When news broke that the summit leaders decided to defer serious policy decisions to next year and to the IMF, however, the pundits who had themselves helped to raise expectations about the Summit then proceeded to criticize it mercilessly. The only tangible consensus was the need for greater consensus, and the Summit produced few actionable solutions as to how the G-20 countries could and should lead the world out of the Great Recession. The question must be asked: Why did this heralded meeting fail so miserably?

Unfortunately, the Summit was doomed from the onset. This is because the U.S., while decrying Chinese currency policies, was also employing currency devaluation tactics of its own. While this “quantitative easing” is not only fiscally irresponsible and detrimental to global economic recovery, it also threatens the shaky foundation of trust between G-20 nations in the aftermath of the global financial crisis.

Now, while the term “currency devaluation” has been prominent in the news, what does it exactly mean? Like all goods, currencies’ values are subject to the laws of supply and demand. Chinese currency devaluation occurs when China purposefully prints more yuan to buy U.S. dollars and other currencies, thereby increasing the yuan’s supply in the market relative to others, decreasing the yuan’s value.  This policy also entails a potent vice: as the yuan’s value decreases, the value of domestic Chinese savings also decreases. Therefore, many view currency devaluation as merely temporary. It leaves a country vulnerable to the caprices of the international market while rendering domestic consumers incapable of supporting their own economy.

In an address to the G-20 countries, President Obama said that this current yuan devaluation was an “irritant” to the international community, and he forcefully called on China to end the policy. However, China has simply not budged. In light of the Federal Reserve’s recent quantitative easing (QE-2) to buy $600 billion of U.S. treasury bonds, China thought, reasonably, that the United States was devaluing its currency to obtain a marketable advantage. Even though Chinese devaluations are far more potent in scope and effect, the hypocrisy of the American position incited political rhetoric and unproductive finger-pointing.

While many economists and financial experts agree that China’s yuan is substantially undervalued (by an estimated range  of 20 to 40 percent), the U.S. can no longer force other states into submission. Since the global financial crisis occurred under an American-dominated economic system, much of the non-Western world, most predominantly China, now questions the free-market neoliberal agenda that American economic leadership entails. Obama’s “just trust us” mentality carries less weight than it would have in the 1990s.

Furthermore, the perceived duplicity of President Obama’s argument will only exacerbate relations with the United States’ East Asian neighbor. While it is certainly true that stabilizing trade imbalances would help put the U.S. and global economies on firmer footing in the long run, the United States’ perceived hypocrisy and harsh rhetoric has rendered China unwilling to acquiesce to Washington’s demands. After such a long and public battle with the U.S. on currency valuation, China is extremely unlikely to embarrass itself by unilaterally giving in on the heels of America’s own QE2 policy.

Therefore, given China’s imprisonment within the confines of power politics, the United States must assume the mantle of leadership and prove to the international community that it is the engine of economic stability. Unfortunately, while the U.S. is still the greatest economic and military power in the world, it has not been acting that way. With soaring debt and fiscal irresponsibility pervading the U.S. political system, it is understandable that China is not eager to follow the U.S. model. This is especially true with respect to the constant use of monetary policy in lieu of meaningful fiscal reform. QE-2 is merely the latest of the Federal Reserve’s attempts to prop up the entire economy by printing ever increasing sums of money.

While President Obama has claimed that QE-2 was a necessary component of his plan to decrease interest rates, increase capital flows, and ease consumer pain in a recession, this artificial money pump is merely a temporary bandage to cover a gushing wound. While the Federal Reserve contends that QE-2 will cause inflation of about 2 percent, independent estimations have that number as high as 5 percent, a dangerously high figure that could mire the U.S. in stagflation. The German finance minister has called the policy “clueless,” while Kevin Warsh, a Fed governor, identified “significant risks that bear careful monitoring.” As inflation increases, U.S. purchasing power decreases on the international stage, thereby reducing the stimulating effect of the American consumer. While U.S. exports may also increase, the world economy still revolves around the American consumer propping up global demand. Therefore, U.S. purchasing power must be augmented in order to promote global recovery, not weakened by quantitative easing policies.

Furthermore, QE-2 has put considerable pressure on other countries to devalue their currencies. To avoid massive foreign capital outflows, other countries may devaluate their currencies relative to the dollar. The United States could then justify further reciprocal devaluation, and the ensuing beggar-thy-neighbor behavior would leave the global financial system riddled with inflation and uncertainty. Even if this scenario did not occur, the mere fear of it happening would be sufficient to hamper any economic growth, for economic expectations themselves affect economic outcomes.

Therefore, as a preliminary step to reach any consensus with China, the U.S. must commit to fiscal austerity measures that prove it is serious about lasting economic stability, not temporary and unsustainable spurts of negligible growth. While this round of quantitative easing may have little net effect, it seems possible that the Federal Reserve could implement QE-3 in the near future. This possibility is the cornerstone of China’s current trepidations and resulting noncompliance. By stopping the inflationary spending and wrangling its deficits under control,  the U.S. will have an adequate bargaining position to begin negotiations with China. The U.S. will be able to tout its reforms and require similar ones as reciprocation, thereby increasing trust and stability in the international economic system.

President Obama was absolutely correct when he wrote to the G-20 leaders, “When all nations do their part—emerging no less than advanced, surplus no less than deficit—we all benefit from higher growth.” However, “all nations” must do their part, including the United States, for any one nation to move forward. Therefore, as the world’s greatest power, the United States cannot ask for international reform and then cower behind a failed system. Instead, it must lead the charge and then require reciprocation. The world economy cannot recover without the U.S., but the U.S. cannot recover without the world economy.

This faith is misplaced. COP 16 was able to achieve several of its aims because it focused on less contentious, lower profile objectives; few foreign heads of state even bothered to attend the conference. The complex, multilateral UNFCCC forum has proven effective for oft ignored constituencies like small island states and underdeveloped regions to air concerns. – however, the layered bureaucracy of negotiations has perversely stymied progress on the commission’s preeminent focus: emissions reductions. Rather than working solely through the thicket of the UNFCCC, the US should pursue bilateral negotiations with the key parties – specifically, top emitters China, India, and the EU – and then return to the COP, with agreements in hand, to register further scrutiny and establish truly multilateral solutions.

The parties that might suffer from future climate change are as diverse as they are numerous; offending polluters, however, are easily identified. Seven sovereignties, the US, EU, China, India, Canada, Russia, and Japan, produced nearly three quarters of global CO₂ emissions in 2007, according the UNFCCC; sixty percent came from America, Europe, China, and India alone. Evident, too, is the future emissions landscape: non-Annex B Kyoto (developing) states surpassed developed ones in annual CO₂ output in 2005 and their emissions share continues to grow. Rapidly industrializing China and India have seen their emission outputs grow an astounding 250 percent since 1990. Developing South Africa and Brazil, lightweight polluters today, will contribute the same emissions impact as Canada and Japan by 2040. Clearly, any new scheme to prescribe anthropocentric emissions must include concessions from developing and developed states alike.

