George P. Shultz, as he goes about learning the diplomatic ropes at the State Department, has not yielded his keen interest in global economic issues -- and he intends to play a significant role in that arena. There have been some secretaries of State -- like Henry Kissinger -- who understood that economic issues were important, but had difficulty in grasping them.
There were others who were all too willing to leave economics -- even international economic affairs -- to the secretary of Treasury, or economists in their administration.
But Shultz, who is an economist and a former secretary of Treasury, clearly sees the interlocking significance of economic and foreign policy, and in his brief tour of duty so far as secretary of State, he hasn't hesitated to stake out his interest. He believes that with the world suffering from various forms of international economic tension, the situation demands it.
Thus, when Trade Ambassador William Brock gathered key officials in the White House last week to talk to business chief executive officers about the problems caused by collapse of the Japanese yen, he was careful to include Shultz, in addition to Treasury Secretary Donald T. Regan, Commerce Secretary Malcolm Baldrige Jr., and others.
Yet another sign of Shultz's growing importance on the Washington scene is that he now attends the regular meetings of the top domestic economic "troika" -- Secretary Regan, OMB Director David A. Stockman, and Economic Council Chairman Martin S. Feldstein.
He gets along well and easily with members of the international financial community in Washington, such as Jacques de Larosiere, managing director of the International Monetary Fund, who respects his expertise on such matters, along with Alexandre Kafka, the IMF executive director for Brazil; and Federal Reserve Board member Henry C. Wallich. And it was Shultz who cleared the way, acting for presidential candidate Ronald Reagan in 1980, for the appointment of A. W. Clausen to the presidency of the World Bank.
As secretary of Treasury in the Nixon administration, Shultz led the way in sponsorship of floating exchange rates after the first Arab oil shock threw international financial markets into a turmoil. As secretary of Labor, Shultz was highly effective in maintaining peaceful relationships with labor leaders, especially with the most influential union leader of that period, the late George Meany.
Those who have seen Shultz take hold of the knotty question of President Reagan's June 18, 1982, sanctions against European companies that shipped equipment to the Soviet Union for use on the controversial natural gas pipeline to Europe say he's applying -- inside the administration -- the same smooth negotiating techniques.
It makes good sense to have a secretary of State who has more than a passing acquaintance with economic issues: increasingly, foreign strategic and diplomatic problems are intertwined with trade and debt questions -- something that former secretary Alexander M. Haig Jr. understood well. Haig was advised by subordinates to reestablish State's lead-agency role in trade and other international economic issues, wrenching the power from Treasury and Commerce.
And although Haig was disposed to do so, he couldn't quite bring it off. Shultz comes to this part of foreign affairs management better equipped. He not only is an economist and former secretary of both Treasury and Labor, but also was overall economic czar for President Nixon and a manager of a major corporation, Bechtel.
He's concerned by the difficulties American industry faces as it struggles to meet competition from abroad, but he's still a free-market man, and won't recommend quick fixes through protectionism, even for high technology items, which some claim to be a special case. He recognizes that there will be strong competition over the next five or 10 years from Asian countries -- in traditional products like steel as well as in new ones. But he believes that the United States will weather the storm, that there's a lot going for this country in terms of its own new technology.
Shultz has been utilizing his economic/conciliation background in dealing with the pipeline problem. Perhaps nothing in recent years has been such a blow to European-American relations as American sanctions against the European companies, licensed to use General Electric patents on turbine components. If the Europeans were to have honored the American sanctions, by dishonoring their contracts with the Russians, it would have been one more devastating blow to an already crippled European economy.
Shultz knew this when he came in. As a private citizen, he had publicly criticized the use of trade weapons to effectuate political goals. But Shultz, acclaimed for being a "team player," did not denounce the Reagan policy, or the hawks on this issue--Defense Secretary Caspar Weinberger, National Security Adviser William Clark, and the NSC staff. Instead, he has quietly been building a coalition within the administration that favors replacing the sanctions with something else.
To this end, Shultz has been working with Ambassador Brock, Commerce Secretary Baldrige, and Commerce Undersecretary Lionel Olmer to block the "hawks" on the pipeline issue.
According to those who have been sitting in on the meetings, Shultz has been arguing in these internal debates that the administration has essentially won its fight: Europe, as it promised to do at the Versailles summit, seems willing to toughen up on credit terms to the Russians, and is almost certain not to get involved in a second pipeline.
In a Washington Post interview, Shultz indicated that European leaders initially had no idea how determined President Reagan could and would be on the pipeline issue. In essence, Shultz says, they misjudged Reagan. But now, Reagan reportedly feels, the point has been made.
Says one observer: "Shultz is telling them the hawks and presumably the president that 'you've won the war.' In effect, that it was Europe we needed to wake up, and we've accomplished that with the stand on the pipeline. Interest rates on loans to the Russians have been raised, and we can say truthfully that we've gotten Europe to agree that this is the last Russian pipeline to Europe ."
In essence, what Shultz appears to be setting in place tallies closely with Haig's proposal, outlined in a State Department briefing paper prior to the Versailles summit, which suggested that the administration abandon its opposition to the pipeline in return for an Allied commitment to limit credits to the Soviet Union.
This quid pro quo, in fact, appeared to be on track at the Versailles summit. But the delicate understanding quickly dissolved in presidential fury immediately after the summit when both French President Francois Mitterrand and then-chancellor of West Germany Helmut Schmidt appeared to make light of their promise on credits. The June 18 sanctions were eagerly delivered by the hawks.
In retrospect, although the hawks might have found some other excuse to try to block the pipeline, the comments by Mitterrand and Schmidt were a diplomatic blunder of the first order. But now, Shultz' quiet message in private administration councils is that to continue the sanctions against the European companies would do too much economic damage to Europe, as well as to America's future international business, because the United States' reputation as a reliable supplier has been called into question.
The difference between the Shultz and Haig approaches is that in his orderly way, Shultz is seeking to set out an overall strategy to deal with East-West affairs -- a strategy that will restate and reinforce U.S.-Western European unity. He is also careful to be working as the agent for the president and his White House team.
A major question still to be resolved relates to the Dec. 29, 1981, embargo on American companies' shipments for the pipeline, which was extended on June 18 to subsidiaries of American companies abroad and to European companies licensed to use American technology. Merely abandoning the June 18 sanctions against noncomplying European companies won't restore the situation, experts believe, because the European companies can't fill all the orders themselves for General Electric compressor parts.
Moreover, on exports of strategic equipment where national security is a question, the impression here is that Europe is taking the clearance function of COCOM -- first broached at the Ottawa economic summit in 1981 -- more seriously since Reagan's deep feelings on the pipeline issue became clear. European governments had already agreed in principle to COCOM (an international committee working within the Atlantic Alliance), and endorsed it again in Paris. But in their eagerness to expand East-West trade, some European governments appeared to the United States to be less concerned than was the U.S. government about the shipments of "sensitive" items.