Patrick J.

McDonald

Revitalizing Grand Strategy: Americas Untapped Market Power

he costs and unmet expectations of the democracy promotion project in Iraq and the wider Middle East have sparked a broad debate about the future of U.S. grand strategy. In the chorus for change, some suggest that the United States should return to such principles of liberal internationalism as multilateralism and financial beneficence, which marked the golden era of U.S. diplomacy in the years immediately following the end of World War II. Others insist that U.S. foreign policy needs to be reestablished in a more pragmatic realism that responds to the global balance of power and resists the overuse of military muscle to promote democracy around the world. Greater reliance on U.S. economic power can inject more prudence into foreign policy without abandoning the historical U.S. goal of promoting freedom and political reform around the world. The United States possesses the largest and most vibrant market in the global economy and can integrate this unique political asset more effectively in the larger global struggle against terrorism and radical Islam. Unilaterally eliminating trade barriers on imported goods from moderate Islamic states critical to combating terrorism, such as Bangladesh, Ethiopia, Indonesia, Kenya, Malaysia, Mali, Mauritania, Nigeria, Pakistan, the Philippines, Tanzania, and Turkey, could strengthen Washingtons capacity to promote political moderation and cultivate local influence within these countries. As foreign businesses and workers come to depend on U.S. consumers for profits and jobs, they become important allies in internal struggles taking place around the world between the forces of modernization, globalization, and tolPatrick J. McDonald is an assistant professor in the Department of Government at the University of Texas at Austin. He would like to thank Jason Brownlee, George Gavrilis, Ron Krebs, and Peter Trubowitz for their input and Mark La Brayere for his outstanding research assistance. He may be reached at pjm438@gov.utexas.edu. 2007 by The Center for Strategic and International Studies and the Massachusetts Institute of Technology The Washington Quarterly 30:3 pp. 2135. THE WASHINGTON QUARTERLY

SUMMER 2007

21

l Patrick J. McDonald
erance against those of tradition, introversion, and hatred. Expanded access to the U.S. consumer market cultivates an enduring foundation for common political interests with the United States by creating jobs and economic opportunities in potential havens for terrorist activity while strengthening liberty and domestic political reform abroad.

Trading for Inuence

Classical liberals such as Adam Smith, Baron de Montesquieu, Joseph Schumpeter, Richard Cobden, and Friedrich von Hayek long ago recognized that capitalism and the emergence of global markets can enhance individual liberty, democracy, and peace between states. Smith argued that new market opportunities induced large landholders in the pre-industrial era to introduce reforms such as devolving more ownership rights to peasants to enhance productivity. These reforms had the unintended effect of decreasing the dependence of peasants on the landlord for subsistence, curtailing the latters authority. Similarly, the enormous U.S. economy has created textile jobs in places such as Bangladesh and China that in turn have enhanced the autonomy of women living in the maledominated political orders found in many rural or developing societies.1 In midnineteenth-century United Kingdom, Cobden saw eliminating protective barriers to international trade as a device to empower a burgeoning middle class in their challenge to a political order that was hostile to democratic reform, a process that has occurred today in Taiwan and South Korea. In addition, 60 years of European integration have transformed the long rivalry between France and Germany into a strong partnership, vindicating Cobdens and Schumpeters beliefs that democratic pressures unleashed by free trade would ultimately eliminate incentives for war. Developed economies governed by the industrious middle class, they argued, simply have no interest in the excessive waste and cost of conflict. Governments overseeing large economies can also draw on their market power to enhance their political influence over other states.2 Economic sanctions are often used to induce political concessions from targeted states, who must otherwise seek alternative, smaller outlets for their goods. Governments can also use economic inducements, namely granting preferential access to home markets, to cultivate local political allies within target countries. This strategy relies on the material interest generated by possessing such access and on the domestic pressure its beneficiaries are willing to levy on their home governments to maintain such ties. The United States adopted such a strategy throughout the Cold War. As part of its broader economic strategy that included Marshall Plan aid, Washington tolerated undervalued currencies that discriminated against its
22 THE WASHINGTON QUARTERLY