The trouble with past and present climate negotiations has been a collective action problem over the use of a common-pool resource or CPR. With binding regulation absent,  nation-states faced with a CPR (the atmosphere), which they can exploit for profit, opt to continue unencumbered CO₂ emissions growth, rather than cooperate. Each country refuses to hamstring itself unilaterally, instead waiting for assurances that others will limit emissions first.

As collective action is central to fundamental climate problems, so has it been instrumental in early negotiations breakdowns. The 1997 Kyoto Protocol sought to address greenhouse buildups through emissions quotas for developed states only; these nations, receiving no guarantee that developing countries would abet such an effort by limiting their own growth, each refused to ratify the treaty or failed to meet their emissions guarantees. COP 15 faced a similar problem: with so large a cohort comprising each negotiating faction at the forum, agitator states were quick to fault opposition by raising failed obligations or regulatory asymmetries, and only trivial legislation advanced.  Meanwhile, defector states continued to enjoy unencumbered economic growth. The swiftest means to end this climate gridlock is through bilateralism. If the US cannot trust the collective to negotiate in decorous good faith, it must work with specific influential states, from across the pollution spectrum, to expedite an accord. By focusing on China, India and the EU in particular the US may streamline negotiations. Since these few actors contribute so greatly to the greenhouse crisis, they can circumvent the collective action shortfall by acknowledging their respective responsibilities and accordingly accepting regulation. The US should negotiate to this end bilaterally and through direct diplomatic channels, rather than via international institutional forums, to cut bureaucratic delay.

America’s first focus for co-opting must be China.  Responsible for 22.3% of global carbon output, China’s rapid economic expansion has have made it both the most egregious emitter in the world. The 9.5 percent annual emissions growth of China’s huge industrial sector cannot be married with any initiative to limit anthropocentric carbon.  It is not, however, unreasonable to assume that China would be receptive to a climate treaty, especially one that would restrict the developing with the developed (namely, America itself). China has shown itself capable of bold environmental rhetoric and aggressive action: days before COP 15, Beijing committed to reducing “carbon intensity” (carbon output per unit GDP) 40 to 45 percent by 2020, and China’s 34.6 billion dollar green investment sector, the largest in the G20, grew over 50 percent from 2008 to 2009.

Similarly, India, which itself has pursued an ambitious pre-Copenhagen carbon intensity pledge, would agree to a bilateral pact with western powers for both sides to crop emissions were it confident that China would not continue aggressive ‘dirty’ expansion at its expense. Smaller developed polluters like Japan, Russia, and Canada, and developing ones like South Africa and Brazil each refuse to hinder their own economies with carbon regulation until the others act.  To wit, America itself rejected the Kyoto protocol and partially obstructed COP 15, refusing to commit to act without assurances from the developing world.

Thus America should proceed piecewise, starting from the top. By securing bilateral pacts from India and China – roping in the largest and fastest growing polluters at the outset – the US could all but guarantee that an agreement would hold up in a multilateral forum. Such treaties should stress mutual interest, featuring investment in each nation’s already sizable sustainable technology sectors to ameliorate inevitable businesses losses from carbon restriction. Negotiating with developing states, America must demand the concession of binding emissions ceilings, and not carbon intensity commitments to ensure that carbon reductions will be substantive and meaningful.  In recompense, the developed world should offer to expand green financing for sustainable development in industrializing states, as has begun with the “Green Fund” from COP 16. America would need to domestically soften its harsh stance towards hard emissions caps, a reasonable development to expect in a scheme encompassing developing and developed polluters. With China and India in the fold, it is reasonable to assume that the EU would fall in line with an agreement: the economic union has already committed to reduce carbon emissions unilaterally by 20 percent from 1990s levels by 2020, even offering to increase reductions to 30 percent with similar commitments from the international community.

Only once the key players are all in agreement ought an accord advance to the UNFCC. A truly multinational conference like the UN COP is appropriate and necessary for smaller interest groupings  to voice their objections to a potential accord – however, these parties must not be allowed to paralyze negotiations altogether, as at prior climate conferences. Climate change, being natural rather than humanistic in nature, is an intrinsically temporal phenomenon: human attitudes and positions may soften and coalesce over time, but the warming timetable is less forgiving. Progress is imperative. Finding a viable agreement must take priority over achieving a perfect one.

The US should look to the UNFCCC to formally legalize the next major global climate agreement, but it should not wait for the COP to decide the terms of the arrangement. Rather, it should pursue a series of bilateral treaties with influential high-volume polluters, and then bring those accords forward for international inspection. In this fashion, America can catalyze the creation of a tenable, balanced climate pact to credibly curtail anthropocentric greenhouse emissions.

International economic trade talks currently or soon to be underway afford valuable opportunities for the U.S. to pursue a trade liberalization policy that will help to create new markets for its products. One such opportunity will be the Doha round of World Trade Organization (WTO) talks, led by members of the European Union, the U.S., and Japan as well as rapidly developing countries like China, India, and Brazil. Though the most recent round collapsed in 2008 over agricultural trade issues between the U.S., India, and China, negotiations over environmental goods and services may help to facilitate future talks. WTO Director-General Pascal Lamy has already expressed the hope that environmental goods and services will serve as the basis for future negotiation; when discussions resume, the U.S. should take the lead in utilizing green goods and services as a catalyst for cooperation.

The U.S. should also seek to strengthen and establish new free trade agreements (FTAs) with international economic partners. In the long run, competitive market conditions are the only way to promote economic innovation and growth. Strengthened FTAs would increase U.S. access to foreign markets, as well as generate competition by eliminating tariffs and quotas on U.S. manufacturing exports. Opportunities for the U.S. to create new FTAs with other nations abound, as agreements with Colombia, Panama, and South Korea are each very close to completion. A trade agreement with South Korea holds particular potential, and President Obama has announced that he and South Korean President Lee Myung-bak are working towards a deal worth tens of billions of dollars in U.S. exports. The U.S. should forge ahead with negotiations and also seek to expand pending FTAs to include the export of clean energy goods and services.

In alignment with the goal of free trade, the U.S. should take firm action to ensure a level global playing field for its renewable industries. In September 2010, the United Steelworkers industrial labor union filed a detailed trade complaint with the U.S. government, alleging that China unfairly subsidized the export of its own clean-energy products, fostered the forced transfer of technology, discriminated against foreign firms, and demonstrated preferences in contract bidding processes. China has been vocal in its protest of the U.S. trade complaint, countering that the U.S. has pursued similar practices domestically. While parallels may appear to exist between Chinese and U.S. practices of subsidization, the WTO has established a framework of rules that are tougher on the direct subsidization of exports than on the subsidization of research and development or technology deployment. The White House, which acknowledges that the U.S. has subsidized research in clean tech, notes that it has not subsidized the export of these technologies, unlike China.

