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15.5 International Economic Policy

In order to maintain its economic growth, and its high standard of living the U.S. has become part of a global economy, selling its products as well as buying them from abroad. The position taken by the U.S. regarding trade, finance and monetary policy are of importance to institutions like the United Nationsí World Bank and International Monetary Fund (IMF). Loans and technological help for economic development projects in member states, are extended by the World Bank. The IMF aims at promoting international monetary cooperation, currency stability and international trade. Recently, trade has become the main international economic issue for the U.S.

15.5a General Agreement on Tariffs and Trade and the World Trade Organization

The tariff was the main device used by all governments to aid their nationís business. Thus Congress generally favored interests desiring high protective tariffs. However when sales in foreign markets became imperative, Congress began to lower tariffs in 1934. The Trade Agreements Act and its extensions empowered the president to negotiate mutual tariff reductions with other nations. In 1962, President Kennedy sought to revise trade and tariff policies. The Kennedy and later the Johnson administration negotiated for three years with fifty-three nations to draw up a General Agreement on Tariffs and Trade (GATT). By the Kennedy Round, as these discussions came to be called, tariffs were eliminated (with some exceptions), as a major barrier to trade among industrial nations. However, nontariff barriers like quotas, minimum import prices and restrictions on agricultural commodities remained.

15.5b The World Trade Organization (WTO)

The World Trade Organization has superseded this agreement. These negotiations ensure that foreign markets are open to American goods and that protection is given to American products, especially with regard to technology and copyright laws.

15.5c North American Free Trade Agreement

By the North American Free Trade Agreement (NAFTA), ratified by Congress in 1993, a free-trade zone was established between the U.S., Canada and Mexico. A major public debate arose regarding the merits and disadvantages of NAFTA, which was opposed by organized labor. It was felt that manufacturers would shift their plants to the other side of the border, owing to the low wages paid in Mexico. This would result in a loss of American jobs.

15.5d U.S. Japan Trade

In order to have free trade, the markets of trade partners should be equally open, that is, there should be a level paying field. However, this is not the case with U.S. - Japan trade. The American market is significantly dominated by Japanese products like cars and electronic equipment, but the U.S. experiences major problems selling automobile parts and agricultural products to Japan. Thus many Americans strongly advocate measures to establish a more level playing field with Japan, by including quotas on Japanese imports and tariffs on select products. Yet others feel that such a policy might harm American interests, since jobs are provided for American workers by Japanese corporations and investments both indirectly and through companies established in the U.S. It is clear thus, that there is a complex relationship between the government and the economy, and that the goals of personal and national welfare are pursued in a highly political setting, which is inevitable in a democracy.


15.0 - Introduction
15.1 The Goals of Economic Policy
15.2 Theories of Economic Policy
15.3 The Federal Budget
15.4 Taxation and Spending
15.5 International Economic Policy

Chapter 16

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