BluntPolitics.com

Starting To Pay Price For Our Protectionism (investors business daily)

Trade: As Obama makes political hay off protectionism and promises a new Smoot-Hawley era, it’s no surprise our trading partners are beginning to look to other markets — such as Europe. It’s a warning.

   Our No. 1 trading partner, Canada, isn’t stupid. When Obama threatened last February to rewrite the North American Free Trade Agreement on his own terms, our northern ally started looking abroad to other markets.
   They found a big one in Europe, which seems to have few hangups about increasing exports and signing free-trade treaties. Last Friday, Canada and the European Union held the first talks toward an eventual free trade agreement between the two.
   When this goes through, $27 billion in new trade is expected by 2014, according to a joint EU-Canada study. Canada will add an extra 0.8% to its GDP and see income gains of $11.1 billion from the new jobs and higher salaries coming in from Europe.
   After all, if free trade with the U.S. bolstered Canada’s economy and standard of living by a factor of four since 1994, it makes sense to do more of what brought in that wealth.
Europe’s $14 trillion market is an attractive alternative to the U.S. for the Canadians, if it comes to that, and the Europeans are happy to add Canadian investment to the $500 billion investment its three largest economies drew in 2007.
Canada isn’t the only one responding to these chill trade winds blowing in from the Washington elites in election season.
Colombia is also preparing to sign a free-trade deal with Europe, as its own free-trade accord with the U.S. languishes after House Speaker Nancy Pelosi blocked it in Congress last April.
U.S. allies are wise to seek other partners no matter what the U.S. climate — the U.S. downturn no doubt plays a role too. But it started with noises out of the U.S. about pulling up the drawbridge.
With a global downturn, free trade makes more sense than ever. That ought to be an election issue for the U.S., which needs to stay globally competitive. Sadly, it’s not.
Canada and Colombia are effectively defending themselves from the anti-trade vortex in the U.S. by turning to other markets. The Europeans have no intention of imitating the mistake made by the U.S. “It’s never a good sign when the U.S. becomes protectionist,” Philippe Favre, special ambassador for international investment and chairman of Invest in France Agency, the country’s foreign investment arm, said in recent comments to IBD.
   Like many European officials, Favre thinks the sentiment has been brewing for a while. “If you look at the last two or three years, there was the U.S. preventing foreigners from buying ports,” he said. “The Chinese wanted to buy an oil company and they were stopped. Then you have the contract for (air refueling) tankers refused to a European company (EADS).”
   Another failure was the World Trade Organization talks. “We have seen since 9/11 a U.S. trend to be more wary of the rest of the world,” Favre said. “We probably underestimated the impact (of the attack) on the people and the country in the EU.”
   Agree or disagree, there’s no doubt that protectionism will make America poorer and less influential, protecting nothing. Outsourcing is particularly full of misperceptions.
   “Look at the auto industry — Japan started by exporting to Canada and the U.S., and now produces cars in the U.S. They did it because the market itself is in the U.S. We see exactly the same thing in Europe. More car plants are going up in Germany and France than Bulgaria and Romania, even though the labor costs are lower there.”
   Michael Pfeiffer, managing director of Invest in Germany, told IBD that exports are no threat: “We (Germans) are the largest exporters in the world — it’s something we do. We have to do it.”
   Why? Germany doesn’t have the diversified economy America does. “One-quarter of German people are employed for export industries,” said Pfeiffer.
   With the possibility of a protectionist Democratic president (Barack Obama) working with a protectionist Democratic Congress, the U.S. may be the odd man out when it comes to free trade.
   Pity. Because free trade, as any economist will tell you, inevitably boosts the economies of those who engage in it. So others, like Canada, Colombia and Europe, will continue down the free-trade path — toward greater wealth for their citizens — while the U.S. sits on the sidelines.
   The world will decide it isn’t going to wait for Nancy Pelosi to come around on free trade — it’s going to leave the U.S. in the dust.

September 20, 2008
hp-1150

FACT SHEET:
Proposed Treasury Authority to Purchase Troubled Assets

Washington – The Treasury Department has submitted legislation to the Congress requesting authority to purchase troubled assets from financial institutions in order to promote market stability, and help protect American families and the US economy. This program is intended to fundamentally and comprehensively address the root cause of our financial system’s stresses by removing distressed assets from the financial system. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs.  As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to significantly damage our financial system and our economy, undermining job creation and income growth.  The following description reflects Treasury’s proposal as of Saturday afternoon.

Scale and Timing of Asset Purchases. Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.  Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth. The timing and scale of any purchases will be at the discretion of Treasury and its agents, subject to this total cap. The price of assets purchases will be established through market mechanisms where possible, such as reverse auctions. The dollar cap will be measured by the purchase price of the assets. The authority to purchase expires two years from date of enactment.

Asset and Institutional Eligibility for the Program. To qualify for the program, assets must have been originated or issued on or before September 17, 2008. Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.

Management and Disposition of the Assets. The assets will be managed by private asset managers at the direction of Treasury to meet program objectives. Treasury will have full discretion over the management of the assets as well as the exercise of any rights received in connection with the purchase of the assets. Treasury may sell the assets at its discretion or may hold assets to maturity. Cash received from liquidating the assets, including any additional returns, will be returned to Treasury’s general fund for the benefit of American taxpayers.

Funding. Funding for the program will be provided directly by Treasury from its general fund.  Borrowing in support of this program will be subject to the debt limit, which will be increased by $700 billion accordingly.  As with other Treasury borrowing, information on any borrowing related to this program will be publicly reported at the end of the following day in the Daily Treasury Statement. (http://www.fms.treas.gov/dts/)

Reporting. Within three months of the first asset purchases under the program, and semi-annually thereafter, Treasury will provide the appropriate Congressional committees with regular updates on the program.