9/28/12 – Congressmen Smoot and Hawley, Please Call Your Offices

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Sep 28, 2012 11:23:38 AM

and tagged Yesterday's News

Leave a comment

I have written a couple of times about rising protectionism, and looking at today’s stories, now seems to be an excellent time to revisit the topic. Protectionism is just one facet of how states try to wring out economic advantage over others, with currency and trade policies among the available tools. Today we have several examples.

On the currency policy front, we have “Beijing, Seoul Blast Fed Push” in the Wall Street Journal (WSJ) on page A13. The article talks about how both central banks are opposed to continued U.S. monetary easing, which encourages inflation around the world, weakens the dollar to make U.S. exports more competitive, and in general benefits the U.S. at the expense of its trading partners. Of course, this is exactly what the policy is designed to do. The ability of the U.S. to continue to follow policies that benefit itself at the expense of others, however, is dependent on the continuation of the dollar as the reserve currency, which is the other focus of the article, as both central banks advocate finding an alternative. Not an immediate concern, but a building long-term concern.

More traditional trade-related protectionism was also on display. The WSJ has “EU Takes Slap at Boeing” (p. B1), which charges that the U.S. is subsidizing Boeing. I should note that this is a long-term dispute; last year, the World Trade Organization (WTO) ruled that, in fact, the U.S. does subsidize Boeing, giving the EU some standing to seek penalties. The kicker is that the WTO also found that the EU subsidizes Airbus, a Boeing competitor, and now the two sides are squabbling over who is worse. Either way, not a victory for free trade or comparative advantage. The New York Times (NYT) also weighed in with a story about this on page B7.

From airplanes to tomatoes is a big step, but the story is the same. The NYT’s “Ammunition for a Trade War Between US and Mexico” (p. B1) talks about how the U.S. may end an agreement providing market access for Mexican tomatoes. This could, according to the article, lead to a trade war. Mexico is arguing that the Obama administration is ending the agreement to placate Florida, a swing state. Walmart and other chains are protesting, as the end result will be higher prices for consumers. One more example of how politics can sway economics.

The U.S. is actually in a fairly strong position in many of these disputes, as a relatively small part of the U.S. economy is dependent on exports. Small is not unimportant, though, and the costs of trade restrictions are inevitably borne mostly by consumers. The net result of rising protectionism is lower growth, which will be one more headwind we face going forward.

Upcoming Appearances

Tune in to CNBC's Power Lunch on Wednesday, February 26, between 1:45 and 3:00 P.M. ET to hear Brad talk about the market. Exact interview time will be updated once confirmed. Check local listings for availability. 

Tune in to Bloomberg Radio's Bloomberg Businessweek on Friday, February 28, at 3:45 P.M. ET to hear Brad talk about the market. Stream the show live at https://www.bloombergradio.com/, listen through SiriusXM 119, or download Bloomberg's app, Bloomberg Radio+.

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®