The US is experiencing sluggish growth, high and persistent unemployment, and a trade deficit that has widened again this year. The country’s mood is bleak. As you may have noticed, elections are approaching. Amid all the talk of a “currency war” between the US and China, the greatest surprise may be that talk, so far, is all we have had.
The surge in protectionism that looked likely in 2008 has not happened. Not yet. Politicians in the US and elsewhere deserve credit for restraint – and so do their electorates, because if US voters were demanding militant trade policies, Washington would already have delivered. The truth that proliferating trade disputes ends up hurting everybody appears to have sunk in. Still, one wonders how long this forbearance can last.
Forces pushing the US and China towards a cycle of sanction and retaliation are building. An initially strong US recovery has faded. Consumers are paying down debt, with a long way to go, and this is holding back domestic demand. More important, employment is lagging unusually far behind the growth in output, such as it is. (Instead of seeing job creation at the normal rate, the economy is getting higher productivity.)