Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
G-20 Foreign Ministers give up on stimulus spending
On Saturday June 5, the G-20 Finance Ministers gave up on their failed plan to exit the Great Recession with stimulus spending. The following is an excerpt from the Reuters analysis by Alan Wheatley (Analysis: G20 doesn't even try to put brave face on debt mess):
South Korea (Reuters) - Finance ministers can usually be relied upon to put the best spin on whatever is happening to the global economy.
US Treasury Secretary Geithner is the only finance minister who hasn't given up on the idea of new stimulus spending. But the trade-surplus governments are all rejecting his request that they spend more. Wheatley reports:
Despite Geithner's wishful thinking, it is becoming clear that the world's trade surplus countries will not move to boost their imports on their own, just as I predicted in my October 7 2008 Trade and Taxes Blog entry:
The obvious solution to a persistent crisis caused by trade imbalances is to balance trade. Since the trade surplus countries won't act, the trade deficit countries will have to do so. The United States could lead the way by instituting a tariff, proportional to our bilateral trade deficits, on all of those countries with whom we are running trade deficits that are 10% higher than our exports. The rate of the tariff could be adjusted quarterly by dividing the amount that we import from each by the amount that we export to each.
The trade-surplus countries could reduce our tariff rate by taking steps to import more from us. In 2009, the Chinese government only let its people import 28% of what China exported to us. The Chinese government could reduce our tariff rate by letting the yuan rise, by allowing the import of our copyrighted materials while prosecuting their piracy, and by taking down its many tariff and non-tariff barriers to our products.
Basically, President Obama would be repeating President Nixon's 1971 invocation of the special WTO rule for trade deficit countries. Our economic success would lead other trade deficit countries to follow suit. The result would eventually be world-wide balanced trade, which is sustainable. Trade deficits eventually bankrupt the trade deficit countries. Balanced trade can grow forever.
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