Friday, September 28, 2012

This Battle Over Aircraft Subsidies is Heating Up

Europe and the United states are in an ongoing battle with each other over government subsidies given to their airplane companies; Boeing for the US and Airbus for Europe. Currently Europe is accusing the United States of giving illegal subsidies to Boeing, and has gone to the WTO for help. Europe wants to receive $12 billion in sanctions due to "damages suffered", because of the subsidies given to Boeing by the US; coincidentally, Europe has done the exact same thing for Airbus in years past, and the US had asked the WTO for sanctions due to Europe's non-compliance of the rules established by the WTO. 

It seems that neither Airbus nor Boeing has had much more of an advantage than the other; considering both companies have been getting illegal subsidies from their government. While each country helps their airplane companies, they are also both complaining to the WTO that the other is cheating. It is unfathomable that this has been ongoing for close to 7 years now! There is nothing to dispute, each country needs to follow the rules and stop illegally subsidizing their airplane distributors, and move on. The WTO has better things to do than referee this trivial of a situation that should have been resolved by now.

These two companies (Boeing and Airbus) are the top two distributors of commercial jets in the world, and they are in a constant battle with each other to be number one. Could this seemingly never ending, childish dispute between Europe and the United States be causing the trade of goods between them to suffer? Its very possible. If they would stop accusing each other of the same crimes, they may be able to both benefit by becoming stronger trading partners, and trade larger amounts of goods with each other. This in turn may help to stimulate both economies. 


http://wallstcheatsheet.com/stocks/battle-over-aircraft-subsidies-heats-up.html/

Thursday, September 27, 2012

Economic Aftershocks of Japan quake roil Asia

In March of 2011 Japan experienced on of the worst earth quakes and tsunamis that the country has ever seen. A 9.0 magnitude quake and tsunami hit Japan's industrial northeast corner on March 11, 2011 and caused an unfolding crisis with a crippled nuclear power plant that took the lives of more than 10,000 Japanese people and left hundreds of thousands homeless. This natural disaster took a large toll on Asia's manufacturing with both Japan and China. Asian automakers were forced to slow down production and many other countries that rely on Japan for parts were forced to slow production which affects trade worldwide.

The concern that is brought to attention in a situation like the quake in Japan is should companies outsource products to multiple countries or continents. Many companies had the problem of focusing on one single source for their production needs and this can cause companies to stop all processes in their tracks. We understand that countries that have comparative advantage in a certain product are meant to produce that product. However should companies disregard this and move to a production system that is outsourced across multiple regions.

I personally believe that companies need to take natural disasters such as this into consideration and should make sure they do not have all the eggs in one basket. Events like the quake in Japan are bound to happen and companies can avoid having to stop production by making sure they outsource to multiple countries.





Article: Economic aftershocks of Japan quake roil Asia
Publisher: The Washington Post
Author: Erika Kinetz
Published: March 20, 2011







Sunday, September 23, 2012


Will higher wages in China effect Mexico?

According to the Wall street Journal, China is experiencing rising wages and slowing growth which may give Mexico the chance to get back some of its cheap labor business it has lost over the past decade. It is believed that Mexico may already be at the point of being the place to go for less expensive labor when making certain products when one takes into account the difference in productivity. It is believed that a Mexican worker typically out produces his or her Chinese counterpart and in conjunction with closer proximity to the US there is cheaper and faster shipping as well. For example factories on the boarder can supply America very quickly and Mexico can take advantage of this is very customized markets like fashion.  They are also the best option or bulky items that can be costly to transport which can be seen in their production in the auto industry.
                
With that being said China still has its advantages such as having a billion consumers who will have more disposable income as their wages rise.  Additional advantages include Mexico's Drug Cartels scaring away new business,  and the country no having the skilled labor pool or parts-supply chain that China currently possesses.  Mexico is now looking for the best position for itself given Chinas rising wages and it should be noted that they currently export more than all the rest of Latin America combined. Increase in business with Mexico would also be beneficial for the US as American companies earn 37 cents for every dollar that Mexico exports because the companies rely heavily on US parts--something China does not.
               
