Commentary Magazine

Dollar Diplomacy Returns

It has long been a truism of international politics that the best guarantor of peace is democracy; whatever quarrels they may have with one another, democratic nations do not resort to war to resolve them. But this fundamental understanding has lately been undergoing a profound revision. According to the new wisdom, it is not the political organization of a society but rather its economic orientation that counts, and specifically the degree of its integration into the emerging global economy. The revised version has been neatly summarized by one of its major boosters, the New York Times columnist Thomas L. Friedman: “No two countries that both have a McDonald’s have fought a war against each other.”

The new commercialist understanding, far from remaining only the property of pundits, has in fact been enshrined in official policy. In its name, the Clinton administration has undertaken a major shift in the priorities of American diplomacy. “The days when we could afford to subordinate our economic interests to foreign-policy or defense concerns are long past,” declared former U.S. trade representative Mickey Kantor. What the United States must do, in the words of former Under Secretary of Commerce Jeffrey Garten, is “use all its foreign-policy levers to achieve commercial goals.” And the President himself has pledged to place “our economic competitiveness at the heart of our foreign policy.”

It has been decades since this line of thinking—that the chief business of America in the world should be not politics but business—has been taken seriously. Throughout the cold war (leftist critics to the contrary notwithstanding) commercial interests played a much smaller role in American foreign policy than did the imperatives of strategy and ideology. This was true from the late 1940’s, when President Truman angered American industrialists by instituting export controls against the Soviet bloc, all the way through to the time of President Reagan, who wielded economic sanctions against the Soviet Union, Poland, and Libya over the protestations of the U.S. Chamber of Commerce.

The Clinton White House characterizes its own approach to foreign affairs as “pragmatic neo-Wilsonianism,” but Woodrow Wilson, as it happens, entered office with the explicit intention of putting an end to the “dollar diplomacy” of the Taft administration. In international affairs, the true inclinations of the Clintonites bear a much closer resemblance to the policies of Harding, Coolidge, and Hoover—and, like theirs, the new policy comes clothed in high-minded rhetoric. According to the President, focusing on trade not only makes good economic sense but actually helps the United States to realize the traditional objectives of its foreign policy. Specifically, the new dollar diplomacy is said to accomplish three things: enhance international security and lessen the likelihood of conflict; promote democracy; and ensure American primacy on the global scene.

As to the first of these, a White House spokesman has said that commerce, by “knit[ting] together the countries whose livelihoods depend upon each other,” ends by “creating a direct stake in peace and stability.” It was in line with this belief, indeed, that the entire foreign-policy establishment was overhauled during the first Clinton term. The Commerce Department, from a newly established “war room,” was charged with spearheading trade missions across the globe; the Defense Department installed trade desks at the Pentagon; the intelligence community shifted resources to accommodate administration demands for commercial intelligence; and within the White House, a National Economic Council was created as a counterweight to the National Security Council, itself increasingly focused on economic matters.

Unfortunately, the logic of the administration’s new approach was soon revealed to have things exactly backward. Thus, during the first Clinton term, the White House held America’s military relationship with a key ally—Japan—hostage to a dispute over car parts, even as it encouraged trade and investment agreements with real or potential adversaries like Syria, North Korea, and China. In neither case did American diplomacy conduce to stability or cooperation. When tensions escalated on the Korean peninsula early in 1994, irked Japanese officials suggested that in the event of a conflict there, the United States should not look to Japan for support. As for ongoing American efforts to influence the behavior of our adversaries, trade, if anything, has proved less of a help than a burden, creating an interest in maintaining the status quo and inhibiting our ability to use power for political ends.

For a clear example of how an aggressive economism can corrupt the broader ends of American foreign policy, one need look no farther than our regime of export controls. Early in his first term, the President declared a “national emergency” to deal with the threat of weapons proliferation. But even as he spoke, his administration was striving to dismantle COCOM, the multilateral organization that had monitored high-tech exports during the cold war. At the urging of industry, the President then abolished most restrictions on the sale of computer, telecommunications, satellite, and even nuclear technology.

Within a year of the 1995 decision to deregulate the export of supercomputers—sophisticated devices whose uses include the design of advanced weapons systems and the simulation of atomic explosions—Russia’s ministry of atomic energy had acquired four of them for the country’s premier nuclear-weapons laboratory. Soon it was reported that one of the 47 supercomputers sold to China over the previous eighteen months had surfaced at a military-research institute. At the very moment Congress was responding to these sales by voting to reinstate controls, the President lifted the ban on selling American nuclear reactors to China; it was, he explained, a confidence-building measure. But how much the Chinese need their confidence bolstered by American dual-use technology may be gleaned from a 1997 CIA report, according to which they are now the world’s “most significant supplier of weapons of mass destruction and related goods and technology.”

