Friday, May 1, 2009

Protectionism in Asia?

Nouriel Roubini has a piece in Forbes discussing the future of large global imbalances. The basic question is whether the large balances in Asia (primarily China) and in the commodity producing Middle East nations is sustainable or whether they should focus on increasing domestic consumption. Therefore reducing their dependence on foreign nations (such as the U.S.) for economic growth. However, since these countries are largely invested in the U.S. one must wonder whether this approach may cause a significant unwinding in the global macroeconomic environment, one that may extend economic depression beyond what we've witnessed to date. Ultimately the IMF will play a key role in ensuring that any potential unwinding at the macro level will be orderly.

So while we consider protectionist policies in the U.S. perhaps we should pay more attention to protectionist policies developing with are largest trading partners, especially the ones that own significant amounts of our debt. This may be the ultimate house of cards.

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