yingjun wu . contents introduction background thesis arguments i. c.a. deficit will not cause...
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YINGJUN WUYINGJUN WUhttp://www.wu.net.au
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Contents
Introduction
Background
Thesis Arguments
i. C.A. deficit will not cause unemployment
ii. Protectionism weakens competitiveness Conclusion
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Background
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Literature Review (Current Account Deficit)
NOT SERIOUSNOT SERIOUS
Globalization gathers global capital and easily supplies America with the funds it needs.
(Greenspan, 2003)
America became the centre of an international monetary system once again.
(Newman, 2004)
SERIOUSSERIOUS
Deficit cause unemployment problems.
(Summers, 1999)
Deficit eventually lowers global productivity and income growth and, foreign investors’ appetites for U.S. assets could be spoiled and dollar would be weakened further.
(Collyns, 2004)
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Literature Review (Protectionism is dangerous)
Newman (2004) quotes Greenspan (2004) who claimed that protectionism is more worrisome than the lack of fiscal restraint.
Protectionism would supply other countries an opportunity to retaliate against the rising U.S. exports (Hardaway 2004).
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Thesis
U.S. current account deficit does not U.S. current account deficit does not make loss of jobs and protectionism make loss of jobs and protectionism would weaken U.S. competitivenesswould weaken U.S. competitiveness
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Current Account Deficit & Protectionism
Argument 1: The current account deficit will not
cause unemployment.
Argument 2: Protectionism would weaken U.S.
competitiveness.
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The current account deficit will not cause unemployment.
Current account deficit capital inflow.
massive losses of jobs?
employment opportunities?
Protectionism is not a solution for unemployment problems.
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The current account deficit will not cause unemployment.
First of all, what causes current account deficit? Secondly, whether does the current account def
icit causes unemployment? Furthermore, increasing investment creates mo
re employment opportunities.
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Mann (2000) thinks that the result of the trade deficit directly caused the exacerbation of the current account deficit.
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current account balance =
domestic saving – domestic investment (Higgins,1998 & Klitgaard,1998)
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Explanation GNP = C + Ip + G + X – M GNP = C + Sp + T + Tr
C + Ip + G + X - M = C + Sp + T + Tr
X - M - Tr = ( Sp - Ip ) + ( T - G )
Current account balance
Trade balance
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The current account deficit will not cause unemployment.
First of all, what causes current account deficit? Secondly, whether does the current account def
icit causes unemployment? Furthermore, increasing investment creates mo
re employment opportunities.
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The relationship between lower employment and rising current account deficit does not be proved by employment statistics.
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First of all, what causes current account deficit? Secondly, whether does the current account def
icit causes unemployment? Furthermore, increasing investment creates mo
re employment opportunities.
The current account deficit will not cause unemployment.
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Increasing investment creates more employment opportunities
Buy cheap Asian goods Disposable income raises Investment increases
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Conclusion of Argument 1
The current account deficit could create employment opportunities instead of causing losses of jobs.
Protectionism for retaining jobs is not reasonable.
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Protectionism would weaken U.S. competitiveness.
Cost American consumers enormously Affect consumer confidence Cause retaliation from other countries
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Economical:protectionsim costs American consumers enormously
Globalization & Free trade
Over $60 billion is extra for tariff every year.
(Dilorenzo, 1988)
Lack of disposable income
No enough investment
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Confidence recovery ‘Unfair trade’ would strike confidence
Social:
protectionism affects consumer confidence
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U.S. still dominates the globe market
by the monopoly of new technology A fresh example: US vs. China
Technological:
protectionism causes retaliation
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Protectionism would not alleviate the current account deficit,
on the contrary, it would lower the domestic savings, descent the investment, and cause retaliation from other countries.
Conclusion of Argument 2
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Conclusion
In the short term, trade deficit – current account deficit – protectionism
In the long term, policy – deficit – protectionism – trade equity
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Actions
On 30 June, 2004, Federal Reserve has raised 25 basis point
s of interest rate to 1.25 per cent. (FRB, 2004, http://www.federalreserve.gov)
New policies under discussing
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References:
Clendenin, M. & Mannion, P. 2004, ‘Wireless security tops U.S.-China trade talks’, 19 April, 2004, Electronics Engineering Times, viewed 04 July, 2004
< http://www.eetimes.com/showArticle.jhtml?articleID=18901865 > Dilorenzo, T. 1988, ‘The Political Economy of Protectionism’, The Freeman, Vol. 38, no. 7, viewed 29 June, 2004 <http://www.libertyhaven.com/theoreticalorphilosophicalissues/protectionismpopulismandinterventionism/politicale
co.html> Ebeling, R. 1991, ‘Free Trade versus Protectionism’, The Future of Freedom Foundation, viewed 28 June, 2004,
<http://www.fff.org/freedom/0191b.asp> ‘FRB: Press Release--FOMC statement and Board discount rate action’, Board of Governors of the Federal Reser
ve System, viewed 03 July, 2004 <http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040630/default.htm> Hardaway, R. 2004, ‘Protectionism doesn’t save jobs’, The Journal of Commerce , 26 April – 2 May, p.37 Higgins M. & Klitgaard T. 1998, ‘Viewing the Current Account Deficit as a Capital Inflow’, Current Issues in Econo
mics and Finance, vol.4, no.13, pp.1-6 Mann, C. 2000, ‘Is the U.S. Current Account Deficit Sustainable?’ Finance & Development, March 2000, pp.42-45 Newman, E. 2004, ‘Greenspan Looks At Current Account Deficit’, 3 March, THE BOND BUYER, p.2 Nikkei, 2003, ‘Working Spouses, Less Time To Cook Mean Higher Food Spending’, viewed 02 July, 2004, <http://www.oranda.or.jp/index/english/agriculture/newsfiles/workingspouseshigherfoodspending.htm> Porter, M. & Opstal, D., 2001, ‘U.S. COMPETITIVENESS 2001: Strengths, Vulnerabilities and Long-Term Prioritie
s’, Council on Competitiveness, Washington DC ‘Stop worrying and love the deficit – America’s deficit and the dollar’, The Economist, 29 November, 2003 ‘Summers – U.S. trade deficit is “serious problem”’, 23 June 1999, Reuters News Vitner, M., 2004, ‘Consumer Confidence Rises In January’, Wachovia: Economics Group, 27 January, 2004, view
ed 03 July, 2004 <http://www.fxstreet.com/economicindicators/consumer_confidence_jan04.pdf>
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Questions?