The World Trade Organization said on Monday that protectionist policies could “hold back global economic recovery and weaken key industries long after the current crisis ends,” reported Reuters and CNNMoney.
“The WTO said most leading economies have invoked ‘trade defense mechanisms’ to weather the downturn,” said the newswire.
Protectionism is when governments act to, or enforce policies that, restrict or restrain international trade, according to Investopedia.com.
Most times this is done to favor local businesses instead of foreign businesses.
Bloomberg’s Mark Drajem reports, “Obama said Sept. 11 that he will impose duties of 35 percent on $1.8 billion of automobile tires from China, acting on a complaint by the United Steelworkers union that surging imports were pushing U.S. factory workers out of their jobs. China responded today, filing a complaint at the World Trade Organization.”
Is this protectionism?
Obama says no…
He says this move will expand trade.
It is, however, “the first time the U.S. government has used special ‘safeguard’ rules against alleged Chinese dumping,” reports MarketWatch.
But China countered with a threat to place tariffs on U.S. chicken and car parts.
China also says this is not a form of protectionism.
“China's Ministry of Commerce said it was starting proceedings after having received complaints that U.S. products were being sold in China at below-market prices,” said MarketWatch.
The Wall Street Journal says, “[China’s Ministry of Commerce] spokesman Yao Jian said. ‘China’s move to seek consultations with the U.S. is a legitimate act in line with a WTO member’s rights and a practical step to protect one's own interests,’ he said in a statement on the ministry’s Web site.”
But by definition, both are forms of protectionism, whether they seek to “level the playing field” or not.
And regardless, according to the WSJ, “China on Monday called for talks over the China-U.S. trade dispute in a sign the disagreement may be containable, as evidence emerged that the economic value of the affected sectors is relatively small.”
What might not be under protection, and subject to increased Chinese involvement is the U.S. government’s Public-Private Investment Program (PPIP).
If you recall, this program was set up “to rid banks of toxic mortgage securities by enticing investors to buy these assets with financing from the U.S. government,” reminds Justice Litle, editor of Macro Trader.
A recent Wall Street Journal article reports, “[China Investment Corp.] CIC is weighing investing through one of the U.S. government's bailout programs, the Treasury's Public-Private Investment Program, known as PPIP.”
Justice says, “So what we have here, essentially, is a joint agreement between the U.S. and China to monetize huge chunks of real estate debt... while Uncle Sam gives away the family silver in bulk to a foreign creditor in the process.”
Justice continues, “In essence China is becoming another conduit for Uncle Sam to write checks for underwater Wall Street players.”
What does this mean for investors?
“This type of flat-out government con job – stealing money from taxpayers’ wallets by way of stealth transfer payments to other governments – can only be good for gold and gold stocks,” advises Justice.
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