The recent global economic recession changed the world's outlook on trade policy, and a new direction for such policy emerged in the wake of such shifting realities in our increasingly globalized world. In 2007, Afshin Molavi of The New America Foundation wrote in The Washington Post about an emerging economic and trade corridor between the Middle East and East Asia along what was formerly known as the Silk Road.1 Molavi explained that a "new Silk Road" is emerging, one that bridges Middle Eastern and East Asian economies through expanded free trade.2 This "new Silk Road. . .is not only boosting economies . . .but is changing the geo-economic and geopolitical landscape of the East, with serious ramifications for U.S. policy."3 According to Molavi, a "global" Silk Road—one that connects Middle Eastern economies with those outside East Asia (in Latin America, for example)4 —presents new economic and security opportunities for the U.S. if it does not focus myo-pically on putting out fires in the region, (e.g. Iraq, Iran and the Israeli-Palestinian conflict).5 This article discusses ways the U.S. can fully leverage its economic and political assets and thereby increase global security and prosperity. In light of China's economic rise in the last decade, the U.S. would do well to act decisively else it continue to lose ground to China's growing influence in shaping our economically interdependent world. This article will show that the recent global recession and financial crisis pushed certain nations to follow the Silk Road more than before in hopes of attaining prosperity and security in unknown times by increasing the openness of their trade relationships.
Since the beginning of the recession in December 2007, the U.S. has shed approximately 4.4 million American jobs, more than half—about 2.6 million—since November 2008.6 In this environment, the spectre of protectionism has crept in. The 2009 stimulus package and the American Recovery and Reinvestment Act of 2009, now law, contains a "Buy American" clause that requires:
None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.7
During the confirmation of new U.S. Trade Representative Ron Kirk, Senator John McCain said that the "signal [the "Buy American" bill] sends to the world is that the United States is on a path of protectionism. . . . [I]solationism and protectionism turned our economy [during the Great Depression] from a deep recession to the worst depression of modern times."8 Senator McCain highlighted an issue the U.S. will need to address during these troubling times: should U.S. trade policy lean towards protectionism or towards free trade? Historically, the first instinct has been to adopt protectionist measures, but history has shown that protectionist policies have only exacerbated economic downturns. For example, the Smoot-Hawley Tariff Act9 hurt American trade in the 1930s by provoking retaliation from twenty-five trading partners, causing U.S. exports to fall by nearly two-thirds in only two years.10 Recently, China retaliated against new trade tariffs imposed by the U.S. on tire imports by launching formal investigations into U.S. chicken exports to China.11
The U.S. is not alone in this economic recession—the economies of many countries have experienced significant job losses and economic contractions—nor was the U.S. the only nation to adopt protectionist measures. Japan, the world's third largest economy and a key U.S. trading partner, saw its overall exports drop by a record 49% since last year.12 Exports from Japan to the U.S. fell a record 58.4% between February 2008 and February 2009, and Japanese shipments to the European Union fell a record 54.7% during the same timeframe.13 Further, the WorldPage 45Bank recently announced that, in addition to the U.S., seventeen of the G-20 nations have implemented forty-seven trade-restricting measures despite having pledged at an emergency summit in November 2008 to avoid protectionist measures.14 Thus, the U.S. has not been the only economically powerful nation to seek some form of protectionist policies nor suffer from serious trade volume downturn, and many of even the most powerful nations in world trade might follow such a path.
Trade agreements, including Free Trade Agreements (FTA) and Free Trade Zones (FTZ), are more than contracts. Well-negotiated trade deals can improve the U.S. economy in a number of ways. A robust free trade deal can, by lowering tariffs, encourage the expansion of preexisting markets for goods and services and promote job growth. For example, the enforcement of the North American Free Trade Agreement (NAFTA) from 1994 to 1998 created 1.3 million export-related jobs in the U.S.15 Thus, trade-expanding agreements may create opportunities for workers on both sides of the deal; more trade agreements means Americans and their trade partners may reap greater benefits from freer trade.16
The FTA between the Association of Southeast Asian Nations (ASEAN),17 Australia and New Zealand (AANZFTA), was finalized on February 27, 200918 and is a good example of a well-negotiated and mutually beneficial trade agreement which creates opportunities for the populaces it directly effects. Countless hours of negotiation, politicking, research, and the stroke of a pen created permanent changes that will directly affect the lives and livelihoods of 600 million people covered by AANZFTA.19 AANZFTA represents a combined Gross Domestic Product (GDP) of over $2 trillion.20 ASEAN countries benefited from more than $1 billion in investments from Australia and New Zealand because of the agreement.21 Thus, according to estimates and feasibility studies, this agreement and its associated investments provided the parties with a myriad of benefits, including access to new sources of capital, new demand for products due to larger market exposure, new competition between existing suppliers, reduced tariffs, and the lowering of other trade barriers.22
Just as trade agreements can offer a host of advantages to parties, neglect of existing trade agreements can produce dismal results. Here, the U.S. has offered lessons in what not to do. Not only has the U.S. not entered into any new FTAs since 2006, it has also managed to weaken its current agreements. For example, in response to the U.S. halting a pilot program that allowed Mexican trucks to operate in the U.S, NAFTA partner Mexico imposed $2.4 billion in tariffs involving 90 products made in the U.S.23 Similarly, the United States-Korea (KORUS) agreement was signed but never approved by Congress because of restrictions on U.S. car exports to South Korea, even though the trade agreement would have added an estimated $10-12 billion to annual U.S. GDP, according to the U.S. International Trade Commission (USITC)24. Thus, American neglect of trade promotion created stumbling blocks on the path toward expanding trade, and such stumbling blocks carry significant opportunity costs, as the trade problems with Mexico and South Korea have shown.
The U.S. has long imposed sanctions on countries like Cuba and Iran without great foreign policy effect, and at great cost to American business. One cannot export to Cuba any "products, technology, or services either directly or through third countries, such as Canada or Mexico, absent a specific license from the Office of Foreign Assets Control."25 This law has been in effect for nearly 50 years with little effect on the policies of the Cuban government.26 The USITC estimated that American exporters could earn nearly $ 1 billion every year if sanctions were lifted.27 Sanctions on Iran contain similar provisions as those directed at Cuba28 and have much greater security and economic implications. In Iran's case, sanctions have failed to change the regime's policies and have recently pushed the country into China's sphere of influence.29 It is estimated that if sanctions were lifted, the world price of crude petroleum would drop approximately 10%, saving the U.S. alone between $38-76 billion annually.30 American businesses would also be able to operate in Iran, potentially creating job opportunities in both countries. Furthermore, lifting sanctions would increase Iran's income from trade by as much as $61 billion annually, growing Iran's GDP by about 32%.31 The failure of American sanctions as a means of advancing business and foreign policy interests thus calls for a new approach.
Three nations—China, the United Arab Emirates (UAE) and Singapore—serve as examples of countries that have utilized free trade to transform their economies. These countries are very different from one another, and despite the fact that none of them share the same population size, diversity, history, geography, political structure, or legal structure, each still managed toPage 46use free trade to help itself build a more powerful and modern economy.
China experienced an economic miracle when Premier Deng Xiaoping returned from political exile to take power in Beijing.32 Deng made a revolutionary choice when he moved to establish Special Economic Zones (SEZs)33 along the Eastern coast of Mainland China.34 The SEZs transformed the economy of China rapidly, as global demand for inexpensive labor met its supplier.35 China's rapid growth was experienced by the inhabitants of Shenzhen, a...