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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 20, 2010 at 10:15 AM

Rumors of trade war could make Boeing’s triumph short-lived

As happy as every Puget Sound resident should be about Boeing’s strong profit — bolstered by commercial aircraft orders — a back beat warns, “enjoy it while you can.”

This is based not merely on slowing global growth or fears of a Chinese bubble, but the increasing tensions among the world’s top economic powers. “I’m worried about the global situation,” Indian Prime Minister Manmohan Singh told the Financial Times. New Delhi rightly sees the split as between creditor nations and debtor nations. Psst, we’re the biggest debtor. Yet the divisions go beyond that.

The G-20 is unable to reach an agreement on exchange rates and making itself seem increasingly irrelevant. Many leaders worry the currency fight — led by China’s unwillingness to allow the renminbi to float as other major currencies — could lead to a trade war and protectionism. In a speech, Bank of England Governor Mervyn King said it “could, as it did in the 1930s, lead to a disastrous collapse in activity around the world.”

Rumors of protectionism and trade wars have always fizzled in recent decades, even during the tensions between Japan and the U.S. in the 1980s. The trading nations had too much to lose. Their major companies, such as Boeing, were too intertwined around the globe to risk a return to higher trade barriers.

But three things are different now: America in debt and economically weakened; the overhang of the Great Recession, especially in the United States, and China, playing by its own rules and in many cases flouting the established rules of international trade. In addition, nations are in a race to corner scarce resources, such as oil and rare-earth metals. So this time the alarms are not to be discounted. We’re in new and unpredictable territory.

Today’s Econ Haiku:

Boeing beat The Street

With commercial sales soaring

It’s just plane dandy

Comments | More in Aerospace/Boeing, China economy and business, International economy, Trade

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