Proposal to accelerate social mobility: Incentivizing greater private investment in the skill development of 21st century workers›
The political challenge of the new global context
The central political issue now is declining public confidence in the market economy to generate social outcomes for middle-income workers, which is undermining effective governance and trust in national leadership in many countries.
Workers pay in the U.S. as a share of economic output dropped from 64 percent in the early 2000s to 58.4 percent in the third quarter of 2016 (New York Times, March 9, 2017). Unemployment in France is 10 percent, compared to 4 percent in Germany. And youth unemployment in France is 25 percent. Eighty percent of new jobs in France are on short-term, one-month contracts (The Economist, 4-10 March 2017).
G-20 countries are the largest economies in the world. The recent political backlash against globalization is of grave concern to the leaders of these systemically important countries, both as leaders of the global economy and as national leaders of key countries with more intense challenges in managing the interface between domestic concerns and global engagement.
The German G-20 Summit presents a political moment for leaders to forge a response to rising public concerns about economic insecurity, income disparities, technological changes, and disruptions in job markets.MORE
Trade Policy Implications of Global Value Chains›By OECD // Tuesday, April 25, 2017
International trade increasingly involves global value chains (GVCs) where services, raw materials, parts and components are exchanged across countries before being incorporated in final products that are shipped to consumers all over the world. Exports from one country to another are now reflecting complex interactions among a variety of domestic and foreign suppliers and create income for firms and workers in widely separated locations. Trade is even more than before determined by international strategies of firms that engage in foreign outsourcing, foreign direct investment and carry out their activities wherever the necessary skills and materials are available at competitive cost and quality.
In order to better account for the internationalisation and fragmentation of production, new trade statistics have been developed that can identify the value added by each country in GVCs (http://oe.cd/tiva). The OECD has undertaken comprehensive work that aims to shed light on the scale, nature and consequences of international production sharing. This note explores just one aspect – the implications of GVCs for trade policy and trade agreements. The growing fragmentation of production across borders highlights the need for countries to have an open, predictable and transparent trade and investment regime as tariffs, non-tariff barriers and other restrictive measures impact not only on foreign suppliers, but also on domestic producers. It also highlights the importance of an ambitious complementary policy agenda to leverage engagement in GVCs into more inclusive growth and employment.MORE
OECD Gurría, Champion of Free Trade›By OECD // Thursday, April 20, 2017MORE
The Bill Frenzel Champion of Free Trade Award – Economic Club of Minnesota
OECD Secretary-General Angel Gurría believes that “any trade policy that doesn’t improve the well-being of people is not worth it.” Mr Gurría was recently awarded the Bill Frenzel “Champion of Free Trade” Award by The Economic Club of Minnesota.
Why Renegotiating NAFTA Could Disrupt Supply Chains›
Supply chains have become increasingly interlinked across the U.S.-Mexico border. The North American Free Trade Agreement (NAFTA), allowing tariff-free commerce between the United States, Canada, and Mexico, has facilitated this integration. Some critics of NAFTA are concerned about the bilateral trade deficit and have proposed stricter rules of origin (ROO), which would make it more cumbersome for firms to access the zero tariff rates they are entitled to with NAFTA. We argue that measures that make it costlier for U.S. firms to import will also hurt U.S. exports because much of U.S.-Mexican trade is part of global supply chains.MORE
The existing fragmentation of production in NAFTA reduces production costs by providing low-cost intermediate inputs to U.S. firms. Lower production costs mean domestic consumer prices and the cost of U.S. exports are also pared down. Thus U.S. exports are boosted because U.S. companies are more competitive.
In order to be eligible for the duty-free imports under NAFTA, member countries must abide by rules of origin, which detail the conditions under which a product qualifies for NAFTA preferences. These are complex rules, applied on a product by product basis, and include requirements to ensure there is sufficient value added within the member countries. Tightening rules of origin, which effectively raises the cost of trade, is unlikely to increase trade or lower the trade deficit, but is very likely to disrupt supply chains.