  What do you guys think about this in relation to what we are learning in class? The text books description on proximity on pg 29 seems to correlate to exactly what is going on here. Furthermore looking at the discussion of wages on pg 36, while the text focuses on different industries in the same country I think we can see the same thing happening between Mexico and China. The text states that, "If the wages were not the same in the two industries, laborers in the low-wage industry would have an incentive to move to the high-wage industry; this would in turn, lead to an abundance of workers and a decrease in the wage in the high-wage  industry and a scarcity of workers and    an increase in the wage in the low-wage industry. This movement of labor would continue until wages are equalized between the two industries."
While I am not suggesting Mexican laborers are moving to China it is interesting to see the parallels in that Mexico used to be the place to go for cheap labor and over the past decade much of that has moved to China. Now China's wages are rising and there is thought of cheap business going back to Mexico, although they no longer have the skilled labor pool or supply chain.

 Luhnow, D. (2012, September 16). For mexico, an edge on china. Wall Street Journal . Retrieved from http://online.wsj.com/article/SB10000872396390444318104577587191288101170.html?KEYWORDS=tariff

Friday, September 21, 2012

US attempts to suppress Chinese trade influence




The US government has filed a lawsuit with the World Trade Organization (WTO) concerning China’s subsidies provided to their auto industry. The claim is that the Chinese government is providing incentives to its auto-industries to improve export performance, which is a violation of WTO rules. The article reminds us however, that the US bailed out our own auto-industry. According to the article “Are Chinese Exporters Cheating?” the WTO understands that the US bailout was a “rescue” for the industry and therefore was not cited for any rule breaking.

Furthermore, the US has begun talks to form a trade pact called the Trans-Pacific Partnership. The discussion for the layout of this potential trade alliance includes 14 countries, of which China is not one of them.  However, China’s competitors Vietnam and Malaysia are. The reason for this new partnership revolves around the problem of China’s “state-owned enterprises” and the promotion of freer trade.

In a basic summary, this just demonstrates the hand of different governments in “free trade.” The idea is that neither country wants to get behind the other in regards to their own economy. Therefore tariffs, lawsuits, subsidies, and rule-reformation will keep occurring until each country feels they are benefiting from the status-quo. It is no surprise that countries in a position to do so will manipulate the supply and demand of goods traded in the global market so that they are put in a better position globally. So to answer the question in article titled “Are Chinese Exporters Cheating?” my opinion is no. They are just playing the game.




 

China Manufacturers Face Fall In Demand,China Export Fall

China Manufacturers Face Fall In Demand, China Export Fall



According to the latest news from the article and other Chinese website, China is the world’s largest Christmas supplies processing country. Christmas comes in December and September is golden season for receiving Christmas orders and production processes. However the orders received in this September decrease dramatically, comparing last year.

One of my hometown Shantou customs officers Meng Yang said that ceramic industry market is weak now.In fact, there are other industries like cloth and toy industry, the demand is falling. A chairman in a cloth company said that this year is the worst year since he has done the cloth business for decades.

What’s the consequence when the exporting demand fall? As we know, China is a export-braised country. Especially Pearl River Delta Area in the south of China, the big cities focus on the manufacture industry. When the demand falls, the manufacture factories produce less with a drop in orders from foreign country. The manufacture has less profit when the supplying becomes less. The factory has to cut the number of the workers to keep operating. Workers lose job and life become difficult. Who else will be affected? The answer is everyone. When the worker has not enough money, the demand of cloth and other spending will fall. The supply of food and other industries will be affected by the falling demand. The economic will slow down, even though trade is the partial of the economy. The second consequence is that China is trying to improve and transfer the manufacturing model. So what should China do to improve and transfer the manufacturing model?

The first thing we need to solve is that Why China export demand fall? Is the price of commodity going up? Is there any countries provide lower price? Is the price of labor going up, in turn, is the wages becoming higher? Or else?

