Because the United States is the wo

Because the United States is the world’s largest importer, this shift would dampen trade. Similarly, cross-border money flows (“capital flows”) have abated. Banks, especially in Europe, have reduced foreign loans to “deleverage” and strengthen their balance sheets. From 2011 to 2012, bank loans to 30 “emerging market” countries fell by one-third, says the Institute of International Finance (IIF), an industry group. “It’s the most decisive case of ‘home bias’ [in lending] being re-established,” says economist Philip Suttle of the IIF. Government regulators encourage the shift, he says, suggesting that “if you’re going to cut lending, cut there and not here.”
Of course, globalization won’t vanish. It’s too big and too entwined with national economies. In 2011, total world exports amounted to nearly $18 trillion. The same is true of capital flows. Despite banks’ pullbacks, those same 30 emerging-market countries in 2012 received an estimated $1 trillion worth of investment from multinational companies, private investors, pensions, insurance companies and other lenders — a still-huge total, though down from its peak. But globalization’s character may change.
For years, the world economy has been wildly lopsided: China and some other countries ran big trade surpluses; the United States was perennially in massive deficit. Similar imbalances existed in Europe. Now, slumps have dampened the American and European appetite for imports. The upshot is that “China and others are recalibrating their export-led economic strategies” to focus more on domestic demand, argues economist Fred Bergsten of the Peterson Institute. That’s good, he says; the world economy will be more balanced. Likewise, erratic capital flows have triggered past financial crises. Slower flows may promote stability.
Not everyone is so optimistic. Smick of the International Economy sees globalization as “the proverbial goose that laid the golden eggs.” The search for larger markets and lower costs drove investment, trade, economic growth and job creation around the world. That’s weakened, and there’s “no new model to replace it.” Domestic demand will prove an inadequate substitute. Central banks (the Federal Reserve, the European Central Bank, the Bank of Japan) have tried to fill the void with hyper-easy money policies. Smick fears damaging outcomes: currency wars as countries strive to capture greater shares of stagnant export markets and burst “asset bubbles” caused by easy money.
These visions clash. In 2013, we may learn which is right.