A lesson from Japan: Chinese must say no to appreciation

I started to think about something after reading Salazar’s post ‘Do tariffs work?’

 

In 1978, Friedman claimed that lower the tariffs toward Japan could benefit America. However, we saw something worse happened to Japan. Besides the economical issues U.S government concerned about, I think they also wanted to weaken Japanese overall power.

 

Japan's inexpensive and good quality goods earned a lot profit from the international trade. And they acted arrogant in the world to buy assets, such as buying a symbol of the U.S. economy - the Rockefeller Center. US government already felt the threat.  To reverse this situation, the United States and other Western countries asked Japan to appreciate their currency. The Japanese had to promise because the U.S. military presence and political penetration.So they signed Plaza Accord. Japanese economy was severely destroyed, the so-called Lost Decade.

 

This is a really great historical example for China. Japanese recession was because Yen appreciated from 250 to U.S. $ 1 into $ 1.00 about 120. A direct result was Japan's exports greatly reduced while imports surged. However, some experts argue that the sharp appreciation of the yen provides Japanese a good opportunity for large-scale expansion overseas, promote industrial restructuring, and ultimately contribute to the healthy development of the Japanese economy.

 

But this fortunately consequence can never happen to China. Chinese make livings by manufactory. The Industrial restructuring is not that easy due to the current technology standard in China(As we learned in Chapter 5 the effective R&D scientists ratio in China was just 7% ) Appreciation makes countless Chinese workers lose their jobs and may lead to turmoil. As a result,Chinese government will try its best to keep the currency low.

 

China-U.S. trade war would hurt California

 A trade war between the US and China would really hurt California because it exports the most goods to China out of all the states.  They exported $14.2 billion in goods and services to China last year.  California is also the nation's leader in solar jobs.  The International Trade Commission is making a decision whether or not the US solar cell manufacturers is hurt by the imports from China.  There are already tariffs of up to 250 percent on Chinese made solar cells.  The tariffs, however, only protect 2 to 3 percent of the jobs in the solar industry.  California companies have already lowered prices to compete with other energy forms such as natural gas.  They will be hurt even more by punitive tariffs.

http://www.sfgate.com/opinion/openforum/article/China-U-S-trade-war-would-hurt-California-3976011.php

U.S. Oil Boom Upends Nigerian Exports

         To summarize this article, Nigeria’s economy has taken a hit this past year because the United States has increased their production of crude oil. Because of this increase in oil production, we have become less dependent on foreigners for oil which caused us to sharply decrease the amount of lighter-sweet crude oil from Nigeria. This is a major concern for Nigeria because 95% of their exports are oil based and much of their supply was shipped to the U.S.  Moreover, the U.S. has also given licenses to Shell and Vitol to export some of their oil for the first time because supply is relatively high compared with prior years.
          In relation to Nigeria, it could be hard to find new buyers because the relative supply of oil has been increasing because Libya is back on the oil market and many other countries have dominated the industry. With an increase in supply from foreign markets, Nigeria cannot charge higher premiums in excess of cost on their oil which is now $1.70 a barrel compared to $3.65 just a year earlier. We can illustrate this on a production possibility frontier. If oil production is on the horizontal axis and is compared with the other exports on the vertical axis, then I believe Nigeria needs to shift some production to the other industries (moving up along the PPF). It would be beneficial to produce more of other commodities because the world prices of crude have decrease because of an increase in supply. When looking at the PPF, this would be shown by a shift in the price line that has a flatter slope which represents a lower world price when compared with other goods.
          Seeing that Nigeria is the big loser in this trade because most of their exports are oil and the price has decreased, there must be someone benefiting.  Some countries in Europe have been importing Nigerian oil because the prices dropped which has increased Europe’s gains from trade if exports remain fixed.  Another concept comes into play is the Ricardian Model from chapter 2 in the text. Nigeria produces a lighter-sweet crude oil which can be refined easily. On the other hand, many countries have invested in capital and increased their refining technology so that they can refine heavier, sour grades of crude. These heavier sour grades of crude are much cheaper than the lighter sweet based crude from Nigeria. That being said, this technology increase from other countries, decreases the demand for Nigerian crude and gives them less of a comparative advantage because other countries have less opportunity cost when refining oil because it is relatively cheaper.

