globalization

My latest column for The National Interest Online is now available.  It takes a longer look at the implications of Obama's tire tariff decision.  The more I look at this move, the more freaked out I get.  I think I've figured out the precise contours of Obama's trade strategy -- and trade plays a very small role: 

With Obama... this dip in the protectionism pool feels like the beginning of something much greater. Many Democrats feel warm and fluffy about protectionism, as a mechanism to improve labor standards or an ironclad guarantor of union jobs. This love affair isn’t going to stop. Thea Lee, the chief economist of the AFL-CIO, told the New York Times that “the trade decision was the president’s first down payment on his promise to more effectively enforce trade laws, and it’s very much appreciated.” Unions are already demanding additional action against Chinese steel....

All presidential administrations engage in protectionism—it’s often the cost of pushing through other forms of trade liberalization. While the previous two administrations engaged in these kinds of actions, they could proudly point to ambitious agendas of trade liberalization as well. The Clinton administration sought to add contentious labor and environmental side agreements to its trade deals—but Clinton also spent political capital to get NAFTA and the Uruguay round through Congress. Bush imposed the steel tariffs—but his administration also secured the passage of (now expired) trade promotion authority, launched the Doha round, and completed major trade agreements with Australia and Central America. President Bush also rejected this action against Chinese tires on four separate occasions.

Barack Obama has no record of trade liberalization to fall back on when defending this measure. Indeed, this is the first major trade action his administration has taken. Based on the political reporting of this trade action, it seems clear that Obama will use trade policy as a sop to his base in order to keep them behind his major policy initiatives on health care, financial regulation, and environmental protection.

Obama has largely decided to become a domestic-policy president. His supporters, his base and the politicking of his underlings indicate things will only get worse. With the global economy in deep crisis, protectionism is a terrible way to build a recovery.

Go read the whole thing. 

One of the Economist's leaders this week focuses on the global economy and the nature of the incipient recovery.  They use an alphabet metaphor to explain the possibilities: 

The first step in any recovery is for output to stop shrinking. But the more interesting question is what shape the recovery will take. The debate centres around three scenarios: “V”, “U” and “W”. A V-shaped recovery would be vigorous, as pent-up demand is unleashed. A U-shaped one would be feebler and flatter. And in a W-shape, growth would return for a few quarters, only to peter out once more.

Well, first of all, their description of the "U" trajectory sounds an awful lot like an "L" to me. 

Second of all, if that's the case, well, it seems they were paying awfully close attention to an obscure report entitled "Alphabet Soup." 

Third of all, if anything, I'm more convinced of the likelihood of the "W" path coming to fruition.  The nature of the Chinese recovery and the absence of any other global economic locomotive is playing a large role in my calculations here.

Nouriel Roubini provides a rundown of the national economies that have weathered the Great Recession pretty well: 

All economies have been affected by the crisis, but a combination of policy responses and strong fundamentals has given some countries, especially some emerging market economies, a relative edge. These same strengths could lead the countries I highlight below to perform better as the global recovery begins, even if their growth rates remain well below 2003-07 trends.

What do these countries have in common? One major theme is that they tended to have lower financial vulnerabilities due to more restrictive regulation and less developed financial markets, as well as larger and stronger domestic markets that sustained domestic demand. Moreover, they had the resources to engage in countercyclical fiscal and monetary policies, actions that were not possible in past crises.

With one exception, there's one other common denominator to the countries on Roubini's list -- none of them are big enough to act as a "locomotive" to power the rest of the global economy out of recession. 

The obvious exception is China, but I have serious doubts about the sustainability of their fiscal and monetary expansion.  As Roubini acknowledges, there's a lot of "asset bubbles, overcapacity and nonperforming loans" going on across the Pacific. 

So I'm a bit worried that the lessons drawn from these countries contain a mixture of good (prudent macroeconomic policies) and bad (greater levels of autarky) if implemented by a larger swath of economies.  And I'm not sure the good outweighs the bad on a global level.

 Am I missing anything? 

I don't have any deep thoughts about the GM bankruptcy that were not already expressed in the first few paragraphs of Michael McKee's Bloomberg story: 

General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth quarter, as national auto production fell 82 percent.

Then, GM accounted for about half the cars and light trucks sold in the country. Now, GM controls just 20 percent of the market, and analysts say its bankruptcy filing will barely register in the broader economy.

GM’s drawn-out restructuring, an increase in U.S. manufacturing by foreign carmakers and the recession-induced decline in auto sales all have meant more to the economy than today’s legal filing.

“Bankruptcy now is irrelevant in terms of the economic consequence of what’s happening to GM,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “Either way, it’s going to be a shadow of what it was, in terms of jobs and income.”

