While the focus of Washington and the public has been on the Wall Street bail-out and the potential recession impact on American workers, there has been little discussion on the issues of globalization and the place of the United States as a global economic power. The true power of the United States is not with its military muscle but with its ability to impact other regions through trade and economic might. American hegemony is based on its ability to influence and affect trade. The United States will prosper when it produces gains in world trade and influences the agenda of global economic and financial development.
A costly bail-out diminishes America’s economic power and further shifts the global economic discussion further to an axis around China and other emerging countries. This shift has been happening for some time but has clearly accelerated with the costly war in Iraq and with the faltering of finances on Wall Street. Economic power is diminished if the financing needs of a country are controlled by savers in other parts of the world.
There are clear winners and losers with trade and the main winners have been the emerging markets and the majority of the world population. The relentless power of world trade is shifting the gains more toward the East. This relentless shift of economic power cannot be stopped through economic isolationism or a desire to politically recast the terms of trade. Growth in trade is occurring whether the US likes it or not. Trade will grow from the East and competition will come from the other powers of the West. The trade needs of the South will be taken on by others if the US is unwilling to play the game and compete. This fight over the transfer of wealth is only exacerbated when the growth in the US is low and the potential for a greater economic tax burden is raised.
Two recent books from authors outside the US provide an interesting perspective on the directions of global trade, The War of Wealth: The True Story of Globalization or Why the Flat World is Broken by Gabor Steingart, a senior correspondent for Der Speigel and The New Asian Hemisphere: The Irresistible Shift of Global Power to the East by Kishore Mahbubani, the dean of the public policy school at the National University of Singapore.
Steingart presents a bleak outlook for the West if there is not a change in behavior and a full realization of the size and scope of the rest of the world. The Western centric view of both America and to a less extent Europe has to change and acknowledge the ascent of the East as a major global partner otherwise there will be an further erosion of wealth as it shifts East. Think how little discussion has occurred about China in the presidential election cycle. Who is going to be the “partner” that is going to take on the debt of the United States?
For Mahbubani, the shifting of power is displayed in the gleaming skylines of the major cities in Asia. The gains from trade have been extraordinary in lifting up the East and it has been at the expense of the West which does not hold the same allure for many that existed in decades past.
In both cases, the world is not flat but in a war of trade capitalism which does not have a moral code but is only about winning. Trade does not lift all boats the same way. There will be winners and losers and governments affect the outcome of who will gain.
So what does the bail-out mean for globalization? The march of trade will continue but a big gainer may not be the US if resources have to be used to prop up consumers and financial institutions that have made bad choices. The world will not stop while America cleans its house.
Cost of financing will have to increase in the US. Crowding out is real. The confidence in the banking system will not be regained from any bail-out announcement. The changing of taxes for US businesses and consumers will hurt the competitive opportunities for the US. A bail-out will delay decisions that have to made on other important issues in the US economy. All of this will not be positive for the long-run direction of the dollar and for its role as a reserve currency.
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