Restart for Globalization? What Went Wrong? What Might Go Right?
By Shlomo Maital
What went wrong with globalization? Where did we screw it up? My friend Clyde Prestowitz, President Ronald Reagan’s trade negotiator, has summed it up very well in his article in The Atlantic.
Put very simply: America ran up huge trade deficits, $800 b., that lasted for 25 years, borrowing heavily from Asia, mainly. This is known as “living beyond your means”. Why? Americans enjoyed living beyond their means, and Asian countries got a growth engine, from American spending financed by Asian loans. This is globalization gone awry. Why? Because it cannot be sustained. Eventually trade must be balanced. The system failed, because it did not include ‘balancing mechanisms’ that J. M. Keynes envisioned.
Here is what Prestowitz envisions for the near term, after the Trump administration begins to change U.S. trade policies:
“The results of the election seem to indicate that-the views of economists and foreign-policy experts notwithstanding-America is about to change course on trade policy. That doesn’t necessarily mean a return to pre-World War II protectionism. It could instead simply mean a revival of the spirit that inspired the foundations of the postwar economic order. That spirit, articulated by the economist John Maynard Keynes, focused on assuring balanced trade-the avoidance of chronic surpluses on the part of some trading partners and chronic deficits on the part of others.”
So, what will this New Order look like, might look like, in the Age of Trump? Here is Prestowitz’s take:
“Thus a new order might operate to prevent the misalignment of currency valuations, to abolish or offset the impact of tax subsidies, and to mitigate the implicit subsidization of state-owned enterprises. It has been largely forgotten that one of the key objectives of postwar free-trade policy was to maintain a roughly balanced trade account-a goal that the country is likely about to pursue anew and that will likely affect its policies touching on not just trade, but investments, currency, technology, and labor as well.”
Could this story of the ‘restart of globalization’ have a happy end, not just for America but for the world? An end, without a major crisis?