SUMMER 2007

Revitalizing Grand Strategy: Americas Untapped Market Power

exports, the liberalization of intra-European trade, and delays on restoring current account convertibility in Europe in order to stabilize economic conditions in its allies. The opening of U.S. markets to war-torn economies in Western Europe and Japan fostered economic recovery, stopped the spread of communism, and established firm economic foundations for stronger political ties in the Western bloc. China has also used such carrots to break the stalemate across the Taiwan Strait. Beiliminating U.S. import jing has strategically opened components of barriers can promote its market to influence the internal debate political moderation in within Taiwan over whether to pursue some key Islamic states. form of political compromise with the mainland or declare independence. For example, in a very public signal in the summer of 2005, the mainland eliminated tariff restrictions on imported fruit from Taiwan. Because fruit production is concentrated in southern Taiwan, a traditional political stronghold for pro-independence forces, the mainland hopes that new outlets for these products will lead farmers to support greater accommodation with the mainland. In short, China is using access to its domestic economy to shape the internal political debate in Taiwan by targeting key constituencies and fostering greater support for its interests. As these experiences suggest, liberal trade policies have the potential to create important political dividends for the United States. U.S. trade policy should not be debated only in terms of lost market opportunities or jobs. The opening of U.S. markets should also be viewed as a device to promote national security, making allies of foreign businesses and workers who come to depend on U.S. consumers for profits and jobs. This strategy of using economic ties to cultivate local political support compares favorably to the existing policy of democracy promotion. Recent electoral developments in Bolivia, Iran, the Palestinian territories, and Venezuela illustrate one of the challenges of relying too heavily on democracy promotion as a device to enhance national security. Democracy protects the process by which societies choose their political leaders, but it does not protect the policy outputs of this process. For example, the last Palestinian election granted a political mandate to Hamas, which has publicly taken credit for numerous terrorist attacks in pursuit of its broader political goal: the destruction of Israel, a close U.S. ally. If anything, the recent mix of democratization and global frustration with the militarism of U.S. foreign policy has proven to be an effective recipe for empowering groups hostile to U.S. interests. This does not necessarily imply that the United States should halt its current strategy of democracy promotion. It does, however, clearly illustrate that

THE WASHINGTON QUARTERLY

SUMMER 2007

23

l Patrick J. McDonald
a grand strategy centered on promoting institutional reform in other societies must simultaneously incorporate instruments capable of building support among the local population for U.S. interests once the political transition has occurred or in the absence of such a transition. As the Iraqi experience suggests, the United States cannot depend solely on toppling autocratic leaders to build broader support around the world for its policies.

The Power of Positive Economic Statecraft

The political and economic costs of the Iraq war illustrate the dangers associated with an overreliance on military force to promote U.S. interests around the world. Similarly, a public already resistant to foreign aid casts doubt on the feasibility of launching a new Marshall Plan for the Middle East or Africa. 3 Alternatively, eliminating import barriers on goods from a host of strategically important countries can create substantial economic gains for these countries and offer important political opportunities to the United States. Expanding exports to the U.S. market stimulates economic growth, encourages foreign direct investment, and promotes further economic liberalization. Perhaps most importantly, access to U.S. consumers offers the United States an opportunity to cultivate broader grassroots political support abroad. Countries targeted to receive preferential access to the U.S. market for national security reasons would have the largest impact in textiles and agriculture. In many cases, reducing subsidies to U.S. farmers, such as in cotton production, would help to raise world prices and stimulate new production in the developing world, particularly West Africa. Eliminating tariffs on textiles and agricultural products such as sugar and corn would lead to a decline in prices paid by U.S. consumers and increase imports into the United States. U.S. consumer appetites for clothing and textile imports are substantial. Annual textile imports to the United States totaled more than $95 billion in 2005. 4 Many of these imports come from battleground states in the broader war against terrorism. Indonesia, Pakistan, Bangladesh, the Philippines, and Turkey respectively ranked sixth, seventh, tenth, fourteenth, and twenty-first in textile exports to the United States in 2005.5 The textile sector accounts for a substantial amount of economic activity within these developing economies. In Pakistan and Bangladesh, textile production constitutes nearly 60 percent of the industrial base.6 Pakistans textile exports to the United States totaled more than $3 billion in 2005, accounting for 3.3 percent of its gross domestic product (GDP) and more than 20 percent of its total exports.7 The relative importance of textile exports to the United States is even larger for Bangladesh. They totaled nearly $2.5 billion in 2005, making up 3.9 percent of its GDP and more than 26 percent of its total
24 THE WASHINGTON QUARTERLY

