In this presentation
we will be evaluating the American economy as
it interacts with the global economy and carves
out a role for itself as an international trading
partner. We will seek to analyze how the U.S.
political and business interests affect the rest
of the world. We will compare the U.S. economy
with the economies of Japan and Western Europe
from these perspectives.
Analysis
United States is the leading economic nation of
the world. No other country comes anywhere near
it in terms of the size and diversity of its economy.
The rest of the world countries are dwarfed and
eclipsed by the sheer magnitude and dimensions
of the U.S. economy. Even when Western Europe
stands on one platform, in the shape of European
Commission, it will perhaps still be short of
U.S. levels of production and consumption. Japan
with its phenomenal innovative skills and trading
acumen does not match the U.S. economic proportions.
Let us compare some statistics to get a better
idea of what has been stated above:
USA Japan France Germany U.K.
GDP per capita-2003est.
(Purchasing Power Parity) $37,800 $28,200 $27,600
$27,600 $27,700
GDP-2003 $10.99tn. $3.58tn. $1.66tn. $2.27tn.
$1.67tn. (Purchasing Power parity)
We can see that the United States is a good 34
percent ahead of its nearest rival Japan in terms
of GDP per capita. And of course there is a bigger
gap compared to the Western European countries.
The total GDP of United Sates is also three times
as much as Japan and almost seven times that of
the United Kingdom. While the total GDP is a function
of and reflects the size of the respective populations
of these countries the per capita comparison is
also favorable in the case of the United States.
United States has the world’s third largest
population. With a much bigger population base
and a much larger per capita GDP it is better
placed economically than most other industrialized
countries of the world. This however is a partial
explanation for the superiority of the United
States economy. It is much larger in geographical
size and has been endowed with substantially larger
resources that include mineral resources, waterways,
fertile lands, ocean fronts etc. Yet another factor
is its unparalleled superiority in its technological
and scientific base. One can say that the biggest
single advantage that the United States enjoys
over the other nation is the innovative skill
and the brave enterprise of its people. They have
spirits that question the obvious and defy what
is taken as granted. For them sky is the limit.
And though the other nations are closing in and
are catching up the United States dominance may
continue given the free enterprise and freedom
levels enjoyed by its people. Almost every discovery
and innovation takes place in the United States
and is then quickly picked up by the others. It
is this research and breaking of fresh grounds,
more than anything else, that gives the United
States its cutting edge.
It was an adage that what is good for the General
Motors is good for America. By extension it can
be said that what suits America, economically
speaking, has to suit the rest of the world. American
economy’s health acts like a barometer for
the health of the rest of the world. The U.S.
economy’s large size casts its shadow across
the world. Any economic slow down or downturn
sends worldwide distress signals and the shock
effects are recorded on the world’s economic
rector scale. For that reason the health of the
American economy is closely watched all over the
world.
It is this economic domination, which helps the
United States to dictate terms to its advantage.
It gives the U.S. all the clout it needs to lay
own the terms and conditions that are most favorable
to it. If the U.S. decides to the change its source
of supply it can spell disaster for the seller
country. On the other hand there are so many countries
that plead with and besiege the United States
to buy from her the modern jet fighters like the
F-16 or other weaponry. Even in
the case of commodities, which it needs badly
for running its economy, the United States is
militarily and politically powerful enough to
secure and safeguard its interests, as is evidence
by the uninterrupted oil flow from the Middle
Eastern countries. There was brief period in the
1970’s when some countries thought of using
oil as a weapon to counter the growing support
that United States had extended to Israel. This
threat was never allowed to become a reality by
the use of tremendous influence United States
has at its disposal. To use a proverb, it is America
that rules the roost and calls the shots.
The European colonial powers used their position
of economic (and military) domination to obtain
the most favorable terms for themselves. India
under the British rule had to import the commonest
of all commodities, the eating salt, from Liverpool!
To keep the home industry running it was made
a crime to mine salt in India. This sparked off
a movement of resistance. This is recent history
and is well documented. It proves the point that
the mighty rule over the weak. It is no different
today’s trading. The players could be the
very same European powers or Japan or the United
States. However it is all cloaked in ways that
do not make it appear so unfair.
Where it suits the United States it readily imposes
protective tariffs on imports. Canadian soft wood
exports and textiles exports from Asian countries
are examples of this attitude. The United States
brings into play anti-dumping laws in case of
exports by China. It opposes European subsidies
to their agricultural sector. Conversely where
it needs to push its own exports abroad, particularly
to third world countries, it becomes a champion
of free trade. This duplicity and double standards
are something that the world now has come to live
with. It is a win win situation for the United
States.
An interesting quote while we are on this subject:
”Economic xenophobia is the core of the
U.S. anti-dumping law. The Commerce Department
acts as if every sale of a foreign product at
a low price is a Trojan horse--an insidious attempt
to undermine the American economy. While American
politicians lecture the world on fair trade, our
antidumping laws are an inquisitorial nightmare
for foreign companies, a mockery of due process
and justice.”
