Page 2 of 2 -- Thus, globalization has evolved into a kind of pyramid scheme. To maintain global growth, the United States must consume and borrow ever more while foreign banks buy ever more US Treasuries so their producers can export ever more.
America has long been ambivalent about this situation. Consumers love the low import prices, US CEOs love the foreign tax holidays, and the US government loves the foreign lending that helps keep US interest rates low. But the chronically overvalued dollar and the foreign investment incentives also cause a steady transfer of production and technology abroad while putting downward pressure on wages and building large foreign claims on future US income. This results in political pressures and US charges of unfairness against trading partners with big surpluses. In the past, cosmetic ''fixes" like ''voluntary" export restraint agreements were used to relieve pressure while the fundamental forces kept operating until the next ''fix."
Now the sustainability of the system has been put in question by the entrance of 3 billion new players from China, India, and the former Soviet bloc at a moment when the Internet and global air express have negated time and distance along with the long standard economic assumptions that labor, capital, and technology don't move between countries.
These new players are unusual. While having the low wages of developing countries, several hundred million of them have first world skills. That they are effectively next door and also planning to grow by exporting to US markets dramatically increases the pressure on an already stressed system. Even for America there are ultimate limits on consumption and borrowing. US borrowing already absorbs 80 percent of the world's available savings. At 100 percent the global economy will be in deep crisis.
The only way to avoid that is to insist that the globalization game be played the same way by all its players. Sure, China needs to revalue, but without other big changes, globalization as we know it will be on life support.
Clyde Prestowitz is the author of the recently published ''Three Billion New Capitalists: The Great Shift of Wealth and Power to the East."