international

Ashok Mody at UW: “EuroTragedy: A Drama in Nine Acts”

On Wednesday, October 17. Wednesday, October 17, 2018, 12:00PM – 2:00PMLocation: Grainger Hall, 975 University Avenue, Plenary RoomAsoka Mody, visiting professor in international economic policy at Princeton University, will discuss his recent book, followed by comments from La Follette School Professors Menzie Chinn and Mark Copelovitch. Sponsored by the La Follette School of Public Affairs, Center for European Studies, University Lectures Fitch Fund, Department of Political Science. Contact: [email protected]. Ashok’s guest posts here: A Program for Greece: Follow the IMF’s Research, The ECB and the Fed: A Comparative Narrative, The European Central Bank’s Lack of Accountability Has Consequences, and The ECB’s Strong Euro Problem

Guest Contribution: “The New NAFTA”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate. Donald Trump thinks he once again pulled off a smashing victory on October 1, delivering on his oft-repeated campaign promise to terminate NAFTA, “the worst trade deal ever,“ and replace it with something much newer and better. One is tempted to say to oneself, “Let him think that.” The US-Mexico-Canada Agreement may not be an improvement over the status quo, but at least it is an improvement over the end to free trade in North America which he had threatened. By now, a Trump modus operandi has come into view. First you threaten to blow up the world, and ...

You Ain’t Seen Nothing Yet

Taxes announced, proposed, on Chinese imported goods. Or, shoot yourself in the foot edition. Source: Hatzius, et al. “The Trade War: Bigger Numbers, Same Conclusion,” GS 5 Oct 2018. With Vice President Pence’s speech, I’m confident that the Trump administration will push forward in implementing fully the programs of imposing tariffs on China sourced imported goods (while still failing to sanction ZTE, …FFS). What are the likely macro impacts. On output, minor, unless stock markets take a dive. On the other hand, consumers will almost certainly face price increases, either relative or general. Source: Hatzius, et al. “The Trade War: Bigger Numbers, Same Conclusion,” GS 5 Oct 2018. On a separate matter, I am compelled to note several inaccuracies and omissions (!) in Mr. Pence’s panegyric: ...

“So China is now paying us billions of dollars in tariffs”

How does a tariff work? A tariff is a tax on imported goods, so if a Chinese good is sold to an American, the American literally has to pay the tax.The quote above is from Mr. Trump, as recounted in Peter Coy’s “The Real Pain From Trump’s Tariffs Trickles Down to Consumers” in Bloomberg Businessweek; it clearly highlights the fact that either (1) Mr. Trump has no understanding of how tariffs work, or (2) he does understand, and he’s lying. Now it’s true that when the importing country is large relative to the exporting, then in economic terms it’s true the exporting country is losing out by having to sell goods at a lower price than they otherwise would (see graphs in this post). But even then, there’s no guarantee that the burden on exporters is substantial. Who actually ends up footing t...

Guest Contribution: “Fall in US Trade Balance, Led by Ag. Exports”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. As of July, the US trade deficit was running worse than a year ago, despite improvement earlier in 2018. A new Census report today suggests: (1) further deterioration of the trade balance in August, and (2) a role for exports of food & feeds which, after rising in the spring, have apparently fallen sharply since June: -6.3 % in July and -9.5 % in August. [Advance Economic Indicators, Sept. 27, 2018, Table 1. U.S. Intl. Trade by End-Use Category]. This is consistent with the story that retaliatory Chinese tariffs against US exports of soybeans and other farm products caused shipments to be moved forw...

Guest Contribution: “Trump Renews Charges of Chinese Currency Manipulation”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate. The US Treasury is due in October to submit its biannual report to Congress on what countries, if any, are manipulating their currencies to gain unfair trade advantage. President Trump has recently resumed the accusations he made during the election campaign that China was manipulating its currency. “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” he told Reuters. He is apparently pressuring the Treasury directly in its deliberations. What has changed since April? What has changed since the last Tr...

Who Could’ve Known “Crash Brexit” Would Be Problematic?

In the aftermath of the Salzburg summit, where the Chequers plan was dismissed by the EU, and PM May demanded “respect”, the pound has plunged. Source: TradingEconomics.com. Deutsche Bank (Harvey, et al., “Deep impact: DB forecasts in a crash Brexit”) yesterday lays out why: In our analysis, we calculate that UK growth will be around 4% cumulatively lower than under our baseline scenario by end-2020. The UK will enter a two year recession, with output shrinking -0.3% and -0.6% in 2019 and 2020 respectively. The main contributers to the fall in demand are household consumption, which shrinks around 6% relative to our baseline, and business investment which is 13% lower than our baseline. Net trade is assumed to add a moderate boost to GDP, as while trade falls substantially, imports fall sl...

The Long Run Elasticity of Farm Product Prices and the US Dollar

Expansionary fiscal policy combined with Taylor-rule induced monetary tightening has resulted in a strong dollar. That strong dollar is driving US agricultural prices. Figure 1: Farm product PPI divided by CPI-all (left log scale, blue), and real trade weighted US dollar exchange rate, against broad basket (right log scale, red). An increase in the dollar exchange rate variable is a dollar depreciation. NBER defined recession dates shaded gray; Trump administration shaded orange. Source: BLS, Federal Reserve Board, NBER, and author’s calculations. Notice the close correlation between the inflation adjusted series. Neither series rejects a unit root, using conventional ADF tests. A Johansen maximum likelihood test for cointegration rejects (using asymptotic critical values) the no-cointegra...

New Tariffs on Chinese Imports

USTR announcement: As part of the United States’ continuing response to China’s theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) today released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs. In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent. Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent. The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018. … Implied US tariff overall tarif...

Farm Country Gets What It Voted For

From Yahoo Finance: Tariffs imposed as retaliation for US tariffs worsen the US terms of trade (i.e., lower ag export prices), and a strong dollar lowers US ag prices. Rising interest rates due to the collision of monetary and fiscal policies worsens the debt service load of the ag sector, while reducing farmland prices. Thanks, Trump!

Guest Contribution: “International Macroeconomics in the wake of the Global Financial Crisis”

Today, we are pleased to present a guest contribution written by Laurent Ferrara (Banque de France), Ignacio Hernando (Banco de España) and Daniela Marconi (Banca d’Italia), summarizing the introductory chapter of their book International Macroeconomics in the wake of the Global Financial Crisis. The views expressed here are those solely of the author and do not reflect those of their respective institutions. A decade after the eruption of the Global Financial Crisis (GFC), the world economy has finally returned to a more sustained pace of expansion (see Fig. 1). Figure 1: World GDP annual growth (in %, constant prices). Source: IMF, World Economic Outlook, April 2018 and July 2018 update Yet major challenges still remain, as the engines of long-run growth have still not recouped their pre...

Trade Deficit Rising!

Since 2017Q1. By Mr. Trump’s own metric, we’re losing. But it’s a stoopid metric for evaluating “unfair”-ness. From the last GDP release (which incorporates March trade release):Figure 1: Net exports to GDP (blue), and net exports excluding petroleum products (red), as a ratio to GDP, SAAR. NBER defined recession dates shaded gray. Orange denotes 2017Q1-2018Q1. Source: BEA 2018Q1 second release, NBER, and author’s calculations. Here’s a detail, in nominal dollar terms: Figure 2: Net exports to GDP (blue), and net exports excluding petroleum products (red), both nominal, SAAR. NBER defined recession dates shaded gray. Orange denotes 2017Q1-2018Q1. Source: BEA 2018Q1 second release, NBER, and author’s calculations. As noted in numerous instances (EconoFact, Steil/BI), trade deficits usually ...