Friday, December 9, 2016

Trade With China Has Hurt the US

I recently came across an article in Fortune magazine titled, Here's Why Donald Trump is Right About China. In the article, Chris Matthews talks about how trade between the US and China has decreased American innovation and as a result, the US has been worse off. He references a study done by the National Bureau of Economic Research that discusses how competition with Chinese exporters has diminished innovation in the US. The study was conducted by comparing research and development spending by US firms against increased import competition. The study showed that as import competition increased, R&D spending decreased in the US.

This study shows that US firms are finding problems in competition with the Chinese exporters, and that is reflected with the increased skepticism toward trade by the average American. While trade is beneficial in theory, something has to be said about the increasing skepticism toward trade by the American public. In a poll conducted by the Pew Research Center, 49% of the American general public said that trade is a "bad thing" compared to only 44% that said it is a "good thing". Imports from China have historically increased since the US opened to trade with them. In 2015, Chinese imports to the US reached an all time high. Could it be that lower and middle class Americans are no longer seeing any benefit from trade due to the increased Chinese imports?

Monday, December 5, 2016

Carrier to keep nearly 1000 jobs in Indiana

When Donald Trump won the presidency, he would not have done it for many reasons including carrying the rust belt states of Pennsylvania, Ohio, Indiana and even Michigan. This past week, the President Elect has reached his first deal to keep nearly 1,000 jobs here in the United States showing he knows what it takes to keep jobs in the United States. One reason as to potential for gaining the deal is roughly 10 percent of Carrier’s subsidiary United Technologies come from the federal government. The Pentagon being the single largest customer of theirs, and threats of losing government contracts could have been a major swing for the decision to remain in the United States. Other incentives include economic from the state of Indiana to further appeal them to remain here at home.

I believe this deal is a revolutionary deal for Mr. Trump because he brings precedent to future companies who want to leave the United States. Creating a tax on companies leaving the United States had been floated and rumored to be nearly 35% and would be able to cause many companies to relocate. If the export tax was being used as payment insurance for the employees losing their jobs this could be a revolutionary idea for the many manufacturing jobs harmed due to trade. We have learned the winners and losers of trade, and while there are about 1000 people winning right now, it could be at the cost to 300 million. Additionally, if this is treated to other companies such as Caterpillar whom also benefit with government contracts, we could see many more saved at the added costs to millions of others. 

Sunday, November 27, 2016

Outlook of Brexit Effects

The article I read was on Bloomberg about the U.K. economy showing no signs of Brexit effect due to the rise inspending. Household spending rose about 0.7% from the second quarter and business investment grew 0.9% over the time frame per the Office of National Statistics. In a separate report was that retail sales grew at their fastest annual rate in more than a year in November, reasons being the holiday season coming up when consumer spending tends to increase. The Office for Budget Responsibility on Wednesday decreased their annual forecast to 1.4% down from 2.2% stating “uncertainty will lead firms to delay investment while the falling pound squeezes consumers by pushing up the cost of imports.” Alan Clarke of Scotiabank in London stated “In light of Brexit there was case for uncertainly holding back investment … However, things are never black and white. Projects to build planes, ships, buildings etc. will have been singed off 12-18 months ago, and that actively won’t shut off overnight.”

I found this article interesting due to the impact of the Brexit vote and the effects it has placed on the British economy. As the article mentioned there is a rise in the cost of imports which should lead the government with a couple options one being a decrease in an import tariff. This would allow consumers and business’ the ability to get cheaper products, as we have learned in class the taxing of a foreign monopolist can benefit the home country, the imports for Britain may not necessarily be a foreign monopolist and the reduction in tariff can benefit their country greatly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Tuesday, November 22, 2016

Export Subsidies in International Trade

In class we talked about the effects or tariffs and subsidy's on a country and the overall outcomes were quite surprising to us all. I wanted to look more into the outcome of giving a subsidy to a large country involved in international trade. I found this scholarly article Export subsidies and international market share rivalry.
     The authors of this article brought up the idea that we all assumed at the start of class which was that why wouldn't a subsidy be good for a country's welfare? The initial improvements to the home firms outputs in production are positive, however this is without competition from foreign firms. As the authors commented "A subsidy changes the initial conditions of the game firms play." With the subsidy the number of exports increase and producers surplus increases also, these are the only preserved positives of the subsidy. With the increase in supply of the subsidised product the price that the home country can sell the product will decrease, this means that the home country are basically helping out all the home countries by selling them their exports for cheaper prices. The only ones that lose out are the home country because they lose profits selling the product at a cheaper price. The decrease is price then leads to a decrease in the terms of trade for the home country and welfare is reduced.
   Government intervention in trade never seems to have a positive impact. We need the government their to support our firms, however tariffs and subsidies  need to be limited.

