Over fishing

      Overfishing has been talked about and a concern to countries to an extent in the past but hasn't been a serious priority that countries have worried about. One of the biggest issues is that the regulation enforcement for fishing has been extremely lax which has to lead to overfishing, overcapacity and illegal, unreported and unregulated (IUU) fishing. Countries have been subsiding there fishermen in order to secure the market. Which has to lead them to overfish because they know economic loss from the fish they loss will be reimbursed in some sort of way. 

     WWF has now urged countries in the WTO to so stop subsidizing them to prevent further harm to the wildlife and the environment. Which in the past few years the fish population has diminished as well as the size of them. To further the issue the ecosystem life has diminished and has contributed to the negative effects of climate change. This problem isn't one to be easily solved because taking away the subsidies of the fishermen could harm the market. For some countries fish is their main food source as well as protein, so placing an international quota would harm smaller countries that depend on fish. There is no real solution that would fully benefit both sides of this issue.               

                                         

References and further information: 

http://www.military-technologies.net/2017/12/14/wwf-calls-on-wto-to-end-subsidized-overfishing-and-illegal-fishing/

https://www.worldwildlife.org/threats/overfishing

https://euobserver.com/environment/140270

WTO dilemma, future without U.S

     

        The World Trade Organization was designed to incentivize countries trade to move smoothly and freely with one another. With the new presidency, one of the biggest supporting countries of WTO has now become one of the biggest critics. This could be a problem for many reasons the U.S. has been trying to strengthen the WTO for years now in order to increase trade. However one of the biggest complaints about WTO is lack of enforcement of countries regulations. Which is what the current presidency is complaining about and is now retracting themselves from these regulations.

       

        The U.S being one of the biggest economies in the world makes them have a lot of influence in what other countries will be doing. So when the U.S wants to impose tariffs on other countries which is what the WTO opposes other countries would soon follow to do the same. What does that mean for the WTO? Well, one could hypothesize that once the U.S. leaves other nations will follow leaving WTO useless. Certain trade with countries would diminish. This may incentivize consumers to buy domestically which could be good, however, welfare could diminish as the market becomes less competitive and one could see prices inflate.   

References: 

https://www.nytimes.com/2017/12/10/business/wto-united-states-trade.html

https://www.wto.org/

 

Money Supply Guidelines and Exchange Rate Aspects

Throughout this paper the author went through the consequences of monetary policy on the exchange rate. The author did this by using a standard two country model that was based on the Obstfeld-Rogoff model. One of the main assumptions that were made was that central banks would change monetary policy if inflation strays from the target levels. Which basically means central banks are expected to react to changes in the inflation rate. When setting up the country size and market structure of the home and foreign countries, a utility function was used to illustrate the preferences. Another was used to represent the budget constraints for both countries. He then constructed a production function for the domestic firm and created a price setting equation. The paper then goes into the money supply shock versus a shock to the monetary rule. He found that there was an undershooting of the nominal exchange rate which would mean that there is a weaker disbursement in the short run. The author also took a look at sensitivity analysis and found that the changes in the parameter values or the estimated values does not have any qualitative changes on the model. Overall when using the Obstfeld-Rogoff model he found that monetary policy rules could possibly be a reason why exchange rates tend to be fairly low at times.

  For more information Click Here  

Trump's Taxes: A Macroeconomic Look at the New Tax Policy

          The highly discussed and viciously touted tax plan set forth by the Republicans has finally come to fruition in recent days. In order to understand the effects of this new tax policy, the Tax Policy Center, an independent think tank group, did the numbers to see what the effects of the new tax plan will likely be.

          Within their study, the researchers looked at the effects on aggregate demand as well as savings and investments, output, and the labor market. The decrease in the corporate tax rate was viewed as a positive, yet there were concerns it would have its own repercussions. The loss of revenue from the corporate tax rate reduction was seen as a likely cause to worry, as the deficit would grow at a faster rate. However, according to the projections made by the Tax Policy Center, it would actually slow the growth of the deficit by nearly 213 billion dollars over the next 20 years. This combats with previous arguments made about the increase in the size of the deficit due to the tax rate loss.

           Another point worth discussing is the increase in output seen within the GDP, with an expected growth of 0.7% the first year, and a decreasing rate every year until it reaches about 0.0% in 2027. This is much less than what the Republicans have stated it will do for the economy.

