"Doctrinal Fiction's" of Free Trade, Debt and Deficit's
…The US multinational establishment never favored free-trade. The economy relies very heavily on a dynamic state sector to socialize cost and risk, a radical violation of market principles. The Uruguay Round (WTO) rules crucially include extreme protectionist elements designed to guarantee monopoly-pricing power to multinationals, in radical violation of free trade theory (the excuses that are given, in terms of R&D, quickly collapse under analysis). The Reagan administration virtually doubled import restrictions, violating free-trade mechanisms far more than Europe, according the analysis of the GATT secretariat. And on, and on.
The "trade deficit" is partly a doctrinal construction, for reasons that have long been known. The Wall Street Journal a few days ago reported an analysis by McKinsey and Co pointing out that if one counts exports of US corporations operating overseas as part of US exports (which makes sense, if we -take the country to be the private economy that runs it), then the trade deficit declines significantly.
US companies make a mint exporting from China, just as Walmart is enriched by importing from slave labor producers in the brutally repressive state (they are a big player in the US economy, and are not going to want a protective tariff any more than corporations exporting from the Chinese platform will). Even what's called "trade" is to a large extent a doctrinal fiction. Why is it "export" and "import"
when GM sends parts to Mexico for assembly and then brings them back to New York to sell, all transactions internal to a totalitarian command economy, but not when it does the same from Indiana to Illinois to New York? No one seriously called what was happening internal to the Soviet system "trade," though it crossed national boundaries.
As to how much foreign debt can be sustained, it's anybody's guess.
Just as no one really knows what would happen if Japanese, Chinese, and other banks reduced their exposure to dollars and called in their debts. As for debasing tax payers, that's highly misleading. The rich are getting a free ride. And as far as wage-earners are concerned, the last 25 years have been a remarkable period in American economic history, with real wages pretty much stagnating or even declining for the majority of the work force, who are keeping incomes up only by close to the highest work load in the industrial world.
That the Bush administration is playing with fire is pretty clear. And no one can tell what the consequences will be. The same is true in other dimensions: nuclear war, environmental catastrophe, etc. But their policies are rational, on the assumption that what matters is shining the boots of the rich today, while transferring costs to everyone else and to future generations.