This is a crucial question because Devon Energy, the Oklahoma-based independent oil and natural gas producer has just decided to put billion of dollars in Deep sea Gulf of Mexico assets on the market.

Canada’s National Post reported:

Devon Energy Corp. hopes to raise up to US$7.5-billion from the sale of its Gulf of Mexico and international assets as the company moves to restructure itself as a North American on-shore player.

Devon’s chief executive, Larry Nichols, said the company believes the market is not valuing its Gulf of Mexico and international assets properly. Devon hopes to realize between US$4.5-billion and US$7.5-billion from the sale of assets during 2010.

Reporting on the same issue, the New York Times has indicated that the Chinese may well be interested in these assets.

One company that might be interested in taking the risk would be China National Offshore Oil Corporation, known as Cnooc. It recently agreed to buy a stake in some of Statoil’s Gulf assets, the first time that a Chinese company would take an ownership interest in energy assets in the United States.

Only four years ago, Cnooc’s $18.5 billion bid for American oil company Unocal collapsed under pressure from Congress amid concerns about American oil assets falling under the control of the Chinese government. Since then, the Chinese have been wary of bidding on American energy assets and have concentrated their investments on undeveloped fields at home and in Africa, the Middle East and South America.

The Statoil deal seems to have changed all that. But Devon’s assets could be too much, too soon for Cnooc. It may simply continue to buy small stakes in fields across the region before it is ready to make a major purchase.

The Statoil connection for Cnooc has not made much of a splash up in the mainstream press, but it is significant given the protectionism we witnessed when the Chinese were rebuffed when they outbid Chevron for Unocal, an American company which had largely non-U.S.based energy assets.

Forbes reported on the Cnooc Gulf of Mexico acquisition two weeks ago:

CNOOC Ltd has agreed to buy a minority stake in four prospects in the Gulf of Mexico from Norway’s Statoil, opening crude oil reserves in the U.S. Gulf to China for the first time.

CNOOC will have a 10 percent to 20 percent interest in the four exploration areas, CNOOC spokesman Xiao Zongwei told Reuters.

But, the Devon assets are far more substantial. Moreover, Cnooc comes in after the fact as a minority investor in the Statoil projects. With the Devon sale, Cnooc would be a principal actor and that leaves the door ajar for economic nationalism.

Related posts:

• China wants all of Repsol’s Latin American oil assets
• Should we expect a protectionist China?
• Is China avoiding using US dollars?
• China to diversify out of U.S. dollars
• China company performance

The Canadian daily National Post has a good piece out today that highlights how the ‘Buy American’ provision is being seen in Canada.  Many see it as an affront that America could and would favor domestic firms over those of its largest trading partner and next-door neighbor despite the North American Free Trade Agreement.

For the second time in six months, pipe fittings in California are being ripped from the ground because they were stamped "Made in Canada," a move manufacturing companies say hurts both sides of the border.

Cambridge Brass Inc., a Canadian brass fittings manufacturer, discovered Thursday that it stands to lose more than $1.5- million in this most recent fallout from the Buy American protectionist measure.

Greg Bell, vice-president of sales and marketing for the Cambridge, Ont., company, received a call Thursday from the City of Sacramento, where the parts were being fitted into the public water system. He was told his product was no longer acceptable because it was not made in the United States.

"It’s disheartening. (The city) wants American-made products and there’s nothing I can do about it," Mr. Bell said. "Business is tough enough these days without having to deal with these roadblocks."

Anything already in the ground will have to be ripped back up at Cambridge Brass’s expense, Mr. Bell said. Between the costs of losing the project, pulling up the pipes and legal fees, he estimates his company stands to lose money in the seven-figure range.

Cambridge Brass has been based in southern Ontario for more than a century and has survived two world wars and the Great Depression, but Buy American may be what finally causes the company to bid farewell to the province.

Mr. Bell said losing a major project like this would mean more layoffs for the already suffering company.

It has already lost a supply distributor in Maine, and it has had to lay off half of its own employees in Cambridge – from a workforce of 140 it is now down to 77 – since the introduction of Buy American policies this year.

And if these protectionist measures continue, he said, the company will likely be forced to move its manufacturing to the United States in order to stay in business.

America seems clueless at how protectionist policies build rage that politicians abroad must quell or heed through retaliation. It’s as if only American politicians want to protect jobs.

It bears repeating because some people don’t get it: it’s not the act of protectionism itself which is so damaging, it is the retaliation and escalation that results.

"The government has got to stand up and propose some serious retaliation," said John Hayward, president of Hayward Gordon Ltd., noting the Halton Hills, Ont.-based industrial-pump manufacturing company has been barred from bidding on U.S. products. He said he has had to switch manufacturing from three Canadian plants to U.S. sites in order to stay in business, a survival decision that has resulted in local layoffs.

Read the full account below.

Source

‘Buy American horror stories’ building – National Post

Related posts:

• ‘Buy American’ will translate into a 21st century Smoot-Hawley
• Canada is furious about U.S. protectonism
• China launches retaliatory investigation into U.S auto subsidies
• The absurdities of ‘Buy American’
• China: we “will take steps to protect the interests of our domestic industries”

China on Friday accused the US of protectionist and biased trade policies less than a week before president Barack Obama’s first visit to Beijing.

In a stinging rebuke to Washington, China’s commerce ministry promised to take measures to protect its domestic industry after the US slapped anti-dumping duties on $2.6bn of Chinese steel pipe imports. The duties are part of a growing roster of trade conflicts between the two countries, despite a high-level meeting last week in China aimed at reducing tensions.

“China resolutely opposes such protectionist practices and will take steps to protect the interests of our domestic industries,” Yao Jian, ministry spokesman, said on its website.

I see this coming to a head.  More here.

Related posts:

• China launches retaliatory investigation into U.S auto subsidies
• China: reflation play spells trouble for rest of the world
• China issues bonds to “promote the RMB in neighbouring countries”
• Beijing starts a ‘Buy China’ policy
• Free trade is dead: victim of a poor economy

I have been reading press accounts of the GM decision to back out of the Opel/Vauxhall sale to the Magna/Sberbank consortium from various countries. There are a lot of different perspectives on this event in the U.S., Belgium, Spain, Germany, Russia, the U.K and elsewhere, because a lot of players are involved.

The conclusion I come to is that economic nationalism is the driving motivator behind much of what you read. To the degree, we continue to experience a soft global economy, this should be seen as a warning of how individual actors will respond in future.

Easy decision to keep Opel

GM’s decision to keep GM Europe is fairly straightforward in my view. The cars and technology in GM Europe is something General Motors never wanted to part with. They only did so because of the need to raise cash in a weak economic environment. Now, things at GM (and Ford) are looking much better and GM has exited bankruptcy. There is no desperate need to sell.

Moreover, the EU was asking GM a lot of questions about the subsidy deal they struck with the German government in order to effect the sale of Opel. Other European nations, Spain and the U.K. in particular, were livid because they suspected an unfair subsidy of German jobs over Spanish or British jobs. But, it goes far beyond those two nations as GM Europe employs 55,000 people in places like Sweden, Poland and Belgium.

We saw what happened to ING, RBS and Lloyds due to the EU’s rules on competition. One could reasonably expect a similar crack down in the auto sector. Details will emerge at some juncture, but one could conclude that GM did a cost-benefit analysis in which the wrangling with the EU weighed heavily on their decision to back out of the Magna deal.

And, in the end, should we expect the restructuring GM performs to be qualitatively any different than what Magna’s consortium would have done? They too have announced 10,000 job cuts, a figure in line with what was expected under Magna’s control. So, on the surface, this looks like a net benefit for GM, a net loss for the Magna-led group, and a wash for workers and politicians.

Enter economic nationalism

But, unfortunately, that’s not how it is likely to be seen. Let’s look at it from a German perspective.  Germany’s Chancellor Angela Merkel went to bat for the Magna deal, winning what was widely seen as a measure of security for German workers at a critical time during economic weakness. This bolstered her election chances. As a result, the center-left SPD has now been replaced by the Libertarian-minded FDP in a coalition reminiscent of the Helmut Kohl days. Consider this a move to the right in Germany.

Nevertheless, Merkel has stuck with her allegiance to Barack Obama. In fact, as a result of this relationship, she was the first German Chancellor in 50-odd years to deliver an address before Congress just two hours before she learned of GM’s backing out. What’s more is the U.S. Government is the majority owner of General Motors. One would think the Obama Administration had some insight into the decision-making at GM. Either the Administration didn’t know and is being recklessly hands-off in an enterprise where it has sunk tens of billions or it did know and did Angela Merkel a disservice by not informing her of what was to come well before her speech to Congress.

So, you have an American company owned by the American government backing out of a signed agreement and potentially thousands of jobs at risk. Talk of plant closures at Eisenach, Bochum (and Antwerp in Belgium) and the loss of jobs is rampant in the German press. GM Europe’s head John Smith says, "if they like the Magna plan, they will also like the GM plan." That is not an argument likely to gain sway in a period of economic uncertainty.

The Germans are livid.  German workers have gone on strike. Meanwhile, you have the UK Business Secretary Lord Mandelson warning that the division of job cuts must be ‘fair.’ And the Spanish Opel workers had just OK’ed the Magna plans two weeks ago. This is a bit of a zoo, isn’t it?

It is every nation for itself – precisely what one would expect with a shrinking economic pie and a deep downturn.

