French Minister Rules Out Exemption to 75% Tax for Soccer Players

Recently, France's  labor minister confirmed again that the government wouldn't allow any exception to a plan to tax top earners 75%. This police had been repealed in 2012, which leaded to several problems before the approvement of the police. The government wanted to use the capital raised from the high tax to cut the country's 33bln euro budget shortfall in 2013, but it is obviously not a wise choice for France. Let's see what will happen if French parliament passes the high tax to super rich people.
Actually, the police will just affect 1500 people whose income are higher than 1mn euro.  These people may try to leave France in order to safe their property. It can be seen as an immigration moved out from France, but I would rather see it as capital moved out from France. Because 1500 is just a small amount of French population, inversely, they own a large amount of French property. Let's assume that France is a capital-intensive country and there are two sectors, manufacturing and agriculture respectively, and there is a outflow of French capital. 
In my opinion, outflow of capital can be seen similarly as the opposite side of FDI. In the short term, using the specific-factors model, the outflow of capital will decrease the marginal product of labor in manufacturing sector because less machines are provided to the same amount of workers. And it will also leads to decline of the wage. The rental earned by land will increase since marginal product of land is risen. And the rental earned by capital will also increase because marginal product of capital increase. In the long run, using the heckscher-olin model, both rental and wage will not change because capital-labor ratios remain unchanged. And I am not sure about the effect of output in these two sectors. I think the output of manufacturing sector may decrease because less workers are available to manufacturing sector due to the decrease of wage. But the workers who are pulled out from manufacturing sector might not willing to enter agriculture sector since the wage in agriculture sector is even lower. Thus, if we assume that the output of agriculture remains unchanged, the overall output of France will decrease.
http://rt.com/business/france-rich-tax-repeal-060/
http://online.wsj.com/article/BT-CO-20131025-702979.html

Immigration in the Midwest

Currently, many Midwest cities are looking to hire foreign labor.  These cities are somewhat declining in attraction to American citizens so they are attempting to attract foreign labor.  Dayton, Ohio was the example in this article.  Dayton is attractive to Turkish immigrants.  Two years ago there was an industrial downfall in the Midwest cities and many lost their jobs and moved away from Dayton.  Since there are already low living costs and jobs awaiting the Turkish immigrants, Dayton was ready for immigration.  Their labor supply increased but the wages remained relatively low.  Dayton’s overall population is growing as well.  Advantages for Dayton are more people are stimulating the local economy, taking jobs that others (such as domestic labor workers) would not, and diversity.  Advantages for the immigrants are higher-paying jobs than in their home countries, better schools and more universities around the area, and less culture changes coming in with so many from the same area.  Dayton is trying to create community centers for the Turkish immigrants to feel welcome.  For the country as a whole, we receive gains from immigration by filling up the low-skilled work force and it allows the immigrant’s children to have opportunities to be part of the high-skilled work force.  Overall, this immigration movement has helped Dayton, Ohio, and the country.  Do you think Dayton, Ohio and the other countries are hurting opportunities for low-skilled American workers or should they shift to another region of the United States?  What impact do you think this has on longtime Dayton natives? 

BRAIN DRAIN TAXATION POLICY

                 Immigration comes along due to Push and Pull factors. Pull factors include economic such as high standard of life, and push factor are mostly social and political.

            Without mention the exact numbers of immigrants in different regions, the fact is that, there areas a huge number of immigration being taking place in the World. As we saw in class, the movements of these people have always been advantageous as well as have disadvantages in the country of origin and in the Country of entrance.

            This immigration comes along with both, skilled and unskilled work force that move out of their country of origin due to different ways, either legally or illegal. The entering in the skilled labor of the immigrants may due to schooling in the home country, or coming while already having their career in certain field and go seeking for a good pay, leaving their home country that provided for such knowledge but low pay. This in short affects the home country and benefits the foreign country in general avoiding the unskilled work force that losses job due the coming of the new cheap labor force. And in fact, all the employers of the companies seek cheap labor to minimize cost, so the incoming of the people who seek jobs who come to seek high pay compared to home, are employed even if in a low figure pay so long as they are above their home country. So, according to Bhagwati and Dellalfar in 1973, this skilled labor force that comes, benefits the foreign country and it can leads to economic inequality, and so they proposed a tax income for the professional immigrants particularly for benefiting their original country, whose man power was shipped, technically known as”Brain drain”.