SUMMER 2007

Revitalizing Grand Strategy: Americas Untapped Market Power

exports. A $1 billion increase in Bangladeshs textile exports to the United Statesslightly more than 1 percent of total U.S. textile importswould increase economic growth there by nearly 1.6 percent. Similarly, Commerce Minister Humayun Akhtar Khan of Pakistan estimates that every $1 billion in export growth yields 200,000 new jobs there.8 Low labor costs help textiles exports from these countries to remain competitive in U.S. markets despite facing average tariffs today between 15 and 20 percent. Two of the largest categories of textile exhina is using access to ports from Bangladesh to the United States its domestic economy are in mens cotton shirts and mens pants. to shape the political T-shirts face a tariff of 19.7 percent, and debate in Taiwan. pants are taxed 16.6 percent. 9 Bed linens, Pakistans top textile export to the United States, face tariffs between 2.5 and 20.9 percent. 10 The elimination of these duties would dramatically reduce the costs of textiles to the U.S. consumer. Declining consumer prices would in turn stimulate even more demand and employment opportunities in these countries as their economies expand to meet these new production needs. The free-trade agreement concluded between the United States and Jordan in 2001 illustrates these economic possibilities. Jordans exports to the United States in 2000 totaled $72.8 million. By 2005, this export gure had increased by a factor of 17, to $1.27 billion. 11 Although job creation for Jordanians has been somewhat limited because textile rms rely heavily on foreign workers, some estimates credit this industrial growth with creating nearly 50,000 jobs.12 Creating free-trade areas would also dramatically enhance the competitiveness of countries such as Bangladesh, Indonesia, Pakistan, the Philippines, and Turkey relative to global textile industry leader China. Profit margins in textiles can be quite small. State-owned textile factories in China report profit margins from 5 to 7 percent. 13 Tariff reductions of 15 to 20 percent for those countries would thus carry the potential to shift production out of China and slow the growing economic disparity within the developing world.14 Eliminating trade barriers would stimulate foreign direct investment by entrepreneurs seeking to take advantage of preferential access to the U.S. market into these capital-scarce economies. The Central America Free Trade Agreement, for example, has already led the Taiwanese government to encourage their businesses to invest in places such as Nicaragua and Honduras. Proindependence politicians urge the diversion of Taiwanese capital away from the Chinese mainland to reduce the political risks associated with investment

THE WASHINGTON QUARTERLY

SUMMER 2007

25

l Patrick J. McDonald
there, while reaping the economic benefits derived from Central American trade pacts that ultimately offer preferential access to the U.S. market. Freetrade agreements with the United States would enlist the global private sector as allies in support of sustainable development and democracy in strategically important countries. Expanding economic opportunities created by preferential access to the U.S. economy and higher levels of foreign direct investment also create opportunities for expanding individual freedom and political development. The architects of the Cold War order understood how difficult it would be to any textile rely on democracy as a device to prevent Soviet imports come from expansion toward Western Europe if the postwar battleground states recovery stagnated, industrial capacity remained in the broader war underutilized, and unemployment rose. Very real fears of Communist Party electoral gains in against terrorism. France and Italy helped to stimulate U.S. cash infusions, including Marshall Plan aid, into these countries. Recent research shows that the collapse of democratic regimes, such as in Argentina, Brazil, or Greece in the 1960s, only occurs at low levels of economic development. 15 Promoting sustainable economic growth encourages democracy where it has yet to take hold and sustains it where it has. Additionally, as firm managers and employees come to depend on access to the U.S. market for providing income growth and jobs, they could also develop a broader affinity for the United States. Surveys conducted in Beijing show that higher income levels and support for free trade both correlate with higher levels of amity toward the United States.16 Sparked by the U.S. consumer, capital inflows and job creation that extends to all income levels could promote grassroots support for U.S. interests in these countries. This opportunity to stimulate popular support contrasts with economic carrots such as the sale of military hardware or foreign aid. Rather than stimulating development, such resources are often spent on coercion and serve as lightning rods for nationalist or Islamic opposition forces.17 Moreover, multinational corporations operating in these countries are also likely to act as interest groups supporting U.S. goals. Local political influence stems from their capacity to create jobs by opening new factories. Owners of Taiwanese firms have already generated extensive influence with local politicians in Central America as a result of their investments there.18 If these firms depend on access to the U.S. market for their profitability, they may also serve as informal representatives for U.S. interests in these countries.