The main reason of the fall in demand the China manufactures face is in the anaemic global demand. The EU, the US and Japan are three of China’s four biggest trading partners. So according to the weakness in consumer demand in Europe and the US delay orders and extend payment terms, now the manufactures are stressful. And the land conflict between China and Japan also effect the export and the import.

Where did the orders go? Over past couple of years, western retailers move orders to south-east Asia and Bangladesh. Why they choose these countries? Because less cost and more profit is the main purpose of the businessman.
 
Now there is the double-digit Chinese wage inflation in labor-intensive industry. As I think, the manufacture technology in China is higher than south-east Asia and Bangladesh, the price of labor is higher than these countries and the price of land also goes up in China, so the cost of product goes up. Foreign companies turn to find the lower cost countries.
 
In conlusion, this embrassing situation push China to transform the developmental pattern. However China is still the largest exporting country,and now China is going to improve the labor-intensive industry into advanced technology manufacture industry.

 http://www.ft.com/cms/s/0/77c8fd0a-f255-11e1-bba3-00144feabdc0.html#ixzz278WRf000

Thursday, September 20, 2012

Analysis: Brazil ethanol returns to US as biofuel rules pave way

After the drought that the United States went through this summer, the crops turned out to be very poor.  Corn supply is low and the cost per bushel is near record highs.  About 40% of the corn supply is used for US ethanol.  One place that the US could look for an alternative to corn is Brazil.  They use a process with sugar that can produce ethanol.  It is more expensive at the moment, but it is something to think about.  Brazil holds the comparative advantage over the US with sugar, while the US holds the comparative advantage with corn.  Brazil can supply the US with the sugar based ethanol and the US can focus on exporting the corn to places that have poor farming land such as Africa. 

The US EPA currently requires fuel companies to use 500 million gallons of advanced biofuels to blend into gasoline.  Brazil is the only ethanol industry in the world big enough to currently meet the US biofuel standards.  The EPA is expected to raise the requirements to over three times the current amount, up to 1.75 billion gallons.  This could enable Brazil to open many more ethanol plants, creating thousands of jobs and strengthening the Brazilian economy.

http://www.chicagotribune.com/classified/automotive/sns-rt-us-ethanol-brazil-exportsbre88j14j-20120920,0,3369514.story?page=1

Argentina Import Tariffs Hitting Exports


Basically what Argentina is doing is increasing the amount of tax on the goods they import. As Affirmed by the Argentinian President Cristina Fernandez de Kirchner, these tariffs are supposed to be promoting growth and encourage domestic producers to substitute imports for domestic goods which could create more jobs. In actuality this has been hurting manufacturers because they cannot meet production targets. This obviously means a lower quantity of goods produced and even worse fewer goods exported.

The negative consequences of this decision can be explained by using the Ricardian Model discussed in chapter 2 of the textbook. Seeing that the manufacturers in Argentina cannot buy as many raw materials as before, they might have to lay off some workers to compensate for the shortages. Because of these factors, their production possibility frontier is restrained and moves down a certain degree. Likewise, the consumers and producers of these products will have a lower degree of utility because of lower production causing the relative price of the goods to increase.  

If Argentina has a higher relative price for their goods this means the opportunity cost is greater when choosing between which goods to produce. These implications can severely stunt the growth of Argentina because it has the ability to take away any comparative advantage they might have with other countries. In my opinion, I believe the only way this could be successful for their government is that if the amount of tariffs is greater than the amount lost in trade. I do not see that happening and what’s worse is that the consumers and producers in Argentina will have to suffer from their government’s actions.
http://www.energy-daily.com/reports/Argentine_import_tariffs_hitting_exports_999.html

