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Cato Daily Dispatch for September 11, 2003

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World View of America Since 9/11/01: Sympathy to Antipathy
Trade Deficit Over $40 Billion in July
IMF Agrees to Refinance Argentine Loan

World View of America Since 9/11/01: Sympathy to Antipathy

"In the two years since Sept. 11, 2001, the view of the United States as a victim of terrorism that deserved the world's sympathy and support has given way to a widespread vision of America as an imperial power that has defied world opinion through unjustified and unilateral use of military force," reports The New York Times.

"In interviews by Times correspondents from Africa to Europe to Southeast Asia, one point emerged clearly: The war in Iraq has had a major impact on public opinion, which has moved generally from post-9/11 sympathy to post-Iraq antipathy, or at least to disappointment over what is seen as the sole superpower's inclination to act pre-emptively, without either persuasive reasons or United Nations approval."

Subodh Atal, a foreign affairs analyst, echoes those thoughts in "The War on Terror: Two Years Hence." He writes: "The international consensus on the war on terror has been replaced by acrimony over Iraq, and counter-balancing moves by other nations. Russia continues to support the Iranian nuclear program. With the United States preoccupied in Iraq and burning considerable diplomatic capital in the process, North Korea was free to begin processing nuclear fuel and is now in a much stronger position to negotiate. China's interests in a nuclear-free Korean peninsula have been overridden by a need to counter regional US influence. India, smarting from American coddling of Pakistani President Musharraf, is making overtures to China and has refused to help in Iraq."

He warns, "Unless the Bush administration practices greater discipline in avoiding further distractions from the war on terror, Americans one year hence will find themselves no more secure than in the dark days immediately after 9/11."

Prior to the war in Iraq, in "Why the United States Should Not Attack Iraq," Ivan Eland, Cato's former director of defense policy studies, warned, "Instead of launching an excursion against Iraq, the Bush administration needs to put all of its resources and efforts into fighting the 'enemy at the gates'-al-Qaeda."

Trade Deficit Over $40 Billion in July

"America's trade deficit expanded in July to $40.3 billion as imported goods from China and the quantity of overseas crude oil sold to the United States each hit record highs," reports The Associated Press.

"The Bush administration believes the way to deal with rising trade deficits is for other countries to remove trade barriers. That would allow U.S. companies to more freely do business in overseas markets, thus boosting America's global competitiveness, the administration says. Critics say growing deficits are proof that the administration's free-trade policies are not working."

In "America's Record Trade Deficit: A Symbol of Economic Strength," Daniel Griswold, associate director of Cato's Center for Trade Policy Studies, writes: "Economic theory and experience demonstrate that trade deficits are driven primarily by macroeconomic factors, in particular investment flows, and not by allegedly unfair trade barriers or declining industrial competitiveness.

"Because of the link between trade deficits and rising investment, larger trade deficits are typically accompanied by improving economic conditions. A survey of the U.S. economy since 1973 confirms that, by almost any measure-economic growth, employment, industrial production, poverty reduction-the economy has performed better in years in which the trade deficit rose than in years in which it shrank."

He adds: "The best policy would be to ignore the U.S. trade deficit and concentrate on maintaining a strong and open domestic economy that welcomes foreign investment. As long as investors around the world see the United States as a safe and profitable haven for their savings, the trade deficit will persist, and Americans will be better off because of it."

IMF Agrees to Refinance Argentine Loan

"Argentina has clinched a new 3-year International Monetary Fund aid deal, the government said on Wednesday, seen as vital to help the economy recover from its worst ever economic crisis," reports Reuters.

"The aid deal to refinance $21 billion worth of debt with multilateral lenders comes just a day after Argentina defaulted on a $3 billion debt to the fund and after months of tortuous negotiations."

In "Fixing Argentina," Kurt Schuler, senior economist at the Joint Economic Committee of the U.S. Congress, lays out a plan to stabilize the Argentine economy. Schuler says that, among other things, Argentina needs to dollarize the peso. "Argentines know that the peso does not work well and that its depreciation is the biggest single problem they face today. Dollarization is the essential first step for reestablishing private property rights and reviving the economy."

The current issue of The Cato Journal contains several articles by leading economists that address the Argentine economic crisis, including pieces by Argentina's former finance minister, Ricardo López Murphy, Columbia University's Charles W. Calomiris and Cato's Steve Hanke.

Wyatt Dubois, editor, wdubois@cato.org