigor to continuing efforts to pry open foreign markets long closed to U.S. goods and services. The major instrument of policy remained the feared Section 301, first enacted in the Trade Act of 1974, which authorizes U.S. negotiators to seek remedy of allegedly "unfair" trade practices abroad - and, more importantly, empowers the executive branch to impose sanctions against foreign governments that refuse to change their ways. Described by its critics as a tool of "aggressive unilateralism," Section 301 is defended by its supporters as unavoidably necessary to assure "comparable access" - a level playing field for American producers. Policymakers made no secret of their determination to act tough in defense of U.S. commercial interests. Said one top official: "We're convinced that you've got to be willing to show the sword to get results." ⁽¹³⁾ Importantly, in late 1999, the WTO backed the United States legislation, ruling that Section 301 does not violate existing international trade agreements. ⁽¹⁴⁾

Washington's targets included all the usual suspects, such as the EU and Japan as well as many of the newly industrializing nations. Over the course of the decade Europe was repeatedly pressed to remove discriminatory barriers to a variety of U.S. exports, both agricultural and industrial, albeit not always with success. More was achieved with the Japanese, who over time were prevailed upon to liberalize market access in a wide range of sensitive areas, including public-sector construction, rice, telecommunications, medical equipment, automobiles, insurance, photograph film, air freight, and shipping. "Economic acupuncture," an observer once called it -- a "speak-loudly-and-carry-a-small-needle strategy [that] seems to be producing results." ⁽¹⁵⁾ In late 1999, a sweeping new pact was signed with China offering greatly liberalized access for American producers in return for normalization of trade relations; and a few months later a similar accord was reached with Vietnam, not long ago a country at war with the United States. Successful or not, the Clinton Administration's assault on import barriers spared few of our trading partners.

Present problems

Yet for all the Administration's efforts, many problems remain for the next generation of policymakers. America's hegemony may be born again but, as Lieber (2001) notes, unchallenged primacy by no means translates into unlimited influence. Resistance to liberalization has grown too, at home as well as abroad - all part of the broader backlash against globalization. The result is a long agenda of unfinished business at all three levels of policy: global, regional, and bilateral.

At the global level, there were great hopes for a new Millennium Round to begin shortly after the start of the new century - only to be dashed by the Battle of Seattle. Numerous issues had been left unresolved by the Uruguay Round, to be addressed in subsequent negotiations. Some were included in a so-called "built-in" agenda for the new WTO. These were items formally mandated for further sectoral bargaining, involving most prominently agriculture and services. In agriculture, the main achievement of the Uruguay Round was agreement to convert existing non-tariff barriers, like import quotas, into more transparent - hence more negotiable - tariffs. Protection levels, however, remain high, limiting market access in most countries. In services, the main achievement was a new General Agreement on Trade in Services (GATS) providing a basic legal framework for future liberalization. The pioneering accords on information technology products, financial services, and telecommunications that followed in 1996-97, impressive as they were, only began the task of converting principle into practice.

Other issues, which many call the "New Trade Agenda," were to be taken up in the aborted Millennium Round. These include such highly charged matters as labor standards, environmental protection, and cultural policy - all sensitive regulatory questions reaching deep into domestic political and social affairs. Should trade agreements incorporate such issues as workers' rights, "fair" labor practices, and prohibition of child or prison labor? Should governments be permitted to use import barriers to promote environmental or cultural objectives? Global trade rules have traditionally limited the role of factors like these on the grounds that they could become an excuse for hidden protectionism - a subterfuge used arbitrarily by powerful constituencies to promote their own particularist interests. But as the Battle for Seattle made clear, they are questions that cannot be ignored if the backlash against globalization is to be contained.

