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Foreign Policy - Trade 1989 [OA 8750]
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Foreign Policy - Trade 1989 [OA 8750]
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Records of the White House Office of Speechwriting (George H. W. Bush Administration)
Mark Davis Subject Files
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Originally Processed With FOIA(s):
FOIA Number:
S
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin:
Speechwriting, White House Office of
Series:
Davis, Mark, Files
Subseries:
Subject File, 1989-1991
OA/ID Number:
13870
Folder ID Number:
13870-014
Folder Title:
Foreign Policy-Trade, 1989
Stack:
Row:
Section:
Shelf:
Position:
G
19
2
6
3
A8
REVIEW & OUTLOOK
The Liberal Majority
With all the crying and moaning in
U.S. loses leverage needed to open
Washington about trade, it sometimes
markets in services, intellectual prop-
seems as if no one's a free-trader any-
erty and industries of the future The
more. Maybe the Silent Majority is
United States has, and will continue to
beginning to speak up. A new study by
have, global economic concerns and it
some of America's business leaders
is in our best interest to prevent frag-
argues that the postwar liberal trad-
mentation of the world economy,' the
ing system remains the best route to a
report says.
prosperous U.S. future.
We suspect these executives have
The study by the Committee for
reached their conclusions because
Economic Development, "Breaking
they in the forefront of the global
New Ground in U.S. Trade Policy, is
economy They understand that it in
especially welcome because trade pol-
creasingly difficult to determine what
itics follows the Squeaky Wheel Rule:
is a "foreign" or "domestic" com
Producers demanding protection get
pany. Edmund Fitzgerald, chairman
the headlines. Yet the CED is com-
of Northern Teletom and of the CED
posed of chief executives from some
trade subcommittee, points out that
250 companies spanning the breadth of
his company has its "headquarters"
the U.S., and for that matter the
in Canada, but most of its sales are in
global, economy. Its trade subcom-
the U.S. It employs about as many
mittée includes execs from Northern
Americans as Canadians. big chunk
Telecom, Cargill, Pfizer, Citicorp,
of its shares are owned by Americans
Emerson Electric, AT&T, Goodyear
Whose company is it anyway?
and Caterpillar; among others.
Or consider the protectionist ap-
They aren't jumping on the mer-
plause line one SO often hears that
cantilist bandwagon. "Careful exami-
only one U.S. company, Zenith, still
nation of both historical experience
makes TV, sets. Well, the nearby
and current conditions has convinced
chart, adapted from an article by
us that open markets remain the best
Robert Reich in the January-Febru-
route to broad-based improvements in
ary Harvard Business Review, shows
economic growth and prosperity, for
some of the others who were making
TVs-Made in the USA
ANNUAL
COMPANY
PLANT
LOCATION
EMPLOYEES
PRODUCTION
Goldstar
Total
Huntsville, Ala.
400
1,000,000
Hitachi
Total
Anaheim, Calif.)
900.00
360,000
JVC
Total
Elmwood Park, N.J.
100
480,000
Matsushita
Assembly
Franklin Park, III:
800
1,000,000
Mitsubishi
Assembly
Santa Ana, Calif.
550
400,000
Mitsubishi
Total
Braselton, Ga.
300
285,000
Philips
Total
Greenville, Tenn
3,2001
2,000,000+
Samsung
Total
Saddle Brook, N:J.
250.01
$1,000,000
Sanyo
Assembly
Forrest City, Ark
400
$1,000,000
Sharp
Assembly
Memphis, Tenn
770
1,100,000
Sony.
Total
San Diego, Calif.
1,500
1,000,000
Thomson
Total
Bloomington, Ind.
1,766
3,000,000+
Toshiba
Assembly
Lebanon, Tenn:
600
4900,000
Zenith
Total
Springfield, Mo.
2,500
N.A.
Total manufacturing involves more than the assembling of knocked down kits
Source: Electronic Industries Association, HDTV Information Center, Washington, C. 1988
both the United States and its trading
TVs here in 1988. The list has grown
Photo Copy Preservation
partners," concludes the CED study.
since. The workers in Anaheim or
Someone ought to jetpack this over to
Braselton figure that those are Ameri
Max Baucus, Dick Gephardt and the
can TVs, even if the sets carry names
other neo-merçantilists on Capitol
like Sharp or Sony: Mr. Reich points
Hill.
out that an American now has a better
Of course, the CED knows that a
chance of buying a U.S. car if he buys
world of perfectly free trade doesn't
a Honda than a Pontiac Le Máns
exist. But rather than imitate trade
When Honda reaches its goal of ex-
offenders, the CED thinks U.S. inter-
porting 50,000 cars a year from Ohio
ests lie in using a careful "stair-step
to Japan, it'll make more cars here
strategy for opening markets. This
than in Japan.
