Thursday, November 20, 2008

Not Tariff, but Subsidy and Bailout

Dede of Diskusi Ekonomi is apparently more optimistic than I on recent G20 meeting. Take international trade issue, he wrote that one of the important meeting's results was the agreement for not to adopt protectionism. Here is the official statement #13:
We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.
This is surely a good policy. But the problem is whether the governments are effectively able to do that against own domestic political pressure? While they might not raise the tariff, which is a blatant WTO violation, it seems that the more subtle subsidies and bailouts are now gaining popularity --which is just another kind of protectionism. The US, for instance, now debated on whether or not to save those inefficient Detroit's big boys.


  1. isn't bail out ok, or even necessary? because the govt. needs to break a "similar paradox of thrift" in the financial sector.
    i.e. if everyone is deleveraging then somebody (govt) needs to lever up its balance sheet to absorb assets being dumped.

    is that true?

    (surely i'm not talking about detroit, but the financial bail out)

  2. Roby, I, not necessarily other baristas here, was initially for the bailout in financial sector. The initial plan, if I understood correctly, was not merely to absorb toxic assets but, by buying them, create a market and price signal, or information --which was missing as it turned out that nobody have the idea on the real price of those toxic. Once it is in place, government can then resume to trade these assets in hand in the market and expect some return of taxpayers money used for bailout.

    But as the plan is now getting messier and lacking focus, I am now much less optimistic with the current financial bailout plan in the US.

    However, when we discuss about international trade, usually it refers to goods and services, not the financial assets market --which is a different game. And the term bailout in this posting applies to trade in goods and services export import accordingly (maybe I should be more clear on this).

    Now, it seems that everybody point out financial crisis to mask their inefficiency --even (unwillingness (crossed out)) inability to pay compensation for disaster victim --and asking for government protection.