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Americans Are Turning Against Trade. How Can We Fix That?

Every so often a confluence of individual events points toward an emerging reality. Today, that's true regarding global trade. Consider the following:

·On Monday the Wall Street Journal published a stunning but not surprising piece headlined “Americans Sour on Trade.” As recently as a decade ago, more Americans thought that free-trade agreements helped than hurt the United States. Last month, more than half said that these agreements were harmful, versus fewer than 20 percent who still think they are beneficial. The article noted that support for a policy of getting tough with China on the currency issue now crosses occupational, economic, and political lines: last week’s House vote to that effect gained the support of more than half the Republican caucus as well as nearly all Democrats.
·On Tuesday the Financial Times featured an op-ed by the redoubtable and respected economic commentator Martin Wolf. It began this way: “Has the time for a currency war with China arrived? The answer looks increasingly to be yes. The politics and economics of an assault on Chinese exchange rate policy are increasingly convincing. The idea is, of course, deeply disturbing. But I no longer believe there is an alternative.
·On Wednesday Stan Greenberg and James Carville published a Democracy Corps survey showing that attacking Republicans for supporting free-trade agreements and tax provisions that (allegedly) promote the outsourcing of American jobs is one of the two strongest arguments Democrats can make.
·Also on Wednesday, Treasury Secretary Tim Geithner delivered a talk at Brookings in advance of this weekend’s IMF and World Bank annual meetings. His message was blunt: The necessary rebalancing of the world economy was “at risk of being undermined” by countries trying to prevent their currencies from rising in value. One consequence of this behavior, he said, was to depress consumption growth while “intensifying short-term distortions in favor of exports.”

The meaning of all this is pretty clear: The status quo is neither economically nor politically sustainable. If the United States cannot bring about a negotiated collective solution to imbalances in the world economy, we will be forced to act unilaterally, with incalculable consequences.

Nearly two centuries ago, Alexis de Tocqueville famously observed that “[t]here are, at the present time, two great nations in the world [Russia and America] which seem to tend toward the same end . . . . Their starting points are different and their courses are not the same; yet each of them seems to be marked out by the will of heaven to sway the destinies of half the globe.” Tocqueville would not have been surprised that the conflict between Russia and America defined much of the twentieth century. It requires much less prescience to discern that the relationship between the United States and China will dominate the twenty-first. Much depends on the ability of both nations to keep their inevitable competition within the bounds of peace and mutual benefit. Developing a more sustainable relationship between our two economies is the essential first step.

Amid all the uncertainties of this process, which may require threats as well as more irenic forms of persuasion, one thing is clear: The faster we set our fiscal policy on a better path, the stronger our hand will be. Right now, the Chinese can argue that our savings deficit is at least as responsible for the trade imbalance as is their consumption deficit. Depriving them of that defense will ratchet up the pressure on them to change course.