means first using the multilateral
The disconnect between politics
GATT process, then negotiating with
and the real economy reached a
an offender and only as a last resort
comic high last week in: Congress.
using the unilateral retaliation in the
Pennsylvania's Republican Senator
so-called Super 301 trade law. One
John Heinz introduced into the Con-
such negotiation yielded results last
gressional Record a speech by a Cat-
week on supercomputers with Japan.
erpillar executive supporting open
Even then, adds the report, we
trade. Yet he somehow felt obliged to
need to understand that the act of re-
denounce the speech and the liberal
taliation amounts to failure. The for-
trading system at the same time. Who
eign market stays closed, "the U.S.
has more credibility? A company that
consumer must pay higher prices, and
employs thousands and sells $5 billion
the system of international trade
a year outside the U.S.? Or a wealthy.
which we have helped to craft has
Senator who already made his fortune.
been weakened." In short, everyone
in ketchup pandering for protectionist
loses and we ought to retaliate only
votes?
very rarely and only in a "market-ori-
The liberal trading system has
ented" way (tariffs, not quotas).
served Americans well for 40 years
The CED also stresses that a U.S.
We hope more executives will follow
leadership role on trade is essential to
the globally oriented lead of the CED
maintaining this liberal order. By
and let our politicians know the way
committing trade sins ourselves, the
the world really works.
'A Conventional Lobbying Group
The American Bar Association's
rather than lawyers with corporate or
House of Delegates voted recently to
government experience Litigators
support abortion on demand. The
as a class are not disposed to value
abortion Issue itself aside, this partic-
coherence in the law, he said. "After
ular vote revealed an awful lot about
all, the more uncertain the law, the
just what the ABA has become. It
more litigation will take place.
didn't matter that the president of the
ABA had warned that "by no stretch
The ABA has become SO partisan,
of the imagination" did the abortion
Judge Silberman said, that it may be
"as improper for judges to belong to
to
L MONDAY, OCTOBER 30, 1989
A11
Pegging the Pound Was Where Lawson Erred
LONDON-Last week the British dis-
producing widespread disaffection and
billion pounds ($79 billion at the current
played unusual political immaturity The
pushing Labor ahead in the polls.
rate in 1988 from.93 billion pounds in 1986.
Chancellor of the Exchequer, Nigel Law-
Instead of realizing his mistake in let
This change in the British capital account
son, resigned because Prime Minister
ting the exchange rate dominate both Brit-
required an offsetting change in the trade
Thatcher would not fire her trusted adviser
ish economic policy and Mrs. Thatcher's
account, a change that could not be pre-
Sir Alan Walters. The opposition Labor
political fortune, Mr. Lawson pushed for
vented by pegging the currency
Party leader, Neil Kinnock, in a display of
tying the pound formally to the mark by
Nigel Lawson was a victim of the im-
the male chauvinism typical of the British
entering the European Monetary System,
mense confusion in thought that has been
lower class, denounced Mrs. Thatcher for
which subordinates all member currencies
characteristic of Western financial circles
to Germanimonetary policy This put Mrs.
during the 1980s. The most important gov.
Europe
Thatcher in a bind. The concept of Euro
ernments have ignored the role of low tax
pean integration is one of those grand
rates in attracting real capital investment,
By Paul Craig Roberts
schemes that appeal to intellectuals, the
Instead emphasizing financial flows in re-
media and the imagination, but are full of
sponse to high interest rates, This has led
practical pitfalls,
them in a fruitless and destructive policy
havingjan independent mind and refusing
If the pound had been tied to the mark
circle. First comes monetary expansion to
to heed the men in her Cabinet. The British
the British would have been unable to cut
drive down the currency's value that was
press, making a mountain out of a mole
their exorbitant tax rates. The reason is
pushed up by tax rate reduction. Then
hill, precipitated an unnecessary economic
simple. When à country cuts tax rates, it
when the currency falls, interest rates are
crisis by portraying Mrs. Thatcher as an
makes itself more attractive to investors
raised to attract financial flows in order to
autocrat who had thrown economic policy
and drives up the value of its currency.
stabilize the exchange rate This policy is
into confusion by driving a respected fig
It was fear of disturbing EMS ex
totally mindless, and Sir Alan is correct to
ure from her government.
change relationships that caused the
point out its deficiencies.
