It could be worse, and maybe it will become so. But for now the OECD area is simply showing a slowing that is very widespread. But in the aftermath of this weekend's failed IMF meeting the global trade tensions have not been mended and the currency imbroglio is in full force. Not only is growth giving way but tensions are running high. It's a bad combination you will not find on the dollar menu at your local fast food restaurant.

Free trade even if the rules are being broken? Economists have all sorts of theories on free trade that come down on the side of endorsing it. But all work on assumes that counties have market determined pricing. The exchange rate is assumed to be the right one. If it is not then all of that work on free trade no longer applies. When a country pegs its exchange rate we can longer make any certain statement about the propriety of that rate. We just don't know. However, we can look at certain things that happen involving an economy with a pegged or otherwise controlled rate and we can draw conclusions. For example, does the country run a trade/current account surplus? If it does, is that balance persistent? Is it growing larger? We can try to measure domestic prices Vs international (world) prices to ascertain if the peg or fix is in the right region. In other words are local yuan-adjusted prices showing the same costs domestically for the same goods outside the country when we use the pegged rate to make cross currency price comparisons?

Peg 'o my heart? In the case of China nothing supports the level of its peg. We can attach no welfare considerations to trade with China and we cannot really even call it a free-trader. The US wants to press its case of price fixing using the exchange rate argument, that's something that is unprecedented but it makes a great deal of sense. Countries that acquire huge foreign exchange reserves and run persistent current account surpluses while doing so are clear foreign exchange rate manipulators-and China is not alone in this. The phenomena I cite here may have no legal standing but they serve as clear benchmarks for thinking about rate manipulation and seeing why the WTO can't make rulings in the absence of certain foreign exchange conditions being present.

Hobbled and peg-legged - But the world economy is slowing and as it does there will be more not less pressure. China has sought to insulate itself from the international business cycle using its exchange rate but it is now too large and too rich and no longer can plead that it is a special case. China is reaching the point of really becoming a member of the club- one that must play by the rules. The OECD LEIs are a warning shot. But their message is not here and gone; it is here to stay. The message is that things are slowing and we have no idea are protracted this slowdown will be. But the tensions that surround trade will get worse before they get better.