At the regional level, the Clinton Administration did have one late triumph when it gained passage of the Trade and Development Act of 2000, unilaterally granting expanded duty-free access in the American market to more than seventy African and Caribbean nations. Little visible progress, however, was made in turning the earlier visions of FTAA and APEC into reality. In part, this was because of the Clinton Administration's inability to persuade Congress to renew the executive's fast-track authority for trade negotiations, despite repeated appeals. Fast-track, which had been part of U.S. legislation since the Trade Act of 1974, meant that once a trade deal was negotiated, Congress was given a deadline for ratification under rules prohibiting amendments of any kind. Following the hard-fought battles for NAFTA and the Uruguay Round, however, the Republican-dominated Congress was reluctant to give any new powers to an unloved Democratic President. Yet without fast-track, as Robert Pastor (2001) suggests, potential partners lacked much incentive to press ahead. Chile, for instance, which had been expected to become the next member of NAFTA, decided instead to establish an affiliate relationship with Mercosur, the Common Market of the South joining Argentina, Brazil, Paraguay, and Uruguay. ⁽¹⁶⁾ Progress has also been stalled by geopolitical rivalries. In the Western Hemisphere, Washington's regional aspirations have been resisted by Brazil, Latin America's leading economy, which has its own ambitions to expand Mercosur into a South America Free Trade Area (SAFTA) as a counterweight to NAFTA. Brazil, the New York Times warns, is "posing the first serious challenge to undisputed American leadership in the hemisphere." ⁽¹⁷⁾ In East Asia, the attractions of freer trade have been overshadowed by emerging great-power struggles involving the U.S., China, and Japan.

The Clinton Administration also had one late triumph at the bilateral level, when in October 2000 it signed a free-trade pact with Jordan that was notable for including, for the first time in any U.S. trade agreement, explicit commitments to enforce agreed labor and environmental standards. ⁽¹⁸⁾ Elsewhere, however, many contentious questions remain outstanding in relations with virtually all of America's trading partners. Typical is a series of festering disputes with the European Union, still unresolved after years of effort to limit EU discrimination against U.S. exports. At issue is a wide range of products, from bananas and other foodstuffs to audio-visual products and aircraft engines. In the case of bananas, the EU has refused to change its long-standing restraints on imports from Central America, where U.S. companies account for most output, despite repeated rulings by the WTO and even in the face of retaliatory U.S. duties. The WTO has also authorized U.S. sanctions in response to European limitations on shipments of hormone-treated beef and genetically modified (GM) foods from the United States, which the EU claims may be a threat to public health. Europe has also sought to control imports of American films and recorded music, largely on cultural grounds, as well as to restrict landing rights for U.S. airlines using older aircraft engines that the EU claims are too loud or polluting.

In fact, resistance to further market opening remains strong in most parts of the world. Nor is the U.S. itself immune from the virus of protectionism, as the EU and many other trading partners regularly point out. Despite a broad commitment to liberalization, Washington frequently acts unilaterally to limit external access to the domestic market. An ample arsenal of weapons is available, including quotas, anti-dumping measures, restrictive technical norms, and diverse health and safety regulations. From a foreign perspective, U.S. policy often appears contradictory and even unfair. How can America preach free trade to others and simultaneously restrain imports from abroad? "Reciprocity," Brazil's ambassador pointedly remarked not long ago, "is the name of the game." ⁽¹⁹⁾ Writes a German commentator, bitterly:

Many abroad see the United States as a nation divided against itself. It dominates the world economy with its strong economic performance, but at the same time feels deeply insecure about participating in the global economic system.... Some analysts have begun to compare the trade policy of the United States to its conduct of the Kosovo conflict, with losses to be avoided at any cost (Walter: 1999, A37).

