III. Enhancing Economic Recovery and Resiliency

In thinking about how to respond to the financial crisis, there are two distinct policy responses that need to be fine tuned. One is to put in place preventive and cleanup measures. The other is to make the economy stronger and more resilient so that it can recover from the effects of a credit crunch and recession. Specific suggestions for the USA are made in Section III.

A. Boost competitiveness

Since the crisis unemployment has remained stubbornly high, output has been weak, and budget discipline nearly non-existent. As the US Competitiveness Policy Council explained in its first annual report, the components of a national competitiveness strategy (for any country) are attention to: saving and investment, education, worker training, critical technologies, corporate governance, trade, public infrastructure, and manufacturing.[1] Unfortunately, this recipe for economic growth is not being followed in Washington. Space does not permit a full examination of the economic policies of the Obama Administration, but two areas (manufacturing and trade) will be briefly discussed below.

Instead of policies that promote manufacturing in general, the Bush and Obama Administrations settled on a strategy ofbailing out GM, GMAC, and Chrysler with over $50 billion in direct aid supplemented by millions of dollars in indirect aid through the ‘Cash for Clunkers’[2] program. ‘Cash for Clunkers’ soon became the leitmotif for a panoply of new, highly leveraged federal spending by the Obama Administration as money was channelled to pork-barrel projects that were too wasteful for local governments to fund themselves, a new alphabet of homeowner subsidies, and dubious job creation initiatives. The huge aid to the US automobile industry was especially troubling given that it undermined the long-held US policy stance that governments should not subsidize domestic automobile industries. The USA had participated in cases in the WTO against small automobile subsidies by Canada, Indonesia, and Australia. Yet now, the USA was signalling to the rest of the world that the US opposition to automobile subsidies had been opportunistic rather than principled.

Weak US trade policy is another factor exacerbating a lingering pain since the Great Contraction. Despite the welcome signing of three long-delayed free trade agreements by President Obama in late 2011[3] there seems to have been no serious efforts to complete the Doha Development Round or to launch any new trade negotiations, suggesting that the Obama Administration treats trade as a third rail of economic policy. Rather than a positive trade agenda of market opening, the Administration argues that the top priority should be enforcing trade agreements. Yet when the time comes for the USA to comply in the USZeroing[4] cases and in the US—Upland Cotton[5] cases, respect for the rule of law disappears in the White House.[6]

  • [1] U.S. Competitiveness Policy Council, Building a Competitive America (March 1992).
  • [2] Car Allowance Rebate System program, (visited 27 September 2010).
  • [3] ‘Statement by U.S. Trade Representative Ron Kirk on Presidential Signature of Trade Legislation’, October 2011, (visited on 6 March 2012)
  • [4] WTO Appellate Body Report, United States—Measures Relating to Zeroing and Sunset Reviews—Recourse to Article 21.5 of the DSU by Japan, WT/DS322/AB/RW, adopted 31 August 2009; WTOAppellate Body Report, United States—Laws, Regulations and Methodology for Calculating DumpingMargins (‘“Zeroing”’)—Recourse to Article 21.5 of the DSU by the European Communities, WT/DS294/AB/RW, 11 June 2009.
  • [5] Decision by the Arbitrator, United States Subsidies on Upland Cotton—Recourse to Arbitrationby the United States under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, WTODoc WT/DS267/ARB1, 09-4009; Decision by the Arbitrator, United States—Subsidies on UplandCotton—Recourse to Arbitration by the United States under Article 22.6 ofthe DSU and Article 7.10of the SCM Agreement, WTO Doc WT/DS267/ARB2, 09-4015, 31 August 2009.
  • [6] ‘World Tariff Wars: U.S. Protectionism is Hurting American Exports’, Wall Street Journal,9 April 2010, A18.
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