http://www.telegraph.co.uk/finance/c...de-church.html
The new wave of radical Democrats sweeping into Capitol Hill are insisting on a "Buy American" clause in the $750bn (£503bn) fiscal package being prepared by President-Elect Barack Obama.
The $17bn bail-out of General Motors and Chrysler last month was already a step across the Rubicon towards a protectionist industrial policy, even if that was not the motive. The EU is exploring a World Trade Organisation complaint over "illegal state aid." But the latest Buy American move is much more explicit.
"This is quite dangerous," said Peter Sutherland, chairman of Goldman Sachs International and a former director-general of the General Agreement on Tariffs and Trade (GATT). "The US is the key to keeping a one-world trading system, but there is always the tendency to go for protectionism in a recession, and this is the worst one I've ever seen."
Hans Redeker, currency chief at BNP Paribas, says the US risks setting off a collapse in discipline across the world. "The US has a leading role so this could set off a huge response in other countries," he said. "There is already talk of a €100bn (£91bn) fund in Germany to save its industry from being sold off cheap."
French president Nicolas Sarkozy has proposed a "strategic investment fund" to fend off "predators" – a euphemism for sovereign wealth funds from Asia and Russia – hoping to snap up France's crown jewels. "We will intervene massively whenever a strategic enterprise needs our money," he said.
Nationalist measures are becoming ever more brazen in emerging markets. Indonesia is resorting to special "licences" to choke off imports. Russia has reacted to the collapse in oil prices by imposing tariffs of 30pc on cars and 15pc on farm machinery. India and Vietnam have imposed duties on steel.
Pascal Lamy, the WTO chief, is so worried he has taken to displaying portraits of Willis C. Hawley and Reed Smoot at his Green Room in Geneva, evoking the arch-villains of the Smoot-Hawley Tariff Act that set off the trade wars of the Great Depression. The Act was forced upon a disgusted President Herbert Hoover in June 1930. This is the pattern in democracies. Lawmakers – with a constituency base – are the first to push for protection.
The question today is whether Mr Obama will try to stop it. His top advisers – Larry Summers, Tim Geithner, Peter Orszag – are free-traders with a global outlook. But Mr Obama himself dabbled in protectionism during the campaign. It is not clear how much political capital he will risk by threatening a trade veto within days of taking office. So far his team has been evasive, saying it is "reviewing the Buy American proposal".
"In the mind of Congress, almost anything that targets China is now considered fair game," said Professor Gary Hufbauer, from Washington's Institute of International Economics.
Mr Obama shares the irritation with Beijing. "China must change its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for US firms and workers, not good for the world," he said in October.
China's actions since then seem designed to test his mettle. Beijing is holding down the yuan again, even though China now has a surplus of $40bn a month.
"My guess is that there is a fierce debate within the Obama team," said Prof Hufbauer. "This could be very serious. The US can do what it wants under government procurement rules. Unfortunately the rest of the world is going to notice: they'll get their own lawyers to find ways of doing the same thing," he said.
"I am hopeful this move to protectionism will be slower to take hold than in the 1930s,but it is a race against time.
If the sun doesn't start to come up on the economy and we're still grinding along in mid-2010, then I'll be worried,"
he said.
For the great exporters –China, Japan, Germany – a trade war would be a crippling blow to industry. For the great importers – the US, UK, Southern Europe – it could set off a bond meltdown as capital flows from Asia dry up.
The two sides are bound together by imbalances. It is hard to see who can "win" if discipline breaks down.
The new wave of radical Democrats sweeping into Capitol Hill are insisting on a "Buy American" clause in the $750bn (£503bn) fiscal package being prepared by President-Elect Barack Obama.
The $17bn bail-out of General Motors and Chrysler last month was already a step across the Rubicon towards a protectionist industrial policy, even if that was not the motive. The EU is exploring a World Trade Organisation complaint over "illegal state aid." But the latest Buy American move is much more explicit.
"This is quite dangerous," said Peter Sutherland, chairman of Goldman Sachs International and a former director-general of the General Agreement on Tariffs and Trade (GATT). "The US is the key to keeping a one-world trading system, but there is always the tendency to go for protectionism in a recession, and this is the worst one I've ever seen."
Hans Redeker, currency chief at BNP Paribas, says the US risks setting off a collapse in discipline across the world. "The US has a leading role so this could set off a huge response in other countries," he said. "There is already talk of a €100bn (£91bn) fund in Germany to save its industry from being sold off cheap."
French president Nicolas Sarkozy has proposed a "strategic investment fund" to fend off "predators" – a euphemism for sovereign wealth funds from Asia and Russia – hoping to snap up France's crown jewels. "We will intervene massively whenever a strategic enterprise needs our money," he said.
Nationalist measures are becoming ever more brazen in emerging markets. Indonesia is resorting to special "licences" to choke off imports. Russia has reacted to the collapse in oil prices by imposing tariffs of 30pc on cars and 15pc on farm machinery. India and Vietnam have imposed duties on steel.
Pascal Lamy, the WTO chief, is so worried he has taken to displaying portraits of Willis C. Hawley and Reed Smoot at his Green Room in Geneva, evoking the arch-villains of the Smoot-Hawley Tariff Act that set off the trade wars of the Great Depression. The Act was forced upon a disgusted President Herbert Hoover in June 1930. This is the pattern in democracies. Lawmakers – with a constituency base – are the first to push for protection.
The question today is whether Mr Obama will try to stop it. His top advisers – Larry Summers, Tim Geithner, Peter Orszag – are free-traders with a global outlook. But Mr Obama himself dabbled in protectionism during the campaign. It is not clear how much political capital he will risk by threatening a trade veto within days of taking office. So far his team has been evasive, saying it is "reviewing the Buy American proposal".
"In the mind of Congress, almost anything that targets China is now considered fair game," said Professor Gary Hufbauer, from Washington's Institute of International Economics.
Mr Obama shares the irritation with Beijing. "China must change its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for US firms and workers, not good for the world," he said in October.
China's actions since then seem designed to test his mettle. Beijing is holding down the yuan again, even though China now has a surplus of $40bn a month.
"My guess is that there is a fierce debate within the Obama team," said Prof Hufbauer. "This could be very serious. The US can do what it wants under government procurement rules. Unfortunately the rest of the world is going to notice: they'll get their own lawyers to find ways of doing the same thing," he said.
"I am hopeful this move to protectionism will be slower to take hold than in the 1930s,but it is a race against time.
If the sun doesn't start to come up on the economy and we're still grinding along in mid-2010, then I'll be worried,"
he said.
For the great exporters –China, Japan, Germany – a trade war would be a crippling blow to industry. For the great importers – the US, UK, Southern Europe – it could set off a bond meltdown as capital flows from Asia dry up.
The two sides are bound together by imbalances. It is hard to see who can "win" if discipline breaks down.
). If I do buy a big ticket British item this year this year it’ll be one of these;
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