American protectionism

[albannach]

The u.s has a BUY AMERICAN clause in the 800 billion dollar economic recovry package now before congress. This clause seeks to ensure that ONLY u.s iron , steel and manufactured goods are used in projects funded by the bill. This , in turn has the E.U amongst others upset , declaring the obama administration is sending out the wrong message.
Rightly or wrongly , yet again another country looking after their own while our own patriotic M.P`s stand by and do nothing. So much for global solutions to global problems??
Can we swap the obama administration for brown, cameron and co??
Any views??

[Midas]

The u.s has a BUY AMERICAN clause in the 800 billion dollar economic recovry package now before congress. This clause seeks to ensure that ONLY u.s iron , steel and manufactured goods are used in projects funded by the bill. This , in turn has the E.U amongst others upset , declaring the obama administration is sending out the wrong message.
Rightly or wrongly , yet again another country looking after their own while our own patriotic M.P`s stand by and do nothing. So much for global solutions to global problems??
Can we swap the obama administration for brown, cameron and co??
Any views??

Certainly both the EU and Canada are doing the right thing in pressing the Americans hard to get this clause removed. I've got no problems with any country trying to promote its own industries in preference to those outside the country, but putting up trade barriers is an entirely different matter, and could have some very significant implications if this does go ahead.

[albannach]

Certainly both the EU and Canada are doing the right thing in pressing the Americans hard to get this clause removed. I've got no problems with any country trying to promote its own industries in preference to those outside the country, but putting up trade barriers is an entirely different matter, and could have some very significant implications if this does go ahead.

Forgive me but how so?
What is wrong with looking after your own in troubled times?

[Midas]

Forgive me but how so?
What is wrong with looking after your own in troubled times?

There's nothing wrong with looking after your own as long as it's done fairly, but putting up trade barriers will simply lead to hostility and retaliatory action from other countries, cutting both international trade and consequently reducing competitiveness and increasing the prices of goods you normally import. The last thing anyone wants in a recession.

Looking after an economy is far wider than simply looking after the state of affairs at home, like it or not it's global these days.

[Opinionated]

Would it work if the US were to say guarentee 75% protectionism?

[Tantal]

There's nothing wrong with it whatsoever. The bill doesn't say that no other countries can import goods into the U.S. It simply says that since we're borrowing one metric assload of money (most likely from China....and a bad idea IMO) that we're going to spend it at home. Why should American taxpayers, who are going to have to repay this money with interest, have to send some of it overseas to buy products that are made right here at home? If Europe wants to help out their failing economies and industries, let them borrow the money. This issue has absolutely NOTHING to do with protectionism

As everyone knows, I am a free-trader. I am opposed to ALL tariffs and, if I were King, would simply implement a policy of reciprocity on every country we trade with. If the U.K. wants to put a 10% tariff on all U.S. goods coming into the Kingdom, we'd put the same tariff on their goods. If the Kingdom chose to completely eliminate tariffs on American goods, we'd eliminate our tariffs on your goods. Let free market capitalism run its course without artificially manipulating the market and it would be a win-win for everybody. But, no, that can't happen. There's always going to be some MP, Congressman, or Senator who has a widget factory in his district that will try to get some protectionist policy implemented to artificially make his factory more competitive than it really is, thus ensuring said representative another term.

[albannach]

There's nothing wrong with it whatsoever. The bill doesn't say that no other countries can import goods into the U.S. It simply says that since we're borrowing one metric assload of money (most likely from China....and a bad idea IMO) that we're going to spend it at home. Why should American taxpayers, who are going to have to repay this money with interest, have to send some of it overseas to buy products that are made right here at home? If Europe wants to help out their failing economies and industries, let them borrow the money. This issue has absolutely NOTHING to do with protectionism

As everyone knows, I am a free-trader. I am opposed to ALL tariffs and, if I were King, would simply implement a policy of reciprocity on every country we trade with. If the U.K. wants to put a 10% tariff on all U.S. goods coming into the Kingdom, we'd put the same tariff on their goods. If the Kingdom chose to completely eliminate tariffs on American goods, we'd eliminate our tariffs on your goods. Let free market capitalism run its course without artificially manipulating the market and it would be a win-win for everybody. But, no, that can't happen. There's always be some MP, Congressman, or Senator who has a widget factory in his district that will try to get some protectionist policy implemented to artificially make his factory more competitive than it really is, thus ensuring said representative another term.

