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protectionism

Page history last edited by Brian D Butler 10 years, 7 months ago

 

Protectionism:

 

The variety of today's protectionism demarcates it from the tariff-based economic warfare of the 1930s. Economists say the bottom line isn't as dire as then, but that creeping protectionism presents an obstacle to economic recovery.

 

Why is there a threat from "protectionism ?  With the global economic crisis hitting in full force, and with lay-offs being announced globally, it's no surprise that governments everywhere are searching for means to put their citizens back to work, and to boost their local competitiveness in the global market place...But, if one country competitively devalues its currency, then some other country must respectively appreciate (and become less competitive).   This is the problem at the heart of competitive devaluations, or "beggar thy neighbor" policies that lead to full-on trade wars, and is exactly the type of behavior that organizations like the WTO are designed to counter act (or prevent).

 

Read more:

 

WTO Report on Protectionism

A new World Trade Organization (WTO) report says there has been an increase in protectionist economic policies (WSJ) around the world. The WTO said member governments have broken pledges to abstain from protectionism.  The report is available here

From GloboTrends blogs:

 

See also: 

 

 

Table of Contents:


 

 

 

Protectionism - "begger thy neighbor" & the Great Depression

see Great Depression

 

Barry Eichengreen and Doug Irwin have a new paper challenging the conventional wisdom about protectionism in the 1930s. It wasn’t about economic ignorance, or at least not about microeconomics; it was about the attempt to escape the “golden fetters” of the exchange rate. The most protectionist countries were those that tried to keep their peg to gold; and as they say,

 

This suggests that trade protection in the 1930s was less an instance of special interest politics run amok than second-best macroeconomic policy management when monetary and fiscal policies were constrained.

source:   Paul Krugman, NYT

 

 

 

Anti-list ... a "Who's who" of protectionism:

 

[protect graphic]

 

 

China is the country targeted by the most governments for protectionist measures. Fifty-five countries have passed measures that hurt Chinese exports. That is followed by the U.S., with 49 measures against it; and Japan, with 46.

 

 

 

US stimulus & protectionism:

 

http://www.ustr.gov/

 

In Print:

“None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the US.” (Sec. 1110(a)

 

The bill allows for exceptions if the clause would boost project costs by more than 25% or “would be inconsistent with the public interest.” It would take an unusually brave Obama Administration official, however, to seek a waiver on public interest grounds.

 

text of the bill available at http://thomas.loc.gov.

 

Opinion FOR protectionism

 

“The focus of any stimulus program must be on creating jobs here at home,” said Scott Paul, executive director of AAM.  “American taxpayers want to see their hard-earned money used to put fellow citizens back to work.  “This report documents how greater infrastructure spending is the most effective way to generate employment in the U.S.  It will attack the gross deficiencies in our nation’s infrastructure and contribute to longer-term economic growth, particularly for our manufacturing base.”  http://www.americanmanufacturing.org/infrastructure-investment/

 

 

Opinion against protectionism:

 

inclusion of this “Buy American” clause is a deliberate attempt to translate stimulus dollars into American jobs. http://www.voxeu.org/index.php?q=node/2908

 

Trade unions have argued (and won) as follows:  "the most important source of leakages for the kinds of investment we consider in this report is the use of imported goods and services in the production of infrastructure. Spending on imports does not raise the demand for domestic output and therefore does not create additional jobs.”

 

What comes around goes around

Were there careful consideration of the implications, the US would seem to have little incentive to start a procurement fight. According to OECD figures (OECD 2008, pp. 56-57) the US in 2007 trailed only Switzerland, Mexico, Turkey, and Luxembourg in the race among members for lowest government consumption expenditure as a fraction of GDP.

 

Opinion...more...

 

Could prompt retaliation, undermine US leadership, and violate the pledge at the November 2008 G20 Summit in Washington not to adopt protectionist measures (Drajem, 2009).

 

pieces of legislation put before the House mandating that American steel be used in all tax payer funded infrastructure projects is wreaking havoc… in real terms and in philosophical terms. We cannot imagine a more disconcerting piece of legislation to make its way to the floor of Congress in our lifetime, for this smacks so clearly of Smoot-Hawley and other protectionist legislation that did enormous damage in the past.

 

Yesterday, speaking in Washington, the President of the Dallas Federal Reserve Bank, Mr. Richard Fisher… famous for his dissents when he is in the rota on the FOMC…minced no words when he said that

 

"Protectionism is the crack cocaine of economics.

It may provide a high; it is addictive and it leads to economic death…. We

cannot afford to go down that path and I hope

our Senators… Democrats and Republicans…

will be very sensible on this front."

 

 

 

Could Benefit ... Canada....

 

 

Finally, the protectionist rhetoric coming out of Washington these days, and especially the anti-foreign steel rhetoric, shall backfire upon US agricultural exports if it persists. To believe that China and other countries will not look to move their grain purchases normally made from the US to other suppliers less prone to protectionist legislation is naïve. The beneficiaries? Canada and Australia primarily:

 

Violates the Government Procurement Agreement (GPA)?

 

maybe not...

Note 5 of Annex 2, which lists the covered 37 states and subfederal bodies,

states: “the agreement shall not apply to restrictions attached to Federal funds

for mass transit and highway projects.” See Annex 2 of the United States to the

GPA (available at www.wto.org).

