Why Globalization Isn’t a Win-Win Situation

A bilateral US-China trade relationship poses some dangers, according to global economist Stephen Roach. US policies encourage over-consumption and under-production in the global economy, resulting in a low saving rate and stagnating wages for middle-class workers. China’s policies focus on rapid over-production, a massive surplus of goods, a high savings rate, as well as wage inflation of about 12% per year. Internet outsourcing in US non-tradable service sectors to developing nations, like China, has further displaced middle-income laborers in wealthy countries. If such trends continue, Roach warns, globalization will no longer be the “win-win situation” for all parties and quickly lose support from those who do not benefit the increasingly unequal global distributions of wealth. The protectionism backlash will hurt all. The US-China relationship stands as an apt metaphor for the divide between consumer economies and the developing nations: Wealthy countries need to invest more in domestic generation of capital and research; developing countries must create consumer demand to reduce the destabilizing impact of current-account surpluses. The US and China’s current bilateral trade practices are unsustainable, and improved policies on both sides could prevent pain for all parties in the years ahead. – YaleGlobal