Tax Cuts and Economic Growth

    Just recently Trump outlined a plan to make some major tax cuts. The main basis of the bill calls for the lowering of the tax rate for corporations to about 20% from the 35% it’s at right now. Another goal of the bill is to help families by letting them deduct about double from their taxes than they were able to before. These tax cuts are forecasted to raise the U.S. growth rate by 2.5% while adding 0.3% to the global growth just next year. This all seems perfect in theory but there is a large issue that could counterbalance the potential gains that we would see from these tax cuts. The problem is that Trump has been talking about imposing new tariffs on both China and Mexico witch could hinder the global growth we would see from the tax cuts. Tariffs are usually put in place to protect domestic industries from foreign competition. In Trumps case this may be his motive but it would hurt his other plan that he is trying to put into place. When looking at the terms of trade of all the countries we find that in the long run it will decline. The reason being is because the other countries will be more likely to retaliate and create import tariffs of their own. When we look back at the tax cuts that Trump is imposing I believe that this will prominently boost the United States growth rate but when it comes to global growth rate there will be little to no change. The economy globally and domestically could use a boost and we will find out soon enough if these tax cuts help keep it moving in the right direction.    

For more information visit:

http://www.foxbusiness.com/markets/2017/01/10/heres-how-trumps-tax-cuts-could-affect-u-s-global-economic-growth.html

Trade with Canada Not Flying High

One of America's strongest, and potentially friendliest, trading partners is now coming under heat from the United States government.

The United States has accused the Canadian Government of offering subsidies to Montreal's Bombardier, with estimates within the United States Department of Commerce at around 220%. The Trump administration has instituted an import tariff on these goods in order to attempt to punish the Canadian government. The tariff will be equal to the subsidies given by the Canadian government. The import tariff will sit at 219.63%, which will significantly damage the possibility of Montreal's Bombardier product selling in United States markets.

The case began as a cry for help from United States' company Boeing, claiming they faced unfair competition from Montreal's Bombardier. After an investigation by the United States Department of Commerce, it became abundantly clear that there were unfair trade practices being committed by Bombardier in association with the Canadian government.

Trade with Canada has been facing increasing tension, as the United States government has imposed tariffs on softwood lumber, and continues to consider placing tariffs on more of Canada's exports. The Trump Administration has made it clear that they are willing to stand behind previous statements to hit hard with import tariffs if needed.

In class, we have learned export subsidies drive the export price of a good down, which improves the terms of trade for the importing country. Further adding an import tariff further harms the terms of trade for the exporting country and increases the terms of trade for the importing country. The quantity demanded for this good in the importing falls as a result of the tariff. However since the production is still the same, price falls. It will be interesting to see whether these 100-150 airplanes valued at around $5 billion will be able to be sold still, or if they will be forced to be dumped in other markets.

The goal of the United States government is intended to protect Boeing from subsidized competition. In this situation, is it justifiable for the government to implement this tariff on the Canadian government? Should the United States attempt to protect industries such as aerospace manufacturers like Boeing? Or do the potential problems and harm to welfare outweigh the protection these tariffs provide? The United States is considering more tariffs on goods from Canada, and this may just be the beginning of a tariff heavy time in the United States government.

For more info on this information:
New York Times Article on Tariff
NY Times Article on Further Tariffs and Trump Administration
Department of Commerce Statement on Tariff

"Germany is Booming"

  There has been a lot of angst in Washington and other countries abroad about the growing trade surplus that Germany is experiencing. President Trump has been eyeing the growing trend with an elevated degree of skepticism, and tensions are rising between the U.S and Germany. Germany argues that the trade surplus is a product of prudent fiscal policy as well as an aging population that is more interested in saving than it is in consuming. We also know that Germany is one of the most technologically advanced countries in the world, which is making it an unstoppable force in producing and exporting goods, and subsequently lending to its ever-improving trade surplus.

