on the failure of President Obama's trip to the G20 but on the
financial state of the world and our huge crisis here at home, in
the recent past, the present and immediate future. It behooves all
to digest, if not savor what it says. The problem noted at the top is
that it's length is double what I usually send. My solution is to
show half of it below and urge you to click on the URL for Greider's
solution suggestions - and save it for reference, as things evolve.
Ed
http://www.thenation.com/article/155848/end-free-trade-globalization
The End of Free-Trade Globalization
William Greider
The Nation: November 4, 2010
The world economy is on the brink again, facing a crisis of epic dimensions
for reasons largely obscured by the inflamed politics of 2010. Against their
wishes, the United States and China have been drawn into an increasingly
nasty and dangerous fight over currencies and trade. American politicians,
especially desperate Democrats, have framed the conflict in familiar moral
terms—a melodrama of America wronged—and demand retaliation. Other nations,
sensing the risk of a larger breakdown, have begun to take protective
measures. Every man for himself. The center is not holding.
The political fray obscures the fact that the basic economic problem is
larger than any single nation and stalks the global trading system itself.
There is a huge hole in the world—a massive loss of demand. Think of the
trade wars as the largest producers fighting over an abrupt shortage of
buyers. Financial collapse and recession, with falling income, defaulting
debt and rising unemployment, made the hole. In other times, Washington
would have stepped in to impose policy solutions and create market demand as
the global system's buyer of last resort. This time, Goliath is gravely
weakened, both in economic strength and political authority.
The political push-pull zeroes in on China. Beijing is accused of playing
dirty, stealing jobs, production and wealth. Washington imposes a penalty
tariff on Chinese tires and tubular steel. Beijing pushes back with a tariff
on US poultry. President Obama once again urges China to stop manipulating
its currency to underprice Chinese exports and stymie US goods going the
other way. China once again blows off his request. United Steelworkers ups
the ante by filing a 5,800-page complaint detailing how China is scheming to
corner the global market in green technologies. Obama promptly orders an
investigation. "What do the Americans want?" asks the vice chair of
Beijing's National Development and Reform Commission. "Do they want fair
trade? Or an earnest dialogue?... I don't think they want any of this. I
think more likely, the Americans just want votes." He has a point. But so do
American politicians, who think China's hardball industrial strategy has had
something to do with America's anemic recovery. The House, divided on
everything else, voted 348-79 in September to authorize tariffs on nearly
all Chinese imports if Beijing does not relent in its currency game.
The US public seems to agree with the harsh stance. A Wall Street
Journal poll found that 53 percent (including 61 percent of Tea Party
adherents)
think free-trade globalization has hurt the US economy. Only 17 percent
think it has helped. But the trouble with Americans claiming injured
innocence is that it blinds them to the complexities of the predicament. The
fact is, the United States and China, motivated by different but mutually
reinforcing reasons, collaborated to create the unbalanced trading system.
American multinationals eagerly sought access to China's market. The Chinese
wanted factories and the modern technologies needed to develop a first-class
industrial base. American companies agreed to the basic trade-off: China
would let them in to make and sell stuff, and they would share technology
and teach Chinese partners how it's done. Not coincidentally, US
corporations also gained enormous bargaining power over workers back home by
threatening to go abroad for cheaper labor if unions didn't give wage
concessions.
Washington blessed the deal. Both parties were convinced decades ago that
improving the fortunes of globalizing banks and businesses was in the broad
national interest. The Clinton administration capitulated to Chinese
negotiators in 2000, admitting China to the World Trade Organization while
giving up legal tools that could have controlled China's appetites.
Chinese officials understand, even if many Americans do not, that they are
essentially doing what the trading system has allowed or at least tolerated
from many others. Washington grumbled when Japan and then South Korea,
Taiwan and Singapore pursued similar development strategies. Arrogant US
policy-makers assumed that these rivals would eventually adopt the American
model and become more like us. They never really have.