Why Apple Will Never Bring Manufacturing Jobs Back to The U.S.

On the second presidential debate, CNN’s Candy Crowley asked both candidates “How do you convince a greater American company to bring that manufacturing back here?” President Obama said it is impossible to bring the jobs back because of its low-wage and low-skill. I agree with him.

According to the latest news, Apple opened up its latest Chinese retail store in the capital. The new store is the largest one in Asia, as it is three-stories, which is located at the Wangfujing shopping district, near the Forbidden City in the middle of Beijing. This latest one is the third retail store in Beijing, its sixth one in China. This new store employs 300 staff. Now Apple’s total retail store employees in Beijing is 800.

However, this is just part of employment. In the article we can know that Apple “directly employs thousands of its own workers in China, and about 700,000 assembly workers at manufacturing contractors like Foxcoon put together Apple products.”

The main reason Apple choose China is large labor force and cheap labor. Apple former global supply manager Jennifer Rigoni  said that Foxconn can recruit 3,000 people one night. It is impossible in the U.S. Foxconn workers live in dormitories and suffer tough working conditions including cheap labor. People can't image that how cheap it is. According to the New York Times reported in Jan, 2012, workers in Foxconn factories earn less than $18 daily, working 6 days, 10 to 12 hours a day. Sometimes they work overtime without paying extra salary. In the article, a typical salary is U.S. $400. Its parent company Hon Hai Precision minimum wage is only $138 in Oct 2010.

Another surprising reason I know from this article is that China has many more skilled engineers than the U.S. does because of education system. They can't hire 30,000 industrial engineers needed in the U.S. I don't know why this happen because of education system. However it is true that engineers in China are more efficiency, skillful and work harder.

The third reason is China's relatively weak environmental regulation. China ranked 116 among 132 countries in the 2012 Environmental Performance Index ranking, published by Yale University. According to the U.S. technology website iFixit wrote recently, the other important reason except cheap labor is China has mastered the 95% to 97% of the world's rare earth supply. The iPad manufacturing process need to use a large number of rare earths. Rare earths will result in serious environmental consequences if it is not properly managed. Apple never said what kind of rare earth they used in their products.

As Job Steven said to Obama, "Those jobs are't coming back." Now President Obama said he want high-wage, high skilled jobs.

By David Goldman @CNNMoneyTech October 17, 2012: 2:27 PM ET

http://money.cnn.com/2012/10/17/technology/apple-china-jobs/index.html

Do tariffs work?

Recently China has started to become important topic in the election. Each candidate promising they they will be the hardest on China. They are trying to convince that China is cheating or not playing by the rules and their reasoning for this is that China can provide a cheaper good than our industry but isn't that competitive advantage. By putting tariffs on China's imports really improve our standard of living in this country.

In class an article was presented in class that got me thinking about this question. In this case President Obama a special tariff on imports of tires from China. This looks like a very important step in getting our economy back on track and that is what President Obama and most of Americans think. In reality this is not true. As individuals we are producer of only one good but consumer of thousands and by tariffs only help the producers of that product create inefficiencies in our economy, actually increase unemployment and our standard of living drops. The article states that consumers spent $1.1 Billion more as a result of these tariffs. Money that should have spurred economic growth but didn't. It lead to more unemployment because it created a problem of inefficiency. Since resources are tied up in the production of tires it can't be used in our industries that we are competitive in, our exports and that foreigner buy. 

We have a free trade market which I see it as being if you can produce something at a lower price you should and then introduce it to the market. If the other producer cant match the price he should go into another industry or risk the chance of going out of business. 

I also see a lot of similarities to this to a similar situation that US producers were in back in the 1970s and 1980s. Japan  back then was the one getting accused of unfair trading policies and the US acted in the same way as today. Here I found a video on YouTube where Dr. Milton Friedman talks about international free trade and I agree with him.