Congress has provided a workable framework for renegotiating NAFTA›By Ed Gerwin // Tuesday, April 18, 2017MORE
During the campaign, Donald Trump reserved particular fury for the North American Free Trade Agreement. He blasted NAFTA as “a disaster” and blamed it for lost jobs, closed factories, and economic despair.
It’s deeply ironic that renegotiating NAFTA—on a relatively reasonable basis—may be one of his best opportunities for a meaningful political and policy win.The fiasco over healthcare reform was a textbook example of how not to advance policy. The administration’s failure to build support for reform legislation led to widespread opposition from members and stakeholders. Trump also showed disdain for substance, using an epithet to dismiss policy objections from House conservatives.
But while success on trade—especially with respect to reforming NAFTA—will be far from easy, it may actually be more achievable than either healthcare or tax reform. That’s in large part because Trade Promotion Authority (TPA) legislation enacted by Congress in 2015 can potentially provide “adult supervision” to both the president and Congress.
TPA provides an optional process under which Congress and the president exercise their shared constitutional authority over trade agreements. Under TPA, Congress agrees to up-or-down votes, without amendments, on trade agreements negotiated by the administration—but only if the administration complies with extensive consultation and transparency obligations and only if the agreement advances the law’s detailed negotiating objectives.
Robots and jobs: Evidence from the US›
This piece originally appeared on VoxEU.org.
As robots and other computer-assisted technologies take over tasks previously performed by labour, there is increasing concern about the future of jobs and wages. This column discusses evidence that industrial robots reduced employment and wages between 1990 and 2007. Estimates suggest that an extra robot per 1,000 workers reduces the employment to population ratio by 0.18-0.34 percentage points and wages by 0.25-0.5%. This effect is distinct from the impacts of imports, the decline of routine jobs, offshoring, other types of IT capital, or the total capital stock.
“We are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come,” John Maynard Keynes wrote almost a century ago, “namely, technological unemployment.”
If Keynes’ original readers found those worries were misplaced, today there is concern that these gloomy predictions may soon come true (Brynjolfsson and McAfee 2012, Ford 2016). Bolstering such concerns, a range of low-skill and medium-skill occupations exposed to automation have suffered employment declines and sluggish or even negative wage growth (Autor et al. 2003, Goos and Manning 2007, Michaels et al. 2014).
Plenty of research speculates on what might happen when the robots arrive. Frey and Osborne (2013), classified occupations by how susceptible they are to automation and concluded that 47% of US workers are at risk in the next 20 years. McKinsey (2016) claims the same statistic is 45%, and The World Bank estimates that this number for the OECD as a whole is 57% of workers. Arntz et al. (2016), however, disagree. They argue that, within an occupation, many workers specialise in tasks that cannot be automated easily, and so their estimate for OECD jobs at risk is only 9%.MORE
It’s Time to Negotiate a New Economic Relationship with China›
When China completed its 15-year accession process and joined the World Trade Organization (WTO) in 2001, it was a rising power, but still clearly a developing country. Its GDP per capita was $3,227,1 and its share of global trade was only 4 percent.2
By 2015, however, its GDP per capita had risen to $14,450, and its global trade share to 11.9 percent. As China’s economic power has increased, so has criticism of its market-distorting economic practices. The U.S. government has brought international trade complaints against China and used unilateral actions and threats, but U.S. businesses are unsatisfied with the results. While there have been some successes, the limits of the current approach to making China’s economy more market-oriented may have been reached, as there are gaps in the existing international trade rules, and unilateral demands are of limited value against a powerful trading partner with its own domestic politics to contend with. Moreover, in the current political climate, an overly aggressive approach runs the risk of a serious U.S.-China trade war, which would cause great harm to both sides.3
But there is another option. If the United States wants to promote the liberalization of Chinese trade and investment policy, it needs to engage with China in a more positive way. To this end, it should sit down with China and negotiate a new economic relationship, one that goes beyond the terms of the WTO. In particular, the United States should initiate formal negotiations on a trade agreement with China. Negotiations of this kind will be a challenge, especially with a president who has been so critical of China. However, negotiations offer the best hope for addressing concerns about China’s economic policies and practices.MORE
A Post-Brexit Trade Regime for the UK›By Kimberly Ann Elliott // Wednesday, April 12, 2017MOREWITA’s NextGenTrade™ initiative brings you an original piece by Kimberly Ann Elliott, a Senior Fellow with the Center for Global Development, and contributor to www.AmericasTradePolicy.com.
