CAMBRIDGE, Mass. — As the global economy stabilizes, there is a growing danger that the United States and China will slip back into their precrisis economic patterns, placing themselves and the rest of the world at risk. Despite Chinese official rhetoric about the need for a new global currency to replace the dollar, and U.S. lawmakers' flirtation with "Buy American" clauses (which scares everyone, not just the Chinese), no one will want to rock a boat that has almost capsized. So China continues to run a giant trade surplus, and the U.S. continues to spend and borrow.
Short-run stability certainly seems attractive right now. But if the U.S.-China trade and debt relationship merely picks up where it left off, what will prevent recurrence of the same unsustainable dynamic that we just witnessed? After all, huge U.S. foreign borrowing was clearly a key factor in creating the recent financial mess, while China's excessive reliance on export-driven growth has made it extraordinarily vulnerable to a sudden drop in global demand.
A giant fiscal stimulus in both countries has helped prevent further damage temporarily, but where is the needed change? Wouldn't it be better to accept more adjustment now in the form of slower postcrisis growth than to set ourselves up for an even bigger crash?