Locomotive Strategy and United States Protectionism

TN THE SUMMER of I976, the OECD Secretariat proposed that three 1 leading industrial nations-the United States, West Germany and Japan-should adopt expansionary fiscal and monetary policies. Expansion, it was argued, would not be inflationary because of the presumed existence of unutilized capacity in the designated countries due to the world recession of I974-75. Moreover, in stimulating their own economies, the major industrial nations would act as locomotives, hauling other countries out of the recession. The locomotive strategy was adopted by the United States; it urged that Germany and Japan do likewise. For their own domestic reasons, however, those countries preferred to follow a specifically non-inflationary path to recovery. The contrast in results was interesting. In the United States, the real rate of growth of GNP dropped from 6.o per cent in I976 to 4.9 per cent in I977. InJapan, the real rate of growth of GNP was 5.I per cent in I977, higher than that in the United States.1 In Germany, GNP grew at 2.5 per cent during I977. In terms of inflation, the contrast was even more dramatic, especially towards the close of I977. It became clear that rates of inflation in Japan and Germany were declining while inflation was rising in the United States. The rate of increase in wholesale prices of non-food manufactures during I977 was 6.6 per cent in the United States, as compared with approximately 0.5 per cent in Japan. Furthermore, while in 1977Japan's real rate of growth of GNP was twice as great as that of West Germany, the latter's rate of increase in wholesale prices of non-food manufactures was more than twice as high as Japan's.2

Business · International trade · Political science · Protectionism · Economic Theory and Policy · Fiscal Policy and Economic Growth · Global trade and economics

• Before the ‘locomotive’ runs

  Open Access•Kazuhiko Yago•Financial History Review•2020

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