26

CHINA RISING AND THE INTERNATIONAL ECONOMY

IN THE TUMULT of 1989, Romania had been the only East European country to attempt a Chinese-style solution to mass public unrest. Nicolae Ceausescu ordered the army to attack protestors in Romania’s capital city, Bucharest. But the Romanian leader was unable to prevent the military from joining the rebels, and when he and his wife tried to escape into the countryside, they were soon captured and then shot.⁸²⁷

As noted earlier, the executions traumatized the Chinese Party leaders, especially since Romania had been China’s staunchest ally in Eastern Europe. Jiang Zemin, Deng’s handpicked new party secretary, had spent part of his career in Bucharest and even spoke some Romanian. And Scowcroft recalled that, shortly after the Tiananmen Square massacre, the Chinese had commented on the strength of the Romanian government.⁸²⁸ Thus the downfall of the Romanian government badly scared the Chinese ruling class. Within a week, the Chinese leaders held several sessions of the politburo’s standing committee and convened a plenary meeting with all of the politburo members and another with the first secretaries from the provinces and the autonomous regions.⁸²⁹

Deng Xiaoping repeatedly emphasized the paramount importance of the continuity of the Chinese state. The lesson from Romania was that the leadership had to be ruthless in the suppression of protests so as to ensure stability—albeit preferably out of public view, as quietly and unobtrusively as possible. “Close the door,” as the Chinese saying once quoted by Ambassador Lilley went, “to beat the dog.”⁸³⁰

The death of the Ceausescus ended the momentum toward the improvement of US-China relations following the Nixon, Kissinger, and Scowcroft visits in the aftermath of the Tiananmen Square massacre. It “froze everything” and reversed the progress of US-China relations. China continued to jam the Voice of America, and the Chinese media kept attacking American values and policies. And in April 1990, as will be discussed later in this chapter, the Chinese cancelled the Peace Pearl project.831

American attitudes toward China shifted in response. Vice President Quayle, for instance, judged Scowcroft’s two visits as essentially failures, having produced intense controversy but few results. Like many other conservatives and human rights advocates, Quayle essentially gave up on China, believing that Chinese leaders were blind to the inevitable victory of freedom and democracy.⁸³²

For a time, positive steps in US-China relations were few and relatively insignificant. On December 19, 1989, a few days before the Ceausescus were shot, President Bush allowed the Export-Import Bank to lend money for the construction of the Shanghai subway system (a project that included several American subcontractors). On January 11, 1990, Chinese leaders lifted martial law in Beijing. On June 25, the Bush administration agreed to proceed with the sale of $2 billion worth of Boeing 757 jets. On the same day, Ambassador Lilley finally arranged for Fang Lizhi’s release after many months of negotiations, ostensibly for reasons of health (a heart murmur): Chinese officials agreed to allow Fang to leave London (he would eventually go to the United States), while the US government agreed not to use Fang for political purposes. And at the G-7 summit in Houston in July, 1990, Bush and Scowcroft agreed to the resumption of suspended loans to China from the World Bank ($1.6 billion) and Japan ($5.6 billion).⁸³³

More complicated was the administration’s effort to renew China’s most-favored-nation (MFN) trade status, which encountered heated opposition from Congress and involved intense lobbying by the Congressional Liaison Office, Scowcroft, and others. The White House solicited the participation of “special interests,” such as Boeing, grain producers, and wood product manufacturers, and asked former presidents Nixon and Ford to contact members of the Senate on behalf of China’s MFN status. And Baker pointed out to US senators that since Scowcroft and Eagleburger had been to Beijing, China hadn’t sent M-9 missiles to Syria or medium range missiles to the Middle East, nine hundred political prisoners had been released, and martial law had been lifted.⁸³⁴

The renewal was passed conditionally on May 24, 1990, which gave the United States leverage over China during the international maneuverings after the Iraqi invasion of Kuwait. Not wanting to alienate itself from the United States or from nonaligned states—where China had formerly been the head of the nonaligned movement—China abstained from the vote on the UN Security Council resolution of November 29, 1990, which authorized the use of all necessary means against the Iraqi occupation of Kuwait, rather than vetoing the resolution.

