Must Deliver Tough Message Quickly

MY FIRST foreign policy priority," said Bill Clinton, "will be to restore America’s economic vitality." In recognizing the inescapable link between economic strength at home and influence abroad the president-elect may not only improve the lives of millions of Americans but help many nations abroad that are counting on renewed and confident leadership from Washington. The task is far more complicated and difficult than Clinton has made it out to be. First, the president-elect has not prepared the nation for the sacrifices that lie ahead if America’s trajectory is to turn upward. Second, he has yet to explain the complex obstacles to restarting the American economy in the face of a recession in Japan and Europe. Third, he has yet to confront the delicate problem of pleasing powerful international financial markets, which are all too ready to unleash their fury at the administration’s first fiscal misstep.

Now that the election is over, however, the new president will have to move extremely quickly to deliver the tough message and to make a series of agonizing decisions. In the CNN age, when indelible impressions are instantaneously formed around the world, and when Wall Street and its foreign counterparts can bring policymakers to their knees overnight, Clinton’s first 100 days are not just an opportunity to unfold a new agenda. Rather they just as equally present a minefield that could blow up and damage his administration for the next four years.

Clinton’s immediate priorities should be both offensive and defensive, and defined in terms that are crystal clear: to attack the cancerous budget deficit and simultaneously calm the financial markets, and to work with Japan and Germany on a global growth package that includes economic stimulus, trade promotion and currency stability.

How Will Programs Be Financed?

IN HIS HUNDREDS of position papers and substantive speeches Clinton has painted a picture of an America not only mired in recession but faltering for almost two decades in its ability to generate decent jobs. It is a picture not just of current pain but of anxieties about the future. To reverse this vision of America the president-elect has identified several critical requirements, foremost of which is the need for new policies to enhance America’s economic competitiveness.

One key element of his proposed program has been a focus on public investments, one emphasizing training and education of the work force and such infrastructure improvements as modernization of the national communications system. Another central part of Clinton’s vision is a revamping of America’s health care system, which he relates not just to concerns about basic fairness but to the morale and confidence of the work force, and hence to competitiveness as well. Taken together these are superb ideas that, if successfully carried out, will put America in a very strong position at home and abroad by decade’s end.

But big questions remain unanswered. At a time when America’s public budgets are under so much strain, how will his new programs be financed? Further, given the stagnant state of the American economy and soaring budget deficits, what will be the immediate priorities: new investments or a convincing policy of fiscal restraint? And finally, where do the conditions and policies of Japan, Germany and other nations with which we have become so interdependent fit into an American strategy?

The Credibility Factor

CLINTON HAS SAID that he would finance his public investment program by increasing taxes on wealthy Americans, tightening up on taxes paid by foreign corporations, reducing defense expenditures and eliminating fraud and waste in government. He has emphasized cost containment as a major funding source for his health care proposals. These policies, he has claimed, would result in a reduction in the annual federal deficit from the current $290 billion to $140 billion by 1996.

Many have said that this package lacks credibility and, unfortunately, they are right. The central problem has been Clinton’s inability or unwillingness to explain how severe the deficit problem is to America’s future—how such enormous mismanagement of the country’s past will impact directly on so much of its future, not for just the next few years but the next few generations. He has not explained how the $3 trillion federal debt resulting from a decade of whopping deficits is distorting the financial markets, undermining the investment and lending climate, and how far-reaching and painful new measures will need to be to restore some sanity to federal finances. In this context the polite thing to say is that Clinton has not been a budget hawk. But hopefully the truth is that he is not way off track in his understanding of the problem.

In the governor’s plan, for example, most deficit reduction would come not from Clinton’s programs themselves, but from forces allegedly in place, such as eventual elimination of the savings-and-loan bailout program. Clinton’s calculations rely on a rosy picture for economic expansion—one that recalls the misleading grow-our-way-out scenarios of Reaganomics. This Pollyannish perspective surely underestimates the negative impact of a continuation of corporate layoffs, especially in the defense-industrial sector, and the deteriorating climate in the economies of several of America’s critical trading partners.

It also fails to acknowledge that the proposed public investments of a Clinton administration, such as increased funding for worker training, will take years to bear fruit. In addition the president-elect may be vastly overestimating the amount of taxes that can be wrung out of households with incomes over $200,000. And his projection of some $40 billion in tax collections from foreign companies seems wildly exaggerated (the I.R.S., for example, estimated that enhanced collection would yield closer to $13 billion). Finally, focus on attacking pork-barrel inefficiencies in the public sector is an obligatory pledge but unlikely to make a significant dent in the way Washington has operated for two centuries. Controlling health care costs will be a difficult political experiment, which at best will take years to work.

