Friday, July 16, 2010

Gravitating Towards Trade War Scenario : Fallout of Depression

US President Barack Obama has fired the first shot to initiating Trade War. Last week he goes on record saying "Simply put, export growth leads to job growth and economic growth," This President Barack Obama opined while setting up an industry panel to achieve his ambitious target of doubling American exports in next five years. "This isn't just about where American jobs are today. This is where American jobs will be tomorrow", thundered the US President.

After having failed to create new jobs for US citizens through the usual route of driving domestic growth via fundamental economic activities, President Obama has now set his sights on achieving US economic revival by focusing on enhanced exports. To achieve the same he has already started advising competing exporting nations to go slow on their exports. Sample this reaction from a German official to President Barack Obama's advice "With his arguments that we should become a bit less reliant on exports and allow the others to catch up, he's just trying to weaken us. Well, we're not going to take his advice."

But if we know the style and functioning of  US President, he is not going to go back in his new agenda of doubling exports to rekindle US economic recovery, just because Germans do not like it. On the other hand European nations are not going to accept whatever US President has set as his national goal. It is no longer the period just after World War II that European Union will kowtow to US diktat. US will find it very tough to arm twist European Union on reducing its exports, whatever be the Union's present state of economic crisis. And that may set off some kind of trade war, which can be the next level of global concern.

The spectre of the European Central Bank raising interest rates to damp inflationary pressures in Germany is receding away. European Central Bank will find it very difficult at this time to raise rates when many European nations are still struggling with their respective debt-ridden economies. Credit crisis in Europe has at least ensured that the stimulus package will not be withdrawn for several months, which means that present low interest rates are here to stay for quite sometime. This is excellent news for Germany's export-orientated industry since continuation of low interest rates means high inflation, which in turn means that exports will fetch more money to German exporters.

In a scenario where exports are so lucrative, do you feel Germans are going to pay any heed to the wishes of President Obama? And therein lies the danger of a global trade war, in case US decides to pull out all the stops to attain its national agenda of doubling exports at the cost of its exporting competitors.