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October 5, 2016

Conversations at RAND: Howard J. Shatz on the International Economy

Photo by peshkov/Getty Images

One of the contentious issues in this year's presidential election campaign is the U.S. role in the global economy—and, more specifically, international trade agreements made or contemplated and their potential effects.

As part of the Conversations at RAND series, which is designed to highlight important and timely research, a presentation on “U.S. International Economic Strategy” was given by senior RAND economist Howard Shatz Tuesday at RAND's Pittsburgh office.

To provide context for Shatz' remarks, Michael Rich, president and CEO of the RAND Corporation, explained the genesis of RAND's Strategic Rethink initiative. Rich commissioned the research three years ago, at a time of burgeoning global turbulence, to serve as a guide for policymakers, citizens, educators, and the media on the most critical global choices and challenges facing the country.

In the process, the Strategic Rethink project could also help counter what Rich called an “epidemic of truth decay.”

“People should have their own opinions,” he said, “but we're now at a place where people also seem to feel entitled to their own set of facts.” The Strategic Rethink initiative has generated five books—with a sixth due out this fall—by RAND researchers to provide “a sophisticated but reliable set of facts and analysis,” because “a debate that features opinions about opinions is a recipe for gridlock.” Rich expressed gratitude to RAND's donors who supported the project and who “enable us to do some of our most innovative and groundbreaking research.”

Win Boerckel and Howard Shatz at RAND's U.S. International Economic Strategy event, September 27, 2016

Win Boerckel and Howard Shatz at RAND's U.S. International Economic Strategy event, September 27, 2016

Photo by Lauren Skrabala/RAND Corporation

Rich then introduced Shatz, author of the latest book in the Strategic Rethink series, U.S. International Economic Strategy in a Turbulent World. Shatz began by describing how, for over 70 years, U.S. leadership of the global economy has not only enriched America, but has also spread benefits throughout the world, fostering growth and lessening poverty abroad throughout the postwar period. Overall, humanity's standard of living has risen, and “even with present difficulties, most people in the world are far better off because the United States and its allies created a rules-based international economic system, with strong institutions.”

However, the next president will face a troubled landscape. “The big concern with the global economy,” Shatz warned, “is what's happening with our largest allies,” the European Union and Japan, whose economic growth is not keeping pace with that of the United States and some other nations.

He offered three goals for the next administration:

  1. Maintain and strengthen the rules-based global economic system. Multilateral trade treaties help the world move forward according to agreed-upon rules, and trade liberalization is something the United States should pursue. Several large regional trade agreements are in the offing at the moment, including the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). Although broad multilateral liberalization is more desirable and should be pursued, Shatz suggested that these regional deals are worth pursuing, in some form or other, and could serve as stepping-stones to more global trade accords. Further, the United States should promote the stabilizing capacity of global institutions and regional development banks that are strong and well capitalized.

  2. Deal with China. “This is … probably the most consequential bilateral economic relationship through the world,” Shatz said. He said the United States will benefit from continued Chinese growth and that it should accommodate a larger China within the current global system—not acquiescing to all Chinese demands, but “we want China within the system rather than outside, creating a parallel system.” The U.S. economy and those of its allies are heavily intertwined with China's through both trade and investment, and mutually beneficial agreements that meet U.S. requirements could have the additional effect of facilitating desirable economic reforms within China itself.

  3. Support global growth among partners and deter potential adversaries. While U.S. policy options are limited, economic policy coordination and integration can help its partners address their internal challenges. And the United States can also strategically utilize economic sanctions, which, carefully wielded and monitored, can exert economic influence to deter bad behavior among potential adversaries.

In his wide-ranging analysis, Shatz also considered the state of the U.S. labor market and employment trends; the long-term federal budget outlook (“weak—we could say it's terrifying”); and the immersion, via trade and multinational corporations, of the U.S. economy in the global economy.

In a post-presentation Q&A, Vice President of the Office of External Affairs Win Boerckel and Shatz delved further into the difficulty of trade agreements, possibilities for trade relations with a post-Brexit United Kingdom, and China's “One Belt, One Road” strategic initiative using infrastructure and outreach to developing countries to extend and strengthen Chinese influence around the world by land and sea.

The theme and ultimate message of Shatz's remarks came through strongly. The current international economic system, he said, was created by the United States to promote its own economic interests, both at home and abroad, but at the same time it has also allowed for the economic growth and development of other participating countries. “Somewhat paradoxically,” said Shatz “those latter successes have resulted in a relative decline in U.S. economic weight. That means the United States, now more than ever, can't really go it alone.”

He warned that, despite the rise of other nations and the decline of U.S. dominance, retracting or removing U.S. leadership would allow erosion of the international system and its rules. “The United States will benefit most, I think, by reaffirming and strengthening its ties to the global economy.”

— Samantha Bennett