The developing world's financial markets are drawing cash from rich countries. The U.S. Federal Reserve and other central banks have pushed interest rates to record-low levels to stimulate their sluggish economies.
As investors in search of higher returns snap up Asian stocks and real estate, they risk creating dangerous asset bubbles. To cool speculative fever, policymakers from Bangkok to Brasilia have been imposing taxes on foreign investors and raising interest rates. In January, Brazil's central bank raised its rate for overnight lending from 10.75 percent to 11.25 percent. In the U.S., the rate is only about 0.15 percent.
China and other developing countries could fight inflation by letting their currencies rise rapidly — a move that would drive down the price of imported goods. But they are reluctant to do so because stronger currencies would make their own exports more expensive and less competitive in other countries. China is especially resistant to sacrificing exports by letting its currency, the yuan, appreciate quickly. Exports account for about 30 percent of China's economic output, versus about 11 percent of the U.S. economy.
Congress has threatened to impose tariffs on Chinese goods if China won't relent on its currency. The threats are raising fears of a trade rift between the world's two biggest economies.
U.S. heavy-equipment maker Caterpillar says it frets that the divide between fast- and slow-growing countries is eroding the cooperation that served international policymaking at the depths of the recession. Caterpillar, which generates 68 percent of its revenue overseas, warns that a global recovery could be derailed by disputes over trade and currency.
The growth gap between emerging economies and developed nations may even be feeding on itself: U.S. companies are shifting jobs overseas to take advantage of cheaper labor and to be closer to their fastest-growing markets. Between 1999 and 2008, U.S. multinationals slashed 1.1 million jobs in the United States and added 2.4 million overseas, including more than 520,000 in China alone, according to the Bureau of Economic Analysis.