Going forward

GM has mishandled this affair quite badly I believe. At least with the Magna deal, the Germans were in the driver’s seat. Now, all of the individual European nations are angling for their say in this matter. Yes, GM had little choice given the likely scrutiny it was under via Neelie Kroes, but it certainly could have handled the political aspects of this much better.

However, now that this situation is out, it gives us a bird’s eye view into how nations respond when a division of the spoils becomes an issue.  And what we have seen does not give confidence that a coordinated approach will prevail. I take this affair as a clear indication that economic nationalism is alive and well and very much a threat to our collective well-being.

Related posts:

• Germany gives GM a stiff arm on state aid
• GM board decides to keep European Opel unit
• German Press: Fiat to sign a deal with Opel, not Chrysler
• Germans reject Chinese offer for Opel
• GM considers keeping Opel, raising capital

Marshall Auerback here. You saw Ed’s last post on China, quoting from Peter Tasker, one of the top analysts in Japan when I lived there. I take Peter’s insights very seriously. His analysis implies something a lot more in regards to currencies, trade and credit.

China’s bank credit expansion is so great that even if nominal GDP is up five to ten percent, the credit to GDP ratio will rise by about thirty percentage points.  It took Japan ten years to  take it up by fifty or sixty percentage points, and it has already been high in China before this credit boom. How high, no one knows because there is no good data on debt outside the banking system.  But there is such debt.  The debts of households and firms outside the banking system could be thirty percent of GDP.  The total ratio now could be 185%.  This is the same as Japan at the peak and close to the US now. 

This could keep China going for quite some time, but the consequences for Japan could be disastrous.  Indeed, for most of Asia, which could precipitate another crisis for them down the road.

One relatively unexplored aspect of the emerging Asia crisis of 1997 was what pushed these countries heavily into current account deficits.  But between 1992-94, China devalued the RMB by close to 60% (she was already running a current account surplus when she did it the second time), which created huge competitive pressures for the other countries and pushed them rapidly into deficit.  This time, China is devaluing along with the US dollar and reflating a credit bubble — not to encourage domestic demand, but to create a renewed export juggernaut, at a time of weak external demand.  This could really be problematic for the rest of the world.

I wonder how long before the protectionist pressures emerge?

Related posts:

• China is now on the same bubble path as Japan post-1987 crash
• The bullish argument for China
• G-20: China is clearly looking for a new world order
• Japanese defend dollar’s status while China tears it down
• China is now America’s largest creditor

China has sent yet another public signal that it is unhappy with the U.S. and its trade policy by prepping an investigation into alleged illegal auto subsidies by the U.S. government.  The timing of this announcement puts a spotlight on the bailout of GMAC, the auto financial company which effectively has been nationalized the firm. This may be by intention.

The Financial times reports:

China is preparing to launch a trade investigation into whether US carmakers are being unfairly subsidised by the US government, according to people familiar with the matter.

The move comes at a time of heightened trade tensions between the two countries after the US imposed duties on Chinese tyres last month. Many warned this would prompt Beijing to retaliate.

Few vehicles are actually exported from the US to China, but the move would have symbolic power by turning the tables on Washington.

US labour groups have long accused Beijing of unfairly subsidising its exporters. However, through a “countervailing duties” investigation, China would assess whether the US was open to the same charge. The investigation could lead to import duties.

General Motors and Chrysler have received about $60bn in government bail-out funds, though Ford has received nothing.

Yes, General Motors has a large presence in China and its bailout by the government has an impact on its ability to operate competitively in China. But, because the U.S. does not export many cars to China, one might see this as a strange action on China’s part.  In my view, China is telling us with this action that “what is good for the goose is good for the gander.”

I find this story a bit curious because China already said in September that it would investigate autos and chicken in retaliation for U.S. tariffs on tires. But, we should look at this in a wider context. The US is also angling to get Chinese to revalue renminbi. The Chinese are resistant to this and their actions here can also be seen as a warning to the U.S. that any and all protectionist threats will be met with retaliation.

Elliot Feldman, head of international trade at Baker & Hostetler, the law firm, said his firm warned the USTR last January that the approach the US was taking towards China and other countries over subsidies was dangerous in the light of the US’s own support for carmakers, banks and financial institutions.

“We warned that other countries could apply to the United States the same principles the United States was applying to them,” he said. “Apparently we have arrived.”

The problem with protectionism is not that it can protect sectors, but that it leads to retaliation and escalation. This is now what is beginning to occur.

Related posts:

• China: we “will take steps to protect the interests of our domestic industries”
• Should we expect a protectionist China?
• Beijing starts a ‘Buy China’ policy
• Tariffs: Other industries may line up for sanctions against China
• China detains Rio executive on suspicion of espionage

In what looks to be a central line of attack in the quest to re-balance the global economy, the Treasury Department has ratcheted up the rhetoric against China’s currency peg. The Treasury’s semiannual report to Congress slammed the Chinese for their lack of exchange rate ‘flexibility,’ but stopped well short of accusing the Chinese of currency ‘manipulation’ as Tim Geithner had claimed during his confirmation hearings before Congress.

Bloomberg reports:

“Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework,” the report said. “The Treasury remains of the view that the renminbi is undervalued.”

China’s foreign-exchange reserves, the world’s biggest, surged in the third quarter as an economic recovery attracted speculative capital and a weak dollar boosted valuations of its yen and euro assets.

Record Reserves

The holdings climbed about $141 billion to a record $2.273 trillion, the People’s Bank of China said this week. That was less than the unprecedented $178 billion gain in the second quarter.

The Obama administration wants China to “pursue policies that permit greater flexibility of the exchange rate and lead to more sustainable and balanced economic growth,” the report said. The U.S. will continue to push China to allow the yuan to appreciate in two-way meetings and through meetings of officials from the Group of 20 nations.

People’s Bank of China officials have called this year for an alternative to the dollar as a global reserve currency. At the same time, the issue hasn’t been a central point of debate at recent international summits like a meeting of Group of 20 leaders in Pittsburgh last month.

If Treasury is looking to burnish its populist credentials, making these statements to Congress where protectionist and populist sentiment is running high is certainly the place to do it.  The question is: what’s your endgame?

Right now the US dollar is looking weak despite Mr. Geithner’s advocacy for a stronger dollar.  If you ask China for more exchange rate flexibility, you clearly are not serious about a strong dollar – and everybody knows it.

Here’s how I see things playing out:

• Congress looks at this report and concurs that the key to ending slower global growth is to correct global imbalances via a Chinese currency revaluation. Fair enough.
• However, individual Congressmen, looking to reassure jobless constituents ahead of the midterm elections, will escalate by presenting bills to ‘punish’ China if no actions are taken.
• China will be aghast at this and, in a further escalation, start making noises about ditching the dollar.

At this point, the question is how does this get resolved.  To date, bilateral U.S.-Chinese economic tensions have escalated and led to protectionism. Further escalation will yield unpredictable results and will be destabilizing. Chinese officials cannot be seen by their domestic constituency caving to American pressure.  This would undermine their authority and create problems domestically. Therefore, a public frontal assault on the renminbi peg is likely to backfire.

Like Stephen Roach, I see protectionism as the largest threat to global recovery. Let’s hope the Administration is aware of the dangers.

Related posts:

• China “serious about the plan to internationalise” Yuan
• Japanese defend dollar’s status while China tears it down
• Mea culpa on the need for a new currency
• China slams U.S. for inflating global asset prices via carry trade
• Is China avoiding using US dollars?

I have to admit to hyping the debate now swirling about protectionism. I believe that tariffs are not a very good solution to a trade problem as they are likely to result in retaliation and/or escalation. Moreover, they end up protecting small groups at the expense of higher prices for everyone else.  That is why I wrote the provocatively-titled “Murder-Suicide in Chimerica.”

But taking a step back from the rhetoric for a second, I want to highlight two recent articles and make a few comments.

Is the protectionist bogeyman really coming?

First, while a protectionist backlash is a distinct possibility which I see as the main threat to sustained recovery, I recognize that countries like China and the United States are co-dependent and loath to permanently altering the status quo unilaterally. So while I condemn the recent tariffs imposed on Chinese tires, I recognize that the tariffs were imposed in the calculus that this issue would not or could not escalate.

This is what James fallows argues in a post yesterday:

I keep putting this off, so before it finally disappears into the mists of time, here is a bullet-point summary of what I would have said at greater length when the Chinese tire tariff first arose.

1) There is not now, and there never was, a serious possibility that this would escalate into some sweeping, self-intensifying, global-recovery-threatening "trade war."  The many publications and commentators who raised their hands in "Oh no! It’s Smoot Hawley again!" horror need to calm down — and to have their tendency toward over-reaction noted for the record. Yes, I’m talking about you, Economist magazine cover-designers (last week’s cover image, below), but you had tons of company.

There is too much going on, on too many other fronts, involving affairs of incomparably greater consequence between China and America, for this to have been more than a contained, specific dispute — contained in both duration and sweep. This was clear at the time and should have buffered the shock-horror tone of the stories. Why this matters: because of the  boy-who-cried-wolf principle. There are issues between China and the outside world in which a small disagreement could spiral into a very dangerous confrontation. Many of these involve Taiwan, for reasons to be spelled out another time. But tire tariffs, agree with them or not, were never going to set off a global economic confrontation.