Fight Over Tech Worker Visas in Congress

The House of Representatives are intending to increase the number of visas issued for skilled labor such as engineering and science and this has exploded into an election issue for the candidates. Specifically, the idea presented by Republicans is a new type of green card specifically for science, technology, engineering, and math graduates who have received doctorates from US universities. Republicans and Democrats are of course both fighting over this bill as each one wants its own version imposing its own values into the proposition. For example, Democrats have written their own version that is similar but includes a diversity visa program.

We know from class that in general in the short run with fixed capital and land immigration tends to lower wages but while wages fall, specific factors like capital and land rise which in turn increase their rentals. In the long run however firms tend to move around their capital which can change the effect of immigration on both wages and rentals. In fact additional labor may find itself absorbed entirely and the K/L ratio may not change. What do you guys think about this? These points on wages seem to be to be more focused on mass amount of unskilled labor and not small amounts of skilled labor. Will the amount of educated individuals getting these new visas be enough to make a dent in wages? What difference, if any, does it make that these are skilled labor instead of unskilled? According to the Rybczynski theorem immigration will lead o an increase in the output in the labor intensive industry and a decreasing in the capital intensive industry. Would this be the opposite because these immigrants are skilled?

Hughes, S. (2012, September 17). Fight over tech worker visas in congress. Retrieved from http://blogs.wsj.com/washwire/2012/09/17/fight-over-tech-worker-visas-in-congress/

China's Currency Manipulation Facts

Recently a lot of discussion in the news about China has come from the presidential debates and labeling China a currency manipulator. But there are some things to look at before doing such a thing.
First is what we discussed in class that ending this would create a weaker dollar and thus hurt us as well. Manipulating the currency keeps the dollar high so by having the manipulation stop it could have reverse effects on the United States. Second is that China is not the worst currency manipulator. Singapore and Taiwan both manipulate their currencies worse than China. As well as Switzerland and Japan who could arguably be worse than China. There are also countries who aren't as bad as China but still manipulate their currency. So this is more a world-wide-spread issue than just the United States versus China. (below is a table of countries who manipulate their currencies)

Third is that China is getting better by not manipulating it so much. They have let their currency gain value quite a bit in recent years. Fourth is that just calling them a currency manipulator is not going to do anything to make them stop. If we were to pur tariffs on China they would do the same to us and thus be no help. Lastly, the Chinese have shown they sometimes run a pride-based foreign policy. If the United States and the rest of the world want them to do something, they would most likely just refus to do it. So if we are going to call China a currency manipulator we should give them a better idea. So all this talk about getting tough on China and labeling them a currency manipulator is not necessarily a good idea. 

Though at times Americans grow frustrated with the Chinese they are also keeping the dollar high with what their doing and we also partake in a lot of trade with them so it's important we keep positive ties with China and instead od just labeling them a currency manipulator find a way to help them find better ways to have such a trade surplus that they desire. Which in all actuality they have probably tried to do but found this is a good way for them. Either way it's important to start any problems with China by labeling them a currency manipulator.

Immigration of Athletes

It is quite reasonable to argue that Immigration is a form of trade in at least one way or the other, but the most unregulated from of immigration despite it being a constant topic and matter that is dealt with is immigration of athletes. Ones that are deemed to have a set of special abilities that no one in the country or not enough in the country can supply. This applies to many times celebrities singer, actors etc) and athletes across many sports.

For example look at baseball, how often is it that you see a player than is of South American or Asian decent on the field surely his does not only hinder the growth on the sport locally but this largely denies large of portion on the money spent in the country cause obviously without that athlete is most likely to spend a portion of that multi-million dollar contract in his or her country. But even more so quiet recently in the MLS large contracts have been given to franchise players, who are the best players on the team will become  the face of the team, but this doesn't help because a fair share of players immigrate solely for that reason and crowd out the the local players from here. IN the end they get these large salaries and leaves a lot of Americans worse off.

