The US has more to lose from deglobalization than some of its politicians, on both the right and the left, seem to realize. For starters, the global trading system is part of a compact whereby the US gets to be the hegemon in a world where most countries, including China, have a stake in making the international order work.

Aside from its political ramifications, deglobalization also poses economic risks to America. In particular, many of the benign factors that today allow the US government and American corporations to borrow vastly more than any other country are likely tied to the dollar’s role at the center of the system. And a wide array of economic models show that as tariffs and trade frictions increase, financial globalization decreases at least proportionately. This not only implies a sharp fall in both multinationals’ profits and stock-market wealth (which is probably fine with some), but also could mean a significant drop in foreign demand for US debt.

That would hardly be ideal at a time when the US needs to borrow massively in order to preserve social, economic, and political stability. Just as globalization has been a major driver of today’s low inflation and interest rates, shifting the process into reverse could eventually push prices and rates in the other direction, especially given what appears to be a lasting adverse supply shock from COVID-19.

Needless to say, there are other battles ahead requiring international cooperation, not least climate change. It will be even harder to motivate developing economies to rein in their carbon dioxide emissions if a global trade collapse undercuts the single strongest common incentive that countries have to maintain global peace and prosperity.

Last but not least, although COVID-19 has so far hit Europe and the US harder than it has most lower-income countries, there is still a huge risk of a humanitarian tragedy in Africa and other poorer regions. Is now really the right time to undercut these countries’ ability to fend for themselves?

Even if the US turns a blind eye to deglobalization’s effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared.

Kenneth Rogoff, professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of "This Time is Different: Eight Centuries of Financial Folly," his new book, "The Curse of Cash," was released in August 2016.

​©Project Syndicate

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