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The West's time in the economic sun may be over

By Chris Lewis - posted Thursday, 6 August 2009


For now, Australians may live in hope that everything will be OK on the back of a booming China, although commodity prices may again fall if world demand does not pick up enough to help offset China’s tactic of stockpiling vast amounts of mineral commodities.

Whether supporters of freer trade like it or not, protectionism is likely to increase as many Westerners realise that they cannot compete with a communist China.

Already protection is rising in both developed and developing nations. Among the rich countries, the EU announced new export subsidies on butter, cheese, and milk powder. And during December 2008, the EU imposed duties on preserved fruits from China as well as on imports of welded tubes and pipes of iron or non-alloy steel from Belarus, China and Russia.

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Subsidies for the auto industry are now about $48 billion worldwide ($42.7 billion in high-income countries), with the US alone providing $17.4 billion to its three national companies in 2009. The US government also passed a stimulus bill that would provide a 25 per cent competitive margin for US iron and steel for all expenditures under the bill, although the final version exempted 27 EU member states and the 12 other countries which have signed the WTO Agreement on Government Procurement along with countries with Free Trade Agreements. This legislation was aimed to counter government purchases of iron, steel and other manufactures from China, India, and Russia and others.

So it does not really matter what supporters of freer trade argue (and I include myself). Policy in democracies is decided by votes, and if growing minorities suffer, many Western societies will look to polices that will protect their way of life whether this is detrimental to world trade or not.

In truth, no nation can compete with a giant which can exploit an abundance of cheap labour which is boosting a growing and highly-skilled middle class. With 1.3 billion people, its economy will grow and grow if given a free reign. What will happen when China’s banks rise in value? Will the West allow a communist nation to dominate such key assets? Hardly.

According to some financial experts, a debt-bloated West needs to cut spending for many years to make their economies more competitive. As some suggest, pain now may have been preferable for two important reasons. First, any reliance upon debt to boost consumption will be a long-term mistake as the money will need to be repaid. Second, any real recovery must produce wealth rather than rely on spending.

My gut feeling, however, is that our response will be different. With rising debt, a reluctance of Western voters to accept the destruction of their welfare systems to meet budgetary aims, and a rising China with traditions alien to Western aims, I suspect we are going to see present economic orthodoxy challenged once the majority of Westerners realise that their time in the sun is over under the guise of freer trade. Something indeed has got to give.

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About the Author

Chris Lewis, who completed a First Class Honours degree and PhD (Commonwealth scholarship) at Monash University, has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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