Moving forward, the Obama administration needs to proceed with firm yet strategic diplomacy that will preserve its already strained relationship with China. It is no secret that China possesses the upper hand in many aspects of international trade; advantages such as its large currency reserves, especially of U.S. debt, give China strategic leverage in tempering U.S. foreign policy. Given existing long-term tensions over China’s currency deflation, the straightforward response for the U.S. would be to file a complaint with the WTO or to engage in direct talks with Chinese officials. While tempting, direct confrontation is not the ideal policy, not least because it is likely to be ineffective. A more tactful policy approach would help to forward broader U.S. goals of global trade liberalization.

In this instance, working to create a more liberal global economy may be the wisest approach. The U.S. should seek stronger economic integration with China’s regional trading partners and neighbors to induce China to play by the free-trade rulebook. President Obama has already made strides in this area, embarking on a November trip to India, Indonesia, South Korea, and Japan, with the goal of spurring trade talks. On this trip, President Obama announced the end of bans on the export of certain technologies to India. Measures such as these, as well as increased U.S. economic integration in economic organizations and forums such as the Asia-Pacific Economic Cooperation and the Association of Southeast Asian Nations, will not only further open foreign markets in the region but also serve to build rapport between the U.S. and Asian nations. In building economic coherence between the U.S. and China’s regional trade partners, the U.S. will gain allies in trade who may also play a vocal role in advocating for China to adopt free trade practices.

A second, more indirect approach to stiffen U.S. policy towards China would be to strengthen the military regional alliances the U.S. shares with Japan and South Korea. When the U.S. pursued a stronger alliance with Japan in the 1990s, the additional pressure this alliance placed on China pushed the nation to build up its economic trade relations with East Asian neighbors so as to ward off U.S. encroachment. This policy approach has in part produced the recent dramatic economic success of China. In the current situation, the strengthening of U.S. military presence in East Asia may encourage Chinese officials to seek to defuse tensions with trading partners in East Asia and abroad by pursuing fairer trade practices.

As the U.S. contemplates its future in renewable energy, it will need to rely on its economic partners to help build an open market for its exports. To address current trade disputes with China, the U.S. must strengthen its economic relationships, and perhaps even military alliances, with China’s regional trade partners in order to place pressure on China both locally and from afar. In the interest of the future health of U.S. clean tech industries, policymakers must take bold, strategic action to ensure greater global trade liberalization.

Many observers, including those in the government, have voiced concerns that the boom could indicate a growing bubble that, if it were to burst, would seriously damage China’s economy. Especially after the recent collapse of the U.S. housing market, which contributed to the worldwide economic recession, international concerns about China’s housing market are not groundless.
However, the significant differences between the Chinese and American situations should relieve American apprehension of a Chinese housing bubble. A growing economy, continued urbanization, and a different banking system mean a housing bubble followed by a burst is less likely to occur in China. Furthermore, the Chinese government is already taking steps to prevent the collapse of its housing market.

One report that led to fear of a Chinese housing bubble showed that housing price hikes have outpaced increases in income. According to this report, the cost of one square meter is equal to an average resident’s salary of seven months. But this report is not entirely accurate; in reality, the report underestimates people’s actual incomes, which are grossly underreported in China. China’s tax report system explains why. While U.S. citizens report their income individually to the Internal Revenue Service, Chinese companies report and pay income taxes for individual employees. As a result, Chinese companies illegally report lower salaries in order to decrease the amount of taxes they must pay. Because of this trend, the difference between the rise in housing prices and income is not nearly as significant as reported.

The Chinese financial market is also fundamentally different from the U.S. market. To qualify for a residential loan in China, consumers are required to put down a large down payment: 30 percent for the buyers’ first home and 50 percent for additional properties. Therefore, Chinese buyers don’t exhibit the reckless behavior that was rampant, even encouraged, in the United States prior to the collapse of the financial system. Furthermore, the Chinese banking system does not suffer from extreme securitization of mortgages by financial institutions. Original lenders generally hold mortgages in China. Considering it was also excessive leverage, not high prices, that caused the real estate meltdown in the U.S., there is still room for optimism on this front.

Another difference between the current situation in China and the conditions leading to the U.S. bubble is demand. Urbanization in China is growing, suggesting that even if speculative buying slows, demand for housing will remain high. According to the State Council, as many as 400 million people will move to cities by 2035. The Chinese government has expressed its intent to ensure these migrants access to affordable housing. Thus, a collapse is not likely in a housing market experiencing steady demand and matching supply.

Nevertheless, given that traditional savings accounts yield less than 1 percent interest annually and playing the stock market is perceived as high-risk gambling in China, real estate remains very enticing for speculators and investors, signaling the need to be vigilant about a possible housing bubble. With a clear understanding of this behavior, the Chinese government has demonstrated a willingness to intervene early to prevent a collapse.

Last November, Beijing introduced a new real estate sales tax aimed at cooling the property market fever. Designed to discourage the “flipping” of houses by speculators, this nationwide tax policy instituted a sales tax of 5.5 percent to anyone selling a second apartment within five years of its purchase. Further policies are on the way. The State Council issued a statement on April 15th laying out specific measures to further curb exorbitant housing prices. The details included raising mortgage rates and down payment requirements, and allowing banks to refuse credit to buyers who the banks believe to be speculating.

Although the Chinese government was right to take preliminary steps to control housing prices, immediately after it outlined its intervention plan, worries over the measures dampened the stock market. The announcement led to a drop in Hong Kong’s property index, and the Hang Seng Property Index dropped to a three-week low. Critics worry that the tightening of credit would not only cool down the overheated market, but could cause it to freeze. These fears are unfounded for now; the HSNP soon bounced back, albeit to a lower level, and credit remained available, exactly what the government wanted. Drastic policies, however, could create a damaging credit crunch.

Beyond these changes, China has even more tools in reserve to prevent the boom from becoming a bubble. The introduction of property tax and the revaluation of its currency could help make China’s housing market sustainable. In the absence of property taxes, the costs of holding empty homes is very low, which provides a great incentive to speculators in buying real estate for investment purposes. Beijing’s hesitation to levy the property tax largely stems from local governments’ reliance on property sales as their major source of revenue. It makes little sense to the government officials to reduce their income by keeping down the property prices in normal times. If things get out of hand, however, a property tax could keep them in control. Also, in order to keep its currency artificially devalued, China’s central bank has to spend billions of dollars buying U.S. Treasury bills, which significantly hinders its ability to use monetary policy to quell rising prices. Revaluation would put strains on China’s export industries, by raising the prices of Chinese goods, but would more than compensate by stabilizing the overall economy.

Given the grave dangers posed by a collapsed housing market, the signs of China’s growing bubble certainly call for vigilance and international attention. However, the evidence suggests that panic is not yet in order; China’s unique housing dynamics and its government’s quick policy responses are happily keeping the boom under wraps.

