Proof that protectionism won't work in todays "global" economy.
Quote:
WTO Approves Sanctions on U.S. Exports
1 hour, 53 minutes ago
Add to My Yahoo! Business - AP
By JONATHAN FOWLER, Associated Press Writer
GENEVA - The World Trade Organization (news - web sites) on Friday approved stiff sanctions on a wide range of American exports intended to punish the United States for failing to repeal what it considers protectionist legislation, a trade diplomat said.
"It's been approved," said Amina C. Mohamed, Kenyan ambassador to the WTO and chairwoman of the organization's dispute settlement body.
The European Union (news - web sites) and other plaintiffs sought formal WTO authorization to retaliate by imposing new duties against various U.S. products. Among the potential targets are cod, textiles, glassware, mobile homes and apples.
The WTO dispute settlement body had been scheduled to take the action Wednesday, but U.S. trade diplomats held last-minute talks with counterparts from the European Union and countries including Canada and India.
Although U.S. officials declined comment, the move was believed to have followed wrangling after Washington requested fine-tuning of documents submitted to the WTO.
The 2000 law, named for Sen. Robert Byrd (news, bio, voting record), D-W.Va., was written with the steel industry in mind. It was ruled illegal two years ago by the 148-nation WTO "” which referees global commerce "” following a complaint spearheaded by the EU.
The contested law allows American companies to receive proceeds from duties levied on foreign rivals for alleged "dumping" "” selling goods at below-market prices, making it impossible for American producers to compete.
The WTO backed claims that the amendment breaks trade laws by punishing exporters to the United States twice because they are first fined, and then those fines are passed on to their competitors.
In August, a WTO arbitrator approved penalties of up to 72 percent of the money collected from foreign exporters and handed to American companies and said the winners in the case should submit lists of potential targets. Under WTO rules, however, formal authorization must come from the dispute settlement body.
The EU was joined in its complaint by seven other countries: Brazil, Canada, Mexico, South Korea (news - web sites), ***an, India and Chile.
Only the EU, ***an, South Korea and India have so far submitted lists, but all except Chile requested formal authorization to retaliate "” and Canada has said it is pondering which products to target.
On Tuesday, new EU trade chief Peter Mandelson said the sanctions could be applied early next year.
Their value has yet to be determined, but trade officials have said they could amount to more than $150 million a year "” a tiny sum in comparison with the $2 billion in sanctions the EU threatened in its successful bid to force the United States to lift illegal tariffs on foreign steel last year.
Earlier this month, then-EU trade spokeswoman Arancha Gonzalez said the target list included "vocal U.S. sectors that could help Congress focus its mind on compliance."
Other products on the EU list include heavy machinery made by companies such as Caterpillar Inc., which is based in Illinois, the home state of House Speaker Dennis Hastert.
On Wednesday, U.S. Ambassador Linnet Deily told the WTO that the Bush administration was working with Congress to bring the law into line with the global body's rules.
For those who see tarriffs and protectionism as the holy grail of U.S. economic success and guarantor of preserving American jobs, read the above closely. This is what happens when we get a little overzealous in with our import restrictions. I know some of you out there (I won't name names) think that tarriffs equal jobs, but tell that to the guys at Caterpillar who get laid off because their foreign markets dry up due to retaliatory trade restrictions. Imports/exports are a HUGE part of our economy, and if we go to far to restrict either we are doing little else than cutting off our own nose to spite our face.
RE: Proof that protectionism won't work in todays "global" economy.
Hello Mike, Drift Rider
An intresting artical, thanks for posting it.
Mike if I may ask, do you have a pretty good understanding of trade-laws and such?
The reason I ask is that I have never taken the time to educate myself on the subject and I would be intrested in discussing the topic with folks who do understand the issues.
Thanks
Mr-Pirk
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RE: Proof that protectionism won't work in todays "global" economy.
I wouldn't call myself an expert by any means. What I do have is a general overview of how the system works as a whole from the economics classes I had to take to earn my business degree. Foreign trade is a conplex and viscious animal, and one could earn a doctorate specialzed in nothing but international trade and still not know it all I think.
I know enough, however, to tell you that slapping down huge tarriffs on foreign imports is almost always BAD for the American consumer and workerin general, because there is always a backlash ir retaliation from the countries effected by our trade restrictions. Take the steel industry mentioned in the article. Sure, placing heavy tarriffs on foreign steel surely at least temporarily boosts the U.S. steel industry. So if you're a steel worker you might see a temporary boost and get a nice warm fuzzy feeling that the liberals in congress are doing you a favor. The problem is what happens down the road a little. First of all, the tarriff has just seriously pissed off every steel exporting country that sells it's steel to the U.S., because we've just torpedoed their steel industry. So they in return slap huge restrictions on our exports. Next thing you know, the rest of the world isn't buying heavy equipment from Caterpillar anymore because the tarriffs have driven the cost too high. Next thing you know, Caterpillar, because it's lost most of its foreign market, and because the price of steel is artificially high because the supply dropped to the floor because foreign steel producers can't afford to import steel and U.S. steel mills can't meet the demand and the prices shoot up, and can't afford to pay a sizable chunk of their now idle workforce that used to be busy making bulldozers and backhoes for export, and the layoffs begin (which are most assuredly blamed on President Bush and the GOP). Then, because Cat, and companies like Cat, that consume a lot of steel are downsizing because they've lost their foreign markets, and because the cost of steel is atrifically high, the demand for steel eventually falls off sharply, and the next thing you know some steel workers are getting pink slips while others are walking picket lines cause their company can't afford the big raise their union demands now that the price of steel is so high.
