TW: A little Harry Potter example on how free trade can work to the betterment of many (if not all, all the time).
From Economist:
"MATT YGLESIAS finds another fun excerpt from the Economic Report of the President, in which the administration defends trade:
'For example, the ability to sell books across borders certainly enhanced the income J.K. Rowling was able to collect from writing the famous Harry Potter books. Had she been able to sell her books only in the United Kingdom, her audience and income would have been much smaller. In addition, millions of American readers benefited from the increased consumer choice and the ability to purchase her books. Similarly, more Americans can work as well-paid aircraft engineers or manufacturing employees for Boeing or as technology specialists for Apple because those firms are able to sell on a world market. At the same time, it is distinctly possible that some American authors who would have captured a larger share of the “magic-oriented book” market had there been no trade in literature were crowded out by Rowling’s success, or that some handheld music device engineer in the United Kingdom has had to find another career because of Apple’s success.' "
http://www.economist.com/blogs/freeexchange/2010/02/trade
Showing posts with label Free Trade. Show all posts
Showing posts with label Free Trade. Show all posts
Friday, February 12, 2010
Sunday, November 1, 2009
What a Lower US $ Means...
TW: Some folks get very uptight about a weakening dollar. There are many variables which impact exchange rates. But below frames what happens when our currency declines relative to in this case the Aussie dollar. All that formerly cheap Aussie wine becomes not so cheap meaning they either stop sending it here or they figure out how to shift some of the product cost (in this case bottling) to the U.S. And voila suddenly our imports slow a bit as American start bottling the Aussie bulk wine or perhaps American buy domestic wine.
Americans drink a bunch of international alcoholic beverages (wine, beer, Scotch etc.). This will change rapidly where ready substitutes exist (many with wine and beer, not so much with Scotch).
From Wine & Spirits Daily:
"CASELLA CONSIDERS BOTTLING YELLOW TAIL IN THE US
The Australian dollar is getting stronger much to the detriment of Australian wine producers such as Casella Wines who export their labels to the US. According to an article in Bloomberg, Casella, who produces Yellow Tail, is considering shipping its wine in bulk and bottling it in the US.
"Casella Wines, maker of the top-selling Australian wine in the U.S., is considering building a U.S. bottling plant and shipping its Yellow Tail across the Pacific in bulk as the Aussie approaches 95 cents," said the article.
They also quote managing direct John Casella as saying: "That is about 30 percent higher than the average and there isn't a 30 percent net margin in what you sell."
Other Australian producers are either halting shipments to the US or pulling up vines "because they can't compete on price."
Americans drink a bunch of international alcoholic beverages (wine, beer, Scotch etc.). This will change rapidly where ready substitutes exist (many with wine and beer, not so much with Scotch).
From Wine & Spirits Daily:
"CASELLA CONSIDERS BOTTLING YELLOW TAIL IN THE US
The Australian dollar is getting stronger much to the detriment of Australian wine producers such as Casella Wines who export their labels to the US. According to an article in Bloomberg, Casella, who produces Yellow Tail, is considering shipping its wine in bulk and bottling it in the US.
"Casella Wines, maker of the top-selling Australian wine in the U.S., is considering building a U.S. bottling plant and shipping its Yellow Tail across the Pacific in bulk as the Aussie approaches 95 cents," said the article.
They also quote managing direct John Casella as saying: "That is about 30 percent higher than the average and there isn't a 30 percent net margin in what you sell."
Other Australian producers are either halting shipments to the US or pulling up vines "because they can't compete on price."
Wednesday, October 14, 2009
The U.S.: Steel Exporter?
TW: Mix a domestic demand contraction, a lower dollar and stronger international markets together and what does one get? Net exports of steel...for the first time in decades. Folks get edgy because they think a "strong" dollar denotes weakness even though folks also bemoan the artificially "weak" Chinese yuan (which lowers Chinese imports and encourage Chinese exports). You cannot have it both ways. U.S. consumption needs to become less dominant, savings more prominent at which point the U.S. dollar will find a better level perhaps lower perhap higher.
From Floyd Norris NYT:
"The United States was a net exporter of steel in August, a trade group reports.
The American Institute for International Steel — a group of companies that import steel and therefore like free trade — says government data indicates that steel exports during August were about 975,000 tons, while imports were about 800,000 tons.
It was the first month in more than half a century that the United States was a net exporter of steel.
“This dramatic development shows the increasing importance of U.S. exports of steel to international markets which are returning to stronger levels of demand, as well as the high value placed on the quality of the American made steel and the efficient service provided by steel trading companies,” said David Phelps, the group’s president.
I suspect it shows just what a recession and a collapse of construction can do for the trade deficit. Construction companies that are firing many of their workers do not need as much steel. Nor do automakers who have been forced to scale back production..."
http://norris.blogs.nytimes.com/2009/10/13/how-to-become-a-net-steel-exporter/
From Floyd Norris NYT:
"The United States was a net exporter of steel in August, a trade group reports.
The American Institute for International Steel — a group of companies that import steel and therefore like free trade — says government data indicates that steel exports during August were about 975,000 tons, while imports were about 800,000 tons.
It was the first month in more than half a century that the United States was a net exporter of steel.
“This dramatic development shows the increasing importance of U.S. exports of steel to international markets which are returning to stronger levels of demand, as well as the high value placed on the quality of the American made steel and the efficient service provided by steel trading companies,” said David Phelps, the group’s president.
I suspect it shows just what a recession and a collapse of construction can do for the trade deficit. Construction companies that are firing many of their workers do not need as much steel. Nor do automakers who have been forced to scale back production..."
http://norris.blogs.nytimes.com/2009/10/13/how-to-become-a-net-steel-exporter/
Monday, June 29, 2009
Don't Be a Trade Patsy
TW: Free trade is a good thing. Free trade helps grow the economic pie for everyone. But Americans have this naive view that we exist in a world of free trade. Free trade is no longer about tariffs and other explicit trade barriers. It is about currency valuations, domestic subsidies, domestic credit policies and a host of more esoteric measures.
Many pundits (conservatives especially) immediately squawk if the U.S. government initiates an explicit trade barrier (i.e. the "buy American provision in the original stimulus bill) but our international competitors are aggressively implementing their own measures.
One of my greatest worries is that governments will slide into very aggressive anti-free trade measures. These things become prisoner's dilemmas very quickly (i.e. if you create barriers then I must as well otherwise you benefit at my expense).
But understand the trade deficit with China will not come down without their explicit participation. Americans working harder will not be enough. Americans saving more will help much though.
