President Bush says the U.S. economy is the envy of the world, and Federal Reserve Chairman Alan Greenspan insists economic growth is solid despite a bit of froth, but the truth is that the global economic scene is now more troubled that at any time since the trade wars with Japan 20 years ago.
The U.S. trade deficit was considered unsustainable at around $25 billion annually by the Reagan administration. It is now nearing $700 billion, an unprecedented 6 percent of our gross domestic product.
As a result, the U.S. economy is on life support. Our lifeline to finance this deficit is huge infusions of foreign lending, much of it from the central banks of China and Japan. Congress is calling for China's scalp, and Treasury Secretary John Snow is demanding that Beijing revalue its currency. The new U. S. Trade representative is promising to get tough with China just as I and other U.S. trade officials promised to do with Japan in the past.
Former Federal Reserve Chairman Paul Volcker is forecasting a 75 percent probability of a major international financial crisis within five years.
How, if the United States is the envy of the world, can we be having all these problems? Easy.
Although the world, as characterized by columnist and author Tom Friedman, is getting flatter as a result of removal of trade and other barriers, it is also being tilted at an increasingly steep angle.
Think of it as a sliding board, very flat and smooth but inclined to speed the move of production, services, technology, wealth and power from West to East and often from open, democratic systems to more opaque, authoritarian regimes.
In short, despite the miracles it has accomplished in the past and may bring in the future, globalization is distorting the world economy in ways that pose increasing risks to the United States and the rest of the international community. This is an issue that didn't make it onto the agenda of the world leaders at the G-8 meeting in Scotland last week, but should make it onto future agendas.
Part of what's wrong is illustrated in recent statements by the chief executive officers of Intel and IBM. In testimony to a presidential advisory panel, Intel's Paul Otellini said his company might build some future factories overseas. After selling his company's personal computer division to China's Lenovo, IBM's Sam Palmisano told the New York Times that he had gotten a blessing on the deal from China's top leaders and added that "IBM wants to be part of China's strategy."
Remember now, we're talking about Intel and IBM, two of the three or four top technology companies in the world, both based in the United States.
According to our elite economists, America's future lies with high tech - - with companies like Intel and IBM. Yet here are two of U.S. high-tech industry's top CEOs saying the future may lie abroad, especially in China.
Add the fact that U.S. trade in high-tech products has swung from a surplus to a deficit, and it is not at all clear that this country's future will be in high tech.
At the heart of the problem is the false assumption that all the countries in the globalization contest are playing the same game. They're not: Some countries have strategies, but others don't have a clue. The United States is in the latter category.
Full Article .