|
The Protection Racket – “Patriotism - the last refuge of a scoundrel” |
|
|
|
Written by Justin A. Urquhart Stewart
|
|
Monday, 02 February 2009 |
 It is so easy just to wave the national flag, whoop as the national anthem is played and pretend you are doing so for the good of the nation. Such is the cry of many politicians at moments like these, when global trade is declining and domestic popularity is at stake. To an extent it is thoroughly understandable, after all someone standing up to say we are happy to protect jobs “over there” rather than back home doesn’t necessarily go down terribly well. The past week has perfectly shown up the arguments raging over “bail outs” and loans for the steel and car industry. The key issue is where do you stop? What is a crucial part of the nation’s economic infrastructure, and what is an area of business that is cyclical anyway and can be allowed to fade and fail?
This is where you need the statesmen to stand up. They should be the ones who are able to cast their vision over a broader economic field rather than the myopic parochial parish view of the populist politician. Every failing business causes pain, but what is just ruinous and what is fatal – that is the judgement of an economic Solomon. Mind you, Mrs T would have had a clearer view! If there is one act however which would certainly push the global economy from recession to depression, it would be to see a bout of competitive protectionist policies suddenly sweep the globe. Worryingly, I think I am beginning to see such actions already take place. As the new President looks to get congressional approval for his huge spending plans, so out come the cries and begging bowls for support. The ste elmakers, already propped up by subsidy, want a “Buy America” clause inserted for the anticipated infrastructure renewal programme. No doubt there will be others. Of course the antithesis of this will be the reaction of the EU who will no doubt threaten a legal challenge if they feel it breaches World Trade Organisation (WTO) rules. Naturally any such actions will inevitably create “tit for tat” reactions from others and this is how a thorny ball of protectionist tumbleweed can blow around the economic globe. Already we have seen Russia increase tariffs on imported cars and it has recently tripled duty on imported steel for construction. The EU is not innocent either, as it has increased duties on Vietnamese footwear and on the other side managed to increase subsidies for butter, cheese and milk powder producers. At moments like this I am reminded of the Monty Python film “Life of Brian” when at the Sermon on the Mount, the cries go up of “blessed are the cheese makers”. Mind you it is obviously not working as the Americans have just tripled their tariff on the no doubt strategically vital Roquefort cheese. As for our contribution? We can add Mr Brown’s insistence that British lend to the British, effectively starving their overseas branches and business. So much for our global banking industry. If ever there was a subject for the much vaunted “G20” group of nations to talk about it is this. This group, which seems to produce more gas than ever seems to come out via Ukraine, could look to ensure that between them, as the largest and most influential group of economies, they can show a lead to the others in having a more progressive and enlightened and less self-interested attitude – for the greater good of the global economy. Well some hope! I note that there has been an increase of 39% of anti-dumping cases to the WTO – this is bound to increase. Unless something is done to address this then it is certainly one of the fastest ways of turning our global recession into a depression. I was rather concerned at the headline last week from the Obama’s Treasury Secretary, Tim Geithner, that the Chinese Renminbi was being manipulated. Given that it is in a quasi-controlled environment this is frankly stating the obvious. However, both the tone and the timing from the US administration did not sound especially accepting, and this should be a concern for us as the symbiotic relationship between China and the US is probably the most important economic linkage we have currently in the world. Between them these two behemoths have the ability to make or break the global economic structure. *** In all of this inflation has taken a back seat and most are just content to see it falling back. However, there should in fact be concern over, not so much the current deflationary pressure, but rather the likely inflationary bubble that we could be seeing thereafter. Initially this may start in the area of food, where growing demand and falling production is creating a painful and inevitably inflationary squeeze. We should not forget the riots of last year in countries as diverse as Egypt to Bangladesh. Although traditional metal commodities have continued their torrid time, the agricultural “softs” have been rising quite strongly. Wheat is up 15% since December, corn 17% and soya bean 22%. A warning to us all here and an area which is likely to show further pain, especially in poorer, import-dependent countries and their populations. More riots to come I fear – and not from well fed Parisians. *** And finally.............it would appear that a behavioural economist from an Australian University has promulgated the theory that more British died on the Titanic because they were being polite. The data suggested Britons in that era were more inclined to be "gentlemanly" while Americans were more "individualist". The result was that many were queuing to put their wives on boats and then returning to make way for others. The author of the report added "There was one gentleman who was rather wealthy... who went back downstairs after he put his wife on the [life] boat... put on his tuxedo...went back upstairs and smoked... with the idea that if I am going die, I may as well die as a gentleman and well-dressed”. I thoroughly approve but I hope I would have also picked up the full claret decanter before sitting down with my cigar.
Justin
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited
|