But China’s nonveto didn’t come about easily. As Robert Suettinger reports in his book, Beyond Tiananmen, Qian Qichen, the Chinese foreign minister, refused to disclose to Secretary Baker how he would vote—and this after he accepted Baker’s invitation to come to Washington. Baker was outraged at Qian’s refusal to commit to a decision, and when he then told the Chinese foreign minister that President Bush couldn’t fit him on his schedule—Qian had assumed a visit with the president would be part of his visit to Washington—Qian was, in turn, outraged. The Chinese ambassador in Washington then called Scowcroft at 3:00 A.M. to see if Bush would see Qian.835

Scowcroft agreed to accommodate Qian. The administration did not need an international crisis on its hands after its success with the UN Security Council vote, he later explained, so he set up the meeting. The Chinese got their photographs of Qian and the president—despite White House efforts to the contrary—which were then reproduced in all the major Chinese newspapers.⁸³⁶

But Baker got the last word. President Bush’s talking points prioritized human rights, missile proliferation, and intellectual property rights—all sore points with China. Afterward, both sides tried to put the best face on what had happened, but Congress, influential voices in the American press, and some in the administration—Baker especially—were ever less tolerant of what they viewed as a politically repressive and religiously intolerant government that dumped low-cost or pirated good in the United States and sold weapons and military technology to unstable Third World states.⁸³⁷

Almost one year later, on November 15, 1991, Baker made the first Cabinet official to visit to China since the Tiananmen Square massacre (although Under Secretary of State Kimmitt had visited on May 1991). Attuned to public relations, Baker avoided Scowcroft’s mistakes. He made sure that there was only a working dinner during the negotiations—with no state dinner, no official banquet, and no diplomatic toasts that could be photographed. By doing so, however, he denied Chinese authorities the domestic publicity they wanted and thereby sowed the seeds for a difficult set of meetings. Baker and Qian proceeded to engage in tough, protracted negotiations over missile sales, arms proliferation, economic cooperation, and human rights issues, with Qian conceding nothing. Baker then met with Li Peng the next day in a bitter, antagonistic round of talks, what Douglas Paal called the “worst meeting he had been to in his life.” Baker ended up delaying his departure from Beijing no fewer than seven times during the visit, but the unpleasant sessions had a payoff. Qian persuaded his colleagues to make concessions on missile sales, to reiterate China’s support for the Nuclear Non-Proliferation Treaty, and to negotiate further with the United States with respect to trade in goods made by prison labor and intellectual property rights. And Baker pledged the United States’ support of China’s bid to join GATT and to cancel its ban on China’s satellite exports.838

That same month, in November 1991, Deng Xiaoping began to lay the foundations for the liberalization and reform of China’s economy. He and Jiang Zemin foiled an attempt by hard-liners to arrest their economic reforms, Deng called on party officials and the media to mute their criticism of the United States and the West, and he began to plan what became known as his “southern tour”—an extensive trip through southeastern China designed to herald his plans for a more robust, capitalist-style Chinese economy.

For Deng, Jiang Zemin, Zhu Rongji, and other allies, economic reform was necessary for China’s future success, and Deng was willing to take calculated chances—revolutionary steps, even—to realize that success. He and his allies, especially local party leaders in southeast China, believed that unless China wanted to be swept downstream and left behind in a world of ever more interconnected markets, the party had to be willing to experiment with stock markets and to accept the private accumulation of wealth.⁸³⁹

It’s difficult to overstate how revolutionary these steps were. Though China in the early 1990s was far more affluent than it had been two decades earlier—the department stores stocked merchandise, hotels and homes were furnished in stylish décor, and the women and children were now dressed in bright colors—its economy had scarcely begun its transition to capitalism.⁸⁴⁰ While there were twenty banks and more than seven hundred trust and investment companies by 1988 (as compared to the single bank that had existed as late as 1978), all of the banks were affiliated with party offices. When five state-owned enterprises in Shenzhen (near Hong Kong) issued initial public offerings in 1988, they were only 50 percent subscribed.⁸⁴¹ And when Bush visited in February 1989, fewer than one hundred thousand businesses were in private hands. Not until July 1991 would the Shanghai stock exchange open its doors.⁸⁴² So Deng Xiaoping’s call for experimentation with capitalism and for the creation of special economic districts was a novel and unprecedented move.

