The 2009 global economic downturn poses an unprecedented challenge and a unique opportunity for China, the United States and the G-20. Just as the lessons of the Great Depression shaped post-World War II trade policy, contributing to a half century of unparalleled growth in world trade and economic activity, the experience of the Great Recession will shape globalization for years to come.
The financial meltdown that spawned the Great Recession was rooted in the record global current account imbalances that emerged over the last decade. These imbalances were, in part, a product of trade policies that had served the world well for years. Economists argued that unilateral import liberalization benefited consumers and thus should be pursued even if it was non-reciprocal and a nation's exports did not increase. But this economic reasoning eventually sowed the seeds that led to the recent crisis because it ignored the unintended economic consequences when non-reciprocity in trade created unsustainable current account imbalances.
Re-establishing more sustainable trade balances will require a new global economic growth paradigm, one in which debt-dependent countries, such as the United States, produce more of what they consume and export-dependent countries, such as China, Germany and Japan, consume more of what they produce.
The post-war trade regime was largely designed by the United States and a few of its European allies, reflecting their experience, insights and interests.
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