Fraudulent Free Trade and Expensive Oil

Parting company.

The New York Times has an article about the affect of fuel consumption brought on by foreign government subsides. Iran, Venezuela, Saudi Arabia, Mexico, India and China all heavily subsidize the price of petroleum products. These governments fearful of inflation, and civil unrest are heavily subsidizing energy prices, particularly for diesel fuel. China alone spends $40B a year on subsidies. That would not be possible if it were not for the fact that China has such a huge trade surplus with the US.

I doubt anyone calculated the affects of these subsidies when the US was agreeing to lop-sided trade agreements giving away trade advantages at the expense of American interests. Fuel Subsidies Overseas Take a Toll on U.S.

Carving up the Trade Pig.

Mercantilism is nothing more thsn the using the power of the state throughout the economy to enrich the state. A mercantilist economy is a managed economy. Mercantilism is controlling the means and sources of producing goods and services for the national benefits of one state against another. It is based on manipulated trade and invariably leads to militarism and can result in war.

It was thought that free trade was the antidote, but then again, what is free trade?
I think I know it when I don't see it.



The End of Free Trade

By Robert J. Samuelson Washington Post
Wednesday, December 26, 2007; Page A21

Here's today quiz. What do the following have in common: (a) Vladimir Putin; (b) China's currency, the renminbi; (c) the U.S.-Peru trade agreement; and (d) Hugo Chavez? Answer: They all reflect the "new mercantilism."

It's an ominous development affecting the world economy. Even as countries become more economically interdependent, they're also growing more nationalistic. They're adopting policies intended to advance their own economic and political interests at other countries' expense. As practiced until the mid-19th century, mercantilism aimed to do just that.

It was an economic philosophy that favored large trade surpluses. At the time, this had some logic. Trade was an adjunct to military power. Exports earned gold and silver coin, which financed armies and navies. But mercantilism fell into disfavor as a way to promote national prosperity. Free trade, argued Adam Smith and David Ricardo, would benefit all countries, because each would specialize in what it did best -- the doctrine of "comparative advantage." The post-World War II economic order took free trade as its ideal, even though trade barriers were lifted slowly. Now mercantilism is making a comeback, as governments try to manipulate markets to their advantage.

The undervalued renminbi is a glaring example. China's leaders have staked their country's political stability on export-led job creation driven by an artificially cheap currency that puts competitors -- Mexico, India and other developing countries as well as the United States and Europe -- at a disadvantage. China's trade surpluses have swelled. In 2007, the current account -- a broad trade balance -- will register a $400 billion surplus, about 12 percent of gross domestic product, says economist Nicholas Lardy of the Peterson Institute. That's up from $21 billion, or 1.7 percent of GDP, in 2000. As a share of GDP, China's current account surplus is "triple Japan's level in the 1980s when Japan-bashing was at its peak."

Mercantilist notions also affect the energy trade. "A bear at the throat" is how the Economist recently described Europe's reliance on Russia for about a quarter of its natural gas. Putin talks of a gas cartel, and Europeans fear that their dependence exposes them to political blackmail. Ch¿vez is already less subtle. He dispenses Venezuela's oil to Cuba and other friendly countries at discounted prices. The specter is that scarce energy supplies, now available to all on commercial terms, will be increasingly allocated by political commitments.

Finally, the retreat from global trade agreements also reflects the new mercantilism. The Doha round of worldwide trade talks is floundering. Countries feel more comfortable with nation-to-nation and regional trade agreements, where they have more control over the terms. The World Trade Organization counts about 400 such agreements; the U.S.-Peru pact is the latest.

The paradox is that as the Internet and multinational companies strengthen globalization, its political foundations are weakening. Of course, opposition is not new. Even if free trade benefits most countries, some firms and workers lose from added competition. But for most of the postwar era, a pro-trade consensus neutralized this opposition. That consensus is now fraying.

Two powerful forces had shaped it, notes Harvard political scientist Jeffry Frieden. First was the belief that protectionism worsened the Great Depression. Everyone wanted to avoid a repetition of that tragedy. The second was the Cold War. Trade was seen as a way of combating communism by promoting the West's mutual prosperity. Both ideas bolstered political support for free trade. For years the global trading system flourished on the inertia of these impulses, whose relevance has faded.

In a booming world economy, the resulting tensions have so far remained muted. China's discriminatory trade practices, for example, have excited angry rhetoric, but not much else. The Chinese have generally deflected protests by, among other things, announcing large import orders at crucial moments. When European officials recently visited, there was a placating order for 160 Airbus planes worth an estimated $15 billion.

But would a global slowdown change that if other countries blamed Chinese exports for destroying their domestic jobs? Would import quotas or tariffs follow? Already, China has turned from the world's largest steel importer to the largest exporter, says Lardy. In the United States, the present pattern of global trade is viewed with increasing hostility: U.S. deficits are seen as eroding industrial jobs while providing surplus countries with the dollars to buy large pieces of American firms.

The world economic order depends on a shared sense that most nations benefit. The more some countries pursue narrow advantage, the more others will follow suit. "What's the glue that holds all this together?" asks Frieden. "Is there a common agreement about cooperation that allows governments to give up something to maintain the international order?" It's an open question whether these conflicting forces -- growing economic interdependence and rising nationalism -- can coexist uneasily or are on a collision course.

Free Trade is for Goods and Services. Not for the Farm.

I am not buying the idea that the market is the be all and end all to our lives, property and future. Free trade is a good idea when confined to goods and services and it is between equals. We accept the fact that trade in weapons systems that are going to come back at you is rarely a good idea. Free trade in drugs is not accepted and free trade in human beings, protected lumber, animals and antiquities are also banned or restricted. The term "free trade" is relative.

Trade between equals is important and both sides of a trading relationship should respect property rights and share rules of conduct. This is necessary in an age where intangible intellectual property is so important. Trade always has a political component. The highest form of free trade should be a privilege between defined equals or compatible parties. Free trade of goods and services need not be extended to ownership of property or equities. Free trade expanded to include equities and property should be between equals. Russia and China do not rise to that standard. The Euros have it right.


EU right to defend against sovereign funds-Juncker
Reuters Monday November 19 2007

BERLIN, Nov 19 (Reuters) - Luxembourg Prime Minister Jean-Claude Juncker was quoted on Monday as saying the European Union has the right to retaliate against sovereign wealth funds from countries under certain conditions.
"Countries that protect their own markets cannot expect to be allowed to make unimpeded investments in Europe," Juncker told Germany's Handelsblatt newspaper.
Juncker, who is also the Eurogroup president, said he did not view such moves as protectionism and argued that Europe had a right to take measures he described as "retaliatory action".
According to a draft law in Germany, foreign investors seeking to take large stakes in German firms can choose to inform the government of their plans ahead of time or risk a lengthy probe into their purchases.
The draft addresses Berlin's concerns about takeovers of firms by sovereign wealth funds and other outside investors. Chancellor Angela Merkel's government has been talking for months about introducing new legislation to shield German companies from cash-rich, state-owned funds, particularly from China, Russia and the Middle East.
Government-owned investment vehicles control around $2 trillion and are expected to grow rapidly to $12 trillion by 2015.
In one deal which sparked worries in Germany, China's state investment agency agreed in May to buy a non-voting stake of nearly 10 percent in U.S. private equity firm Blackstone Group , which holds shares in Deutsche Telekom .

(Writing by Erik Kirschbaum)