From Business Week:
"...Beijing has recently introduced a host of policies aimed at boosting exports while making it harder for foreign companies to sell in the mainland. China has renewed steps that keep its currency undervalued against the dollar, reinstated tax breaks on exports, and told government entities to buy Chinese products. With efforts to boost domestic consumption flagging, Beijing remains reliant on the "narcotic" of export-led growth, says former U.S. Trade Representative Susan C. Schwab. "Accumulating surpluses makes [China] feel strong and powerful."
On June 23, Washington filed a complaint with the World Trade Organization alleging that Beijing has reserved key raw materials such as magnesium and zinc for its own companies. U.S. and European experts say that gives Chinese industry an advantage over foreign manufacturers who need those materials too.
...The U.S. may have a more solid case regarding Chinese efforts to restrict sales of scarce minerals. The fact that Chinese companies can buy these materials while foreigners can't violates WTO rules, U.S. and European experts say. There is a good chance Beijing will back down on this issue "because they don't have a leg to stand on," says Lardy.
Whether or not Beijing is within its rights, the appearance of protectionism is likely to fuel pressure for retaliation. Before 2007, China enjoyed trade surpluses with the U.S. but had a deficit with other countries. By last year, China's surplus with the entire world had passed $400 billion, notes University of Maryland Robert H. Smith School of Business economist Peter Morici. And with the yuan still undervalued against the dollar by at least 20%, the U.S. deficit could start ballooning when Americans start buying again. "We cannot grow with the kind of trade deficit we have with China," Morici predicts. "And we'll continue to have that trade deficit as long as China keeps changing the rules." The policy dilemma for Washington, meanwhile, will only grow more wrenching."
http://www.businessweek.com/magazine/content/09_27/b4138000378178.htm
Many pundits (conservatives especially) immediately squawk if the U.S. government initiates an explicit trade barrier (i.e. the "buy American provision in the original stimulus bill) but our international competitors are aggressively implementing their own measures.
One of my greatest worries is that governments will slide into very aggressive anti-free trade measures. These things become prisoner's dilemmas very quickly (i.e. if you create barriers then I must as well otherwise you benefit at my expense).
But understand the trade deficit with China will not come down without their explicit participation. Americans working harder will not be enough. Americans saving more will help much though.
From Business Week:
"...Beijing has recently introduced a host of policies aimed at boosting exports while making it harder for foreign companies to sell in the mainland. China has renewed steps that keep its currency undervalued against the dollar, reinstated tax breaks on exports, and told government entities to buy Chinese products. With efforts to boost domestic consumption flagging, Beijing remains reliant on the "narcotic" of export-led growth, says former U.S. Trade Representative Susan C. Schwab. "Accumulating surpluses makes [China] feel strong and powerful."
On June 23, Washington filed a complaint with the World Trade Organization alleging that Beijing has reserved key raw materials such as magnesium and zinc for its own companies. U.S. and European experts say that gives Chinese industry an advantage over foreign manufacturers who need those materials too.
...The U.S. may have a more solid case regarding Chinese efforts to restrict sales of scarce minerals. The fact that Chinese companies can buy these materials while foreigners can't violates WTO rules, U.S. and European experts say. There is a good chance Beijing will back down on this issue "because they don't have a leg to stand on," says Lardy.
Whether or not Beijing is within its rights, the appearance of protectionism is likely to fuel pressure for retaliation. Before 2007, China enjoyed trade surpluses with the U.S. but had a deficit with other countries. By last year, China's surplus with the entire world had passed $400 billion, notes University of Maryland Robert H. Smith School of Business economist Peter Morici. And with the yuan still undervalued against the dollar by at least 20%, the U.S. deficit could start ballooning when Americans start buying again. "We cannot grow with the kind of trade deficit we have with China," Morici predicts. "And we'll continue to have that trade deficit as long as China keeps changing the rules." The policy dilemma for Washington, meanwhile, will only grow more wrenching."
http://www.businessweek.com/magazine/content/09_27/b4138000378178.htm
Monday, May 4, 2009
Our Trade Deficit Is Shrinking Finally
TW: After years of deterioration our trade deficit is shrinking very rapidly. Part of the improvement relates to plunging oil prices but part of it is attributable to our economy's shift away from consumption. Recall the simple equation:GDP= P+I+G+X (where P= personal consumption, I= investment, G= government spending and X= net imports/exports)
The G and X components are keeping the U.S. economy from truly plunging. The Q1 GDP was off over 6%, without strong G and improving X it would have been off 10% plus.
The adjustment in the trade deficit is needed as part of the U.S. economy's molting process away from too much consumption. The transition will be painful. As the trade deficit swing shows economic re-balancing can happen very quickly in fact too quickly. What is unclear is how the world economy will adjust to a U.S. absorbing far fewer goods from the rest of the world. It is entirely possible the trade deficit will grow again rapidly if U.S. consumption rises faster than international consumption.
Furthermore, while adherents of both the left and the right generally agree a move away from over reliance on consumption is good for the U.S. economy (although they strongly disagree on how to accomplish the shift), I remain skeptical that the vast majority of the general public realize what such a shift entails. It is more than sacrificing some luxury goods, it also involves facing up to things such as runaway health care spending, unsustainable social security outlays and defense spending at levels 3X anyone else in the world.
From Floyd Norris at NYT:
"THE American trade deficit is collapsing at the fastest rate ever, a testament to the ability of a worldwide recession to sharply reduce global economic imbalances that had grown to unprecedented size.
...Few countries have reported first-quarter data as yet, and the American number will be revised. But what appears to be happening is that much of the pain from the fall in American consumption is being felt in other countries, since exporters in those countries supplied the products that Americans are no longer buying.
Declining trade deficits in the United States are likely to be matched by falling trade surpluses in countries that have historically been net exporters. That is one reason Germany’s economy appears to be faltering badly and China has embarked on a huge economic stimulus program.
The shrinking trade deficit is not being caused by a rebound in American exports. They are falling as well, but not nearly as much as imports are declining.
...For many years, critics of American economic policies, particularly in Europe, have said that the United States had to take action to reduce its trade deficit. Now that the reduction has happened, it is they who are among the most hurt by it.
Robert Barbera, the chief economist of ITG, pointed out that the elimination of the trade deficit — an idea that seemed beyond belief only a few months ago — could be within reach. The United States, he said, does not have to develop some new export industry. It simply has to refrain from importing more when exports recover to last year’s level.