            Therefore, my argument here is that, really the immigration makes some of the countries lose their skilled labor because of the pull of good pay in other countries and this makes those countries in one way or another lag behind in pursuing economic standing and in far touch leads to lose of jobs of other people in the country they go.

            So, my questions are, is this taxation solution to free movement of immigrants? Is this free hiring of the foreign work force really negatively affects the home country, so legalize taxation to boost the economy of their original countries? Also, will the greedy leaders not use this opportunity to ship skilled workforce for their benefit?

http://www.aspeninstitute.org/sites/default/files/content/images/Wilson_Bhatwati%20Proposal.pdf

Reed sees immigration as economic boost

As we learned in class immigration in the short run will decrease real wages as more labor enter the country. In the long run immigration will have no effect on wages. In the article I read Mayor of Atlanta Kasim Reed Says that Atlanta could have an economic boost by willing to let immigrants enter and have jobs. To be specific TBS the broadcasting company has 50% of its workforce in Atlanta and in some of their jobs foreign-born people have a distinct advantage to be hire. This is the most common fear that most people get concern with immigration because if immigrants are hired they are mostly willing to take the job at a lower wage and the wage standard lowers for that type of job. In the long run immigration has no effect on wages so the economic boost that Mayor Reed must be talking about must not concern wage but another factor that will help the city in the long run. I believe that this would mostly be a societal boost because those immigrant will have children who then go to school and higher education to eventually fill or create more jobs. That is most likely the economic boost that the mayor talks about.

In article there was a small mention of entrepreneurs   and if we truly think about it would entrepreneurs be seen as capital. They are in some way a provider jobs later on in their entrepreneurial pursuits and they are sometimes limited as to where they can enter when it become a business. In the end The mayor sated that immigration will boil down to how Atlanta citizens want to be represented as. That Statement should makes realize the fact that economic benefits are not always the convincing  argument to make to get peoples support. 

Penn World Tables - World Economic Growth

This article discusses the development of the new Penn World Tables that has been released within the last month.  With much research, these tables provide a more accurate depiction of the worlds' economies than did previous information.  Specifically, these tables enable us to see economic growth and relative income among countries.  They were the first of their kind to attempt to illustrate relative sizes of economies.  The results have shown a world of "increasing wealth . . . where predictions of Malthusian traps and permanent poverty look increasingly archaic" (The Whole World Is Getting Richer, and That's Good News).  The main components of this process involved comparing how much something costs, what people are buying, and how these vary over time.  This looks into how we value goods and services over a period of time, and uses information from the past as well as current information.

These tables shifted the size of economies as was previously estimated, most for the better.  Surprisingly, China is growing even faster than was thought according to this study.  However, this is just a reflection of all of the world's economies, as it indicates that almost every economy is larger than we have thought.  While some smaller countries have only doubled the size of their economy since 1960, many countries have increased in size by five fold.  About 5/6 of the world's population live in areas which have increased by five fold, while all but 1% live in an area that has increased by at least two fold.

I attribute a large portion of this growth to trade among countries, especially in the past couple decades.  Due to the availability of resources and products on the international scale, we have been able to make ourselves better off and have raised standards of living, as is shown by this study.  Countries have chosen to trade in order to take advantage of another countries' resources such as technologies or other endowments.  I think that these tables will be very useful tools in future studies and research, but more simply I think that they illustrate how advantageous world trade can be.  It's one thing to look at graphs to predict benefits, but another to see real world decisions that have helped economies grow.

FDI in China

The article that I read was about FDI in China and how over recent months the United States FDI has increased in China although the economy had shown slower growth. China has an increased FDI of 7.1% from the same time in 2012. The current FDI total in only seven months is $71.4 billion. This July China received $9.4 billion in FDI, nearly a 25% increase from one year ago. Looking at the overall FDI it can bee seen that the FDI in manufacturing has fallen 2.4% in a year versus the FDI in the service sector that has risen 15.8%. According to the article China is looking to attain more FDI in advanced manufacturing to process higher value products. Since this economic shift, China’s economic growth has slowed from 7.7% to 7.5%.

What I first found interesting is that globally there has been a recent shift from manufacturing to service goods. By looking at this through the specific factors model, it might be seen, that China is a manufacturing abundant country versus a labor abundant country. Since there has been a shift to more labor intensive FDI, this might explain China’s economic dip. It also will be interesting to see if more China attains more immigrants to operate more advanced technology.