Thanks tantal , like so many things , free trade sounds good on paper until human instinct takes over and greed , self preservation etc gets involved . The point i suppose i am trying to make is the british play by the rules and everyone else bends them when it suits. I wonder if all countries applied protectionism , everyone would suffer but surely the major economies would survive?? I say well done America , are you confident your leaders will see you through ?? (unlike the lack of confidence us british have in the muppets in charge over here)

[Midas]

Thanks tantal , like so many things , free trade sounds good on paper until human instinct takes over and greed , self preservation etc gets involved . The point i suppose i am trying to make is the british play by the rules and everyone else bends them when it suits. I wonder if all countries applied protectionism , everyone would suffer but surely the major economies would survive?? I say well done America , are you confident your leaders will see you through ?? (unlike the lack of confidence us british have in the muppets in charge over here)

From the G8 Research Group at the University of Toronto:

The case against protectionism

December 2008

Rich countries collectively face the severest recession since World War II: This week’s cut in the target for the federal funds rate to between zero and 0.25 per cent shows how fearful America’s policymakers are. And conditions are deteriorating fast too in emerging economies, which have been whacked by tumbling exports and the drying-up of foreign finance.

This news is bad enough in itself; but it also poses the biggest threat to open markets in the modern era of globalization. For the first time in more than a generation, two of the engines of global integration - trade and capital flows - are simultaneously shifting into reverse.

The World Bank says that net private capital flows to emerging economies in 2009 are likely to be only half the record $1 trillion of 2007, while global trade volumes will shrink for the first time since 1982.

This twin shift will force wrenching adjustments. Countries that have relied on exports to drive growth, from China to Germany, will slump unless they can boost domestic demand quickly. The flight of private capital means emerging economies with current-account deficits face a drought of financing as well as export earnings.

There is a risk that in their discomfort governments turn to an old, but false, friend: protectionism.

Integration has less appeal when pain rather than prosperity is ricocheting across borders. It will be tempting to prop up domestic jobs and incomes by diverting demand from abroad with export subsidies, tariffs and cheaper currencies.

The lessons of history, though, are clear. The economic isolationism of the 1930s, epitomized by America’s Smoot-Hawley tariff, cruelly intensified the Depression.

To be sure, the World Trade Organization (WTO) and its multilateral trading rules are a bulwark against protection on that scale. But today’s globalized economy, with far-flung supply chains and just-in-time delivery, could be disrupted by policies much less dramatic than the Smoot-Hawley Act.

A modest shift away from openness - well within the WTO’s rules - would be enough to turn the recession of 2009 much nastier. Incremental protection of that sort is, alas, all too plausible.

In many countries politicians’ fealty to open markets is already more rhetorical than real. In November the leaders of the G20 group of big rich and emerging economies promised to eschew any new trade barriers for a year and to work hard for agreement on the Doha round of trade talks by the end of December.

Within days, two of the G20 countries, Russia and India, raised tariffs on cars and steel respectively. And the year is ending with no Doha breakthrough in sight.

As economies weaken, popular skepticism of open markets will surely grow. Among rich countries, that danger is greatest in America, where grumbles were heard long before recession set in.

The new Congress, with bigger Democratic majorities, has a decidedly less trade-friendly hue. Barack Obama’s campaign rhetoric left an impression of a man in two minds about trade, which he has since done nothing to dispel.