           Even without the benefits from the growth in the GDP, the study points out there are massive benefits from the new tax policy. The inversion of many U.S. companies has been a hot topic within the political atmosphere lately. This new policy will help to eliminate this continued inversion and avoidance of the United States taxes. Corporations may return to the United States, but it is not guaranteed, and current corporations will be less likely to leave as a result.

          This study expands the thoughts of the benefits of new tax policies in order to make the United States more competitive in attracting foreign direct investment as well as the potential for retaining corporations within the United States. While the study is quick in response to the new policy, and further studies will be published to show the effects further, this is a good first glimpse. It seems that this tax policy will be able to provide some positives for both the United States government as well as the maintaining of businesses within the United States.

Take a look at the study HERE

Donald Trump’s current approach

Donald Trump's actions is what is known is a Madman theory of diplomacy. Many people fear about Donald Trump's decision on the nuclear button. However, Ted Lieu assured the citizen that Trump will not be the one who first strike without the approval and discussion with the congress. However the madman theory is not a logical way to response to situation especially, form the world leader.

History has shown such behavior were never a success for example Muammar al-Qaddafi. The late Col. Qaddafi was one wacky guy, whose outrageous behavior, bizarre uniforms, incomprehensible ideology, and inexplicable conduct left almost everyone who dealt with him mystified and concerned. He was able to use Libya’s oil wealth to cause a certain amount of trouble — including a number of acts of state terrorism — but what was the end result of Qaddafi’s unpredictable behavior? He was isolated and friendless by the end of his rule, Libya was a basket case despite its oil riches, strict international sanctions had forced him to abandon his failed attempts to acquire weapons of mass destruction, and he eventually got murdered by a rebel mob. Mad, perhaps; a total failure, most definitely.

This is just one example. There are many more such as Mao Zedong, Idi Amin, Saddam Hussein and even Pol Pot. History justifies that all these leaders came to an end without any positive outcome. Trump policy either political or economical could create financially instability and constrain economic progress.

Trump withdrew from the Trans-Pacific Partnership. It would have been the world's largest free trade agreements. He threatened to withdraw from NAFTA, the world's largest existing agreement. He said he would negotiate better bilateral agreements.

Trump advocated trade protectionism. In his campaign, he promised to inflict a 35 percent tariff on imports from Mexico. He said he would label China as a currency manipulator. Trump claims that China artificially undervalues its currency, the yuan, by 15-40 percent. If it didn't reduce its trade surplus with the United States, he would impose duties on its exports. As president, he has reversed some of those claims.

Therefore due to various reason Donald Trump’s current approach to handle matters is not the right one. Serious consequences may occur.

For more information: 

http://foreignpolicy.com/2017/08/16/things-dont-end-well-for-madmen-trump-north-korea/

Cashews and Globlization

When the topic of globalization and offshoring is discussed, Americans have a hard time realizing that this is not only an American issue. India gets bad rep because a large amount of companies are utilizing India's cheaper labor. However, India has been the long reining cashew capital of the world; they are losing those jobs to their successor, Vietnam. This is just another example that trade economics are an ever-changing, fluid environment.
India's city of Kollam has been booming due to the 800 factories that process (shelling, roasting, packaging)  cashews which are then shipped to other countries for consumption since the 1930s. In 1935, India controlled almost all of the cashew exports in the world. Today, Kollam only has 100 factories still in use. Many believe that the downfall is due to India's reliance on their cheap labor. Almost all the process is still done by hand and has not been changed in decades.
This opened the window of opportunity for Vietnam. They started using technology to do all the process of cashews which made their systems cost less then in India. Over the years, India has lost more and more business to Vietnam. Vietnams use of technology was motivated by two reasons: it increased the productivity of their workers and they felt pressure to meet food safety measures of the developed countries (which meant less contact time between the cashews and the workers). Today, Vietnams factories process 50 tons of cashews per day with only 30 workers. Now Vietnam accounts for 70% of all the world cashew exports.

To read the entire article: https://www.wsj.com/articles/how-cashews-explain-globalization-1512142823

Deflation and Expansion?

For the last several quarters, Japan has been growing at a feverish pace economically. This trend is due, in no small part, to an increase in their exports, which has increased on average of about six percent over the last three quarters. Japanese consumers have decreased spending by about two percent and there has been modest expansion of business investment during this same period. This is all good news, right? Who wouldn’t be content with these economic results? There is a small catch, since the 1990s Japan has instituted and over the years has ratchet-up a program of deflation, carried out by its central bank. As the central bank injects liquidity into the economy, prices subsequently fall, but so does the value of their currency, the Japanese Yen. This has presented an attractive opportunity for foreign investors looking for cheap investments, and foreign consumers looking for cheap foreign goods. Naturally, this has had a positive effect on Japan’s GDP, which explains the six percent increase in GDP over the last year.