In effect, Fallows is saying that it undermines ones argument to scream, “Smoot-Hawley, Smoot-Hawley” every time there is some issue that deviates from the idealized world of free trade. Eventually people will block this out, especially in an environment like this, in which populist sentiment is running high. Fair enough.

Protectionism is more than just tariffs

So with those thoughts in mind, I read Edmund Conway’s article “We are entering a new age of protectionism” in the Telegraph. Conway says:

Some are "traditional" measures, familiar from the Depression and elsewhere – subsidies for domestic producers or tariffs on imports, President Obama’s move to slap a 35 per cent charge on Chinese tyres being a prime example. Such measures are provoking fury, and with good reason: the protectionist spiral into which the world plunged in the 1930s almost certainly contributed to the war at the end of the decade.

However, such visible signs of protectionism tell a fraction of the story. For the shocking truth is this: over the past year, the costs and obstacles faced by exporters have, according to a study by economists David Jacks, Christopher Meissner and Dennis Novy, increased by almost the same scale as in the early 1930s when the US and others were imposing a range of protectionist laws, including the infamous Smoot-Hawley Act.

Partly this is one of the perverse consequences of the financial crisis, which crippled the system of trade credit that underpinned the international flow of goods, making it impossible for some companies to ship products from one part of the world to another. But, far more worryingly, it is also a product of explicitly protectionist measures imposed by countries such as the UK in an effort to save their domestic banking systems from collapse. Most egregiously, these included so-called financial mercantilism, whereby governments, having rescued a bank, insisted that it had to lend far more to domestic customers than business or individuals overseas businesses.

This new protectionism is a different beast from that of the early 20th century, but the result is the same. According to the Bank for International Settlements, the amount of money flowing across national borders has collapsed in a way never before witnessed. Put simply, financial globalisation, which helped power economic growth in recent years, has gone into reverse over the past year. All the more worrying is that it has done so without people noticing.

If I read Conway correctly, he is rightly pointing out that all the bailouts and subsidies we have seen – especially in the financial sector – are the economic equivalent of tariffs.  Protectionism is not just about tariffs. We are moving to a world in which domestic jobs are ‘protected’ via non-tariff remedies.

Extending Conway’s argument to the auto industry, it should be patently clear that this is what is happening. Here are a few posts I wrote on the issue.  The titles should give you the gist.

• Volkswagen: if the American carmakers can get bailout funds, so can we – Dec 208
• Sweden: competitive auto bailouts begin with Saab and Volvo – Dec 2008
• Germans reject Chinese offer for Opel – Jul 2009
• Cash for Clunkers will put GDP over the top in Q3 – Aug 2009

Every car company has its hands out for a subsidy or bail out and most of them are receiving it. Certainly, the U.S. has led the way, but the Germans have been as bad as anyone here.  The deal that the German government struck to save Opel with Magna, a Canadian-Austrian auto parts manufacturer, is widely perceived as having been slanted in favor of German jobs over Spanish, Belgian or British.  All of these countries are complaining bitterly to the EU that the deal represents a subsidy and is anti-competitive.

This is why you see the Germans talking up regulatory reform in finance and the Americans and the British are talking up re-balancing:  The U.S. and the U.K. have strong financial services industries and Germany has a strong export sector. Of course the Americans are opposed to financial reform.  Of course the Germans don’t want global rebalancing.

Politics is domestic

In a prior life I was a foreign policy guy.  In my time living and breathing foreign policy it became evident to me that politics is always domestic first.  If you want to know why a foreign leader is acting a certain way or taking a specific position, take a look at the domestic political environment.

Do you think the Chinese cared what Americans think, when they threatened to retaliate to the tire tariffs? Do you think Angela Merkel cares what happens to workers at Vauxhall plants in the U.K. when she arranged the Magna deal? Do you think the Americans care about what happens to Frankfurt as a financial center when they bailed out BofA and Citgroup? Of course not.

What matters is placating domestic concerns and consolidating power domestically. So while I talk about the “cozy” relationship between China and the U.S. as a marriage, I am under no illusion that this is anything more than a business relationship. When push comes to shove domestic concerns will win out. And if that means placating rioting workers in fear of losing jobs, so be it.

Expect more, not less protectionism

So I am not optimistic this protectionist wave is going to go away. My baseline sees more not less protectionism.  What would be wonderful is if the recovery taking hold were robust enough so that nations came together and worked out a workable forward-looking global solution to some of the more intractable macro problems. However, for the time being most people are retreating to their corners, making protectionism a continued threat.

Related posts:

• Should we expect a protectionist China?
• Populism: The real economic danger in this recession
• Jagdish Bhagwati: Obama is a protectionist
• Murder-Suicide in Chimerica
• China launches retaliatory investigation into U.S auto subsidies

Now that President Obama has signalled his willingness to punish the Chinese for dumping on tires, a whole host of other industries are likely to file their own ‘copy-cat’ complaints.

Reuters says:

President Barack Obama’s decision to restrict tire imports from China after union workers complained of a surge could lead to copycat cases in areas such as steel, clothing, paper, machinery and consumer goods, trade experts said on Monday

"It’s a target-rich environment," said Lewis Leibowitz, a lawyer who represents the Consuming Industries Trade Action Coalition, which opposed relief in the tires case.

"There’s almost anything you can hit. And even within import categories that have gone down, there may be smaller product categories that have gone up," Leibowitz said.

However, the question of which industries could qualify for relief is complicated by the fact that overall U.S. imports from China have fallen in 2009 because of the global and U.S. economic downturn, he said.

Obama’s decision late Friday to restrict the tire imports was the first time the United States had used a special import safeguard provision against China known as Section 421.

It triggered an angry response China, which said it planned to challenge the action at the World Trade Organization and begin new anti-dumping investigations against U.S. products.

Beijing agreed to the anti-surge measure when it joined the World Trade Organization in 2001 and former President Bill Clinton’s administration relieved heavily on that commitment to help persuade a reluctant Congress to approve the pact.

Given that the WTO ruled against China on tires, it stands to reason that some grievances in other industries filed in the WTO against the Chinese would also likely be successful.  How can the President not slap tariffs on these products as well, given his actions in this first test case?  Clearly, what works for tires should also work in steel, clothing, paper, and elsewhere. If I were an American exporter in any of these industries, I would be lawyering up right now.

My hope is that we can get a comprehensive and equitable bilateral trade resolution with China to avoid more tariffs on either side.

Related posts:

• Should we expect a protectionist China?
• China: we “will take steps to protect the interests of our domestic industries”
• China launches retaliatory investigation into U.S auto subsidies
• Murder-Suicide in Chimerica
• China cutting overcapacity

In 2002, the global economy was weak and equity markets around the world were at multi-year lows following the greatest equity bubble and bust in world history. Many policy makers including Alan Greenspan, chairman of the U.S. Federal Reserve, feared a deflationary spiral of Great Depression proportions resulting from the stock market collapse.

To prevent such an outcome, the United States embarked on an historic monetary experiment to reflate a post-bubble economy by lowering interest rates to 1%, the lowest in 50 years. The result was a huge global economic boom which benefitted nearly every economy and every asset class on the planet. But the boom has turned to bust. In its wake, the cozy relationship between China and the United States that developed during boom time is unravelling.

Just Friday, Barack Obama slapped Chinese tire imports into the United States with tariffs of up to thirty-five percent. China was outraged and immediately threatened to retaliate. I now see a trade war between China and the United States as the biggest threat to global economic recovery.

With this trade war looming, one must wonder if Chimerica, the marriage of China and America as one economic entity, will end in murder-suicide, taking the global economy down with it.

Chimerica’s origins

Niall Ferguson and Moritz Schularick invented the term “Chimerica” in 2006 to describe the underpinnings of the 2000s boom. In their view, this economic upswing resulted from an America and China joined at the hip in a state of economic interdependence. Americans were the spenders and the Chinese were the savers and producers. The United States spent far in excess of what it saved. Meanwhile China ran a huge current account surplus, accumulating a $2 trillion stash of largely U.S. dollar-denominated international reserves, effectively funnelling America’s borrowed money back into the U.S. economy.

This state of affairs was always unsustainable – more so after the collapse of the associated credit and asset bubble exposed fissures in the global financial system in 2007. However, the flashpoint came in 2008 when the U.S. dollar plummeted to record or multi-decade lows against a host of other major currencies, leaving China’s reserves diminished in value. For the months since, the Chinese have expressed growing concern that they could get the short end of the stick if the marriage which created Chimerica dissolves.

Chimerica’s unravelling disturbs China

If one looks at any one incident involving China and the United States during the global economic crisis in isolation, it is easy to lose sight of the big picture. However, threading the events of 2008 and 2009 together makes a compelling case that the Chinese – U.S. marriage is coming apart.

The first indication of Chinese concern which I detailed came as the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac collapsed last August. The Chinese had put much of their reserve money into GSE debt, believing it as safe as U.S. government debt. It was evident that the GSEs were not a safe investment except through an implicit government guarantee (as I said in May 2008). But when the GSEs collapsed, the Chinese were caught out and warned they could dump dollar-denominated assets unless they were made whole.  Subsequently, Fannie Mae and Freddie Mac were nationalized and creditors were made whole.

