Transcript International Trade – A Global Transformation Mark S

Weekly Discussion Topic – what
happened to the U.S. recovery?
• Productivity drop of 1.9% in 1st quarter
• Poor jobs number in April (+150,000 jobs)
– GDP growth vanished (0.1% at annual rate)
– May jobs report (+225,000, Unemployement
@5.5%, but LFPR continues to decline
• Challenges:
– Strong rise in U.S. dollar
– Consumer and producer confidence weak
– Would be serious if U.S. falls into another recession, having recovered only
weakly from 2009
– Interest rates are beginning to climb
Alternative Weekly Topic
• The Clinton Foundation
Topic #4 - Changes in the Patterns of Global
Trade
• Everyone senses that global trade patterns
have changed a great deal
• The new global powerhouses are generally
referred to as the BRICs
– Not sure Russia really belongs and the deep
recession in Brazil has made it, at least for now, a
poor destination for investment
Changing Direction of Global Trade
• The rise of Brazil, China, Russia, India in the
world trading system:
• U.S. Trade imbalance with China very large
(about 70% of U.S. total trade imbalance)
TOTAL 2013
122,016.3
440,433.5
-318,417.2
China, Brazil and India
• China: $2,210 Billion exports, $1,820 Billion in
imports
• Brazil: $243 Billion in exports, $233 B. in
imports (total)
• India: $294 B. in exports, $490 B. in imports
(total)
• Much smaller players in world markets – could
argue that this is where the opportunity is
• Russian Federation: $529 B. in exports, $335
B. in imports
– Exports are primarily in the energy sector
– Longer-term, European economies are going to
look for a more stable source of energy
• Compared to U.S. figures of $1,546 billion
(exports) and $2,336 billion (imports)
– U.S. remains largely a “closed economy”
Persistent Deficits of U.S. are
creating a global problem
• Recycling of dollars by China and others leads
to large capital flows
• Chinese holdings of U.S. debt ($1.2 Trillion)
create a political problem (has been as high
at $2.2 trillion)
– If U.S. has a significant political (or security) dustup with China, they might respond by dumping TBonds
– Credit markets would rapidly destabilize.
International Holdings of U.S. Debt
– February 2015
Country
Holdings
China
Japan
Belgium
Caribbean Banking Centers
Oil Exporters
Brazil
Russia
$1,224B
1,224B
345
351
297
260
70
• Maturing of Trade Relations may partially
solve problem
– Costs are rising rapidly in China
– Environmental concerns are forcing the gov’t. to aim for
slower growth
• Thankfully, Japan’s interests and those of
China are not aligned
– Japan would be in a position to partially take up
slack if China dumped its holdings of bonds
– Most worrisome case is when a single country
holds most of the debt and can exert political
influence
Other Dangers to the International
Trading System
• Competitive Devaluations
– Newest tool in stabilization policy
– Economic tools to address a recession: Fiscal
Policy, Monetary Policy and Devaluations
• The latter was supposed to only work for smaller
nations, but larger nations are now trying to stimulate
trade in this manner (e.g. Japan)
• Is clearly a beggar-thy-neighbor attempt to use trade as
an economic stimulus
– But, all nations cannot use, so should any?
Further Dangers to the Stability of
International Trade
• Expiration of Multi-Fibre Agreement (19742005)
– MFA was meant to allow for slow adjustment to cheap
imports by developed nations
– No mechanism put in place as a replacement
– Small developing nations (e.g. Bangladesh) are going to be
the big losers
– Nations are setting new, less favorable tariff policies
Inability of the WTO to adequately
address Intellectual Property
• Copyright and patent infringement is
commonplace, and hard to stop
• Theft of physical products is a crime – stealing
a song (or software) is often regarded as
normal
• As noted last time, patent drugs are a
particularly troubling problem
– Morally, they should be “free”, but providing them
at little or no cost suppresses drug development
Competition between Government
“firms” and private businesses
• Airbus started as a government initiative by
France and Germany
• R&D funded by the respective governments
– Counter-argument is that Boeing is supported by
extensive defense contracts
• But, so is EADS (European Aeronautic Defence and
Space company
• In old days, MITI (Japan) was the bigger problem –
Ministry of International Trade and Industry
MITI
• Directly targeted specific industries
(shipbuilding, steel)
– Government money and competition policy “forbearance”
used to encourage dominance of world markets
– Worked well sometimes – failed miserably others (DRAMs
and artificial intelligence)
– Makes concept of level playing field an absurdity
• MITI has largely ceased these practices under
international pressure
Industrial Policy
• Nations continue to conduct Industrial Policy
that threatens free competition
– Hard to stop, and difficult to put restrictions on
after a nation has funded R&D and investment.
– A good example at the moment is robotics
• Key players are Google, Amazon, Apple, IBM and others
• But government also funds (substantially) research through
universities (National Robotics Initiative)
• Can only note that governments are frequently
wrong, and not all IP will work out.
End of Day #4
• Suggestions for Day 5?