Countries across the world need to keep their markets open and encourage free trade as protectionist measures in the midst of a financial crisis will only "worsen the recession", a top executive at heavy equipment maker Caterpillar said today.
"We have to avoid protectionism. We along with rest of the major countries of the world have to work hard to keep markets open and trade flowing. Protectionism will dramatically worsen this recession and continue it," Caterpillar CEO James Ownes, who is also a member of the Obama administration's Economic Recovery Advisory Board, said.
Terming protectionism as a fatal mistake that will "cascade a severe recession into a depression," Owens said the current hard times call for restoring confidence among nations and keeping the doors open to trade around the world.
"It is a natural tendency to look after your own in a crisis. But now is not a good time to shut down people flow and trade flow," he said at a panel discussion on global economy organised by the Chicago Council on Global Affairs here.
Owens said the Buy American provision in the US stimulus bill has created a wave of concern across the globe. The clause is being cited by countries as an example of the US turning inwards and becoming protectionist, he said adding that America has been the flag-bearer of trade liberalisation.
The provision undermines the economic recovery by triggering similar restrictions in other countries. He said 17 countries in the G-20 grouping resorted to protective measures at a time when they have been meeting to discuss ways to stop protectionist tendencies. "This is a big concern."
He expects the US economy to show improvement in the fourth quarter.
"We will start to see some modest economic recovery in the US by the fourth quarter of this year. The emerging markets will begin to recover faster," he said.
He, however, predicted that high levels of unemployment will persist even after the US economic growth resumes at about 2% in 2010. The emerging markets have relatively strong balance sheets and their growth rates in the next 10-15 years will be 2-3 times that of the OECD world.
He said it is likely the federal government may propose another stimulus package targeted toward infrastructure improvements. "I would not be surprised if we come back with more spending. We have been under investing in infrastructure and now is a good time to increase investment in dams, roads."
The $70 billion allocated for infrastructure in the 787 billion dollar stimulus package is not enough compared to the size of the US construction industry.