Entries for February 2009
Trade and Recession
If recession is due to decrease in economic activity, the remedy is to increase the activity. The way out seems to be heavy government spending, on projects that may provide jobs which in turn provide more economic opportunities, so that the government can one day repay the debt incurred carry out economic activity.
To get greater bang for the buck spent, it may advisable to include a buy American clause in the bailout program, much against advice of US (sic) chamber of commerce. It is correct as per WTO rules, since a country can suspend any rule because of emergency conditions. This emergency condition has allowed many developing countries often use health emergency to help their companies in pharmaceutical piracy.
US currently has a trade deficit of US $ 1 trillion in 2007, in case of retaliation there is no way it is going to have an effect. US exports close to $ 1.1 trillion and imports close to $ 2.1 trillion, so who is at an advantage in this game?
Recently some Johnny come lately countries were advising that US over consumption is the cause of the current crisis, the buy American clause should help to reduce consumption in case of retaliation and also teach them what happens to their domestic economies when US doesn’t consume.