This is an issue that needs to be looked at because these athletes cant be bigger than the law, and if the law doesn't constitute them it needs to be revised. This is different to a doctor that comes from elsewhere with a special ability as a surgeon, or an engineer or scientist. This is a sport that when players are given the chance can most likely and possibly rise and become somewhat as good, but cause of such migration are limited in terms of growth. And the government has a a duty to protect its citizens and its people and to implement the proper political rules such as quotas and regulation of money to improve not only its sports but also economy and well being of people.

the continually downward trend FDI in China

The Ministry of Commerce in China released the latest foreign direct investment (FDI) data on October 19^th.  The amount of newly approved foreign-invested enterprises   set up in September is 2248, declined about 6.4% than August. The actually used foreign capital amount reach 8430000000 dollar, have dropped about 6.8% than last year.

From January to September in 2012, there are 18025 foreign-funded enterprises newly set up in China which have dropped about 11.7% compared to last year and the used foreign capital amount reaches 83420000000 dollar, which has dropped 3.8% compared to last year.

FDI continually downward trend of China reflects the disadvantages of both the external and internal economic situation in China. To a certain extent, FDI can be used as an export leading indicator. Its decline of FDI means that China's exports are still facing a pressure. On the other hand, the continually decline of FDI also shows that the weak domestic economic situation that has reduced the attraction to external capital. Especially, the decline in growth rate in manufacturing industry is greater than the general FDI falling average, so as the real estate. Although the macro economic data of the latest three quarters showed that the economy in China seems to be stably grown,  the supporting incentives are insufficient.

However, the slowdown of absorption of foreign capital in China is under expectation because of the overall slowdown in global transnational investment, which is especially influenced by the European debt crisis.

In recent years, China attracts foreign capital comparative advantage of absorbing foreign capital is transforming from a cost advantage to a comprehensive advantage. China's vast market with complete industrial chains still has a formidable attraction to foreign investors.

Can Romney improve the employment in US?

On Oct.23^rd, Obama and Romney continued the topic of employment and Romney guaranteed he would bring lots of opportunities back to America. That’s good news for people who are suffering from unemployment. However, I think that’s just tricks for vote.

 

Firstly, he shifts the anger of American citizens to China because Chinese manufactory industry took a lot jobs away from American. If he has the chance to be the president, the trade sanctions will take place toward China. However, only people who never learned economics will believe this action can work. We know that when you import goods you import wages as well. Hire one untrained worker in America equal at least 5 people in China. Moreover, it is true that when Chinese goods loses attraction to US because of the high tax, there are still tremendous cheap products from India, Mexico, Haiti , Honduras, and so on.

 

Secondly, he criticizes that Chinese never obey the rules. Though China is a member of WTO, import taxes are still very high which decreased the total amount of products US could export to China. In addition, Chinese show no respect to copyright which also reduced US profit. These claims are true. But still Romney cannot let everyone get his job as he said because that goes against the law of economics---Unemployment is about 4~8% in a healthy economic system .

 

I agree with Obama’s point of view that the only approach to improve employment is to enhance the standard of education and research so that we can let more qualified citizens find their jobs. However, uneducated workers will suffer unemployment forever because of the high wages.

Information is from the 3^rd debate.

Globalization and Externalities

Globalization has a generally positive influence on welfare, but like any sort of economic activity or exchange, it is not free from externalities. One example of such an externality is the fact that increasing the distances at which we trade goods may be bad for the environment, as Yoram Bauman explains:
The idea is this: opening the border opens up the economy to all sorts of great opportunities for exchange, and increased consumer welfare like, say, increased supplies of natural gas might. However, increasing the volumes of those goods produced and consumed create "social costs" that aren't fully captured in the costs of production (or the costs of transporting) those goods. The individual firms' marginal costs do not accurately reflect the full resource costs to society (and thus the PPF is not properly reflected in firms' output decisions. In the case of trade, this might mean that we end up trading in the absence of a policy to address the externality. For global warming, the solution is relatively simple: tax the externality, or alternatively, design a global trading market (cap and trade) for pollution emissions.
A trickier example, derived from immigration, is the increase in human trafficking.
Here, modelling the externality is difficult, and devising a sensible policy is harder still: it would be unethical to suggest that we should "tolerate" certain low levels of human trafficking and sex slavery and simply "tax the externality." Instead, the solution lies more in our comprehensive approach to prostitution. As Sam Lee and Petra Peterson point out in a research paper and interview with Freakonomics, a better policy towards prostitution would be what they call a "safe harbor" approach, which combines a legal (but regulated, and possibly taxed) prostitution market with stiff penalties for "Johns" who attempt to purchase these services outside of the legal market. This would divert demand towards legal exchange, reduce the rents from illegal trafficking, and allow law enforcement to focus on involuntary sex trade, rather than enforcing laws against voluntary trade.

