The evolution — or devolution — of American economic statecraft?

Yesterday FP alum Laura Rozen detailed the State Department’s push to have economic statecraft to the front and center of U.S. diplomacy:

[I]n many ways, Hillary Clinton’s diplomatic portfolio is increasingly indistinguishable from many of the leading challenges in global economic policy. Trade issues obviously have a direct impact on America’s efforts to emerge from the present economic downturn–from the battles over the national debt to the the need to stimulate job growth. But economic issues also shape other less-noted features of the American foreign-policy agenda, be it the effort to contain fallout from Europe’s debt crisis, to the rise of major economic powers such as China, Brazil, Turkey and India—all of whom come bearing their own foreign policy ambitions….

So Hillary Clinton has been working hard to beef up the economic bench strength of the State Department, while also mounting a bid for State officials to play a more decisive role in determining U.S. global economics policy. Aides expect her to lay out what they are calling the "Clinton doctrine on economic statecraft" early this month, likely in a speech in New York. Timing and venue for the address are still being worked out, her aides say.

"This is coming from a sense that we are seeing the lines between national security and economic security blur as emerging powers are doing more to advance their economic power, and fitting their national security strategy is more about economic interest," the State Department adviser told the Envoy Friday….

"As we pursue recovery and growth, we are making economics a priority of our foreign policy," Clinton said at the International Institute for Strategic Studies-Shangri La conference in Hong Kong in July. "Because increasingly, economic progress depends on strong diplomatic ties and diplomatic progress depends on strong economic ties. And so the United States is working to harness all aspects of our relationships with other countries to support our mutual growth."

Full disclosure:  State Department officials have reached out to your humble blogger  in a sign of true desperation to talk about ways in which economics should be integrated into American foreign policy.  Don’t panic — I know that they’re talking to smarter people than I as well.

Economic statecraft is only as useful as the economic power that fuels such statecraft — namely, the attraction of  possessing a large, dynamic, growing economy for imports, deep capital markets, provisions for foreign assistance, and a model of economic development that looks attractive to others.  Now, getting Congress to vote on negotiated-long-ago trade deals is certainly a step in the right direction.  Talking about Russian entry into the WTO is also constructive. 

On the other hand…. I fear that the State Department is fighting through hurricane-level winds on this front to make a difference.  First, the trade deals just sent to Congress are the last ones we’re going to see for a while.  Doha is dead, the Trans-Pacific Partnership still hasn’t materialized, and all of the momentum on trade policy is to move towards futile gestures closure.  The dynamic, growing economy is not looking so dynamic, and those deep capital markets are getting extremely jittery. 

Finally, there’s foreign aid — which brings us to this New York Times front-pager by Steven Lee Myers: 

 America’s budget crisis at home is forcing the first significant cuts in overseas aid in nearly two decades, a retrenchment that officials and advocates say reflects the country’s diminishing ability to influence the world….

The financial crunch threatens to undermine a foreign policy described as “smart power” by President Obama and Secretary of State Hillary Rodham Clinton, one that emphasizes diplomacy and development as a complement to American military power. It also would begin to reverse the increase in foreign aid that President George W. Bush supported after the attacks of Sept. 11, 2001, as part of an effort to combat the roots of extremism and anti-American sentiment, especially in the most troubled countries.

Given the relatively small foreign aid budget — it accounts for 1 percent of federal spending over all — the effect of the cuts could be disproportional. (emphasis added)

It’s striking to see Myers be that blunt in his assessment of the effects of these budget cuts.  Look, foreign aid is far from a panacea, but one has to think of these forms of economic statecraft as spending on preventing rather than curing ailments in American foreign policy.  As a general rule, the former is far cheaper than the latter.  The latter also tends to involve a much greater allocation of blood and treasure.  I know why foreign aid is the first item on the chopping block — unlike military spending, it doesn’t go to Congressional districts — but let me go on record as saying this is a stupid own-goal by both Democrats and Republicans in Congress.  Even if one buys the need for fiscal austerity, there’s a lot more waste in the Pentagon than the State Department. 

So American economic power looks set to wane, and the Amerian model of political economy seems broken.  On the one hand, this is not a strong foundation upon which to build a more effective economic statecraft.  On the other hand, this is precisely the moment during which policymakers need to think about how to be more efficient with America’s still-impressive reservoirs of economic strength. 

Consider the comments below as a suggestion box — what would you recommend the State Department do to improve upon American economic diplomacy?