Time for infusing some protectionism

5 Jan 2009, 0134 hrs IST, ET Bureau





Kumar Mangalam Birla, chairman of the $28 billion Aditya Birla group, was asked recently to spell out the single most important thing he wanted
the government to do. “Levy tariffs and protect the domestic industry,” said Mr Birla without batting an eyelid.

Surprising it may sound as it comes from the head of a group which depends on overseas businesses for more than 50% of its revenues, but he was just reflecting the general mood of India’s business community.


With the largest economies of the world coming under the grip of a recession, the clamour for protectionist measures is bound to become louder. In fact, a number of corporate leaders have already sought higher import duties to protect local players from cheap imports from countries such as Russia, Ukraine and China. With their major markets – the US, Europe and Japan – shrinking due to recession, exporters from these countries are left with no option but to liquidate their inventories at any cost.


“The threat is real,” says YM Deosthalee, finance director at Larsen & Toubro, India’s largest engineering company. “If the government wants India to grow, then protectionist measures are vital,” he said. Mr Deosthalee should know. The Indian power equipment industry, where companies such as L&T and the state-run Bhel are the dominant players, is facing a major threat from Chinese players.


Cheap imports from China are flooding the Indian market for both mega- and medium-sized power plant equipment. Chinese companies such as Dong-fang Electric, Shanghai Electric and Harbin Power Equipment have already bagged orders worth Rs 18,000 crore from the West Bengal government, Anil Ambani’s Reliance Infrastructure and Anil Agarwal’s Sterlite Industries in the past two years. “Bhel would be wiped off in five years if the government doesn’t levy an import duty of 15% on Chinese power equip-ment," said Bhel chairman K Ravi Kumar.


“The threat is more in the metals sector,” says SR Venkatapathy, research head at ARC Advisory Group, a leading research and advisory firm for manufacturing, energy and supply chain industries. “Chinese steel mills are left with unsold steel products and are hence dumping their products in our markets,” he added.


The numbers back these claims. According to the Joint Plant Committee, a state-owned body that releases figures on exports and imports, steel imports into India grew by more than 70% to 1.4 million tonne in November, compared to the same month last year. The rise in imports was mainly due to low-priced steel products from China, Thailand and Ukraine that entered India at $450-500 per tonne, about 25% lower than global steel prices.


“The government should raise the import duty to at least 10%," says Essar group director Jatin Mehra. "The foreign steel coming into India is at least $80 per tonne cheaper than the prices prevail in those countries,” he added. India currently levies 5% customs duty on steel.


Indian companies are seeking protection, fully aware of its likely impact on global trade. “In any case, there has been a sharp fall in global trade ever since the liquidity crisis started,” said Mr Deosthalee. “There should be a two-pronged strategy to tackle this – raise customs duties and levy lower duties in the local market,” he added.


There is already talk about reviving the fabled Bombay Club, which was formed in 1940s to press for protecting the nascent Indian industry. Such noises were also heard in 1990s when India was beginning to globalise. The challeng

The Winds of Protectionism Are Gaining Strength

Michael J. Panzner , Michael J. Panzner

Published 01.06.2009 10:52 GMT



Although history never quite repeats itself, some patterns remain the same.

During the boom times, there is widespread and growing support for open borders and ever expanding cross-border commerce. However, when the economic pendulum swings the other way, so does faith in free trade.


Thus, it should come as no surprise, as the following Reuters report, "Obama, Congress Leaders to Meet Monday on Economy," seems to make clear [in the paragraphs I've highlighted in bold italic], that the winds of protectionism are gaining strength.


Both President-elect Barack Obama and Vice President-elect Joe Biden will huddle with Democratic and Republican congressional leaders on Monday to try to advance a huge economic stimulus bill that Obama hopes can be enacted quickly, despite Republican reservations.

Obama's transition team said it is mulling "buy American" provisions for the stimulus package that could favor U.S. companies over foreign competitors.

Leadership aides in Congress said Obama's meeting is set to begin around 3 p.m. EST (2000 GMT) on Monday.

But in the run-up to the meeting, Republicans on Capitol Hill were warning their Democratic counterparts that legislation to improve the worsening U.S. economy should not spend too much money on government-funded projects and should not be rushed through Congress without adequate review.

Democrats have been hoping to deliver the plan -- which could cost $675 billion to $775 billion or more -- to Obama on Jan. 20, the day he becomes president, or shortly thereafter.


One element of the plan could be "buy American" language benefiting U.S. industry. "We are reviewing the buy American proposal and we are committed to a plan that will save or create 3 million jobs including jobs in manufacturing," Obama transition spokeswoman Jen Psaki said by e-mail.


The New York Times on Friday quoted Daniel DiMicco, chairman and chief executive of steel maker Nucor Corp, as saying the steel industry was asking Obama to "deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."