Chinese Trade Practices and the Debate

A hot topic in the debate on Tuesday night, and on the campaign trail, is the US trade relations with China.  Romney accused Obama of not going through with what he mentioned about trade in China on the campaign trail and that he essentially gave the Chinese the green light to continue manipulating their currency and distort fair trade. The accusations on China, from both parties are that China is purposely weakening the renminbi to make the price of its exports relatively less expensive so more countries will buy from them.  This has contributed to China’s current account surplus (exports >imports). 

Romney insists that on his first day in office he is going to call China out on purposely weakening its currency which would begin a series of bilateral consultations.  If China does not make a change, Romney plans to impose duties on Chinese imports.  This may seem like a way to tame China’s cheating, but when reflecting on 2009 when the Commerce Department imposed a duty of Chinese imports, it conserved up to 1,200 American jobs, but it cost consumers $1.1 billion in higher-priced goods.  China then responded with an import on American goods.  Specifically, the imports of American chicken parts and that in turn cost poultry producers approximately $1 billion.  The repercussions of the duties were much larger than the jobs that were saved.  Going through another cycle of these results does not seem to be in the best interest of the US.

Nowhere, in any of the chapters we have covered thus far, have we had to discuss the policies in the “foreign” country while determining the “home” country’s equilibrium level of production.  When considering the US/China trade relationship, the US should ensure it is producing the goods in which it has the competitive advantage and importing those which they have a disadvantage.  While China has already been labeled as having their currency moderately undervalued by the I.M.F., imposing duties on Chinese goods would not be the way to solve any problems the US has with China’s policies. 

A Closer Look at Immigration's Impact on Wages and Labor

      Immigration is a hot-button issue politically, with many supporters and opponents of it, and economically, immigration can create greater wage and labor imbalances between the country losing migrant workers and the country gaining them. While immigration does encourage economic growth, it may not boost growth in terms of wages as fast as we might think for the country that is gaining the immigrant labor. Immigration to the  U.S. produced a small increase in the average wage(s) of American-born workers (home labor) between 1994 and 2007. In terms of the concept of human capital that we discussed in class, education levels were somewhat of a factor for existing foreign-born workers in the U.S. in determining how much their wages dropped by as a result of new immigration. Conversely, education levels were really not much of a factor in determining the percentage gain in wages for American-born workers in the U.S.. Immigration essentially increased wages for American-born workers of all education levels by percentages that are within a very close proximity to each other. Even though existing foreign-born workers (earlier immigrants) had obviously already assumed moving, opportunity, risk and assimilation costs before new immigrants, they were the socioeconomic group that was affected the most negatively because they had the highest level of substitutability for newer immigrant labor. Furthermore, I think that the newer immigrants had (and still have)  an advantage over the existing foreign-born workers because they were and are less likely to be separated from their families because they had spent less time away from their families in their countries of origin compared to existing foreign-born workers. Thus, it would seem that they would be more likely to send remittances to their families in their countries of origin. In essence, newer immigrants have closer ties with their families than previous immigrants do with theirs. Now, going back to my earlier point that immigration does not boost wages as fast as we might think, we know that the long-run impact of immigration in relation to the change in wages (and in labor) is zero. Since none of the changes in wages for any of the labor were zero between 1994 and 2007, it is safe to say that that particular time period was a short-run period. Since it is now 2012, the U.S. is probably getting closer to the long-run 'equilibrium' period where labor and wages have balanced out whereas no real changes in wages or labor have occurred, but whether or not the U.S. is at the long-run stage of immigration impact is difficult to calculate.  


