Global recession undermines economic ties
Friday, 17 April 2009
Salahuddin Ahmed
Global recession has left a significant impact on the world economy and still we do not know what else we will see regarding this massive predicament. We all are talking about the economic loss that countries are facing and are expected to face more through this meltdown. Apart from that, this crisis could dilute economic ties, which might put the whole world in disarray to a greater extent.
The question is: how could this economic crisis hamper economic links? As we understand, different countries try to revive their economies, and it can be assumed that these countries will take policies that could affect other countries detrimentally. We have seen, not only the USA, some other big nations have already pumped their own stimulus packages into their economies. When the economy gets weaker other countries will not be motivated to continue trade and investments with countries of weaker economies. That will destroy trust and commitment between countries.
It is anticipated that when the US import and export falls, regional trade ties and transactions with nearby neighbours could grow more rapidly for most countries than trade with the United States. Again the recent sharp and broad-based depreciation of the dollar is likely to raise trade-related spill-over but the weaker pace of the US economic growth could have a negative psychological impact on other countries.
It has already been seen that countries grappling with global recession have put in barriers to world commerce since early last month as they are scrambling to safeguard their key industries, often by damaging those of their neighbours. The USA is planning retaliatory tariff on Italian water and French cheese to punish the European Union (EU) for restricting imports of US chicken and beef. Last February Russia imposed a special road toll on trucks from the EU, Switzerland and Turkmenistan. Russians around the country have been protesting against tariff increases on imported cars, aimed at sustaining domestic car makers, levied last January.
India is proposing to increase tariffs on foreign steel at the request of its steel industry. The EU also whacked anti-dumping tariffs on imports of Chinese screws and bolts. The duties will exclude Chinese products from the European markets that will cost jobs in China. Again Egypt imposed duties on sugar and the USA has levied new tariffs on Chinese goods, it contends, are being dumped on the market.
China holds the world's largest foreign-exchange reserve, which was nearly $1.95 trillion at the end of 2008. About two thirds of that sum is believed to be held in US dollar assets, primarily Treasury bonds. Mr. Wen Jiabao, Chinese Premiere, mentions that China's position is that those investments could be managed with a view to ensuring "safety, liquidity and profitability". He also mentions that China's first priority is to protect its own interests. This is not the case of only China; the crunch moment of economic crisis compels each and every country to take decisions to protect itself first.
After mauling the rich and the wealthier developing nations, "a third wave from the global financial crisis is now hitting the world's poorest, most vulnerable countries," said IMF managing director Dominique Strauss-Kahn. It is not yet fully clear how far the coming wave would hit the poor countries following what the IMF predicted. The World Bank is having trouble, getting rich nations to contribute just 0.7 per cent of their stimulus packages estimated at less than $10 billion in all, to fund the poor nations hurt by the global decline. Since these developing nations are expecting a possible economic turmoil, this situation could be far more threatening when the developed nations impose various trade barriers.
Through the WTO's figure it is apparent that anti-dumping cases overall, in which nations contend others are disrupting markets by receiving goods below cost, are up 40 per cent since a year ago. In October 2008, World Trade Organisation (WTO) director Pascal Lamy ordered his staff to start tracking protective actions as the degree of global recession became more acute. Economists and trade analysts expect that the current inflammation of trade constraints could make it harder for global economic growth to recover from the current downward spiral.
The current growth of protectionism is diverse and less extensive than the trade wars of the 1930s. Fredrick Erixon, director of ECIPE, a trade policy think tank based in Brussels, mentions: "It's a creeping form of protectionism". Again he mentions, "Political leaders agree it's illegal and immoral".
A few weeks ago at the G-20 summit, the world leaders pledged to address the crisis by coordinating their economic policy responses. Question is whether this coordination is going to happen. There is no doubt that different countries will take their own policies that could be detrimental to others. This way the current global economic predicament can impede the economic ties among nations of the world.
