U.S. Economy: Non-Sequiturs Piling Up

by: Michael Panzner

The non sequiturs keep piling up. The U.S. economy is supposedly on the mend, yet the Federal Reserve is keeping interest rates at 0% for the foreseeable future. Large company chief executives reportedly expect their companies' sales to climb in 2010, yet they are not planning on doing much hiring. The banking system has apparently been stabilized, yet institutions keep failing and loans are getting harder to come by. And finally, countries keep saying that protectionism is bad, yet, as a new report from The Global Trade Alert (with highlights, below, via Vox.eu) indicates, they are continuing to erect new barriers to cross border commerce:

Many economies may have turned the corner in the second half of the year, but protectionist pressures have not relented. If anything, recent evidence suggests that the protectionist dynamics were worst in the first three quarters of 2009 than the Global Trade Alert reported in September 2009. For sure, protectionism hasn't yet reached the scale of the 1930s--but water doesn't have to boil to scald.

Concerning governments' resort to protectionism, the main findings are:

  1. Since the first G20 crisis-related summit in November 2008, the governments of [the] world have together implemented 297 beggar-thy-neighbour policy measures; that is, more than one for every working day of the year. Add another 56 implemented measures that are likely to have harmed some foreign commercial interests, the total reaches 353.
  2. Since the GTA's last report was published in September 2009, the number of beggar-thy-neighbour measures discovered (105) was more than eight times the number of benign or liberalising measures (12). Looking back on all of the measures implemented since November 2008, the ratio of blatantly discriminatory measures to liberalising measures stands at nearly six to one.
  3. When examining quarter-by-quarter changes in protectionism, experience has taught us that many beggar-thy-neighbour acts only come to light with delay. This fact alone has had an important impact on the number of discriminatory measures reported in the GTA database in the last quarter of 2008 and first two quarters of 2009. In the GTA's second report it was estimated that in the first half of this year approximately 70 measures that likely harmed foreign commercial interests were imposed by governments. This estimate is now revised upwards by 20-25 percent; conservatively estimated, governments imposed 85 protectionist measures per quarter during the first half of 2009.
  4. In the light of this finding, the reported number (78) of discriminatory measures implemented in the third quarter of 2009 is not far short of this quarterly average, especially when one bears in mind that this figure will almost certainly be revised upwards as more information about protectionist acts comes to light.
  5. Particular caution is needed in interpreting the reported figure of 38 harmful measures imposed in the fourth quarter of 2009. First of all, this figure only refers to measures announced or implemented in October and November 2009, two out of the three months of the quarter. Moreover, prior experience suggests that information about many recent protectionist measures taken by governments is not yet in the public domain. For these reasons, the very recent fall off in the number of discriminatory measures is more apparent than real.