At home, however, such a seemingly schizophrenic approach to trade - what The Economist labels America's "no-body-bags policy" ⁽²⁰⁾ - is easily understood as a byproduct of domestic politics. With opposition to globalization becoming increasingly well organized, compromises become unavoidable as the executive branch seeks to curry favor with legislators or key domestic interests. A good illustration came in 1994, when Washington unilaterally imposed sanctions on Taiwan for refusing to halt sales of tiger bones and rhinoceros horns - the first time ever that the U.S. Government had deployed sanctions to protect endangered wildlife. "I am delighted," said the head of a prominent environmental lobby. "It is as if the governor has issued a last-minute stay of execution for those magnificent creatures on the edge of extinction." ⁽²¹⁾ Another example came in early 2000, when Clinton officials imposed punitive duties on purchases of steel products from Germany, Japan, Korea and a number of other foreign producers. Ostensibly this was because the U.S. was being "flooded" with cheap imports. But few observers doubted that the main reason was to mollify the United Steelworkers of America and other labor unions, whose support was considered critical to then-Vice President Gore in the upcoming presidential election. If the United States is to preserve the benefits of open markets, it will first have to find ways other than outright protection to satisfy the legitimate demands of aggrieved constituencies like these.

Future strategy

Trade is manifestly one area where continued U.S. leadership is vital. Can Washington successfully reconcile the responsibilities of primacy with pressures from the system's critics? Though difficult, the task is not impossible. What is needed is a strategy that explicitly addresses the costs of liberalization as well as the benefits -- an approach that formally recognizes that tradeoffs are required to reconcile trade promotion with other legitimate goals of policy. Market opening matters, but so too do such matters as income inequality, the environment, culture, and national sovereignty.

On the one hand, this means a refusal to retreat from the long agenda of business left unfinished at the outset of the 21^st century. Washington should publicly commit itself anew to persevering on past initiatives - global liberalization in the areas of agriculture, services, and other New Trade Agenda items, regional efforts to complete FTAA and APEC, and bilateral bargaining to resolve outstanding disputes such as those with the EU. At the global level, the traditional approach of huge multilateral rounds would best be abandoned, given the increased number and complexity of issues and the rapid growth of WTO membership. As one source observes, "the low-hanging fruit in multilateral trade negotiations has already been picked....The 'global-round' approach to trade talks... [has] outlived its usefulness" (Cutter et al. 2000: 91). More efficient would be the more narrowly targeted type of bargaining that produced the later accords on information technology products, financial services, and telecommunications. Regional and bilateral talks should continue to emphasize the importance of enhanced market access. Nothing would symbolize Washington's revitalized commitment more than a quick renewal of fast-track negotiating authority.

On the other hand, policymakers must explicitly couple liberalization with the concerns of its domestic opponents. No longer is it possible to separate trade negotiations from their consequences, as bargaining reaches ever deeper into traditionally domestic issues. If the backlash against globalization is to be contained, critics must be persuaded that policymakers have not abandoned their social responsibilities. The trading system cannot become identified with limiting the broader authority of governments to promote the public weal. This does not mean giving mercantilists a free rein. But it does mean recognizing the legitimacy of other core social values. Three groups have been at the forefront of the assault on the trade regime: labor unions, social activists, and economic nationalists. Highest priority, therefore, should be given to the issues of most salience to each.

For the U.S. labor movement, obviously, the main issues are job security and income. Unions deny that they have simply become old-fashioned protectionists. But the sad fact is that labor has opposed virtually every initiative to open the U.S. market, from NAFTA and the Uruguay Round to normalization of trade relations with China and the Trade and Development Act of 2000. Ostensibly, unions favor trade agreements so long as they include provisions to protect the rights of foreign workers, such as minimum wages and a ban on child labor - all obviously valid concerns. "We believe in fair trade," says James Hoffa of the Teamsters. ⁽²²⁾ In reality, however, it would be disingenuous to believe that America's labor movement has suddenly been seized by a fit of international high-mindedness. Union leaders may be genuinely distressed by labor abuses abroad. Their underlying motive, however, is undoubtedly more self-serving: to slow down the continuing shift of jobs to locations abroad where labor-intensive goods can be produced more cheaply. Adds Hoffa: "American workers should not be asked to compete with foreigners who are not paid a living wage." ⁽²³⁾ Foreign governments certainly recognize the cynical element of such demands, which "take away our comparative advantage," as an Indian cabinet minister puts it - "a pernicious maneuver to force our wages up, to undermine our competitiveness." ⁽²⁴⁾