For anything like that to happen, however, the engine of recovery in the world would have to be a country or region other than the United States, whose own recovery would need to be gradual and based in large part on growth overseas.
That seems unlikely to happen. Some countries that historically ran large trade surpluses are in no position to use fiscal stimulus to accelerate growth in their economies, because their own access to international credit markets has been damaged. Others, including most of Western Europe, have so far resisted large stimulus packages.
In the United States, however, the stimulus efforts have been very large, and that seems likely to continue. That same G.D.P. report showed a mild and tentative rebound in consumer spending in the first quarter. If that continues, the trade deficit may soon start to widen again."
http://www.nytimes.com/2009/05/02/business/02charts.html?_r=1&scp=1&sq=floyd%20norris%20trade%20deficit&st=cse
Friday, April 24, 2009
A Flip-Flop For the Better
TW: One of Obama's worst positions during the primaries was on free trade. Pandering to labor during some crucial primaries (e.g. OH) Obama took a relatively weak free trade stance. He backed off during the general and now he has back-tracked completely, as he will not seek to re-open the NAFTA agreement. He is not the first Democrat to renege on a tough trade position and to be honest I would wonder why anyone would believe a Dem at this point who claims during a primary to be tough on NAFTA.
Regardless, this is a good thing. One area where the Dems have a soft spot policy wise is free trade, and now amidst a worldwide demand contraction is not the time to pursue anti-free trade policies. Not surprisingly Obama is smart enough to see this and yet another Republican attack route, this one with some substance, is neutralized. To be clear this is not a black and white issue. The world trade system is out-of-whack with our massive deficits but much like fiscal policy timing is everything and protectionist policies would be the solution anyway.
From NYT:
"The administration has no present plans to reopen negotiations on the North American Free Trade Agreement to add labor and environmental protections, as President Obama vowed to do during his campaign, the top trade official said on Monday.
...Thea Lee, the A.F.L.-C.I.O. policy director, said that the workers federation would have preferred “more definitive” language on addressing key labor concerns, but that it was understandable for a new administration to start its review with a less confrontational approach..."
http://www.nytimes.com/2009/04/21/business/21nafta.html?_r=2&hp
Regardless, this is a good thing. One area where the Dems have a soft spot policy wise is free trade, and now amidst a worldwide demand contraction is not the time to pursue anti-free trade policies. Not surprisingly Obama is smart enough to see this and yet another Republican attack route, this one with some substance, is neutralized. To be clear this is not a black and white issue. The world trade system is out-of-whack with our massive deficits but much like fiscal policy timing is everything and protectionist policies would be the solution anyway.
From NYT:
"The administration has no present plans to reopen negotiations on the North American Free Trade Agreement to add labor and environmental protections, as President Obama vowed to do during his campaign, the top trade official said on Monday.
...Thea Lee, the A.F.L.-C.I.O. policy director, said that the workers federation would have preferred “more definitive” language on addressing key labor concerns, but that it was understandable for a new administration to start its review with a less confrontational approach..."
http://www.nytimes.com/2009/04/21/business/21nafta.html?_r=2&hp
Friday, March 27, 2009
International Cooperation...Maybe
TW: Have been banging the table on the biggest risks to this economic crisis being international relations deteriorating into a self-centered free-for-all. We are not there yet by any means but the signs are there. The G20 summit next week will be a big tell (and possible inflection point for the equity markets). The Czech prime minister who happens to be the rotating head of the EU is not a big player merely symbolic. This all about the Germans and French.
From Jim Kwak at Baseline Scenario:
"Once upon a time there was a president named George. He liked to do things his own way, which annoyed some of his “friends” in Europe. But then a new president named Barack was elected, who not only promised to be nicer to his friends, but was actually very popular in most parts of the world. And the people of the world thought we would see a new era of international cooperation, at least between the U.S. and Europe. Not so much.
On this side of the Atlantic, the Obama administration and the Fed have been working night and day in an attempt to turn around the economy: Fed funds rate reduced to zero, $800 billion stimulus package, new plan to aid struggling homeowners, new plan for buying toxic assets, new budget, decision by the Fed to buy long-term Treasury bonds, new domestic regulatory framework outlined this week, etc. We’ve been plenty critical of various aspects of the U.S. response, but at least they’re trying.
(Continental) Europe, by contrast, has decided they’ve done enough and it’s time to sit back and watch.
First,...Jean-Claude Trichet, head of the European Central Bank, said that no new measures are needed to combat the global economic crisis. Then Mirek Topolanek, the prime minister of the Czech Republic and the president (in this rotation) of the European Union called the U.S. emphasis on fiscal stimulus “the way to hell.” And all of this is coming in the week leading up to the next G20 summit. What happened to diplomacy?
While it is relatively easy to write off a prime minister whose government collapsed on Tuesday night, there is a very real divide between the United States and, in particular, Germany, the heavyweight in the European economy. And it’s very clear that the Germans (and the French) do not want to spend more money, increase their budget deficits, or do anything except talk about international financial regulation.
I think there are three possible reasons for this attitude.
1) The Germans believe that the economy will recover on its own from this point. Given that not even the optimists in the Treasury Department believe this, I don’t see how this could be the case.
2) They are so afraid of any risk of inflation that they would rather suffer through an extended recession and high unemployment. This could be possible, although misguided, especially since Germany is already in worse shape than the U.S., with its economy expected to shrink by 3.8% this year (vs. 2.5% for the U.S.).
3) They realize that their economy is driven by exports, and therefore they are planning to free ride off of the U.S. stimulus package. In this scenario, Germany gets to contain its national debt and minimize the risk of inflation, while letting other countries turn the global economy around.
Now, we’re not blameless here, what with our “Buy American” provision in the fiscal stimulus. But at least our government isn’t closing its eyes and assuming the problem will go away.
From Jim Kwak at Baseline Scenario:
"Once upon a time there was a president named George. He liked to do things his own way, which annoyed some of his “friends” in Europe. But then a new president named Barack was elected, who not only promised to be nicer to his friends, but was actually very popular in most parts of the world. And the people of the world thought we would see a new era of international cooperation, at least between the U.S. and Europe. Not so much.
On this side of the Atlantic, the Obama administration and the Fed have been working night and day in an attempt to turn around the economy: Fed funds rate reduced to zero, $800 billion stimulus package, new plan to aid struggling homeowners, new plan for buying toxic assets, new budget, decision by the Fed to buy long-term Treasury bonds, new domestic regulatory framework outlined this week, etc. We’ve been plenty critical of various aspects of the U.S. response, but at least they’re trying.