26

THE WASHINGTON QUARTERLY

SUMMER 2007

Revitalizing Grand Strategy: Americas Untapped Market Power

Launching the Initiative

Opening the U.S. economy for the purpose of building allies would not come without significant political costs and risks at home and abroad. The debates over outsourcing in the 2004 U.S. elections illustrate the perils that such a free-trade initiative faces in a hostile, domestic political climate that demonizes CEOs who export U.S. jobs as Benedict Arnolds. Democrats made electoral gains in Ohio, Michigan, and Pennsylvania in the 2006 midterm elections by associating substantial layoffs with globalization and Republican support for President George W. Bushs free-trade initiatives. Moreover, in target countries such as Indonesia and Pakistan, further exposure to globalization could generate local resistance and political opportunities for Islamists in their ongoing struggle against Westernization and secularization.

PREEMPTING RESISTANCE ABROAD

Much of this resistance in the Muslim world could be preempted by the unilateral nature of the proposed U.S. initiative that allows these countries to carve out their own development strategies. As globalization often increases the aggregate income of societies, it shifts the distribution of income within it. Quite simply, some groups win and some groups lose. Much of the political resistance to globalization emerges from these distributional pressures. Although the elimination of tariffs and quotas tends to reduce the prices of tradable goods and thereby expand the real income for most consumers, sharp, concentrated costs fall on import-competing industries. These concentrated losses tend to provoke vigorous political opposition to further liberalization of the domestic economy. For example, in the United States these costs of globalization have recently fallen hard on labor-intensive industries such as textiles production. As textile rms relocate production activities to low-wage countries such as Bangladesh, China, or Vietnam, U.S. jobs in these industries are eliminated. Obviously, the benets of globalization, such as cheaper T-shirts, insufciently compensate unemployed textile workers. The developing world is not immune to such pressures. Eliminating trade barriers or the closure of state-owned enterprises incapable of competing with private multinationals creates the same negative employment effects. Moreover, the primary political agents of globalization such as the United States and the International Monetary Fund have often been accused of accelerating these trends in the developing world while ignoring the dramatic social costs of economic liberalization. One of the most powerful sources of globalization backlash has been the view that Western aid, particularly emergency lending, carries conditions such

THE WASHINGTON QUARTERLY

SUMMER 2007

27

l Patrick J. McDonald
as government spending cuts, capital account liberalization, and trade liberalization that widen the income disparity between the developed and developing world. 19 The United States risks accentuating this backlash with tough bargaining that imposes harsh political or economic conditions in exchange for liberalizing access to the U.S. market. Such problems may be compounded in the Muslim world, where globalization already carries connotations of Western cultural imperialism. 20 Islamic fundamentalists decry the selfish pursuit of profit and corruption that thrive under capitalism and threaten to erode the bonds of he U.S. risks community among Muslims. To counter such globalization threats, they mobilize domestic political supbacklash by imposing port for policies that limit economic and culconditions on its tural exchange with the West. By increasing exposure to globalization, this initiative may market liberalization. instead strengthen the political forces that the United States is attempting to weaken. The unilateral nature of this initiative can preempt much of the upsurge against globalization in the targeted countries. Any trade agreement that involves reciprocal concessions offers both benefits and costs to an economy. On one hand, exporting industries receive new outlets for their products, and consumers pay lower costs for products produced more efficiently abroad. On the other hand, jobs are eliminated in importcompeting industries as regulatory barriers such as tariffs that insulate these firms from greater global competition are removed. If the United States does not insist that the target countries offer any reciprocal concessions that liberalize their own domestic economies, local industries producing for home markets would not be exposed to greater competition from U.S. firms. A potent source of backlash against globalization that could strengthen political Islamists, namely job loss in inefficient industries, would be reduced by the unilateral elimination of U.S. trade barriers. Moreover, the pursuit of prot is not inconsistent with Islamic thought.21 An awareness of the benets provided by economic development and a desire to challenge secularism have already spawned public and private efforts to insert components of Islamic identity into commercial activities in Malaysia, Pakistan, and Sudan. Labeled Islamic economics or Islamic nance, such initiatives have eliminated some forms of interest common to commercial lending in the developed world; fostered zakat, income redistribution through a tax on wealth or income; and encouraged such norms as honesty, justice, equality, and the right to be treated fairly in economic interactions.22 Instead of eliminating the role for markets in allocating scarce resources, such initiatives have sought in-