Can unions be turned away from protectionism? Manifestly a new domestic consensus is needed, more in line with the general public's priority for protecting American jobs as reported by Holsti (2001). The most direct approach would be one that formally ties liberalization to parallel aid measures for those whose incomes and jobs are likely to be most threatened -- blue-collar workers. In effect, this would mean reviving adjustment assistance as an integral part of our foreign-trade policy. First included in John F. Kennedy's Trade Expansion Act of 1962, adjustment assistance for those hurt by rising imports was allowed to fade away during the ascendancy of Reaganomics in the1980s. The political reality today, however, is clear. Union hostility to open markets will not be eased without a major new emphasis on programs designed to compensate workers for their losses - enhanced unemployment insurance, moving allowances, retraining programs, and the like. Mobilizing Congressional support for such interventionist measures in today's political climate will certainly not be easy. But turning labor away from protectionism without offering a safety net of some kind will be even more difficult.

For social activists the main issues are, above all, the New Trade Agenda questions of labor standards, environmental protection, and cultural policy. Workers' rights around the world cannot be ignored simply because the problem has been co-opted by U.S. labor unions for their own purposes. Neither can concerns about pollution or cultural degradation be dismissed as materially irrelevant to international trade negotiations. The likes of José Bové and Lori Wallach have made such issues relevant. The challenge is to design rules that explicitly balance the oft competing goals of economic efficiency and social welfare in the broadest sense - guidelines that carefully define when governments may legally sacrifice gains of trade in order to limit the ancillary costs of open markets. A possible model was provided by the free-trade pact with Jordan signed in late 2000, which explicitly linked market opening to formal compliance with international labor and environmental norms. Opportunistic use of such linkage as a rationale for hidden protectionism is always a risk, of course. But that would seem a small price to pay if the alternative is more protests on the model of the Battle of Seattle.

Finally, for economic nationalists, the main issue is the threat that WTO supposedly poses to the historical principle of state sovereignty. Most at issue is the WTO's mechanism for dispute resolution, which was greatly strengthened by the Uruguay Round as compared with the earlier GATT system (Jackson 1996). Critics argue that adverse rulings by WTO panels of experts, which are convened whenever a country is formally accused of a trading violation, could compel a nation even as powerful as the United States to change its standards or regulations against its will. In fact, that is an exaggeration. It is true that governments can no longer singlehandedly forestall an adverse ruling, as in the past. But it is also true that the WTO lacks enforcement powers of any kind, other than a right to authorize retaliatory sanctions of the sort that Washington has used in its disputes with the EU. As Bill Clinton's Council of Economic Advisers observed, the WTO cannot "preclude the United States or other countries from establishing, maintaining and effectively enforcing their own laws" (Council of Economic Advisers 2000: 219). Nonetheless, there is ample room for improvements that might ease concerns of this sort. Even its supporters admit that the WTO's dispute-settlement process is opaque and slow. Procedures could provide for much greater public access and participation to enhance transparency and accountability. That too seems a small price to pay to preserve the benefits of a liberal trading system.

Threat of backlash is equally evident in the finance sphere, where market integration has proceeded even more rapidly than in the trade sphere. As the global mobility of capital has risen, so also has the frequency and amplitude of financial crises, generating mounting discontent and denunciation. Here too broad issues are implicated - most importantly, the question of what globalization of finance means for the ability of sovereign states to manage their own economic affairs. And here too, finding effective responses to critics while preserving the benefits of closer integration will not be easy.

Phoenix risen

Of all the many changes of the world economy in recent decades, few have been nearly so dramatic as the resurrection of global finance. A half century ago, after the ravages of the Great Depression and World War II, financial markets everywhere -- with the notable exception of the United States -- were generally weak, insular and strictly controlled, reduced from their previously central role in international economic relations to offer little more than a negligible amount of trade financing. Starting in the late 1950s, however, private lending and investment once again began to gather momentum, generating a phenomenal growth of cross-border capital flows and an increasingly close integration of national financial markets. Like a phoenix risen from the ashes, global finance took flight and soared to new heights of power and influence in the affairs of nations (Cohen 1996).

