Can Global Capitalism Be Saved?›By Alexander Friedman // Friday, November 18, 2016
November 11,2016 | By Alexander Friedman
LONDON – The politics of economic anxiety has now driven the electorates of the United Kingdom and the United States into the hands of populists. If only, so the received wisdom goes, economies could get back to a more “normal” rate of GDP and productivity growth, life would improve for more people, anti-establishment sentiment would wane, and politics would return to “normal” as well. Then, capitalism, globalization, and democracy could continue their forward march.
But such thinking reflects an extrapolation from one largely aberrant period in history. That period is over, and the forces that sustained it are unlikely to align again anytime soon. Technological innovation and demographics are now a headwind, not a tailwind, for growth, and financial engineering can’t save the day.
The aberrant period in history is the hundred or so years after the US Civil War, during which breakthroughs in energy, electrification, telecommunications, and transportation fundamentally reshaped societies. Human lives became markedly more productive, and life expectancies rose dramatically. The global population grew over 50% between 1800 and 1900, and then more than doubled over the following 50 years, with economies growing much faster than in previous centuries.
By the end of the 1970s, growth began to slow in many of the developed Western economies, and US President Ronald Reagan and Federal Reserve Chair Alan Greenspan ushered in a debt cycle that supercharged activity. The US, until then a net creditor to the world, became a net borrower, with China and other emerging markets benefiting from America’s rising trade deficit. Financial leverage drove global growth onward for almost another 30 years.MORE
Back to the Future on Trade?›By Bill Reinsch // Thursday, November 17, 2016
November 15, 2016 | By William Reinsch
Editor’s Note: This is the third in a series of three pieces examining demographic trends and their impact on the global economy. Read Part I: No Country for Old Men? Demography’s Impact on the Global Economy,” and Part II: Into the Great Wide Open: How Millennials Look at Trade.
Last week I discussed the rise of the Millennials and the implications for trade policy. Today I’d like to expand that and look at the impact on partisan politics.MORE
Over the past 150 years, America’s two main political parties’ positions on trade have flip-flopped. In the 19th century, the Republicans were the dominant party in the northeast, and they tended to favor high tariffs that would benefit their manufacturers. Abraham Lincoln, for example, was an unabashed high tariff man. The Democratic Party was particularly strong in the South, where agriculture, including large commodity crops like cotton, dominated. Southerners wanted to export their production and have access to cheaper foreign machinery and therefore tended to favor low tariffs.
This basic division did not change much until the Depression came along and brought Franklin Roosevelt to power. Primarily Republican administrations between 1860 and 1932 pursued protectionist high tariff policies that culminated in the Smoot Hawley tariffs of 1930. Although the tariffs could not be blamed for the Depression, which began a year earlier, by all accounts they clearly contributed to it. Roosevelt, backed by heavy majorities in Congress, transformed U.S. trade policy through the Reciprocal Trade Agreements Act of 1934 in which Congress ceded considerable tariff negotiating authority to the president and built in a bias in favor of reducing tariffs rather than increasing them. This brought an end to the log rolling tariff policies of the 1920s and earlier where members of Congress backed other’s tariff increases in order to gain backing for their own, and it gave leadership to a president who favored trade liberalization.
While this was a major reversal of U.S. trade policy, it was not a reversal of party positions. The Democrats had always been the low tariff party. The difference was that now they were in power. After World War II, however, over time a significant shift occurred. As the United States became the dominant global economy, exports began to grow in importance, and U.S. business interests became more international. Republican politics began to shift toward freer trade as the internationalist/big business wing of the party came to dominance. Later on their views were reinforced by the conservative wing of the party which viewed tariffs as taxes — i.e. something to be cut — and thought of free trade as part of a smaller government agenda.
A Trade Agenda for President (elect) Trump – On China, NAFTA, TPP & the “Benefit” Of A Trade War›By Bill Lane // Friday, November 11, 2016WASHINGTON, November 11, 2016 — My first trip to China was in 1994 when I visited Yichang, the proposed site of the mega Three Gorges Dam. My mission was straightforward: endear myself to potential Caterpillar customers while learning as much as I could about the dam to convince the U.S. Export-Import Bank to support American exports to the project.While there, a likable Chinese official took me aside and gave me some friendly advice. He said, “I sincerely wish you luck, but here in China we have a lot of people so it is better to have 100 workers with shovels than just one employed with an imported Caterpillar bulldozer.” Being a bit of a smart alec, I replied, “Have you ever considered 1000 workers with spoons.” His response was quick and harsh, “That’s ridiculous!” He then paused, smiled, and said, “but you have made your point.”Now I’m not claiming credit, but my point evidently took hold. Even though trade and technology were viewed as threats to jobs, China opened many of its markets while making massive investments in infrastructure, education and technology. Obviously more change is needed, especially on political freedom, but in 22 years China has dramatically transformed.MORE
The Truth about the United States and International Trade›By Stephen Michael Creskoff // Friday, November 4, 2016
During the 2016 elections Donald Trump, Bernie Sanders, and other politicians have claimed that international trade and trade agreements have harmed the U.S. economy. But in my career as a businessman, lawyer and consultant working in more than 50 countries I have seen over and over again how international trade and trade agreements benefit the United States both economically and politically.
The U.S. is predominantly a services economy (80% of U.S. GDP is services related) and the U.S. is the international colossus in trade in services, regularly running a large trade in services surplus with the world and even with China and Mexico. According to the U.S. Census Bureau, in 2015 the trade in services surplus amounted to over $262 billion. However, politicians and others critical of trade and trade agreements rarely mention this trade in services surplus that greatly benefits the U.S. economy and employment.