At first, Deng’s message remained hidden, since Li Peng and other conservatives still controlled the Chinese media. For forty days following Deng’s southern tour, there was no public report about his message of economic reform. Word got out nonetheless. Then, on March 11, Deng went public over radio, proclaiming that China “should be more daring in opening and reform.” Later that month, the Chinese politburo ratified Deng and Jiang’s initiatives. Even Li Peng, who was aware of the political currents, had little choice but to endorse Deng’s proposals, while another hard-liner, the seventy-four-year-old Yao Yilin, resigned.843

The party leaders were now in agreement, committed to taking a chance on reform. China would become a developmental autocracy as Singapore, South Korea, Taiwan, and Malaysia were previously, with economic and social freedoms coexisting with authoritarian politics and controls on information.

In support of this initiative, the Bush administration negotiated the 1992 Market Access Memorandum of Understanding, whereby China began a rolling five-year tariff reduction on some ten thousand trade items, beginning on December 31, 1992. This was accompanied by the 1992 Intellectual Property Memorandum of Understanding. The two agreements were the most significant of those made between the United States and China and, in the judgment of a former US International Trade Commission official, “contributed significantly to China’s economic success.”⁸⁴⁴

Capitalist China took off. Jiang Zemin proposed that China should be called a “socialist market economy”—and the next year it was.⁸⁴⁵ A Chinese company placed an initial public offering (IPO) on the New York Stock Exchange on October 7, 1992, for the first time ever, and raised $80 million. Over the rest of the 1990s and through the first decade of the twenty-first century, Chinese companies started issuing successively larger IPOs, and the market valuation of Chinese firms soared accordingly. The overall Chinese economy grew by 13 percent in 1992, and foreign investment soared by 66 percent. Comparably rapid growth continued into the 2000s.

The rise of China’s special form of capitalism dovetailed with US interests, particularly those of American investment banks and financial firms, manufacturing and trading companies, and consumers.⁸⁴⁶ The strength of these interests caused President Clinton, who had run for the White House by linking human rights to economic policy and attacking Bush for coddling the “butchers of Beijing,” to reverse his course once in office. Indeed, the boom in US-China commerce ended up profiting Clinton politically, while George Bush, with his fifteen-year history of constructive diplomacy with China, had struggled with US-China relations throughout his presidency.⁸⁴⁷

Toward the end of Bush’s term in office, one more serious hitch in the US-China relationship arose. It began when Bush agreed to sell 150 F-16s to Taiwan to replace the Taiwanese air force’s fleet of older (and notoriously unsafe) Lockheed F-104 Starfighters.

Domestic politics played a role in the decision. In early 1992, General Dynamics had announced fifty-four hundred planned layoffs at its Fort Worth plant. The US economy was in a slump, and Bush was trailing Clinton badly in the polls. A big armaments deal would give a boost to business and presumably enhance Bush’s reelection prospects.

The defense needs of Taiwan also strengthened the case for the deal. China had bought twenty-four SU-27s—known as the “Flanker” to NATO—from the Soviet Union in late 1991. Since China now had longer-range, more potent fighters that it could match up against Taiwan’s twenty-year-old aircraft, Taiwan purchased sixty Mirage 2000-5s from France and was prepared to buy even more. But Taiwan and the Bush administration both preferred to have the Taiwanese air force buy the F-16s rather than more Mirages. It was “a compelling case,” according to the US Department of Defense.848

Baker and Cheney favored the Taiwan deal, though Scowcroft did not. However, once the president decided to go ahead, it fell to Scowcroft to break the news to the Chinese. The Chinese public reaction was one of “controlled fury,” especially since only two weeks before the announcement of the F-16 decision the Office of the US Trade Representative had declared $3.9 billion in punitive tariffs as a result of China’s market restrictions. The Chinese retaliated by breaking off bilateral discussions on human rights, attacking American “lies and deceit” in the press, announcing the sale of a nuclear power reactor to Iran, and beginning a campaign to contest any change in US-Taiwan relations. But once Bush didn’t get reelected—the Chinese had still preferred Bush to Clinton—China sold its M-11 missiles to Pakistan—filling in where the United States had left a vacuum.⁸⁴⁹

The F-16 sale in many ways marked Taiwan’s coming of age. Since Taiwan’s transformation into a democracy, US officials had in effect moved away from the one-China policy to an undeclared dual-China system. Indicatively, during the presidential transition period before Clinton took office, trade representative Carla Hills visited Taiwan, the first high-level US official to do so since 1979.⁸⁵⁰

THE YEAR 1989 had ushered in the most difficult phase of US-China relations since 1972. The most obvious cause was the headline events of that year—the Fang Lizhi incident, the Tiananmen Square massacre, the collapse of the Soviet bloc, and the execution of the Ceausescus. But a more subtle reason was the disappearance of the dominant factor behind the growth of the US-China relationship: the Cold War.