The problem is that when a nation of 1.3 billion successfully advances along
this road, it blows out the lights. Decades ago, when Washington scolded
Japanese officials for violating free-trade orthodoxy, they bowed humbly and
made agreeable noises. The Chinese don't bother. They are unabashed because
they have always been much more up front about their intentions. In the
early 1990s Beijing published a series of directives for major industrial
sectors, describing precisely how the state intended to direct the rise of
its industrial base. China manipulates its currency—though so do other
governments when it serves their interests (indignant senators bash China
for depressing its currency, but Washington is doing the very same thing to
the dollar through the money spigots of the Federal Reserve). The Chinese
also know that Japan suffered years of depressed growth after Washington
pushed it into raising the value of its currency. China pirates US
intellectual property, and it suppresses wages to attract factories from the
United States and elsewhere. It lures major US multinationals by offering
tax breaks and subsidies—but it also compels the companies to share their
precious technologies with Chinese partners, who are always majority owners.
Which brings us to the present crisis. China's exports exploded toward the
end of the Clinton years and expanded even more ferociously under George W.
Bush. So did the offloading of US jobs and manufacturing. China's wave of
new competition crashed over every industrial economy, but disruptions were
most devastating for the United States. American trade deficits soared,
peaking at close to 6 percent of GDP in 2006. Imports from China dwarfed
exports in sector after sector, including many advanced technological goods
developed in America. The goods are often made by US companies, but not
here. The US economy has been buying more than it produces—a lot more—and
borrowing from foreign creditors, most heavily from China, to do so.
"I admire the Chinese for recognizing the world economy is still a jungle,
despite all of its legal trappings," says Alan Tonelson, a conservative
trade critic at the US Business and Industrial Council. "But here's the
problem. They don't seem to understand that unless the US economy recovers
its financial and economic health, the entire world will come crashing down.
The reason is, we won't be able to serve any longer as the import sponge
that buys from everyone else."
We have reached the endpoint of globalization as we have known it. It cannot
continue as before, because the United States is essentially tapped out.
Goliath has fallen and cannot get up. Who will lend a hand? Not China,
obviously, but also not Japan and the Asian Tigers, or the European nations.
All are dealing with their own problems. All but the smallest economies run
perennial trade surpluses with the United States. Giving up some of those
surpluses means surrendering some portion of domestic growth in order to
stabilize the system. No one wants to go first. This is a dangerous impasse,
the kind that can easily slip into a general unwinding—that is,
depression—if not resolved smartly. "The world is no longer in a common
foxhole...but in many different foxholes," observes economist Paul McCulley
of PIMCO, the world's largest bond house. Japan and South Korea devalue
their currencies to protect their exports (so has the United States). Brazil
puts limits on capital inflows to stop foreign money from destabilizing its
economy. Currency war is a surrogate for trade war, one of the few levers
governments can still manipulate unilaterally.
For Americans the most ominous development is that trade deficits, after
shrinking during the recession, are expanding rapidly again. That stands in
the way of recovery and helps explain why the federal stimulus of 2009 had
less punch than expected. The trap is illustrated by a few recent
statistics: the US economy expanded in the second quarter of 2010 by an
anemic annualized rate of 1.7 percent. During those same months, however,
the nation's trade deficit expanded by 3.5 percent. Do the arithmetic: the
US economy would have grown at a much healthier rate if it weren't for its
dependence on products made elsewhere. Yet getting different results will
take much more than currency adjustments. It means reforming the dynamics of
global trade and the US industrial structure, not just the bad habits of
American consumers.
President Obama, unlike his predecessors, understands the problem. He has
been trying for the past year to persuade foreign governments to cooperate,
with meager results so far. Obama told G-20 leaders in April 2009, "The
world has become accustomed to the United States being a voracious consumer
market and the engine that drives a lot of economic growth worldwide....
[But] if there's going to be renewed growth, it can't just be the United
States as the engine. Everybody is going to have to pick up the pace." At
the G-20 meeting this past June, the president was more explicit. "After
years of taking on too much debt," he said, "Americans cannot—and will
not—borrow and buy the world's way to lasting prosperity. No nation should
assume its path to prosperity is simply paved with exports to the United
States."
Continue:
http://www.thenation.com/article/155848/end-free-trade-globalization
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