Now that their exports are faltering, emerging economies too may become less keen on trade. The WTO’s rules allow them plenty of scope: after two decades of unilateral tariff-cutting, most of their tariffs are well below their “bound” rates, the ceilings agreed in the trade club. On average they could triple their import levies without breaking the rules.

Politicians from Washington to Beijing are being pressed to help troubled industries, regardless of the consequences for trade. A bailout of Detroit’s carmakers, whatever its final extent, will be a discriminatory subsidy.

As China’s exporters go bust by the thousand, industries from textiles to steel have been promised handouts and rebates. Subsidies will beget more subsidies: Nicolas Sarkozy, France’s president, says that Europe will turn into an “industrial wasteland” if it too does not prop up its manufacturers.

They will also invite retaliation. With China’s bilateral trade surplus at a record high even as America’s economy slumps, Congress will not take kindly to Beijing’s bolstering of its exporters.

Exchange-rate movements could also prompt protectionist responses. Chinese officials have said publicly that they will not push down the yuan, and their currency has risen in trade-weighted terms. However, it did slip against the dollar in late November.

Viewed from America, China still seems to be following a cheap-yuan policy. A Sino-American trade spat is all too plausible.

Add all this together and it is hard for a free-trader not to worry. So what is to be done? The first requirement is political leadership, especially from America and China. At a minimum, both must avoid beggar-thy-neighbor policies. Second, a conclusion of the Doha round would help.

A deal would reduce the risk of broader backsliding by cutting many countries’ bound tariffs - and it would establish Obama’s multilateral credentials.

Third - Doha deal or not - is greater transparency. A good recent idea is that the WTO publicize any new barriers, whether or not they are allowed by its rules.

The best insurance against protectionism, however, is macroeconomic stimulus. Boosting demand at home will reduce the temptation to divert it from abroad. By historical standards policymakers are acting aggressively, as the Federal Reserve did this week. But the effort is unevenly, and poorly, distributed.

Emerging economies from which capital is fleeing have little room to boost spending. Some creditor countries (notably Germany) are holding back on fiscal stimulus, while the world’s biggest borrower (America) is acting the most boldly.

A bigger push to boost domestic demand in creditor countries coupled with more help, through the IMF, to cushion cash-strapped emerging economies would ease the world economy’s adjustment and brighten the prospects for free trade.

In the 1930s, protectionism flourished largely because of macroeconomic failures. That must not happen this time.

[albannach]

From the G8 Research Group at the University of Toronto:

The case against protectionism

December 2008

Rich countries collectively face the severest recession since World War II: This week’s cut in the target for the federal funds rate to between zero and 0.25 per cent shows how fearful America’s policymakers are. And conditions are deteriorating fast too in emerging economies, which have been whacked by tumbling exports and the drying-up of foreign finance.

This news is bad enough in itself; but it also poses the biggest threat to open markets in the modern era of globalization. For the first time in more than a generation, two of the engines of global integration - trade and capital flows - are simultaneously shifting into reverse.

The World Bank says that net private capital flows to emerging economies in 2009 are likely to be only half the record $1 trillion of 2007, while global trade volumes will shrink for the first time since 1982.

This twin shift will force wrenching adjustments. Countries that have relied on exports to drive growth, from China to Germany, will slump unless they can boost domestic demand quickly. The flight of private capital means emerging economies with current-account deficits face a drought of financing as well as export earnings.

There is a risk that in their discomfort governments turn to an old, but false, friend: protectionism.

Integration has less appeal when pain rather than prosperity is ricocheting across borders. It will be tempting to prop up domestic jobs and incomes by diverting demand from abroad with export subsidies, tariffs and cheaper currencies.

The lessons of history, though, are clear. The economic isolationism of the 1930s, epitomized by America’s Smoot-Hawley tariff, cruelly intensified the Depression.

To be sure, the World Trade Organization (WTO) and its multilateral trading rules are a bulwark against protection on that scale. But today’s globalized economy, with far-flung supply chains and just-in-time delivery, could be disrupted by policies much less dramatic than the Smoot-Hawley Act.