The next flashpoint was created by comments by incoming Treasury Secretary Tim Geithner at his confirmation hearings before Congress. Geithner charged China with ‘manipulating’ its currency in an environment in which many western policy makers were openly blaming Asia’s mercantilism for the economic crisis.  The Chinese retaliated, with Chairman Wen slamming the U.S. as a profligate nation in unusually stark terms that raised quite a few eyebrows.

At just about this time, the first hints of real American protectionism came into being in the form of the Buy America provision attached to the stimulus bill. There was quite an uproar from America’s major trading partners like Canada and China – and I saw this as a 21st Smoot-Hawley at the time, a view I still hold. (To make matters worse, the provision has had perverse consequences.)

By this point – early 2009, the Chinese were done. They had suffered the potential for massive losses through the dollar’s weakness and the failure of the GSEs. Now, they were being blamed for a crisis which began in the west.  It was at this time that I noticed a steady drumbeat of ditch-the-dollar talk coming out of China. By the G-20 meeting in April, the Chinese central bank head Zhou outright called for a new international reserve currency.

The drumbeat of anti-Dollar news coming from China got louder and louder during the spring. The Chinese started settling trade in Yuan (Apr. 9) instead of dollars. The Chinese were discovered to be stocking up on gold supplies (Apr. 24). The Chinese central bank attacked the policy of quantitative easing in its quarterly report (May 9). The Chinese positioned themselves as the champion of emerging market nations and assembled support from Russia, Brazil and India for reforms in the international reserve system (Jun. 12).

And then came the retaliation.

Protectionism rises

On June 16, I wrote a post “Beijing starts a ‘Buy China’ policy” which clearly demonstrated that the Chinese were incensed by the Buy America provision in America’s stimulus bill. The trade war was on.

The ‘Buy America” and the “Buy China” provisions were nationalistic and prevented goods from other countries being bought. However, they were merely passive protectionism i.e. legislative exclusion of foreign goods and services. No tariffs were assessed.

But when Barack Obama chose to slap 35% tariffs on Chinese tire imports, this was an unmistakable act of active protectionism. This was the proverbial serving of divorce papers.

Expect prices to rise as a result:

Marguerite Trossevin, who represents a coalition of U.S. tire companies that import Chinese tires, said the tariff decision is “very disappointing.” She predicted price increases for U.S. consumers and losses for U.S. tire importers.

The Chinese have now said they will look to retaliate on U.S. poultry and auto products:

China announced dumping and subsidy probes of chicken and auto products from the U.S., two days after President Barack Obama imposed tariffs on tires from the Asian nation.

Chinese industries complain that they’re being hurt by “unfair trade practices,” the nation’s Ministry of Commerce said on its Web site yesterday. The dumping investigation relates to poultry alone, a spokesman said in Beijing today. The ministry didn’t specify the value of imports of the products.

To be honest, the protectionism should not be a surprise.  Obama is no free-trader. And I certainly foresaw a rise in protectionism and indicated in December 2008 the United States was the likely first mover:

Tariffs, export subsidies and currency devaluations will roil the desire for free trade.  Initially, countries will seek relief at the WTO (World Trade Organization) but later they will begin to act unilaterally.  The U.S. will be the first to unilaterally retaliate.

Even the resistance to unwinding excess capacity and global rebalancing are all very predictable as nations retreat into nationalistic thinking when the chips are down. As far back as March 2008, I warned of a likely multi-cycle W-recession predicated on resistance to unwinding the status quo:

The global economy, now supported in the main only by the overextended U.S. consumer, finds itself at stall speed, susceptible to any number of potential exogenous shocks. Ultimately, the economic malaise created by this confluence of events will take years to unwind. A positive outcome to this process is dependent wholly on liquidation of excess credit and consumption.

This process will be extremely painful in the short term, but will lead to a healthy economy long-term. Unfortunately, experience shows that these painful steps will only be taken as a last resort. Moreover, geopolitical events become volatile in a world of economic insecurity, leading to political upheaval and protectionism. Protectionism is a natural outgrowth of nationalist economic policy as it transfers wealth from foreign producers to domestic producers by cutting off access to lower cost excess capacity in the goods in service sectors. However, this also serves to transfer wealth from domestic consumers to domestic producers by increasing the price of goods in the protected sectors, ultimately reducing consumption demand.

For these reasons, I am cautious about the long-term outlook for the global economy and the U.S. economy in particular. The likely outcome for the next decade is one of sub-par global growth with short business cycles punctuated by fits of recession.

Yes, trade and dumping are difficult issues. But, protectionism makes most everyone a loser. In June, I wondered should we expect a protectionist China. But I ended saying it was how the Obama administration responded to the green light given by the WTO to impose sanctions which would be most instructive. Obama has gone protectionist.

Chimerica marriage is ending in divorce

All need not be lost. Global re-balancing, where the American partner in this marriage does a little bit more of the saving and a little less of the spending and the Chinese partner does just the opposite, is what most economic counsellors suggest. This could save a strained relationship and put the partners on a sustainable path. This does seem to be happening.

Nevertheless, could this relationship between China and America be coming to an end?

I say emphatically yes. 100%. There is no going back now. Each partner in this marriage, China and the United States, has a bevy of domestic constituencies which are forcing a dissolution of the relationship. Hardliners in China want to move away from the dollar. And populists in America want to punish the Chinese for allegedly manipulating their currency and dumping goods below cost in America.

So, as surely as day turns to night, this arrangement between China and the United States will end.  This marriage is over. The question is whether it will end gradually and peacefully in divorce or violently in murder-suicide. Right now, it’s looking like the latter.

Related posts:

• Tariffs: Other industries may line up for sanctions against China
• The U.S. is exporting unemployment with ‘Buy America’
• China slams U.S. profligacy
• Should we expect a protectionist China?
• The protectionism bogeyman

When the stimulus bill was being crafted, I wrote three posts lamenting the protectionist Buy American provision attached to the bill.

• ‘Buy American’ will translate into a 21st century Smoot-Hawley
• The U.S. is exporting unemployment with ‘Buy America’
• Canada is furious about U.S. protectonism

The last of these three demonstrated that the provision was needlessly creating lots of ill will north of the border.  As I am in Canada right now, I found the following story from the Sydney Morning Herald particularly laughable:

US President Barack Obama’s stimulus spending has run into a problem: A shortage of General Electric water filters.

GE makes them in Canada. Under the program’s `Buy American’ rules, that means the filters can’t be used for work paid for by the $US787 billion ($935 billion) fund.

Contractors are searching the US in vain for filters as well as bolts and manhole covers needed to build wastewater plants, sewers and water pipes financed by the economic stimulus. As officials wait for federal waivers to buy those goods outside the US, water projects from Maine to Kansas have been delayed.

“It’s added a whole new level of difficulty,” said Kathy Emery, a senior engineer for the West Virginia Department of Environment. “We’re continually having changes and further guidance” from federal rule-makers, she said.

At stake are the president’s efforts to fuel an economic recovery in the US by funneling stimulus funds to communities, including $US6 billion for municipal water projects. Lawmakers mandated that the money be spent on US products, with exceptions to meet international trade obligations.

GE says it assembles high-tech filtration systems for North American markets at its plants in Toronto and Oakville, Ontario, with parts from Hungary and elsewhere.

These are the absurdities that result from protectionism. In a globalized economy, it is often difficult to say where a product was actually made.  For example, there is a huge transfer of parts to GM Detroit from GM Canada in Windsor, Ontario, which is actually geographically south of Detroit and right over the border.  Were GM building cars under the Buy American provision, this type of transfer would be illegal.

The article points out that, just as the plants in GM Canada are fully integrated with GM Detroit, the GE facilities in Oakville and Toronto are fully integrated with GE’s US operations as well.

The purchasing rules are hurting the stimulus program, said US Representative Kevin Brady, a Texas Republican. He has called for a congressional review of the Buy American plan.

Losing jobs

“There are some real downsides to Buy American,” Brady said in an interview. “It delays projects. We have to look at what jobs we are losing.”

Lawmakers in America who pander to voters who do not live in these communities might think these provisions are justified.  However, this one example is one of scores of similar logistical minefields created through protectionism. Here is another from the same article.

At Aquarius Technologies, which sells equipment to US wastewater plants, domestic business has slowed to a trickle, said Tom Pokorsky, president of the closely held company in Port Washington, Wisconsin.

`Buy American has stopped US wastewater work this year,” he said. “I’m surviving by selling to Canada.” Even that market won’t be safe if Buy American sparks a “Buy Canada” retaliatory initiative, he said.

After watching trucks send manhole covers flying, officials in Auburn, Maine, switched to hinged covers years ago. The ductile-iron ones they used were made across the border in Canada.

While they waited for weeks for a waiver to buy more covers for a new sewer project, Norm Lamie ordered steel plates placed over the exposed holes. “EPA did eventually give us the waiver,” and the manhole covers are in place, said Lamie, general manager of Auburn’s water and sewer district.

To my mind, the biggest takeaway here is that this is what should be expected when the government inserts itself into a relatively free market legislatively.

Source

‘Buy American’ backfires – Sydney Morning Herald

Related posts:

• ‘Buy American horror stories’ in Canada
• ‘Buy American’ will translate into a 21st century Smoot-Hawley
• Congress ready with second stimulus package
• Canada is furious about U.S. protectonism
• The U.S. is exporting unemployment with ‘Buy America’

Roland Koch, the leader of the German state of Hesse, has dismissed the possibility of Chinese auto manufacturer BAIC acquiring German carmaker Opel.  Below is my translation of today’s Spiegel article explaining this.

