One vision of globalization, and the new American policies designed to cope with it, was on display this week, as Harvard's Larry Summers and the FT's Willem Buiter discussed and debated the dilemmas of a flat world, from trade and taxation to international standards and regulation.

Summers has long been an advocate of globalization and free trade, but recently -- with a number of other eminent liberal economists, from Paul Samuelson to Alan Blinder, who has argued that globalization could put 40 million Americans out of work -- Summers has rethought his robust support.

The most important reason for doubting that an increasingly successful, integrated global economy will benefit US workers (and those in other industrial countries) is the weakening of the link between the success of a nation’s workers and the success of both its trading partners and its companies.

Colombia is not America's most important trading partner, but Speaker Pelosi's recent scuttling of the Colombia Free Trade Agreement is nonetheless very bad news. It represents yet another leap from silly and potentially-damaging anti-trade rhetoric into the realm of outright protectionism. As this good analysis from the Weekly Standard, which also tracks the political dynamics, shows, 90% of Colombian imports to the U.S. are already duty-free. This deal was mostly about gaining American access to Colombia's market. No brainer, right? Yet U.S. politicians still killed the deal. That's how bad the political sentiment on trade has become.

Some of this is no doubt election-year maneuvering. But Washington has been on an anti-trade tirade for several years now. Remember the threatened 27.5% tariff on all Chinese imports, the blocking of the Dubai Ports World deal, and the weak dollar that was supposed to "relieve" the trade deficit but instead caused the housing and oil spikes? These events all came years ago but are still today reverberating. This unfortunately looks to be a wave much bigger than the 2008 election. We've got to act to make sure this dangerous anti-trade trend is reversed.

See my article "An End to Currency Manipulation" in the Far Eastern Economic Review. The first paragraph:

The U.S. dollar last week appeared mercifully to end its plunge. World markets cheered, and the immediate financial crisis in the U.S. abated. But this week the dollar is retesting all-time lows versus the euro and yen, and commodity prices, capital flows, and trade remain vulnerable to its movements. Inflation in dollar-linked China is rising fast, and an over-strong yen could thwart Japan's recent recovery after its painful 1990s deflation. In the U.S., currency swings are destabilizing the economy and fueling anti-trade populism. After a decade of wild instability, it's time to rethink global currency markets and monetary policies.

Ten days ago I was at a conference in Paris. It's a wonderful place, but I thought, Oh great, I pick the very week the dollar hits an all-time low versus the euro. Having begun around parity, or 1 to 1, in 1999, the euro fell to just $0.80 during the super-strong dollar days of the late '90s and early '00s. But in the ensuing years, the currencies completely reversed course. By my visit the euro had rocketed to $1.52, making an already extravagantly expensive city positively absurd. As I bought little trinkets and chocolates for my children, I felt like a real sucker. I was clearly traveling the wrong way. All of Europe right now is in New York City buying up cheap luxuries and savoring perfectly affordable meals at Le Cirque.

Today, the dollar fell further, to $1.55 vs. the euro. So it turns out I did not get the absolute very worst deal of all time. Awesome. I feel so much better.

But seriously. The dollar has reached crisis levels. Oil and gold are at all-time highs. The inflation alarms are blinking fast and bright. After a rebound yesterday following the Fed's creative, targeted and short-term liquidity injection, stocks and bonds are back in panic mode.

A key point: The weak dollar is subtracting -- or at least diverting -- much of the liquidity the Fed thinks it is adding. People and companies are taking money out of the U.S. They're trying to get out of dollars and into oil, gold, Treasuries, Europe, and China as quickly as possible. Foreign investors, who have every reason to believe the U.S. approves of the dollar fall, aren't buying dollar assets for fear their investments will evaporate. Another side point: With our China yuan policy of forced appreciation, it creates a free hot money carry-trade into yuan and out of dollars.

Tomorrow I'll participate in an event at the U.S. Chamber, where one of our favorite economists, David Malpass of Bear Stearns, will survey the dollar problem and the global economy and offer a relatively easy and free solution to the Administration: Demand a stronger dollar.

People would be amazed not only how fast the dollar would reverse course but also how quickly other markets would turn up as well.

With the dollar at crisis levels, as it exacerbates the subprime, credit, and inflation problems, I'm holding out hope this little event could finally jolt Washington to its senses and turn the currency, commodity, credit, and stock markets around.

Another crucial point in the David Malpass article that I cited earlier:

There's more at stake in the dollar debate than a recession, inflation and a bear market. In the economic confusion created by the weak-dollar policy, presidential campaigners are blaming Nafta and free trade, not the weak-and-weaker dollar, for hard times.

Inflation, subprime, and slowed growth only exacerbate trade anxiety.

Which presidential candidate, in this populist primary year, is best on the all-important issue of global trade? Economist David Ranson says it's John McCain.

On willingness to let the markets rather than government drive the adaptation of the economy to foreign competition, Messrs. McCain and Obama outscore Mr. Romney. On willingness to confront politically entrenched but trade-unfriendly policies such as farm subsidies, Mr. McCain beats both Messrs. Obama and Romney.