If Clinton had been soft on fiscal restraint during the campaign, he may well be tempted now to postpone tough budget-balancing measures in favor of an immediate stimulus to the economy. This would be a big mistake. In so doing he would be risking a swift and adverse market reaction that could raise long-term interest rates, undercut a future recovery and jeopardize the president-elect’s credibility. Once again the long-term future would be sacrificed to short-term gain—déjà vu all over again.

It must also be said that the foreign dimension of an American recovery program is so integral that it is misleading to label it "foreign." American economic expansion, as well as the generation of high?wage jobs, is now heavily tied to exports; yet the trade deficit is widening again and the once tremendous growth in American sales abroad has been slowing dramatically in recent months. America will need foreign capital to grow, yet the credit pumps of Tokyo and Frankfurt are either broken or pointed at domestic needs. Interest rates, on which so much of our future now hangs, are determined not only by forces on Wall Street but by pressures from around the globe, and the fate of the dollar remains precariously linked to investor sentiment outside of America. Clinton has said little about how he would deal with these interrelationships. But if they are relegated to second?class priorities, the American recovery program cannot work.

Before Inauguration Day

THE CLINTON TEAM is acutely aware of these dilemmas, and there is an extensive debate among his aides as to what to do. The time for decision is now, however, not at the January 20 inaugural. The financial markets will not wait, and Chancellor Helmut Kohl, Prime Minister Kiichi Miyazawa and other leaders will not postpone domestic decisions that affect Americans.

No budgetary choices can escape controversy. But there is one course that the new president must follow firmly and unambiguously: he must emerge as a tough fiscal conservative right away. He must brave the headwinds of a democratic Congress that will be anxious to present its own package of new spending programs. He must face the country and explain that unless he takes serious action now to deal with the runaway budget, America will face severe problems, including a potential financial crisis that would drive up interest rates or cause the dollar to collapse.

Since Clinton did not lay the groundwork for painful policies, and since he has won no explicit mandate for such dramatic action, many who voted for him will be outraged at this turn of direction. We know from the campaign, however, that he can withstand tremendous heat. Moreover, the tough message need not be a betrayal of his commitment to rebuild the American economy, only a means for preparing the essential groundwork. Clinton has several one-time advantages: a failed economy not of his making; a honeymoon period to get tough measures enacted; and even the luxury of a year or so of continued slow economic growth before his term is jeopardized. This, then, is the time for courage, not for popularity-gaining measures that will surely backfire within a year or two, or sooner.

Before January, therefore, Clinton should call for a combination of spending caps and cuts, and tax increases—the only realistic approach to the deficit. He should call for a freeze on total spending outside of entitlements and interest on the national debt, and force any new programs to come at the expense of existing ones. He should be much bolder than he has been on reducing defense spending, including enacting sweeping proposals to eliminate overlap in the three military services. He should ask for a cap on entitlement programs. He should propose taxes on high?income families receiving social security. Finally, he should call for a tax on gasoline consumption—perhaps as a carbon/environment tax—which would take hold as the economy recovers.

The issue is not whether Clinton tries to impose discipline on government finances; it is whether he takes the initiative or whether he relinquishes that chore to thousands of young, impressionable bond and currency traders who are watching their computer screens, swapping rumors and making snap judgments as to whether America has turned the corner or merely embarked on a new spending frenzy.

Because the economy is still in a slump, many will worry that a tough fiscal policy will turn the recession into something much worse. Even some fiscal conservatives are now proposing that Clinton announce a two-part program consisting of immediate stimulus linked to longer-term budget cutting measures that would come into effect in 1994 or when the economy regains momentum. This is a typical Washington solution, because it sounds sensible and has something for everyone. But it amounts to passing the buck yet again.