Clear rejection of the Chinese: Hesse Prime Minister Koch has rejected the takeover offer for Opel by the car manufacturer BAIC. If someone seriously put in a word on behalf of the candidate from the Far East, it would be “an amazing thing.”

The Austro-Canadian auto supplier Magna can rely on the support of the ‘German princes’: In the takeover battle for Opel the chances of other candidates is dwindling. In a newspaper interview, Hesse Minister President Roland Koch (CDU) categorically rejected a takeover by the Chinese manufacturer BAIC.

The new European Opel could not be managed by a Chinese company, “that produces just 12,000 cars per year and do not even have the backing of the Chinese government,” Koch said to Hamburg’s Abendblatt newspaper. It would be “an amazing thing,” if anyone seriously believed in this solution.

An entry of Magna would be “the best solution, looking at the future of Opel, the locales concerned, and jobs in Germany, not least because of taxpayer money,” said Koch. Magna dealt “quite concretely with the American parent company, GM and has a big advantage over other bidders.” Koch acknowledged, however, that it is “still a long way” until Opel is rescued.

However, the opposition does not agrees with this strict interpretation of events. The chairman of the Bundestag’s budget committee, Otto Fricke (FDP), said to the “Rheinische Post”: “If the federal government does not even try and speak with the Chinese, it would be needlessly risking almost two billion euros in tax money.” While Magna, in the event of a takeover of Opel, requires guarantees by the German taxpayer in the amount of 4.6 billion euros, BAIC is requesting only 2.64 billion euros.

Even the Federation of Taxpayers urged the federal government to no longer unilaterally look at Magna. You must ensure that the best concept would be implemented for Opel and the taxpayer , said President Karlheinz Däke. Previously the CDU politician Mittelstandsbank Michael Fuchs and the Economic Council of the Union, which deals with the bidders competing with Magna, had requested re-examining the competing offers.

On the other hand, Prime Minister of Thuringia Dieter Althaus (CDU) said in the “Thüringer Allgemeine” that the decision for Magna as an investor is made. He expressed his expectation that outstanding issues will be resolved by next week. . Althaus was “surprised” about the objections raised.

This article makes clear that the GM Europe/Opel bailout and sale is very much a political event.  Just Wednesday in a post about the Rio Tinto situation, I mentioned that the Germans should handle the Chinese bid with care lest they be rightfully accused of protectionism.

Apropos protectionism, the German government has now confirmed an official bid for automaker Opel by a Chinese car company, Beijing Automotive Industries (BAIC). As the Chinese have become noted of late for being the high bidder, I suspect BAIC has put in a good offer. (Update 920ET: The Telegraph puts this offer at €660 million for all of GM Europe including Vauxhall) To be sure, the Austrian-Canadian auto parts maker Magna is on the verge of finalising its bid.  Nevertheless, the Germans are going to need to treat the Chinese bid with diplomatic aplomb.  We have already seen enough protectionism against Chinese companies.  Another slight of this nature would be proof positive that Chinese money is considered no good for buying top-tier western companies.

While some had conjectured that the BAIC bid is really a Chinese government bid, the Chinese automaker has no backing from the Chinese government, as Roland Koch alluded.  Koch claims this is a negative, but he is just rationalizing his decision to dismiss the bid out of hand.  In truth, the lack of involvement of the Chinese government would be seen as a good thing to most concerned parties.

The fact is the Chinese have put a superior offer to Magna’s on the table.  But, because of protectionism, this offer has zero chance of being accepted by the Germans.

Source

Koch lehnt chinesischen Einstieg bei Opel ab – Der Spiegel

Related posts:

• China detains Rio executive on suspicion of espionage
• Germany gives GM a stiff arm on state aid
• GM considers keeping Opel, raising capital
• German Press: Fiat to sign a deal with Opel, not Chrysler
• GM looks to use US and Canadian tax money to bailout Opel

Rio Tinto was one of those companies which levered up just as the economy was turning down, rushing its bottom line ad forcing it into the hands of Chinalco, a large Chinese commodities company.  However, as commodity prices have turned up and investors have simultaneously started buying shares, Rio was able to escape the Chinalco deal ad link up with rival BHP Billiton.

The Chinese are naturally sour, despite earning a nice deal breakup fee.  The question is whether their displeasure has taken a dangerous turn.  At the weekend, four Rio executives in China were detained.  Now, one is being held on suspicion of spying.

An Australian Rio Tinto employee has been detained by Chinese state authorities on suspicion of espionage and stealing state secrets, Stephen Smith, Australian foreign minister, said on Wednesday.

Stern Hu, an Australian citizen who is working as a marketing executive with the miner and currently living in Shanghai, is one of four Rio employees detained by Chinese authorities since Sunday.

Mr Smith ruled out any commercial link between the surprise detention of Mr Hu and his three colleagues and any commercial matters concerning Rio’s, bitter rejection of a $19.5bn deal with the Chinese state-owned minerals giant Chinalco last month.

They would say that, wouldn’t they.  The sequence of events should make one sceptical about why Mr. Hu is being detained.  Until this matter is adequately explained, we should all be vey nervous about what it portends regarding future Chinese retaliation for protectionist measures.

Apropos protectionism, the German government has now confirmed an official bid for automaker Opel by a Chinese car company, Beijing Automotive Industries (BAIC). As the Chinese have become noted of late for being the high bidder, I suspect BAIC has put in a good offer. (Update 920ET: The Telegraph puts this offer at €660 million for all of GM Europe including Vauxhall) To be sure, the Austrian-Canadian auto parts maker Magna is on the verge of finalising its bid.  Nevertheless, the Germans are going to need to treat the Chinese bid with diplomatic aplomb.  We have already seen enough protectionism against Chinese companies.  Another slight of this nature would be proof positive that Chinese money is considered no good for buying top-tier western companies.

Source

Rio executive held by China on suspicion of spying – FT

Related posts:

• Should we expect a protectionist China?
• Germans reject Chinese offer for Opel
• China wants all of Repsol’s Latin American oil assets
• China slams U.S. profligacy
• China’s skyscrapers will be ten times New York

During the Great Depression, it was the Smoot-Hawley Tariff Act, which in hindsight is blamed for triggering a wave of protectionist actions globally.  Protectionism was a major contributor to the downward spiral that created depression.  So, have we avoided this kind of outcome this go around?

At this juncture, it is pretty unclear we have. Simmering disputes with China in particular are creating anger in Beijing.  First, there was the U.S. steel industry complaint over the dumping of cheap Chinese tires in the U.S.  This dispute has received little press.  However, the International Trade Commission(ITC) has just sided with U.S. steel interests. I reckon the issue will now become more important.

Then, there was the link between Rio Tinto, the Australian commodities producer and Chinalco, the Chinese commodities company. Rio got itself in a bit of a mess when it leveraged up only to see commodity prices tumble. As a result, the company was forced into the arms of Chinalco.  But, Australians and Rio shareholders did not like the concept of the Chinese having such a huge stake.  So, BHP Billiton came to the rescue and Chinalco was stuffed (and received a hefty breakup fee).

These types of things are really getting the Chinese sour.  And the China of 2009 is akin to the United States of 1930 as Alpha Creditor to the world economy. So, when just days ago Beijing started a ‘Buy China’ policy, we should realize that a Smoot-Hawley outcome is still something we need to act vigorously to avoid.  It is protectionism in China as retaliation that we must worry about.

Now that the U.S. has received a green light from the ITC to restrict Chinese tire imports, it will be instructive to see what the Obama Administration does.

Related posts:

• China detains Rio executive on suspicion of espionage
• China launches retaliatory investigation into U.S auto subsidies
• China: we “will take steps to protect the interests of our domestic industries”
• Tariffs: Other industries may line up for sanctions against China
• Jagdish Bhagwati: Obama is a protectionist

This comes via the Financial Times:

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

The government also said it was launching an investigation in response to complaints from domestic industry associations which accuse local governments of favouring foreign suppliers in procurement related to the country’s Rmb4,000bn ($585bn, €421bn, £356bn) economic stimulus package.

“From a domestic political perspective this makes some sense because local governments do tend to favour foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse, said. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.”

Just a few months ago Beijing was raging against a proposed “Buy American”clause included in the US economic rescue package.

This could get ugly.

Related posts:

• China cuts holding of U.S. Treasury securities
• Tariffs: Other industries may line up for sanctions against China
• Should we expect a protectionist China?
• China: we “will take steps to protect the interests of our domestic industries”
• China issues bonds to “promote the RMB in neighbouring countries”

I plan to visit Mexico early next month as I do at least one or twice every year. This year I question what awaits me as evidence that Mexico’s economy and civil order is imploding mount. The latest strike against Mexico comes in its now escalating trade war with the United States.

The Mexican government said Monday it would slap tariffs on 90 U.S. industrial and agricultural products, in a trade dispute that underscored the difficulties facing President Barack Obama as he tries to assure business and global allies that he favors free trade.

Mexico said the tariffs were in retaliation for the cancellation of a pilot program allowing Mexican trucks to transport cargo throughout the U.S.

Unions have for years fought to keep Mexican trucks off U.S. highways, despite longstanding agreements by the two countries to eventually allow their passage. Legislation killing the pilot program was included in a $410 billion spending bill Mr. Obama signed last week.