Behind the silly posturing lies, a real
Chirac government in France to be timid
Britain and all of Europe need to recon-
dispute. Mr. Lawson and his European-
about cutting tax rates. Edouard Balladur
minded colleagues want the British pound
the finance minister at the time, was sold
sider the!prospects for European integra,
tion in light of the possible reunification
formally tied to the West German mark
on the tax cut policy but was concerned
and neutralization of Germany A unified
Sir Alan considers this an ill advised and
that his government would be criticized as
Germany that remained within the West
costly policy. As there is an effort to "an
anti European for disturbing the linked Eu
chor the dollar" either to gold or other cur-
ropean currency relationship
ern alliance would give Germany such an
rencies, the dispute is worth examining
The price of attracting capital whether
overshadowing position that all other
members of a unified Europe would be
Until his resignation, Mr. Lawson had
one's own or that of foreigners is a trade
come vassals of the German state. Unless
been conducting British monetary policy
deficit, To avoid this deficit Mr. Lawson in-
the Soviet Union collapses, German reuni-
as If the pound were tied to the mark.
flated the pound in order to prevent Its
fication is likely to require Germany's neu-
When Mrs. Thatcher cut the top tax rate to
rise. This misguided policy could not pre-
tralization The implications for Britain,
40%, Mr. Lawson flooded the country with
vent a British trade deficit. Consequently,
Mr. Lawson saddled Mrs. Thatcher with a
France and the rest of Europe of having
money to prevent the pound from rising
record trade deficit, renewed Inflation and
their currencies tied to the economic pol
against the mark. As a result, he reignited
high interest rates- three political failures
Icy of a neutral country need considering
the inflation that Mrs. Thatcher, through a
before we fudge Mr. Lawson's resignation
long and costly effort, had subdued.
in all row.90Little swonder that Mrs.
to be unfortunate.
Thatcher's opponents weredso anxious to
With inflation surging, the pound began
keep Mr Lawson in office.
In the least, we must recognize the futil
falling against the mark. To keep the ex
It is extraordinary that the British
trying to use exchange rate inter ven
change rate pegged, Mr. Lawson tightened
Treasury thought it could prevent a trade
tion toloffset the effects.of tax-rate reduc-
monetary policy and pushed interest rates
deficit by inflating the pound. The British
tion.on capital flows
up to 15%. This doubled the mortgage in-
balance-of payments statistics show that
terest rates of the many new homeowners
after the top tax rate was cut to 40%, the
Mr Roberts was assistant Treasury
that Mrs. Thatcher's policies had created,
flow abroad of British capital slowed, to 50
secretary under President Reagan
Photo Copy Preservation
REVIEW & OUTLOOK
In the British case, Mr. Lawson is
erned by the domestic political Imper-
the closest thing in London to a sup-
atives of West Germany. Perhaps the
ply globalist. He not-only slashed
shock would have beenless If they
The Lawson Legacy
marginal tax rates, initially, sparking
fixed to another-low-tax, deregulated,
fresh growth in Britain, but he wanted
supply side economy
We re sorry toisee Nigel Lawson's
to regulate monetary policy by target
Alan Reynolds of Polyconomics
departure from: the British govern-
fore Mr. Lawson's resignation, and of
ing exchange rates, indeed joining the
adds his suspicion that the unrecog-
ment. He is a politician with the cour-
fer some of the collection for the bene-
European Monetary System. While no
nized inflationary culprit is the budget
age of true conviction, as in summa-
fit of his successor and time dep
doubt agreeing with Mr. Lawson on
surplus. Those who can shake Keyne-
rily sacking exchange controls and in
uty, John Major. To: begin with, we
everything else, Sir Alan is a dyed-ir
slanighosts out of their heads might
particular slashing the top rate of in-
should note that in contrast to the U.S.
the wool monetarist inclined to de
recognize that the retirement of gilts
come taxation to 40%. But In the end
deficit, Britain has been running larg-
fend floating rates to the death.
for cash is equivalent to an expansion-
his resignation as Chancellor of the
ish budget surpluses. In pursuit of this
.To make matters even more
ary open-market operation, indeed, It:
Exchequer may be a good thing, espe-
mystery, Keynesian adepts and twin
tefusing the earlier U.S. experience
the definition of an open market op:
cially if it works as the no doubt in
deficit mavens need not apply.
We should also add Mr. Lawson's
made clear that? Lawson's tax
eration to expand the money supply
tends-by forcing Prime Minister
cuts would-have
Mr. Reynolds also notes. that since
Thatcher and her counterparts else-
own explanation, as we understand it.
British bankshave no reserve require-
Unlike / the U,S., Britain never
Britain international accounts and
where to confront the genuine intellec-
the value of sterling. They increased
ments high linterest rates are less
tual Issues involved:
achieved even a momentary reduction
the after tax rate of return and made
The early omens, we admit,
in real wages. The wage stickiness,
Britain a far more attractive place to
recession: inflation than to cause
scarcely suggest so wholesome an out
which OECD studies confirm is par-
come, The Fleet Street reaction was
ticularly high in Britain, gives its
invest, producing sudden capital in
We would add that in political
flows. By accounting definitions, this
terms, Thatcher's problem was
captured in the Guardian headline;
economy a structural bias toward in-
flation. Inflation is easier to spark and
had to produce a sudden trade deficit.
