The Global Economy

The global economic interdependence of the United States and other nations has grown geometrically since the Second World War. It is evidenced in resource utilization, production decisions, raw materials trade and consumer demand. It can be seen in such efforts to create order in international economic relationships as the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade. It has also been demonstrated through the wide-ranging effects of single dramatic events, such as each of the oil price shocks of the 1970s.

Another sign of increased interdependence is the growth of foreign investment. In 1989, U.S. direct investment in other countries grew to $373.4 thousand-million, up from $207.8 thousand-million in 1982, valued historically. Foreign direct investment in the United States grew even faster, rising $400.8 thousand-million in 1989 from only $124.7 thousand-million in 1982, as measured by the same valuation. Through foreign investment, the U.S. industry has helped develop major industries in other countries, such as copper production in Chile -- a main source of foreign exchange for that country. At the same time, many U.S.-based firms have sought to serve foreign markets from local plants. For example, the Ford Motor Company and General Motors Corporation are among the largest producers of automobiles in Britain.

About one-third of foreign investment in the United States is in manufacturing. Such foreign ventures as Honda in Ohio, Mitsubishi in Illinois, and Nissan in Tennessee have received much attention. In part, these ventures reflect a larger trend in which successful foreign firms, like their U.S. counterparts, are setting up plants in other countries to serve local markets where demand for their products is high.

The growth of foreign investment has raised new questions about the international economic relationships of nations. What types of firms conduct work that is too critical to national security to allow foreign investment? What about investment in the United States by a nation that restricts U.S. investment in that nation's economy? The United States has proposed that a set of rules to govern foreign investment be developed during the Uruguay Round of trade negotiations.

The direction that the global trade regime would take in waning years of the 20th century remain unclear as the 1990s opened. The original targets for completing the Uruguay Round in late 1990 were not met, largely as a failure to come to terms over agricultural subsidies; but in 1991 the leading industrialized nations professed a determination to complete the round successfully. Those American "trade revisionists" opposed to free-trade-based policies argued forcefully that continued large U.S. trade deficits, particularly with Japan, meant the United States should move away from a "rules-based" approach and toward a "results-oriented" approach to trade. They cited as one step the passage by Congress in 1988 of the Omnibus Trade and Competitiveness Act, which contained some reciprocity provisions and other measures designed to open closed foreign markets to U.S. exports. Some argued that the GATT had become obsolete as a vehicle for reducing trade barriers.

However, U.S. policymakers in the Bush administration agreed that pursuance of successful completion of the Uruguay Round of trade negotiations would remain an important priority, along with reaching a bilateral free trade treaty with Mexico, and eventually a system of free trade for the Western hemisphere.