366. Telegram From the Department of State to Secretary of State Shultz’s Delegation1
SUBJECT
- Information Memorandum: The Impact of U.S. Protectionism on Developing Countries.
1.
To: The Secretary
From: S/P—Richard H. Solomon
Subject: The Impact of U.S. Protectionism on Developing Countries
2. You asked for a rapid response assessment of the economic, political and strategic implications of U.S. protectionist measures on developing countries. The negative impact of protectionism is not limited just to those developing countries heavily dependent on foreign trade, in a single region or at any specific level of development. We find serious economic, political and strategic costs across all regions. The risk is not that U.S. protectionism will drive LDCs directly into the arms of the Soviets, but U.S. withdrawal of support for an open international trading system will encourage developing countries to return to economic approaches, and political systems, that are more compatible with Soviet practices and objectives than our own.
3. In Asia:
4. — Among all LDCs, the Asian developing countries have assumed the strongest commitment to market-oriented, export-led growth strategies. Given Asia’s dependence on exports, U.S. protectionism would have high economic costs. In addition to losing U.S. markets, the Asian LDCs would also find their access to Japan and other countries restricted as these countries took “corrective measures” (restricting imports and pushing their exports in third markets) to counteract U.S. protectionism. Predatory economic policies would become the rule, as individual economies found it increasingly difficult to maintain export levels.
5. — Economic growth has provided a strong foundation for political stability within the countries of the region. In the Philippines, U.S. protectionism would seriously undermine efforts to get the economy moving, thereby strengthening the hand of the Communist insurgents and undermining popular support for President Aquino. In South [Page 898] Korea, U.S. protectionism would fan anti-American sentiment, thereby complicating the process of domestic political liberalization.
6. — As a group, the market-oriented Asian LDCs have been our strongest allies in the Third World. The absence of a cooperative economic relationship would undermine collaboration on regional security issues and lessen Asian support of U.S. positions in LDC and other international fora.
7. In Latin America:
8. — The United States is the major export market for the high-debt Latin American developing countries. Protectionism would deprive these countries of the means to service their foreign debt and encourage them to consider more radical means, up to and including repudiation, for dealing with the debt crisis.
9. — We have been encouraging the Latin debtors to adopt more market oriented economic policies which will enable them to compete in world markets. If we close these markets we remove an important incentive for reform.
10. — By increasing economic instability, protectionism will also weaken domestic support for the new democratic regimes in Latin America and make it increasingly difficult for leaders such as President Sarney of Brazil to undertake important political and economic liberalizations. Among the fragile economies of Central America and the Caribbean, the economic, political and strategic consequences of protectionism would be especially damaging.
11. In Africa:
12. — Africa is beginning to turn away from statist economic models and recognize the value of market-oriented policies. The adoption of protectionist policies by the United States would signal to the Africans that the strongest economy in the world no longer believes that market-oriented policies work. The African nations would certainly revert to the failed state-directed policies of the past.
13. — The new generation of moderate leaders in Africa, such as Senegalese President Diouf, who have encouraged economic reform and adopted pro-Western positions would be severely undermined. Political instability would result.
14. In summary we see these various developments leading to:
15. — Fragmentation of the international trading system into a number of regional markets based on a dominant economy or economies (i.e., China/Japan in Asia, Brazil in Latin America).
16. — Increasingly closed economies which in turn would lead to unstable and less democratic political structures and declining economic growth.
[Page 899]17. — Flagging support for U.S. foreign policy objectives, particularly in the developing world, as the domestic economic benefits of close ties with the U.S. disappear.
18. — Willingness to give greater political support to other powers (including the Soviets) in exchange for access to new markets.
- Source: Department of State, Central Foreign Policy File, Electronic Telegrams, D860500–0260. Confidential; Immediate. Drafted by Sandra O’Leary (S/P); cleared by (S/P), Richard Kauzlarich (S/P) and Maura Harty (S/S–O); approved by Solomon (S/P). Shultz attended the ASEAN Post-Ministerial Meeting in Manila from June 24 to 28.↩