Thread by @michaelxpettis

1/7
Good Martin Wolf piece on the global return of mercantilism. What is new about this piece is that it seems part of a growing recognition among global opinion makers that mercantilism and trade war didn't start when deficit economies with...
ft.com/content/cd68b3…

2/7
open external accounts began to implement trade restrictions and otherwise control their external accounts. It started earlier, when economies that controlled their external accounts implemented trade and industrial policies that led to beggar-thy-neighbor trade surpluses.

3/7
We are returning, in other words, to Joan Robinson and her 1937 explanation of how trade conflict emerges. What I would add is that in a hyperglobalized trading system (i.e one in which transportation costs, communications costs, and the costs of...
ia802806.us.archive.org/16/items/essay…

4/7
transmitting capital have all fallen close to zero), you can have a stable system only when all major economies choose high levels of global integration or when all major economies choose high levels of economic sovereignty (to use Dani Rodrik's framing).

5/7
When some major economies choose the former, however, and others the latter, the system cannot be stable. That's because those that choose high levels of economic sovereignty are able to control both their internal accounts and their external accounts.

6/7
This means that they also control the external accounts of their trade partners, and, because every country's external account must be consistent with its internal account, the internal accounts of the latter must adjust to the policies of the former.
foreignaffairs.com/united-states/…

7/7
In a world in which some economies choose economic sovereignty and others choose global integration, in other words, the former can implement industrial policies that also become the industrial policies of the latter. This is never sustainable.
carnegieendowment.org/china-financia…