Trading troubles: the Clinton administration squanders U.S. economic leverage which might open global markets.

AT the beginning of his first term, President Clinton pledged that the United States would compete in world markets, not retreat from them. At the beginning of his second term, America is doing both. It is competing in world markets better than it has for the past three decades, but it is also retreating from its traditional leadership on free markets in global trade negotiations.

The first ministerial meeting of the new World Trade Organization (WTO) ended in Singapore with a whimper. Despite an accord to reduce tariffs on information technology, the meeting was "uneventful." A major reason: the lack of U.S. enthusiasm and the lack of fast-track authority to negotiate trade deals.

Clinton's national-security policy is largely to blame. He came into office touting a new geo-economic strategy that defined threats to the national interest largely in economic terms. The strategy lamented America's vulnerability, targeted former allies in Europe and Asia as America's new adversaries, and completely omitted any traditional strategic rationale to guide America's security policies in places such as Haiti, Somalia, Bosnia, Iraq, the Taiwan Straits, and the Korean peninsula. The result was to encourage growing protectionism in the United States, ignite politically costly trade disputes with allies, and forfeit the principal rationale for freer trade, namely to strengthen the free world's ability to foster political and economic liberalization in Central and Eastern Europe, Russia, China, and the developing world.

The geo-economic strategy is fundamentally flawed. It pursues markets where common security interests are weakest; it squanders the leverage to open markets that security considerations provide; and it underestimates America's economic capacity to lead.

In Europe, where common security interests are strongest, the Clinton Administration proposed NATO expansion but no trade or economic initiatives. European, not American, officials had to revive trade talks. They launched the initiative calling for a new Transatlantic Marketplace signed in Madrid in 1995.

Meanwhile, in Asia, where common security interests are weakest, Clinton pressed a vigorous trade agenda -- the New Framework with Japan and Asia-Pacific Economic Cooperation -- but deliberately downplayed security ties. Eventually, the rape of a Japanese schoolgirl by American servicemen, persisting nuclear threats from North Korea, and Chinese missile firings in the Taiwan Straits brought U.S. officials to their senses. On his trip to Asia in April 1996 Clinton made only two stops -- Tokyo and Seoul -- and worked to shore up neglected security relations.

Markets presuppose common security interests. Companies trade and invest across national boundaries only when they have confidence in the currency, contracts, and courts of a foreign government. U.S. trade with China is held up today, not by ideological or human-rights concerns on the part of Americans, but by opaque economic policies, arbitrary legal and administrative decisions, and inadequate protection for property and people in China.

Asia's markets are fragile. Dynamos can fall, no less than dominoes. Asian markets are held together politically by little more than personal ties among offshore Chinese families and the naval presence of the U.S. Seventh Fleet. Compared to Western Europe, the region is riven by cultural cleavages, escalating military rivalries, and unreconciled political differences, particularly related to Japan's wartime responsibilities. Past dynamism was largely underwritten by the anti-Soviet Cold War alliance between China and the United States. That alliance is now history. Unless the United States pays more attention to its security interests in the region and particularly to its only significant security partner, Japan, future markets in Asia will not grow, whatever the specific economic prospects.

Clinton's second-term policies need to reconnect U.S. trade and security interests. Stable democracy and the peaceful relations among democracies that follow from it are within reach in the next decade in Central and Eastern Europe (and perhaps in the longer term in Russia). What stands in the way is the lack of markets for the products of these countries and the geo-economic protectionism of the European Union and the United States. Meanwhile, in Asia, stable democracy is a distant star. It twinkles and grows brighter in Japan, and now also South Korea and Taiwan, but it is likely to shine forth in China only with a lot more time and a much more transparent firmament of security and political relations.

Reconnecting trade and security interests is not a question of downplaying the big emerging markets of Asia or minimizing the challenge of expanding security ties in Europe. It's a question of making sure that markets in Asia have the security they need to flourish and that security in Europe pays off in economic growth.

Reconnecting security and trade issues will strengthen, not weaken, America's trade leverage. Clinton and his trade officials bought the geo-economic mythology that America paid an economic price during the Cold War to gain the security cooperation of its allies. They believed that if security ties were de-emphasized, they could demand more from the allies in trade.

This logic completely misconstrues the relationship between trade and security issues. How does it help the United States to open Japan's automobile markets by telling Japan, as U.S. trade officials did in 1995, that the United States may need to reconsider its security ties with that country? Since when do countries trade more with one another as they become less friendly toward one another? Countries do not trade for economic gain alone. They also ask how their partners will use their own economic gains for political and security purposes. If Japan fears that the United States is no longer pursuing common security interests, it will open its markets less, not more, to U.S. products. By decoupling trade from security issues, the United States actually weakened its trade leverage.

But can the United State lead in both trade and security issues? Geo-economic logic says no. Clinton came into office trashing the American economic revival of the 1980s. He stressed the vulnerability of American workers and the need for a stronger government role in promoting sales by American multinationals abroad. Good politics, perhaps, but terrible economic diagnosis. The disinflationary and deregulatory policies of the 1980s propelled America into the information age, at least a decade ahead of Europe and Japan. Labor has moved into the information sector, just as a century ago labor moved from agriculture to manufacturing. America leads today in almost all service sectors --finance, software, retailing, airlines, telecommunications. Its manufacturing sector is leaner and more competitive. And it uses capital far more efficiently than Europe or Japan.

Clinton has built on this legacy with, thanks to Republican pressure, an opportunistic commitment to more efficient government. Now that he doesn't need to be re-elected, he should jettison the class-warfare rhetoric, work with internationalist-minded members of Congress, whose numbers are diminished on both sides of the aisle, and secure the authority to fashion an integrated post -Cold War trade and security strategy. His new Secretary of State, Madeleine Albright, has the background to formulate such a strategy. But she will have to overcome the besieged geo-economic school at the U.S. Trade Representative's Office and the National Economic Council. No one is asking U.S. trade officials to negotiate any less vigorously for America's export interests. Critics are asking only that these officials target and link narrowly focused bilateral and regional negotiations to global goals that can eventually increase overall markets, not just market share.

Compete, don't retreat -- those are brave words, like much of Clinton's foreign policy. But competing just for jobs and export share against America's allies is retreating -- retreating from a world of ex-Communist and developing states that need markets to develop democratically, and retreating back to the world of economic nationalism that ultimately destroyed security relations among allies between World Wars I and II.