YINGJUN WUYINGJUN WUhttp://www.wu.net.au

Contents

Introduction

Background

Thesis Arguments

i. C.A. deficit will not cause unemployment

ii. Protectionism weakens competitiveness Conclusion

Background

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)

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).

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

Current Account Deficit & Protectionism

Argument 1: The current account deficit will not

cause unemployment.

Argument 2: Protectionism would weaken U.S.

competitiveness.

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.

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.

Mann (2000) thinks that the result of the trade deficit directly caused the exacerbation of the current account deficit.

current account balance =

domestic saving – domestic investment (Higgins,1998 & Klitgaard,1998)

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

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.

The relationship between lower employment and rising current account deficit does not be proved by employment statistics.

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.

Increasing investment creates more employment opportunities

Buy cheap Asian goods Disposable income raises Investment increases

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.

Protectionism would weaken U.S. competitiveness.

Cost American consumers enormously Affect consumer confidence Cause retaliation from other countries

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

Confidence recovery ‘Unfair trade’ would strike confidence

Social:

protectionism affects consumer confidence

U.S. still dominates the globe market

by the monopoly of new technology A fresh example: US vs. China

Technological:

protectionism causes retaliation

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

Conclusion

In the short term, trade deficit – current account deficit – protectionism

In the long term, policy – deficit – protectionism – trade equity

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

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>

Questions?