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The World Turned Upside Down: The Impact of the Return of India and China to their Historical Global Weight

04/04/2006 4:00 PM 10-105
Clyde V. Prestowitz, Jr., President, Economic Strategy Institute

Description: The world isn't so much flat as gravely tilting, "and may be on the way to some kind of self-destruction," believes Clyde Prestowitz, Jr. We're due for a major rebalancing of global economic might, which the U.S. may well experience as catastrophic change. There are historic cycles, he tells us. As recently as 1850, China was the world's largest economy, but by 1950, the U.S. and Europe had come to dominate the scene. Once again "the hinge of history is taking a big turn." China and India are fast overtaking Western nations in economic growth, driven by the digital revolution: "Half the world has come onto the capitalist road 'at the moment when the road becomes a freeway," says Prestowitz.

The implications are staggering. While millions may rise from poverty, the possibility that these new economies develop along the lines of the American consumer model means increased competition for global natural resources, such as water and oil, and a drastic rise in global warming.

In the meantime, says Prestowitz, Americans "are having a party." This nation is the world's only net consumer, while everyone else is a net seller. We assume the dollar holds universal sway, since all international commodities, from coffee to airplanes to semiconductors, are priced in dollars. So we run huge trade deficits, and live above our means, while we "outsource the management of the value of the dollar to Asia." This is unsustainable, Prestowitz warns. The central banks of China and Japan, which each hold a trillion dollars, "have become increasingly nervous" about the value of the money the U.S. prints, and may start to "dump dollars" in exchange for gold and other commodities.

Prestowitz says the U.S. still has "the best hand of cards" but is playing them as badly as possible. We must balance the federal budget deficit right away, through tax increases; prepare for a drastically devalued dollar; and strive for global agreements where Asian nations agree to spend more, and the U.S. agrees to save more.



About the Speaker(s): At ESI, Clyde Prestowitz has played key roles in achieving congressional passage of NAFTA and in shaping the final content of the Uruguay Round, as well as providing the intellectual basis for current U.S. trade policies toward Japan, China, and Korea. Prior to founding ESI, Prestowitz served as counselor to the Secretary of Commerce in the Reagan Administration. He also served as vice chairman of the President's Committee on Trade and Investment in the Pacific and sits on the Intel Policy Advisory Board and the U.S. Export-Import Bank Advisory Board. Prestowitz regularly writes for leading publications, including The New York Times, The Washington Post, and Foreign Affairs. He is the author of the best-selling book on U.S.-Japan relations, Trading Places, and co-author and editor of several other books on international trade and business strategy. His latest book is Three Billion New Capitalists: The Great Shift of Wealth and Power to the East. Prestowitz holds a B.A. with honors from Swarthmore College; an M.A. in East-West Policies and Economics from the East-West Center of the University of Hawaii; and an M.B.A. from the Wharton Graduate School of Business. He is fluent in Japanese, Dutch, German, and French.

Host(s): School of Engineering, Engineering Systems Division

Tape #: T21111

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MIT World — special events and lectures

MIT World — special events and lectures

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