The fact that the United States and China had a shared fear of and enmity toward the Soviet Union was a key factor in the rapprochement between the two powers. This was why the United States had sold avionics and radar equipment, ammunition manufacturing facilities, torpedoes, and other military technology to China during the Carter and Reagan administrations.851 It was also why the Soviet Union was the chief topic during Bush’s meetings in February 1989 with Chinese leaders, and why US Navy ships sailed to Shanghai to show off US-China military cooperation and upstage the Soviet president during Gorbachev’s visit to Beijing in May 1989.⁸⁵² The collapse of Soviet communism thereby severely undermined the rationale for US-China cooperation.

The impact can be seen in the fate of the so-called Peace Pearl project, a secret $502 million project to upgrade the avionics on Chinese F-8 Crusaders being done at Grumman facilities on Long Island and Wright-Patterson Air Force Base in Dayton. After the Tiananmen Square massacre, the project was suspended for four months; forty Chinese technicians at the Grumman plant were furloughed, along with two Chinese officers stationed at Wright-Patterson AFB. Neither the United States nor China wanted to cancel the project, a Pentagon spokesman noted—but that’s exactly what happened just two years later.⁸⁵³

So as the Soviet empire deteriorated further with each passing month, so, too, did the geostrategic basis for the US-China relationship further erode. As the Cold War subsided in significance, then, the differences between the two countries came into greater relief—differences over institutions and values that became glaringly obvious after Tiananmen Square. The US-China relationship therefore had to be rebuilt on a new foundation.

One piece of this new foundation was China’s quest for economic prosperity. With the thawing of the Cold War, international trade and finance loomed relatively larger in US strategy, and in this area the interests of the two countries converged. China needed access to foreign capital, new technology, and overseas markets; US policy makers and business leaders, for their part, sought access to the vast and growing Chinese domestic market, hoped to be able to invest in new or growing Chinese companies, and wanted to harness China’s productive and low-cost labor force. And if American companies didn’t get their foot in the door, European companies would.

Another basis for a constructive new US-China relationship was the shared desire to prevent another Cold War. Many feared China would simply supplant the Soviet Union as the new rival superpower—a fear that is widespread in the United States to this day. Scowcroft believed that the way to avoid such a development was to embed China in the global economy and international institutions. A China folded into the world community would be far less likely to become a geopolitical archenemy lurking behind a bamboo curtain. In view of what Scowcroft saw as China’s “enormous potential for good or ill,” it was very much in the United States’ interests to reach out.854 Too, Chinese leaders shared the desire of American leaders to avoid the expense and dangers of a new Cold War. They appreciated the fact that the United States had (and has) an overwhelming edge in military technology, dominant air power, and a blue-water fleet capable of shutting down the trade and shipping lanes that keep the Chinese economy afloat. Deng Xiaoping had little desire to mount a military challenge to the United States, and he listed military development fourth among China’s four points for modernization.⁸⁵⁵

US and Chinese interests also converged in the desire for internal stability within China. Bush administration officials worried about the possibility of a return to Maoism, particularly if the Chinese hard-liners were empowered after a popular uprising or a military coup. So Bush and Scowcroft were eager to defuse tensions in China and to dispel any idea that the United States was trying to take advantage of internal dissension and the instability it might cause.⁸⁵⁶

For all these reasons, Bush and Scowcroft wanted to advance policies that encouraged the development of a more prosperous, more politically stable, and less belligerent China. (During the Clinton administration, in January 1994, Bush and Scowcroft did exactly this; the two visited Beijing on behalf of the Clinton administration so as to give a private presentation and analysis to the Chinese leadership on the politics of the Clinton White House.)⁸⁵⁷

Was the Bush administration being “morally obtuse” with its business-as-usual attitude toward China following the Tiananmen Square massacre, as charged by Col. Andrew Bacevich, an international relations scholar and retired Army officer? As noted by Bao Tong, the former general secretary of the Communist Party, an aide to Zhao Ziyang, and the most senior leader jailed after the Tiananmen Square massacre, “There are miniature Tiananmens in China every day, in counties and villages where people try to show their discontent.”⁸⁵⁸ And were Bush and Scowcroft being unduly deferential to the Chinese leadership, as Winston Lord has said?⁸⁵⁹