failing to decide between the Chancel-
"Departure Reveals Thatcher Poi-
harder to control
As In the U.S., It also produced a sud-
lor and her adviser. In the end, nei-
sonth British: politicians divide into
We should also concede that In the
burst in the demand for sterling,
ther policy was followed, and instead
two groups of chickens, those with
their necks cut and those screaming
British experience the monetarist
that is a surge.in the sterling mone-
of learning anything we are left with a
tary aggregates, -Whatever.
cause regains some of the credibility
mystery? In particular, "shadowing"
the sky is falling. So far as we can see
At this point, the options were
it lost in the U.S. experience. Nearby
a currency is anything but fixing; it is
only two persons are behaving with a
Crunch money to stop the boost in the
Paul Craig Roberts, a distinguished
an open. announcement that the ex-
dignity recognizing the seriousness of
supply with monetarist sympa-
aggregates," as Sir. Alan surely ad-
change rate target has no credibility.
the issues: Mr. Lawson and Sir Alan
vised, and forget the soaring pound.
All the more so when strong voices
Walters, the counterpoint of the Chan-
thies, argues the case for Sir Alan.
Perhaps the fiscal shock of tax cuts is
To push the pound even lower trying
are heard opposing the policy. Better
cellor's difficulties, who also resigned
to cure the trade deficit, a policy Brit-
after all best absorbed by floating
to have a true monetarist policy, just
as "personal adviser sto Mrs
ain has repeatedly proved disastrous
for the experience.
Thatcher.
rates, though of course in the event
Or. supply enough money to: meet
The problem is that on the vital is:
Mr. Lawson resigned over whether to
the Increased demand and stabilize
So Mr. Lawson had to resign. In
sue of monetary policy and exchange
support & pound, not restrain
the exchange rate the Chancellor
the end his move was sparked by re-
rates, conservative, free market econ-
We recall that Mr. Rob,
argued, and ensure the permanence of
marks in excerpts from Sir Alan's au-
omists divide into at least three in-
erts-not only chides the Chancellon for
this policy by joining the EMS.
toblography in The American Econo-
compatible camps. There are the
being too easyebecauserofaldesireitl
Faced with a similar situation,
mist, a 10,000-circulation academic
strict monetarists, who believe that
constrain sterling, but also"led the
Paul Volcker let the dollar soar,
journal. But It was the underlying sit-
floating exchange rates free an econ-
chorus saying that Mr. Volcker was
(though monetary aggregates also
uation that became intolerable.
omy to stabilize its price level by sta-
too tight when he let the dollar rise.
grew so rapidly monetarists issued
What Mr. Major and Mrs.
bilizing the monetary aggregates.
Somewhere in between must be
eggion the face warnings of inflation
Thatcher will do now remains to be
There are the supply-side globalists,
a golden mean, perhaps measured by
Burthis devastated the U.S. manufac-
seen. They confront stubborn inflation
who seek to spread the advantages of
Whatever, but perhaps measured
by purchasing power parity
turing sector, laying the seeds of pro-
and a sagging economy, that is to say,
a common currency through fixed ex
tectionism. Mr. Lawson, though not
stagflation. This cannot be solved by
change rates: And there are the twin
The globalists tend to think Mr.
allowed to Join the EMS chose to
provoking a further downturn; reduc-
deficit Keynesians, who predict, advo-
Lawson ran onto technical reefs. In
shadow the deutsche. mark. He
Ing the supply of goods does not solve
cate devaluations to balance trade
fixing rates the choice of Initial pari
reaped inflation along with rapid
inflation. Our-advice is this: Immedi-
flows. This is a problem not only for
ties is crucial, for example,and per
growth, no doubt validating Sir Alan's
ately return the government surpluses
Prime Minister Thatcher but for Pres
haps he picked the wrong pound DM
predictions In the Prime Minister
to the economy through incentive-
Ident Bush, as shown in the ongoing
rate. For that matter, perhaps he
mind. But: more recently, the pound
maximizing tax cuts, and find some
bickering over the dollar between the
fixed to the wrong currency. We sym
has. been falling, with high Inflation,
monetary policy target that balances
Federal Reserve and the Mulford
pathize with Mrs. Thatcher's reluc
which has also seemed almost imper-
both supply and demand for money
Treasury.
tance to tie her currency to one gov-1
viogs to the high interest rates Mr.
(which neither aggregates nor interest
Lawson deployed to stop it.
rates cando This was the version of
So the British experience presents
supply-side economics that, in the late
a genuine that reaches far be-
1970s and early 80s, worked in Amer-
yond* the shores of Albion We had
ica and world-wide to solve a far
been-sollciting opinions on it long be-
more serious stagflation than afflicts
Britain today.
OFFICE BUSH OF SPEECHWECORDS DAVIS
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