Think of the global economy as you might think of yourself starting to feel sick. You wake up one day with a bad cold—that was last winter. It turns into a nasty dose of flu that, with a few pills and lots of honey and lemon, you think you'll get over soon. That was the spring. But now your aches and pains are beginning to feel like something worse; pneumonia, maybe? That's where we are this summer.

The central problem of the international marketplace is simply put: "There's no clear growth locomotive right now," says economist David Hale of Zurich Kemper. In the past 20 years, we've got used to the idea that, at any one time, at least one of the world's three largest economies—the U.S., the European Union and Japan—would be doing fine, so that even if growth sputtered elsewhere, there wouldn't be a disaster. The global economy showed the virtues of asymmetry during the Asian financial crisis of 1997-98. Fiscal and monetary corsets constrained Europeans as they prepared for the introduction of the euro; Japan was flat on its back. Assisted by the Fed's aggressive rate cutting, the U.S. consumer became the world's buyer of last resort, mopping up goods that would not otherwise have found a market.

This year is different. After a brief burst of optimism in May, when stocks rallied for a short time and the Dow reached heights not seen since last fall, the U.S. has heard little but bad news. Last month telecom and fiber-optic giant Nortel (O.K., we know, it's really a Canadian company) announced an eye-popping loss of $19.2 billion for the quarter. Since then, profit warnings have come thick and fast, and commentators have started worrying that the Fed's six rate cuts this year (continued when the Open Market Committee lowered short-term rates by an additional 25 basis points on June 27) were not stimulating demand as expected. Meanwhile, Japan continues to see no growth at all; the needed structural reforms that Prime Minister Junichiro Koizumi has promised will depress economic activity in the short term. And in Germany, Europe's largest economy, the ifo index of business confidence has fallen to its lowest level in two years. To cap it all off, prices are rising in Europe and the U.S.

The good news (there's always some) is limited. If you exclude energy prices, inflation is within tolerable limits. American consumers will shortly receive tax rebates, which will pump some extra demand into the system. And interest-rate changes have a "lagged" effect on the real economy, which means that they do not show results until some months after their announcement. Conceivably, the impact of the Fed's cuts is yet to be felt.

But it's equally conceivable that the worst isn't over. The great unknowable is the significance of American businesses' overinvestment from 1998 to 2000. The buying spree was fueled by the Y2K frenzy, hype that the Internet was the greatest thing since the electric light, and a stock market that rewarded companies that predicted outrageous demand for their products. The overhang of those purchases may depress business investment for another year, however cheap the Fed makes it to borrow.

In these circumstances, the wisest policy is to do no harm. In practical terms, that means avoiding a trade war between the U.S. and the European Union. Unfortunately, there's a risk of one. The Bush Administration has already said it intends to protect the American steel industry from alleged dumping by foreign companies, annoying European firms. In the wake of reports that the E.U. was about to nix the merger between General Electric and Honeywell International, two Democratic Senators, Jay Rockefeller and Fritz Hollings, threatened retaliation. Worse, the World Trade Organization has made a preliminary ruling against the U.S. in a case brought by the E.U. on American tax breaks for exports. The U.S. will certainly appeal. But the specter of an international agency siding with the Europeans against an item in the American tax code will not go down well on Capitol Hill. Democrats control the Senate, and would dearly love to win the House of Representatives in 2002. They just might think that a quick dose of protectionism would be one way to do it. Treasury Secretary Paul O'Neill has dismissed the chances of a trade war, and Hale says he's "worried but not yet alarmed" about the prospects for protectionism. But back in the spring, we all thought that a bad case of the flu was the worst thing we would suffer this year. It wasn't.

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