Obama's Tire Ad

As I cringe at the Green Bay Packer’s lackluster performance thus far against the Seahawks, I couldn’t help but cringe even more after seeing Obama’s new campaign ad championing his own protectionist tariff against Chinese tires.  After discussing Coughlin et al.’s article “Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale” in class last week, I agree with Mitt Romney’s statement which Obama attacks.  Obama’s ad quotes Mitt Romney as saying, “President Obama’s action to defend American tire companies from foreign competition…is decidedly bad for the nation and our workers.”  But what isn’t featured in the TV ad is Romney’s overall view of protectionism, one which Coughlin et al. would certainly favor.  Romney states, “Protectionism stifles productivity.”  Sure, a 35% tariff on Chinese tires shielded 1,000 American jobs from foreign import competition, but what good will it do for the economic well being of the entire nation during this time of financial crisis? According to Cornell University professor of trade policy Eswar Prasad in a 2009 Bloomberg Businessweek article, this tariff doesn’t bode well at all.  Prasad claims that the tariff could "easily ratchet up into a full-blown trade war and inflict serious economic damage on both countries.”  Of course the purpose of protectionist tariffs is to protect American jobs, and it’s great to see that Obama “saved” 1,000 American jobs from the terrible beast that is Chinese imports, but the American public needs to look past the sensationalist mudslinging and realize the broader negative effects that protectionist tariffs have on rest of the nation.  Tariffs result in higher prices of the protected good, and as Coughlin et al. simplifies “domestic producers of the protected good and the government gain; domestic consumers and other domestic producers lose.”  A petty analysis of Obama’s ad makes it look as if Obama has the blue-collar sector in his best interest.  Is Obama really that concerned about shielding a meager 1,000 domestic jobs from foreign import competition? Has he considered the overarching economic costs that outstrip the minor benefits?  As this three-year tariff is due to expire, it doesn’t appear that Obama will let that happen, as noted by Huffington Post’s Jon Ward in his recent article, especially now as he campaigns in Ohio, a state known for its many tire manufacturers.  That being said, Obama is embellishing the minor benefits of a protectionist trade policy he enacted in 2009 merely as a move to boost his image, and tarnish Mitt Romney’s with the forthcoming election in November.

Setting the Precedent with Greece

  What is the greatest challenge facing the leading actors in the international political economy in the 21^st Century?

Nearly a decade into the 21^st century, the international political economy was faced with an unforgiving global financial crisis.  This worldwide recession certainly took its toll on the Eurozone countries as today they still face an ongoing sovereign debt crisis.  Nations like Greece, Spain, Italy, and Ireland all face increasing unemployment, substantial budget deficits, and an inability to repay debts to their various creditors.  Yet economic powerhouses like Germany have fared rather well in comparison.  Though all of these countries are united under a single currency, fiscal policy drastically differs amongst each of the member nations of the EU.  Within this structural rift lies the toughest task for the leading actors of the EU, ECB, and IMF.  Which fiscal policy will best stimulate economic growth without further increasing the already massive debt?  Do they impose austere economic strategies to cut spending and balance budgets, or spend more to stimulate job creation? Finding common ground certainly remains a task to be contended, and what the leading actors do in regards to Greece will set the precedent for solving the entire Eurozone crisis.

Indisputably, Greece went far beyond their budgetary means upon joining the Euro at the turn of the century.  They overspent on high public sector wages and benefits, meanwhile going way over budget in spending for the 2004 Olympic Games in Athens.  To make matters worse, high rates of tax evasion left the Greek government in a steep budget deficit leading into the financial crisis.  Certainly, the multi-billion dollar bailout from the IMF and the EU was essential to keep Greece afloat during these tough times, but many members of the IMF and EU believe its time for Greece to show some skin in the game. As the largest and arguably the most successful economy in the Eurozone, Germany wields a large amount of influence.  Many leading actors in the Eurozone economy side with German Chancellor Angela Merkel’s hawkish fiscal policy, and believe Greece should undergo substantial austerity reforms which include tax increases and major cuts in wages, pensions, and benefits.  Many argue that the reason why Germany is such a powerful and successful economy even during today’s crisis is due to the fact that they froze wages to supplant the cost to rebuild the former East Germany after the Berlin Wall came down in 1989.  With this mindset, many conservative leading actors are confident that if Greece buckles down and balances their budget, lenders will become more confident in the Greek economy, borrowing costs will be lowered, and Greece will be able to repay their debts.

However, these proposals have been met with fervent backlash.  After years of blatant tax evasion and comfortable pension benefits, much of the Greek citizenry are not all that quick to face higher taxes and sweeping cuts in public sector spending.  It also seems that many of the other indebted countries share in Greece’s reluctance.  Just this past week there have been large anti-austerity protests in Spain and Portugal.  But the same situation occurred in the United States this past year.  Wisconsin Governor Scott Walker’s embarked an austere fiscal policy, and even faced an unprecedented recall election for his budgetary policy.  Though his policies were delayed by political backlash, he was still able to reduce a $3.6 billion deficit by reducing costly public sector pensions and benefits without raising taxes.  Unfortunately, it does not seem as if the same will occur in the Eurozone.  There are many opponents, including France, who believe stimulus spending to be a better way to renew confidence and job creating in these indebted countries. 

The fact of the matter is that the leading actors of the EU, IMF, and ECB must find some common ground in the dichotomous argument between austerity and growth.  Greece cannot default; otherwise a stark example will be set for other struggling countries like Spain, Portugal, and Italy.  If these countries cannot find a way to repay their debt, the economic crisis will further spiral downward, making it that much harder for the Eurozone to return to a thriving economy.