Worries about too much fiscal tightening in 1993 are misplaced. Given the history of budget politics there is no possibility that all the measures suggested above would be enacted in less than a year; in fact, the Clinton administration would be lucky to see the bare outlines of a package make it through Capitol Hill at all. However, unless Clinton stakes out an extremely tough position now, there is no chance of even half a loaf after 1993. This is all the more true if fiscal restraint is embodied in legislation such that it will "come later"—a sure-fire sign that it is unlikely to come at all. Second, the helpful impact of low long-term interest rates—which the bond markets will likely deliver if Clinton is fiscally tough—should not be underestimated. This is a stimulus, after all, one that will put money to work in factories, technology, roads and ports, and that will reinforce Clinton’s admirable determination to change the real course of America.

To produce new jobs right away, the new administration’s best bet will be to give a massive boost to small businesses and to new start-ups—the sector that has become the major engine for job creation in America. In the 1980s new firms accounted for some 66 percent of the 19 million new jobs created. Today they are more important than ever, given that the big companies continue to shed jobs or move to countries with cheaper labor. Clinton is not unaware of the importance of small firms and has already made some proposals for targeted capital-gains relief. But these have been buried in a welter of other initiatives.

What Clinton needs to do now is to announce that stimulating small businesses is one of his most immediate priorities. Aside from proposing tax breaks, he should consider special incentives for banks to extend credit to small business and a significant reduction in regulatory red tape. An overwhelming amount of America’s exports derive from a few big companies, with less than ten percent of small firms doing any exporting at all. The new administration has an opportunity, with the dollar cheap and with export consciousness rising in the nation, to help smaller companies mount a massive selling effort abroad by providing market intelligence and trade-financing facilities. It is also critically important to ensure that small businesses are not weighed down by new taxes for health care, nor should they be hamstrung by new environmental regulations.

Another way to create a pro-growth environment would be bold moves on the trade policy front. The immediate opportunity is the proposed North American Free Trade Agreement (NAFTA). With exports to Mexico soaring, with the emergence of a $6 trillion North American economy of 360 million consumers, the aggressive pursuit of commercial opportunities on our own continent is essential. The Clinton team should move quickly to get the agreement ratified. The new president has endorsed the treaty with some reservations about the need for additional legislation for retraining and environmental protection. These concerns, however, require action in Congress, not renegotiation of the treaty.

Clinton should use the push for NAFTA as a ringing endorsement of America’s belief in an open trading system—where Washington’s focus will be on expanding markets abroad, rather than protecting them at home. At the same time he has the opportunity to show he is absolutely serious about the retraining question, not just for people immediately displaced by imports or by the movement of firms abroad, but also those hurt by rapid technological change generally. There is no free lunch, however, and the funds to finance training programs will have to come at the expense of other existing programs, most likely the defense budget.

Remedies Require Global Context

BEYOND NAFTA, the new administration’s international economic agenda is pressing. While Clinton’s campaign rhetoric included repeated reference to "meeting the challenges of the world economy," its underlying theme was always that the fundamental challenges lay at home, not abroad. The inference was not just that America’s major priority was to get its own house in order—which is dead right—but that this was all America needed to do and that it could do it as if the rest of the world did not count—which is dead wrong. The fact is, interdependence of the domestic and international economy now runs so deep that old notions of economic policy have to be revisited by the incoming team.

The intricate relationship between America and the world economy has been growing exponentially for the last two decades. The simple kinds of interdependence are well known: the growth of exports and imports and related job creation and dislocation; the mushrooming of foreign investment in America, not just in plant and real estate but also in the stock and bond markets; the expansion of the roles of foreign banks from New York to Los Angeles; the renewed explosion of immigration; the increasing dependence on foreign oil. But it is worth focusing on two of these linkages to better understand the importance that the president-elect must simultaneously accord to both domestic and foreign economic policy as part of his immediate agenda.

Start with exports. If the American growth machine has three pistons—federal spending, easing of interest rates and expansion of exports—given fiscal pressures and the rock-bottom cost of money today, only trade has much potential now. Exports, in fact, have accounted for most U.S. GNP growth in the past few years, and the recession would have been far more devastating if American sales abroad had not been soaring. Today some 14 million workers owe their jobs to exports, and since 1984 virtually all the increase in the U.S. manufacturing sector can be attributed to sales abroad. But in order for this performance to improve—and, indeed, simply for it to continue—markets abroad will have to expand, particularly in Europe and Japan where trends are moving precisely in the opposite direction. Growth abroad is crucial to the United States for another reason: if an American recovery does get off the ground, and if the United States is the only major industrial nation with significant growth, it will draw in everyone else’s imports as happened in the mid?1980s. Once again the deficit will soar, more jobs will be lost, more industries wiped out.

