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Backlash grows against free trade

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Worries about the dark side of free trade are surfacing in the United States in ways that could affect the course of globalization worldwide.

Don't expect an outright retreat from global commerce just yet, but it is becoming more likely that the US will act to temper and manage its impact. The reason: Free-trade brush fires have recently erupted on economic and political fronts:

• This week, the Commerce Department said America's trade deficit rose to $764 billion in 2006, as imports outstripped exports by a record amount for a fifth straight year.

• Democrats are in control of Congress, with new lawmakers in their ranks who are especially eager to do something about what they see as unfair trade practices by China. Bipartisan bills introduced this week could result in retaliatory tariffs or revocation of China's trade status with the US.

"There was a time 10 years ago when it seemed like globalization was consensual, and there were very few remaining questions about whether it was ... a good thing," says Jeffry Frieden, an expert on global economics at Harvard University. The reality, he says, includes a caveat: Trade "can make everyone better off, so long as you compensate the losers."

Concern about globalization is hardly limited to the US. From Europe to Latin America to China, the pattern is the same: Not everyone feels better off, and in those regions, political consequences can include riots or the rise of nationalist governments.

But America, which as the world's largest economy has led the march toward expanding trade for decades, remains an important influence on the world.

Most trade experts don't foresee an outright reversal of the trend. The world's biggest economies are now heavily reliant on trade. Exports account for about 40 percent of Germany's economic activity and a similar share in China, according to Joseph Quinlan, a Banc of America investment strategist in New York.

But the tenor in the halls of power has changed. Supporters of globalization are expending more energy to defend the concept – often calling for new policies to help compensate workers whose jobs migrate abroad.

"[To] retain support for policies of free trade ... we need to make sure that the gains and benefits from these powerful, growth-producing forces are broadly shared," Federal Reserve Chairman Ben Bernanke said this week in response to a question during congressional testimony.

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