(Continental) Europe, by contrast, has decided they’ve done enough and it’s time to sit back and watch.
First,...Jean-Claude Trichet, head of the European Central Bank, said that no new measures are needed to combat the global economic crisis. Then Mirek Topolanek, the prime minister of the Czech Republic and the president (in this rotation) of the European Union called the U.S. emphasis on fiscal stimulus “the way to hell.” And all of this is coming in the week leading up to the next G20 summit. What happened to diplomacy?
While it is relatively easy to write off a prime minister whose government collapsed on Tuesday night, there is a very real divide between the United States and, in particular, Germany, the heavyweight in the European economy. And it’s very clear that the Germans (and the French) do not want to spend more money, increase their budget deficits, or do anything except talk about international financial regulation.
I think there are three possible reasons for this attitude.
1) The Germans believe that the economy will recover on its own from this point. Given that not even the optimists in the Treasury Department believe this, I don’t see how this could be the case.
2) They are so afraid of any risk of inflation that they would rather suffer through an extended recession and high unemployment. This could be possible, although misguided, especially since Germany is already in worse shape than the U.S., with its economy expected to shrink by 3.8% this year (vs. 2.5% for the U.S.).
3) They realize that their economy is driven by exports, and therefore they are planning to free ride off of the U.S. stimulus package. In this scenario, Germany gets to contain its national debt and minimize the risk of inflation, while letting other countries turn the global economy around.
Now, we’re not blameless here, what with our “Buy American” provision in the fiscal stimulus. But at least our government isn’t closing its eyes and assuming the problem will go away.
Monday, March 23, 2009
Obamanomics: He Needs To Step Up On Free Trade
TW: The left-wing is soft on free-trade. Obama must fight them. Congress has now inserted several amendments into recent legislation which are protectionist. Protectionism in a normal environment is troubling, in the current environment where international cooperation is crucial if an even worse economic crisis is to be averted, it is absolutely toxic. Obama pandered on the issue during the primaries then tacked back to the center subsequently. Lets hope he more than tacks in coming weeks.
From Economist:
"...a provision inserted into the Omnibus Appropriations Bill signed into law by Mr Obama has scrapped a pilot programme that allowed a small number of Mexican trucking companies to carry cargoes north of the border—as NAFTA requires.
Mexico’s response was swift. On March 18th it imposed tariffs of up to 45% on 90 American agricultural and industrial imports, ranging from strawberries and wine to cordless telephones. The list was carefully chosen to avoid pushing up prices of staples in Mexico while hitting goods that are important exports for a range of American states. That way, it could have maximum political effect north of the border.
Since NAFTA was signed in 1992, trade between Mexico and the United States has boomed. But the issue of road transport has turned into a political battle. Around two-thirds of cross-border trade goes by road. Transport companies from each country were supposed to be able to operate freely in the others by 2000. The Teamsters union, whose members include American truck drivers, has fought a long and largely successful rearguard action against this provision. It argues that Mexican trucks are unsafe and polluting and their drivers insufficiently trained.
An American court rejected these arguments. So did a NAFTA dispute-settlement panel, which ruled in 2001 that the United States was violating the agreement and gave Mexico the right to impose retaliatory tariffs. Mexico chose not to do so, to give the United States a chance to honour its commitment. The Bush administration tried, but was thwarted when Congress approved a measure setting 22 new safety standards for Mexican trucks.
...The Teamsters’ safety argument looks spurious. Mexican transport firms have invested in new trucks and trained their drivers to meet the safety requirements under the pilot scheme. A study commissioned by America’s Department of Transportation, which tracked Mexican trucks operating north of the border in the first year of the programme, found that these trucks clocked up far fewer safety violations than their American counterparts.
The Teamsters’ victory means that most Mexican goods going north will continue to have to be unloaded at the border, reloaded for the short hop across it, then loaded again onto an American truck...No such restrictions apply to Canadian lorries..."
http://www.economist.com/world/americas/displaystory.cfm?story_id=13331117
From Economist:
"...a provision inserted into the Omnibus Appropriations Bill signed into law by Mr Obama has scrapped a pilot programme that allowed a small number of Mexican trucking companies to carry cargoes north of the border—as NAFTA requires.
Mexico’s response was swift. On March 18th it imposed tariffs of up to 45% on 90 American agricultural and industrial imports, ranging from strawberries and wine to cordless telephones. The list was carefully chosen to avoid pushing up prices of staples in Mexico while hitting goods that are important exports for a range of American states. That way, it could have maximum political effect north of the border.
Since NAFTA was signed in 1992, trade between Mexico and the United States has boomed. But the issue of road transport has turned into a political battle. Around two-thirds of cross-border trade goes by road. Transport companies from each country were supposed to be able to operate freely in the others by 2000. The Teamsters union, whose members include American truck drivers, has fought a long and largely successful rearguard action against this provision. It argues that Mexican trucks are unsafe and polluting and their drivers insufficiently trained.
An American court rejected these arguments. So did a NAFTA dispute-settlement panel, which ruled in 2001 that the United States was violating the agreement and gave Mexico the right to impose retaliatory tariffs. Mexico chose not to do so, to give the United States a chance to honour its commitment. The Bush administration tried, but was thwarted when Congress approved a measure setting 22 new safety standards for Mexican trucks.
...The Teamsters’ safety argument looks spurious. Mexican transport firms have invested in new trucks and trained their drivers to meet the safety requirements under the pilot scheme. A study commissioned by America’s Department of Transportation, which tracked Mexican trucks operating north of the border in the first year of the programme, found that these trucks clocked up far fewer safety violations than their American counterparts.
The Teamsters’ victory means that most Mexican goods going north will continue to have to be unloaded at the border, reloaded for the short hop across it, then loaded again onto an American truck...No such restrictions apply to Canadian lorries..."
http://www.economist.com/world/americas/displaystory.cfm?story_id=13331117
Friday, March 20, 2009
Will We Get the Good Governance We Need? (cont.)
TW: A rather foreboding piece from the Charlemagne blogger at Economist. The piece focuses on European governments seeking consensus in dealing with the current crises, such consensus appears lacking. Again one does not read it often amidst the U.S. MSM but internationally there is A) tremendous resentment against Anglo-American freewheeling capitalism, B) VERY weak economic numbers and C) much finger pointing amongst themselves overlaid with much protectionist sentiment especially in Europe and particularly France.
