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The writer Deputy Professor of Carnegie Endure for International Peace
This month, the Trump administration’s “liberation” tariff is a legitimate concern that the chaos of global financial markets can ultimately undermine the global reliability of the US dollar. But this should not be interested in more serious discussions about how the dollar’s global role affects the US economy.
In order to maintain the dollar as a dominant “safe” currency, the US economy’s economist Dani Rodrik must accept what is characterized by a unique contradiction between global integration and state sovereignty. He pointed out that countries that choose more global integration should give up control of the domestic economy, while the countries that choose to maintain domestic control should limit the degree of opening the economy in trade and capital flow.
In excessive world, this creates trade tension. This is one thing if all countries have chosen to give up the same level of control over the domestic economy in favor of more globalization. It is very different if some major economies have chosen to maintain control of the domestic economy.
This is because internal and external economic imbalances must be aligned in all countries. When some countries restrict capital and trade flows to maintain advantageous domestic conditions by controlling external imbalances, they can impose internal imbalances of trade partners who actually maintain control of trade and capital accounts. British economist Joan Robinson I called this The “Beggar-My-YEIGHBOUR” trade policy said that the global trade conflict will ultimately increase.
For example, when the state suppresses domestic demand to pay subsidies to its own manufacturing, trade surplus in an open global trading environment can generally be reversed by the market forces. However, by restricting trading and capital accounts and intervening in a currency, the country can prevent such adjustments. In this case, manufacturing trade surplus should be absorbed by people of partners with much less control on trade and capital accounts. Moreover, as the share of global manufacturing increases compared to global manufacturing, the more open trade partners’ market share should decrease.
That’s why it’s not a coincidence that the United States has GDP’s manufacturing stocks through deep, flexible and well -dominated financial markets. Much lower than the global averageUnlike the economy like China with a continuous surplus surplus with manufacturing market share much higher than the world average. Industrial policy, which aims to restructure domestic economic restructuring, is actually reconstructing the economy of more open trade partners.
It is clear that Washington’s recent trade and capital policy is irregular. Wednesday, President Donald Trump announced a pause for 90 days in most countries except China. This policy will not be effective in solving the cause of US economic imbalances, and it is open to increase other non -marked industrial subsidies.
But recognizing the defects of these policies does not mean that they ignore the structural problems they want to solve. In fact, there is a fact that the global economic imbalance is practical. The challenge is not whether the United States should act to correct this imbalance, but in an effective and sustainable way. The best solution is a more adjusted approach to global economic governance, and perhaps in forming a new customs coalition along the line proposed by Keynes in 1944, the state must recognize the external results of the policy and take measures to maintain domestic demand and domestic supply.
But if the world cannot reach such an agreement, the United States is justified in acting unilaterally to reverse the role of accepting policy distortions abroad as it is now. The most effective way is to impose control of US capital accounts. It is to acquire US assets to limit the ability to balance surplus countries. This seems to be opposed to Trump’s current US policy, which initially wants to increase foreign direct investment, but correctly, capital control will hardly affect direct investment. A less effective way is to pass the control of the US trade account. Quantum tariffs are particularly clumsy that deals with the root cause of trade imbalances.
The dominance of the dollar in global trade and financial sectors has long been a net profit for the US economy, but this assumption is becoming more and more difficult. It helps global owners of Wall Street and mobile capital, but these benefits are expensive to US manufacturers and farmers.
In some countries actively manages external imbalances, and in other countries, the role of the US dollar as a major safety currency has made the United States a majority of global economic distortion. To solve this imbalance, a fundamental reevaluation of the rules that dominate world trade and capital flow is required.