GM has been reducing payrolls for three decades. Its U.S. employment peaked in 1979 at 618,365, when it was the nation’s largest private employer and auto manufacturing accounted for 4.1 percent of GDP. At the end of this year’s first quarter, autos were 1.5 percent of the economy, and GM had 88,000 U.S. workers.

One of the most difficult and painful aspects in any mature economy is the phasing out of uncompetitive sectors.  Delay and denial, however, accomplish nothing but deferring the pain until later (one oddity of the auto sector is that even most people who blame Ameria's industrial decline on globalization/Japan/China/slave labor in Bangladesh tend to shed very few tears for Detroit.  I suspect this is because it's very, very hard to defend the long-term performance of either management or labor in this sector).   

It's not like I'm thrilled that GM is going under or anything, but as transitions go, this one has been pretty drawn out.  When GM lost a record amount in the early nineties, there was a fair amount of speculation about when the firm was finally going to go under. 

Now we know. 

This story, on the other hand, scares the ever-living crap out of me for reasons that I still need to process. 

As a resident of the Boston area for the past few years, I'm been very grateful for the Golden Age of Sport that has descended upon Beantown for the past decade.  The three Super Bowls, two World Series, an NBA World Championship, and countless other exciting playoff runs (next year, Bruins!) have been nothing short of exhilirating. 

They do not, however, make Boston the greatest sports city in North America -- according to one metric, we're only #2.  Lee Sigelman alerts me to this Toronto Star effort to determine the best sports city in North America north of the Rio Grande.  Their answer might surprise you:   

For its relatively diminutive size and low Midwestern profile, Indianapolis is a sporting powerhouse. The city's National Football League Colts and National Basketball Association Pacers have logged wins 66 per cent of the time since 2000.

Perhaps best known for the Indianapolis 500, the city is home to the NCAA and many of its major tournaments, has hosted more than 400 national and international championships since 1980 and will welcome the Super Bowl in 2012.

They built this city on sports, says Bill Benner, a former sports columnist at The Indianapolis Star. "Indianapolis, beginning about 30 years ago, used sports ... as an economic development strategy. Using sports as the cornerstone played out beyond anyone's imagination."

With sporting success has come civic pride, says Stephanie Parks, one-quarter of a diehard Indianapolis family of sports fanatics.

"Being a sports capital is closely tied with the city's sense of self," says the mother of two athletic children seeking to follow in the footsteps of their pro heroes. "We own two businesses and during football season we have `blue Friday,' wherein everyone is to dress up in blue or wear their Colts shirts."

The Star calculated this by calculating, "percentages among professional sports teams in 37 North American cities since 2000" plus "bonus points for making the playoffs or winning a championship."  I'll let my readers quibble about the validity of this measure. 

No, what piques my interest is whether there's a way to go global with this kind of question.  If one factored in other team sports -- soccer non-American football, rugby, cricket -- which metropolis could claim the crown of the Greatest Sporting City in the World?

The New York Times runs two op-eds today on the future of the dollar's status as the world's reserve currency, particularly with regard to China. 

Victor Zhikai Gao's essay doesn't actually say a whole lot on the matter, except for this excerpt: 

Beijing recently called for a greater role in international trade for the special drawing rights currency of the International Monetary Fund. But China is also fully aware that the United States can veto an I.M.F. decision. China’s call was more meant to sound an alarm to the United States.

Many Chinese people increasingly fear the rapid erosion of the American dollar. The United States may want to consider offering inflation-protection measures for China’s existing investments in America, and offer additional security or collateral for its continued investments. America should also provide its largest creditor with greater transparency and information.

As Brad Setser points out, it's a bit rich for the Chinese to fret about U.S. inflation, since if the renminbi started appreciating, many of the macro imbalances currently plaguing the international monetary system might be lessened.  Of course, talking about "currency appreciation" puts the onus on Beijing, while talking about inflation conveniently puts the onus on the United States.  

The other op-ed is by Nouriel Roubini -- a.k.a., Dr. Doom.  It's a good primer on the benefits that accrue to the United States from having the dollar as the world's reserve currency.  That said, this part confused me: 

We have reaped significant financial benefits from having the dollar as the reserve currency. In particular, the strong market for the dollar allows Americans to borrow at better rates. We have thus been able to finance larger deficits for longer and at lower interest rates, as foreign demand has kept Treasury yields low. We have been able to issue debt in our own currency rather than a foreign one, thus shifting the losses of a fall in the value of the dollar to our creditors. Having commodities priced in dollars has also meant that a fall in the dollar’s value doesn’t lead to a rise in the price of imports (emphasis added).

The other parts of that paragraph make sense, but that last sentence mystifies me.  Wasn't part of the reason that oil and other commodity prices spiked last year was the declining value of the dollar? 

In general, both op-eds urge the U.S. to get its financial house in order.  I certainly don't disagree with that recommendation.  Still, it's a bit disingenuous to suggest that the U.S. is the only country at fault for the current overhang of dollar reserves.  Beijing needs to take a good hard look in the mirror on this issue. 