Bush and Scowcroft would say no. The United States imposed more severe sanctions after Tiananmen Square than any other country. But further reactions would only make China’s leaders feel less secure and more besieged. “Our efforts may [have looked] one-sided, and maybe objectively they could be considered one-sided,” Scowcroft recognized. “But it was a context of a very difficult period for Chinese leaders. They were in a panic.” The Communist Party leaders “perhaps realized they’d made a terrible mistake in the way they had handled Tiananmen Square,” he said, but the rulers had “no way to admit that, since that, in a sense, would be acknowledging that they were somehow inferior, and outsiders had a better concept of how the Chinese should manage their affairs than did the Chinese.”860 In Scowcroft’s judgment, the adoption of harsher measures against China might have mollified American domestic audiences but would actually have done nothing to lessen political censorship, alleviate repression, promote further political liberalization, or better guarantee human rights. Rather than improving political conditions within China, they would have worsened US-China relations.

After leaving office, Scowcroft wrote that human rights should not be “at the apex of our policy priorities” with China. “Human rights will be best served over time by encouraging the evolution of a market-oriented and more democratic China with ties to the West. Equally, we need to avoid being so mesmerized by the Chinese market (and our fear of losing access to it) that we ignore our other interests,” which include “strategic as well as political and economic concerns”—“the Korean peninsula, non-proliferation, and Taiwan” in particular.⁸⁶¹

Scowcroft recognized that the US-China relationship would “never be warm and cozy,” and he appreciated that there were many ways for it to go sour, as with the controversy with Google in China in 2012 or with respect to Chinese military hackers. But he didn’t see any reason why there necessarily had to be confrontation. Although China was building antisatellite weapons and submarines (developments that were consistent with the lessons it had learned from the 1995 confrontation in the Straits of Taiwan, Scowcroft pointed out) he recognized that China was “way, way behind” the United States and was becoming increasingly dependent on foreign oil—oil that had to travel on ocean routes that the United States, with its worldwide naval fleet, controlled.⁸⁶²

The Bush administration’s policy of economic engagement with China combined with (only) mild pressure on human rights has remained essentially in place ever since. “I would say that the most successful foreign policy of the United States has been China policy,” Scowcroft declared. “All of the presidents [take different positions in their election campaigns] and are always ending up with a remarkable continuity of policy.”⁸⁶³

President Clinton is an example. Not long after he took office, he found he had to scale back his demands on the Chinese and accept the fact that neither Congress nor the US business community wanted linkage between economic policy and human rights. China’s initial worry about Washington dissipated by 1994.864 George W. Bush did the same following his anti-China and pro-Taiwan presidential campaign. Both presidential administrations had to adopt more pragmatic—and more realist—China policies as soon as campaigning gave way to governing.

In Scowcroft’s view, the administration’s “gardening” in China paid off in two chief respects. First, China refrained from challenging the United States at crucial moments—it abstained from voting against the UN Security Council resolution for the removal of Iraqi forces from Kuwait, and it muted its reaction to the sale of F-16s to Taiwan, for example. “China remembered the terrible savaging Bush took for them,” Ambassador Lilley said. “And when it came time to collect the fee for that, he could do it.”⁸⁶⁵

The other payoff was that, over time, Chinese Communist Party leaders eventually agreed to many of the objectives sought by the Bush administration. They consummated most of the commercial and military deals postponed by the Tiananmen Square massacre; they released Fang Lizhi; they agreed to the UN resolution to end the Vietnamese occupation of Cambodia; and they opened the Chinese economy to the world, encouraging international trade and foreign investment, establishing capital markets within China, and joining the General Agreement on Trade and Tariffs.⁸⁶⁶

These initiatives helped China, to be sure, but they also helped American businesses and inculcated deeper commercial and cultural ties between the United States and China. By virtue of its large trade surplus with the United States and amassed dollars, China has become the leading foreign investor in US Treasury securities and has begun taking significant stakes in US companies and other American assets. China has also achieved faster economic growth than even the “Four Tigers” of the 1980s and early 1990s (South Korea, Taiwan, Singapore, and Hong Kong) and become a much wealthier society, with a middle class numbering in the hundreds of millions. As President Bush told General Secretary Zhao Ziyang when they met in February 1989, after Emperor Hirohito’s funeral, “Let me first talk about the trade and investment climate between our two countries. This is an area where we can move forward. . . . Our policy is designed to allow U.S. companies to make the greatest possible contribution to your development.”⁸⁶⁷