The White House responded Monday to the tariff threat with assurances that Mr. Obama would work with Congress to create a new cross-border trucking program that addresses safety concerns.

White House spokesman Robert Gibbs said U.S. and Mexican officials would work on legislation for a new plan “that will meet the legitimate concerns of Congress and our [North American Free Trade Agreement] commitments.”

Mexico’s Economy Minister Gerardo Ruiz Mateos said Monday the legislation signed by Mr. Obama was “wrong, protectionist, and clearly violates” the free- trade treaty signed by the U.S., Mexico and Canada in 1994. Mr. Ruiz Mateos said the ban protected U.S. truckers while hurting Mexico’s ability to compete.

The Mexican government wouldn’t say Monday exactly which products would be hit with tariffs but that the total value of the products was $2.4 billion in 2007 and originated in 40 states. A detailed list was expected to be published this week.

Republican members of the House suggested such commodities as wheat, beans, beef and rice would likely be targeted.

Certainly, I fully anticipate protectionism to increase globally in the months ahead. However, this is not Mexico’s only problem. Mexico’s largest oil field has peaked, oil prices are way down, remittance income has shrunk, and drugs are a big concern.

Concern about a potential failed state — not Pakistan, not Somalia, but California’s neighbor Mexico – is mounting in Washington as an all-out war involving 45,000 Mexican military personnel fails to quell rising drug violence that is spilling from such Mexican cities as Tijuana into the United States.

An estimated 6,290 drug-related murders occurred in Mexico last year, six times the standard definition of a civil war, said Vanda Felbab-Brown, a leading scholar on the issue at the Brookings Institution.

All of this has had a very negative impact on Mexico’s currency as the chart below reveals. Last year just after the Lehman crisis, the Mexican Peso was trading at just over 10.50 to the dollar, today it trades over 14 pesos to the dollar. It has been over 15.

While recent reports from the likes of Morgan Stanley have been largely positive about Mexico’s economy, the backdrop is clearly deteriorating and the growing trade war with the U.S. is but one sign. If Mexico and its workforce come under pressure economically, the impact will surely be felt in the United States as well.

Update 430PM ET: A good video over at Bloomberg Television adds a bit more color to the situation. Enjoy.

Sources
Mexico Strikes Back in Trade Spat – WSJ
Migrant Workers Sending Less Money to Latin America – WSJ
Mexican Banks ‘Party’ May End as Economy Shrinks: Week Ahead – Bloomberg.com
Concern Grows in the U.S. That the Drug War Is Destablizing Mexico – AlterNet
Currency Charts – FXStreet.com

Related posts:

• Mexico: Central bank to cut today
• ‘Buy American’ will translate into a 21st century Smoot-Hawley
• Will Mexico suffer contagion?
• Tariffs: Other industries may line up for sanctions against China
• The dollar is rising against floating currencies

The “Buy American” clause stuck onto the stimulus bill wending its way through Congress is a pernicious piece of legislation because it has engendered a ferocious response from trading partners, not the least of which is Canada.

Below is a Wall Street Journal video clip discussing this piece of legislation and the Canadian reaction to it. In addition, the video rightly claims that the bailouts now being conducted for financial services industries around the world are subsidies that are equally protectionist. None of this bodes well for the global economy.

Related posts:

• ‘Buy American horror stories’ in Canada
• Canada: Boom in progress
• The protectionism bogeyman
• Canada joins the list of housing busts
• Sheila Bair talking to Bloomberg’s Al Hunt

Everyone should be concerned about the increasing tone of trade friction in the global economy.  While Chinese Premier Wen and U.K. Prime Minister Gordon Brown are setting a positive tone in London today regarding bilateral trade agreements, the U.S. is doing its best to put off trading partners.  In fact, in Canada, there seems to be a lot of rancor regarding the ‘Buy America’ provision now being attached to the U.S. stimulus package.

Comment: ‘Buy America’ policy a veiled attempt to export unemployment

Free trade afforded by goodwill in times of economic expansion is ending rapidly with the lurch of the world economies into recession.

Plans by U.S. Congress and President Barack Obama to put a fence around its US$825-billion stimulus package by implementing a “Buy America” policy is a veiled attempt to export unemployment to the rest of the world. The result could be slower growth and a higher cost of credit for the U.S. economy, two good reasons for investors to “Sell America” now.

Attaching a “Buy America” policy to the US Stimulus Package is a futile and dangerous attempt to protect American jobs. America’s best export right now is unemployment. U.S imports are falling and the trade deficit is improving due to the fall in U.S demand. U.S imports fell 12% in November taking the trade deficit to its lowest level since 2003.

China’s export sector is reeling from the sharp fall in U.S demand. Exports in China fell the most in a decade in December and are likely to continue falling over the next six months as demand from the U.S, Europe and Japan dries up. Manufacturing in China has contracted for the past six months and has made roughly 10-million migrant workers jobless.

President Obama should tread very softly when it comes to trade policy. Firstly, it is widely acknowledged that free trade contributed to global economic prosperity. Free trade with China brought an era of low inflation to the United States and to the rest of the developed world. Trade in general leads to higher productivity and potentially higher levels of global growth.

On the flipside, rising trade barriers that protect industries lead to the misallocation of resources, lower productivity, higher prices and lower levels of economic growth. They are especially dangerous in times of recession. They are tantamount to suicide for the U.S administration given the high level of savings that China has shipped abroad.

The U.S Treasury Department is justified in pointing the finger at China for practicing mercantilist-style trade policies: China’s massive trade surplus and multi-trillion dollar store of foreign exchange reserves provides strong evidence that trade policy in China is designed to keep its currency weak. But the timing is all wrong.

Agitating for a revaluation of the Yuan and a “Buy America” policy could backfire in a big way. The U.S is like a junky with a US$2-billion a day borrowing habit, so getting on the bad side of its best dealer could be a big mistake.

China has been a major source of cheap credit to the U.S over the past few years. The People’s Bank of China has parked roughly US$680-billion in U.S Treasury securities making it the single biggest source of credit to the U.S Treasury from abroad. This “savings glut” as it has been referred to allows the U.S Treasury to borrow money at very low rates of interest, and China could end that by easily converting those reserves to Euros or Yen. U.S Treasury Secretary Tim Geithner might get the revaluation of the Yuan he is looking for in the form of a dollar rout.

Access to cheap credit has never been more critical to the U.S economy at this juncture. The U.S Federal Reserve Bank has been buying mortgage securities to reduce the cost of credit to U.S homeowners, to slow the rate of foreclosures, and to support the price of mortgage securities held by U.S banks.

Moreover, the U.S Treasury will need to borrow heavily to support its multi-trillion dollar fix to the U.S economy. President Obama’s attempt to keep every dollar of his stimulus package from leaving the U.S by issuing a “Buy America” policy could cause the unintended consequence of foreign capital flight.

This is an editorial comment in today’s Financial Post, a leading newspaper in Canada. One should note how strong the language is in this editorial.  While the quote concentrates on trade between China and the U.S., Canada itself is quite worried about the increase in protectionism in the United States.  The Financial Post is angry that the United States is looking to foist its own unemployment problem off on its trade partners.

The long and short here is this:  China, the EU, and Canada have now all warned the U.S. about “Buy America.’ Any protectionist measures implemented by the United States WILL be met in kind by retaliatory measures.

The tone in the U.K. is very different where Gordon Brown announced in a press conference with Chinese Premier Wen that he is looking to double trade in the next eighteen months. Wen may be using the U.K. as a foil to the United States, in effect saying, “Look America, we have other options.” Nevertheless, Brown and Wen are demonstrating that global trade does not have to collapse due to the economic downturn despite protests because of job losses.

When I find a video or quote from the press conference, I will post it.  Also, you should note that the Financial Post editorial begins with a picture of Obama and Biden, linking the Obama Administration with Canada’s perception of protectionism.

Sources
Comment: ‘Buy America’ policy a veiled attempt to export unemployment – Financial Post
Wen Says China to Begin European Procurement Missions – Bloomberg

Related posts:

• Beijing starts a ‘Buy China’ policy
• China launches retaliatory investigation into U.S auto subsidies
• Will Asia’s downturn be worse than America’s?
• Stephen Roach sees a W-shaped recovery for China
• ‘Buy American’ will translate into a 21st century Smoot-Hawley

Politicians in Washington D.c. have cooked up a nice way to re-create the mistakes of the Great Depression by attaching a ‘Buy American’ provision onto the stimulus bill making its way through Congress.  Apparently the Canadians and Europeans have already voiced their concerns, with the Europeans threatening to retaliate.

The White House has promised to review the protectionist proposals, passed last week by Democratic allies in the House of Representatives, which would ban the use of non-American steel in the $800 billion of construction projects.

Obama officials are under pressure from what European diplomats in Washington describe as a discreet but outspoken campaign of “quiet fury” from America’s closest allies.

They regard the move as a provocative shift away from free trade and towards economic populism at a time of turmoil.

Anyone who has read a cursory history of the Great Depression knows that protectionism and the banking system were at the core of events. As time goes on, I have become increasingly pessimistic about the skill of the political establishment in the U.S. and elsewhere to navigate this economic crisis. Certainly, the response to the banking crisis has been less than stellar. However, increasingly, it is also apparent that countries are turning to export subsidies and protectionism in a bid to favor domestic producers as trade plummets. The auto sector is front and center in this effort. I am certainly not convinced that Obama’s team will brush back the tide of protectionism — his record on the issue is dubious at best. However, America’s neighbors to the north are trying to stop the protectionist train from gathering steam.