 

Analysis:  the proponents of Buy American provisions argue that a large portion of the projects funded by the stimulus bills are not covered in the GPA.13 For example, there is a general exclusion for federal funds destined for mass transit and highway projects.14 Moreover, many of the 37 states that acceded to the GPA also reserved sensitive procurement areas, such as motor vehicles, construction-grade steel, and construction services. But not all states made these reservations. For example, California did not exclude construction-grade steel and motor vehicles from its GPA commitments. In the absence of a reservation or exemption, the application of Buy American provisions to projects sponsored by entities covered in the GPA would violate US obligations.  source:  http://www.petersoninstitute.org/publications/pb/pb09-2.pdf

 

My thoughts:  while its not clear that it violates the GPA...its a bit like saying "guantanomo is legal"...but if the whole world objects to THIS one...they CAN retaliate....even if technically speaking it may be "legal"

 

 

What is the GPA?

 

"A longstanding objective of U.S. trade policy has been to open opportunities for U.S. suppliers to compete on a level playing field for foreign government contracts. The first major breakthough in this area was the 1979 conclusion of the Government Procurement Agreement (GPA), followed by the tenfold expansion of that Agreement during the Uruguay Round negotiations that led to the creation of the World Trade Organization (WTO). The WTO estimates that, under the GPA, the United States and the 26 other GPA Parties provide their suppliers with non-discriminatory access to government tendering procedures worth more that $300 billion annually. In 1995, Mexico agreed to provide comparable access to its government procurement markets under the North American Free Trade Agreement (NAFTA). In addition, the Administration continues to push for the reciprocal removal of discriminatory government procurement practices in a wide range of multilateral, regional and bilateral fora"   http://www.ustr.gov/Trade_Sectors/Government_Procurement/Section_Index.html

 

WTO estimates that the parties to the GPA receive annual access to more than $300 billion in government tendering procedures.  (thats US companies....access to foreign government contracts)

 

see:  http://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm

 

"In most countries the government, and the agencies it controls, are together the biggest purchasers of goods of all kinds, ranging from basic commodities to high-technology equipment. At the same time, the political pressure to favour domestic suppliers over their foreign competitors can be very strong....It is designed to make laws, regulations, procedures and practices regarding government procurement more transparent and to ensure they do not protect domestic products or suppliers, or discriminate against foreign products or suppliers.." 

 

read more here:  http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm10_e.htm#govt

 

 

 

Malaysia:  a different kind of protectionism..."fire foreign workers first!"

 

Malaysia, for example, just instructed its firms to layoff foreign nationals first.1 This is a big concern for the 300,000 Indonesians working in Malaysian factories, especially as recent estimates suggest a third of them will be fired soon. Migrant workers, such as these, sent home collectively $251 billion in remittances in 2007, which financed much consumption of essentials and investment in the world's poorer nations.

 

 

Countries fight currency appreciation...

 

which forces just the US  / JPN to appreciate...if all others depreciate (or are undervalued)

examples....

 

1.  Switzerland: 

 

see forum posting:  "what is going on in Switzerland? They are defending their currency by fighting appreciation....but, as they fight to keep their currency undervalued...that just puts additional pressure on USD ...and on JPN yen...and, if emerging eastern europe needs to fall vs. Swiss Franc (as they unwind their own carry trade)...doesnt this just push eastern europe further down vs. Dollar / YEN...if the Swiss Franc isnt allowed to appreciate? Wont this just hurt Eastern Europe?

Quote:  "The Swiss franc weakened after Swiss National Bank Vice President Philipp Hildebrand pledged to sell “unlimited” amounts of the currency to curb its appreciation. " http://www.bloomberg.com/apps/news?pid=20601087&sid=a9GvOZhII2Gc&refer=worldwide#

 

read more in our discussion on Switzerland

 

Change in US attitude?

 

will the US retaliate?   in Jan 2009, Geithner also said that it’s important for America’s biggest trading partners to refrain from setting or manipulating their currencies’ exchange rates.  “It’s very important for the United States and for the global economy that our major trading partners operate with a flexible exchange rate system,” Geithner said.

 

 

US attitudes to Free Trade under Obama?

 

 

 

Trade Deals Will Face More Critics in Congress:  WSJ:  http://online.wsj.com/article/SB122791760273865619.html

 

Free-trade critics picked up more than two dozen House seats and at least six Senate seats in the Nov. 4 election, a shift that could further endanger proposed free-trade agreements with Colombia, Panama and South Korea.

 

 

 

 

 

 

WTO:  Doha round of Free trade

 

Bilateral trade agreements have become more in fashion recently as WTO talks have failed to move forward:   especially in developing countries increasingly have turned to RTAs to complement WTO talks

 

What needs to be done?

 

With the failure of the Doha Round, the trading system in the 21st century will require substantial reform. The problems of the Doha Round and the proliferation of regionalism confront WTO members with many challenges.  We are moving away from the ideal of one single set of rules that would govern world trade, and toward a system of plularlism.  

 

 

 

Links

 

External:

 

  • Doha trade round [edit] Delivering on Doha: Farm Trade and the Poor by Kimberly Ann Elliott

  • TRIPS [edit] From Wikipedia: The Agreement on Trade Related Aspects of Intellect

  • WTO [edit] ! WTO an international organization designed to supervise and liberalize inte

 

 

Links

see also:

From GloboTrends Wiki: global imbalances (finance)

 

 

External Links:

 

 

External News:

 

In US, Trade Hits Stiff Head Wind

 

 

 

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