What are some of the lasting effects of this deflationary tactic?  One argument would be that this could inhibit growth; By keeping prices so low for so long, year over year this removes money and capital from businesses and this will continually lead to a decrease in investment domestically, which would could lead to economic stagnation. On the other hand, the Japanese government could keep instructing its central bank to pump money into the economy and count on consumers to make up the difference in economic activity, in other words, consumption. But would the latter pass economic muster? Especially since Japanese consumers and the domestic sphere has been saving over the last year, instead of spending to keep the economy growing. 


https://www.nytimes.com/2017/11/14/business/japan-economy-gdp.html?rref=collection%2Ftimestopic%2FInternational%20Trade%20and%20World%20Market&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=9&pgtype=collection&_r=0

NAFTA: State by State

            As the headlines around NAFTA and the negotiations thereof continue their steady drip into the mainstream media, a new study has suggested that many of the states that overwhelmingly voted for Donald Trump could actually have the most to lose if negotiations fail to come to a compromise. Case in point, Michigan, where trade is 38.9% of the gross state product. Looking at the diagram below, you can see that Michigan’s top import trade partner is Mexico and its top export trade partner is Canada. The terms of trade mostly derive from the automobile industry, where nine out of Michigan’s top ten exports and nine of its top ten imports were related to auto manufacturing. Simply put, Michigan buys a lot of auto parts from Mexico and sells a lot of cars to Canada.

            NAFTA has helped to facilitate free trade between the U.S., Canada and Mexico because conducting business with nations in close proximity has many advantages. For example, a typical good imported from Mexico to the U.S. is made from parts that are up to 40% American-made (compared to 5% American-made with Chinese imports). However, if the trade agreement were to sour, vehicles would then become more expensive to produce as the cross-border supply chains for finished products kinks. As we learned in class, the gains from offshoring would then diminish and that increased cost of production would be passed along to the consumer.

            That being said, should states like Michigan be in favor of Trump’s promise to get rid of this trade agreement?

References:

NAFTA Uncertainty Threatens International Trade

Trump-Heavy States at Biggest Risk of Trade, NAFTA Disruption

Every US State's Most Important International Trading Partners

Trump In China

It seems that Trump is being accused of making irrational decisions, again. Levy states that Trump wasn’t taking all matters into consideration when he made this deal, that this deal was too narrow sighted. Trump has made an attempt at reducing the US-China trade deficit by selling “$250bn of additional goods and services to China.” Yet, Levy raises the issue of world trade deficits rising; unfortunately, Trump’s deal only addresses part of the US trade deficit, it merely scratches the surface. Levy raises the point that the trade deficit is a multilateral issue being taken on bilaterally. Although, Trump isn’t necessarily fixing the problem as a whole, which is most likely impossible to do all at once, he is at least staying true to what he said he was going to do while he was running for president. Trump said he would lower the US deficit and at least he is not doing nothing.

Trump In China: Simple, Bilateral Policy In A Complicated, Multilateral World

Trump Talk: What the President is Saying About Trade

At a stop in Vietnam along Trump's tour of five Asian countries, he made further remarks about the state of trade with China. Trump stated that the free trade between China and other APEC nations has resulted in the loss of millions of jobs in the United States. 

However, we have learned in class that while the jobs may have been lost to offshoring, it has ultimately benefited the United States far more than the loss of jobs. The prospect of having to produce the goods made in China within the United States would lead to either a wage decrease or a price increase, which would negatively effect the real wages of the workers within the United States. By offshoring these jobs to places like China, where there is a labor abundance, the United States is able to reap the benefits of having higher wages and paying less for the goods produced in China. China's labor abundance is massive in comparison to other nations, meaning that labor can be utilized at an extremely cheap price. This works well in the production of goods that require more labor rather than capital. Since this is the case, bringing the jobs back from China would only hurt the United States more than it would benefit it. 

Trump also mentioned the trade imbalance between China and the United States. We have also discussed in class how this can be misrepresented. China is often the producer of the final good, but not the parts that go into the final good. However, export measurements only measure the value of the final good, not the value added. This means that the data can be misconstrued to show an enormous trade deficit for the United States. This seems to have a political motivation behind it, as economists who work for the government would have this data readily available to them. At any rate, it seems that Donald Trump is moving closer to imposing further tariffs on the importation of goods from APEC nations, which would ultimately only hurt the United States citizens, as it would decrease the terms of trade by raising the price of imports. This rise in import good prices would shift production back home, but at a higher price to consumers, decreasing the real wages of US citizens in the process.