The newly elected Congress is to be sworn in on Tuesday -- two weeks before Obama. Hearings could push a final package well into February.


The Democrats, who have a majority in Congress, want the economic stimulus to include tax relief for the middle class and spending on schools, roads and other infrastructure. States, which increasingly are having difficulties paying health care costs for the poor, also would get federal money.



$1 TRILLION?


But Republicans have voiced concern about possible waste and say the tab could reach $1 trillion.

"I am concerned by media reports that suggest the Democrats' emerging proposal may cost taxpayers up to 1 trillion in new government spending, with little debate or public scrutiny of the still-unseen legislation," House Republican Leader John Boehner said in a statement on Friday.

"Let's be clear: it is essential that this legislation be debated in a fair, open, and honest way," he said.

At least five Democratic governors say $1 trillion is necessary. The five, from New York, New Jersey, Massachusetts, Ohio and Wisconsin, said on a conference call on Friday they would like the package to include $250 billion for education funding, $250 billion for social services such as the Medicaid health insurance program, and $500 billion for infrastructure.

Massachusetts Gov. Deval Patrick said infrastructure should be defined to include public housing, the power grid, and electronic medical records as well as roads and bridges.

Although the Democrats increased their majority in the 100-member Senate in the November election, they still need Republican support to advance legislation.

A Senate Republican aide, who asked not to be identified, said Democrats could gain stronger, bipartisan support with an economic stimulus measure costing less -- about $500 billion.

Global financial markets rallied on Friday, partly due to hope that a stimulus bill will move through Congress soon.

The meeting with Obama and Biden would include nine leaders from the Senate and House of Representatives, including House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, both Democrats. Republicans attending would include Boehner and Senate Minority Leader Mitch McConnell, aides said.

Republicans said although their numbers in the Senate and House were depleted in the election that brought Obama to power, they would not rubber-stamp a huge new spending plan.

"We hope that Democrats in Congress don't attempt to shut the American taxpayer out of this process by trying to pass a bill that hasn't been the subject of bipartisan review and that hasn't been available for public inspection," McConnell said in a statement on Friday.

He and Boehner have called for extensive hearings to scrutinize the economic plan.

'Buy USA' push may see America slip from free trade church

By Ambrose Evans-Pritchard
Last Updated: 6:52AM GMT 07 Jan 200


America is slipping away from the free trade church.




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.

Protectionism vs. Pragmatism


by: Tom Lindmark January 06, 2009 | about stocks: NUE


Despite my praise for President-elect Obabm in the post below, the statements from an Obama spokesman that fiscal stimulus language may include a “buy American” provision are deeply troubling.

One element of the plan could be “buy American” language benefiting U.S. industry. “We are reviewing the buy American proposal and we are committed to a plan that will save or create 3 million jobs including jobs in manufacturing,” Obama transition spokeswoman Jen Psaki said by e-mail.

The New York Times on Friday quoted Daniel DiMicco, chairman and chief executive of steel maker Nucor Corp, (NUE) as saying the steel industry was asking Obama to “deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘buy America’ clause.”

Now would hardly seem to be the time to start withdrawing into a protectionist shell. Partly because we haven’t been shy about lecturing the Chinese about devaluing their currency in order to gain an advantage, and mostly because we should be aware of the perils that competitive protectionist measures hold. I assume they have read the history books.

Mr. Obama campaign was arguably one of the most anti-trade in memory. He can’t be faulted for not knowing the economic circumstances that he would encounter when he started down that road but he most certainly would be faulted if he proceeds with anything that stifles trade. Amid a collapse of commerce, the last thing that is needed are political impediments to whatever flicker of life may be left.

Let’s hope that pragmatism once again rules the day in the Obama camp. Otherwise, this might be a fatal mistake.

Iniciado por invaco

Ejemplo que he visto la semana pasada en El Corte Inglés: Zapatos Timberland (made in China): 120 €. Zapatos similares hechos en España o en Italia: 140 €.

.

Iniciado por Fray Guillermo

En una economía financieramente sana no deben dar miedo las importaciones. Para importar, debemos al mismo tiempo exportar (no creo que nadie nos regale sus productos). Es igual que el consumo: si una persona quiere consumir más, tiene que tener más ingresos, luego tiene que trabajar más.

UK unemployment including the 1.8 million on disability benefit but who could work will hit >15%, the same level as in 1931, a terrible indictment of Brown's economic policies.

Their export boom is over. It was classical vendor finance of their customer. Their government is sending the excess work force back to the fields and that is where the money is being spent, not on bailing out the West.

So, if Brown and Obama wish to spend their way out of trouble it will be inflationary.

Iniciado por Andrespp

Busca esos mismos Timberland en tienda de EEUU por la red.

Su precio estara entre 1/3 y la mitad de lo que te piden por el aqui en Hispanistanj.