Most significantly, China’s political center has held. For all of the censorship and corruption, there has not been a repetition of the great famine experienced under the Cultural Revolution, much less a civil war. And there’s been relatively little violence in recent decades between China and its neighboring states—the occasional rattling of sabers at Taiwan, the disputes over the Senkaku or Diaoyu Islands beginning in 2010, and the computer hacking in 2013 excepted. Scowcroft and most of the Washington establishment have been comfortable with these trade-offs.

The United States over the decades has tried hard to work with China, rather than against it, and that “started with Nixon,” Scowcroft points out. He realizes full well, though, that the relationship is still open to debate and that it remains undetermined with respect to “military issues, human and political rights, Taiwan, and internal disruption.”868

As for the notion that the United States was practicing a double standard with respect to China vis-à-vis Eastern Europe and the former Soviet Union, Scowcroft rejected the premise that there are, or should be, universal standards applicable to peoples and states. For Scowcroft, China’s modest progress on human rights and political freedoms over the past two decades had to be weighed against the great advantage of having a stable government and an orderly society in the face of the centrifugal forces bearing on Communist Party leaders. Things could be worse—much worse.

The administration actually spent about the same amount of time on Japan as it did on China, but Scowcroft played a much smaller role in US-Japan relations, since they predominantly involved economic issues, trade in particular. And in the late 1980s and early 1990s, those issues attracted significant public attention. At the time, the Japanese economy was perceived as a juggernaut. With Japanese companies buying American factories, prime real estate, and Hollywood movie studios, American politicians and pundits dredged up American fears of the “yellow peril”—harking back to World War II and to Asian immigration in the mid- and late nineteenth century.

Yet for Bush and Scowcroft, the competition posed by Toyota, Hitachi, Nissan, Sony, Honda, Mitsubishi, and other Japanese companies was of secondary concern. What mattered to the national security advisor and the president was Japanese cooperation on military issues, intelligence collection, and East Asian regional security. And on national security issues, Japan was a strong ally. Other administration officials took their cue from Bush and Scowcroft and thus likewise didn’t heed the anti-Japan hysteria of the period.⁸⁶⁹

Scowcroft nonetheless conceded that Japan “was probably the most difficult country we had to deal with. I don’t think we understood the Japanese and I don’t think the Japanese understood us.” His explanation was the two countries’ very different decision-making models: one direct and often confrontational, the other consensual and highly indirect.⁸⁷⁰

Still, the US-Japan relationship was never fundamentally in doubt. Despite missteps such as the trip in January 1992, when President Bush famously threw up on the Japanese prime minister’s lap, Scowcroft has said he always felt secure about the United States’ military and strategic relationship with Japan, never worried about their economic relations, and therefore was willing to delegate almost all of US-Japan policy.

THE OPENING OF China to the global economy was a chief component of a larger whole—the Bush administration’s push for the expansion and deepening of market economies around the world.

As national security advisor, Scowcroft played a secondary but important role in this economic strategy. He recognized that the national economy constituted a “deep underlying aspect” of the United States’ national defense—that economic health constituted the foundation of national security—and he understood the importance of economics as foreign policy.871 As national security advisor, he oversaw negotiations at the July 1989 Paris economic summit among the G-7 states, helped with the preparation for the Houston economic summit of July 1990, and advised the president on the Uruguay Round of GATT talks and in other G-7 meetings. Although US trade representative Carla Hills, treasury secretary Nicholas Brady, Council of Economic Advisers chairman Michael Boskin, Bob Zoellick at the State department, and commerce secretary Robert Mosbacher generally took the lead on trade policy, Scowcroft “spoke regularly to Bush about economic issues,” since economics, politics, and strategy all intermeshed and eventually had to be coordinated. Because the president’s briefing books and talking points for his G-7 meetings with foreign heads of state were prepared by the NSC, for example, everything had to go through Scowcroft, Gates, and the NSC staff. And it fell to Scowcroft to judge the soundness of economic policy in relation to national security. As with many other areas of foreign policy, Scowcroft “kept tabs” on what was going on, as Hills put it.⁸⁷²