28

THE WASHINGTON QUARTERLY

SUMMER 2007

Revitalizing Grand Strategy: Americas Untapped Market Power

stead to make secular commercial exchanges more Islamic by encouraging them to be governed by communal norms common to Muslim societies. Unilaterally eliminating U.S. trade barriers would allow the targeted governments to continue pursuing such local economic strategies capable of carving out a middle ground between the sometimes conflicting pursuits of growing the economy and strengthening Islamic communal identities. Moreover, indirect U.S. support for this compromise by offering new markets, without insisting on concessions that threaten such Islamic development strategies, could help to lessen the appeal of radical political Islamists seizing on any globalization backlash. One of the long-extolled virtues of the Marshall Plan was the decision to let Europeans in concert craft their own strategy to rebuild their economies after the war and to determine independently how U.S. aid would be spent. Similarly, the unilateral elimination of trade barriers enables governments to choose whether or not to liberalize their domestic economy to foreign direct investment, allow rapid migration into cities to take advantage of new manufacturing jobs, or implement an export-led growth strategy. These countries could continue to carve out their own Islamic development strategies and maintain mechanisms that influence the pace by which their local economies integrate into the broader world economy.

COUNTERING RESISTANCE AT HOME

The Bush administration has acknowledged the opportunities created by relying on the U.S. consumer to change societies around the world. It has proposed a free-trade area for the Middle East and has publicly criticized proponents of protectionism in the United States for their failure to grasp the potential for peace and tolerance created by international commerce.23 The limited nature of the current proposal, however, which excludes nearly two-thirds of the worlds Muslim population by leaving out the critical countries of Bangladesh, Indonesia, Pakistan, and Turkey, and the administrations recently lukewarm support for free trade cast doubt on its current commitment to this strategy.24 This wavering commitment to trade liberalization is also a function of declining support within the American public and of partisan strife. The 2004 and 2006 elections illustrate how concentrated job losses created by factory closures around the country activate traditional Democratic skepticism toward globalization and provide an opportunity to recast the political agenda away from security debates that have played to Republican advantage since the September 11 attacks. At the same time, Republicans have grown averse to spending increasingly scarce political capital on controversial trade-liberalization initiatives that only seem to mobilize the Democratic base. Lukewarm

THE WASHINGTON QUARTERLY

SUMMER 2007

29

l Patrick J. McDonald
public support stems partly from the diffuse benefits of globalization, such as declining consumer prices, that are too small to generate large activist coalitions behind trade initiatives. The collapse of the Doha round of multilateral trade negotiations in the summer of 2006 demonstrates the political hurdles faced by such trade initiatives in U.S. politics today. The Doha round was the first specifically targeted at generating economic growth in the developing world. The political goal of shrinking the gap between the global rich and poor necessarily placed agriculture at the top of Dohas agenda. Although providing a key source of comparative advantage for many developing countries, agriculture is also the last heavily protected sector in developed economies. It thus stands as the developed worlds last bargaining chip in multilateral trade negotiations designed to open the global economy. The question of market access, in particular, market access for U.S. farmers, stands as the largest hurdle to a comprehensive agreement. Although U.S. tariffs on agricultural products are lower than those of many developed economies in Europe and Asia, U.S. subsidies defray the costs and risks of agriculture production. These programs raise the global competitiveness and production of U.S. farmers, which in turn raises global supply while depressing global prices. Washingtons trade negotiators were unwilling to make cuts to these programs necessary to achieve success in the Doha round without receiving greater access for U.S. farmers to markets that are still heavily protected, namely those of Europe. Most of the key parties blamed Washingtons intransigence on subsidies as the principal source of the July 2006 breakdown of the talks. Free-trade agreements with Pakistan, the Philippines, and West Africa that threaten federal support for domestically produced sugar and cotton would likely activate similar political resistance from agriculture interests in the United States. This unwillingness to sacrifice the interests of U.S. farmers to achieve a broader breakthrough in the Doha round is not the only source of opposition to more-open trade policies in the United States. The costs of globalization have been felt dramatically by the U.S. textile sector as well. The lure of cheap labor costs abroad or the inability to compete with the surge of cheaper textiles from places such as China has led U.S. firms either to outsource laborintensive operations to these countries or simply to halt production. Textile firms in North Carolina paying employees $12 an hour simply cannot be competitive with firms in Bangladesh, China, and Pakistan paying their employees less than $1 an hour.25 Because of their geographic concentration, textile interests in the United States have been successful at slowing the massive onrush of new imports from low-cost competitors.26 The Bush administrations authority to pursue a series of bilateral free-trade agreements initially depended on a 215-214 vote in the
THE WASHINGTON QUARTERLY SUMMER 2007