The piece speaks of the some Europeans being focused on a new regulatory structure for international finance rather than stimulus. One barely even hears of this in the States. We are almost totally focused on getting through the current crisis rather than creating structures to avoid future ones. This dissonance speaks not to the veracity of one or the other but the lack of consensus upon what to even focus international attention.
The G20 summit on April 2nd is shaping up as a potential big inflection point for the markets. One assumes they know the obvious which is that they better leave the meeting with a useful, substantive consensus to address the crises but one does not get warm and fuzzies two weeks out.
From Economist:
"A WHIFF of a phoney war hangs over Brussels..ahead of the G20 leaders’ meeting in London on April 2nd. You would not know this was a crisis summit, is all I can say. The mood is listless, and the draft summit conclusions in circulation thoroughly uninspiring. The usual statements from leaders as they arrived have mostly been defensive and repetitious: the refrain from EU bosses this evening is that Europe has done quite enough when it comes to fiscal stimulus for the moment, and they will not be bounced into doing more (translation: back off, Timothy Geithner).
...Catastrophic economic news keeps arriving from every corner of Europe, on a daily basis. Everyone agrees the need for co-ordinated action by European governments. And here in Brussels, we now have the heads of all 27 national governments of the EU, ready to talk about how to respond to the crisis. And then? Not much. Just a bit of uneasy circling and empty rhetoric
...I think that behind this time of phony war there lurks the prospect of a proper policy fight. Not about stimulus plans, but about future regulation of the financial sector. And, to simplify things, what is really, really going on is that the camp led by France and Germany are determined that Europe’s common position, going into the G20 summit, should be to bang the table and demand an end to light-touch regulation, of the sort that flourished for so long on Wall Street and in the City of London, and which they see as more or less the sole cause of the current mess. But the French and Germans do not trust the British to support that common position. Once the Americans are in the room in London, they fear the British will scuttle away from the European position, side with the Americans, and seek to defend the wheeler-dealers of the City.
...But I have spent the week talking to officials and senior politicians from other European governments, and my sense is they do not trust the British.
...But deep down, the British do not really trust the French and Germans, or regulation of finance that comes out of Paris or Berlin. That is not just because of fundamental differences of belief about how to run financial capitalism. It is also because the French and Germans are the proud owners of two financial centres, namely Paris and Frankfurt, that would love to topple the City of London as a centre for European trading.
Talk to those familiar with thinking in London, and you will hear something a lot like exasperation with the French and German rhetoric about the "top priority" being regulating hedge funds, private equity and the like. That is a priority, they grumble, but surely the top priority is unblocking credit flows, and generally rescuing the world economic system. And yes, some parts of the system were insufficiently regulated, but let us not forget that the crisis did not start in hedge funds, but in regulated banks.
A big fight is brewing. This is the calm before the storm"
http://www.economist.com/blogs/charlemagne/2009/03/do_not_believe_this_talk_of_eu.cfm
The piece speaks of the some Europeans being focused on a new regulatory structure for international finance rather than stimulus. One barely even hears of this in the States. We are almost totally focused on getting through the current crisis rather than creating structures to avoid future ones. This dissonance speaks not to the veracity of one or the other but the lack of consensus upon what to even focus international attention.
The G20 summit on April 2nd is shaping up as a potential big inflection point for the markets. One assumes they know the obvious which is that they better leave the meeting with a useful, substantive consensus to address the crises but one does not get warm and fuzzies two weeks out.
From Economist:
"A WHIFF of a phoney war hangs over Brussels..ahead of the G20 leaders’ meeting in London on April 2nd. You would not know this was a crisis summit, is all I can say. The mood is listless, and the draft summit conclusions in circulation thoroughly uninspiring. The usual statements from leaders as they arrived have mostly been defensive and repetitious: the refrain from EU bosses this evening is that Europe has done quite enough when it comes to fiscal stimulus for the moment, and they will not be bounced into doing more (translation: back off, Timothy Geithner).
...Catastrophic economic news keeps arriving from every corner of Europe, on a daily basis. Everyone agrees the need for co-ordinated action by European governments. And here in Brussels, we now have the heads of all 27 national governments of the EU, ready to talk about how to respond to the crisis. And then? Not much. Just a bit of uneasy circling and empty rhetoric
...I think that behind this time of phony war there lurks the prospect of a proper policy fight. Not about stimulus plans, but about future regulation of the financial sector. And, to simplify things, what is really, really going on is that the camp led by France and Germany are determined that Europe’s common position, going into the G20 summit, should be to bang the table and demand an end to light-touch regulation, of the sort that flourished for so long on Wall Street and in the City of London, and which they see as more or less the sole cause of the current mess. But the French and Germans do not trust the British to support that common position. Once the Americans are in the room in London, they fear the British will scuttle away from the European position, side with the Americans, and seek to defend the wheeler-dealers of the City.
...But I have spent the week talking to officials and senior politicians from other European governments, and my sense is they do not trust the British.
...But deep down, the British do not really trust the French and Germans, or regulation of finance that comes out of Paris or Berlin. That is not just because of fundamental differences of belief about how to run financial capitalism. It is also because the French and Germans are the proud owners of two financial centres, namely Paris and Frankfurt, that would love to topple the City of London as a centre for European trading.
Talk to those familiar with thinking in London, and you will hear something a lot like exasperation with the French and German rhetoric about the "top priority" being regulating hedge funds, private equity and the like. That is a priority, they grumble, but surely the top priority is unblocking credit flows, and generally rescuing the world economic system. And yes, some parts of the system were insufficiently regulated, but let us not forget that the crisis did not start in hedge funds, but in regulated banks.
A big fight is brewing. This is the calm before the storm"
http://www.economist.com/blogs/charlemagne/2009/03/do_not_believe_this_talk_of_eu.cfm
Wednesday, March 18, 2009
Will the Good Governance We Need Happen?
TW: I have mentioned before my greatest fear in this crisis is the high level of international cooperation and competence necessary to avoid a really, really bad crisis. The international financial and political regimes emerging out of World War One collapsed in the face of the Crash of '29. Those post WW I regimes were never robust and likely bound to fail. But will this time be different.
The vigorous and frequently disheartening debate internally within the U.S. is the mere tip of the iceberg. Across the world we face overtly hostile leaders (e.g. Chavez, Iran), dubiously ambivalent (Russia, Pakistan), emerging but unproven (China, India), and old allies (Japan, Europe) with serious internal challenges of their own. There are, not surprisingly, differing views internationally on how to address the crisis. The G20 economic conference is in two weeks that will be a big tell in terms of whether real cooperation is likely.