Like trade liberalization, financial liberalization ranked high on America's diplomatic agenda throughout the 1990s - another essential element of the Washington consensus. America could expect to gain in two ways. First, open capital markets would make it easier to finance the country's persistent trade deficit, deflecting pressures to restrict imports instead. And second, new market opportunities would be created for U.S. financial institutions, universally acknowledged to be among the world's most competitive suppliers of banking and investment services. An assault on barriers to capital mobility seemed a natural complement to a policy of export promotion. Both promised to help revitalize America's economic primacy.

Here too, as with trade, policy was consistent with past practice. Previous administrations, going as far back as Presidents Ford and Carter, had also placed emphasis on financial liberalization. America itself helped lead the way in the mid-1970s by removing capital controls that had been introduced in the 1960s; and encouragement was later given to other Triad countries as well, all of which followed suit by the time President Clinton took office. But here too the new Administration added fresh vigor to policy, targeting in particular the emerging East Asian and Latin American economies. All were urged to phase out existing capital controls as quickly as possible. Open financial markets, governments were told, were essential to attaining healthy, self-sustaining growth. Like trade based on comparative advantage, capital mobility could lead to a more productive employment of investment resources; it also offered increased opportunities for effective risk management and potentially higher returns for savers. Free capital mobility, therefore, no less than free trade, should be enshrined as a universal norm. The high point came in early 1997 when, at the urging of the United States, the IMF began to prepare a new amendment to the organization's charter to make promotion of financial liberalization a specific Fund objective and responsibility. ⁽²⁵⁾

But then came the Asian financial crisis of 1997-98, with reverberations that were still being felt at century's end. Crises in global capital markets were nothing new, of course. During the 1980s there was the prolonged problem of Latin American debt, triggered by Mexico's near-default on its foreign bank loans in 1982. In 1992-93 there was the collapse of the European Union's so-called Exchange Rate Mechanism - a pegged-rate precursor to today's euro - under the pressure of massive currency speculation. And in late 1994 there was yet another near-default in Mexico, which quickly spread to a number of other countries in what came to be known as the "tequila effect." Later dubbed by Michel Camdessus, then managing director of the IMF, "the first financial crisis of the twenty-first century," Mexico's new emergency was distinguished by the fact that unlike during the 1980s, the debts involved were not bank loans but securities - in particular, government bonds - which could be sold quickly by foreign investors. This greatly accelerated the pace of events and complicated the task of negotiating a satisfactory solution. Default was avoided only with the help of the U.S. Treasury. A line of credit of some $20 billion from the Treasury's Exchange Stabilization Fund (ESF) was made available to the Mexican authorities to help stem the gathering tide of capital flight. Though criticized at the time in the Congress as a deceitful circumvention of legislative authority, the Administration's use of the ESF, which was in fact quite legal, proved to be a great success. Financial stability was quickly restored, and Mexico's drawings, which peaked at $11.5 billion, were all repaid by January 1997, with a profit to the Treasury of nearly a half billion dollars (Henning 1999).

None of these prior episodes, however, had prepared policymakers for the ferocity of the storm that hit East Asia, beginning with an attack on Thailand's currency, the bhat, in mid-1997. Though a rescue package of some $25 billion was quickly assembled for Bangkok, the crisis soon proved contagious - "bhatulism," some called it - spreading first to regional neighbors like Malaysia, Indonesia, and Korea; and then later as far afield as Russia in mid-1998, Brazil in early 1999, and Argentina in 2000. Governments across the developing world were forced to turn for assistance to the IMF, which prescribed tough policy conditions. Monetary and fiscal policies were tightened sharply in hopes of sustaining the confidence of foreign investors, even at the risk of prolonged recession and higher unemployment. Economic development stalled, and living standards tumbled.