Canada and other nations fear “Buy American” barriers could trigger a cycle of retaliation that would strangle world trade and undermine efforts to end the global economic crisis.

The measure would not raise any illegal tariffs but some experts say it may violate public-procurement provisions signed with the World Trade Organization by Canada, the United States, the European Union and other countries.

“There’s some pretty furious legal research that’s going on right now to see where it potentially may cross the line,” Day said.

Let’s see where this leads.  The Telegraph in the U.K. has reported this:

Privately, diplomats are withering about the “excitable” US rhetoric in support of the Buy America proposals. But they are resigned to a solution that leaves Mr Obama with something he can sell as protecting American workers, so long as it does not violate the letter of the trade arrangements.

European Commission representatives and diplomats from the British, French, Canadian and Mexican embassies in Washington have all launched an intensive lobbying operation to convince senators to strike the provisions from the bill they will debate this week.

A Western diplomat in Washington made clear that otherwise a trade war was in prospect. “The EU has said it will not stand idly by and let this happen. I’ve not heard words that strong from Brussels in 20 years,” the official said.

This certainly is not the makings of recovery and prosperity. Stay tuned. Apparently, in uncertain economic times, it’s every nation for itself. Economic nationalism has well and truly arrived.

Sources
Barack Obama to dilute ‘Buy American’ plan after Europe threatens US with trade war – Telegraph
Canada may raise “Buy American” issue with Obama – Reuters
Protectionism could destroy us all – Telegraph
Buying American – Economist

Related posts:

• ‘Buy American horror stories’ in Canada
• The absurdities of ‘Buy American’
• China: we “will take steps to protect the interests of our domestic industries”
• The U.S. is exporting unemployment with ‘Buy America’
• Is Mexico imploding?

You heard the quotes (China slams U.S. profligacy).  Here’s the video. After some brief introductory remarks Chinese Premier Wen gets down to ripping into the United States.

If you want to get right to his most quotable remarks, they begin right about 6:00 in this long video. Definitely worth watching.

Related posts:

• Jim O’Neill on the Global Economy
• Chinese to start settling trade in Yuan
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• China’s Premier concern about U.S. Treasuries not good news

Smarting from Tim Geithner’s comments about China manipulating, its currency, the Chinese have retaliated with a condemnation of U.S. economic policy in the harshest of terms. At the World Economic Forum, Chinese Premier Wen went on the attack, accusing the United States of undisciplined profligacy.

As I indicated just yesterday, irrespective of Geithner’s motives in branding China a currency manipulator, his language was unwise. Further comments of these sorts can only increase tensions between China and the U.S.

Premier Wen admitted the global crisis had hit China severely, producing shrinking external demand, overcapacity in some sectors, difficult business conditions for enterprises and rising unemployment in cities.

But he pointed to increased bank lending that had continued into January, suggesting that consumption was still growing by around 20 per cent. He said both inventories of goods at Chinese ports and the prices of major industrial goods had increased.

China had acted responsibly to fend off the crisis by implementing a 4 trillion yuan ($580 billion) fiscal stimulus of budget spending and tax cuts over two years.

The Chinese Premier contrasted this with the major causes of the crisis, which he put down to “inappropriate macroeconomic policies of some economies and their unsustainable model of development, characterised by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit; lack of self-discipline among financial institutions and ratings agencies and ensuing distortion of risk information and asset pricing; and the failure of financial supervision and regulation to keep up with financial innovations, which allowed the risks of financial derivatives to build and spread”.

Without mentioning the US by name, this was a clear attack on excessive pre-crisis consumer spending in America, which was financed largely by imported Chinese savings and on the failures of the US banking system and its regulators.

In contrast, Mr Wen said Chinese banks were well run and had maintained capital reserves above internationally mandated requirements.

His comments served as a reply to controversial claims by the newly appointed US Treasury Secretary, Timothy Geithner, that China was “manipulating” its currency by artificially holding down its value against the US dollar and supposedly swelling the US trade deficit.

Mr Geithner’s call for China to appreciate its currency was savaged by the chairman of Morgan Stanley in Asia, Stephen Roach, who described it as “horrible advice given to the Chinese”.

“’It is an example of how very real the protectionism risks are. We are moving into a period of even more pressure on labour, higher unemployment on the rise of a tide of economic nationalism.”

Mr Wen said his message to the Obama administration was that it was imperative for China and the US to enhance their co-operation – a confrontational relationship would make them both “losers”.

Many have argued that Geithner was playing to a domestic audience. Nevertheless, I see his statements as reckless — the sort of thing that could create a protectionist and retaliatory atmosphere in the U.S., China, Europe and elsewhere.

It will be instructive for all of us to learn how the Obama Administration responds to Premier Wen’s comments. My advice: don’t respond at all. Keep your eye on the task at hand, which is fixing the broken U.S. economy and banking system.

Sources
China and Russia slam the US – The Australian
WEF 2009: China warns over protectionism – Telegraph

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There seems to be a blame game making the rounds in policy circles these days in which Asia is at fault for the credit crisis and economic downturn. The meme goes like this:  Everything was fine until the Asians started manipulating their currencies and creating excess savings to export to the West.  This mercantalist policy of low domestic demand, high savings, and an export-oriented economy set up huge macro imbalances that created the debt bubble and recession we see today.  Asians need to save less and buy more — and stop manipulating their currency.  Do you buy this line of argument?  I don’t.

But judging from recent statements by policy makers in the U.S. and the U.K., there are any that do.  Witness this article from the Times of London last week, which was reporting on quantitative easing aka printing money.  The U.K. has resorted to printing money as the only way out of an economic pickle.  But not without some measure of recrimination.  Note the blame given to Asia, which I have highlighted in bold:

Mr King emphasised the need for international cooperation to fight a global downturn. Limiting banks’ cutbacks on lending meant cross-border action was essential. “Almost every aspect of the present crisis has an international dimension.”

He blamed the crisis on a binge of lax lending by banks, and on a wall of cheap money from Asia as a result of “global imbalances”. Urgent action was needed to tackle these problems and prevent future turmoil, including new weapons for central banks and governments to prevent excessive future build-ups of debt, were needed. Governments of big economies also needed to work together to overhaul the global monetary system.

I flagged this article when I saw it last week, but my concern about the Blame Asia Meme has only increased with time. The focus here, of course, is China. Tim Geithner, the new U.S. Treasury Secretary, has said, “Treasury has to be and Treasury will be a source of bold initiative.” What does that mean? Judging from Geithner’s other statements, it might mean protectionism. The video below sums up the protectionist sentiment both in Europe and in the United States.

The most pointed exchange has been as a result of Tim Geithner’s comments during his confirmation hearings when he accused china of “manipulating” its currency. Here’s what Willem Buiter says about all of this:

Timothy Geithner, the nominee for US Treasury Secretary, has risked damaging the global economy even before his confirmation by the full Senate. In a written answer to questions from US senators, Geithner said: “President Obama – backed by the conclusions of a broad range of economists – believes that China is manipulating its currency”. In the US, the words “currency manipulation” are fighting words. If the US administration were to formally name China as a currency manipulator, a range of trade sanctions could be imposed by the US government.

The threat to world trade comes from the Omnibus Trade and Competitiveness Act of 1988. The section dealing with the exchange rate, bilateral current account balances and the overall current account balance is a monument to economic illiteracy.

Under the Omnibus Trade and Competitiveness Act of 1988, “The Secretary of the Treasury shall analyze on an annual basis the exchange rate policies of foreign countries, in consultation with the International Monetary Fund, and consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.”

“If the Secretary considers that such manipulation is occurring with respect to countries that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the United States, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis, in the International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar to permit effective balance of payments adjustments and to eliminate the unfair advantage.”

I have mentioned in the past that Barack Obama does not have a consistent record on promoting free trade and many are worried, including Free Trade guru Jagdish Bhagwati, that we are about to see protectionism hit with full force. So, while the White House backpedaled from the protectionist sentiment, Geithner’s comments cannot be taken lightly.

This concept that Asia is to blame for the downturn and the massive losses at European and American banks must be rebutted before it gathers steam and creates a trade row that nobody wants.

Update 11 Mar 2009: The most recent chapter in the Blame Asia meme was written by Sir Alan Greenspan, who had a Wall Street Journal article out today defending his tenure at the Federal Reserve. The overall point was that the Federal Reserve was not responsible for the low interest rates which stoked the housing bubble. Rather, it was excess savings from Asia. Here is the important passage below.

The Federal Reserve became acutely aware of the disconnect between monetary policy and mortgage rates when the latter failed to respond as expected to the Fed tightening in mid-2004. Moreover, the data show that home mortgage rates had become gradually decoupled from monetary policy even earlier — in the wake of the emergence, beginning around the turn of this century, of a well arbitraged global market for long-term debt instruments.

U.S. mortgage rates’ linkage to short-term U.S. rates had been close for decades. Between 1971 and 2002, the fed-funds rate and the mortgage rate moved in lockstep. The correlation between them was a tight 0.85. Between 2002 and 2005, however, the correlation diminished to insignificance.

As I noted on this page in December 2007, the presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005.

So, there you have it – Asia was responsible for the bubble, not the West. And the blame game continues. See below for my original January article – Alan Greenspan is not alone here.