This will the first in a series, we start with Europe through the eyes of one economist.
From Krugman at NYT:
"I’m concerned about Europe. Actually, I’m concerned about the whole world — there are no safe havens from the global economic storm. But the situation in Europe worries me even more than the situation in America.
...The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.
Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.
On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump.
This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump. But such “automatic stabilizers” are no substitute for positive action.
Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.
But there’s a deeper problem: Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.
This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.
You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank. But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad. The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.
...The biggest question is what will happen to those European economies that boomed in the easy-money environment of a few years ago, Spain in particular.
...In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come..."
http://www.nytimes.com/2009/03/16/opinion/16krugman.html?_r=1
The vigorous and frequently disheartening debate internally within the U.S. is the mere tip of the iceberg. Across the world we face overtly hostile leaders (e.g. Chavez, Iran), dubiously ambivalent (Russia, Pakistan), emerging but unproven (China, India), and old allies (Japan, Europe) with serious internal challenges of their own. There are, not surprisingly, differing views internationally on how to address the crisis. The G20 economic conference is in two weeks that will be a big tell in terms of whether real cooperation is likely.
This will the first in a series, we start with Europe through the eyes of one economist.
From Krugman at NYT:
"I’m concerned about Europe. Actually, I’m concerned about the whole world — there are no safe havens from the global economic storm. But the situation in Europe worries me even more than the situation in America.
...The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.
Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.
On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump.
This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump. But such “automatic stabilizers” are no substitute for positive action.
Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.
But there’s a deeper problem: Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.
This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.
You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank. But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad. The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.
...The biggest question is what will happen to those European economies that boomed in the easy-money environment of a few years ago, Spain in particular.
...In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come..."
http://www.nytimes.com/2009/03/16/opinion/16krugman.html?_r=1
Monday, March 9, 2009
What Are the Implications Of Firesaling National Assets?
TW: The deals of the sort outlined in this piece are a metaphor for what is and will be occurring across the world now and for the next several years. While the world economy teeters those companies and nations with cash will have a tremendous opportunity to buy up assets at fire sale prices.
Balancing national interests, free-market principles and economic realities will present governments with very challenging dilemmas. In this crisis though unlike many past occasions the acquirors will be some former acquirees. How will this dynamic alter international power relationships and perceptions?
From Philip Bowring:
"The offer by China to inject $19 billion into the cash-strapped Anglo-Australian mining giant Rio Tinto could prove more significant than China's 2005 bid for Unocal, which was thwarted by U.S. opposition.
The clash between the power of money and perceived national interests is growing more intense as cash-rich buyers try to take advantage of cash-strapped sellers.
In turn, this will test Australia's perception of itself, as well as a relationship with its largest trading partner that grew warm and cozy in the days when China's growth was unquestioned and the minerals boom in full swing.
...Chinalco is offering to buy at well above the fire-sale prices that Rio might otherwise have faced. Its stakes will be far from control and could help secure long-term Chinese buyers for its ores.
The fact that Rio - which must repay a $9 billion loan this year - is desperate says much about mismanagement by hubristic Western executives, who instead of using the recent good times to hoard cash accumulated debt in efforts to outbid each other.
...Desperate to raise money without having to go to its own shareholders or lose face by selling assets to BHP, Rio has opted for China's ready cash.
...Second, it is not hard for Australians to see Chinalco as the thin end of a wedge aimed at influencing the supply and pricing of Australian ores.
...Chinalco is a major client for Australian bauxite. Other Chinese metals producers and users are clients of Rio's copper and iron ore mines. Chinalco itself has ambitions to diversify into other minerals. China has also been making it clear that it wants to break the combined influence of Rio and BHP on iron ore prices and was openly critical of the BHP bid for Rio. Australia and Brazil dominate world exports of iron ore and China is the main buyer.
Some prominent business commentators in Australia are claiming that this bid is clearly contrary to Australian national interests.
...With its external deficit, Australia needs capital, and several of its cash-short mining companies are looking to China for salvation. But for China, the more mine projects that can be kept alive now, the cheaper it will be able to buy ore when economies revive.
...Resource nationalism waxes and wanes in Australia. Today, Australia, like Rio, is caught between a heightened sense of its own vulnerability to China, and its need for cash.
Even if this offer goes through, it will leave a mark on Australian perceptions and likely lead to tighter controls in future. And it will make other commodity exporters think twice about relationships with their major customers."
http://www.iht.com/articles/2009/02/16/opinion/edbowring.php
Balancing national interests, free-market principles and economic realities will present governments with very challenging dilemmas. In this crisis though unlike many past occasions the acquirors will be some former acquirees. How will this dynamic alter international power relationships and perceptions?
From Philip Bowring:
"The offer by China to inject $19 billion into the cash-strapped Anglo-Australian mining giant Rio Tinto could prove more significant than China's 2005 bid for Unocal, which was thwarted by U.S. opposition.
The clash between the power of money and perceived national interests is growing more intense as cash-rich buyers try to take advantage of cash-strapped sellers.
In turn, this will test Australia's perception of itself, as well as a relationship with its largest trading partner that grew warm and cozy in the days when China's growth was unquestioned and the minerals boom in full swing.
...Chinalco is offering to buy at well above the fire-sale prices that Rio might otherwise have faced. Its stakes will be far from control and could help secure long-term Chinese buyers for its ores.
The fact that Rio - which must repay a $9 billion loan this year - is desperate says much about mismanagement by hubristic Western executives, who instead of using the recent good times to hoard cash accumulated debt in efforts to outbid each other.
...Desperate to raise money without having to go to its own shareholders or lose face by selling assets to BHP, Rio has opted for China's ready cash.
...Second, it is not hard for Australians to see Chinalco as the thin end of a wedge aimed at influencing the supply and pricing of Australian ores.
...Chinalco is a major client for Australian bauxite. Other Chinese metals producers and users are clients of Rio's copper and iron ore mines. Chinalco itself has ambitions to diversify into other minerals. China has also been making it clear that it wants to break the combined influence of Rio and BHP on iron ore prices and was openly critical of the BHP bid for Rio. Australia and Brazil dominate world exports of iron ore and China is the main buyer.
Some prominent business commentators in Australia are claiming that this bid is clearly contrary to Australian national interests.
...With its external deficit, Australia needs capital, and several of its cash-short mining companies are looking to China for salvation. But for China, the more mine projects that can be kept alive now, the cheaper it will be able to buy ore when economies revive.