Criticisms, not surprisingly, soon followed. Why, many asked, should sovereign states be forced to tailor their policies to the preferences of private interests? Why should freedom of capital movements be given absolute priority over other considerations of public welfare? In the words of Paul Krugman, it was all a cruel "confidence game":

The need to win market confidence can actually prevent a country from following otherwise sensible policies and force it to follow policies that would normally seem perverse.... Policy ends up having very little to do with economics. It becomes an exercise in amateur psychology.... It sounds pretty crazy, and it is (Krugman 1998).

Across the developing world, accordingly, resistance to financial liberalization has rapidly increased - also part of the broader backlash against globalization. The phoenix of global finance is now seen as more rapacious than benign. Many in East Asia took encouragement from the example of Malaysia which, in September 1998, reintroduced strict controls on capital outflows in order to provide room for more expansionary domestic policies. Capital controls had long been dismissed as a relic of an earlier, more interventionist era. But now, as one source commented, they seemed to become "an idea whose time, in the minds of many Asian government officials, has come back" (Wade and Veneroso 1998: 23). Authorities elsewhere are also known to be reconsidering the virtues of capital mobility, as discomfort with the confidence game grows. Here too the core issue is clear: Can the benefits of open markets be reconciled with the legitimate grievances of critics? And here too it is evident that continued U.S. leadership is vital.

Taming the phoenix?

Can the phoenix be tamed? Once again, what is needed is a strategy that explicitly addresses the costs of liberalization as well as the benefits. Since the Asian crisis broke, there has been much talk of reform of the "international financial architecture" - the rules and institutions governing monetary relations among states. The challenge of reform is to find some way to reconcile capital mobility with the demands of national sovereignty. In this sphere too, critics must be persuaded that policymakers are not being compelled to sacrifice social responsibilities on the alter of open markets. Improvements are called for in three areas: crisis prevention, crisis management, and currency cooperation.

First, reforms are needed to reduce the probability of more Asian-style financial storms in the future. Consensus already exists on the need for strengthening domestic banking and capital markets, to avoid the kind of fragilities - e.g., currency mismatches and excessive short-term borrowing - that are known to have contributed to East Asia's difficulties. Indeed, many governments have already been persuaded to upgrade the supervision and regulation of their financial markets, emphasizing in particular better risk-management practices and disclosure requirements in order to enhance market discipline. But that is only a beginning, as I have suggested elsewhere (Cohen 2001). In addition, the case for capital controls must be reconsidered - particularly the case for curbs on liquid inflows of the sort that Chile maintained, with considerable success, for many years to minimize the risk of massive outflows. Controls are indeed an idea whose time has - or should - come back. The IMF, for instance, has dramatically changed its tune since the Asian crisis, dropping active discussion of a new amendment on liberalization and talking instead of the possible efficacy of selective financial restraints. ⁽²⁶⁾ Most desirable would be a set of rules similar to those proposed for core New Trade Agenda issues - guidelines that, in parallel fashion, would carefully define when and how governments may legally sacrifice the benefits of capital mobility in order to limit the ancillary costs of open markets. Though this approach too runs the risk of abuse by opportunistic governments, it would again seem a small price to pay if the alternative is arbitrary market closure.

