From Zero Hedge.
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The NY Times on how trade protectionism is accelerating.
"Global Trade Alert, a respected independent survey, titled a June update on trade protections “Debacle.” It bumped up its estimate of the number of protectionist measures enacted in 2010 and 2011, by 36 percent, and warned that countries had many more coming. The European Union also issued a report finding a “staggering increase in protectionism” in recent months." From the WTO report summary: "Implementation of new trade restrictions continues unabated … Since mid-October 2011, 124 new trade restrictive measures have been recorded, affecting around 1.1% of G-20 merchandise imports, or 0.9% of world imports. The main measures are trade remedy actions, tariff increases, import licences and customs controls. There were fewer new export restrictions introduced over the past seven months than in previous periods. The more recent wave of trade restrictions seems no longer to be aimed at combatting the temporary effects of the global crisis, but rather at trying to stimulate recovery through national industrial planning, which is an altogether longer-term affair. In addition to trade restrictions, many of these plans envisage the granting of tax concessions and the use of government subsidies, as well as domestic preferences in government procurement and local content requirements. Accumulation of trade restrictions has become a major concern … The new measures restricting or potentially restricting trade that were implemented over the past seven months are adding to the trade restrictions put in place since the outbreak of the global crisis. The accumulation of trade restrictions is now a matter of concern. The trade coverage of the restrictive measures put in place since October 2008, excluding those that were terminated, is estimated to be almost 3% of world merchandise trade, and almost 4% of G-20 trade. The accumulation of trade restrictions is aggravated by the relatively slow pace of removal of existing measures. Out of a total of 802 measures that can be considered as restricting or potentially restricting trade implemented since October 2008, 18% have been eliminated. At the time of the last monitoring report in October 2011, around 19% of the restrictive measures had been removed, which means that the rate of removing restrictive measures is actually slowing down. Moreover, the accumulation of restrictions has to be considered in a broader perspective where the stock of trade restrictions and distortions that existed before the global crisis struck, such as in agriculture, is still in place. " I identified the issue close to the inception of my blog. David Rosenberg qutoes Felix Zulauf from Barron's Roundtable (via Zero Hedge).
Slate says the BRICS are coming in for a hard landing.
Last month Brazil imposed a 30% import tariff on vehicles without at least 65% local content. The move is seen as a way to protect its labour force from Chinese imports.
Structural unemployment is the biggest issues facing economies of the West. Protectionism will become more and more prevalent over the course of the next decade as countries seek to find ways to allow employment for the least educated and skilled in their society. An import tariff is a lot cheaper than educating people. The Brazilian President is an Economist; she knows full well the trade-offs of what she is doing. In August, I published a post on how the idea that economic growth of the BRICS can decouple from the global economy is a fantasy. Now, as I predicted, we see India is beginning to decelerate.
From 'The Economist': :"EXPECTATIONS for India’s economic growth rate have been sliding inexorably. In the early spring there was still heady talk about 9-10% being the new natural rate of expansion, a trajectory which if maintained would make the country an economic superpower in a couple of decades. Now things look very different. The latest GDP growth figure slipped to 6.9% and industrial production numbers just released, on December 12th, showed a decline of 5.1% compared with the previous period, a miserable state of affairs. The slump looks broadly based, from mining to capital goods, and in severity compares with that experienced at the height of the financial crisis, in February 2009, when a drop of 7.2% took place. Bombast is turning to panic. " Good luck cheerleaders. However, the price of oil seems higher than warranted given global economic activity. This remains a mystery to me. Saudi Arabia has been constrained for some time now, at least the last five years, in its ability to deliver excess capacity to a tight market. Five years ago they cut production as oil prices were rising. Those who subscribe to peak oil theory have viewed this as evidence that Saudi production was in permanent decline.
Their behaviour during the supply disruption caused by the Libyan civil war cast further doubt on the Saudis ability to act as the marginal supplier to the global market. What’s more, the house of Saud announced a 100 billion dollar investment in renewable energy so that it could increase oil production. The Saudis promised investments that would raise production to 15 million barrels. Recently, they have recanted on these promises citing the supply coming from Brazil and Iraq as sufficient to satisfy global demand. All of this behaviour is very strange for the country with the supposed largest oil reserves in the world and the lowest cost of production. By their actions one should begin to question the truth of either of these two assertions. The implication of Saudi Arabia being an “emperor who has no clothes” is that the cost of extraction of unconventional oil coming from sources like Brazil and Canada are much more likely to drive oil prices than marginal costs have in the past. Unconventional projects take a long time to complete, so we are unlikely to see the oversupply response we have seen in response to past price spikes. The volatility in oil markets is going to increase, as unconventional production delivers an ever increasing share of the world’s production. Political crises and production disruptions will lead to immediate and severe price spikes in the absence of a moderating supply source. Only a stable Iraq, with a significant investment in its field, could possibly replace Saudi Arabia as the “go to country” for incremental oil production in times of global disruptions. Imagine that. Editorial note Jan. 07/12 : My refined thinking has it that oil demand continues to drive prices given the relative tightness between supply and demand. I wrote an article for the Geopoliitcs of Eenrgy which primary thesis was that oil demnad would be more volatile than suppy over the next 10-25 years. |
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