Source researched:

  http://www.epi.org/publication/immigration_helps_boost_relative_wages_of_u-s-born_workers_at_all_lev/                 

Indonesia: The newest BRIC?

The BRIC nations may need to add a fifth member: Indonesia. Brazil, Russia, India and China were once considered the hottest emerging markets in the world. But throughout the past year they have been skidding. Indonesia, on the other hand, remains one of the fasting growing economies thanks to a rising middle class and strong domestic consumption. In turn, investors and analysts say they expect it to stay a ripe area for investments over the short and long-term.

"Consumers are heading up the value chain and using more expensive soaps and dishwashing detergents," said Bharat Joshi, assistant investment manager of Indonesian equity funds for money manager Aberdeen, which has roughly $500 million invested there. "We're seeing companies do well that reflect the rising income levels in Indonesia."

While Indonesia's economy took a significant hit during the late 1990s Asian financial crisis, the Southeast Asian country largely evaded the more recent global downturn.
Indonesia's main stock index, the Jakarta Index, has trailed the S&P 500 only slightly over the past two years. It's returned 19%, compared to the S&P 500, which is up 20%.

More importantly, analysts say Indonesia and its growing middle class are buffered from some of the pressures hitting other fast-growing nations. Unlike many of its neighbors, the country's growth isn't solely dictated by exports. Instead its growing middle class is fueling something of a virtuous cycle where more goods and services are produced and purchased in rapidly urbanizing cities throughout the archipelago.

The Indonesian government has tamed inflation even as domestic growth has chugged along at roughly 6% per year over the past few years. That's expected to continue.

McKinsey & Co. predicts that Indonesia will be the 7th largest economy in the world and add 90 million additional members to its middle class by 2030. Right now, there are 45 million middle class Indonesians, and it ranks as the 16th largest economy in the world.

Many of the companies represented in the Jakarta index are commodities companies, as Indonesia is one of the top producers of coal and palm oil in the world. That could make Indonesia's stock market more vulnerable to macroeconomic swings since commodities companies are more dependent on global growth.

After reading the article above I looked into the Indonesian economy and found that Indonesia exports were worth 14116 Million USD in August of 2012. Their major exports are: gas, plywood, textiles, and rubber. They have the world's largest tin market, and are expanding their mineral production from bauxite, silver, and tin, to include more copper, nickel, gold, and coal output for export market. It's main export partners are Japan, the European Union, United States and Singapore. I have to believe that with these numbers that Indonesia should be involved with the BRIC nations they have a growing middle class. My concern is if workers from other countries not so well off as Indonesia is becoming will the transfer of new labor into the current workforce slow down the country's growth? Is it possible for Indonesia to sustain their current growth rate if we see an increase in this labor sector (that is workers coming from neighboring counties to make a "better life")?

http://money.cnn.com/2012/10/15/investing/indonesia-bric/index.html

Solyndra, Claiming Foul Play, Sues Its Chinese Rivals

Trade affects countries not only through finished products but raw materials as well.  There is competition and companies strive to outdo their competitors.  Some do it through comparative advantage, others through price advantage.  Solyndra tried to stand out through quality products that could be offered at a lower price than their competitors for China.  The sought this out by producing a state of the art factory that would produce solar panels with better technology and design.  With all of this technology they are able to produce the panels at a price that would make them cheaper than the panels coming out of China.  As we talked about in class technology is a factor that can give countries a comparative advantage when it comes to price and production.

Even though Solyndra would be able to produce solar panels at a lower price attributed to their technology, a swing in the raw material cost shut them down.  In 2008 the price of silicon was around $400 a kilogram.  After much investment in polysilicon and a huge oversupply prices the price is in the low 20s.  Solyndra made solar panels that didn't require silicon as a key ingredient.  Chinese manufacturers had such high costs because of their use of silicon.  Yet after the production of polysilicon, prices for Chinese panels made with silicon plummeted.  This caused Solyndra and several other solar panel producers to go out of business.

