The United States and the World Economy

Abstract

The United States has become heavily dependent on the world economy. At the same time, the ability of the United States to dictate the course of international economic activities has declined sharply. Hence the United States is caught in a scissors movement of growing importance, with major implications for the management of both its economy and its foreign policy. As a result, a paradox emerges concerning the conduct of U.S. international economic policy. On the one hand, the growing importance of both exports and imports increases pressures on the United States to pursue a liberal trade and international investment policy. On the other, the growing penetration of its economy by foreign goods often increases the pressure to retreat from such open approaches to international exchange. The advent of new domestic pressures in the 1980s, deriving in large part from slower economic growth and higher rates of unemployment, sharpens this tension. And the budgetary constraints that must accompany any effort to reduce inflation limit further the ability of the United States to pursue its international economic goals. In sum, there are important new international constraints on U.S. domestic policy and equally important new domestic constraints on U.S. international economic policy.