While expected, Senators Schumer and Graham’s aggressive response is simply a misguided reaction to frustrations over unemployment in the U.S. This response caters to popular emotions and is not rational policy. Instead, the U.S. should adopt a more conciliatory tone toward China by persuading it to voluntarily revalue its currency and by addressing the issue multilaterally at the upcoming G20 economic summit in June. Doing otherwise threatens Sino-American cooperation on other significant issues such as environmental protection and a nuclear Iran. Besides, China already has its own motivations for devaluing the yuan and would be more likely to do so without U.S. finger pointing.

Recently, there seems to be increasing disagreement between the United States and China. President Obama’s visit to Asia last year revealed that China is unwilling to significantly budge on issues of human rights, national sovereignty, and environmental commitment. Part of this obstinacy comes from China’s distrust of America’s long-term intentions. Part, however, also comes from the aftermath of the global economic downturn. Having recovered from the economic crisis of 2008 much sooner and with more vitality than most other nations, China’s confidence on the world stage has grown significantly. The heavily controlled visit by Obama is just one example; China’s refusal to take the U.S. seriously at the Copenhagen climate summit by repeatedly snubbing Obama is another. In the past few months, confrontations involving Internet censorship with Google and arms trade with Taiwan have also revealed China’s increased assertiveness. These issues have long been points of criticism between the East and the West, but Premier Wen Jiabao’s sharp criticism of U.S. economic mismanagement last year reveals that China has become more vocal about its demands. China finally feels that the balance of power is beginning to tip in its favor and it will eagerly exploit this perceived truth through more assertive international policies.

For the United States, this new attitude makes China much harder to handle. Meeting stubbornness with its own obstinate policies will only result in a cooling of Sino-American relations, however. After President Obama’s call for a tougher stance on the undervalued yuan, China responded several days later by resolutely denying any future plans to change its policy. What the U.S. should realize is that the tough-on-China approach contributes to China’s refusal to back down in the first place. China is resisting American pressure for fear of appearing weak to the international community. The harsher than expected response from China after the U.S. announced plans to sell arms to Taiwan makes this trend increasingly clear. China’s warnings seem to be an attempt to defy American demands rather than legitimately protect its national security. Giving the perception that China is to blame for America’s trade deficit only decreases the chances of constructive dialogue.

Even without U.S. pressure, there are good reasons for China to revalue the yuan on its own. Although it recovered from the global economic meltdown rather quickly, Chinese monetary policy has overshot its mark and the country now runs the risk of an inflationary cycle. Consumer price inflation was reported at a modest 2.4 percent in March, but property prices rose 11.7 percent in the same month, suggesting an asset bubble that could spell macroeconomic woes for China. Moreover, lending during the first month of 2010 rose to $203 billion, surpassing the previous three months combined and forecasting future price increases. Banks are eager to increase interest rates to encourage saving, but fear that doing so would attract capital inflows from foreign investors and exacerbate inflation. A stronger yuan would cushion the impact of capital flows by making the purchase of Chinese currency by foreign investors more expensive and thus less attractive. Zhou Xiaochuan, the chairman of the People’s Bank of China, said last month that controlling the value of the yuan is an emergency measure that will end “sooner or later.” With exports in the month of February 8 percent higher than that of two years earlier, the Chinese export market is rebounding quickly and will soon no longer need protection from an undervalued yuan. In addition, a revaluation of the yuan is a step that China has taken in the past. In late 2007 and early 2008, consumer price inflation soared to 8.7 percent, reaching a ten-year high. China allowed the Yuan to appreciate until pegging it against the dollar several months later.

Another factor that weakens the rationale for increasing pressure on China is the overstated harms of an undervalued yuan to the U.S. economy. Certainly a cheaper currency makes Chinese goods preferable to American ones, but this affects only American companies in direct competition with Chinese ones. Instead of being harmed, companies that rely upon steel and electrical machinery to create their own products actually benefit from cheaper Chinese exports in these areas. The picture on the consumer-end is similar; many low-income American families rely upon cheap retail stores that import many of their products from China. Thus, even if balancing the trade deficit creates more jobs, Americans might not gain more purchasing power due to the loss of cheap products. Ultimately, whether there is a net gain in economic activity and jobs will depend on the ratio of direct competitors to companies that buy materials from China. Given the diplomatic costs of applying pressure, the benefit to the U.S. economy may not be worth the risk.

In the end, China will revalue the yuan on its own terms, not as a response to U.S. demands. Increasing the pressure will not only make currency revaluation less likely, but also will prove counter-productive toward other American goals in Asia. Both nations have traded accusations about engaging in protectionism, but neither has taken any dramatic measures. Alienating the Chinese with harsher rhetoric or imposing further protectionist measures may escalate tensions to the point of stifling trade, hurting both Americans and Chinese. China has already demonstrated its willingness to hinder free trade by setting a list of preferred suppliers to the government late last year. Outside the market, China may use its importance as the world’s largest emitter of greenhouse gasses to disrupt progress in the global movement for environmental protection. Perhaps most importantly, China has the ability to frustrate efforts to prevent a nuclear Iran by refusing to participate in multilateral economic sanctions of that country.

That is not to say that the U.S. ought to soften its stance against China. Doing so would also be dangerous. Appeasement would achieve the same effect of emboldening the Asian power by showing American weakness. Obama’s soft stance during his trip to Asia and the administration’s decision to postpone a meeting with the Dali Lama certainly did not make China sensitive to American concerns. Instead, the U.S. needs to walk a fine line between cooperating with its rival and appearing to give in to China’s new hubris. This means that the U.S. should continue to declare its own terms, but give China a chance to accept these terms voluntarily. Any more pressure might hurt Sino-American relations, but any less might encourage China to flaunt American interests further.

In a display of quid pro quo, President Hu Jintao attended a nuclear security summit and agreed to work with the U.S. to deter a nuclear Iran after the Washington delayed its report to Congress. This step in the right direction reveals that China is willing to meet cooperation with cooperation. Caving in to domestic pressure and raising the possibility of sanctions will only frustrate recent gains in Sino-American relations. Ultimately, each declaration against China makes cooperation with it more difficult. At times, this loss is outweighed by the benefit of standing resolute. Increasing pressure against currency manipulation, however, is not one of these times. Given the current inflationary pressure in China and the uncertain benefits of currency appreciation, the risk of inflaming Sino-American relations is simply too great. The U.S. should be willing to work toward effective policy solutions, while simultaneously refusing to capitulate to all of China’s demands. The most important question is where to draw the line.

One of the most prominent trouble spots in the global economy is Greece. The government’s massive and rapidly expanding debt burden has raised concerns that the nation might be forced to declare bankruptcy. In light of this danger, the US ought to take action to resolve Europe’s internal dilemma. It should push for measures to contain the crisis while preventing similar situations from arising elsewhere.

