Another Populist move by Obama.
U.S. Adds Tariffs on Chinese Tires.
“President Barack Obama slapped punitive tariffs on all car and light truck tyres entering the US from China. Beijing decried the decision, saying the move sent a dangerous protectionist signal before a G20 summit and could stoke reactions impeding global recovery.”
Below excerpt from WSJ
Let me tell you that since taking office, President Obama has frequently declared himself a free trader. In several appearances over the last few months, he has driven home the message that protectionism is dangerous to economic health.
Now - do you guys get a feeling that he’s just a populist – but lacks true wisdom?Ever since he was elected – I always got a gut feeling that he’s just a populist, and a good orator ofcourse – but someone who lacks conviction and wisdom.He’s someone who tries to take everyone on the same boat, take his policy in middle east for example, but this is not going to work in long term.
Anyway, this move is definitely protectionism! Now – I am not an expert on this – but isn’t it already a proven fact that it does more harm in the longer term.Who knows it better that we Indians, right?Look what we made till we were living under protectionism – a scooter!
Considering that Americans have been preaching against protectionism to the whole world, this would be a hypocritical move.What right would America have after this to ever talk against protectionism?
This might not only back-fire America, but could slowly lead to something which the world is not ready for.This is a wrong approach to a right problem.
1930 great ‘depression’ was after all a just a ‘recession’ which was badly handled
One of the reactions :-
Similar issues had come during Bush era but he chose a different, clearly the better route.
Below excerpt from WSJ
An interesting and welcome development is giving China some hope on their export dependent economy :-
However the below news is depressing
What remains to be seen is how would Obama react?If he goes for tariffs on imported paper – he will almost create a panicking situation.He might want to refrain from doing this, and be seen as protectionist but how would he then justify tariffs on Tires alone? Now this is what happens when you lack conviction!!
13 comments:
Phew!!! He has a tough job at hand Chikki.
I am totally against protectionism. In India also. It leads to a lot of corruption and favor-ism.
This is what politics does.
His approval rating is going down, and he has to give something to his people.
Funny thing is that the US is the consummate capitalist state, and now they are trying to close down their borders, ostensibly to help their own industry.
Hi IHM,
I know you admire Obama..:)..!! I sort of don't. He sounds to me like a just another Indian politician who's election agenda was simple - make a lot of promises.Sometimes, some promises are just contradictory in nature (like the one discussed here) - I am not sure if he has the wisdom to realise it - or if he realizes it but is a smart Indian politician.
I mean USA is a country which was beating drums against protectionism, advising others to avoid it and rightly so. What justifies this isolated decision is nothing but vote bank politics.
As a president of world's most economically powerful country, you can't really afford to make narrow short term decisions to impress your vote bank, because your decisions will affect the whole world.
Protectionism also leads to low competition, thereby losses and low quality of goods, and as per some studies it actually causes even more job losses because the companies start migrating to cheaper locations as a whole..!!
@Amreekandesi
Ya, true! His ratings are bound to come down as he has obviously promised more than he can ever deliver.More and more people will come to face the reality that he's no God (Remember the phrase "Change, we believe in" and the hysteria it created?? People started believing that he's gonna come and change their personal lives and make it better..:) ).
Funny thing is that capitalists are supposed to know that there is no way this is gonna help their industry in anyway, they are just gonna loose money.
Hi,
Offering a US take on the situation
To me, the problem is that the US does not invest enough in the products of the future, nor does it make it any serious effort to train workers in an industry impacted by foreign competition to do something else.
As a result we have a situation oddly reminiscent of Karl Marx, where Chinese {and to a lesser extent Indian} labor takes away the factory jobs from the US. Nothing replaces those factory jobs, As a result, effective demand in the US is reduced and the world is threatened with severe recession or depression. The US has staved off the recession essentially by borrowing money from China and Japan and giving it mostly to the upper income part of the US population. This has created some demand out of thin air and kept things going for a while. We're starting to reach the point where this is no longer possibile.
So the protectionist moves are probably not the right thing to do. The US needs to follow Japan's example and pour a ton of effort into technical development, modernizing its industrial base, etc. It needs to accept that there is a limit to the application of the principles of capitalism, and tax wealth owners heavily enough for the government to employ the part of the population that cannot be employed in manufacturing without the government going broke. This is not happening, and I don't see it happening any time soon.
