In an open-border global economy nearly every car manufacturer, for example, is trying to have a presence in every market. But when all the factories crank out more cars than people can buy, down come car prices. Down go the profits of car companies. Out go the workers. And down go the number of people who can afford to buy cars.
Economies can spiral downward toward recession, or worse.
That is what is beginning to happen in Asia now. East Asia has been the main source of the world's overcapacity in recent years. Since 1991, countries like Thailand, South Korea, Indonesia, Malaysia and the Philippines have accounted for half the growth in world output, primarily manufacturing, according to David Hale, chief global economist for the Zurich Insurance Group. The financing for this new production often came from international investors moving huge sums across borders. They frequently borrowed the money at low interest rates in Japan and the United States and then invested in booming Asia in expectation of earning a high return.