Greece’s default would be disastrous for the United States. It would threaten to reverse the nascent global economic recovery and work to destabilize the European Union. If Greece defaults on its loans, investors will likely lose confidence in other European countries with high debt ratios, raising borrowing rates to prohibitive levels. This would create a vicious cycle in which those countries would then find it much more difficult to finance debt, which could possibly trigger further default. Unfortunately, numerous obstacles exist to a potential EU-orchestrated bailout. There are legal and practical questions to deal with, as well as political considerations. Already, public officials in other EU nations, most notably Germany, have publicly voiced skepticism about whether to intervene in Greece, citing the high costs associated with such a step.

After several agonizing months of uncertainty, it seems as though most countries have emerged from the depths of the economic collapse that ensued following the 2008 financial panic. US GDP expanded by 5.7 percent in the third quarter of 2009, while Europe has witnessed slowing rates of decline, and in some cases, including Great Britain and France, even modest growth. The response undertaken during the crisis by Western leaders, most notably US President Barack Obama and UK Prime Minister Gordon Brown, was extraordinary, combining bank bailouts with expansionary fiscal and monetary policies.

While these remedies appear to have succeeded to a degree, they came at an enormous cost; both the United States and Great Britain now face budget deficits in excess of 10 percent of GDP. If the economy enters what experts have dubbed a “double-dip” recession, in which the initial recovery is followed by a second downturn, it is unlikely that governments will be able to intervene on the same scale as they did during the initial phase of the crisis, owing to insufficient resources and public hostility. The US spent $800 billion on last year’s economic stimulus package while the Federal Reserve drove interest rates to record lows. Incurring more debt through, for example, another stimulus package would further risk the long-term financial stability of the United States. Thus, it is imperative that the United States and its allies maintain the current fragile, uneven recovery, or they will be doomed to suffer a protracted period of economic underperformance similar to Japan’s “Lost Decade.”

With so much depending on the revival of Western economies, any potential obstacle to the achievement of that goal must be removed. Greek insolvency would not only bring its own economy to a grinding halt, but could also have a domino effect. Many other members of the European Union, including Spain, Portugal, Italy, and Ireland, are also coping with excessive debt levels incurred by rampant spending over the past decade and sharp drops in revenue owing to the recession. In spite of EU rules requiring that budget deficits not exceed 3 percent of GDP, the lack of any effective enforcement mechanism, combined with “creative accounting,” has allowed profligacy to go unpunished. Already, confidence in the Euro has plummeted, causing its relative value to drop. Concern about the future of the common market could lead Eastern European nations, such Estonia, Latvia, and Lithuania, to rethink their planned entry into the Euro Zone, while strengthening the appeal of “Euroskepticism.” Critics of the Euro have long argued that a monetary union would lead to this kind of a crisis; now, their warnings appear to be vindicated.

A weakened EU is not an outcome that would be favorable for the United States. Although American and European politicians have their differences on some issues, a strong, unified Europe is in the United States’ best interest. As the US combats the complex and pressing questions of international terrorism, nuclear proliferation, human rights abuses, trade negotiations, Third World poverty, and environmental degradation, it is important to have a partner capable of assisting in its effort to provide global leadership. A weak and divided Europe cannot fulfill this role if it is plagued by economic disunity and decline.

To this end, the United States ought to play an active part in preventing Greek default. It should lean heavily on France and Germany, the EU’s economic powerhouses, to orchestrate a bailout that includes strict austerity conditions, cutting spending and raising interest rates, along the lines of International Monetary Fund standards. A major US diplomatic campaign, with the active involvement of President Obama, can display the vitality of this issue. Greece needs more than a band-aid solution; it needs a complete overhaul of its economic system. For years, Greece has run deficits well above EU limits. Rampant corruption and wasteful spending have brought the country to its current juncture. Even today, in the midst of the crisis, intransigent public sector unions have organized street protests in Athens and elsewhere, demanding immunity from the severe repercussions of fiscal austerity.

Critics contend that past interventions that imposed austerity have had disastrous consequences. While this did occur in the short term in some cases, such as the Asian economic crisis of 1998, in the long run, budgetary restraint is the only way to set countries on the path toward sustainable growth, as opposed to a temporary expansion followed by yet another crisis. Countries such as Thailand, Indonesia, and South Korea, all of which accepted IMF loans in the late 1990s, rooted out corporate mismanagement and other practices that inhibited productivity, and the result was protracted economic expansion over the course of the past decade.

Like the countries of East Asia, Greece cannot be given a bailout without strings attached because it will create a problem of moral hazard, allowing Spain, Italy, and Portugal to continue their prodigal ways in hopes that they too will be protected. Instead, they should be following the example of Ireland, which in recent months has introduced tough reforms designed to control its budget deficit, including sharp pay cuts for civil servants. Although controversial, these measures have been largely accepted by the Irish public, as they acknowledge that the short-term pain of austerity is preferable to continued financial turmoil. Hopefully Greece will demonstrate a comparable degree of responsibility in dealing with its dire financial situation.

US involvement is crucial to ensuring that a rescue package is formulated and organized according to the principles of austerity. France and Germany are hesitant to offer assistance, but could be persuaded if the United States emphasizes the importance of the Greek situation to the global recovery and the perils of allowing the crisis to spread. Such an approach will reap vast rewards for the US and its allies in the form of increased economic growth and greater geopolitical stability. For these reasons, President Obama ought to make securing aid for Greece a top priority.

After the earthquake, the international community supported Haiti with over $2.4 billion dollars and continues to supply countless aid and rescue workers. Unfortunately, Haiti’s lack of political and physical infrastructure makes this disaster one of the most complex challenges many aid organizations have ever confronted. To prevent such logistical problems in the future, Haiti must develop a long-term strategy that includes a more centralized aid administration, a strong security force, and a government willing to tackle urban decay with significant infrastructure improvements.

Haiti is the poorest country in the Western Hemisphere with a GDP per capita of only $1,291. Less than half of the country’s citizens have access to clean drinking water and malnutrition is endemic. From its founding by former slaves in 1791, the country has had more than its share of misrule; a UN peacekeeping mission has been stationed in the country ever since then-President Jean-Bertrand Aristide was forced into exile in 2004. Despite its difficult history, Haiti had just begun to improve, politically and economically, before the earthquake. The government had created a national developmental strategy in 2009, and the international community forgave much of Haiti’s debt. President Obama commented that the earthquake striking in Haiti’s rare period of optimism made it particularly “cruel and incomprehensible.”

In the immediate aftermath of the quake, the international community reacted promptly and generously. The US sent navy and coast guard ships to Haiti within hours and placed up to 2,000 marines on reserve, ready to be dispatched to the country if necessary. The United Nations, which had lost more than 40 personnel in the quake, including its mission chief Hedi Annabi, offered $10 million in immediate emergency relief, as well as former President Bill Clinton as a special envoy. Total long-term aid pledges total over $2.4 billion worldwide.