For more on Trump's trip and comments on his way through Asia, please read this article:

Trump's Asia Tour

WSJ Article

Housing Markets Creating Issues for Consumers

The housing market has gone through a lot in the past ten years but more recently there has been another issue that was been coming up. This issue has to do with the fact that 48% of the nations’ top housing markets are considered “overvalued”. What overvalued means is that the prices are 10% or higher than the long-term sustainable level. Which essentially means that the housing market wouldn’t be able to stay on this track for very long because it isn’t maintainable. The reason for this overvalue could in part be due to the strengthening economy which increases consumer spending and creates a strong request for real estate. Austin Texas in particualr has one of the highest amounts of "overvalued" homes in the nation. This high demand for real estate has created a situation where there is very minimal availability which just continues to skyrocket the prices. Another main issue is that consumers are finding it very easy to sell their homes but then are have problems finding a home that fits their needs and that is reasonable priced. I believe this will all change, if in the next coming months the economy takes a turn for the worst. This would create the opposite effect on the housing market and favor buyers. All in all I believe that this “overvalued” housing market will not last very long and will shift in the upcoming months.  

US increase in jobs is below the forecast.

After 2008 financial crisis US has been engaged in increasing the rate of employment ever since. Reducing the unemployment rate is tough to achieve. However in October 2017 there was an increase in the employment level of 261,000 jobs in US. A solid gain that nevertheless fell short of expectation.  As per BBC the wage grow was slower however the number of people that were not in the labor force rose. Which lead to unemployment rate to 4.1% in 2017 October which is the lowest rate in the US since 2000. The US Department of labor claimed that the employment in the food and drink industries increased sharply. One of the economist said that older speed of hiring would be difficult to maintain, because the supply of unemployed worker fell. However US departments are confused because the wage growth did rise significantly despite the employers pay more to the recited workers. As per the department of labor US average hourly pay for private sector was $26.53. Earnings increased by only 2.4% year by year.  Though the results were less than the forecast Mr. Wilson claimed that the results will not change the expectation that the US FED will increase the interest rate in December.

Retrieved from:

http://www.bbc.com/news/business-41856443

Tax Reform, Boom or Bust?

On Capitol Hill over the last two weeks, there has been a feverish pitch to change the tax code. Among the proposed reforms are a reduction in the corporate tax rate, increased standard reductions and lower rates, and an elimination of the estate tax. For lower to middle class residents the child tax credit will go up to $1,600 from $1,000, there will be a $300 credit to non-child dependents, and mortgage deductions will be capped at $500,000. These are just some of the big bullet points of the tax reforms. The impetus for such tax policy is to spur economic growth and to make the U.S market more competitive in terms of the corporate tax rate, which would be reduced to 20% from the current stated rate of 35%. These changes are estimated at a cost of about a $1.4 trillion addition to the deficit, but congressional proponents of the new tax reforms believe that increased economic growth and GDP will more than compensate for the expenditure. Taking what we have learned in the various models, and focusing on the laborer, would a lower corporate tax rate lead to higher wages due to a trickle-down effect from corporate savings? https://www.cnbc.com/2017/11/01/the-us-economy-is-strong-and-its-about-to-get-even-stronger-atlanta-fed-model-shows.html

https://www.cbsnews.com/news/gop-tax-plan-5-ways-the-proposed-tax-cuts-could-impact-you/

To Truck,to barter, .... and to eat brains! : Pursuing Prosperity in a Post-Productive World.

Last week in Senior Seminar, Jim Bang mentioned a book that he called "humor for nerds". I ordered this book because I felt that it would be a fitting read for the holiday; Economics of the Undead. This book covers important issues like how to attract to perfect living dead boyfriend, how humans and zombies may co exist, and how to political economy would act to the introduction of supernatural beings. as you can tell there are the issues we need to be worried about!

Once article in particular deals with how humans will trade when the zombies take over. The authors explore this concept in the context of The Walking Dead. We are very accustomed using money which will have no value in the apocalypse. There will be tone of objects of value laying around when the population is dramatically decreased. You could loot all the houses in the North America however eventually goods will become scarce in a world that has no human production. The authors make sure to note that the ever present danger of a zombie attack will likely make all survivors nomadic.