  The President has been mulling over possible solutions to curtail Germany's trade surplus, not the least of which, inducing trade restrictions. So, how would this resolve the trade imbalance? If anything, this could lead to retaliation from Germany and other countries, similar to events following the implementation of the Smoot-Hawley Tariff of 1930 that arguably exacerbated the Great Depression by fostering ill-bred beliefs of protectionism, the likes of which we are seeing today; The parallels are a bit unnerving. I think it is important to keep in mind, that by trading freely and openly, that people are de facto better off, more goods are made available by countries producing items that they are most efficient in producing, effectively driving down costs and providing the consumers on all sides with more surpluses and more utility.

For further reading on this topic, please click link below:
https://www.usnews.com/opinion/economic-intelligence/articles/2017-09-13/germanys-trade-surplus-creates-tension-with-the-trump-administration

Thoughts on Technological Advancement

Some of the largest news from last week was the announcement of Apple's new iPhone X. This was particularly exciting since many of us relay heavily on these palm sized devices (I just asked mine how to spell announcement). For only $1000, you too can own this new technological marvel.
The excitement was quickly overshadowed by disappointing news, faulty features, and a further delayed release date. While it was scheduled to be sold starting in late September, Apple reported at the beginning of this week that they pushed the release date back to November. The iPhone X has no Apple signature "home button" but will operate by facial recognition which brings protests and memes about invasion on privacy. However, people are not impressed anymore. Many think that each new phone is not different enough for the last, does have enough cool features, or is in some way disappointing. There have been numerous articles this week echoing those some thoughts including "iPhone X: Imitation not Innovation".
This article (listed at the bottom) acts as a reminder of the technological progress that we have made and continue to make. Technology, business, and communications are becoming more and more efficient. We take for granted how far we have come (maybe since a majority of the college-aged population has gone up with this technology). As a comparison, this article explains what it would take in 1957 to reproduce the device (the iPhone X) that we carry in our pockets.

http://www.bradford-delong.com/2017/09/do-they-really-say-technological-progress-is-slowing-down.html

It seems that technological advancement is not slowing; we are becoming desensitized to it. In 50 years from now, imagine what technological will be in the daily lives of billions.

The North American Free-Trade Agreement renegotiation begins

Negotiations for the NAFTA reform are moving quickly, two five-day long meetings have already come to an end. These three countries rely heavily on each other and it is essential for them to come to an agreement for trade to continue smoothly. Without NAFTA, not only would relations between these countries be torn, but various imports and exports would decline within each country. Some progress has taken place so far, but only the less controversial topics. The key issues are still left unresolved. This is where there are most of the difference of opinions.

            Canada and the United States are pushing a raise in Mexico’s wages, although, Mexico is arguing “that salaries cannot be harmonized yet, that a growth in trade and competitiveness will eventually raise salaries to higher levels.” (Report on the first round of negotiations to update NAFTA) The US and Mexico heavily rely on each other in their agricultural trade and trade between them is only increasing. The US is looking to reduce the trade deficit with Mexico and pursue more dairy sales in Canada. Trump wants to eliminate Chapter 19 (Review and Dispute Settlement in Antidumping and Countervailing Duty Matters) from NAFTA, which Mexico and Canada have already shown strong opposition to. Trump has also expressed his willingness to completely abandon NAFTA. He also raised a threat to “kill an amnesty program for young immigrants brought illegally into the US…more than 622,000 Mexican born people registered for the program after Barack Obama created it.” (NAFTA Negotiations: Second Round Of Talks Ends With 3 Countries Saying Some Progress Made).

What could happen if Trump decides not to agree with Mexico or Canada and in turn cancel the NAFTA negotiation? How would trade between the three countries differ?

China-Pakistan Free Trade Agreement

https://www.geo.tv/latest/158202-eighth-china-pakistan-free-trade-agreement-conference-commences-in-beijing

China-Pakistan Free Trade Agreement

The main principle in chapter 1 and 2 of International trade is revolved around two countries trading with each other. The short article doesn’t give many details about the negotiation between China and Pakistan free trade agreement other than the fact that “the current volume of trade between Pakistan and China of $16 billion (U.S) is a testimony to the ever-growing economic co-operation”. What we can assume however is that with a free trade agreement between the two would mean that they will be exporting and importing more to each other. “Pakistan’s key exports to China where raw materials and intermediate products, such as cotton yarn, woven fabric, gray fabric etc” (Khan).

