There have been major changes in recent years in the trade policy strategy used by the United States in promoting its economic and political goals. In contrast to the benevolent multilateral approach from the early 1940s through the 1960s in which international cooperation aimed at strengthening the free world was emphasized, the United States in the 1970s and 1980s has increasingly pursued an aggressive bilateral strategy oriented toward domestic economic interests and particular regional political objectives. One manifestation of this policy shift is the increased use of bilateral negotiations in which the United States threatens to restrict access to its domestic market in order to force open a trading partner's markets for more U.S. exports or to curtail market-disrupting imports from the country. Negotiating free-trade agreements with the Caribbean basin, Israel, and Canada is another. Other indicators of this strategy shift are an increased emphasis on fair trade, the greater use of the antidumping and countervailing duty laws to restrict imports, and a willingness to give up the most-favorednation principle in limiting imports even when injury to a domestic industry is not due to unfair foreign trade practices. The United States has not abandoned the multilateral approach, as its participation in the Uruguay Round negotiations demonstrates, but even here the United States seems less willing than in the past to compromise for the purpose of achieving a consensus among the participants. This paper briefly analyzes the reasons for this shift in trade policy strategy and considers its usefulness for promoting U.S. interests in the future. I. From Hegemon to Oligopsonist

This paper presents a theoretical basis for the argument that large exchange rate shocks—such as the 1980s dollar cycle—may have persistent effects on trade flows and the equilibrium exchange rate itself. We begin with a partial-equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level. Then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself. Here we see that a large capital inflow, which leads to an initial appreciation, can result in a persistent reduction in the exchange rate consistent with trade balance.