The financial markets constitute a second arena where Clinton must be acutely conscious of the domestic?international relationships. We all saw how these markets humbled Britain and Italy in September when they judged that the policies of London and Rome were not sustainable. Behind these dramatic events were investors and speculators in every corner of the globe who typically churn $1 trillion of foreign?currency exchange every day. That is about three months’ worth of activity on the New York Stock Exchange, or the equivalent of the total foreign-currency reserves held by all central banks. Since only about 20 percent of this foreign exchange activity is related to financing trade, some $800 billion is loose and hot—and available to provide a daily referendum on any nation’s policies, including America’s. Thumbs up means interest rates stay reasonable and the dollar stays strong. Thumbs down ....

The point is this: the new team will have to think about domestic policies in a truly global context. It will have to recognize that America cannot solve its problems in the face of policies in Europe and Japan that are not moving in sync with ours. It will have to find new ways to bring domestic and foreign considerations together, not just as an intellectual exercise but in practice and in ways that are understood by the American public. All this will constitute a sea change in economic and foreign policy.

Consult with Japan and Germany

CLINTON’S FOREIGN economic agenda should have several immediate components. He should begin by sending emissaries to meet with government officials in Bonn and Tokyo, including their top central bankers. The trip should be mounted before Christmas, and such meetings should occur several times during the first few months. The purpose would be to explain the administration’s thinking on fiscal and monetary policy, its efforts to jump start the economy through the entrepreneurial sector and its longer-term vision for the United States. These sessions would help build understanding, goodwill and all-important personal relationships. This is particularly important for a new team led by a president whose views on so many global issues, including trade and the dollar, are not well known and who comes from a party that has been out of power for 12 years.

A second purpose of an early trip by his key foreign economic policy aides would be to agree on at least a short?term strategy to support the dollar should major currency problems arise in the early days of the new administration. No one can predict when or how such a crisis could occur, but the fragility of the American economy, together with the relative inexperience of a new administration, makes precaution advisable. Moreover, if recent months are any indication, the habit of timely currency coordination is very rusty, at best.

A third purpose is to listen to foreign concerns. On this score Clinton’s emissaries are likely to get an earful that could very well influence their own approach to reinvigorating the American economy. Both Japan and Germany will express deep concerns about the inability of America to reduce spending, and they will press the new administration to take steps well beyond what was mentioned in the campaign to address the budget deficit. Both nations are sure to protest the increasingly unilateral nature of American trade policy—especially its constant resort to anti-dumping laws, which are made so easy to apply under the 1988 legislation, and the increasing use of retaliatory measures taken without multilateral approval under international trade law. They are sure, as well, to point to a slew of new trade measures that the new Congress will be anxious to unveil.

Another subject of great concern will be Clinton’s plan to increase taxes on American subsidiaries of foreign companies. His ideas on the matter are important not just for their specifics but also for what they say about the new administration’s understanding about the worldwide competition for global capital flows. Bonn is already on record as saying that it would retaliate against German subsidiaries of American firms. Surely other capitals would follow suit. The president-elect should rethink his policies on this front.

In addition the Clinton team will get a picture of Japan and Germany starkly different from what it would have been just a few years ago. In the late 1980s, for example, Japan’s economic trajectory was straight up, but today it faces a massive crisis in its financial system, with fallout for industry and politics. In Germany the financial, political and psychological costs of unification continue to mount, with implications for every aspect of German policy. Both countries are looking inward and are almost totally preoccupied with political developments in their respective backyards.

Germany in particular, but Japan too, see America’s lack of discipline with increasing disdain—an attitude hard to quantify but becoming more noticeable in both countries. Neither nation is any longer willing to jump just because the United States says so; rather, Washington will have to offer significant quid pro quos to persuade each to change current policies. At the same time, however, Clinton’s representatives will likely find their foreign counterparts quietly yearning for a resurgence of American confidence and leadership. The fact is, neither Tokyo nor Bonn has the capabilities to provide the global stewardship, nor do they have the aspirations. Hearing and seeing all this firsthand is essential for a new team trying to figure out how to succeed in foreign economic diplomacy in the post?Cold War world.

Coordinate Growth Plans

THE MISSION to Tokyo and Bonn should also propose an early summit of the Group of Seven leading industrial nations, one which would be moved up from its usual June/July scheduling and be held within the first 100 days of the new administration. The summit would have three agenda items: a global growth package, the conclusion of the stalled Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and the announcement of a currency coordination plan.