Is it really necessary to point out that, even in an era of globalization, commercial ties are properly an effect, not a cause, of political stability? In the serene conviction that things are the other way around, the White House has been recklessly testing a proposition that has been found wanting over and over again in this century: the theory that trade and war are incompatible. The European flirtation with this idea in the period prior to World War I ended decisively at the Marne. In its American version, the idea enjoyed a vogue in the 1920’s before being put to rest by the ensuing decades of Depression, war, and East-West conflict. It is alarming to see it being touted again, as if nothing has been learned, and nothing remembered.



The second tenet of the Clinton White House is that open markets promote democracy and political freedom. In the words of National Security Adviser Samuel Berger, “the fellow travelers of the new global economy—computers and modems, faxes and photocopiers, increased contacts and binding contracts—carry with them the seeds of [political] change.”

The link between free markets and political liberalization—another staple of an earlier period—may or may not prove valid in the long run. But there have been, and remain, numerous capitalist states with authoritarian political systems. For every Britain there existed a Wilhelmine Germany; for every Taiwan or South Korea, a Malaysia and an Indonesia. As no less an apostle of economism than Milton Friedman has acknowledged, “It is clearly possible to have economic arrangements that are fundamentally capitalist and political arrangements that are not free.”

In this area, too, the United States has become caught in a bind of its own devising. For one thing, the notion that we can achieve democratization by chasing free markets has inevitably led us to turn a blind eye to flagrant abuses of human rights in countries where we happen to want to do business. Our relations with the Republic of Sudan are an example. Sudan’s links to terrorism, and the war it has been conducting against its own Christian population, have earned it a place on the State Department list of rogue states with which American companies are, theoretically, prohibited from doing business. Last year, however, when a U.S. petroleum corporation complained to the White House that a lucrative deal with the Sudanese government was being held up by the 1996 Anti-Terrorism Act, the President’s response was to exempt Sudan from the act’s provisions. Business first; democracy later.

Then, too, the subordination of political principle to the expansion of economic ties leads to the justified impression of American hypocrisy. In the name of our ostensible commitment to political liberty, we have maintained sanctions against some relatively weak states of marginal commercial significance like Burma and Cuba; in the meantime, we have actively promoted trade with nations like China that boast no less abysmal human-rights records but large markets. As the French newspaper Le Monde noted in an editorial, “The Chinese case destroys the American pretension to universality on human rights.”

The point is well taken. When it is driven by commercial imperatives, the international conduct of the United States becomes indistinguishable from that of a frankly cynical country like France. By definition, the primary aim of commercial diplomacy is not liberty but prosperity—a fine and important thing, but hardly a cause for which Americans should ever be asked to fight and die.



Finally, the Clinton administration offers an argument from self-interest: as the era of geopolitics has given way to the era of geo-economics, we are told, commercial diplomacy has become the means for achieving and maintaining American global primacy. In the view of Mickey Kantor, support for free trade “is about assuring the world that the United States will continue to be the world leader in this new era of interdependence.”

The “realist” case for commercial diplomacy, however, is the weakest justification of all. Although the President has spoken confidently of our ability to “harness the global economy to the benefit of all of our people,” it is no easy task for any government to “harness” an interdependent world. To be sure, the White House has occasionally flirted with openly mercantilist policies—organizing trade missions for American corporations, engaging in commercial brinkmanship with trading partners. Yet while government sponsorship has helped to secure international contracts for a select number of industries, these contracts make up only a tiny fraction of overseas American investment. In turn, the percentage of international transactions that is accounted for by trade and direct investment has been rapidly diminishing.

The real medium of globalization is finance. The monetary mass circumnavigating the globe, and turning over at a daily rate of $1.2 trillion, represents fifteen times the value of international trade. In this vital sector, neither the U.S. nor any other nation can act as a “world leader.” To the contrary, just as monetary flows have assumed a central role in the international economy, the ability of the state to regulate these flows has all but evaporated.

It is a fanciful and dangerous conceit to imagine that a nation can command an arena shaped by non-state actors in much the same manner that it wields political or military power. “The United States has to send a signal to our allies,” the President said recently, “that we know we are in a new world, and it’s a world in which we are interdependent.” If so, multinational firms are merely heeding the President’s own message when they ignore the threat of U.S. sanctions and invest in Burma, Iran, and numerous other rogue states. Sanctions and embargoes, after all, run counter to the logic of interdependence, which leads to the elimination of trade barriers, not the erection of new ones.

In the game of trade, nations gain more by cooperating than by competing for power. The game of politics is otherwise—a fact obscured by the President’s affinity for describing the global economy in terms of national competition. But American bond traders are not Marines, and the market cannot be relied on to bolster the aims of the state. To the contrary, if left unchecked it can just as easily subvert them.



The defects of commercial diplomacy—its lack of strategic underpinnings, its tenuous moral legitimacy, its disjunction from anything resembling a truly national interest—have been apparent for decades. Security, political liberty, and national preeminence are not secondary goals, nor can they be achieved by means of sheer acquisitiveness. To pretend otherwise is to engage in an act of willful amnesia and hubris for which, some day, a suitably high price may be exacted.


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