Skip to main content

Protectionism & currency manipulation

Monday's talk on Bloomberg News seems to center around a possible breakdown in the structuring of global trade agreements, plus accusations of currency manipulation among trading partners. Let's see what we've got.

First headline:
"Beggar-Thy-Neighbor Protectionism Looms After Doha Trade Talks".

Bloomberg reports that the latest round of global trade talks may be faltering, and that discussions among WTO negotiators could be the last of their kind. The effects of globalization and technology may have rendered multilateral trade deals obsolete, although past benefits of such deals were substantial.

The flagging momentum for multilateral trade deals in part reflects the success of earlier negotiations. After eight previous rounds of global agreements, developed countries have lowered tariffs to an average 4 percent from 40 percent, and more than half the world's trade is now duty-free.

Multilateral accords may also be made irrelevant by globalization, as technology cuts obstacles to trade in computing, banking and the media with less government involvement.


Although these factors have allowed for continued growth in global trade, market strategists are still worried about looming signs of protectionism.


Meanwhile, protectionist sentiment in the U.S. and elsewhere is killing lawmakers' appetite for big new multinational accords as voters and politicians blame competition from emerging economies for the loss of thousands of manufacturing jobs.


Protectionism ``is likely to become an increasing concern for the market in the months ahead,'' says Jens Nordvig, an economist at Goldman Sachs Group Inc. in New York.


A poll for NBC News and the Wall Street Journal in March found only 28 percent of Americans viewed free trade deals as beneficial, compared with 46 percent who said they were harmful. When the same question was asked in December 1999, 39 percent were positive about free trade, 30 percent negative.

The article goes on to recite claims from the US and Europe that China is unfairly supporting its exporters by maintaining an undervalued currency. This, as the now-familiar refrain suggests, gives the Chinese an unfair advantage in trade. What to make of these claims?

Caroline Baum takes up the subject of currency manipulation in her recent editorial, "China Isn't a Manipulator, U.S. Congress Is".


She notes that while the U.S. Treasury had officially avoided labeling the Chinese currency manipulators, members of Congress are far more willing to publicly level charges while voicing support for all manner of (protectionist) trade legislation.


Here's Caroline's take:


Critics of China's currency-management policy claim the yuan is undervalued by as much as 40 percent, giving the country's exports a competitive advantage.

You never hear much about the disadvantages, about China paying artificially inflated prices for the capital goods and intermediate materials it imports. It overpays for vast amounts of raw materials, everything from oil to copper to steel.

At the same time, do American consumers want to pay 40 percent more for underwear and other low-end apparel from China? (China's lost market share would be other emerging countries' gain, but it would still mean higher import prices for Americans.)

And in case you'd like to get another perspective on these issues (without having to do a bit of additional reading), listen to Jim Puplava's comments in the "Big Picture" segment (part 2, at the 26:30 mark) of the Financial Sense Newshour's June 2, 2007 broadcast. Transcript is available.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.