On economic growth there is a crying need for coordinated stimulation by America, Germany and Japan. Tokyo’s August 1992 announcement for vastly enhanced public spending was a start. So were the Bundesbank’s recent modest easings of interest rates. In both cases, however, more will have to be done, and the imperative is to coordinate national measures rather than having them dribble out ad hoc. That at least would reduce the necessary extent of adjustment in each country and give the right signal to the markets about political resolve among the countries governing the global economy.

Washington’s contribution to a growth package would be twofold: a new fiscal policy that encourages the financial markets to bring down long-term rates, and hence encourage new investment; and a major program to revitalize the small business sector in order to boost jobs and growth. To take pressure off spending and inflation, this would require accompanying budgetary measures—particularly cuts in subsidies to industry. It will also necessitate agreement by the labor unions to restrain wage increases. As for Japan, depending on the results of its new public investment program, it may have to accelerate new domestic investments. At a minimum it will have to find a way to deal with the enormous level of bad loans in the banking system. And Tokyo could also make a major contribution to pump?priming abroad, via expanded foreign aid in particular.

The idea of an early summit will not be an easy sell. Japanese, German and other leaders among G?7 governments are weary of American officials storming in and saying, "We’re in charge, now let’s get organized." They will be highly suspicious of Clinton’s priorities on the American economy—as being nothing more than self?serving moves. They could be relentless in demanding that America take some self?correcting policy measures first and, in their own difficult economic situation, they are going to be skeptical about what they themselves will be asked to do. In addition there should be no illusion as to exactly what is entailed here—it is not just coordination of foreign policy but the construction of complex domestic packages compatible with one another. Short of asking governments to send their soldiers into combat, this is the tallest order imaginable.

While the amount of effort and arm?twisting needed to reorder policies in this way can hardly be overestimated, neither can the importance of succeeding. The economic benefits are crucial to the American recovery. On a diplomatic level it is imperative for the president-elect to try reversing the negative momentum for global cooperation among the big three economic superpowers, so clearly evident in the stalled Uruguay Round, the stalemated Rio Earth Summit and the "nonevent" G?7 summit in Munich. The initiative for something positive and dramatic must come from Washington.

In this context it is entirely likely that Washington will need to strengthen its case by adding issues of importance to its dealings with Japan and Germany that go beyond fiscal and monetary policy. With respect to Japan, for example, Washington should be prepared to pledge support for Tokyo’s strong desire to join the U.N. Security Council as a full member, and also to support the appointment of a Japanese citizen to be the next head of the International Monetary Fund or the World Bank. It should even be willing to combine discussions of what Japan can do for global economic growth with what America can do for Japan’s growing security concerns in Asia—that is, with pledges about the continued presence of U.S. forces in the region.

Regarding Germany the trade?offs are no less important or potentially dramatic. Bonn, too, wants a seat on the Security Council and needs U.S. support. But more central to German concerns now is the unraveling of eastern Europe and the former Soviet Union, with the specter of economic chaos, more Chernobyls, more ethnic and regional warfare and, most immediately, streams of refugees coming west. It is of course unrealistic to believe that America has the capability to handle these problems on its own, but the response from Washington to date has been pitiful. A far?reaching American effort in concert with Europe and Japan could make a huge difference. It would be a powerful incentive for Germany to meet the United States halfway on economic matters if President Clinton pledged to take a highly active role in helping Bonn confront these Cold War legacies. This should include more pressure for assistance from international financial institutions such as the World Bank; country?by?country reviews of debt relief possibilities; technical assistance; temporary trade concessions to speed economic development; encouragement of American private sector investment; and the appointment of a senior Clinton aide to oversee U.S. efforts. There are at least two areas, moreover, where Washington appears to be at odds with Bonn over where compromises should be reached: assistance to east European nations to shore up the safety of their old nuclear reactors, and agreement on the policy direction of the European Bank for Reconstruction and Development.

Concerning Russia, the once vaunted $24 billion aid package announced jointly by President Bush and Chancellor Kohl earlier this year has entered the Bermuda Triangle of international initiatives. president-elect Clinton should offer to help reignite the West’s efforts, including immediate measures to guard against a tragedy this winter with regard to food and heating oil shortages. The logistics of providing such relief are well within the capability of the major Western powers and Japan. Why not an effort with Desert Storm intensity?