Despite the influx of aid pledges, Haiti’s ruined roads, seaports and airports, and political structure prevent ample aid from reaching those who need it. Supplies were initially shipped into Haiti through the neighboring Dominican Republic; later, officials had to turn away humanitarian aid as Haitian airports lacked landing capacity. On January 31, flights transporting critically injured Haitians into the US were suspended. Finally, aid officials were unable to bring in heavy-duty machinery to clear the rubble and rescue survivors until a day after the earthquake, time being of the utmost essence in rescue operations.

Although Haitians have shown surprising resilience and goodwill towards each other, sustained delays of supplies are spurring growing violence and unrest. Gangs have assumed authority in some of Port-au-Prince’s poorest neighborhoods, rendering some roads impassable and cutting off aid to some of the people most in need. The national penitentiary was damaged enough that some inmates could escape, adding to the chaos.

Urgent measures are needed in order to ensure that basic needs are met in the country. A more centralized aid administration should take over from the over 10,000 NGOs and variegated lot of UN peacekeepers—a combination of NGO delegations and US troops who are working out of sync—in Haiti. The UN should harmonize its mission by focusing on maintaining law and order, establishing security over unstable regions, and regulating the distribution of supplies that are necessary.

In order for these goals to be realized, the internationally community should help provide a military presence as well as further economic and humanitarian aid. President Obama has already committed 7,500 additional troops to contribute to recovery efforts, and according to Vice President Joe Biden, “[The American response wasn’t just] a humanitarian mission with the life cycle of a month … This is going to be a long slog.” There are debates over how long this commitment should last. While some, such as the French minister in charge of humanitarian aid, accused the US of “occupying” Haiti, others such as the US Navy’s Rear Admiral Ted Branch claim that as long as there is a clear knowledge and consensus that the US is there to restore Haiti, there should be no problems.

Although Haitians have welcomed recent UN crackdowns against the gangs, discontent is growing around primarily logistical problems, such as the inefficient supply and distribution process of aid and organizers’ failure to give medical organizations such as Doctors Without Borders priority to land in the country’s main airport. When 10 American missionaries who tried to smuggle more than 30 children out of Haiti on February 5th were charged with kidnapping, distrust of the US increased. In order to successfully restore Haiti to pre-quake levels and better, the US must accomplish the dual task of assuming organizational authority and maintaining an image of goodwill that shows that the US there to help—not to compromise—Haiti’s sovereignty.

But long-term efforts should not stop at restoring Haiti to its former infrastructure, says John Mutter, an expert on the affects of natural disasters and a professor of Environmental Sciences and Public Affairs at the Earth Institute of Columbia University. Mutter recommends an international effort to improve buildings and government infrastructure so that Haiti could be better prepared to face and recover from future natural disasters, similar to how Chile has managed to spare itself from the debilitating disaster of the recent earthquake there. Many experts suggest the government create programs to support the movement of already existing populations out of the overpopulated capital and into towns in order to counter negative effects of urbanization, such as the formation of poorly built shantytowns that experienced significant damage in the January earthquake.

Although long-term goals are materializing, Haiti’s immediate situation remains dire. Over a million people are homeless, 300,000 are injured, and 20 percent of Haiti’s jobs have been lost. In the long term, Haiti loses 80 percent of its college graduates to emigration, perpetuating the country’s lack of talent to initiate successful reforms. How the incapacitated domestic government will remobilize is unclear.

Recovery to and beyond pre-earthquake levels will likely take decades. The emergency response by the international community has been admirable, but only the coming months and years will tell how quickly Haiti can advance through reconstruction and recovery efforts.

Importing countries in the developing world and the U.S. should enhance the food security of the developing world by creating an open and predictable market. Such efforts should advance on two fronts. First, the developed world should recognize its distortionary role in world food markets and eliminate biofuel and agricultural subsidies. Second, the U.S. should work through international institutions and with exporting countries to mitigate the price increases in ways that do not hamper trade.

The dysfunctional food market has caused extreme food shortages and political conflict. When food prices spike, the poor and those who feed them cannot afford as much food. The UN’s World Food Program and the U.S. Agency for International Development have announced cutbacks in food aid in response to rising prices, while undernourishment has increased globally by roughly 20 percent since 2006. Rising food prices have also caused political instability in the developing world. In 2009 riots against food and fuel prices left nearly 40 dead in Cameroon, and food-related instability led to the Haiti’s prime minister and Madagascar’s president.
The food market faces two obstacles: long-term structural distortions stemming from Western policy, and short-term instability caused by exporting nations. A properly functioning global food market could allow direct investment in the most productive land and let net-importing countries focus on their comparative advantages. While the rise in food prices is partly due to growth in demand from developing nations, the recent drastic price increases owe much to misguided policies.

The West’s agricultural policies play a large part in the troubles of the global food market. The primary culprits are agricultural subsidies and biofuel subsidies. While subsidies are supposed to increase output and decrease global food prices, they divert private investment toward Western agriculture and away from underdeveloped countries, where the potential gains in productivity are greater. This counterproductive diversion of resources distorts investment patterns and reduces spare production capacity when prices are high. Biofuel subsidies encourage farmers to shift production away from food and toward ethanol, decreasing the supply of food and driving up prices. The U.S., by far the world’s largest producer and exporter of corn, may soon use half of its crop for ethanol.

These subsidies are also wasteful for Western countries. Subsidies are a blatantly inefficient case of special interest favoritism; the government will spend over $21 billion next year on “farm income stabilization.” Biofuel subsidies and regulations have become a boondoggle—estimated to cost the U.S. between $5 billion and $9 billion—that fails to reduce CO2 emissions.
The heart of the problem is the enormous political importance of food prices in developing countries. In countries where food makes up a large part of household expenditures, price increases can be devastating for voters and treacherous for governments. While facing political pressure to reduce food prices, several major food producers, including Argentina, Thailand, Kazakhstan, and Vietnam, restricted exports to ensure adequate domestic supplies. These restrictions further increased the price of food traded on the international market, causing additional pain to importing nations.

The trade restrictions have important disadvantages. First, they reduce income to farmers while their products’ prices are high, thus stifling investment and production when greater supply is most needed. Second and more damaging is that importing nations begin to fear that the market will no longer suffice to meet their needs. They rush toward panicked and inefficient responses, particularly those that increase production on their own land. Saudi Arabia, an extreme example, spent billions to achieve self-sufficiency in wheat production by turning desert into farmland; the drain on the country’s aquifers and its pocketbook forced Saudi Arabia to abandon the experiments.

