Trade protectionism under Obama a concern
Bangkok Post, Thailand
Trade protectionism under Obama a concern
By Parista Yuthamanop
7 November 2008
Asian countries should be prepared for intensified trade protectionism under US president-elect Barack Obama as he seeks to revive the world’s largest economy, according to economists.
Sompop Manarungsan, a lecturer at Chulalongkorn University’s Faculty of Economics, said Mr Obama aimed to shift the US economy’s concentration on financial services to production and other types of services. Therefore, his campaign platform included plans to discourage overseas investment by US corporations and a possible scaling back of international trade co-operation.
Tax increases on corporate outsourcing activities would be one method to keep investment at home. As well, it is expected Mr Obama will downplay bilateral free trade agreements, while also reviewing the North American Free Trade Agreement and US policy toward the World Trade Organization. The main objective is to protect jobs.
"It seems Mr Obama wants to discourage international trade and investment, because it will take a long time to solve problems in the financial sector," Assoc Prof Sompop said. "As Thailand and Asian countries are highly dependent on production and services like tourism, anyone can guess what will happen."
More non-tariff trade barriers are likely to emerge such as regulations linked to impact on climate change, another of Mr Obama’s main policy planks. He also campaigned to spend $50 billion to support ailing automakers to protect jobs.
The deleveraging process that US financial institutions need to undertake to remain solvent is expected to take few years to finalise, and as a result inflows to emerging markets are likely to diminish. Consumers would also bear the burden of losses of pension funds and sovereign wealth funds due to volatility in the global financial market.
Sophon Khantiakom, another Chulalongkorn University economist, said the US financial crisis would take years to bottom out as commercial banks, investment banks and hedge funds gradually suffer realised losses from investment in collateralised debt obligations.
The depressed housing prices would also encourage consumers to default on mortgages and have a double impact on financial institutions’ equity and the value of the securities they hold.
"The decline in housing prices from a peak in 2006 by one fifth was deeper than in the Great Depression in the 1930s. It is expected that US housing prices will fall by another 15-20%," he said.
He said the $700-billion US financial institutions bailout plan was just a measure to delay the damages.
Sukanda Lewis, another Chulalongkorn University lecturer, said the global financial crisis showed that derivatives were incorrectly used as a tool for speculation instead of risk assessment.The US government, she said, should rethink the role of special financial institutions as the insolvency of Fannie Mae and Freddie Mac came from state policy to support the ability of low-income people to buy homes.