Trade policy is also a critical summit item. Here the main event will be the Uruguay Round. If President Bush has been successful in breaking the agricultural logjam before he leaves office, Clinton will have immediate challenges on both the domestic and international fronts. At home he must fashion legislation to implement the new treaty—legislation that will force both the administration and Congress to wrestle with every aspect of U.S. trade, from sugar quotas to the executive branch’s organization for America’s trade policy, to provisions for retaliating against foreign countries deemed to be acting unfairly.

To the United States and the world, however, the president-elect’s ability to shape this legislation and to articulate a vision of the post?Uruguay Round trading order will be among the most fundamental statements about the Clinton era that can be made. At home and abroad people will be looking for clues to several questions. Here is how Clinton should answer them:

Is America more interested in moving bilaterally or multi?laterally when it comes to new trade accords? Answer: its priority is in establishing multilateral rules for trade liberalization, to which bilateral agreements should conform.

Does America intend to maintain the right to unilaterally retaliate against other nations without first submitting its claim to the GATT? Answer: America will go to the GATT if that trade body’s procedures are tightened up so that Washington can move very quickly in having its claim addressed.

What is the future of the GATT as an organization? Answer: America would like to see it turned from a weak and ineffectual bureaucracy into an organization with real enforcement powers, and one that also covers investment disputes—along the lines of the International Trade Organization first proposed after World War II.

What exactly will be the core of America’s new industrial policy? Answer: the heart of the policy will be upgrading the work force, the nation’s infrastructure and the export performance of small? and medium?sized businesses. But the United States is not going to allow its high?technology industries to be obliterated by foreign companies that are subsidized by their governments, or by companies whose home countries do not provide reciprocal access to American firms, both with regard to their exports and to their ability to make direct foreign investments.

There is no assurance, however, that the Uruguay impasse will be broken by inauguration day. There is even a chance that trade tensions will have increased. In this event president-elect Clinton should cut a deal on agriculture with the European Community, however imperfect, and bring the negotiations to an end. For the new team the imperative is to be able to move ahead on trade with new momentum and not be dragged down by the old problems. In addition, if there is a good time for Clinton to fight the farm lobby, it is at the beginning of his term. Most important, America has critical interests in the rest of the negotiations, which deal with rules for financial services, foreign investment and copyright and patent laws. If there is a need to conclude the talks with a major compromise, Congress will not be happy. But the pitch to Capitol Hill would go this way: "The Uruguay Round began at a time when the world looked much different. We need to get it behind us now so that we can get on with the post?Cold War agenda. The compromises are the best we can do, and on balance, our overall interests are served by going forward." A Democratic president facing a Congress controlled by his own party should be able to pull it off.

The third agenda item for the summit is a new monetary pact. The immediate need is to bolster confidence in the dollar. Dollar instability of the kind that has enveloped the greenback this past summer undercuts the confidence of investors everywhere and disrupts global trade. The European monetary crisis of September did the same. But the financial surpluses building in Tokyo could also be destabilizing. It is long past time when the key G?7 governments should have organized themselves to manage currencies within certain ranges of value, via a combination of intervention and changes in domestic monetary policy. An announcement at the summit that they will now embark on such a plan—even if a scheme takes a while longer to work out—will be a powerful signal that Washington, Tokyo and Bonn intend to play an active role in working together. This would amount to a dramatic turnaround from the current situation.

Measuring Up

SINCE 1945 the most critical foreign policy agenda items for new administrations related to military security in the Cold War. Clinton’s problem is vastly different and, in many ways, far more complex. Gone are the old "we versus they" simplicities that came with an easily identifiable "evil empire." Gone is the easy appeal to flag and country. Gone is the ability to separate national security from the daily pocketbook issues that loom so large in our lives and that affect so many groups in different ways. Indeed the president-elect faces what might be the most difficult challenge that any of his predecessors have encountered since World War II: he must turn around an economically weakened and psychologically demoralized nation and provide international leadership at the same time. The United States—and the rest of the world—has a lot riding on how well America’s young, energetic new leader measures up. It should not take too long to find out.

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  • Jeffrey E. Garten is senior adviser to The Blackstone Group and teaches international finance and economics at the Columbia Graduate School of Business. He is author of A Cold Peace: America, Japan, Germany, and the Struggle for Supremacy.
  • More By Jeffrey E. Garten