Both these countries will be better off considering there trading will improve expecting a growth in there already growing economies. On the other hand, we don’t know exactly what that will mean for the rest of the world in terms of the world trade. We know that China accounts for a large portion of the world's trade. What I can theorize is that this could make the market more competitive in terms of cost to produce the goods would be cheaper optimally make everyone competing to have the best price. This could be perceived good or bad depending on the country. What I can say for certain is that negation will improve for both China and Pakistan in terms of their trading power.        

Khan, Mubarak Zeb. “Pakistan seeks changes in free trade agreement with China.” DAWN.COM, 9 Sept. 2017, www.dawn.com/news/1356432. Accessed 15 Sept. 2017.

Launch of iPhone 8 and the Potential Market

Apple has recently launched iPhone 8. The phone is predicted to be not a big success as much as iPhone 6 or iPhone 7 was. The central concept is the customer preferences, the competition in the Market dynamics. The launch of the iPhone 8 helps us in the understanding of how market and the customer behaves to a certain specific product. It gives insights in relation to both the microeconomics factors and the macroeconomic factors. As far as microeconomic factors are concerned, the launch tells about the target market that is the affluent class that prefer the luxury products and this customer preferences drives are referred to as the demand giving company answer about the core problem that is “What to produce?”. As far as the macroeconomic factors are concerned, the potential success of the phone will add to the economic growth of the country and thus will help in the improvement of the standard of living of the common people. The entrepreneurial motive of Apple is to earn more and more profit and return and this is why it is quite important to keep the cost of the produce as low as possible in order to have more gains. The mass production and the sale of the iPhone 8 at the global level will help Apple achieve economies of scale and thus production at the minimum possible cost reaping more returns. The success of iPhone 8 would largely depend upon the customer preferences however since the product does not feature much innovation than the previous versions, there is big question mark on the success of the new product launched. 

The Economic Costs of Linguistic Diversity

We know from Chapter 1 of our textbook that "similar" countries tend to engage in high volumes of trade with one another. But why? European countries trade frequently with each other for a multitude of reasons, the biggest being geographical proximity (easier to ship goods/services) and low import tariffs. However, in a market like the European Union (EU) we also see a multitude of different languages spoken by different people. How exactly does this affect trade?

Freakonomics Radio - the podcast that explores the hidden side of everything - ventures into that very question along with the other implications of linguistic diversity at both macro and microeconomic levels. In general, they find that the multitude of languages has a negative impact on economic growth. In looking at the European market, Shlomo Weber, gives a real world example of why not having one unified language in the EU creates a barrier to trade: "[To] give another, even more painful example, about the patent application: if you need a patent in different countries, you really have to do it in every country, because there is no unified legislation across the Union. Every company in every country has to go for different patent, and it delays so many things."

His economic analysis shows that there is indeed a conflict between localization and globalization as we can also observe positive impacts between two countries who trade in the same language. “Weber documented that a 10 percent increase in the probability that two people from different countries share a language increases their trading by 10 percent.”

Some other major takeaways from this week's episode:

• Linguists predict that of the roughly 7,000 languages now spoken on earth, some 3,000 will go extinct within the next century
• Language and religion are the two most important factors in the self-identification of people and groups
• We spend roughly $40 billion a year on “global language services” - primarily translation and interpretation
• Another $50 billion a year is spent learning other languages

Incentives and Migration: Push Factors or Pull Factors?

