Britannia Radio

The crisis is really getting nastier by the day .  If protectionism 
takes hold,  from Britain's standpoint we will lose out with  our 
biggest overseas trading partner - the USA - while being driven back 
on to relying on the EU which has little need for our goods,  That 
would be catastrophe for Britain with unemployment going through the 
roof. .

There are a few signs that Obama is grasping the facts of this danger 
but the US Senate is playing to the gallery with 'pork-barrel' 
politics.  Keep your fingers crossed or better still -  pray!

Meanwhile note the danger that Britain is in.

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SUNDAY TELEGRAPH  1.2.09
1. In Davos, protectionism is a dirty word
The beggar-thy-neighbour phase has begun in earnest. "Buy American" 
legislation has advanced from a barely credible threat to imminent 
reality on Capitol Hill in just weeks.

By Ambrose Evans-Pritchard

The House has voted for a bill that prohibits the use of foreign 
steel in most infrastructure projects funded by Barack Obama's $820bn 
(£563bn) rescue package. The Senate is drawing up plans to widen that 
to all manufactured goods.

This is what happens when a country loses half a million jobs a 
month, and when the state becomes spender-of-last-resort. Taxpayers 
are tribal. They do not want precious stimulus to feed the foreigner.

Even so, this Dutch auction has the disorderly feel of the Smoot-
Hawley Tariff debacle in 1930, though this time the collapse of 
commerce - if allowed to happen - will have very different 
consequences for the global balance of power.

Mr Obama can veto the law, should he wish to pick a fight with 
Capitol Hill from day one. The world watches and waits in horror, 
especially in Davos.
"Everybody here is talking about protectionism. There's not a prime 
minister present not talking about protectionism," said Peter 
Sutherland, former (GATT) trade chief and now chair of BP.

Days earlier, US Treasury chief Tim Geithner called China a "currency 
manipulator" - meaning that Beijing holds down the yuan to boost 
exports. The term is turbo-charged. It implies mandatory trade 
sanctions under US law.

Mr Geithner's bluntness prompted an angry outburst by Chinese premier 
Wen Jiabao behind closed doors in Davos. Mr Wen later let rip against 
"blind pursuit of profit" and unstable economic models based on "low 
savings and high consumption". Not a word about China's role in 
accumulating $1.9 trillion of reserves and thereby helping to stoke a 
global credit bubble; Mr Wen clings to the fallacy that greedy banks 
alone
created this disaster. A fat lot of good it will do him.

The penny is starting to drop that the US is not going to be the 
greatest victim of this slump. Other parts of the world are starting 
to suffer more. Those countries - China, Japan, and the Asian tigers 
- that have staked their fortunes on exports to the West risk being 
slaughtered. So too does the whole nexus of commodity states that 
lived off the boom. They are all leveraged to America.

Nor is the US about to suffer its condign punishment for years of 
hedonism. It is not facing the predicted dollar collapse or the mass 
dumping of US Treasury bonds - yet. The dollar has surged against 
sterling, Aussie, rouble, rupee, and real.

Yields on 10-year US Treasuries are 2.84pc - lower than Germany 
(3.3pc) or France (3.81pc). One-year notes are 0.46pc. The worse the 
crisis gets, the more the world wants to place its shrunken wealth in 
the care of Washington. The US Treasury is finding it all too easy to 
suck in enough global capital to fund trillion-dollar deficits.

This is the "exorbitant privilege" of reserve primacy that so vexed 
Charles de Gaulle. You could hear the gnashing teeth at Davos.
"They can print the dollars," said a weary Ernesto Zedillo, Mexico's 
former president. The injustice of it. The arch-sinner is dodging its 
own disaster, leaving scores of well-behaved countries starved of 
capital and exposed to the crunch from Hell.

Russia's Vladimir Putin railed wildly, calling for a global putsch to 
topple the dollar. "The one reserve currency has become a danger to 
the world economy," he railed.

