Wednesday 11 February 2009
G-7 ministers to scrutinise ‘Buy American’ clause
Finance chiefs from the Group of Seven nations are expected to discuss the ‘Buy American’ clause in a US economic package when they meet this week, Japan’s Finance Minister Shoichi Nakagawa said yesterday. G-7 finance ministers and central bankers will renew their resolve to fight protectionism when they gather in Rome on Friday, said Mr. Nakagawa.
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G-7 ministers to scrutinise ‘Buy American’ clause
Reuters
11 February 2009
Finance chiefs from the Group of Seven nations are expected to discuss the ‘Buy American’ clause in a US economic package when they meet this week, Japan’s Finance Minister Shoichi Nakagawa said yesterday. G-7 finance ministers and central bankers will renew their resolve to fight protectionism when they gather in Rome on Friday, said Mr. Nakagawa.
He warned against a return to the protectionism of the 1930s - seen as a catalyst for the Great Depression. ‘We’ve learnt from the Great Depression that it would lead to disaster’ if the same kind of steep import duties were imposed again, he said.
‘Previous G-7 and G-20 meetings have confirmed that we shouldn’t get mired in protectionism,’ Mr. Nakagawa said.
The European Union and Canada have fiercely attacked the ‘Buy American’ clause, warning it could start a global round of tit-for-tat reprisals and set a bad example for other countries.
Currency dealers, for their part, will scrutinise G-7 efforts to resist protectionism during the deepest global recession in six decades, especially since some nations have more scope to use a weaker exchange rate to give their exports a competitive edge.
The spotlight on protectionist risks means markets are particularly sensitive to signs the G-7 is willing to take a strong line on fighting such trends or that the US wants to take a tougher line on China’s currency policy.
US Treasury Secretary Tim Geithner last month said President Barack Obama considered China was ‘manipulating’ its currency, using a term the Bush administration deliberately avoided for years despite feeling that the yuan was unfairly undervalued.
But analysts see no consensus, or will, within G-7 on taking a more aggressive posture on specific currencies, and probably not even the Chinese yuan given the US administration appears to have rowed back from Mr. Geithner’s seemingly blunt remarks.
‘We expect no more than a reinstatement of the G-7’s usual stance that currency flexibility is desirable. Short term at least, in diminishing the risk of a damaging trade war between the United States and China, such an outcome would be dollar-positive,’ said Adam Cole, strategist at RBC Capital Markets in London.
Markets also want to see if the meeting will come up with steps to support the banking system and unblock credit markets before deciding whether to push stocks and bond yields higher.
Going by past evidence, if the G-7 nations manage to unite behind a common aim, they are likely to get results. The last time G-7 finance chiefs met - in October, only weeks after the collapse of Lehman Brothers but before its impact was fully felt - they said no major bank would be allowed to fail. None has. -- AFP, Reuters
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