In FP's sister publication Slate, Fred Kaplan critiques Steve Walt's list of top ten international relations films, as well as my own ("neither of them gives our own film critic, Dana Stevens—or, for that matter, Gene Shalit—the slightest cause for worry.")  In an act of sheer bravado, Kaplan then goes on to list 25 other films that he thinks are better than any of either Walt's film or mine. 

To which I say -- oh, it is so on now, Kaplan!!  You want to throw down on films?  Let's throw down!! 

[Wouldn't this have been a more succinct reply?--ed.  Yeah, I was going for more Jack Nicholson-crazy voice, but that works, sure.]

First of all, what act of hubris could make Kaplan claim that any film on his top-25 list is better than Dr. Strangelove?  It's like making a top ten best film list and consciously omitting Citizen Kane.  There's no point to it except sheer bloody-mindedness.  Dr. Strangelove captures all of the absurdities of the Cold War in one neat package ("Gentlemen, you can't fight in here, this is the war room!").  I didn't elaborate on that point in my original post for the same reason the world doesn't need another essay extolling Orson Welles' masterpiece -- it's an exercise in redundance. 

Second, Kaplan reacts to my fave flick, The Lion in Winter, as follows: "Um, OK: a strange choice, especially for the top of the list, but there's a daring quality about it."  This leads me to wonder if Kaplan has actually seen the film (and, full disclosure, I haven't seen some of the films on Kaplan's list, such as The Lives of Others.  From what I've heard, many of these films would likely have been on my list had I seen them.  To paraphrase Donald Rumsfeld, however, you make top ten lists with the films you've seen, not the films you wish you've seen).  This is a movie about a powerful but aging leader desperate to ensure that the gains his country has achieved under his rule persist after he is gone.  To do this, he has to outwit a foreign leader and plenty of domestic (in both senses of the word) adversaries.  This movie is filled with strategizing, backroom dealing, bluffing, backstabbing, balacing, bandwagoning, and an waful lot of shouting.  In other words, a typical day in world politics. 

Third, and more interesting, is defining what makes a movie a movie about international relations.  Kaplan nitpicks at Wag the Dog because "it's more about domestic politics than international affairs."  He similarly picks on Seven Days in May because it "isn't really about international politics."  Part of studying global affairs, however, is investigating the interplay between domestic politics and and international relations.  Wag the Dog is about how domestic difficulties can translate into foreign policy escapades (or staged foreign policy escapades).  Seven Days in May is clearly about civil-military relations, but on an abstract level it's about the difficulties of implementing international agreements over the resistance of powerful domestic interests. 

Now, all this said, I can't deny the quality of some of Kaplan's selections.  The moment I posted my list, I started kicking myself because I forgot about The Godfather.  It really is the perfect metaphor about international relations -- alternating levels of tension and calm punctuated by occasional bouts of violence. 

As for Kaplan's other films, Goodbye, Lenin! is also an inspired choice.  Thirteen Days is less inspired -- I could never get past Kevin Costner's atrocious accent.  On the other hand, I do have a soft spot for 1974's The Missiles of October. 

Finally, a few other films that got omitted from all of our lists but merit further conversation: 

1.  A Fish Called Wanda (1988):  One could argue that the Anglo-American alliance was the most significant relationship for much of the twentieth century.  This film, on the cultural differences that exist within the special relationship, is worth multiple viewings.  In a perfect world, watch this with a mix of Americans and Brits -- they laugh at different parts. 

2.  Traffic (2000):  The debilitating effects of drugs -- and the drug war -- on both sides of the Rio Grande makes for interesting viewing.  Plus, there's a terrific Salma Hayek cameo. 

3.  Henry V (1944) and Henry V (1989):  Alex Massie makes a good point here:  "the Olivier and Branagh versions remind one that an individual text may be subject to more than one interpretation. Plus, of course, there's an awful lot of Just War theorising to be done on the back of Henry V."

The final G-20 communique -- get it while it's hot! -- contains the following strong statement:  "We will not repeat the historic mistakes of protectionism of previous eras." 

This is likely true, though one should never underestimate the ability of governments to devise new and unforseen ways to commit new mistakes about protectionism in the current era.* 

How could that happen?  Check out my latest column in The National Interest online to see how a world of considerably less trade is possible, even within the confines of the World Trade Organization. 

The essay is a thought experiment -- I'd put my money on it not happening.  But I can't completely dismiss this scenario out of hand. 

* Indeed, The FT's Alan Beattie and Jean Eaglesham have the best single sentence on this point of the G-20 statement:  "The commitments on protectionism in the G20 communiqué, although longer than their equivalents after November’s Group of 20 meeting, are, if anything, shorter on concrete promises."