Reforms are also needed to cope more effectively with crises when they do occur, to reduce their severity and minimize the threat of contagion. At one level, this means creating more orderly market procedures for restructuring problem debts, along lines suggested by economist Barry Eichengreen (1999) - e.g., majority voting, sharing clauses, and provisions for collective representation that would make it easier for foreign creditors to negotiate acceptable settlements with their debtors. At a second level, it means taking another look at the role of the IMF, which until now has acted mainly as guardian and enforcer of the Washington consensus. Conservatives have criticized the Fund for creating a serious moral hazard: a risk that countries will deliberately take on higher levels of debt in the knowledge that the IMF is there to rescue them if they get into trouble. Their solution would be to limit the Fund's activities strictly to the provision of emergency liquidity - in effect, aiding just the most solvent borrowers -- as a Congressional commission recently recommended. ⁽²⁷⁾ In fact, however, it is hard to see how such a narrow mandate could really reduce the spread of panic in financial markets, once a crisis begins. More to the point would be a streamlining of the IMF's lending programs, as advocated by former Treasury Secretary Lawrence Summers, ⁽²⁸⁾ to enable it to move more quickly and effectively to stem market unruliness. Progress in this direction was achieved in late 2000 when the Fund approved a plan to discourage repeat borrowers, who look to the IMF as a routine source of aid, and instead to make more money available for emergency situations. ⁽²⁹⁾ Over time, the practical implementation of Fund policy conditionality will also have to be reassessed, to put less singleminded emphasis on domestic austerity, particularly fiscal austerity, when governments are forced to play the confidence game with international investors.

Finally, a renewed effort is needed to cultivate cooperation on currency issues, particularly among the Triad countries. Exchange rates among the major currencies - the dollar, euro, and yen - cannot be left solely to the tender mercies of speculators, given the central importance of these currencies to the stability of monetary relations in general. The United States, especially, has an interest in avoiding extreme exchange-rate uncertainties because of its continued dependence on financing from abroad. One reason why America has been able to live beyond its means for so long is that, until now, the greenback had no serious rival as an international currency. With the emergence of the euro, however, that is no longer true. Europe's new money is widely expected to offer an attractive alternative to global investors, as is the yen once the Japanese economy recovers its stride. Worse, both the EU and Japan may well be tempted to compete vigorously to promote international use of their currencies, in order to enhance their own ability to finance payments deficits, even at the risk of provoking a run on the dollar. Washington thus has a strong incentive to do all it can to improve mechanisms for the collective management of exchange rates. Closer and more effective collaboration should be pursued through both the IMF and G-7.

The agenda for U.S. foreign economic policy is long. At the outset of the 21^st century, America's primacy in the world economy is undoubted - but insecure. Both at home and abroad a backlash against globalization is intensifying, threatening global prosperity. If the material benefits of open markets are to be preserved, the legitimate concerns of globalization's critics must be directly addressed. In trade, this means doing more to compensate for the effects of open markets on income inequality, the environment, culture, and national sovereignty. In finance, it means doing more to limit the impact of capital mobility on the ability of states to manage their own economic affairs. The irreversibility of globalization cannot be taken for granted, and there is no substitute for U.S. leadership.

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1. Canadian cultural concerns are well illustrated by its repeated efforts to limit the circulation of American magazines like People or Sports Illustrated, which outsell Canada's own magazine industry. The governments's purpose, in the words of the prime minister, is to protect "part of our national identity" (as quoted in The Economist, 6 February 1999: 36). Japanese concerns are well illustrated by the country's determination to continue a long tradition of whale hunting despite U.S. opposition to the destruction of endangered species. Whale meat is considered a delicacy in Japanese cuisine. "Americans are a bunch of culinary imperialists," one Japanese restaurant owner has said. "Telling the Japanese not to hunt whales is like telling the British to stop having their afternoon tea" (as quoted in New York Times, 10 August, 2000: A8). How different is this from José Bové's denunciation of McDonalds as la mal-bouffe ("lousy food"). Echoed the respected newspaper Le Monde, "resistance to the hegemonic pretenses of hamburgers is, above all, a cultural imperative" (as quoted by Meunier 2000: 107).

2. Joseph Kahn, "Seattle Protesters are Back, With a New Target," New York Times, 9 April, 2000: 4

3. Michael Moore, as quoted in New York Times, 29 January, 2000: B2.

4. "Anti-Capitalist Protests: Angry and Effective," The Economist, 23 September, 2000: 86.

