I would like to think that I have influenced his thinking through my comments to some of his earlier blog entries, but that is not very likely. What is really happening is that he is following the trail of the same facts that we followed when writing our book. Here is how Setser begins:
I am often struck by how frequently debates over trade – and, more broadly, globalization – don’t bother to mention what strikes me as the most salient fact about contemporary globalization, namely that it has been marked by an enormous amount of government intervention in the foreign exchange market and a huge surge in the sale of US financial assets to emerging market governments.
Rather than trading US made goods for goods made in the emerging world, the US has – over the last say thirty years – financed the growth in its imports from the emerging world by selling US financial assets. That has to have had an impact on the composition of output in the US - -and the distribution of gains on globalization. It has favored those who generate financial assets (and import goods) over those who produce goods, for example.
And it seems increasingly difficult, at least to me, to maintain this pattern is entirely the product of the operation of free markets. Not so long as key governments are intervening so heavily in the foreign exchange market – and hoarding most of the oil windfall.
Take the most extreme example: China.
If 2000, China exported around $250 billion worth of goods, and its government bought about $15 billion of foreign exchange in the market. In 2008, China is on track to export about $1400 billion worth of goods, and its government is on track – at least judging from the April data — to buy about $900 billion of foreign exchange in the market.
Yet the popular discussion of trade and globalization rarely also mentions the enormous rise in government intervention in the markets – and the surge in the sale of US financial assets to emerging market governments....
The only thing missing from his post is the solution that we proposed in our book. (You can read a summary of that solution if you go to www.idealtaxes.com and click on "Chapter 10."
Follow the following link to read his entire entry, replete with references to the work of others that he disputes and graphs that support his arguments: http://blogs.cfr.org/setser/2008/06/12/can-the-debate-over-trade-%e2%80%93-or-globalization-%e2%80%93-be-separated-from-the-debate-over-exchange-rates/