On rhetoric at least, McCain wins. One assumes that, when it comes to policy, some of Romney's mildly populist rhetoric would be heavily tempered, or indeed completely erased, by his substantial business and investment experience. McCain's soothing stance on international trade, meanwhile, is contradicted by his past unwillingness to let Americans engage in free trade within our own borders: See his proud and flagrant opposition to the Bush tax cuts and his penchant for regulating and bullying businesses. One can only hope that the economic conservatives now surrounding McCain -- Phil Gramm, Jack Kemp, Rudy Giuliani, Steve Forbes -- will steer him toward free trade at home as well as abroad.

Sen. Clinton was known to have opposed her husband's important Nafta achievement, which acted as a huge tax cut for all of North America. Ranson summarizes her view:

Mrs. Clinton believes in "smart trade." As president she would appoint an official to ensure that "provisions to protect labor and environmental standards" are enforced by international bodies like the WTO and the International Labor Organization. She proposes a "time out" on future trade agreements, and a reconsideration of existing deals -- including Nafta.

Obama mostly does not pander to the left on the issue but acknowledges reality:

"Global trade is not going away, technology is not going away, the Internet is not going away. And that means enormous opportunities, but [it] also means more dislocations." In a 2005 essay he said: "It's not whether we should protect our workers from competition, but what we can do to fully enable them to compete against workers all over the world."

On the other hand, he and Sen. Clinton supported the outrageous Schumer-Graham 27.5% tariff on China that shows its ugly head about every six months. A more self-destructive piece of legislation can hardly be imagined.

Gov. Huckabee, meanwhile, is a serial China basher and "fair" trader who wants economic and energy "independence."

Last week former UK prime minister Tony Blair urged the U.S. candidates not to submit to the protectionist temptation. At least on that point, we heartily agree.

Yesterday the Bush Administration modernized the rules governing high-tech exports from the U.S. At a time when too many are skeptical of foreign trade, capital, and people, this is a good step substantively -- and symbolically.

Obsession over the trade deficit is one of the most dangerous pastimes of economists, politicians, and the press. It fuels anti-trade sentiment and tempts people to close our borders to capital and trade. This morning we hear that November's trade deficit "swelled" -- "widening to the biggest gap in 14 months."

Lou Dobbs and other anti-trade figures lead most people to believe that the trade deficit is the result of unfairly inexpensive imports from China. Protectionists and many manufacturers urge a weaker dollar to supposedly compensate for supposedly artificially weak foreign currencies and make American products more competitive. Well, over the last few years, the Fed has complied, and the protectionists have gotten their wish: a much weaker dollar. We've even seen American exports rise smartly. But guess what, none of that has helped the trade deficit. You can't get something for nothing, certainly not by manipulating the value of your currency.

Why has the trade deficit kept rising even as the dollar weakened and exports grew? Because by far the largest component of the rising deficit these last few years has been spiking petroleum imports. An inflationary dollar juiced oil prices to record highs. So foreigners could buy American products a bit more cheaply, but Americans had to buy oil at $70, $80, and now $90. Foreign beneficiaries are now attempting to reinvest those petrodollars back into the U.S. -- see Citigroup, Merrill Lynch, etc. -- if we will let them.

The simple rule of international economics is that you can't change the terms of trade by changing the unit of account. In other words, you can't increase competitiveness by devaluing your currency. Short-term gains are met or even outweighed by short-term losses, and over the long-term it's a wash or possibly an inflationary disaster.

America has enjoyed -- yes, enjoyed -- a trade deficit for 350 of the last 400 years. All it means is we've been a destination for capital. A trade deficit means a capital surplus. The last two times we "achieved" a trade surplus were in the recessions of 1990-91 and 1981-82. In my dictionary, trade surplus is a dirty word.

Lesson one: forget the trade deficit.

Lesson two: if you can't follow lesson one, remember that a trade deficit equals a capital surplus.

Can U.S. companies do business in China?

It's a question that will have to be answered with time, but today offered two signs of difficulty in the near-term. The big news would have to be eBay reportedly abandoning its own auction site in China, instead stepping aside to be a minority partner with a Chinese company, Tom Online. This contradicts CEO Meg Whitman's commitment to the Chinese market just two months ago. We were also reminded today of the high rate of piracy in China, but we also had good news as a Chinese court ruled in favor of five U.S. movie studios against a Chinese DVD store.

China often gives us mixed messages. It has home-grown companies looking to compete, but the question always remains as to what extent the government is putting its thumb on that scale. It has a general disdain for the IP of outsiders, but in needing to protect its own growing IP base finds itself needing to put teeth in its IP laws.

As the 12-year mostly uninterrupted reign of Republicans on Capitol Hill came to a close over the weekend, some trade legislation was finally approved. This should be cause for rejoicing, but the fact is that these relatively innocuous bills needed to be crammed onto a Christmas-tree bill passed in the dead of night in the December of a lame duck when everyone wanted to go home. That does not augur well for the 110th Congress; hostility can be found in both parties against trade, but it's unfortunately higher in the Democratic Party right now.

I've written here and elsewhere about perhaps history's most articulate trade advocate, the 19th Century wit Frederic Bastiat. He's often referred to as an economist, but perhaps the most accurate description of him would be an economic journalist. Here in the 21st Century, the economic arguments in favor of an open economy and free trade seem irrefutable, yet more and more politicians -- and more and more members of the public -- are turning away from trade. The economists clearly are failing to get the truth across. We need another economic journalist to writ in language people understand, and we need politicians brave enough to do what's necessary to make a more open economy a reality.