The World Economy, 12 April 2026
Those who are unfamiliar with the empire’s material structure will never understand its crisis / chi non conosce la struttura materiale dell’impero non capirà mai la sua crisi
The World Economy, 12 April 2026
U.S. COMPETITIVENESS AND EXTERNAL DEBT: SOME OVERLOOKED ASPECTS OF THE CRISIS IN THE AMERICAN ‘ORDER’
by Emiliano Brancaccio and Fabiana De Cristofaro
ABSTRACT. In the prevailing analyses of the crisis of the so-called American-led world ‘order’, one topic has been quite neglected: the impact of price competitiveness on the U.S. current account and the related International Investment Position. Despite the relevance of valuation changes, we argue that current account dynamics remain relevant to U.S. International Investment Position, with the real exchange rate influencing both flows and stocks. Drawing upon and refining Milesi-Ferretti’s framework, we explicitly incorporate the real effective exchange rate into the analysis, in order to show that a decline in price competitiveness could be one of the factors underlying the deterioration of the U.S. external accounts. This link could be one of the neglected factors behind the protectionist turn of the United States and the related crisis of the American-led ‘order’.
INTRODUCTION. In a debate with one of the authors of this paper, former Governor of the Bank of Italy and ECB board member Ignazio Visco stated: ‘The US net position has indeed worsened, but this is due to an appreciation of the dollar and an increase in stock values. However, this seems to reflect the strength of the US economy at this time, not its weakness’. In the same discussion, Visco argued that the U.S. shift towards protectionism depends not so much on foreign debt problems as on a failure to redistribute the gains of globalization, which has penalized American industrial workers in particular (Brancaccio and Visco 2024). Visco supports his position by referring to Milesi-Ferretti, who states that the deterioration of the U.S. external debt contained in the Net International Investment Position depends essentially on ‘valuation changes’ […]