Trade Policy

Yikes! Trade and Economic Policy Uncertainty

First, overall (news-based) economic policy uncertainty: Figure 1: Economic Policy Uncertainty index (blue), and centered seven day moving average (red). Source: policyuncertainty.com accessed 6/11, and author’s calculations. Second, how the trade policy component has jumped in the Trump era. Figure 2: Economic Policy Uncertainty index (blue), and trade policy categorical index (dark red), through March 2018. Source: policyuncertainty.com accessed 6/11.

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 ...

EconoFact: “What is the National Security Rationale for Steel, Aluminum and Automobile Protection?”

From EconoFact, an update: The Trump administration has implemented a number of trade related measures purportedly on the basis of national security. First, it invoked the seldom-used provision of the trade law to investigate whether imposing import restrictions for steel and aluminum is justified by national security reasons. The Commerce Department’s investigation concluded that imports of both metals pose a national security risk and subsequently the administration applied tariffs and quotas to both products. In a new investigation, the Commerce Department has started looking into whether imports of cars or automobile parts could impair U.S. national security. One just has to recall, you don’t typically take Ford Mustangs into war, and even if we took sedans into battle, we get most of ...

On China: Applying 19th-century remedies to 21st-century problems

My op-ed in today’s The Hill: Is it a trade dispute with China, or is it a trade war? If the latter, is it on hold, or not? The flip-flops in America’s trade relationship with China are coming in ever more frequently, as President Trump issues and rescinds threats. To recap, before the election, Trump promised to declare China a currency manipulator on day one of his administration. That declaration never came; but then over the course of his administration’s first year came the equivalent of a “phony war” where no overt moves were made in trade policy. Only some anti-dumping measures nearly a year into the new administration signaled a possible new direction. That all changed in March, as Trump announced a series of radical measures, rationalized on grounds of national security and intell...

What Will Policy Uncertainty Be Tomorrow?

Below is reported Economic Policy Uncertainty through 5/31/2018, reflecting newspaper accounts through 5/30. Figure 1: US Economic Policy Uncertainty index (blue) and centered 7-day moving average (bold red). Source: policyuncertainty.com accessed 31 May 2018, and author’s calculations. As of 2PM EST, Dow down 1%, VIX up 6.69%.

Guest Contribution: “An Economic Platform for the Democrats”

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. An earlier version appeared in Project Syndicate. Democrats are gearing up for the November mid-term elections, in which they hope to take back the US House of Representatives. Candidates are finding that the voters are not necessarily paying close attention to foreign affairs or even Trump scandals, and are more concerned about “pocketbook issues.” The conventional wisdom still stands: underlying the shock election of Mr Trump was a perception by the median household that it has been left behind by globalization and technological change and that the gains have been going to the rich instead. The Democr...

Guest Contribution: “The Exposure of U.S. Manufacturing Industries to Exchange Rates”

Today, we’re fortunate to have Willem Thorbecke, Senior Fellow at Japan’s Research Institute of Economy, Trade and Industry (RIETI) as a guest contributor. The views expressed represent those of the author himself, and do not necessarily represent those of RIETI, or any other institutions the author is affiliated with. On March 8th President Trump announced 10 percent tariffs on aluminum imports and 25 percent tariffs on steel imports. On April 2nd China retaliated by announcing tariffs of up to 25 percent on imports of pork, soybeans, and other products. The European Union is also considering retaliatory tariffs. This tit-for-tat conflict spawns uncertainty, raises prices of key inputs for downstream industries, forces companies to engage in time-consuming appeals to the government, and r...

Things I Never Thought I’d Have to Explain on Econbrowser: Trade Creation/Trade Diversion

Suppose you (the UK) are in a tariff-ridden world, getting butter from your former colony and current Commonwealth partner New Zealand, the global low cost producer. Then you (the UK) decide to join a customs union that encompasses Denmark, which produces butter at a lower cost than the UK, but higher than New Zealand. In plain words, the tariffs between UK and Denmark on butter go to zero, while those between UK and NZ remain. Is the UK better or worse off? This depends on whether the benefits of trade creation (increased amount of trade with the lowest cost producer within the customs union) outweigh the costs of trade diversion (no longer sourcing imports from the global lowest cost producer). This can be shown simply (albeit in a partial equilibrium setting): Source: EconomicsOnline. T...

“(Trade) Peace For Our Time”

Not the phrase used by the White House, but I think the essence of the statement. From ActionForex: THE WHITE HOUSE – Office of the Press SecretaryFOR IMMEDIATE RELEASE – May 19, 2018 Joint Statement of the United States and China Regarding Trade Consultations At the direction of President Donald J. Trump and President Xi Jinping, on May 17 and 18, 2018, the United States and China engaged in constructive consultations regarding trade in Washington, D.C. The United States delegation included Secretary of the Treasury Steven T. Mnuchin, Secretary of Commerce Wilbur L. Ross, and United States Trade Representative Robert E. Lighthizer. The Chinese delegation was led by State Council Vice Premier Liu He, Special Envoy of President Xi. There was a consensus on taking effective measures to subst...

How to Reduce the US-China Trade Deficit by $200 Billion: A Modest Proposal

Jim Tankersley/NYT discusses how hard it will be to reduce the $337 billion US-China gross trade deficit by $200 billion by increasing exports (as I point out in this post, our trade deficit in value added is probably about half the $337 billion). The enormity of the task of cajoling the Chinese into buying $200 billion more is shown in Figure 1 (see the light blue arrow). Figure 1: US exports to China (blue) and US imports from China (red), in billions of USD, SAAR. NBER defined recession dates shaded gray. Increasing exports to China by $200 billion over two years (light blue arrow); decrease imports from China by $200 billion over two years (pink arrow). Source: BEA/Census, NBER, author’s calculations. A much simpler way to reduce the deficit; instead of browbeating the Chinese into buy...

If ZTE Sanctions Are Up For Grabs, What about Additional Section 301 Sanctions?

Economic policy uncertainty as measured by the Baker, Bloom and Davis index is elevated (again) due to trade policy. Figure 1: US Economic Policy Uncertainty index (blue) and centered 7-day moving average (bold red). Source: policyuncertainty.com accessed 14 May 2018, and author’s calculations. Does this uncertainty matter? This article addressing just the Section 232 sanctions suggests the answer is “yes” (I must admit it’s kind of funny as an economist to try to convince people that uncertainty matters for investment and planning purposes — I thought it was a no-brainer). As a social scientist, I am curious to see what happens if additional Section 301 sanctions are placed on another $100 billion of Chinese exports to the United States. And to then see the effects as Mr. Trump wavers and...

Mr. Trump’s Faux National Security-based Trade Policy (aka ZTE – WTF?)

or, Mr. Trump is a wimp President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done! — Donald J. Trump (@realDonaldTrump) May 13, 2018 Mr. Trump was the first in decades to actually implement Section 232 trade sanctions based on alleged national security concerns. These sanctions hit our allies much harder than the Chinese that Mr. Trump asserts has damaged our interests. And yet, when sanctions based on real national security concerns actually threaten to substantively punish a Chinese firm, he flinches. Why do we need a process (CFIUS, Section 232) if Mr. Trump is just going to rip up the decisions? Thus far, the trade policies Mr. ...

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