Wednesday, September 19, 2012

U.S. Trade Deficit


The United States’ current account trade deficit decreased 12.1 percent in the 2nd quarter, lowered by an increase in American exports and cheaper oil imports. The Commerce Department said that the current account deficit totaled $117.4 billion in the second quarter. That compares with a revised deficit of $133.6 billion in the first quarter. The current account tracks the sale of merchandise and services between nations and their investment flows. This account is watched as the current account as a sign of how much the United States needs to borrow from foreigners. It's predicted to widen in the coming quarter and a global slowdown has damped demand for American exports. With oil prices rising again from the increased tension in the Middle East. The European debt crisis has put much of the region into recession. The European accounts for 1/5 of American exports. Since the growth has slowed in other major export marketsEurope accounts for about one-fifth of American export sales.  The current deficit hit a record high in 2006 at $800.6 billion. It shrank after a recession reduced American demand for foreign goods by a greater amount than American export sales were lowered.  The gap widened again in June of 2009 when the recession ended. In the second quarter the deficit shrank to $158.8 billion. While American exports rose 1.4 percent.  Imports fell half of a percent, reflecting the drop in petroleum imports. The American surplus in services increased 1.3 percent to $46.5 billion. The gain was a result of stronger American overseas sales of financial, business and professional services and higher royalties to American companies.The surplus in investment income increased 0.8 percent to $184.6 billion in the second quarter, reflecting higher interest and dividend payments earned by American investors on their overseas holdings.

Summary of the New York Times Article: "U.S. Trade Deficit Falls 12%, Aided by Cheaper Oil Imports" September 18, 2012

After reading this article I wondered why the United States hasn't lowered it's import of Petroleum before. Since the effects shown in this article is that  the decrease in petroleum imports has led to a decrease in the trade deficit.  Many Americans say that we can run on our own petroleum but I wanted to ask everyone what their opinions are if we were to stop importing petroleum from foreign countries, and the effects that would have on our trade relationships in the Middle East.  I would also ask others to comment on what they believe would be the best way to lower the deficit.

My personal beliefs on this situation is that completely stopping the import of foreign oil would be detrimental to establishing better trade relationships with Middle Eastern countries. Establishing a better trade relationship could have positive effects on political relationships as well. I also believe we won't have enough oil without imports These are just a few of the things I believe.      

The economic impact of the tension between China-Japan trade

These days a tension between China and Japan become more and more serious. As the territory dispute about Diaoyu or Senkaku Islands , a serious of anti-Japanese parades held everywhere in China, which give a big strike to the economic between two countries, as well as  a negative impact on the other supply chains of all products all over the world from the iPad to cars.


Japan's newspaper 'Sankei Shimbun' reported that on the 19th day of the anniversary of the 9.18 Incident, including Toyota and other major Japanese enterprises in China are "out of business". Part of the enterprise is still in the non-normal operating condition. . The Japanese Economic News said that even if the  Japanese companies in China  return to normal business, in the state of consciousness of the anti-Japanese, can hardly expect to expand sales.

The Sino-Japanese dispute, China's higher market-dependent loss of Japanese automobiles, tourism, retail and other industries. According to Japanese Economic News , China is an indispensable market to  Japanese car manufacturers such as  Toyota. The stock prices of these companies fell about 1% to 4%. Japan tourism is also greatly affected. One of the Japan's largest airlines, ANA was forced to cancle about 15000 tickets sold in China and 3,800 sold in Japan. The Loss of the Japanese retail enterprises in China is considerable as well. The AEON Stores closed 30 of its 35 stores in China and the destruction in the anti-Japanese demonstrations in one of these stores estimated loss of 2.5 billion yen. The  rebuilding requires 3 months.



According to the Wall Street Journal,it is still controversial to said which side is more affected by this anti-Japanese product activity. But it is certain that the loss of the Chinese market will be a great blow to the Japanese company's profitability.

In addition, the Sino-Japanese dispute also spread to neighboring countries. Austria "messenger" that day "Cold War situation has alerted the EU. The EU is closely watching the impact of global trade and economy of the Sino-Japanese conflict. The Wall Street Journal said, Sino-Japanese trade war, will not be affected by just these two countries. Sino-Japanese economic relations are also involved in the company of countries such as the United States, South Korea, Malaysia, Germany and Thailand. If economic sanctions against Japan, Japan may experience a "lost decade", thereby affecting the global economic situation. Ultimately it will affect the global economic recovery.