Kremlin aides hovered in the foyers, accusing the US of running a 
"beggar-thy-neighbour" policy. "All the free liquidity in the world 
will run into American Treasury bills. That is pretty selfish," said 
one.

Herman Gref, former economy minister and now Sberbank chief, said the 
world should seize control of the Fed itself to force it to serve 
global needs. "Economies are facing collapse just because dollar 
credit has been withdrawn. That cannot be," he said.

In hindsight, it is astonishing that the "decoupling doctrine" still 
passed for orthodoxy in Davos a year ago. It was a given that the 
Brics (Brazil, Russia, India, and China) were strong enough to power 
ahead under their own steam. "What were they smoking?" asked Nouriel 
Roubini, the prophet of the crisis.

The evidence is in. Exports fell 42pc in Taiwan's last month of data. 
Japan's industrial output crashed 9.6pc. Korea's economy shrank at 
21pc annualised in the fourth quarter. China is contracting on a 
month-to-month basis. "The decoupling dream has been shattered. China 
has hit a wall," said Stephen Roach, head of Morgan Stanley Asia.

The other penny starting to drop is that trade wars have asymmetric 
effects. The Great Depression taught us that they hit surplus states 
harder than deficit states. Britain avoided the worst of the 1930s, 
although - or should that be because? - it retreated into an Empire 
trade bloc. America has the strategic depth to do the same, should it 
wish to do so. It may conclude that this is the best way to rebuild 
the US industrial base (as Germany did from 1933 to 1938, with success).

So, as the world's leaders awaken to the danger that the sole 
superpower may turn its back on the open system that keeps us all 
afloat, they line up to plead for free trade.

China, India, and Russia were among the loudest in Davos, though all 
three have already taken steps to protect their own steel mills. 
Germany's Angela Merkel spoke darkly of "command economy 
experiments", and slammed US car-bail as a trade "distortion", even 
as she crafts a clever version for German cars.

Gordon Brown says we all face ruin if we "let the protectionists take 
over", yet UK banks under the state's thumb are being told to cut 
foreign lending. France's Christine Lagarde says - with refreshing 
candour - that protectionism has become a "necessary evil".

We are all mercantilists now.

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2. Protectionism could destroy us all
Governments will need huge reserves of political will and an 
internationalist spirit to resist putting restrictions on free trade, 
says George Walden.

By George Walden

When the tailors themselves become revolutionary sans-culottes, 
Thomas Carlyle sighed, then we are all done for. And that is the 
worry about the inclusion of a "Buy American" provision in the 
stimulus package currently passing through Congress. If the US 
reneges on free trade, despite the awful precedent of the Great 
Depression, when protectionism instigated by America helped destroy 
the world trading system, we could all be done for too.

Everyone is queueing up to denounce the evils of protectionism, but 
few people's hands are clean, now or in the past. President Obama 
made nationalistic noises on the economy early in his campaign and 
has not disavowed them, even though the White House says it is 
reviewing the Buy American clause. If he succumbs to popular and 
Democratic Party pressures over the stimulus package, he can console 
himself with the thought that his idol Abraham Lincoln was against 
free trade and imposed a 44 per cent tariff during the Civil War to 
protect industry.

Today in America fancy justifications have been mooted for temporary 
measures, which would be conditional on industries re-skilling and 
retooling or, as in the car industry, improving their environmental 
performance, but they do not carry conviction. Protectionism is a 
disease that contaminates everything and is a cure for nothing. To 
resist it governments will need huge reserves of political will and 
an internationalist spirit, both of them currently in short supply.

A major reason Obama's election was welcomed across the world was his 
pledge to make America less isolationist-minded, but if his first 
major economic act ignores the needs of the global economy and 
provokes a trade war with the European Union, how likely is it that 
China or Russia or India or South America will play by the rules?

