Wednesday, September 07, 2005


Is Collective Security possible?

What if there is no agreement on security threats?

In its absence, the Institute of International Economics is stepping into the breach. The Director of the IIE has warned that the growing demands for protectionism may result in an economic barrier to globalisation being drawn down the middle of the Pacific. He spoke yesterday at a meeting of the Pacific Economic Cooperation Council (PECC).

The first recommendation was that China should "promptly" take political steps to increase the value of its currency by up to 25%; otherwise the US will be forced to impose high tariffs on Chinese goods. This revisits a defence put forward in June:

>Nobel economics laureate Robert Mundell . . . said Friday there is no reason for China to change its much-criticized currency peg to the US dollar. . . "China has had a dollar anchor for over 10 years, and it's a winning policy."< >He echoed an argument made by a number of other prominent economists, such as US Federal Reserve Chairman Alan Greenspan and fellow Nobel Prize-winner Joseph Stiglitz. They contend that while a revaluation would make Chinese goods more expensive in the US, American consumers would just buy imports from other low-cost countries instead. In that case the US trade deficit with China might fall, but the size of its overall trade deficit would not.<

Emphasising that the US administration was under intense pressure from its electorate to level trade with China, the second recommendation was that China and the US should work towards a single Free Trade Area of the Asia Pacific.

"A number of Leaders including reportedly from Australia, Canada, Chile, New Zealand, Singapore and Taiwan supported the Free Trade Area of the Asia Pacific (FTAAP) idea, but the largest members, including China and the United States, did not and hence no action was taken."

The involvement of the World Trade Organisation, or the European Union (not a 'locomotive' of the world economy), wasn't mentioned.

However the WTO got a mention a couple of weeks ago. The IIE said then that a joint US-China initiative to revive the WTO's Doha round of global trade negotiations is needed: "through offering substantial reductions in their remaining agricultural and other trade distortions." But the large economy of the EU (economic giant, but political dwarf) doesn't seem to qualify it as a player.
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