Monday, September 13, 2010

OBAMA composes Protectionism Symphony

Baffled by slow economic recovery, soaring unemployment rate and threat of losing house and senate to republicans, President Obama is trying to woo voters with a promise to fix everything. Mr Obama unveiled a trio of proposals that looks to been designed less to power up the economy than to sustain control of senate and house.

· One of the keys to job creation is to encourage companies to invest more in the United States. But for years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.

· That all American businesses should be allowed to write off all the investment they do in 2011 (This proposal will allow business to deduct the full cost of investment against their taxes next year instead of over three or more years)

· Permanent extension of the tax credit that goes to companies for all the research and innovation they do right here in Ohio, right here in the United States of America.( this will make tax credit for research and development permanent, he raised it to 17cents from 14cents per dollar investment in R&D, he also announced $50 billion for infrastructure reconstruction)

President’s measures don’t seem to be an ailment for injured American economy, but just an attempt to develop positive sentiments in people’s heart prior election.

No tax incentivisation for companies creating jobs and opportunities abroad, taxing profits earned from foreign subsidiaries (even if invested abroad) ,all this will ultimately make American based MNC uncompetitive. As these benefits cannot offset benefits which third world countries are offering (Cheap Labour, land cost, etc) hence their production cost will increase. Also there is a difference in corporate tax (America 35%, China 25%) which will not allow America becoming first choice for investment.

By Writing off all the investment of 2011 and thus increasing investment and generating jobs probably won’t work as Demand is economy’s primary problem. Hence efforts should be made to trigger the consumption.

Preachers of Globalisation and Liberalisation are running towards protectionism. By hiking the fees for H1-B visas and than discriminating companies which are creating jobs overseas Obama is trying to protect American Economy. In past US along with IMF and World Bank has been forcing nations to liberalise and they are the ones who have gained maximum. These steps will fragment the Global Markets and undermine the advantages to be obtained from global integration. As what other nations are facing is a gift of America (recession spread to other nations because of globalisation).

The Obama Effect has already died off and people are also losing faith in American Style Capitalism, amidst all this it will be interesting to witness what reform recovers this giant economy and how Democrats led by Obama perform in upcoming Elections in November.


Michael said...

My perspective is somewhat different. There are increasing structural problems behind the U.S. economic deterioration and not only a decline in demand. The more recent consequences of globalization have been an outflow of both manufacturing and service jobs and U.S. capital investments to developing nations. While U.S. MNCs have utilized globalization to often great profit, the American middle and lower classes have been left out and declined. The social contract has been visibly broken (not the first time this has happenned in the U.S.). Stimulation of consumption will relieve the demand-based part of the current problem, as you point out, but will not address the growing structural issues. So I think some degree of protectionism has become necessary despite the drawbacks and limitations that you correctly warn about. Protectionist measures need to be done in a carefully planned and selective way but if delayed too long, the political and economic turmoil will demand blunt, impulsive, drastic meaures that will harm almost everyone.
An American Physician

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