30

Revitalizing Grand Strategy: Americas Untapped Market Power

House of Representatives that required a signicant concession to the Congressional Textile Caucus.27 Similarly, in the days following September 11, 2001, the textile industry shaped the mix of economic incentives offered by the Bush administration to Pakistan for its support in the struggle against terrorism and the Taliban in Afghanistan. Pakistan initially requested tariff cuts and larger quota allotments, given the signicance of textile production to its economy. Pressure from the textile lobby led the Bush administration to offer only minimal quota expansions and no tariff relief. 28 Such an example illusgriculture is the last trates the political difculties of trumpeting the heavily protected virtues of cheaper T-shirts and underwear for sector in developed all Americans at the cost of losing an industry often credited for bringing the Industrial Revoeconomies. lution to the United States. Given such domestic constraints, the integration of two key principles into the broader debate over the costs and benefits of globalization might help to build a stable bipartisan coalition behind this new, trade-based grand strategy. First, the benefits of free trade should not solely be cast in economic terms, such as cheaper T-shirts and underwear. Beyond those costs and benefits accruing to the relevant import-competing and exporting industries, access to the worlds largest consumer market can create substantial political benefits for strategically important countries in the broader struggle against terrorism, radical Islam, and anti-Americanism. The architects of the Marshall Plan believed that public support for that enormous aid expenditure could be generated by highlighting the central role of postwar European reconstruction in the larger struggle against communism. Given the salience of national security in postSeptember 11 U.S. politics, free-trade agreements with Bangladesh, Ethiopia, Indonesia, Kenya, Malaysia, Mali, Mauritania, Nigeria, Pakistan, the Philippines, Tanzania, and Turkey should similarly be debated as attempts to enhance national security by promoting liberty, democracy, peace, and prosperity in the Muslim world. Second, given that the national security benefits of such an initiative accrue to all Americans, its costs should not be borne solely by those working in the textiles and agriculture sectors. Large numbers of jobs would be lost in these industries as imports explode and subsidies fall. A decision to ignore this political resistance risks generating a protectionist backlash in the United States capable of reversing such an initiative. These sectors can be compensated so as to raise the domestic economic benefits of trade, reduce the risks of a political backlash, and ultimately improve the competitiveness of the American worker in the dynamic global economy of today.

