At Davos The Whirled Turns Against US

What do they want from us? On one hand, the US consumers who have driven the world's long bull market are castigated for having done so. On the other hand, any talk of cutting them off from those consumers via protectionist trade policies are met with fighting talk. You can't win for losing.

International Herald Tribune
In time of crisis, looking to U.S. with wariness and hope
By Nelson D. Schwartz
Sunday, February 1, 2009

DAVOS, Switzerland: This was supposed to be the year the United States came in from the cold at the annual gathering of world leaders here. But instead of receiving a warm embrace, American policies were rebuked again and again in rhetoric that recalled the anger of the Bush years - except the ire this time was mostly directed at Washington's economic failings, rather than its diplomatic ones.

There is a deep reservoir of good will for President Barack Obama personally and the change in direction he represents. But his administration is about to discover that the rest of the world does not seem to be in a hurry to forgive and forget - and that it sees a new threat in the form of U.S. protectionism.

Despite the pledges to encourage international trade and economic cooperation that accompanied the closing sessions of the gathering, the World Economic Forum, on Sunday, there were clear signs that deep divisions between the United States and the rest of the world remained.

"There is such a level of concern, despair and anxiety that as welcome as the new president is, no one is inclined to cut the U.S. much slack," said Richard Haas, president of the Council on Foreign Relations.

Or as Niall Ferguson, the Harvard historian, put it, "If GM got a new CEO, does that mean people would suddenly want to buy their cars?"

The criticism did not come only from the usual suspects, like Prime Ministers Vladimir Putin of Russia and Wen Jiabao of China, who both decried a long pattern of excessive consumption, risky borrowing and inadequate regulation in the United States.

More significant, the brickbats also came from economic and political leaders of European allies like Germany and France.

Whether the issue was the recent bailout for the American auto industry or provisions favoring U.S. steel producers in the stimulus package now being debated on Capitol Hill, overseas observers warned that any move toward protectionism would have serious consequences for Washington and the rest of the world.

"We must not allow market forces to be completely distorted," Angela Merkel, the German chancellor, warned in a speech on Wednesday. "For instance, I am very wary of seeing subsidies injected into the U.S. auto industry. That could lead to distortion and protectionism."

By the weekend, as word of the "Buy American" proposal spread through Davos, the tone had become sharper.

"It's extremely preoccupying that one of the first acts of the new Obama administration could be a measure that is clearly protectionist and a distortion of competition," said Anne-Marie Idrac, the French trade minister.

She said it was a "very bad sign that goes against" earlier statements opposing protectionism by the leaders of the world's 20 largest economies.

Idrac demanded immediate action by Pascal Lamy, director general of the World Trade Organization.

Lamy, also at Davos, declined to be drawn into the battle. "If there is a breach of the rules," he said, it would be dealt with by WTO member nations' bringing action against the United States under the trade group's rules.

"I am not that big cop," he added.

For all the global affection for Obama, Washington sent a relatively low-profile contingent to Davos, with Valerie Jarrett, a White House adviser, serving as the administration's headliner here.

Jarrett did not address the issue of protectionism directly in her brief speech on Thursday, preferring to stick with the big picture as well as Obama's connection to Chicago, her hometown.

Instead, the task of defending American economic policy fell to attendees like Representative Brian Baird, a Democrat from Washington State, who has served in Congress for the last decade.

"The steel issue is vastly overplayed here," he said. "Even Adam Smith himself said certain key industries deserved to have protection."

Noting that his district is home to two steel plants - down from three a few years ago - he added, "Steel is one of those industries."

He suggested that this was not the time to push free-trade rhetoric on U.S. taxpayers already worried about surging levels of unemployment.

"If you want to kill the WTO, that would be the way to do it," he said.

Representative Carolyn Maloney, a Democrat from New York, also took a pragmatic view.

"In order to pass a piece of legislation, items are added that are necessary to secure the votes," she said.

Davos has always stood for globalization, and the benefits of free trade are an article of faith at the meetings. But even Davos die-hards admit that national economic interests have come to the fore amid the global downturn, and voter support for easing trade barriers is at a low ebb.

To be sure, for all the foreign criticism over the help for the Detroit automakers, European countries including France, Britain and Sweden have offered up billions in aid for local auto manufacturers.

But beyond the public sparring over these and other specific concerns, many overseas observers are also privately concerned about how the U.S. government will pay for Obama's proposed stimulus package, which could ultimately cost $1 trillion.

A binge of new borrowing by Washington could effectively crowd out other borrowers by pushing interest rates higher over the long term, and would be especially painful for developing countries that rely on foreign capital.

At the same time, printing more dollars could undermine the value of both the dollar and the many currencies around the world pegged to it, stoking inflation when the global economy eventually begins to recover.

Ernesto Zedillo, the former president of Mexico who helped steer his country through a financial crisis in 1994, said developing countries were already finding it harder to raise capital without competing with increased U.S. borrowing.

And his country does not have the option of printing money, he noted, since the Mexican peso is not a global reserve currency like the dollar.

Meanwhile, the current Mexican president, Felipe Calderón, could not resist a swipe at the now-departed administration of George W. Bush. The global finance crisis started in the United States, he said, and coincided with a lack of leadership in that nation.

But for all the complaining from abroad, no other economic power - not Europe, not Japan and not China - seems ready to step up and fill the role traditionally played by the United States.

"The irony of the situation," said Haas, of the Council on Foreign Relations, "is that everyone is still looking to the U.S. for leadership to fix things or at least make things better."

Calderón made exactly that point alongside his criticism of U.S. economic policies.

"The new president has the opportunity to lead his nation and the world," he said.

Katrin Bennhold contributed reporting.
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