What politicians and others critical of trade and trade agreements do cite are large trade in goods deficits with countries such as China and Mexico, which they believe have resulted in a loss of U.S. manufacturing jobs. But the statistics compiled by Census greatly overstate the trade in goods deficit because of a legal anomaly. The U.S. country of origin law considers that goods “originate” in the country in which the last significant manufacturing operation takes place even if most of the value of the product doesn’t actually originate in that country. This results in statistics that inflate trade deficits.MORE
Protectionism in the 2016 Election: Causes and Consequences, Truths and Fictions›By Cullen S. Hendrix // Thursday, November 3, 2016
The disconnect between the United States’ massive increase in trade exposure and minimal (if any) associated rise in government spending to address trade-related costs is at the heart of the apparent turn toward protectionist politics in the 2016 US presidential election. Protectionist rhetoric is a surrogate for a deeper discussion about the role of the government in an increasingly open economy. Trade makes the United States better off as a whole, but evidence that the costs are unevenly shared is mounting. Trade and technological change have cost many American people their jobs, and social transfers (for unemployment, disability, retirement, and health care) are not closing the gap in their incomes.MORE
In this environment, both left- and right-wing populist candidates have been able to gain traction, in large part by attacking free trade. But trade may not be the culprit: Many
advanced economies sustain much higher levels of trade exposure and do so with large social expenditures to address the costs. The protectionist turn this election year is the result of neither a sea change in public opinion on trade nor an anti-trade youth in revolt. At root, it is the result of government spending and compensatory policies not keeping up with technological and trade shocks—particularly the China shock—to the US labor market.
Industries and Jobs at Risk if the Trans-Pacific Partnership Does Not Pass›By Council of Economic Advisers // Thursday, November 3, 2016
Council of Economic Advisers Issue BriefMORE
Washington, Nov 3, 2016 – This issue brief documents some of the potential economic losses in the event that TPP does not pass. In particular, these losses fall into two categories: (1) the impact to specific industries that would face an erosion of relative market access in the event RCEP (Regional Comprehensive Economic Partnership) passes; and (2) foregone benefits to industries which currently export to TPP countries and would fail to see improved market access if TPP does not pass. The brief takes Japan as one example of an important market for U.S. goods, as the largest TPP country that would also enter RCEP, and China as one possible competitor for that market who would gain preferential access under RCEP. But this example captures only a small fraction of the potential losses to U.S. firms across the Asia-Pacific market if TPP does not pass.
WITA’s NextGenTrade™ Launch Event›By Ken Levinson // Tuesday, October 18, 2016
On October 18th, 2016, the Washington International Trade Association held the public launch of its NextGenTrade™ initiative. At this launch event, WITA’s speakers discussed the business, political and economic context we are operating in today, and shared their visionary thoughts about the future of business and trade.
To read more about the event, please click here.MORE
Trade and the Second Renaissance›By Chris Kutarna // Thursday, October 13, 2016
It is stunning that neither nominee for leadership of the country long regarded as global trade’s chief architect dares to utter publicly a compelling case for why trade matters. And yet, it is also unsurprising.
The bald, aggregate argument ought to be compelling without any rhetorical flourishes. American real income (GDP) per capita is 44% higher today than it was in 1990-which is to say, 44% higher than before the founding of the WTO and China’s entrance to it, before NAFTA and before “offshoring” entered English-language dictionaries. Over the same time period, the developing world has achieved the biggest poverty reduction in history.
In 1990, almost 2 billion people worldwide lived in extreme poverty. Now it’s fewer than 900 million. That lifts everyone, first because poverty is a blight and eradicating it is a moral imperative. Second because the billions who are emerging from poverty into a global middle class create a new market for present and future generations of American economic growth. It’s an over-simplification to attribute these gains to flourishing trade alone (other transformations, not least digitization, have been vital), but trade has been integral.
To read the full article, please click here.MORE
The Ultimate Disruptive Technology: 3D Printing Will Not Only Change the Way We Trade; it Will Change the Way We Live›By Jonathan Engler // Wednesday, October 5, 2016
Today’s product regulation and trade regimes resemble World War One cavalry facing off against modern mechanized divisions. It is imperative that we begin the process of entirely reimagining what functional health, safety and trade regimes will look like in the next decades. 3D printing and the disaggregation and diffusion of product design and manufacturing – which will touch all tangible items – will massively disrupt existing economic models and render much of today’s national trade and health and safety regulation anachronistic and ineffective.
The intellectual property and international trade law regimes that are in place today are, in many respects, relics of the 19th century, a time when trade involved principally tangible goods – steel, cotton and finished products. Since the mid-1990s, however, with the rise of digitized goods – starting with movies and music – technology began to move much more quickly than the law could keep up. Consumers had access to counterfeit and pirated movies, music and books – frequently from off-shore servers such as Pirate Bay – and began to download unauthorized copies of these works in large volumes.
To read the full article, please click here.MORE
2016’s Other Big Trade Opportunity: The Trade in Services Agreement›By John Murphy // Friday, September 30, 2016
While debate over the Trans-Pacific Partnership (TPP) mounts in Washington, many trade mavens are keeping at least one eye on the negotiations in Geneva for the Trade in Services Agreement (TISA). This pact could be concluded as soon as December—if a strong agreement can be reached.
Negotiators have been working for more than three years to craft a high-standard trade agreement among 50 countries opening doors to trade in services. Tradeable services sectors are mostly in so-called “professional and business services,” which employ more than 20 million Americans. What’s more, these are good jobs: Wages in these fields are 18% higher on average than those in manufacturing.
Difference (advantage: services)
U.S. Average Hourly Earnings
U.S. Bureau of Labor Statistics, August 2016 dataMORE
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