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.


Friday, November 4, 2016

Declining Global Trade

The article A Little-Noticed Fact About Trade: It’s No Longer Rising points out that global trade is in fact declining over this year, remaining relatively flat in the first quarter and has fell about .8 percent over the second quarter. These numbers per statisticians in the Netherlands which happen to keep the best data. Trade in the United States has fallen by more than $470 billion for American imports and exports over this year, and fell by more than $200 billion in the previous year. The result of the sluggish growth is pointed towards a global slowdown in which is now becoming structural per Binyamin Appelbaum. With both presidential candidates opposing the Trans-Pacific Partnership it is a sign in which global trade will continue to decline. Christine Lagarde of the International Monetary Fund stated “Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades.” The decline in global trade can be pointed to china for they can make more of what they consume, and consume more of what it makes, and making themselves less dependent on foreign direct investment. China’s ever changing role in the global economy has led to these changes in global trade.

I found this article as something that shines a light on how the global economy truly is around the world. China’s GDP growth hovers around 6 % which would be amazing here in the United States (2%), however is far lower than where they were at nearly 12%. With China being able to now support themselves this can cause harm to the United States as seen by our imports and exports have gone down over the past 2 years. This decline would benefit factory workers as there would be less imports however harms them on the same token because of less exports. We then can reasonably assume the United States and other countries are not able to operate at equilibrium on the Heckscher-Ohlin model because of the clear winners and losers of trade.  

Thursday, November 3, 2016

Does Offshoring damage the US economy

I wanted to look into whether the increase in firms in the US offshoring over the last decade has had a impact on the US economy. One article that I found Economic damage to US economy from offshoring jobs may be exaggerated, argues that offshoring hasn't had that large of an impact on the economy. His argument was that offshoring has actually made the US firms more efficient because the savings made from offshoring get redirected into new products, research, and development. The article talks about how offshoring hasn't taken as many jobs as the public would think also.
         Only around 0.60% of the 60 million jobs have been lost due to offshoring. One more argument that can help people relax is that Americas largest industries such as catering, tourism, retail, hotels and restaurants cannot be off shored, therefore that is millions of jobs that the US labor force cannot lose out on as firms continue to offshore to other countries to reduce costs.
      Compared to a lot of the world the US have a fairly well educated labor force and this is another reason not to be worried about offshoring, the majority of jobs that are off shored are unskilled jobs that anyone could do, the high skilled jobs are more difficult to offshore and these are the ones most American citizens want as they will generally pay a higher wage. In my opinion offshoring is needed for the world economy as is help developing countries build their economies, and improves their welfare with increase technology, jobs and training.