Both of these trends steer investment toward unproductive land in importing countries and away from fertile land in exporting countries. Saudi Arabia, with enormous oil reserves and virtually no water, could export oil and import food rather than try to grow wheat in the desert. Its newest strategy for food security, along with countries such as China, the United Arab Emirates, and South Korea, has been to buy huge tracts of land in Africa, Asia, and Eastern Europe to assure long-term food security in fertile lands. While this may be an efficient investment in certain cases, the opacity and size of the deals has led to complaints of neocolonialism and corruption. Furthermore, this trend demonstrates the strategic disadvantages of global food insecurity for the United States.

The developed world must take the first steps to bolster the global food market, by eliminating agricultural and biofuel subsidies to enhance the food security of developing countries. More importantly, the United States must prevent nervous exporters from diverting food supplies inward. The first step is to alter the terms of the World Trade Organization compact to explicitly declare export bans (or extremely high export taxes) to be contrary to the principles of free trade and subject to penalty. While many exporting countries would oppose such a move, they might make this concession if the U.S. eliminates its agricultural subsidies—a long-sought goal that would make their own exports more competitive in return. Removing the subsidies could advance trade talks, since these subsidies were largely responsible for the breakdown in 2008 of the World Trade Organization’s Doha Development Round of negotiations to lower trade barriers.

It will be difficult to design international rules sufficiently compelling to overcome the political pressures attendant with rising food prices. Equally important will be policy advice to developing exporter nations to mitigate the effects of price increases as an alternative to market manipulation. As food prices rise, exporting nations gain income overall. The downside for such countries lies in the transfer of income from consumers to farmers. Governments, during times of high-prices, should assess farmers a lump-sum tax and distribute the revenue to the poor. Carefully calibrated redistributive measures could keep countries satisfied. A push for global regulation and policy changes would give less developed countries and their citizens the stability they need for security and economic growth and development.

Israeli Foreign Minister Avigdor Lieberman’s recent statement regarding the violent conflict between Israel and Palestine alludes not only to the lack of progress from negotiations in recent months, but also to the partisan political moment into which President Obama’s administration has entered with regard to its policies in the Middle East. Lieberman’s comments suggest a lack of initiative within the Israeli government to work toward a lasting peace settlement; indeed, over the last few months, violent conflict surrounding the city of Jerusalem and the failure of Israeli Prime Minister Benjamin Netanyahu to articulate more than rhetorical support for a “two-state solution” have added to fears that the region has turned its back on negotiation. Most importantly, Israel’s continued settlement building in the West Bank has delegitimized its more conciliatory gestures and will impede negotiations until expansion is frozen.

Under these circumstances, it is no wonder that President Obama and his Cabinet have shied away from addressing this ongoing crisis directly. The contradictory way in which the President has addressed Middle Eastern issues at various speaking engagements has led to a sense of confusion as to the extent to which he will support or reject recent Israeli stances. During his June 2008 appearance before the American-Israeli Public Affairs Committee, a powerful pro-Israel lobby group, then-Senator Obama assured the audience that his administration would continue to assist Israel to the tune of roughly $30 billion over the course of ten years – reaffirming a commitment from President George W. Bush. Furthermore, Obama insisted that the U.S. “must never force Israel to the negotiating table.” At his speech in Cairo a year later, however, President Obama condemned Israel’s continued expansion into the occupied territories, declaring that “it is time for these settlements to stop.” It is difficult to imagine how the president can expect settlement expansion to stop without pressing Israel to take part in any form of negotiations.

President Obama’s relative reticence regarding the Arab-Israeli conflict presents him with an unprecedented opportunity to devise a specific and comprehensive policy in the coming months. Furthermore, two very recent events have left the Middle East a far more vulnerable region, which would make a resumption of active peace negotiations with an American presence all the more timely. First, in September, the United Nations Human Rights Council issued the so-called Goldstone Report, condemning Israeli actions within the Gaza strip during its offensive last winter. Although formally dismissed by both the Israeli government – Prime Minister Netanyahu referred to it as “a mockery of history” – and the United States Congress, its endorsement by the United Nations General Assembly suggests that the report will not be so easily set aside. Defenders of the report argue that it speaks to the extent of Israeli human rights violations in the Gaza strip, while its critics contend that it fails to fully address atrocities committed by Hamas. Yet, in holding both Israeli and Palestinian leaders accountable, the Goldstone Report has helped shed critical and objective light on the seemingly endless regional violence. Obama’s refusal to acknowledge the report has hurt his standing among many Arab nations in which he is usually viewed favorably, or at least more favorably than President Bush. If Obama wishes to attract Arab support for peace negotiations, he must speak publicly about – and in doing so legitimize – the report, even if he temporally weakens him politically.

In another significant regional development, Palestinian Authority Chairman Mahmoud Abbas recently announced that he will not seek re-election in January 2010. Although the U.S. has regarded Abbas as a moderate in the region, his performance has been dissatisfactory to the Israeli leadership and to many Palestinians, who now criticize his wavering commitment to end the Israeli occupation of the West Bank and Gaza. Hamas, the dominant political player within Gaza, has opposed his decision to hold presidential and parliamentary elections next year. Obama’s presence in talks or negotiations could determine whether a moderate or militant leader replaces Abbas. Yet with the elections looming, time is not on the President’s side.

The nature of President Obama’s early forays into the Middle East will no doubt set the tone for his entire tenure in office. If his goal is nothing more than to continue supporting Israel at all costs, then little shift in policy from that of the previous administration is needed. If, however, his goal is to negotiate a peace settlement that will protect Israel’s sovereignty and security while creating a truly autonomous nation for the Palestinians, a more nuanced strategy is essential. The Obama administration has continuously wavered between pressing for an end to settlement construction in the occupied territories and accepting a resumption of peace talks while allowing the Israelis to continue construction. Yet until all settlement building ceases, negotiation will remain a dead-end as the “facts on the ground” continue to compromise Palestinian hopes for a state. As Secretary of State Hillary Clinton said, the administration “wants to see a stop to settlements, not outposts, not ‘natural growth’ exceptions.”

The United States, unfortunately, has a history of empty threats against the Israeli government. If the U.S. really wants an end to settlement construction, it must be willing to withhold some material support from the Israeli government. In 1990, during the first Intifada, the Israeli government began building settlements at an unprecedented rate. James Baker and others in the first Bush Administration perceived these settlements as an obstacle to much-publicized peace negotiations going on in Madrid at that time. The U.S. threatened to withdraw some financial support if the Israel government did not desist. Again in 1992, the United States refused to approve a $10 billion loan viewed by Israel as essential to meeting their increasing infrastructure demands. While this resulted in temporary bilateral tensions, the Israelis soon rejected then Prime Minister Yitzhak Shamir’s approach and elected more moderate leadership. The settlements were temporarily frozen, the peace negotiations went on, and the loan was eventually granted.
The strategy employed by the Senior Bush administration did not result in a total halt in settlement construction, but the U.S. won considerable concessions by exploiting Israel’s financial dependence as bargaining leverage.