Sources
Mervyn King paves way to start Bank print presses – Times Online
Obama Deems China ‘Manipulating’ Yuan, Geithner Says – Bloomberg.com
When all else fails, blame China – Willem Buiter’s Mavercon
China comments not a “determination”: White House – Reuters
Währungsstreit: IWF-Chef fordert Kurswechsel von Peking – Financial Times Deutschland
Broader point about Geithner, Obama, China, and “manipulation” – James Fallows, Atlantic

Related posts:

• Stephen Roach: Downturn in Asia less severe, but recovery later
• China slams U.S. profligacy
• The U.S. is exporting unemployment with ‘Buy America’
• Asia is de-coupling
• Ahead of G-20, China blames west and west blames China for meltdown

In an FT opinion piece, Jagdish Bhagwati, a famous name in economic circles on the issue of free trade, issued a blistering attack on president-elect Barack Obama’s commitment to free trade in the face of a deteriorating U.S. job market.  Bhagwati was optimistic about Obama as a free-trader during his primary battle with Hillary Clinton.  However, Bhagwati is now deeply skeptical of Obama and his free trade bona fides.

Are we headed for another bout of Smoot-Hawley? If you agree with Professor Bhagwati, you might answer yes.  Here is a snippet of his remarks below.  I have highlighted the pieces I most agree with.

In the Financial Times, I argued that, unlike with Hillary Clinton, there were several reasons why one could be optimistic that Barack Obama would follow a pro-trade policy despite “prudential” protectionist talk on the primaries circuit (“Obama’s free-trade credentials top Clinton’s”, March 3 2008). But the US president-elect’s eloquent silence on trade issues – and his failure to balance his protectionist appointments with powerful trade proponents – require that we abandon these illusions and sound an alarm.

Consider Mr Obama’s support for the multilateral trading system. It must be admitted that the Doha round is on hold and Mr Obama could not move it forward even if he so desired. A principal problem is that its completion turns critically on the US making further reductions in its distorting agricultural subsidies. But the issue has become even more difficult with the collapse of commodity prices and hence increases in support payments. Besides, history shows that the freeing of trade is nearly impossible to achieve in times of macroeconomic crisis.

But Mr Obama (unlike Gordon Brown) missed the opportunity, provided by the Group of 20’s affirmation of trade’s importance, to affirm that he attaches the highest priority to closing the Doha round and will work on this urgent task throughout his first year.

More important, Mr Obama has missed the bus on preventing a slide back into protectionism. His pronouncements on the car bail-out disregard the lessons of the early 1930s when the Smoot-Hawley tariff was signed into law and a competitive raising of tariff barriers ensued. We learnt then that tariffs and trade restrictions could indeed increase our national income by diverting a given amount of insufficient world demand to our markets. But then others could do the same to divert our demand to their goods, so that the result was reduced trade and deepened depression. Far better to keep markets open and increase aggregate world demand. So, the architects of the General Agreement on Tariffs and Trade (merged in 1995 into the World Trade Organisation) built into it institutionalised obstacles to an outbreak of mutually harmful trade policies.

But what trade barriers did after 1930 can be done also by subsidies. So we now have strict rules on subsidies as well. Under a 1995 WTO agreement, export subsidies and “local content” requirements are prohibited as directly damaging to trade and all other subsidies that are specific to companies or industries are open to complaint; and this applies even when they are claimed to be environmentally friendly.

There is no doubt that a bail-out just of cars, and within that specifically of Detroit, would qualify for countervailing action and dispute settlement challenges. It is important therefore that Mr Obama declare unambiguously that any bail-out will be WTO-consistent, because every other country will otherwise be emboldened to follow suit. Mr Obama, who has properly denounced unilateralism, should also not be the president who undermines respect for the rule of law that the WTO embodies at the multilateral level.

That is a very harsh assessment because Obama hasn’t even gotten into office. Read Professor Bhagwati’s further comments at the link below. I would agree with him that the bailouts of the auto industry are a bad precedent. These maneuvers have already been noted and copied in the United Kingdom, Sweden and Germany. Given the recent plummeting of car sales in Japan, I would expect Japan to be next here. It would have been better for them to agree to a pre-packaged bankruptcy in consultation with the government in order to save jobs. Failure IS a part of the free market.

However, this outcome should not be unexpected. I predicted as much a full 10 months ago in my post, “The US Economy 2008.” Again I will bold the relevant parts.

The global economy, now supported in the main only by the overextended U.S. consumer, finds itself at stall speed, susceptible to any number of potential exogenous shocks. Ultimately, the economic malaise created by this confluence of events will take years to unwind. A positive outcome to this process is dependent wholly on liquidation of excess credit and consumption.

This process will be extremely painful in the short term, but will lead to a healthy economy long-term. Unfortunately, experience shows that these painful steps will only be taken as a last resort. Moreover, geopolitical events become volatile in a world of economic insecurity, leading to political upheaval and protectionism. Protectionism is a natural outgrowth of nationalist economic policy as it transfers wealth from foreign producers to domestic producers by cutting off access to lower cost excess capacity in the goods in service sectors. However, this also serves to transfer wealth from domestic consumers to domestic producers by increasing the price of goods in the protected sectors, ultimately reducing consumption demand.

So, here we are right where one would expect us to be. Protectionism is bad for consumers. But, when economic turmoil occurs, myopic leaders make it a case of every nation for itself and turn to protectionism and subsidies that end up hurting everyone but the companies receiving protection.

Let us hope a future President Obama turns out to be much better than Professor Bhagwati wants us to believe he will be.

Source
Obama and trade: an alarm sounds – FT

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Marshall Auerback here.  This will be short, but I felt compelled to post with my views on China.

There was clearly a bubble in exports in the past four years, with exports serving to cover capital inflow (overinvoicing must have been a big part of that).  So this is just part of the overall collapse of speculative capital flows, and not so much a decline in real effective demand.  China can handle this, the population is not constrained by either income or debt.

This is an aspect of China’s economy that most people don’t understand.  For the typical Chinese light-industrial firm, the optimal strategy for earning a profit is eventually to aim for exports, because export prices are multiples of those paid at home and therefore much more profitable.  The typical Chinese manufacturing, firm, then, produces and produces and produces, gaining practice, improving quality and demonstrating reliability – in the hope of eventually selling part of the production onto the export market.  For this, labour must be treated as a fixed cost. That is to say, that production must continue in spite of demand.  The strategy will be defeated if firms interrupt production and dismiss workers simply because the output they are producing cannot be immediately sold at the Wal-Mart price.

So with the output that is not exported, it is dumped domestically at whatever price it can command.  And the result is falling prices (deflation) for the Chinese consumer.  Relative to a fixed money wage, this implies a rising real wage in terms of staples for the average Chinese consumer, the result of which is a well-fed, well-clothed population and a near absence of significant human depravity in the cities.  That’s apparent to anybody who visits China.

So I don’t see any significant long term damage in China, even if it has a cyclical downdraft.  I realise this is not the fashionable view, but I think the alternative is based on a very superficial understanding of the country.

Your comments are welcome.

Related posts:

• China is set up for a big fall
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The punderati has been especially kind to China. As the global recession takes hold, the conventional wisdom has moved from the largely debunked de-coupling of China to a story where China slows, but much less so than the west. But is that really how things will play out?

Marshall Auerback certainly thinks China faces some stiff headwinds, but he believes these are issues that can be overcome. Debt levels are extremely low and savings levels very high amongst the consuming masses there. Mark Mobius believes that the emerging markets generally are shortly due for an upswing. However, I would like to take a more pessimistic tack here.

You may recall that just yesterday I quoted from an Indian article which underlined the cratering of export demand for China. Let me add to those thoughts with the following analysis:

1. The Chinese are highly dependent on manufacturing exports to maintain growth. Most of their growth in the last two decades has come from export demand subsidized by a cheap currency and massive numbers of relatively low wage workers.
2. However, demand from the west is cratering because of the worst recession since the 1930s.  Because China’s export economy is geared to the west, this has had a devastating impact on export demand.
3. As a result, the Chinese will need to switch to a focus on domestic demand. Where is this demand going to come from? Granted they have no debt. However, people don’t just start buying stuff in the middle of the greatest downturn in 75 years. Chinese people see these and must know that caution is warranted.
4. Moreover, their residential property market has imploded as has the stock market. This too must work against the psychology of increased domestic spending as the wealth effects here are significant.
5. And the banking system was already fragile. My general thinking would be there are huge hidden losses at Chinese banks as a result. Therefore, lending capacity has to be restricted going forward. I would not be surprised if we saw a reduction in the money multiplier in China as well.
6. Ultimately, I would argue that the Chinese domestic consumer is not going to consume more.   In fact, they would need to consume a lot more given the GDP per capita of the average Chinese person in order to replace the lost demand from the West.  But, I believe they will consume less given the factors enumerated above.

I await more data from China. In the meantime, I remain skeptical but open to persuasion.

Sources
China’s industrial output growth stalls – Sydney Morning Herald
China ‘repeating US mistakes of 1930s’ – Sify.com, India
The Great Crash of China – Far Eastern Economic Review
China’s Output Growth to Drop Further, Minister Says – Bloomberg
China: Industrial Output – Bloomberg
China Industrial-Output Growth Is Weakest Since 1999 – Bloomberg

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