THE WASHINGTON QUARTERLY

SUMMER 2007

31

l Patrick J. McDonald
A supportive bipartisan coalition of congressional Democrats and Republicans could be constructed via a domestic aid package that compensates groups asked to shoulder the adjustment costs associated with the unilateral liberalization of the U.S. economy. Any compensation package could take on multiple forms, enabling both Republicans and Democrats to meet traditional demands from their respective bases. For example, Democrats could secure greater federal spending on trade adjustment assistance, which includes health care benefits, earnings insurance, and retraining benefits, that wo key principles compensates workers displaced by globalizamight help a tion. 29 Both parties could also claim political bipartisan coalition victory from a broad rural-development initiafor a new tradetive that responds directly to widespread concerns about outsourcing. based grand strategy. A recent trend has emerged among U.S. corporations in their appetite for shifting production or operations abroad. Finding unanticipated costs in management difculties, legal delays to startup, customer service problems sparked by cultural and language barriers, travel expenses, and the difculties of conducting intrarm business across multiple time zones, rms are increasingly exploring cost-saving offshore alternatives in rural America. Corporations often receive local incentives in the form of tax abatements and low property prices, and they also benet from lower wage levels and cheaper housing markets for their employees. This trend has begun to include skilled jobs in information technology along with call-center and manufacturing jobs. A federal initiative to encourage this outsourcing trend to rural America rather than China or India could generate even more employment opportunities for workers displaced out of textiles and agriculture jobs. A recent study of rural sourcing in information technology concludes that partnerships with local universities are crucial to the success of these ventures.30 Together, these possibilities suggest that federal tax incentives for companies to move to rural regions, in combination with federal support and scholarships to public universities in rural areas, could dramatically help to create jobs and raise the global competitiveness of workers in these U.S. regions.31 Republicans could champion tax cuts to reward corporations and individuals moving to these rural areas, and Democrats could secure more federal funding on education that accompanies this new competitiveness initiative. Such a proposal is likely to find broad-based populist support in rural areas where federal spending on agricultural subsidies is distributed predominantly to the largest farms.32 Apart from compensating workers for the trade initiative, such a federal program carries with it the added incentive of making a

32

THE WASHINGTON QUARTERLY

SUMMER 2007

Revitalizing Grand Strategy: Americas Untapped Market Power

long-term investment in U.S. workers that will help them thrive in the global economy that includes a rising China and India. The political costs of such a spending initiative are significantly cheaper than the alternatives of a massive foreign aid program or the deployment of thousands of troops in the Middle East and Central Asia to stabilize governments and promote democratic reform. Instead of funding more soldiers, paying for reconstruction in Iraq, or squandering foreign aid payments as corrupt governments fail to disburse them broadly to their citizens, U.S. taxpayer dollars would instead be spent at home on policies that enhance the competitiveness of U.S. workers while promoting development and U.S. influence in battleground states in the broader war against terrorism. Congressional officials supporting such an initiative could tout it as a plan to battle Islamic extremism first by strengthening the home front and then by promoting reform across the Muslim world. Those opposed would be forced to vote against a proposal that carried with it the potential to bring hundreds of millions of federal dollars to their state or congressional district and to build U.S. political influence in strategically important countries around the world.

Deploying Consumers in the War on Terrorism

The forbearance associated with unilaterally liberalizing U.S. markets is not without important historical precedent in U.S. history. In the early stages of the Cold War, the Truman administration recognized the dangers of shutting off U.S. markets to paralyzed European and Japanese economies. Policies that would today be labeled as unfair trading practices by domestic interests favoring protection were countenanced then in light of the larger political struggle being waged against the Soviet Union. In light of war costs in Iraq and the emergence of terrorist networks spanning the globe, U.S. grand strategy should utilize all the political and economic resources at its disposal to transform societies at risk of plunging into war or in the process of escaping it. Unilaterally opening the U.S. economy could release untapped market power capable of accomplishing multiple goals. At home, real incomes would increase as the costs of tradable goods decline and new investments are made in U.S. workers that enhance their competitiveness in the global economy. Preferential access to the powerful spending habits of U.S. consumers would help to promote support for Washingtons interests in places such as Bangladesh, Ethiopia, Indonesia, Pakistan, and Turkey while demonstrating that U.S. interests in the Muslim world extend beyond oil. Finally, deploying the U.S. consumer in the larger campaign to promote freedom in the struggle against terrorism and radical Islam would build on the enormous capacity of markets to encourage development, democracy, and peace.
THE WASHINGTON QUARTERLY

SUMMER 2007

33

l Patrick J. McDonald
Notes
1. See Jeffrey D. Sachs, The End of Poverty: Economic Possibilities for Our Time (New York: Penguin, 2005); Pietra Rivoli, The Travels of a T-Shirt in the Global Economy (Hoboken, N.J.: Wiley, 2005). See Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley, Calif.: University of California Press, 1980); David A. Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985). Derek Chollet and James M. Goldgeier, The Faulty Premises of the Next Marshall Plan, The Washington Quarterly 29, no. 1 (Winter 200506): 719. U.S. Census Bureau, Foreign Trade Statistics, NAICS codes 313, 314, 315, http:// www.census.gov/foreign-trade/statistics/country/sreport/textile.html. Ibid. Robert Looney, Problems in Using Trade to Counter Terrorism: The Case of Pakistan, Strategic Insight 1, no. 8 (2002), http://www.ccc.nps.navy.mil/si/oct02/southAsia. pdf; Edward Gresser, Reviving Muslim Economies, in With All Our Might, ed. Will Marshall (Lanham, Md.: Rowman and Littlefield, 2006), p. 76. CIA, World Factbook: Pakistan, https://www.cia.gov/cia/publications/factbook/geos/ pk.html. Paul Blustein, U.S. Free-Trade Deals Include Few Muslim Countries, Washington Post, December 3, 2004, p. E1. Derived from information found on the U.S. International Trade Commissions Tariff Database. See http://dataweb.usitc.gov/scripts/tariff.asp.