The crowning achievement and chief economic legacy of the Bush administration was its negotiation of the North American Free Trade Agreement (NAFTA), building on and greatly extending the 1988 US-Canada free trade agreement. With NAFTA, President Bush, together with Mexican president Carlos Salinas and Canadian prime minister Brian Mulroney, managed to create a single North American market for industrial goods, to open the service sector after allowing for a transition period, and to protect investors. By the time the Bush administration left office, representatives of the Mexican and Canadian governments had already signed the agreement and the only thing left for the new president to do—no easy thing, to be sure—was to get Congress to endorse it.

The idea for NAFTA arose early in the Bush administration in an informal 1989 conversation between Bush and President Salinas. It was formalized in early 1990 in a series of memos from Salinas and then a meeting in Davos, Switzerland. Scowcroft helped orchestrate the discussions. “Brent was not hands-on,” one of his economic experts noted. “But his touch on getting high-level political approval, getting ‘all the agencies’ on board,” and getting the free-trade agreement to be the “subject of negotiations and the ministries of three countries” was indispensable, those close to the trade negotiations attested.873

On June 10, 1990, Bush and Salinas agreed on the idea of a comprehensive free trade agreement and began to hash out the details. Canada then notified the Bush administration and the Salinas government that it wanted in, and on May 1, 1991, the United States, Mexico, and Canada committed to the broad outlines of an agreement. Negotiations were completed thirteen months later, on August 12, 1992. They reflected a great deal of careful diplomatic work given the many separate and complex relations involved: finding ways that the three countries could integrate their agricultural and industrial sectors, determining the terms of road and rail connections within North America, and settling on investment and property rules for the three countries, among other issues. Scowcroft made sure that NAFTA was put on a “fast track”—without Congress being allowed to add its own amendments to the tripartite agreement—so that the agreement between the United States, Mexico, and Canada could be signed quickly, and ideally before the 1992 presidential election. The agreement was signed, and later approved by Congress after the Clinton administration took office.

Bush’s vision of the global significance of free trade and an open, vibrant international economy was also reflected in US-Soviet relations. It is no accident that the first six proposals Bush and Scowcroft put forward at the US-Soviet summit in the waters off Malta involved economics and commercial relations. Besides calling for the Soviet Union to be granted MFN status and observer status in the next round of GATT meetings, Bush and Scowcroft wanted to expand US-Soviet economic cooperation in agriculture, finance, and small business development, develop a joint anti-monopoly policy, sign a bilateral investment treaty to protect American and other foreign investors, and improve ties between the Soviet Union and the Organization for Economic Cooperation and Development. Following the Malta summit, Bush and Scowcroft then worked to iron out policy differences across the US government regarding the proposed economic initiatives and asked that the State Department and the Treasury develop legislative and public liaison strategies for removing restrictions on export credits and guarantees.

Later, after the collapse of the Soviet Union, the administration used economic assistance to encourage further free market reform in Russia and to better integrate Russia into the global economy. The Bush administration pushed for more private involvement in agriculture and food distribution, oil, gas, and nuclear power, telecommunications, and other sectors of the Russian economy.

Scowcroft was instrumental in implementing these policies. He had his staff provide briefing materials for conferences, dinners, and other meetings between Russian officials and individual American businesspeople and trade associations. He and his economic advisers worked on reforming Russian statutes with respect to taxes, property, contracts, intellectual property, and barriers to further trade and investment. Thanks to the drastic reforms enacted under Boris Yeltsin and economic reformer Yegor Gaidar, US support helped bring Russia and the sixteen other former states of the Soviet Union into the international economy.

