The protectionism comeback and a possible solution
The lead story on the front page of the Washington Post today warns that trade barriers are making a comeback:
Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.
The list of countries making access to their markets harder potentially includes the United States, where critics are calling the White House's $17.4 billion bailout of the U.S. auto industry an unfair government subsidy that would put foreign competitors at a disadvantage.
Articles about the supposed comeback of protectionism have been a dime a dozen for the past six or seven years. I know because I wrote one in 2003. And yet, again and again, protectionism has failed to come back to any sort of world-changing extent (in part because it never really went away). I'm willing to grant that things might be different now—although, seriously, is there really anything new or surprising in the fact that "France is launching a state fund to protect French companies from foreign takeovers"? But the whole oh-no-it's-the-Smoot-Hawley-Act-all-over-again-and-it's-gonna-cause-another-Great-Depression line of reasoning just doesn't convince me. At least not yet.
In search of a better description of what's going on, I went to trade troublemaker Dani Rodrik's blog. And sure enough, I found a much more interesting way of looking at the issue. Rodrik was discussing the Keynesian multiplier, the added economic oomph you get per dollar of deficit spending in recessionary times:
It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do--but should we really care if the alternative is significantly lower growth and higher unemployment? More to the point, will Obama and his advisers care? ...
If American consumers decide to spend 40 cents of a dollar of additional income on cheap imports from China and other foreign countries, the multiplier will be a mere 1.3. How long will it take before politicians of all stripes cry foul over the leakage through the trade account and the "gift to foreigners" that this represents? And they will have Keynesian logic on their side.
The way out of this dilemma is to get the rest of the world to engage in fiscal expansion at the same time--so that the gift is returned. The good news here is that China is playing along and hopefully the Europeans will too (if they can convince Germans to get over their weird obsession with fiscal conservatism).
But most developing nations are constrained by weak fiscal fundamentals. They cannot play the fiscal stimulus game because their borrowing capacity is limited: external finance is drying up and domestic financial markets cannot absorb the increase in public debt without a sharp rise in interest rates.
Rodrik's solution is to come up with some kind of big-time credit help for developing countries. I get the logic, but the politics of that may be extremely hard to manage (can you imagine Tim Geithner asking Congress for a few hundred billion dollars so Indonesians and Brazilians can afford to buy more stuff?). So yeah, maybe now I am starting to worry about the comeback of protectionism.
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1
Eating at the table of FREE TRADE is not easy for any country, big or small.
http://pacificgatepost.blogspot.com/2008/02/americas-china-quandary.html
... and looking to lead the world's countries, like a marching band heading toward fiscal expansion when so many countries are in trouble and cannot pay their bills is a notion unlikely to bear fruit.
Save first. That rebuilds consumer confidence and spending power. This will take years, not months to work through.
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2
Yeah, but as Setser has noted, the Chinese are maintaining their RMB peg to the dollar. Only 25% of their stimulus program appears to be funded via budgetary expenditures ... they expect the semi-private banks (can we call them Agencies if Bank of America owns a huge chunk?) to fund the rest. Then there's the local government stimulus programs ... which also appear to be looking to "private" financing sources which, luckily, were just recapitalized by the US Treasury. YAY!
Germany's stimulus program appears, just now, to represent about 0.5% of their GDP, which the Keynesian experts--at least--seem to think is a big cop out. Of course, as Krugman pointed out, the rest of Europe is upset.
But then, take a gander at the 80 billion euro stimulus program over in Rome, and wonder at how their accountants expect tax revenues to increase next year. The Polish Prime Minister has made plain that Poland won't spend its way out of this mess either.
You start to get the feeling that Samuelson's gibe that it's all for the press releases might be true ... & truth isn't an attribute you would regularly apply to Samuelson.
In the meantime, Russia appears to be raising a wide variety of import tariffs .... and ... flirting with the notion of joining OPEC--which would give the cartel control over 50% of the resource--and trying to give the GCEF a serious go ... as well as forming a more selective gas exporting group of Qatar, Iran, and Moscow. Luckily, they can finally do what the CFR advised them to do in 2000 ... re-nationalize all the holdings of the oligarchs. Boy oh boy, aren't we pleased?!
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3
oooh! its the "protectionism" bogeyman again!!!!
Here's the thing -- the 'free trade' obsession is from the same mindset that brings us "deregulation" in the name of "free markets." Its another scam that benefits the rich and powerful, and because it benefits the rich and powerful, "free trade" has gone from "interesting theory" to "indisputable fact" in the minds of the Village media without any rigorous intervening analysis.
What little analysis we do get is "aggregate" analysis that ignores the disparities in the way that the "benefits" and "damages" of free trade are distributed -- and assume that none of the "benefits" of free trade could be achieved within an overall 'protectionist' framework.
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4
Geez, pluk,
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Take it easy on them!
Your intellectual sledgehammer is pounding the spikes in hard. But, well played, sir, well played. -
5
I find this article interesting because the other night I was watching Fox Business and a woman on there said who cares about the middle class because the really rich are paying all of the taxes in this country as they are paying 40%.
I've always suspected this wasnt true, but I never knew where to look until lately.
So I dug out the most recent IRS report which was 2006 and I totaled up all the filings and figured an approximate tax revenue from them and whats funny is that the people making over 1 million dollars per year do NOT pay all the taxes, as a matter of fact they pay the least.
You can read the article at http://www.KeepAmericaAtWork.com and it is titled "Fox Business Tonight"
On another very important issue to me, I have created a map that is intended to show who is unemployed and who has had their job sent offshore.
I probably will be adding a section today for those that are worried that their job will be offshored.
It would strengthen our cause to bring our jobs home dramatically if I could get everybody that is unemployed or has had their jobs offshored to add their name to the map, so please tell all of your friends and help me to spread the word about it.
Thanks,
- foxjust Thanks to Bama fans for reminding us we needed to buy TP! (Turns out we're fine on detergent). Oh, and nice game #ironbowl - 17 hours ago
- foxjust 'Myth' is one of the NYT's 100 Notable Books of 2009. Not 'good' or 'best,' mind you. But notable http://bit.ly/4vO2kG - 23 hours ago
- foxjust Now that the kind of incisive reporting we expect from the Gapperman! RT @johngapper The Haier factory in Qingdao is very big - 1 week ago
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