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| Trade Friction Is More Than Trade Friction December 10, 2003 (Posted December 12, 2003) The following is a draft article, originally posted on the Gulf 2000 email list and now re-posted here by permission of the author. While not specifically focused on the Middle East, it attempts to place the recent friction over the Pentagon's barring of non-coalition countries from Iraq reconstruction contracts into a broader political and historical perspective. By Michael Kraig I have noticed some posts on the Bush decision to exclude key countries from contracts in rebuilding Iraq. The thing to keep in mind is that this is just one instance of a huge, gaping, and inherent contradiction between what the US does in the security sphere and what it does in the economic sphere -- a contradiction that for certain structural reasons, could exist with no problems during the Cold War, but which has been creating problems ever since the Wall fell (even under Clinton). And this is the contradiction between a mercantilist security strategy and a laissez-faire global economy. Mercantilists believed in the glory days of "realpolitik" in Europe that gold and arms went hand in hand. If another ruler or nation was your military enemy, they were also your economic enemy. Your gold was not their gold (in terms of reserves). And your colonies were not their colonies. The key was to amass power through alliances, colonies, and domestic production, and even allies were temporary and fleeting, oftentimes. Our global trading system has been building on ideas by several theorists since the 1700s, but really only came into fruition under US leadership after WW II. The idea of the current global economic system is comparative advantage: everyone produces what they produce most efficiently and with the most quality and quantity, and then they trade. And, the welfare of your state depends on the welfare of your trading partner, who of course you depend on utterly for those things they produce best, as they depend on you for the those things you produce best. These two versions of global relations have been sparring for quite some time, much more than people realize. Because: the political economists who waxed ecstatic about comparative advantage did not account for the fact that weapons technology -- now often under the guise of "dual-use" technologies with both commercial and weapons applications -- were still largely beholden to the rules of mercantilism. Your weapons/dual-use technologies were yours, and made you powerful, and it was certainly not something you'd want to leave to your ideological competitor. Which is to say: the political economists of times past failed to account for the friction caused by wholly non-economic forces associated strongly with the sovereign nation-state: culture, nationalism, ethnicity, and ideology. These latter frictions drove continued mercantilist thinking and practice in security (and also economic) relations. The paradox of the Cold War is that you could have both philosophies sitting easily side-by-side, due to Stalin's early decision to create a system so alien in political economy, and so isolated, that the US and its allies could apply old mercantilist techniques against the Soviet bloc while still adhering strongly to comparative advantage with all non-Soviet countries in the "free world." Our trade restrictions against the Soviet bloc were wholly out of the days of European realpolitik and mercantilism: no advanced technologies flowed either way, except through spies. No monies exchanged hands, and neither did goods or services. The two financial systems were wholly distinct. And, economic power amassed by the US and its allies was completely distinct from economic power amassed by the Soviet bloc. The same with military power. The two things went hand in hand, as in centuries past. Meanwhile, the rest of the world moved forward on the laissez-faire agenda of interdependence, integration, and free trade. The security community and the economic communities in the US could have their cake and eat it, too. Ever since the Wall fell, the disparities between these practices has become magnified and has created political, economic, and security irrationalities at the global level. China owns an increasing share of US debt in the form of treasury bonds and pure dollars in reserve, and yet we are building space weapons whose only rational application is toward China as a rising Great Power. Europe owns an even larger share of our debt (and together with China and Japan hold up the value of the dollar artificially), and the EU is our largest trading partner, and yet we attempt to cut off mutually-beneficial economic activity in Iraq along the old lines of mercantilism -- they don't agree with us in the sphere of security, and so we are cutting them off in the economic realm as well, which is basically the mercantilist philosophy that our gold is not their gold, and their security is not our security. Bush is viscerally uncomfortable with the world "globalization," and it shows in all of the contradictory policies emanating from this Administration. But, these contending forces were building up under Clinton as well, as numerous expert meetings and Hill briefings in the House and Senate struggled to treat China, Iran, and others as enemies in a traditional mercantilist sense -- by cutting off trade in dual-use technologies -- even while they are increasingly integrated into a global laissez-faire economy without respect for ideologies or nationality -- i.e., the logic of the global economic order (which we built during the Cold War) is that comparative advantage is king, and we are only secure if others are secure. Which is to say: the US has a hard choice to make. It can no longer have its cake and eat it, too. It cannot adhere to mercantilist philosophy in the security sphere -- with very real economic effects, as we now see with this new decision on contracts in Iraq -- and yet expect the global free trade system to move forward and expand. While these two philosophies could quite comfortably co-exist during the Cold War, given the extreme and radical isolation of the Soviet bloc from everyone else (so that their "colonies" were not our trading partners, and their gold was not our gold), it is increasingly impossible to pursue both strategies and have a US foreign and national security policy that makes sense. If we are going to cut people off by decreasing their economic power as a way of bolstering both our security and our economic gains, that is fine -- but it is at odds with the global economic order which we have been building (outside the Soviet bloc) for the past 50 years. Last I checked, colonies don't exist anymore. And the gold standard is gone as of 1971. Now, our economic power depends very much on Japan, China, and Europe deciding that the American dollar is actually worth what we say it is. And that means that US power is increased when other countries agree with us politically. It will inevitably be decreased when our actions rub several past partners the wrong way, and they call in their economic chits as a way of voicing their political disagreement (as we are now doing against them).
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