Scowcroft considered international economics the most difficult issue he had to deal with because almost all agencies had some stake in it. For example, when dealing with issues such as import protections on steel, oil pipes, semiconductors, textiles, machine tools, and other products, the attorney general’s office, the Department of the Treasury, the Commerce Department, and sometimes the Environmental Protection Agency (EPA) and the Department of Labor would all get involved. In consequence, the existing organizations, such as the National Security Council or the Principals Committee, rarely handled international economics directly; instead, the administration had to use ad hoc arrangements that involved many top officials from numerous US departments and agencies. (The Clinton administration tried to address this issue by creating the National Economics Council, chaired by treasury secretary Robert Rubin, as a formal organization to integrate international economics policy, in parallel to the NSC.874)

In contrast to NAFTA, the administration was somewhat less successful with the Uruguay Round of GATT talks, where it came within “a gnat’s eyebrow” of completing negotiations before leaving office. However, Europe, and particularly France, could not be brought along in agricultural policy (where the Uruguay Round was the first round of trade talks to include agriculture).⁸⁷⁵

Agricultural policy was the most intractable aspect of international economics for Bush and his senior advisers. US rice growers, sugar producers, and other commodity interests pushed hard for protection of their markets, forcing the administration to grant exceptions on trade policies for some domestic producers and to continue farm subsidies for the wealthy, despite the administration’s general practice of preferring open trade.876

Dealing with European agricultural interests was especially difficult, since Europe paid more for farmers to grow crops or raise livestock than did the United States and since it provided support to its producers at significantly higher levels. So the Europeans often dumped their crops, given that their costs were higher than the prices their goods could fetch on the international market.

For the Uruguay Round of GATT negotiations, Scowcroft came up with an approach for dealing with three aspects of the issue: domestic price supports, export subsidies, and improved access to European markets. Although the three-part Blair House Agreement concluded between the Bush administration and the European Community—the European Union as of November 1993—didn’t go into effect for two years after the administration left office, it became the basis for the final deal of the Uruguay Round.

Economics may not have been Brent Scowcroft’s main interest or his chief area of expertise, but with the end of the Cold War, the death of Soviet communism, and the opening of China to capitalism, it had become a central stage for international competition and cooperation—and Scowcroft played a strong supporting role in guiding the Bush administration’s efforts to navigate these complex channels. With respect to international economics, in fact, White House officials assumed without question the main tenets of neoliberal economics and the Reagan administration: that markets worked efficiently, that labor issues and environmental problems were of secondary concern, and that regulations as a rule interfered with market efficiency.

But they also believed that there had to be coordination and communication for markets, and worked to create the institutions that would allow US firms to flourish. To that end, the administration established the Asia-Pacific Economic Cooperation forum (APEC) so as to further trade and business relations and cooperation among ministers from twelve (now almost two dozen) states bordering the Pacific Ocean, from North and South America to those on the Pacific Rim. It created the European-American Business Council (EABC, formerly the European Community Chamber of Commerce), which became the TransAtlantic Business Dialogue (TABD), consisting of public and private officials meeting for the discussion of trade and investment issues. And, beginning in 1993, it set up annual summits between US and EU officials.⁸⁷⁷

The environment was a significantly smaller focus, especially for a Republican administration stocked with conservative politicians unsympathetic to environmental causes, most prominently Chief of Staff John Sununu, Vice President Quayle, and agricultural secretary Clayton Yeutter. Scowcroft, though, “had an appreciation of the issue,” the NSC’s Eric Melby noted, and tried to ease the “tensions between the EPA and the White House.” On several occasions, the national security advisor was the only one of Bush’s principal advisers to join EPA administrator William Reilly in supporting environmental initiatives. The two of them were the only senior advisers to agree to a ten-year commitment to carbon emission limits, for instance. In the lead-up to the Gulf War, Scowcroft was incredulous that the administration wasn’t planning for an energy tax to support the war, Reilly said, and that the United States was doing nothing to inhibit its oil and gas dependency.878

Most prominently, Scowcroft thought President Bush “couldn’t avoid going to the UN conference” on the environment held in Rio de Janeiro in January 1992, even though the president had initially decided he wouldn’t go. But he was persuaded by Scowcroft and Reilly that it was important that the president of the United States be there and “that his absence would be more noticed than his presence,” despite the dominant sentiment within the administration.⁸⁷⁹ Although the United States’ positions didn’t change as a result of Bush’s presence in Rio de Janeiro—the administration had already committed to doing very little—the president was able to sit down and talk with NGO leaders and heads of foreign states, and eased at least some of the tension through his “natural rapport talking to people.”⁸⁸⁰

It was important that Bush, Scowcroft, Reilly, and others represent the United States and that the administration commit morally and rhetorically to pro-environment objectives (even if it didn’t bind itself legally). Even so, with the partial exception of the Clean Air Act, environmental policy cannot be regarded as an area of notable achievement by the Bush administration.