3/04/2008

Sanctions Smanctions

The European Union has recently warned the U.S. that sanctions will be enacted if the WTO rulings aren't followed.  The article brings up the importance of the global debate surrounding tax cuts to American companies operating abroad.  The EU is making threats of the sanctions but have failed to properly assess the economics of such an act.  
As the dollar continues to fall, U.S. goods will become cheaper and cheaper for the Europeans to buy.  The countries in the EU will be able to acquire much more of our cheap goods during this time and benefit from the savings.  These sanctions would hurt the EU just as much as the U.S. From the article it seems France is just very upset and has pushed the sanction proposal because our tax cuts have benefitted Boeing greatly, which hurts its cash cow Airbus.  
The U.S. should be very careful in this situation because of the long-term political effects of sanctions by the EU and WTO, even though the sanctions don't make sense economically.  

2 comments:

Reagan said...

The EU and WTO are most likely throwing around blind threats. When it comes to the threat of sanctions being placed on the United States everyone should know that the US never flinches. The best example of this is the United States not paying dues to the United Nations. The EU and WTO will continue to make these threats but they will not carry them out because they do understand economics and that tariffs would hurt their countries financially.

Dr. Tufte said...

Isn't it "schmanctions" rather than "smanctions"? Should I take off for spelling here?

Trinity needs to take my macro class. In it, I try to make clear that "sanctions" are a way to hurt your domestic consumers in order to help your domestic producers, by labeling the foreign producers as a target.