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The Case for Compensated Free Trade

27 10 34
14.11.2018

LONDON – Almost all liberals support globalization and oppose economic nationalism. They ignore the mounting evidence that, in its current form, globalization is dangerously incompatible with democracy.

Nov 12, 2018 Jeffrey D. Sachs worries that the result of the US midterm elections is exacerbating the president's mental instability.

In his 2011 book The Globalization Paradox, Harvard’s Dani Rodrik says that the nation-state, democracy, and globalization are mutually irreconcilable: we can have any two, but not all three simultaneously (he calls this a “trilemma”). All over the world, the “nation” has been revolting against globalization in the name of democracy.

That became clear this year when US President Donald Trump imposed the first of a widening set of tariffs against Chinese goods, with China retaliating in kind. Trump has also torn up two major international trade treaties and threatened to withdraw from the World Trade Organization.

The trigger for America’s turn to economic nationalism is its widening trade deficit – $566 billion in 2017, and growing – as the US economy recovers. But the deeper reason is the correct perception that the resulting current-account deficits are not “benign” when they are being financed by inflows of short-term capital, or “hot” money.

A current-account deficit means that a country is importing more than it is exporting. And those excess imports can lead to a net loss of “good” jobs. Six million manufacturing jobs disappeared in the first decades of the 2000s. The Rust Belt made Trump president. “It’s time to rebuild Michigan, and we are not letting them take your jobs out of Michigan any more,” he........

© Project Syndicate