...Resource nationalism waxes and wanes in Australia. Today, Australia, like Rio, is caught between a heightened sense of its own vulnerability to China, and its need for cash.
Even if this offer goes through, it will leave a mark on Australian perceptions and likely lead to tighter controls in future. And it will make other commodity exporters think twice about relationships with their major customers."
http://www.iht.com/articles/2009/02/16/opinion/edbowring.php
Thursday, March 5, 2009
The Real Economic Challenge (cont.)
TW: Continuing the focus on what I perceive to be the most challenging aspect of these crises- world wide economic decisions that will benefit all rather than deteriorating into nationalistic free-for-alls which can cause economic havoc and worse.
This Pettis piece focuses on the absolute necessity for China (and while he focuses on China since that is where he works and lives, one could partially extrapolate his points to others such as Japan and Germany and obviously the consuming nations such as the U.S. must as well) to recognize the need to change their economic models. China's model is focused on exports, their knee-jerk reaction is to encourage greater competitiveness with their exports. But making their exports cheaper through investment or subsidies only feeds more goods into an already saturated world market. This is deflationary and risks counter moves by consuming nations (i.e. the US and Europe) to stem the inflow of imports.
China and others may have more to lose in these crises than the U.S. but do they understand this and will they be able to avoid their own nationalistic tendencies?
From Michael Pettis' blog:
"...I have been arguing that a US slowdown would cause a very rapid slowdown in China
...maybe there really is a growing recognition that as a fundamental part of the global imbalance, China is going to have to adjust its economic model just as dramatically as the US. Both countries relied heavily on the same source of growth – infinite leverage on the part of consuming US households – and this was clearly unsustainable. But so far I am not sure that this message is likely to be believed in China.
Not only am I pessimistic, then, about Chinese policymakers’ willingness to confront reality, but my trip to Washington also left me very worried about US policymakers...The impression I got was that there are a lot of smart people very worried about how quickly policymakers are going to react.
I have already suggested that I think it is pointless to hope that Europe – or indeed other Asian countries – refrain from protectionist behavior or provide needed leadership, and my great hope has been that the new US administration surges forward and begins to design not just a short term solution that addresses the current collapse (I know, I know, much easier said than done, but the crisis part will end soon enough nonetheless), but also a longer term plan about what the new institutional framework will look like. But I don’t think this is happening.
Many people I spoke to last week were really bewildered by China’s role, and although many of them were extremely sophisticated in their understanding, they gave me the impression that policymakers are going through an almost existential crisis and have lost all confidence. The world needs US leadership more than ever, and the US is in a very strong position to provide it for at least three reasons. For all the problems of the economic contraction, the US will probably suffer less than other countries, it will emerge more quickly than the rest of the world, and it commands by far the largest amount of the most valuable resource in the world: net demand.
...I am not suggesting that the US is in great shape. I am suggesting that world is in worse shape, and the US has the flexibility and resources to reshape the global balance.
This seems to be something that not many people in Washington believe. The lack of confidence is so deep that several times I heard people refer knowingly to the Chinese fiscal stimulus (yes, that vague, risky, and hard-to-understand stimulus package) as the “gold standard” of economic stimulus packages. Gold standard? Really? The only way this can be true is if every other stimulus package in the world is total garbage. Perhaps it is.
...I suspect that things will continue drifting downward for the next year or so, until it is that much harder for anyone to work out a reasonable plan that doesn’t involve a great deal of hostility and mistrust."
http://mpettis.com/2009/02/the-us-government-frozen-in-the-headlights/
This Pettis piece focuses on the absolute necessity for China (and while he focuses on China since that is where he works and lives, one could partially extrapolate his points to others such as Japan and Germany and obviously the consuming nations such as the U.S. must as well) to recognize the need to change their economic models. China's model is focused on exports, their knee-jerk reaction is to encourage greater competitiveness with their exports. But making their exports cheaper through investment or subsidies only feeds more goods into an already saturated world market. This is deflationary and risks counter moves by consuming nations (i.e. the US and Europe) to stem the inflow of imports.
China and others may have more to lose in these crises than the U.S. but do they understand this and will they be able to avoid their own nationalistic tendencies?
From Michael Pettis' blog:
"...I have been arguing that a US slowdown would cause a very rapid slowdown in China
...maybe there really is a growing recognition that as a fundamental part of the global imbalance, China is going to have to adjust its economic model just as dramatically as the US. Both countries relied heavily on the same source of growth – infinite leverage on the part of consuming US households – and this was clearly unsustainable. But so far I am not sure that this message is likely to be believed in China.
Not only am I pessimistic, then, about Chinese policymakers’ willingness to confront reality, but my trip to Washington also left me very worried about US policymakers...The impression I got was that there are a lot of smart people very worried about how quickly policymakers are going to react.
I have already suggested that I think it is pointless to hope that Europe – or indeed other Asian countries – refrain from protectionist behavior or provide needed leadership, and my great hope has been that the new US administration surges forward and begins to design not just a short term solution that addresses the current collapse (I know, I know, much easier said than done, but the crisis part will end soon enough nonetheless), but also a longer term plan about what the new institutional framework will look like. But I don’t think this is happening.
Many people I spoke to last week were really bewildered by China’s role, and although many of them were extremely sophisticated in their understanding, they gave me the impression that policymakers are going through an almost existential crisis and have lost all confidence. The world needs US leadership more than ever, and the US is in a very strong position to provide it for at least three reasons. For all the problems of the economic contraction, the US will probably suffer less than other countries, it will emerge more quickly than the rest of the world, and it commands by far the largest amount of the most valuable resource in the world: net demand.
...I am not suggesting that the US is in great shape. I am suggesting that world is in worse shape, and the US has the flexibility and resources to reshape the global balance.
This seems to be something that not many people in Washington believe. The lack of confidence is so deep that several times I heard people refer knowingly to the Chinese fiscal stimulus (yes, that vague, risky, and hard-to-understand stimulus package) as the “gold standard” of economic stimulus packages. Gold standard? Really? The only way this can be true is if every other stimulus package in the world is total garbage. Perhaps it is.
...I suspect that things will continue drifting downward for the next year or so, until it is that much harder for anyone to work out a reasonable plan that doesn’t involve a great deal of hostility and mistrust."
http://mpettis.com/2009/02/the-us-government-frozen-in-the-headlights/
Tuesday, March 3, 2009
Creative Solution For Slumping House Prices
TW: Friedman mashes up concepts: immigration, protectionism with a little housing thrown in. While I doubt pulling in 2 million folks to buy up depressed housing is viable or desirable it is indicative a path available to the U.S. One of the things that will keep the U.S. relatively strong amidst the worldwide economic carnage is open door policy with immigrants combined with rational trade policy.