5. As quoted in New York Times, 1 January, 2000: C1.

6. To sample the two sides of the debate, see e.g., Lovett (1999) and Griswold (2000). In Lovett's view, the deficit "cannot continue much longer (Lovett 1999: 138). Griswold, by contrast, contends that the deficit "poses no threat" (Griswold 2000: 68). For a comprehensive and balanced analysis, see Mann (1999).

7. This is also the view of a prominent Congressional commission appointed to study the deficit, which concluded in late 2000 that the imbalance had become unsustainably large and dangerous for the U.S. economy, though disagreeing on what to do about it (New York Times, 15 November, 2000: C2).

8. In fact, during the campaign only one significant point of contention emerged concerning foreign economic policy, prompted by a free-trade pact signed with Jordan in October 2000 (see below). This involved whether, or to what extent, trade agreements should be linked to labor and environmental issues. Both candidates favored trade liberalization. But while Al Gore promised not to expand trade in the future without first establishing firm labor and environmental standards, George W. Bush opposed any such linkage.

9. The union leader was George Becker, president of the United Steelworkers of America, as quoted in New York Times, 12 April, 2000: A12.

10. John J. Sweeney, as quoted in New York Times, 13 April, 2000: A1. For a particularly articulate presentation of the case for social justice for workers in a globalizing world economy, see Kapstein (1999).

11. As quoted in an extensive interview published under the title "Lori's War," Foreign Policy 118 (Spring 2000): 49.

12. As quoted in New York Times, 16 February, 1997: 1.

13. The official was Stuart Eizenstat, Under Secretary of Commerce, as quoted in New York Times, 5 January, 1996: A1.

14. New York Times, 23 December, 1999: C2.

15. Thomas L. Friedman, "U.S. Approach to Japan: 'Economic Acupuncture,'" New York Times, 18 March, 1994: C1.

16. An affiliate relationship was meant to lead eventually to full membership in Mercosur. But in late 2000, under a new president, Chile reversed itself a second time, announcing its intention to forego the Mercosur option in order to pursue once again a free-trade agreement with the United States. See New York Times, 3 December, 2000: 9.

17. Diana Jean Schemo, "As Washington's Attention Wanders, Brazil Plays a Quiet Catch-Up Game," New York Times, 14 October, 1997: A6.

18. New York Times, 20 October, 2000: A14. As indicated above (note 8), this pact generated the one significant difference that emerged during 2000 presidential contest between Al Gore and George W. Bush. Jordan is only the fourth country to sign a full free-trade agreement with the United States, joining Canada, Mexico, and Israel.

19. Ambassador Rubens Antonio Barbosa, as quoted in New York Times, 7 August 2000: C4. The remark was made in a hearing before the Subcommittee on the Western Hemisphere of the U.S. House Committee on International Relations.

20. "After Seattle," The Economist, 11 December 1999: 19.

21. Diana E McKeekin, head of the African Wildlife Foundation, as quoted in New York Times, 12 April 1994: C1.

22. As quoted in New York Times, 24 April, 2000: A9. Labor did support the Jordan trade pact signed in October 2000 precisely because the agreement did include explicit commitments on labor standards.

23. As quote in New York Times, 21 May, 2000: WK17.

24. Commerce and Industry Minister Murasoli Maran, as quoted in New York Times, 17 December, 1999: C4.

25. Under the plan, two articles of the Fund charter were to be amended - Article I, where "orderly liberalization of capital" would be added to the list of the Fund's formal purposes; and Article VIII, which would give the Fund the same jurisdiction over the capital account of its members as it already enjoys over the current account. The language would also require countries to commit themselves to capital liberalization as a goal. For more detail, see IMF Survey, 12 May, 1997.

26. See e.g., Ariyoshi et al. (2000).

27. This was the International Financial Institutions Advisory Commission (2000) - otherwise known as the Meltzer Commission after its chair, Allen Meltzer, a prominent academic economist. The Commission was comprised of some eleven private-sector specialists appointed by the Congress. Its report was issued in March 2000.

28. See e.g., New York Times, 15 December 1999: C4.

29. See e.g., New York Times, 16 September, 2000: B1.