Asia Times: War on terror: The economic dimension


	November 3, 2001	atimes.com

Global Economy

ANALYSIS
War on terror: The economic dimension
By Uwe Parpart

As expected by all, the United States economy contracted in the third quarter - although the annualized rate of the contraction of 0.4 percent was less dramatic than many had feared. Where will the US and world economy go from here as the war on terror is likely to expand in coming weeks and months?

Given low levels of consumer and business confidence and continuing uncertainty about the course of the war and the possibility of new terrorist strikes against US and allied targets, no-one expects the last quarter of the year to show positive growth in the US. By year end, the US economy will be officially in recession. Further, the Organization for Economic Cooperation and Development, whose 30 member countries comprise most of the world's large and advanced economies, has already slashed next year's growth forecast to 1.2 percent from its previous 2.8 percent prediction. Worldwide, only China is forecast to grow at a substantial rate in 2002.

Still, looking ahead a year or so, not all is gloom and doom. In the war on terror, there may be more defeats and setbacks. But there will also be victories and - as in any war - economies and markets will respond positively to those. Most importantly, however, the administration US President George W Bush is putting the world's largest economy on a war footing appropriate to the new type of war now being fought. What's being created is not a classical-style war economy with large deficit spending for greatly increased military production - although there will be some of that.

Instead, Bush has put before the US Congress a near-term legislative agenda designed to strengthen entrepreneurial initiative, global free trade and investment, and home-based energy production - a legislative agenda, in other words, to counter terror, fear, and anti-globalism forces and enhance US energy independence; an agenda for business recovery and open markets integral to defeating terrorist goals.

After signing into law the Anti-Terrorism Act on October 26, Bush requested that the Congress speedily conclude deliberation on and present for his signature:
1) An economic stimulus package principally consisting of further tax relief and totalling in the range of US$100 billion.
2) Measures giving the administration Fast Track Trade Negotiating Authority.
3) An energy plan focused on the development of more domestic energy supplies, including nuclear power, and thoroughgoing modernization of energy infrastructure.

In discussing these pieces of legislation, Bush made the connection to the war on terror explicit, "There's no question that terrorists want to cast a shadow of fear on the businesses of America. They understand how important our businesses are to our way of life ... and the more that can be disrupted, that spirit of commerce and enterprise, the more successful they think they will be. But they're not going to succeed ... In all our wars, the productive power of the economy has been one of our nation's great advantages. And that's true today."

Just by itself the legislation, expected to be passed into law in the coming few weeks, will provide a powerful kick to the US, and soon thereafter to the world economy. But beyond that, Bush has received assurances from US trading partners and allies and the World Trade Organization (WTO) leadership that a new round of trade and investment liberalization talks will be decided at the upcoming Doha, Qatar WTO summit. He is also receiving the direct and indirect support of German Chancellor Gerhard Schroeder, who on his recent trip to India and China lobbied the governments there on the new trade round and saw German business conclude several billion-dollar investment projects, including one US$3 billion deal by chemical giant Bayer in Shanghai.

In terms of political support for and on the economic side of the war on terror, India and China are important US allies, and when Russian President Vladimir Putin visits Washington from November 12 to 15 it should be expected that not only political and military issues, but critical economic ones will be high on the agenda.

Russia wants US investment and other forms of assistance in the development of the vast Central Asian/Russian oil and gas resources, and geostrategically that's a proposition which - after years of reluctance - the US will now undoubtedly accede to as energy supplies from the Middle East are put in question as the war on terror proceeds.

The Bush administration, while most eyes are fixed on developments in Afghanistan, is pursuing - at home and abroad - a strategic economic agenda that will take time to unfold in its impact on the world economy. Next year will be a rough one. But the foundations for sustained global recovery are being laid.

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