Trading for resources will be both a benefit and a hardship for the traveling bands of humans. Without the safeguards of laws and property rights, distrust will make trading difficult. How can you trade the other tribe half your stash of weapons for food and not be worried that they will turn those weapons on you for the food back? Trade will be necessary as members of tribes specialize in certain things, find special items looting, and find themselves unable to find or make badly needed items.

Without the aid of money, trading will be a complex series of arrangements. You must hope that the person you are trading with wants what you have. If you don't have want they want, you have to find someone that does and also will trade whatever the other person wants with you. So what is the best items to have? Moonshine or the knowledge to make moonshine would probably be a good choice. When choosing items of value to you hope to trade keep three things in mind: inherent value, divisibility, uniform quality, and a relatively high value to weight ratio.

While this may seem like a silly book right now, when the zombie invasion comes someone looting my house will find this very helpful.  

US and South Korea Trade

Another trade agreement threatened by Trump, the US and South Korea Free Trade Agreement. Trump stated that the agreement needed to be renegotiated or terminated. Trump seems to be staying true to his promises about lowering the US deficit, he is being aggressive and that could be what the US needs. He may be a little rude in his approach, although, his point is being made. His step towards lowering the deficit is by redefining the trade agreements he feels are not supportive of reducing America’s goods deficit. Along with having “fair, reciprocal trade.”

U.S., South Korea Announce Plans to Tweak Trade

A Brief History of the German Economy

Last month, Ontarrio posted “Germany is Booming” and addressed Germany’s trade surplus and the rising tensions between Deutschland and President Trump. Trump has considered trade restrictions and even tariffs to alleviate this “unfairness,” but what if instead of getting-even we decided to take a lesson from the German economy? In order to do this, we must first understand their history…

Germany carries one of the most unique economic histories in the modern era; escaping financial disaster not once, but twice, in the 20^th century following the defeats of WWI and WWII. Left in rubble and a deep sense of shame, Germans were driven to by a desire of salonfähig, meaning to “be fit to be invited to a civilized party” again. As new buildings and infrastructure began to grow, so too did their economy.

In the wake of WWII, Germany was divided into East and West while it’s most important city, Berlin, was cordoned from the rest of society. The result of this political division was a decentralized economy. Unlike many other major European counties such as the United Kingdom or France, where the majority of economic activity is congregated in one or two major cities, Germany had a number of mid-sized towns that dispersed the economic activity throughout the land. While there are returns to density, such as bigger cities being more productive than smaller ones, density also carries along costs like higher rent and housing prices, increased cost of living and traffic congestion.

Once the Berlin Wall fell, the German government worked hard to bring East Germany back up to speed. With this, came a huge economic boom because of the massive infrastructure investments being made in the East. However, once the euro was embraced in the European Union, the overvalued currency made German exports more expensive and began to drag the German economy, inspiring Germans to move their capital elsewhere in Europe. This blow to the manufacturing sector made unemployment even worse – nearly 12% by the early 2000’s.

It wasn’t until 2003, when the Hartz Reforms were introduced, that their economy started a turnaround. While the polices themselves were not popular at the time, it allowed the manufacturing sector to flourish. This created a unique situation where small- and medium-sized firms (typically family owned) in the many mid-sized towns became international successes. Not only that, but the workers of these firms were highly paid and protected by unions and work councils because in German culture, CEO’s are more willing to grant decision-making power to lower management and often include union representatives on the board of the company.

Germany’s trade surplus hit a record high of nearly $300 billion last year and has become a major source of pride it’s citizens. Their adaptive system has allowed for the retention of manufacturing jobs as German labor has been resilient to changes in technology by such practices as voluntary wage cuts. Jeromin Zettelmeyer, former senior official in Germany’s Ministry for Economic Affairs, summarizes the German narrative, “It is true that the success of Germany in export markets is a national prerogative, that so many jobs depend on them. As a result, you tend to have unions both at the company level and sector unions that are happy to prioritize competitiveness over wage increases.”

Comparing the German economy to that of the US, we can observe that Germany’s comparative advantage is in manufacturing (hardware) while the US holds a comparative advantage in Information Technology (software). So, what lessons could the US learn from Germany? Are companies like Google or Apple carrying too much of the weight or is the US dynamic enough to maintain its competiveness in a globalized market?

If you’re interested in learning more and diving even deeper into Germany’s economic history, check out the Freakonmics Podcast episode below: