The Global Blame Game

Article excerpt

Byline: Rana Foroohar

There's plenty to go around.

There have been countless market jitters and rebounds since the fall of Lehman Brothers, but last week's were notable. After seven days of slow drops, the Dow Jones industrial average plunged 179 points in one day, briefly dipping below 11,000 on fears that Europe's debt crisis was spreading and that Chinese authorities were about to put the brakes on growth because of inflation fears. (China's booming economy has thus far buoyed the world.) Food prices have been rising sharply in China, always a worry in a land where revolutions are often tied to hunger.

The market's plunge could herald a far bigger shock to the global economic system. As the European debt crisis demonstrates, rich countries have been unable to heed their own advice regarding deficits, advice they've often forced upon poorer nations. In emerging markets like China, on the other hand, runaway growth and an influx of hot money threatens to spark a currency war with the rest of the world, a trade war, or both. Rich and poor nations alike are rushing to tamp down the value of their currencies in order to give their exports a competitive edge. The same policy is being pursued by both China, for example, and the United States.

At the recent G20 summit in Seoul, countries stridently sought to defend their own interests rather than make the smallest concession to others on issues like trade imbalances and exchange rates. Given the size of the group and the divergent set of interests, negotiation among the G20 was never going to be easy. But this time around, things were particularly contentious. Surplus countries wrangled with deficit countries, democracies argued with autocracies, big countries squared off against small ones, and the West battled the rest. As always in such diplomatic wrangles, the messiness of the negotiations was made clear by the nebulousness of the final press releases, which left enough wiggle room for all 20 nations to sign.

As always, the tension ultimately springs from the dysfunctional economic relationship between China and the United States. Despite talk in both countries about rebalancing their respective economies, China's wealth is still largely driven by unnaturally cheap labor and cheap capital. That wealth, funneled into American T-bills, allows the United States to continue spending like a 14-year-old let loose in a mall with Mom's credit card. …