Friday, September 14, 2012

Trade makes our life better?


In the past 40 years, International trade had bought innumerable jobs and foreign exchanges to China. It seems that workers and merchants became rich. But is that true?

 

Foreign trade can benefit China to some degree. On the one hand, the most fundamental purpose of the foreign trade is earning profit. The more surplus is, the more profit is. Surplus Shows that the country's foreign trade is in a dominant position. On the other hand, foreign trade also benefits the growth of the national economy. The trade surplus is conducive to maintaining the balance of the total economy, to avoid the tightening of fiscal deficit, to maintain rapid economic growth.

 

However, for my perspective, trade surplus didn’t make our life better. The long-term trade surplus brought a lot of money. But my point is that the total social labor is constant. Which means the total amount of consumer products is limited. Therefore, the trade surplus of funds will only cause inflation. Wealthy is just an illusion. Still there is no difference because unit labor time brings same amount of wealth. I admit we can use cash to consume abroad. But such a small part of the consumer brings little influence to the whole economy.
http://www.03964.com/read/691332760805ce65b28e1ee9.html
Please use Google translator to read.

Thursday, September 13, 2012

Is globalization a factor in job loss?



            In reading an article on the New York Times website I had to ask myself if globalization was indeed a factor in job loss. My immediate response was yes due to outsourcing.  More specifically, the US’s outsourcing of jobs to other countries because of the availability of cheaper labor.  The article, however, stated that few economists would agree.  They would say that trade/ outsourcing does not negatively impact jobs in the US.  I found this very odd so I had to ask myself what aspects of globalization would have any effect on the amount of jobs in the US?

Would specialization, meaning the countries only produce what they are the most efficient at?  I would say this does have a negative impact on the jobs in the US because the US does not produce many things which it can export.  Also, the US imports many goods that may have been able to be produced in the US, but end up being less expensive if produced by another country.
I believe the ability to communicate with businesses across the globe is the major negative impact on jobs in the US from globalization.  Other than a job that deals with only domestic individuals or companies, the job market is now in reach of people living in other countries.  From the US, for example, one can work for a company in France.  I believe this has been the greatest effect of globalization on US jobs.  

http://economix.blogs.nytimes.com/2012/08/29/changing-views-of-globalizations-impact/

International Trade Currency Manipulation

Currency manipulation and trade.

Often you may hear of nations trying to lower or higher their currency so it may potentially benefit their international trading. For example a nation may cause their currency to depreciate so people may buy more of a good they are exporting, is that right or wrong? Or is it even ethical. And how is it allowed and regulated by the World Trade Organization (WTO) and International Monetary Funt (IMF).

The question in all of this is to both parties come out better off, since the trade does occur and one gets the good and the other the money. And the answer is yes, but ultimately there are other countries involved that may loose out cause of this fiddling with financing. After all isn't it possible for all countries to manipulating thier currency power? For example a number of countries in Asia have been known to do that, even though they claim it is for national reason and not solely for trade other countries that are affected by this tend to disagree.

The IMF has a role and jurisdiction for exchange rates globally and the WTO regulates trade and inter realtions between countries, so the most logical thing here is for them to come together and make sure there are ethics here that if ever there is a depreciation or appriciation in currency it may be for valid reasons with no malice intend.

For instance the Chinese Yuan keeps appriciating to the dollar, but always stays constant with the Euro. Is it by some coincidence that The US is debt trillions to China so having an appriciated currency will benefit them when getting paid, even more so leave the US worse by far cause they are paying a larger percentage debt. So looking at the fact that the US deficit keeps increasing to China, China has higher exports, and also US cant export as much to China certainly does highlight the fact that the playing field isn't level. Some sort intervention is warranted and if not many other countries may hop onto the bandwagon and leave the global markets in turmoil.