Sunday, January 25, 2009

The Pressures for Protectionism

What is often missed during academic debate on the matter, is that there is a substantial constituency in the U.S. that favors protectionism. Actually, they would not even call their policy ideas protectionism, but rather, Fair Trade. They include labor unions, and a broad swath of domestic manufacturers who are under the umbrella of NAM , or National Association of Manufacturers.

The opinion piece, "Depression is Already Here", can be placed in the context of this constituency, and outlines their arguments well. (Although other aspects of the article are more speculative, such as its analysis of the New Deal and wage equity.)

If President Obama is not willing to take tough steps to redress the trade imbalance with China and reduce oil imports, together the Persian Gulf oil exporters and China’s sovereign wealth funds may be able to buy the New York stock exchange eight years from now. Americans, outside those working for the New York banks that facilitate this sellout, will find their best futures waiting on tables for Middle East and Chinese tourists.
The dollar is too strong against the Chinese yuan, Japanese yen and other Asian currencies. The Chinese government intervenes in foreign exchange markets to suppress the value of the yuan to gain competitive advantages for Chinese exports, and the yuan sets the pattern for other Asian currencies. Similarly, Beijing subsidizes fuel prices and increasingly requires U.S. manufacturers to make products in China to sell there.

The choices for the new president are simple. It’s either recovery or depression. Fix the banks, trade with China and energy policy or become America’s Nero.

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