A local academician remarked recently that the great economic mess the whole world is in right now was something “proudly made in USA.”
University of Malaya’s Adjunct Prof Cheong Kee Cheok’s sentiment is widely shared among his peers.
This is not helped by the irony that the United States passed a US$787bil stimulus package this week that included a “Buy American” provision.
That law has raised alarm bells around the region about the US adopting potentially disruptive protectionist measures.
United Nations’ economist Jomo Kwame Sundaram in a talk on current global economic crisis in Kuala Lumpur on Monday night argued that “protectionist policies had failed in the 1930s” and “it would be a disaster” in today’s environment.
Protectionism is a trend that occurs whenever there is economic trouble. Political leaders use it as a convenient tool to appease taxpayers by blaming foreign imports or foreign workers for their domestic economic woes.
“These kind of ‘beggar thy neighbour’ tendencies must be avoided,” the current UN assistant secretary-general for economic development says.
During 1930s, the US raised tariff on imported goods in a bid to protect domestic industries. Other countries responded with their own set of tariff hikes and this resulted in contraction in global trade.
That was how the Great Depression of the 1930s became a prolong period of economic turmoil.
“So far our leaders have been wise enough to resist it, knowing the consequences of protectionism, just as Obama had watered down the “Buy American” clause,” Prof Cheong says in an e-mail reply to StarBizWeek’s query about the impact of such a policy by the US.
The former World Bank economist’s concerns is on whether such a move would trigger retaliatory reactions by US trading partners.
With current global trade as weak as it is, any major “trade war among the big boys” in the world economy namely US, Europe, Japan and China will spell “serious trouble” for everyone, Prof Cheong says.
The US on its part, said the “buy American” law would only apply to goods used in state-funded public development projects. It also includes a provision designed to help US textile producers, while at the same time the US said it will continue to honour all of its free trade agreements.
China, India and almost all developing countries in the Asia have little, or no such trade arrangement with the US. This exposed the region to a potential new trade barrier imposed by the US.
For Malaysia, about a quarter of our exports goes to the US. Another 25% is consumed by the Europeans, while the rest goes to China and other Asian countries.
The initial belief is that inter-Asian trade will pick up the slack in demand from US and Europe. This notion, however, has been thrashed with the recent slew of dismal trade numbers from around the region.
In Malaysia, latest export figures revealed a 14.9% decline in December, which was the worst monthly performance since September 2001.
Others countries in the region also posted similar, if not even larger slump in exports as demand from recession-hit US and Europe vanished. Malaysia, like most countries in Asia, relies heavily on exports to fuel economic growth.
Many Asian economies – Japan, South Korea, Taiwan and Singapore included - have experienced unprecedented contraction. China and India have to deal with a significant slowdown in their once blistering growth pace.
Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak this week told parliament that the country would need to revise its gross domestic product forecast down from 3.5% in view of the deteriorating situation worldwide.
A second domestic stimulus plan is in the works, and is believed to be substantially bigger than the first RM7bil package.
A senior fellow at Nippon Foundation and former banker Michael Lim says that while the roots of the crisis can be easily be traced back to the implosion in the US financial system about a year and a half ago, its repercussion had since reached every corner of the globe.
This had shattered another earlier wisdom that Asia was insulated from the financial meltdown, just because banks in the region have very small holdings of these now toxic debts papers sold by “sophisticated” bankers in the West.
While Asia is not a direct consumer of these so called “goods” that come out from the US, the brunt of the financial crisis had certainly hit Asian exporters worse than those in consuming countries.