US would be better without world dollar

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This month, the concern was justified that chaos has been dissolved in the financial markets worldwide tariffs of the Trump administration “Liberation Day” may eventually undermine the global US dollar authority. But this should not distract from a more serious discussion on how the dollar global role affects the American economy.

Maintaining the role of the dollar as a dominant “safe” currency requires the US economy to place what economist Dani Radrick characterizes as Inherent contradiction between global integration and national sovereignty. He notes that countries that choose more global integration should refuse control over their domestic economy, whereas the countries that have decided to maintain domestic control should limit the degree where their economy is open to trade and capital flows.

In the hypergro -like world, it creates tension. It is one thing if all countries want to give up the same degree of control over their domestic economy in favor of more globalization. This is very different when some large economies have decided to maintain control over their domestic economy.

This is because in each country the domestic and external economic imbalance should always align. If some countries restrict capital and trade flows to maintain favorable internal conditions by controlling their external imbalances, they can essentially impose their internal imbalances by the fact that their trading partners who retain less control over their trade and capital accounts. British economist Joan Robinson call these The Beach-Mil trade policy said it would eventually lead to the growth of world trade conflicts.

For example, if the country suppresses domestic demand to subsidize its own production, in an open global trading setting, trading surpluses can usually be canceled by market forces. But by limiting its trade and capital accounts and interfere with its currency, this country can prevent such an adjustment. In this case, its production surplus should be absorbed by the fact that its partners, which provide much less control over trade and capital accounts. Over trade Partners should decrease.

That is why not only accidentally that the US with its deep, flexible and well -guided financial markets produce GDP stocks significantly lower than the average in the worldUnlike economies such as China with constant surpluses, which have production shares much higher than average. Industrial policy, aimed at restructuring more controlled domestic economies, also essentially restructured the economy of its more open trading partners.

It is clear that Washington’s recent trade and capital policy was incorrect on Wednesday, President Donald Trump announced a 90-day pause in “return” tariffs in most countries except China. Such a policy is unlikely to be effective in resolving the reasons for the US economic imbalances and leave the door open to increase other, unverified forms of industrial subsidies.

But recognition of the shortcomings in this policy should not mean the deviation of the structural problems they seek to solve. The fact remains that the global economic imbalance is real. The task is that the US acts to fix these imbalances, but rather as it should do it in a way that is effective and sustainable. The best solution is to have a more coordinated approach to global economic management, perhaps in the formation of a new Customs Union within the framework proposed in 1944. To join, countries must recognize the external consequences of their policy and have to take action to maintain domestic demand and domestic supply.

However, when the world is unable to come to such an agreement, the US is justified in unilateral order to change its role in placing political distortions abroad, as it is now. The most effective way is likely to be the introduction of the US capital account, which limits the ability of extra countries to balance its surplus by acquiring US assets. Although this seems to be going against the current US policy in Trump, which wants to increase foreign direct investment, if the right capital is actually done, it actually affects direct investments. A less effective way is to control the US trading account, with bilateral tariffs a particularly clumsy way of resolving the root cause of trade imbalances.

The dominance of the dollar in the world trade and finance has long been considered a pure benefit to the American economy, but this assumption is increasingly challenged. While this benefits Wall -Strait and Global Running Capital Owners, these benefits bring a great price for American manufacturers and farmers.

In a world where some countries are actively running their external imbalance, and others do not, the role of the US dollar, as the main safe currency, has made America the main owner of the global economic distortions. The solution of these imbalances requires the basic reassessment of the rules governing global trade and capital flow.