Friday, November 18, 2016

The article, China Halts Export-Subsidy Program After U.S. Challenge by William Mauldin, talks about how the United States acquired $1 billion in three years while China made $482 billion last year. As a result, the Obama administration wants to make a new trade agreements because of the alleged trade violation by China. The World Trade Organization also ended a program that aided small exporters throughout China. Americans employed in seven diverse sectors won because of this. This also showed Beijing taking initiative to easy trade tensions. Trump wants to continue to hit China because he wants the United States to, at least, be second to China.

We learned that subsidies encourage domestic firms to produce more in a given industry. China has the labor to do so and they found a way to use the smaller firms as a way to be considered a "small country." Like Ryan said in his post, It will not have a effect on small country, but will  hurt big countries instead. One of the sectors is fish, and we lost this impact of an export subsidiary because fish is more dominant in Asian than the United States.

Thursday, November 17, 2016

Export Subsidies as a Revenue-Seeking Activity

Recently in class we have talked about subsidies and what they do for the home economy. It is stated that export subsidies are only paid on goods that are exported. This will have no effect on a small county, but will result in losses of efficiency and worsen the terms of trade in a large country such as ourselves.

I discovered a journal article written in 1999 by Paul Pecorino titled "Export Subsidies as a Revenue-Seeking Activity: Some Implications for the Evolution of Protection" Click to Read (This is a JSTOR article, you may need to log in to see it)

He discusses the output market and how "firms in the export industry costly overcome the free-rider problem lobbying for an optimal export subsidy". (Export Subsidies, 1999) This is relevant when discussing the optimal subsidy, which will have little if no effect on a small country.

He goes a little more in depth with the problem and talks about the lobbying problem. This is introducing the politics and special interest into the equation. That is really the driving force behind a government deciding to put an export subsidy on goods. The consumer will stay pay the same price as a foreign consumer would because we assume that the producers are acting logically. It would not make sense for them to charge consumers on the domestic end less than what they could get for it in the foreign market. This in turn would increase the price of that good due to the extra supply. All in all there is little evidence to support that an export subsidy would be good for the domestic economy and a tariff would be a better option, but still, not a very good choice.

Many problems can arise from export subsidies one of which being investment. Firms can invest in markets with subsidies when they normally wouldn't causing an imbalance in the market directly attributed to the subsidy. Also, there is no telling how long the subsidy will be in place. It is up to the ones making the decision and special interest groups to keep the subsidy going or nix it. The special interest groups would most likely rather keep it in place because it was intended to help them out to begin with and taking it away may change the landscape of business they are operating in.

Friday, November 11, 2016

Will Trump's Trade Policies Benefit India?

On Tuesday night, many Americans were shocked to hear that Donald Trump would become the 45th president of the United States of America. As a result, stricter trade policies will be a big part of President-Elect Trump's first 100 days. In the article, Here's how Donald Trump's win will impact India, Satyam Sharma talks about the possible gains and losses for India under a Trump presidency. He explains how lowering the corporate tax rate from 35% to 15% would encourage companies to move back to the US from India. This would of course cause India to lose both jobs and exports.

The possible gain for India could outweigh the possible loss mentioned above. Trump says he plans to classify China as a currency manipulator, which would allow him to impose large tariffs on imports from China. This could create an opening for India to become a trader of labor-intensive items to the US, in the same way that China has for many years. By imposing large tariffs on China, the US would heavily decrease their Chinese imports. This could lead to India becoming a substitute for China.

With the election of Donald Trump, along with a republican House and Senate, many policy changes are headed to Washington. If Trump is able to get his way, the US trade policies will see a significant change. The next 4 years will be filled with interesting new changes, hopefully for the benefit of the American people.