Obama and the Dems are headed in the right path on immigration but have been sending out troubling signals on protectionism. The buy American clause of the original stimulus package received far more coverage overseas than here and sent a very bad signal. If there is one thing that could turn the Great Recession into a depression it is poor trade policy (will have more soon on the topic).
From Tom Friedman at Int'l Herald Tribune:
"All you need to do is grant visas to 2 million Indians, Chinese and Koreans," said Shekhar Gupta, editor of The Indian Express newspaper.
"We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate - no Indian bank today has more than 2 percent nonperforming loans, because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans."
"Dear America, please remember how you got to be the wealthiest country in history. It wasn't through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: Build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat."
While I think President Barack Obama has been doing his best to keep the worst protectionist impulses in Congress out of his stimulus plan, the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-1B visas.
Bad signal. In an age when attracting the first-round intellectual draft choices from around the world is the most important competitive advantage that a knowledge economy can have, why would we add barriers against such brainpower - anywhere? That's called "Old Europe." That's spelled: S-T-U-P-I-D.
...If there is one thing we know for absolute certain, it's this: Protectionism did not cause the Great Depression, but it sure helped to make it "Great." From 1929 to 1934, world trade plunged by more than 60 percent - and we were all worse off.
We live in a technological age where every study shows that the more knowledge you have as a worker and the more knowledge workers you have as an economy, the faster your incomes will rise. Therefore, the centerpiece of our stimulus, the core driving principle, should be to stimulate everything that makes us smarter and attracts more smart people to our shores. That is the best way to create good jobs."
http://www.iht.com/articles/2009/02/11/opinion/edfriedman.php
Obama and the Dems are headed in the right path on immigration but have been sending out troubling signals on protectionism. The buy American clause of the original stimulus package received far more coverage overseas than here and sent a very bad signal. If there is one thing that could turn the Great Recession into a depression it is poor trade policy (will have more soon on the topic).
From Tom Friedman at Int'l Herald Tribune:
"All you need to do is grant visas to 2 million Indians, Chinese and Koreans," said Shekhar Gupta, editor of The Indian Express newspaper.
"We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate - no Indian bank today has more than 2 percent nonperforming loans, because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans."
"Dear America, please remember how you got to be the wealthiest country in history. It wasn't through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: Build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat."
While I think President Barack Obama has been doing his best to keep the worst protectionist impulses in Congress out of his stimulus plan, the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-1B visas.
Bad signal. In an age when attracting the first-round intellectual draft choices from around the world is the most important competitive advantage that a knowledge economy can have, why would we add barriers against such brainpower - anywhere? That's called "Old Europe." That's spelled: S-T-U-P-I-D.
...If there is one thing we know for absolute certain, it's this: Protectionism did not cause the Great Depression, but it sure helped to make it "Great." From 1929 to 1934, world trade plunged by more than 60 percent - and we were all worse off.
We live in a technological age where every study shows that the more knowledge you have as a worker and the more knowledge workers you have as an economy, the faster your incomes will rise. Therefore, the centerpiece of our stimulus, the core driving principle, should be to stimulate everything that makes us smarter and attracts more smart people to our shores. That is the best way to create good jobs."
http://www.iht.com/articles/2009/02/11/opinion/edfriedman.php
Saturday, December 27, 2008
Free Trade And the Ipod
TW: If there was one campaign position where I disagreed strongly and more or less unequivocally with Obama is was free trade. Am more or less an unadulterated free trade proponent. Hopefully Obama's campaign rhetoric will turn out to be over-heated political pandering (he did back off in the general election). Especially as the worldwide economic mess could turn even more scary if folks started reverting to selfish trade policies (this may happen anyway and it is obvious that almost no one wants a strong currency these days which is a disguised form of trade protectionism but that would be different post).
This article walks through the economic impact of the Ipod. Even though the manufacturing of the Ipod occurs overseas the study indicates the strong majority of economic value of the Ipod resides at home in the good old USofA.
From Economist:
"...They tally the number of jobs and wages associated with the production, development and distribution of all Apple iPods in 2006. Apple (an American company) invented the iPod, but they, and the intermediate goods they require, are mainly manufactured abroad. So other than enjoying more music, have Americans benefited from the creation of iPods?
The answer is yes. The authors found iPods employed 41,170 people worldwide. About 27,000 of those jobs went overseas, but most of those were the low-wage and low-skill jobs involved in production. Only 30 Americans had jobs involved in iPod production. But 13,890 jobs were created in the engineering or retail sector. These Americans earned $753m from iPods, while overeases employees earned $318m. Americans earned more because Apple kept the high-skill jobs (the R&D side) at home and sent its manufacturing abroad. But America's lower-skill workers also benefited, mainly in the retail, non-professional sector. These jobs earned American workers more than $220m.
As long as America has a labour force of competitive, skilled workers, it will still reap the benefits of innovation and benefit from trade..."
http://www.economist.com/blogs/freeexchange/2008/12/who_benefits_from_ipods.cfm
This article walks through the economic impact of the Ipod. Even though the manufacturing of the Ipod occurs overseas the study indicates the strong majority of economic value of the Ipod resides at home in the good old USofA.
From Economist:
"...They tally the number of jobs and wages associated with the production, development and distribution of all Apple iPods in 2006. Apple (an American company) invented the iPod, but they, and the intermediate goods they require, are mainly manufactured abroad. So other than enjoying more music, have Americans benefited from the creation of iPods?
The answer is yes. The authors found iPods employed 41,170 people worldwide. About 27,000 of those jobs went overseas, but most of those were the low-wage and low-skill jobs involved in production. Only 30 Americans had jobs involved in iPod production. But 13,890 jobs were created in the engineering or retail sector. These Americans earned $753m from iPods, while overeases employees earned $318m. Americans earned more because Apple kept the high-skill jobs (the R&D side) at home and sent its manufacturing abroad. But America's lower-skill workers also benefited, mainly in the retail, non-professional sector. These jobs earned American workers more than $220m.
As long as America has a labour force of competitive, skilled workers, it will still reap the benefits of innovation and benefit from trade..."
http://www.economist.com/blogs/freeexchange/2008/12/who_benefits_from_ipods.cfm
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