In his latest Washington Post column Robert Samuelson warns about the potential consequences of the trade war between China and the United States:
The name that comes to mind is Charles Kindleberger, an eminent economic historian of the post-World War II era who taught for years at the Massachusetts Institute of Technology and was a prolific author of books and articles. One of his masterpieces was “The World in Depression, 1929-1939.”
The crux of Kindleberger’s thesis was that the underlying cause of the Depression was a vacuum of leadership. By this, he meant that Britain — which had provided that leadership in the 19th century — had been so weakened by World War I that it could no longer perform that function in the 1920s and early 1930s. Meanwhile, the United States — which would fill that role after World War II — was not ready to do so.
In this context, the dominant country would keep its markets open to imports, so the trading system would not collapse under the weight of mounting protectionism. Another requirement was that the leading country (the “hegemon”) had to have the financial strength so it could lend to banks and other needy borrowers during a crisis so that the financial system, the repository of much wealth, would not self-destruct.
In the recent foreword of the latest version of Kindleberger’s book, economists J. Bradford DeLong and Barry Eichengreen of the University of California at Berkeley put it this way:
“The root of Europe’s and the world’s problems was the absence of a benevolent hegemon: a dominant economic power able and willing to take the interests of smaller powers and the operation of the larger international system into account by stabilizing the flow of spending through the global [economy] . . . by acting as a lender and consumer of last resort.”
I’m unhappy with the present situation, too. It didn’t have to be this way. The United States didn’t have to lose millions of manufacturing jobs in the space of just a few years in the early Aughts. The same number might have been lost over a period of decades rather than a period of years. We didn’t need to see the wealthiest prospering so mightily while the rest of the people struggled along. We didn’t need to have personal consumption expenditures approaching three-quarters of the economy.
We are a country not a benevolent organization. Rather than governing by slogan or sound bite (or tweet) policies must be carefully constructed, monitored, and managed so that they benefit the great bulk of the people rather than just the Walton family or a handful of other billionaires. It’s the results that matter, we have seen the results, and they have not been particularly good.
I’m in favor of free trade but, make no mistake, a free trade agreement can be written on the back of a napkin. When an agreement runs to thousands of pages it is not a free trade agreement. It is managing trade to pick winners and losers and such a process is inevitably political.
Had the situation been managed patiently and prudently from the beginning the necessary correction would have been less painful. But a correction is, indeed, necessary. We can’t survive economically as a country with just retail and health care. We can’t continue to have U. S. companies finance the world’s R&D while the Chinese reap the benefits through theft or illegal forced technology-sharing agreements.