The politics of services globalization

The US periodically goes through flare-ups of protectionism. While wiser heads typically prevail in controlling the flames, we are now going into a new cycle that has the potential to become a major inferno. The reason: the US is about to enter something of a perfect protectionist storm, embarking on a recession at the same time that foreign trade and balance of payment deficits (especially with China) are high, in the midst of what is likely to be a close election campaign between a Republican “free trader” and a Democratic “fair trader.”

With heated debates and a Democrat-controlled Congress almost inevitable, protectionist fervor is almost certain to ignite. We hope the focus will continue to be on traditional hot spots such as manufacturing, agricultural goods, or possibly foreign acquisition of US assets. With luck, it will bypass the really critical issue of services globalization until after the election, when we have a slightly better chance of entering into a rational discussion of the real issues rather than a bout of competing, populist sound bites.