Some might argue that the cessation of all terrorist attacks against Israeli civilians, mostly perpetrated by Hamas and the militant Shiite group Hezbollah, is the first necessary step to achieving a formal compromise in the region. Yet particularly since January, Hamas leadership has signaled a willingness to negotiate a cease-fire treaty with Israel and went on record in 2006 as agreeing to participate in talks working toward a two-state solution. While their recent concessions in no way compensate for their violent actions, they are a necessity to the peace process, and they must be brought to the table for their to be any hope of a lasting peace.

Others claim that pressuring Israel to accept compromise will deter it from participating in formal peace negotiations. Yet the U.S. managed to win a temporary settlement freeze in the early 1990s that coincided with a series of secret negotiations between Israel and the Palestinian Liberation Organization (PLO). These clandestine talks resulted in Oslo I, the first attempt to synthesize a plan for both Palestinian autonomy and the withdrawal of Israeli troops from the occupied territories.

The events of 1990-92, therefore, provide a viable model for the way in which President Obama can negotiate successfully with a Likud-controlled Israeli government. While the President certainly should not discard our history of cooperation with Israel, he must also take into account the degree to which Israeli survival depends on American financial support and our nation’s interest in maintaining stability in the Middle East as a whole. If President Obama wishes to encourage moderate Palestinian leadership and the renewal of negotiations, he must spend his political capital in a manner that reflects the true urgency of the region’s political situation and does not assume, as Mr. Lieberman says, that the region has “learned to live with” violent conflict.

By neglecting to cultivate America’s relationship with Brazil, the Obama Administration risks unsavory comparisons with the Bush Administration, which was heavily criticized for all but ignoring South America. With memories of a (supposedly) U.S.-supported military coup d’etat that instituted a ruling military dictatorship for twenty years still fresh in the minds of many Brazilians, the U.S. must offer political gestures and concrete economic compromises that show that its relationship with Brazil is as valued as when the U.S. became the first nation to recognize Brazil’s independence in 1822. Latin American expert David Rothkopf implores the current presidency to pursue this special relationship which has been neglected until now. Despite Obama’s warm remarks about President Lula at the recent G20 London summit—Obama declared, “He’s my man”—Rothkopf urges that Obama demonstrate commitment beyond just “lip service.” He writes, “[If the Obama Administration] only pays lip service to Brazil but slow walks the most important issues while seeking disproportionate payment in turn from the Brazilians… then tension and distrust are likely to manifest themselves.”

As noted by President Lula in his March 14th meeting with President Obama, reform of the American embargo on Cuba presents a golden opportunity to send a palpable signal not just to Brazil, but also to all of Latin America. The embargo on Cuba remains an antiquated and intolerant blemish on the U.S.’s relationship with the region—a relic from a war of ideas long since won. The U.S. must initiate a new campaign of ideas for a revitalized North-South relationship built on equality and respect in order to counter the efforts of populist leaders like Hugo Chávez, Evo Morales, and Rafael Correa to vilify the U.S. As Brazilian foreign minister Celso Amorim notes, “…It’s impossible not to talk about the Cuban embargo. It’s indicative of U.S. policy toward the region.” The repeal of the Cuban embargo would stand as a powerful symbol of goodwill and new beginnings, with all parties standing to gain, from the isolated Cuban public to the countless American multinationals chomping at the bit for a piece of the virgin Cuban market.

Moreover, enlisting the Brazilian President as a mediator in Cuban-American negotiations would be a brilliant choice for the U.S., not only because Lula is skilled at reaching compromise, but also because the move gives Brazil what it seems to want so badly these days: prestige. Brazil’s recent generous renegotiations to pay more for natural gas contracts with Bolivia and hydroelectric agreements with Paraguay, along with its successful leadership of the U.N. peacekeeping mission in Haiti, indicate that Lula is maneuvering Brazil to be the torchbearer for Latin America. And as Brazil cements and expands this leadership role, it wants a say in international affairs commensurate with its growing economic power.

Though the United States has officially “recognized” Brazil’s candidacy for a permanent seat on the U.N. Security Council, it can shoot a safe shot across the bow of the international order by announcing strong support for the bid. As Lula rightly ascertained in a speech to the U.N. General Assembly, “Today’s structure has been frozen for six decades and does not relate to the challenges of today’s world. Its distorted form of representation stands between us and the multilateral world to which we aspire.” A firm American statement of approval for Brazil’s Security Council eligibility would help strengthen a crucial alliance in Latin America. In addition, the United States stands to lose little political capital by expressing public support for Brazil. Unlike the G4 Security Council candidacies of India and Japan whose bids are opposed by important American allies such as Pakistan and China, respectively, and Germany, whose bid could be considered disadvantageous for the U.S., support for Brazil risks very little. Mexico and Argentina, the two countries most vehemently opposed to Brazil’s U.N. aspiration, are sturdy American allies who could be placated with little effort.

A final gesture that the U.S. should make to Brazil is opening up the U.S. market to Brazilian ethanol. Brazilian biofuel companies look at the American market with unequaled lust, as an astounding 54-cent tariff on Brazilian sugarcane ethanol makes exporting to the American market economically uncompetitive and unviable. Although repealing this tariff, which protects the comparably inefficient U.S. domestic corn-based ethanol industry, would be politically unpopular in the U.S., it is crucial to establishing a closer relationship with Brazil and would confer economic benefits on both countries. Given that the U.S. and Brazil account for almost 90 percent of the world’s biofuel production, developing a global ethanol market would be a mutually beneficial endeavor.

Also, such action is not without historical precedent. The Washington-based think tank Council on Hemispheric Affairs notes that officials in the Obama Administration could look to the International Trade Commission’s 1986 ruling on imported Brazilian iron ore as a historical blueprint to pleasing the elected officials in America’s Corn belt, as well as their Brazilian counterparts. Just as the 1986 accord legally isolated the American Midwest market so as to insulate the Great Lakes’ vulnerable iron industry, a similar ethanol agreement could institute an analogous protected trade area for American corn ethanol in western and central U.S., opening the East Coast to Brazilian ethanol. Since American ethanol consumption is concentrated in the West, the economic impact of such a policy change would not be dramatic, but it would be a crucial gesture of support to Brazil.

Over the years, many countries have claimed to possess a “special” relationship with the U.S. There has perhaps been no country more or longer deserving of that designation than Brazil. One of the last countries to enter the world recession and poised to be one of the first to exit it, as Jonathan Wheatley wrote in the Financial Times, “this is the Brazil that finally, after years of unfulfilled promise, is catching the world’s attention.” The three-pronged mix of political and economic gestures described above would allow the current Administration to make some much-needed overtures to its longtime rising star Latin American neighbor and possible long-lasting Latin American advocate. As for reciprocation, any Brazilian knows that once someone bestows an abraço on you, it is only good manners to return the favor.