Economic Recovery?

The end of the year has brought about a few retrospectives on the economy, and a few forward-looking articles as well.

The question I have is this: how much longer will the actual recession last for Canadians? Take, for example, unemployment levels: Canada is around 8.5%, while the US is around 10%. Historically, Canada has a higher unemployment rate than the US.

While Canada fared better in terms of unemployment than the US did during the recession, the US recovery is likely to be much more dramatic than the Canadian one, particularly given that the Canadian government’s stimulus package is being scaled back, and ultimately will be ending faster than any other package, a classic mistake, according to Keynes. Therefore, Canada’s economy, while having fared better during the actual recession, will limp along while the US economy quickly recovers in 2010.

How times change….

You know the economic crisis is getting pretty weird when Fidel Castro criticizes Barak Obama’s trade policies, calling them protectionist. Like that’s a bad thing. Weird, right?

Here’s the link to the column in Spanish.

So the question is: if the embargo were lifted tomorrow, what kind of trade model would Cuba embrace?

Short-term fixes for long-term pain

The bill passed in the HoR bans the purchase of most foreign steel and iron used in infrastructure projects. The US will be investing in major infrastructure projects once the next phase of the stimulus package is released. What will this mean for the US and for its trading partners, and for the international economy?

For the US, it will mean an increase in US steel and iron purchased, but it won’t be in a competitive market. As a result, US iron & steel companies will have a significant market advantage. For many economists, this means that those companies will become structurally uncompetitive, as they won’t have to undergo the same rigorous competition as others. When the US eventually opens its market again (as it most likely will), those companies will be seriously disadvantaged, even if they’ve survived in the short-to-medium term, something many other companies will not have. (US infrastructure projects may also become more expensive, since the projects won’t be paying competitive, market-rates for their raw goods.)

In terms of international prices for steel and iron, we can expect them to decrease, making other countries’ infrastructure projects more affordable. While many companies will suffer because of the lack access to the US market, many will survive. These companies will be efficient, having weathered a very tough time, and very competitive.

In the long run, preferential treatment to US companies will create inefficiencies in the system, and delay the US’ transition to the new economy.