WASHINGTON, April 12, 2017 — The Brexit process is now officially under way. Over the next two years, the United Kingdom must determine how to best serve British interests as it withdraws from the European Union and develops new trade, immigration, and investment policies. This will not be easy and, in some cases, the costs of lost market access, for example for financial services, could well be higher than the benefits of policy autonomy. When it comes to traditional trade barriers and goods imports, however, negotiators have an opportunity to lower costs for British consumers with little or no cost for British producers. If policymakers opt for a simple, low-rate tariff structure, they would also find it easier to develop a new trade policy, and to manage the UK’s transition to being an independent member of the World Trade Organization (WTO).
Staying in the customs union (covering goods only) would be the simplest way to avoid disruption in merchandise trade with the EU, as well as the rest of the world, though the UK would still have to negotiate access for services and for foreign investors. The downside of staying in the customs union is that it would leave the economy with a sub-optimal set of tariffs and it would prevent the UK negotiating trade agreements with external partners of its choice. While the EU has a relatively open trade policy, there are exceptions that make little sense for the UK economy. Nearly half of EU “normal” tariffs (for partners without bilateral trade agreements or preferences) are 2 percent or less and three-quarters are less than 5 percent. Though there are still a number of tariff peaks that are many times higher than the average. The EU also imposes quantitative restrictions on a number of agricultural and food products.
At the aggregate level, EU tariff policy is sub-optimal for all of its members because it represents a compromise among highly disparate economies. In particular, many of the high barriers to agricultural and labor-intensive manufactured goods protect producers elsewhere in Europe at the expense of British consumers.
Post-Brexit, it would make little sense for the UK to continue paying more for oranges, tomatoes, almonds, and other fresh fruits and vegetables because southern European growers succeeded in negotiating quantitative restrictions on EU imports of those products. The table shows selected agricultural products that the EU restricts using tariff rate quotas, as well as others that are subject to tariffs of 20 percent or more. (Tariff rate quotas impose a low tariff on set quantities of imports and higher, often prohibitive, tariffs on any imports over that amount.)
Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment›
Trade leads to productivity gains and significant benefits for consumers, especially the poor, but can also be responsible for job displacement that must be addressed through sound domestic policies that can help the unemployed get back on their feet, say economists from the World Trade Organization, the International Monetary Fund and the World Bank.
In a study released today entitled “Making Trade an Engine of Growth for All”, the economists argue that the benefits from opening trade are broad and deep. Trade liberalization has generated higher living standards through greater productivity, increased competition, more choice for consumers and better prices in the marketplace. At the same time, it is clear that some parts of the world have suffered from the impact of import competition. This requires a policy response — but that response should also recognise that trade is just one factor contributing to economic change and labour market disruption, alongside other drivers such as technology and innovation.MORE
A Sustainability Toolkit for Trade Negotiators›By International Institute for Sustainable Development // Friday, April 7, 2017
Trade and investment as vehicles for achieving the 2030 Sustainable Development Agenda
The primary audience for this toolkit is negotiators of regional trade and investment agreements (RTIAs). Those from an environmental background will have a mandate to help ensure environmental protection, and may not have in-depth expertise in how trade policy can affect that goal. Likewise, trade policy negotiators may be charged with ensuring that the RTIA has strong environmental protections, but may not have a depth of expertise on environmental matters or how they are affected by trade law and policy. This toolkit aims to help both types of policy makers, as well as those that formulate their respective mandates in the negotiations. It should also serve a broader audience with an interest in how trade and the green economy interact, and a desire to assess the environmental performance of specific RTIAs: non-governmental organizations, academics, private sector actors, inter-governmental organizations, etc.MORE
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