Through trade, technology, and the enhancement of raw materials prices are affected.  Solyndra had a comparative advantage to start due to their increased technology, yet fell because of the improvements in raw materials.  Trade and overproduction may be helping the production of solar panels but as seen it is seriously affecting the price of polysilicon.

http://blogs.wsj.com/corporate-intelligence/2012/10/12/solyndra-claiming-foul-sues-its-chinese-rivals/?mod=WSJBlog&mod=WSJ_corp_intel

http://www.pv-magazine.com/news/details/beitrag/pv-polysilicon-prices-continue-to-plummet_100008512/#axzz297rSMfep

Well Fargo outsourcing more jobs to India, Philippines

In class we talked some about outsourcing, and how the merchants are the ones who want it, and the workers are opposed to it. Merchants are in favor of outsourcing, because labor costs are cheaper overseas than in the states, thus allowing the owners of a company to get more out of the money they have to spend. For example if an owner of a company moves its jobs overseas, they can hire more workers and produce more goods; therefore, making more money for the same amount as if they had not outsourced their jobs overseas. On the other hand, the workers of a company or firm are against outsourcing jobs. If more and more jobs get outsourced, than usually it means the same amount of employees at home will be out of work. The worker may find it hard to get another job, and in the meantime they have to find a way to pay the bills and take care of the family. Outsourcing not only can cause a problem with that individual worker, but it can also pose a threat to the entire economy as a whole.

One company that has decided to start outsourcing more and more jobs overseas is Wells Fargo. They want to reduce their costs, as well as be able to help their clients more quickly and efficiently. They have clients that are from all over the world; Wells Fargo wants to be able to better accommodate their customers, and they believe this is the way to do it. However, outsourcing labor will ultimately cause many jobs to be lost in the United States. Wells Fargo has not yet disclosed how many jobs will be cut, but either way it no doubt has many employees fearful of just who will be let go.

So is outsourcing jobs a good thing or not? I believe there is no right or wrong answer here, it really depends on what view point someone looks at it; from the merchants and the country being outsourced to, its a good thing. For the workers, and usually the economy of the country losing its jobs, outsourcing is bad. Outsourcing for a customer can be good or bad, and possibly both. It seems it would prove hard to be either right or wrong when answering the question of, whether outsourcing is good or bad.



http://www.bizjournals.com/sanfrancisco/blog/2012/06/wells-fargo-outsourcing-jobs-overseas.html?page=all

Oversupply of Solar Panels Poses Threat to China

In class we have learned about countries having a comparative advantage in the production of a certain product and when it come to renewable energy, China has that advantage. For both markets for solar panels and wind turbines, demand has grown rapidly over the past five years and China has been the global dominance in these markets for the past several years forcing many foreign rivals out of business. We have discussed how countries that have comparative advantages in a market produce at a limit above their consumption in order to export the certain good. However we have not looked at what happens when a country produces at a level greater than the desired export level, that level is where China is currently for the renewable resource market.

China has a very high marginal productivity rate for renewable energy products and because of this they have been producing at a rate faster than the market itself causing an enormous oversupply and along with that, a price war. Many renewable energy companies are suffering major loses and along with these companies, banks who had given low-rate loans are also suffering. These companies in turn facing a financial disaster and  two-thirds of these companies are expected to go out of business. This example shows that the production level of a country has to be within the market demand, if there is an overproduction that surplus will cause a financial disaster for producers.


http://www.nytimes.com/2012/10/05/business/global/glut-of-solar-panels-is-a-new-test-for-china.html?pagewanted=1&_r=0&ref=internationaltradeandworldmarket

New Tariffs with China

The text defines an import tariff as, "taxes on international trade". It just so happens that the US has put new tariffs on China and China is appealing these to the World Trade Organization, as they view these as unfair! This law took effect in March and it restored US authority to levy certain kinds of import tariffs against Chinese goods. This authority was  actually struck down earlier by Federal Court. The World Trade Organization feels that these new tariff laws violate their rules of transparency and proper procedure.

