US warned against protectionism as crisis deepens

Agence France-Presse

Posted at Feb 04 2009 01:38 AM | Updated as of Feb 04 2009 09:38 AM

BERLIN - US President Barack Obama came under pressure on Tuesday to resist protectionism in reaction to the global economic crisis as top companies announced massive losses and protests broke out in Europe.

"We must avoid protectionism," German Chancellor Angela Merkel told reporters when asked about a "Buy American" clause to promote US products in Obama's 888-billion-dollar (683-billion-euro) economic stimulus plan.

"Protectionism is the wrong answer" to the economic crisis, she added.

The German leader's comments came after a similar warning in a speech in Tokyo by the head of the International Monetary Fund, Dominique Strauss-Kahn, who said: "Beggar thy neighbour policies will never give a good result."

There is growing concern among economists that some of the anti-crisis measures being implemented by governments to save jobs and aid ailing industries are contributing to a new wave of protectionism around the world.

Adding to pressure for more state intervention, companies in Asia, Europe and the United States announced further losses and job cuts as the recession bites deeper into some of the world's leading economies.

Mats Jansson, the head of Scandinavian carrier SAS, called his company's 2008 results "horrifying" after they showed a net loss of 760 million dollars (590 million euros) and will lead to thousands of job losses.

British oil giant BP reported a 24-percent slide in fourth-quarter net profit because of the sharp fall in oil prices and Swedish truckmaker Scania said its profits in the last three months of 2008 had fallen by 44 percent.

Japanese high-tech giant Hitachi, which is slashing up to 7,000 jobs, meanwhile reported a 4.0-billion-dollar net loss for the nine months to December as the global slowdown crushes demand for electronic goods.

US giant Dow Chemical reported a 1.55-billion-dollar loss last quarter.

There was evidence too of growing social discontent in parts of Europe, with farmers in recession-hit Latvia taking to the streets to demand state aid and British refinery workers striking against the hiring of foreign workers.

The fallout from the crisis meanwhile led to another sharp rise in unemployment in Spain in January, cementing its position as the country with the highest jobless rate in the European Union.

And Brazil became the latest once-buoyant emerging economy developing to record a heavy fall in industrial output caused in part by the deepening recession in key export markets in Europe, Japan and the United States.

Leading governments also redoubled efforts to prop up their economies.

Australia unveiled a 26-billion-dollar plan in what Prime Minister Kevin Rudd termed a "national and international economic emergency" and Sweden said it could inject up to 6.0 billion dollars into its troubled banking system.

After vowing to help Italy's struggling auto industry, Prime Minister Silvio Berlusconi said the government would also assist the domestic appliance sector and shore up consumer credit after criticism from the opposition.

And in Japan, the central bank said it would spend up to one trillion yen (11.2 billion dollars, 8.6 billion euros) to buy shares held by commercial banks to ease the credit crunch in Asia's biggest economy.

But the attention of investors was still very much focused on Obama's controversial plan to kick-start the world's largest economy. US senators are currently analyzing the bill and could vote on it later this week.

"I don't think we ought to use a measure that is supposed to be timely, temporary, and targeted to set off trade wars," Senate Republican minority leader Mitch McConnell told reporters in response to European criticism.

The White House has said that the contested "Buy American" clause -- aimed at ensuring only US products such as steel and manufactured goods are used on projects aimed at reviving the economy -- is still under review.

In market news, the euro dipped against the dollar amid mounting expectations of lower eurozone interest rates and Wall Street was up as investors weighed progress on the government's stimulus plan.