A modest shift away from openness - well within the WTO’s rules - would be enough to turn the recession of 2009 much nastier. Incremental protection of that sort is, alas, all too plausible.

In many countries politicians’ fealty to open markets is already more rhetorical than real. In November the leaders of the G20 group of big rich and emerging economies promised to eschew any new trade barriers for a year and to work hard for agreement on the Doha round of trade talks by the end of December.

Within days, two of the G20 countries, Russia and India, raised tariffs on cars and steel respectively. And the year is ending with no Doha breakthrough in sight.

As economies weaken, popular skepticism of open markets will surely grow. Among rich countries, that danger is greatest in America, where grumbles were heard long before recession set in.

The new Congress, with bigger Democratic majorities, has a decidedly less trade-friendly hue. Barack Obama’s campaign rhetoric left an impression of a man in two minds about trade, which he has since done nothing to dispel.

Now that their exports are faltering, emerging economies too may become less keen on trade. The WTO’s rules allow them plenty of scope: after two decades of unilateral tariff-cutting, most of their tariffs are well below their “bound” rates, the ceilings agreed in the trade club. On average they could triple their import levies without breaking the rules.

Politicians from Washington to Beijing are being pressed to help troubled industries, regardless of the consequences for trade. A bailout of Detroit’s carmakers, whatever its final extent, will be a discriminatory subsidy.

As China’s exporters go bust by the thousand, industries from textiles to steel have been promised handouts and rebates. Subsidies will beget more subsidies: Nicolas Sarkozy, France’s president, says that Europe will turn into an “industrial wasteland” if it too does not prop up its manufacturers.

They will also invite retaliation. With China’s bilateral trade surplus at a record high even as America’s economy slumps, Congress will not take kindly to Beijing’s bolstering of its exporters.

Exchange-rate movements could also prompt protectionist responses. Chinese officials have said publicly that they will not push down the yuan, and their currency has risen in trade-weighted terms. However, it did slip against the dollar in late November.

Viewed from America, China still seems to be following a cheap-yuan policy. A Sino-American trade spat is all too plausible.

Add all this together and it is hard for a free-trader not to worry. So what is to be done? The first requirement is political leadership, especially from America and China. At a minimum, both must avoid beggar-thy-neighbor policies. Second, a conclusion of the Doha round would help.

A deal would reduce the risk of broader backsliding by cutting many countries’ bound tariffs - and it would establish Obama’s multilateral credentials.

Third - Doha deal or not - is greater transparency. A good recent idea is that the WTO publicize any new barriers, whether or not they are allowed by its rules.

The best insurance against protectionism, however, is macroeconomic stimulus. Boosting demand at home will reduce the temptation to divert it from abroad. By historical standards policymakers are acting aggressively, as the Federal Reserve did this week. But the effort is unevenly, and poorly, distributed.

Emerging economies from which capital is fleeing have little room to boost spending. Some creditor countries (notably Germany) are holding back on fiscal stimulus, while the world’s biggest borrower (America) is acting the most boldly.

A bigger push to boost domestic demand in creditor countries coupled with more help, through the IMF, to cushion cash-strapped emerging economies would ease the world economy’s adjustment and brighten the prospects for free trade.

In the 1930s, protectionism flourished largely because of macroeconomic failures. That must not happen this time.

Thanks midas , interesting , not much of a student of economics , am i?

[Midas]

Thanks midas , interesting , not much of a student of economics , am i?

How many people are! I wouldn't worry about it. I've been involved in businesses which export round the world for some 25 years and I still only know the rudiments of it.

The media only put out the basic and most obvious facts about anything, whether it be economic, political, religious, social...... and even then it tends to be biased in one respect or another depending on the political or social leanings of the media owners or whether there's any government pressure applied. To get a much fuller picture of anything you do need to search for reports published by far more independent research groups, but even then you really need to digest a few of them to try to eliminate any bias they might have. Great fun