           

The US court of appeals ruled in favor of this law and ordered the US Dept of Commerce not to impose ant subsidy duties on goods from China. According to the article, "The court found that in a nonmarket economy, government payments to companies cannot be characterized as subsidies."  This article is actually very related to Pat's posting about auto parts so please take a look at that one as well. What do you guys think about this topic related to what we are learning in class? We know that Tariffs can be put in place to protect the employment of labor in the home country as foreign can threaten domestic industries. Is this the case here or is this just a game of politics?

Back, A. (2012, September 17). China goes to wto over u.s. tariff law. Retrieved from             http://online.wsj.com/article/SB10000872396390444450004578001864184711          522.html?KEYWORDS=tariff

Autoworkers earn twice as much in Germany than US

Germany was able to produce about 5.5 million cars while the US built 2.7 million or about half. The average compensation for a German autoworkers was 48.97 Euros per hour ($67.14 US),while in the US the average compensation was $33.77 per hour. German car manufactures coped very well with their high home market labor costs because they were still able to make a profit.

How did these German companies able to pay their workers so much, relative to the US, while producing twice as many cars and making a substantial profit? One reason is that in Germany every worker in this industry is more productive than the US. In class we learned that the higher one's production level is the higher one's wage. Technology and capital  can increase each individual worker's productivity. The US relative to Germany is a low-wage country for this industry. Meaning that each car produced in the US is more labor intensive than the ones built in Germany. German cars are built using machinery and demand less labor.

Germany was able to compete with the US even with higher labor costs. It was able to use its advantage in technology to increase its factory production in order to compete with world markets.

Tomato War between U.S. and Mexico

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According to the latest news, the tomato growers in Florida have pressed the Obama government since at the beginning of June to end a 16-year-old tomato trade agreement with Mexico, which is a $3.5 billion business for both countries. On last Thursday, Obama government had made a preliminary decision to terminate the agreement. It is said that this movement is motivated by the presidential politics. However, the U.S. Commerce Department has said it would make a final decision whether to terminate the agreement in no longer than 270 days.

In my opinion, I don’t think this agreement will be terminated totally. However, U.S will take some measure to protect the U.S tomato growers, like make traffics on tomatoes importing from Mexico. And anti-dumping policy will not be good for both countries.

Obviously, America tomato supply rely on importing tomatoes form Mexico, which account for almost 90% of the total imports of tomatoes in the U.S.  Mexico has comparative advantage in producing tomatoes and exporting tomatoes because of its lower opportunity cost. Also because the tomatoes in Mexico is a labor-intensive agriculture industry, the lower wage allow they hire more labor to produce more tomatoes. In another way, even U.S., a capital-intensive agriculture industry, has high technology in agriculture, they don’t have comparative advantage because its higher wage. With importing tomatoes from Mexico, American can consume more out of PPF without producing by themselves.

It is not impossible to get rid of Mexico tomatoes now. Consumers in the U.S. don’t want to consume tomatoes at a higher price. The food industries that need tomatoes don’t want to pay a higher cost to produce their products. It also will result in the high price and less demand on the products. Additionally, if they take the anti-dumping policy, not only tomato industry will be hurt.

Even though some Americans benefited from the importing tomatoes from Mexico, this agreement do harm the U.S. tomato growers’ profit. When the supply of tomato goes up in U.S. because of imports from Mexico, the price of tomato in the U.S. go down. That’s not good for making profits from it.

However, Why tomato growers in U.S don’t produce more tomatoes with their high technology and a large amount of land resource to let drag their price of tomatoes down and have higher competition. Someone said if U.S. produces more tomatoes, the supply will exceed the demand, the price and profit will go down.

I’m also curious about why Mexico has lower wage, is there any factors that result in its comparative advantage except the lower cost of labor.  And it surprise me that Mexico tomato growers said that the technology of produce tomatoes in Mexico is more advanced than U.S. That’s why theirs taste better and import more.

 

 

http://www.chicagotribune.com/news/sns-rt-us-usa-mexico-tradebre8931ge-20121004,0,3772299.story