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Economics Trumps Politics During Times of Turmoil

Posted by Larry Doyle on September 23, 2009 9:54 AM |

Will the United States be able to make real progress on major diplomatic initiatives during the current economic crisis?  The diplomatic path may ultimately be nothing more than a ‘road to perdition.’ Why do I feel this way? We don’t need to look all that hard to witness a number of countries pursuing economic policies at the expense of international diplomacy. During the current economic crisis, this should not be surprising. Political leaders of all stripes will sacrifice principle in an attempt to appease and assuage the economic pains of their electorate.

I do not pretend to be a political scientist nor an economic historian, but I believe I understand enough about market forces to view these economic maneuvers by a number of countries as nothing more than an international version of Game Theory.

This gamesmanship is playing out across the world stage from political hot spots to the friendly confines of our nation’s backyard. The Financial Times prominently highlights a wide array of nations pursuing their economic interests via increased trade with Iran. This trade flies right in the face of Washington’s hopes to curtail the development of Iranian nuclear capabilities.

The FT writes, Beijing Begins Petrol Supplies to Iran:

Chinese state companies this month began supplying petrol to Iran and now provide up to one-third of its imports in a development that threatens to undermine US-led efforts to shut off the supply of fuel on which its economy depends.

While China would maintain that it is pursuing diplomatic initiatives to curtail Iran’s development of nuclear weapons, make no mistake China and other countries will look for any market to fill the enormous decline in exports which previously flowed to the United States. The FT further highlights this very point in writing, Business at Sharp end of Iran Sanctions. Despite legislation enacted in Washington to address nations trading with Iran, the legislation lacks enforcement powers. As a result, nations that are flush with oil or other commodities, but relatively cash poor, will pursue trade alliances which benefit them economically. The FT writes as much:

Hojjatollah Ghanimi-Fard, the vice-president of National Iranian Oil Company for investment affairs, said Iran had a “big list” of suppliers “scattered” around the world and that it was “very easy” to replace one with another.

We should not be so naive to think that this economic gamesmanship is only occurring in political hotspots. If we look hard enough, we can see that the U.S. is pursuing economic benefits at political expense even with our Canadian friends. A recent visit to Washington by Canadian Prime Minister Steven Harper was for the purpose of addressing increasing U.S. protectionism right here in North America. While Harper and Obama ‘smiled for the cameras,’ the relationship is becoming increasingly strained by U.S. protectionist tendencies. A specific example is embedded in Obama’s proposed cap and trade legislation. Harper addresses this issue in a recent New York Times commentary, Harper on U.S-Canada Energy Relations:

Mr. Harper said that while Canada and the United States shared the goal of combating climate change, he disagreed with one provision in the Waxman-Markey climate bill that passed the House of Representatives in June. That provision would impose tariffs on countries that did not keep their emissions under control.

Such a measure “would become a front for protectionism quicker than you can say ‘hello,’ ” Mr. Harper said.

Hello indeed and welcome to a world in which sovereign economics will continue to trump international diplomacy and politics for the foreseeable future. The immediate benefits of these pursuits will come at the expense of significant risks down the road.


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