This just illustrates a small condensed example of what happens when one country or group of countries use protectionist tactics to start trade wars. Tarriffs and restrictions look good on paper, but if you really think it through to conclusion one can only see that it's akin to playing Russian Roulette with an auto-loader.
The next obvious question is why then, if the results are almost always bad, does the benevolent and all knowing government do such things? Well, that's about politics, votes, and the uninformed voters who cast them. If you notice, this latest round of protectionism comes from the democrat side of the isle (as it usually does, just look at Kerry's entire economic "plan"), and to the uninformed it looks like a great idea. Boost American industry while driving out foreign interests! "Woohoo! Now the union can demand we get a 10% raise and I can afford a new bass boat! We love our liberal "allies" in congress and they love us, too!" etc... But when the whole thing goes downhill when the trade war catches up to us, and this same overpaid worker gets his pink slip and loses his new boat in the bankruptcy, the liberals will do what they can to defer blame onto the Republicans and ride to the "rescue" with big government handouts. The now unemployed, but still well paid, worker is now happy again with the liberals because they 'took care of him' again, oblivious to the fact that it was the actions by the dems that lost him his job in the first place. That, my friends, is the simplified version of the politics behind trade restrictions, and that's why the GOP rarily calls for such restrictions except in retaliation to foreign initiated trade wars.
RE: Proof that protectionism won't work in todays "global" economy.
Mike, out of curiosity, how would you suggest we deal with foreign governments that subsidize their steel and other industries so that those companies can "dump" cheap steel, etc. on America? So far, the WTO has refused to address that issue which was basically what led us to imposing tariffs in an effort to compete.
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RE: Proof that protectionism won't work in todays "global" economy.
Driftrider, I can understand and appreciate your views. Without getting into this, (I've found that it's next to useless to engage in debate over this subject with this crowd), let me bottom line this subject.
It's all about taking down manufacturing in the United States to destroy our ability to produce war goods. As soon as our military is weakened because of our lack of war supplies (and the foreign suppliers refuse to sell us the war supplies we need) our country will be helpless. That has been a systematic plan for thirty+ years and we are being taken down little by little. Look at what's gone. The steel industry, foundries, fine manufacturing, electronics, leather goods, clothing, etc.
Solution: There is none.
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RE: Proof that protectionism won't work in todays "global" economy.
Thanks for the reply Drift Rider.
I hope these questions don't seem to basic but I am a dummy about this stuff.
Trade tariffs to me seem at first blush to be a smart weapon to use because we are a debtor nation as far as trade is concerned from what I hear in the news.
It seems to me that if we did a tit for tat on tarriffs we would end up buying American (when all our exports were tarriffed out of the global market through counter tarriffs from countries we import to). Yet when all imports were stopped then the import companys would put pressures on thier goverments to stop the trade tarriff wars.
I am sure I am not saying this the right way ...it seems to me that the USA market should be much more important to the import nations than the export nations are to the USA simply due to the size of the trade deficit.
Mike I have always wondered why our goverment didn't institute a "basic human living standard"....(my name for it, I am not sure what it should be called) in any trade agreement.
To me what it seems our goverment has been working towards with the trade agreements (dating back to Nixion's trips to China) is to grow a world-wide market for our exports through free compatition.
To me it seems like the grand plan for the USA is to allow imports from the cheapest importer and there-by grow their economy to the point they can afford to buy our exports.
If that is truely the case the major flaw I see is that you are requiring the USA company to compete againts an import company that hires a worker and his family at slave wages.
The USA company is handicapped through or child labor laws and such.
To my way of thinking that leaves the USA worker in a postion of competing against what he can't compete with (unless he is willing to go back to the dark ages). This also leaves our export industries in the position to either lobby for weaker labor laws here or changes in trade agreements or tarriffs.
Mike I am not hunting for an arguement. I know and admit I am a dummie about this stuff. I am stating my assumptions about trade agreements up front.
I am just looking for a better understanding of things.
Thanks
Mr-Pirk
__________________
A proud owner of a Flying Vee. Bestowed by the fine Gentleman VC1111 himself.
RE: Proof that protectionism won't work in todays "global" economy.
Quote:
Mike, out of curiosity, how would you suggest we deal with foreign governments that subsidize their steel and other industries so that those companies can "dump" cheap steel, etc. on America? So far, the WTO has refused to address that issue which was basically what led us to imposing tariffs in an effort to compete.
This is a very good and very tough question to answer, and no possible solution is an attractive one. We can impose tarriffs, and suffer from retaliatory trade restrictions that do more harm than good in the long run. We could subsidize our own exports in retaliation to their 'dumping' by dumping our products into their economies as well. The problem there is that it'll do us more harm than good because subsidizing our industry is many fold more expensive than it is for the foreign companies to subsidize theirs, and Americans (rightfully) don't want to pay a lot more in taxes to do it, nor suffer the socialist system that would result. We could effectively blockade their country by imposing trade embargos, but enforcement is next to impossible, especially if we don't have the backing of the rest of the world (can you say oil-for-food).
Or we could use military force to force the foreign industrys and governments to not take hostile trade actions against the United States. Of course, there are the obvious problems associated with such action.
It a difficult and complicated situation with no clear right answer.
RE: Proof that protectionism won't work in todays "global" economy.
OK then the countries we allow to do the same thing to America like China become manufacturing giants and we have no manufacturing left. Now the people of China can afford to buy what we manufacture. What would that include? I think we need to look at the $150 million penalty in your example for what it is, a drop in the bucket. We have given our ability to manufacture goods away over the last two decades and we will pay a huge price not only in jobs but in freedom. We now rely on other countries so much that if they wanted to crush our economy they could collude to do it in a day. We have become a nation of overweight spineless fools. JMHO.
Proof that protectionism won't work in todays "global" economy.
