I have to say though, this part leaves me scratching my head:
Let me put the point even more starkly. It was imports, it was globalization -- and not the Federal Reserve -- that cured America's inflation problem in the early 1980s. That was painful, but the adjustment has been made. The war on inflation, which the Fed continues to pretend to fight, is actually over, and it has been over for several decades.Okay, so the US lowered unemployment (accidentally) by the mechanism of Alan Greenspan momentarily forgetting to raise interest rates in 1996, and being surprised that the world didn't end. Intrigued, he let the party continue for... too long, as it turned out.
Why not take advantage, as we did in the late 1990s, when we drove the unemployment rate below four percent for three years, while wages rose? Nothing bad happened. And certainly nothing on the trade front is stopping us from doing it again.
But earlier in his piece, Galbraith argues that basically the position of the US dollar allows the US to run a perpetual trade deficit. He says this position could end, but doesn't look likely to. Specifically, he says:
Is the system risky? Yes, it is. Could our bond holders, notably China, panic? Could they act to cut us off for political reasons, such as a crisis over Taiwan? Or even Iran? Yes, they could. Could our currency collapse? Yes, those things are possible. The system, hugely favorable to us though it is, is fragile and dangerous.Okay, but what happens when you combine perpetual trade deficits with a low-interest, high employment policy at the Fed? I don't think the modern era has seen that kind of combination (please, corrections welcome) for a long period of time (1995-1999 is the obvious, and noted, exception.) That is to say, as sympathetic as I am to Galbraith's prescription, I wonder if it's actually sustainable.
But those are financial risks. They have nothing to do with trade agreements.