A freely accessible Page One Wall Street Journal story touting the results of a poll indicating that Republicans are joining Democrats in turning away from "free trade" is bound to get attention. A weakening economy raises all isolationist boats. For opponents of the kind of bilateral trade deals the U.S. has been negotiating with the likes of South Korea and Panama, which tend to serve the purposes of corporate special interests such as the pharmaceutical lobby at the expense of labor or the environment, the news is good. No candidate for president, it seems, is going to make much of a splash in 2008 by touting the benefits of globalization.
For those who worry that rising anti-"free trade" sentiment signals that the U.S. is turning inward, and may lose its way in a self-defeating orgy of protectionist trade barriers, the news is less happy, especially if one's perspective is global, rather than limited to the borders of one particular nation. Expanded trade is a proven strategy for economic growth, and U.S. consumers have long been the locomotive pulling the economies of other, less developed nations forward.
But is that still true? Is the U.S. still the indispensable linchpin of the global economy? Or is the pin that connects the U.S. locomotive to the global economy beginning to slip out of place -- a process economists like to call "decoupling."
Fans of an economic indicator called the Baltic Dry Index are beginning to wonder. The Baltic Dry Index provides a measure of shipping costs for dry bulk items around the world. If the index goes up, it is considered a sign that global demand for commodities like iron and steel and coal and grain is strong, and thus, by correlation, the global economy is healthy. Even though shipyards across Asia are building huge new container ships as fast as they can, right now, there just aren't enough to go around, and freight rates are climbing steadily. The Baltic Dry Index has been smashing through previous record highs all year long, and rose an astounding 2,000 points in September alone.
All of this is happening while the U.S. economy -- the largest in the world -- has begun to slump. But standing by to shore up demand for, well, just about everything are the economies of China and India. And this isn't a case where the two countries are merely buying every commodity in sight only to repackage the raw materials for shoppers at Wal-Mart in the U.S. India's hunger for copper and steel and coal appears driven at least as much by its own domestic needs.
From the Associated Press:
Speaking at the Jefferies 4th Annual Shipping, Logistics, & Offshore Services Conference, [Eagle Bulk Shipping Inc.] Chairman and Chief Executive Sophocles Zoullas said while the market is touting the Chinese industrial boom as the key driver for demand of drybulk vessels, the rate at which India is growing is likely to have a greater effect on the market than currently anticipated.
Specifically, Indian demand for steel is expected to double by 2020, he said, as "mass urbanization" takes place there.
Although the country still only demands half the steel of its industrialized neighbors such as South Korea and Japan, Zoullas noted, India's cities are developing at a "tremendous" rate expected to drive growth in the drybulk market to even greater heights.
So maybe the trade politics of the U.S. just don't amount to a hill of beans in this crazy world, anymore. And maybe How the World Works' well-established obsession with whether a U.S. housing bust-fueled recession could derail global economic growth is passé. But there's a deep irony here, and a deeper challenge.
Whether justified or not, Americans seem eager to turn their backs on the world just as it is becoming increasingly important to figure out exactly where they fit into the global economy. If China and India are the new locomotives on the block, what does the U.S. have that the consumers of those countries might want?
Such a transition would not be unprecedented. Witness the history behind the Baltic Dry Index. The index is a product of London's Baltic Exchange, which traces its ancestry back to an 18th century coffee shop where British merchants first met to try to make sense of the chaotic shipping trade that criss-crossed the Baltic Sea. In the 19th century, when the British Empire dominated the world, the Baltic Exchange was a primary nexus for the global economy, where deals to move commodities of all kinds around the globe were hashed out. Today, there is no longer even a trading floor at the building that houses the Baltic Exchange, and its main current focus is "providing freight market information, dispute resolution and a light regulatory framework for the shipping market."