Good News For The U.S.?

Michael Pettis thinks the U.S. will restrict trade and push adjustments in unemployment on China and Germany (h/t Yglesias):

As unemployment persists, and as the political pressure to address unemployment rises, the US will, like Britain in 1930-31, lose its ideological commitment to free trade and become increasingly protectionist. Also like Britain in 1930-31, once it does so the US economy will begin growing more rapidly – thus putting the burden of adjustment on China, Germany (which will already be suffering from the European adjustment) and Japan.

Trade policy in the next few years will be about deciding who will bear the brunt of the global contraction in demand growth. The surplus countries, because they are so reliant on surpluses, will be very reluctant to eliminate their trade intervention policies. Because they are making the same mistake the US made in the late 1920s and Japan in the late 1980s – thinking they are in a strong enough position to dictate terms – they will refuse to take the necessary steps to adjust.

But in fact in this fight over global demand it is the deficit countries that have all the best cards. They control demand, which is the world’s scarcest and most valuable commodity. Once they begin intervening in trade and regaining the full use of their domestic demand, they will push the adjustment onto the surplus countries. Unemployment in deficit countries will drop, while it will rise in surplus countries.

That is an interesting angle.  I can see where he's coming from, but I think big business makes too much by taking advantage of cheap labor in China.  I doubt the U.S. will limit free trade.  Too many people will say it was the limitation of trade which made the Great Depression so bad, even though then the U.S. was in China's position.  I think he is right that things will be pretty bad for the next decade.