The writer is a student, Ashland University, OH, USA. He may be reached at E-mail: sahmed@ashland.edu
Global recession has left a significant impact on the world economy and still we do not know what else we will see regarding this massive predicament. We all are talking about the economic loss that countries are facing and are expected to face more through this meltdown. Apart from that, this crisis could dilute economic ties, which might put the whole world in disarray to a greater extent.
The question is: how could this economic crisis hamper economic links? As we understand, different countries try to revive their economies, and it can be assumed that these countries will take policies that could affect other countries detrimentally. We have seen, not only the USA, some other big nations have already pumped their own stimulus packages into their economies. When the economy gets weaker other countries will not be motivated to continue trade and investments with countries of weaker economies. That will destroy trust and commitment between countries.
It is anticipated that when the US import and export falls, regional trade ties and transactions with nearby neighbours could grow more rapidly for most countries than trade with the United States. Again the recent sharp and broad-based depreciation of the dollar is likely to raise trade-related spill-over but the weaker pace of the US economic growth could have a negative psychological impact on other countries.
It has already been seen that countries grappling with global recession have put in barriers to world commerce since early last month as they are scrambling to safeguard their key industries, often by damaging those of their neighbours. The USA is planning retaliatory tariff on Italian water and French cheese to punish the European Union (EU) for restricting imports of US chicken and beef. Last February Russia imposed a special road toll on trucks from the EU, Switzerland and Turkmenistan. Russians around the country have been protesting against tariff increases on imported cars, aimed at sustaining domestic car makers, levied last January.
India is proposing to increase tariffs on foreign steel at the request of its steel industry. The EU also whacked anti-dumping tariffs on imports of Chinese screws and bolts. The duties will exclude Chinese products from the European markets that will cost jobs in China. Again Egypt imposed duties on sugar and the USA has levied new tariffs on Chinese goods, it contends, are being dumped on the market.
China holds the world's largest foreign-exchange reserve, which was nearly $1.95 trillion at the end of 2008. About two thirds of that sum is believed to be held in US dollar assets, primarily Treasury bonds. Mr. Wen Jiabao, Chinese Premiere, mentions that China's position is that those investments could be managed with a view to ensuring "safety, liquidity and profitability". He also mentions that China's first priority is to protect its own interests. This is not the case of only China; the crunch moment of economic crisis compels each and every country to take decisions to protect itself first.
After mauling the rich and the wealthier developing nations, "a third wave from the global financial crisis is now hitting the world's poorest, most vulnerable countries," said IMF managing director Dominique Strauss-Kahn. It is not yet fully clear how far the coming wave would hit the poor countries following what the IMF predicted. The World Bank is having trouble, getting rich nations to contribute just 0.7 per cent of their stimulus packages estimated at less than $10 billion in all, to fund the poor nations hurt by the global decline. Since these developing nations are expecting a possible economic turmoil, this situation could be far more threatening when the developed nations impose various trade barriers.
Through the WTO's figure it is apparent that anti-dumping cases overall, in which nations contend others are disrupting markets by receiving goods below cost, are up 40 per cent since a year ago. In October 2008, World Trade Organisation (WTO) director Pascal Lamy ordered his staff to start tracking protective actions as the degree of global recession became more acute. Economists and trade analysts expect that the current inflammation of trade constraints could make it harder for global economic growth to recover from the current downward spiral.
The current growth of protectionism is diverse and less extensive than the trade wars of the 1930s. Fredrick Erixon, director of ECIPE, a trade policy think tank based in Brussels, mentions: "It's a creeping form of protectionism". Again he mentions, "Political leaders agree it's illegal and immoral".
A few weeks ago at the G-20 summit, the world leaders pledged to address the crisis by coordinating their economic policy responses. Question is whether this coordination is going to happen. There is no doubt that different countries will take their own policies that could be detrimental to others. This way the current global economic predicament can impede the economic ties among nations of the world.
The writer is a student, Ashland University, OH, USA. He may be reached at E-mail: sahmed@ashland.edu