2.

3. 4. 5. 6.

7. 8. 9.

10. Ibid. 11. Robert Lawrence, A U.S.Middle East Trade Agreement: A Circle of Opportunity? (Washington, D.C.: Peterson Institute for International Economics, 2006), p. 105. 12. Gresser, Reviving Muslim Economies, p. 78; Lawrence, U.S.-Middle East Trade Agreement, p. 105. See Pete W. Moore and Andrew Schrank, Commerce and Conflict: U.S. Effort to Counter Terrorism With Trade May Backfire, Middle East Policy 10, no. 3 (Fall 2003): 112120. 13. Manager of a Chinese state-owned textile factory, interview with author, Beijing, December 2005. 14. Geoffrey Garrett, Globalizations Missing Middle, Foreign Affairs 83, no. 6 (2004): 8496. 15. Adam Przeworski et al., Democracy and Development: Political Institutions and Well-Being in the World, 19501990 (New York: Cambridge University Press, 2000). 16. Alastair Iain Johnston, Is China a Status Quo Power? International Security 27, no. 4 (2003): 556. 17. Anatol Lieven, A Difficult Country: Pakistan and the Case for Developmental Realism, National Interest 83 (Spring 2006): 4349. 18. Taiwanese legislative officials, interviews with author, Taipei, March 2006. 19. See Joseph Stiglitz, Globalization and Its Discontents (New York: Norton, 2002). 20. See Michael Mousseau, Market Civilization and Its Clash With Terror, International Security 27, no. 3 (Winter 200203): 529. 21. See Timur Kuran, Islam and Mammon: The Economic Predicaments of Islamism (Princeton, N.J.: Princeton University Press, 2004), chap. 5.

34

THE WASHINGTON QUARTERLY

SUMMER 2007

Revitalizing Grand Strategy: Americas Untapped Market Power

22. Ibid.; Clement M. Henry and Rodney Wilson, eds., The Politics of Islamic Finance (Edinburgh: Edinburgh University Press, 2004). 23. Robert B. Zoellick, When Trade Leads to Tolerance, New York Times, June 12, 2004, p. A13. 24. See Gresser, Reviving Muslim Economies; Anatol Lieven and John Hulsman, Ethical Realism: A Vision for Americas Role in the World (New York: Pantheon Books, 2006). 25. U.S. Department of Labor, May 2005 National Industry-Specific Occupational Employment and Wage Estimates, http://www.bls.gov/oes/current/naics3_313000.htm (hereinafter May 2005 Employment and Wage Estimates). 26. U.S. Census Bureau, 2002 Economic Census Geographic Area Series Manufacturing, http://www.census.gov/econ/census02/guide/EC02_31.HTM; U.S. Department of Labor, May 2005 Employment and Wage Estimates. 27. Rivoli, Travels of a T-Shirt in the Global Economy, p. 158. 28. Ibid., pp. 158161. 29. See Douglas A. Irwin, Free Trade Under Fire (Princeton, N.J.: Princeton University Press, 2005), pp. 113123. 30. Pam Losefsky, Coming Home: Business Students Find That Moving Outsourced Jobs to Rural America Is a Viable Alternative for U.S. Firms, 2006, http://www.utexas. edu/features/2006/homeshoring/index.html. 31. Doug Tsuruoka, Rural U.S. Seeks Place on IT Map: An Outsourcing Option, Investors Business Daily, January 11, 2005, p. A5. 32. Environmental Working Group, Farm Subsidy Database, http://www.ewg.org/farm.

THE WASHINGTON QUARTERLY

SUMMER 2007

35