All of them made the right noises at the G20 meeting of Developed and 
Emerging Economies last November, and at the Davos economic forum 
last week, but if ever we need to inspect the pudding rigorously for 
proof it is on protection. [sic ? -cs]  At Davos Chancellor Merkel 
said her bit, but Germany, whose industrial base equals those of 
France and Britain combined, has also set up a fund whose transparent 
intention is to shield exports, and declined to take actions, such as 
cutting carbon emissions, [now THAT's a really sensible policy we 
which we should ALL copy -cs]  that might have the effect of costing 
jobs.

Looking to President Sarkozy for a staunch line on the subject would 
be somewhat quixotic in a country that was the author of the Common 
Agricultural Policy, where a protectionist spirit runs in the blood, 
and respected writers are openly calling for the retreat not just of 
France but of Europe itself behind greatly enhanced trade barriers 
and tariff walls. To understand the political pressures and inter-
European strains in the offing, one only has to observe last week's 
riots in Paris, of which we shall see many more, and the fact that 
the cost of a French or German car exported to Britain has increased 
by a quarter in recent months.

Prime Minister Putin too toed the line at Davos, yet his 
internationalist credentials are not exactly glittering. The Russians 
have already imposed a tax on imported cars to prop up the Russian 
industry, and as its popularity comes under greater pressure than at 
any time in a decade, how likely is it that a government that has so 
recently played politics over Ukrainian gas would resist the siren 
calls to do ever more to protect vanishing Russian jobs?

China could be in an even more exposed position. The very legitimacy 
of Communist Party rule depends on a continuation of an export-led 
wave of prosperity. Should unemployment reach the point where the 
regime itself felt threatened it is unlikely to have any qualms about 
job protection, perhaps by the devaluation of an already undervalued 
currency, about which the new American Treasury Secretary Tim 
Geithner has recently complained.

For all Prime Minister Wen Jiabao's fervently free trade declarations 
at Davos, when it comes to getting round the rules the Chinese have 
form. In the first half of 2008 complaints about the dumping of goods 
at lower than market prices rose by a third, according to the World 
Trade Organisation, and 50 per cent of them were against China.

There is a tendency in all this for us to forget that it is 
developing countries
that could bear the brunt of any new protectionist wave, and not only 
as their exports decline as demand in rich countries diminishes. 
Investment money that has been flooding in could begin flooding out, 
as American or European banks, increasingly subject to government 
control, are pressured to redirect scarce loans to national firms to 
boost employment. The result would be a beggar-thy-neighbour policy 
towards people many of whom live in beggarly conditions already. The 
consequences could be fearsome, not least in the field of emigration 
into Europe.

And Britain? At the G20 meeting, Gordon Brown called economic 
nationalism "the road to ruin". Yet think of the pressures to save 
jobs with the country destined to undergo the most severe recession 
the Western world will face. We are "in the eye of a global financial 
storm", as Brown said in The Daily Telegraph yesterday, partly 
because, on employment, that is where Labour has put us. It was Blair 
and Brown who failed to restrict access by East European workers, and 
who opened the immigration floodgates. To talk about "British jobs 
for British workers" was a flagrant contradiction, which is why we 
face an angry wave of strikes by energy workers. The Government's 
position will become even tougher if there is any suspicion that, as 
over the CAP, we are the only ones playing by the rules, while 
everyone else finds ways round them.

And we can expect a great deal of creativity to be diverted into 
that. There is nothing very funny about protectionism, but one good 
joke. To stem a flood of Japanese bicycles the French, the joke runs, 
decreed that henceforth each machine had to be individually tested. 
OK, said the Japanese. Not at the port of entry, but in the remote 
provincial town of Poitiers, the French specified. OK, sighed the 
Japanese. And by a French Olympic medallist, the French insisted. OK, 
groaned the Japanese. Unfortunately, said the French, there aren't 
any French cycling medallists.
Interdependence is a tiresomely overused word, but now is the time to 
focus sharply on what it means. As the recession rolls on the choice 
is quite simply between hanging separately, or hanging in there 
together.