In the absence of a policy that invests heavily in new technologies and taxes wealth owners pretty heavily to make sure money gets into the hands of the lower classes to buy things, the wheels are going to come off. Protectionism will slow the slide toward disaster, by slowing the movement of industry offshore. It isn't going to halt the downward slide and probably won't slow it much. But it is a normal response by the President to the demands of people who see the wheels coming off and don't want to be caught in the wreckage.
Ray,
Going a bit further from where Ray left off:
* The US has a 'Strong Dollar' policy.
* Today, this is what gives its 'Global Reserve Currency' status some respectability.
* This makes imported goods cheap for American consumers.
* This is why countries like China, Japan and Korea prospered - by feeding the American consumer.
* What is good for American consumer is not necessarily good for American worker - the USD is skewed against his interests.
* There is talk of 50% devaluation of US Dollar.
* That will solve a lot of problems by making Made-in-USA competitive again.
* But a 50% devaluation will make foreign investors, including the Arabs with their Oil Dollar holdings to dump USD.
* That we trigger the collapse of USD.
* Plus, without dirt cheap imports, American consumer will be able to afford a lot less.
* Without American consumer on shopping spree, USA will not remain USA.
* The global economy will not be the same again.
This is 'The State of World Economy' today. It is neither good nor bad nor evil, just a fact of life.
A disaster may be avoided if the Chinese agree to strenghten their currency by 30% and the USD is devalued by 20% over the next 2 to 5 years. This discussion will not be complete unless you factor in Chinese practice of manipulating their currency to keep their manufacturing machine running.
Interesting post. I agree with Ray.
Chikki, your notion that US was always against protectionism may not be true.USA was a strong supporter of protectionism.
See what a US President William McKinley [a Republican who won 2 elections in 1896 and 1900] said about it.
"Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man."
Also the Western European Colonial powers build up their huge economies in the Colonial era not only by plundering and looting the Colonies,but also by discriminatory trade practices.
'Only after World War 2 when USA found itself in a strong position economically did they started praising free trade.
To say that high trade tariffs were the primary cause of the Great Depression of 1929 may not be correct. It might have been one of the factor for worsening the depression but not the primary cause. See the discussion about the causes here
Do not forget that it was Obama who used large amount of public money to stop collapse of more and more Banks and saved the US economy from falling in to greater Depression.
Obama is trying to carry everybody with him. His self-consciousness of being a Black leading a White Nation may be the reason for his indecisiveness.
Hi Raymond,
Brilliant as usual, Infact I missed out this angle in my post. Japan has been openly criticizing US for its lack of investment in technology (Remember US complaint that JAPAN's "torrential" exports are destroying their industries). This was inevitable,isn't it?
"Nothing replaces those factory jobs, As a result, effective demand in the US is reduced and the world is threatened with severe recession or depression. "
The industries will not survive in long term anyway if they don't cut costs, and to cut costs they do have to find a cheaper way of producing goods.The labour costs alone are so expensive in US that there will be no easy way to improve things.This is scary,right? There has to be a major dollar correction as far as I understand..
@Phase shift.
Awesome. Thats precisely whats wrong. I strongly agree with the fact that there has to be a dollar correction.I have more or less nothing to add to what you discussed.
"Plus, without dirt cheap imports, American consumer will be able to afford a lot less."
They will be able to make 'cheaper' exports, remember??
Hi Charakan.
Chikki, your notion that US was always against protectionism may not be true.USA was a strong supporter of protectionism.
Nopes, thats not my Notion :-). BUT USA is definitely the most open country.
"To say that high trade tariffs were the primary cause of the Great Depression of 1929 may not be correct."
Thats complete misinterpretation..!! When did I say that?
"Do not forget that it was Obama who used large amount of public money to stop collapse of more and more Banks and saved the US economy from falling in to greater Depression."
It was Bush's conviction by the way, not OBAMA's..
Princeton Professor and Nobel Laureate Paul Krugman on China's "Beggar Thy Neighbor" policy
By pursuing a weak-currency policy, China is siphoning some of that inadequate demand away from other nations, which is hurting growth almost everywhere. The biggest victims, by the way, are probably workers in other poor countries. In normal times, I’d be among the first to reject claims that China is stealing other peoples’ jobs, but right now it’s the simple truth.
http://www.nytimes.com/2009/10/23/opinion/23krugman.html?_r=1
@Phase shift
Definitely agreed.
Oh forgot to add ,
This has been done before by other countries only to pay a much bigger price later. Don't really have a link to pass on now, its somewhere on Investopedia. Will pass it if I get it.
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