This week's hot international economics topic: immigration, and specifically the Deferred Action for Childhood Arrivals (DACA) order. Let's not get too far ahead of ourselves with the course material (we will analyze migration later in the course), and instead stick to basic individual cost-benefit analysis. Taking a rational choice perspective, the decision to migrate hinges on (1) the net benefits of staying; and (2) the net benefits of leaving (to a particular destination). In other words, there are push factors (reasons to leave) and pull factors reasons to choose a particular destination.
In the rollout of the DACA phaseout yesterday, Jeff Sessions stated, “The effect of this unilateral executive amnesty, among other things contributed to a surge of minors at the southern border with humanitarian consequences.” Let's analyze the plausibility of this theoretically, then see what the evidence says. At first blush it seems there should be no doubt that a program like DACA would cause an influx of new migrants hoping to qualify for it. It gives new minor children - especially teenagers - a sort of legal status that might qualify them to work legally in the US later on. On closer inspection it is not so clear. The law requires minors to be in school, meaning they cannot work to support themselves. It also makes their immigration status uncertain since, as an executive order, it is something that a subsequent administration can - and now apparently will - revoke. So the duration of the minor migrant's trip might be longer (because they are legal and do not face fear of ICE) or shorter (because since they are registered a policy reversal makes deportation almost certain). Hence, the immigrant trades one source of uncertainty for another.
Catalina Amuedo-Dorantes, a well-known immigration economist, along with her coauthor Thitima Puttitanun, find a negligible effect on apprehensions of minors to be attributable to DACA. Most of the recent rise in minors coming to the US comes from a 2008 law to help combat human trafficking and assist victims of trafficking, and from families fleeing increased in violence in Mexico.

More on the Robopocalypse

One more thing: there is some chance that in the long run human capital will adapt to the Robopocalypse and worker skills will complement the capabilities of our future new robot overlords. LinkedIn founder and executive Reid Hoffman sums it up well (trying a little too hard to be cool) in this interview with The Daily Show:

Trevor Noah: If robots are doing the jobs...what do humans do? What is our purpose?
RH: ...That's a possible universe, but there are many other possible universes...So it's not that the robots do all the teaching, but it enables [sic] people to be much more productive. 

Finally, we probably don't need to worry about robots killing us and ending human existence as we know it, because...

TN: Will Artificial Intelligence kill us all?
RH: Very unlikely...Asteroids may kill us all; nuclear weapons may kill us all...
...
TN: Why would the robot not want to make me not exist?
RN: ...Then you get to the whole question of the robot "wanting."... When do robots become fully wanting, sentient people, and what language of "want" describes them?

In other words, robot preferences will probably not be the same as human preferences, and will probably be less spiteful, hateful, and vengeful. Maybe a bit more like... homo economicus? At least our robot overlords might be programmed to have preferences that are complete, montonic, and transitive (even when we aggregate them!). 

Robopocalypse or Globopocalypse?

American Public Media Marketplace host Kai Ryssdal interviewed "Robopocalypse" author James Surowiecki about jobs this week. Here's the podcast of the conversation. I want to focus on a couple of passages. First, Surowiecki claims that the Robopocalypse is "a very, very, long way off." This is probably true. Artificial Intelligence does not really exist yet - "Machine Learning" is a more accurate summary of the current state of the art.
Second, Surowiecki claims, "economic evidence at this point suggests that trade and in particular trade with China since 2000 has been responsible for many, many, many more lost American jobs than automation has." He continues, "Really the jobs lost to trade is just an order of magnitude greater." The best research out there now does not support this claim. While Autor, et al. (2015) finds:

"Labour markets whose initial industry composition exposes them to rising Chinese import competition experience significant falls in employment, particularly in manufacturing and among non-college workers. Labour markets susceptible to computerisation due to specialisation in routine task-intensive activities instead experience occupational polarisation within manufacturing and non-manufacturing but do not experience a net employment decline."

In other words: trade, bad - technology, meh. But science doesn't just stop with one finding. Remember, until Autor and his colleagues began looking into trade, the prevailing hypothesis was that skill-biased automation had more to do with widening income distribution and stagnating wages. To falsify the hypothesis that technology matters (and possibly a lot) you need a lot more than that. So Acemoglu, et al. (2017) took a stab at it. They find:

The impact of robots is distinct from the impact of imports from China and Mexico, the decline of routine jobs, offshoring, other types of IT capital, and the total capital stock (in fact, exposure to robots is only weakly correlated with these other variables). According to our estimates, one more robot per thousand workers reduces the employment to population ratio by about 0.18-0.34 percentage points and wages by 0.25-0.5 percent.

Who's right? We don't know yet. I tend to favor the conventional view about technology until more than one or two papers come in from the other direction (and preferably not all of them by Autor and some combination of coauthors).