Sunday, July 08, 2007

Protectionism US Recession Trigger?

Let me help put 2 + 2 together for us all here. Why am I harping on protectionism and China in particular? To answer the question some context is required.

First let's look at some positive economic numbers along with what Wall Street fears in terms of a significant downturn scanario. From the Capital Commerce blog by James Pethotoukis, "Economy Booming, So What Might Start the Next Recession?" where we find:

More good news came from the June income numbers: Real wages for workers—not managers—increased by 3.9 percent, year over year. Deflate by the core May inflation rate of 2.3 percent—the latest numbers available—and you get real wage growth of 1.6 percent. Not too shabby. Right now, Wall Street recession expectations are pretty low. "The threat of recession has abated, as job and income gains provide the wherewithal to support consumer spending," is the analysis of former Federal Reserve governor Lyle Gramley. In fact, the Big Money Crowd is more worried about China than U.S. housing as a source of future trouble. Case in point: this missive "What Would the Next Recession Look Like" that Goldman Sachs just sent me:

"So, what constitutes a recession in modern times, and when do they occur?...We suspect it would almost certainly involve a major economic slowdown in China. On almost any criteria (and topic), it is impossible to underestimate China's positive impact on the buoyancy of world growth this decade. That said, ourproprietary indicators show no sign of an imminent slowdown. In addition, our various proprietary indices suggest that the underlying global macro environment remains favorable...Moreover, if we and the consensus are correct, then the period 2003-2008 will have been one of the most powerful periods of economic growth globally since accurate data has been collectable for much of the world."

So if a slowdown in China is our biggest economic pitfall, then why on God's green earth would anyone want to start a trade war with China that would nehatively impact our relationship with China, the Chinese economy, and hence our economy? Ask the Democratic leadership in Congress, some pandering fear-mongering Republicans, and the Lou Dobbs of the world for an answer.

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