Terror times eight: TIE asked an important international strategist to list, beyond terrorism, the major looming threats to the international economy.

• Author: Tarullo, Daniel K.
• Position: International Economy

Some consequences of the September 11th terrorist attacks are near certainties: The multi-front campaign against terrorism will be the centerpiece of U.S. foreign policy in the foreseeable future. An already shaky economy has been tipped into recession. The American psyche has been traumatized. Beyond these basics, little is yet clear. Will the campaign against terrorism provoke a fundamental change in how key nations assess their interests and formulate their policies, or will it simply accelerate trends and tendencies that were already in evidence? Will the United States and global economies bounce back after some period of uncertainty, or will a significant "security premium" be effectively imposed on most economic transactions, resulting in sizeable cost increases that retard growth indefinitely? Will Americans respond by trying to close the country's doors, or will they commit to greater international cooperation against common threats?

With all these unknowns, it is exceedingly premature to predict whether the events of September 11th will, a half century from now, appear as a watershed in American history, much less the nature of such a watershed. In the midst of our grief over the loss of life and our sense of everyday security, we do well to remember that the United States continues to have a range of global interests. Though they may have receded from the consciousness of top policymakers and mass-market commentators, they are still important. They will move front and center again someday. Even as the nation responds to the fact and threat of terrorist attacks, we must pay heed to these risks and opportunities, lest they too catch us unawares.

The aftermath of the terrorist attacks has been a grim reminder that security developments can dramatically affect economic performance. But causation can move in the other direction as well. That is, long-term economic trends, both favorable and unfavorable, can themselves create foreign policy challenges and security crises. What follows is a list, in no particular order of likelihood, of eight latent foreign policy problems arising from economic developments. Because most of these longer-term concerns are more likely to materialize in a prolonged period of sub-par economic performance, they are very much related to the immediate question of how the world will change in reaction to the terrorist attacks.

Deterioration of South American Economies. This is perhaps the most obvious item on my list, but no less important for all its obviousness. Argentine and Brazilian economic difficulties of the last year or two have already revealed how conditional the embrace of market-oriented economic policies has been in much of South America. The admirable resolve of those countries to overcome rampant inflation in the early 1990's does not necessarily convert to a commitment to maintain austerity policies in the face of disappointing growth. To the contrary, if the policies preached by the United States and the IMF are not seen as promoting equitable growth, they may be abandoned. Further, there is a risk that some members of the middle and working classes may associate liberal democratic values with the...