(The Myth of Fair Trade)
Most of the countries hit by anti-dumping laws
are third world countries while Japan, which heavily
subsidizes its industries, has not been touched.
This is seen as an example of bias and partiality.
The U.S. is helped in no small measure by the
resilience that its economy has come to possess.
It can absorbs shocks such as experienced during
the September 11 attacks on the World Trade Center
in New York and on the Pentagon. To be sure there
were serious disruptions and the effects were
carried forward for a great deal of time. But
the economy has bounced back and is up and running.
The corporate scandals, with its imaginative accounting
techniques to hide the real losses, would have
certainly wrecked any other country’s economy.
Not in the United States though. Though badly
shaken up the economy is back on its feet and
marching on as usual.
In an article published in the British newspaper
The Guardian the writer George Monbiot has made
an interesting observation. His theory is that
the US economy is kept afloat because 70 percent
of world trade is conducted in dollars and if
Euro were to replace the dollar the US economy
would collapse. He gives this explanation to support
his contention: “….In order to earn
dollars, other nations must provide goods and
services to the US. When commodities are valued
in dollars, the US needs do no more than print
pieces of green paper to obtain them: it acquires
them, in effect, for free. Once earned, other
nations' dollar reserves must be invested back
into the American economy. This inflow of money
helps the US to finance its massive deficit. The
only serious threat to the dollar's international
dominance at the moment is the Euro.”
(Euro can help blunt American power 2003)
This quote from the source referenced below tells
the truth in very simple terms: “International
trading is based on the same principles as local
businesses. Each trading partner participates
for self-interests. ….The USA can make computers
more easily than we can grow bananas. Thus we
would export computers and import bananas.”
(Bovard, J. 2004)
The important thing here, in the context of our
topic, is that the U.S. is the manufacturer and
exporter of high-value and therefore high priced
goods and services. It therefore has a distinct
advantage over the banana growing country and
the gap between the trade is not likely to be
narrowed. Thus the United States would perpetually
enjoy the upper hand till the pattern of trade
was to reverse which appears unlikely at the moment.
We will quote some examples of discriminatory
trade protection policies:
In 1986 the U.S. Government spent $2 billion,
in subsidies to U.S. farmers, to flood international
market with American rice. It was the equivalent
of over $1 million to each grower. Yet the Thai
rice program, which spent under $100 per rice
grower, was penalized.
In the decade of 1980’s U.S. government
provided over $500 billion subsidy (20 times more
compared to foreign subsidy on exports to U.S.)
to U.S. business that included:
$260 benefits to American farmers
$5 billion benefit to the merchant marine
$30 billion in subsidized credit to exporters
Section 301 of the Trade Act of 1974 authorizes
the U.S. government to investigate and retaliate
against foreign trade barriers that are judged
to be unfair. (Bovard, J. 2004)
As the Wall Street Journal noted, "American
[trade] retaliation is supposed to be the nuclear
deterrent that forces the rest of the world into
submission."
Here are some examples of the U.S. itself violating
what section 301 stipulates for others:
Guatemala was duly penalized for its requirement
of cargo shipments to the country to be by its
own ships. The U.S. itself has cargo preference
laws, which the General Accounting Office estimated
in 1985 added over $100 million to the cost of
providing food donations to foreign countries.
(Bovard, J. 2004)
In 1976 the U.S. sued Taiwan because of latter’s
"confiscatory tariff levels on imports of
major home appliances." (The Taiwanese tariff
on refrigerators and air conditioners was 60 percent.)
But the United States too has confiscatory tariff
levels on many items. One example is the 151 percent
tariff on low-priced watch parts exported from
Taiwan! (Bovard, J. 2004)
In a Japanese TV case, one company had its dumping
margins increased because it donated unsold television
sets to charity. Commerce assessed the firm as
if the television sets had been "sold"
for $0 in the U.S. market--the ultimate act of
unfair trade. (Bovard, J. 2004)
The United States imposes CVD (countervailing
duties) on imported products that are belived
to have received foreign government subsidies.
The CVD is to protect the United States from foreigner’s
threat of cornering the American market. Japan
and the western European countries by contrast
do not have such CVD laws. No wonder these are
widely regarded as arbitrary and inconsistent
from economic realities. In 1983 the U.S. imposed
a CVD on Argentine wool because the latter had
paid a bonus of 6 percent for products exported
from Argentine’s southern port. In the U.S.
the Appalachian Region Commission has given billions
of dollars in aids and grants to businesses in
the area. (Bovard, J. 2004)
The United States has come to acquire a rather
negative image over the years through its protective,
inconsistent and discriminatory trade policies.
On the other hand Japan and Western European nations
have attracted much less criticism. United States
though has come to be regarded as a bully because
of its aggressive approach.
Furthermore when Japan and the West European
countries give out aid as donors they apparently
are not seen as extracting political price as
a quid pro quo. The United States unfortunately
carries this negative image of pulling the political
strings in any such aid program. As was stated
above all nations act in their self-interest first.
However it is the manner in which aid programs
are conducted that gets reflected in such negative
images.
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