My questions would be: Do you think an increase in immigrants to China is likely, if so what effect might it have? Also, what might this shift from manufacturing FDI to service FDI tell us about the global economy? 

Faltering FDI in Indonesia

I read the article Foreign direct investment falters in Indonesia. This article discusses how FDI in Indonesia has fallen in US dollar terms for the first time since 2011. According to reports the FDI has fallen from $7.2bn to $7bn. The value of the rupiah, Indonesia's currency, has dropped more than 15% against the dollar since September as investors are pulling out of the riskier emerging markets. As one economist put it "I don't think the long term growth prospects have been deteriorating. i just think they weren't as good as a lot of people thought they were." There are still many reasons for investors to be attracted by the large and expanding middle class and the plentiful natural resources.

As we looked at in class the FDI specific factors model shows the effects of FDI in the recipient country. With increased FDI in Indonesia they would gain a net wealth increase and an efficiency gain. Real wages would rise in Indonesia as productivity goes up because of FDI. The "donor" country would have a negative % change for their wages and the "receiving" country of FDI would have positive % change for wages. So, in this case because FDI is being pulled out of Indonesia their country is losing out on potential net wealth increases. With the economic difficulties in Indonesia the growth is continuing at a lower rate. Because of this the amount of FDI is being lowered. Indonesia is missing out on some of the improvements given from FDI, but I feel they will be fine in the long run.

Large FDI from China way to address huge trade deficit: Manmohan Singh

Now, India has a deficit when trading with China. Last year, bilateral trade was about 66.5 billion dollars, and China exported to India about 47.7 billion dollars. Thus, the Indian deficit was approximately 20 billion dollars. Also, it is a main concern in India when discussing RegionalTrading Arrangement (RTA) between these two countries. In order to overcome this problem, the Prime Minister, Manmohan Singh, has welcomed Foreign Direct Investment (FDI) from China and building up a Chinese Industrial Park in India.

India faces a deficit, which means that its imports are larger than exports. In order to pay to exporters from China, consumers in India have to sell local currency and buy Chinese currency. During this process, the national income flows to China, which causes weakening of the national economy. One way to solve the problem is that India can devalue local currency, which will decrease imports and also lower the prices of exports to improve competitiveness of exports. However, currency devaluation can lead to some serious problems, such as inflation and rising domestic prices.

Therefore, India chooses to attract FDI from China and establish a Chinese Industrial Park in India so that they can improve exports and reduce its deficit. In the classes, we have learned about FDI that if prices do not change, the receiving country will lower the rental/return on capital and land as well as raise wage in the short run. In other words, the owners of capital and land become worse off and workers gain. But in the long term, wage and capital will not change, because land, capital and labor are mobile, and industries have enough time to absorb the new workers by adjusting output. For India, although it may worsen the rentals at the beginning, it will have no impacts on them in the future. Therefore, it is a good way to solve the deficit by attracting FDI. Additionally, India can learn experience or lessons from other countries, like Malaysia, which has a chronic deficit and also attract FDI. 

Source:

http://economictimes.indiatimes.com/news/economy/foreign-trade/large-fdi-from-china-way-to-address-huge-trade-deficit-manmohan-singh/articleshow/24543984.cms

                  Immigration is a hotly debated issue in the United States due to the supposed economic impact it has. The left and the right often debate whether it will actually hurt or help the economy. The center of immigration studies produced a report for the Joint Economic Committee in May of this year. The report has some interesting points.

                  First the report states that the aggregate size of the economy has an 11 percent (1.6 trillion) increase in GDP yearly to the economy, though 97.8 percent of the GDP growth goes back to the immigrants and not the natives. Secondly the wages in the country due to immigration drop native wages by an average of 402 billion a year, while increasing the users of immigrants wages by 437 billion dollars. Thirdly the from early 2000 till present we have seen a decrease of native workers by 1.3 million in the work force compared to an increase of 5.3 million immigrants in the work force of the same period of time. Fourth the National Research Council has concluded that immigrants (legal and non) great a financial burden of 11.4 billion to 20.2 billion dollars annually on tax payers. The average household run by an immigrant uses more than 14,000 dollars in government services than it pays in taxes as well. Lastly the CIS has concluded that if the US would legalize all current immigrants in the country it would increase the taxpayers burden to 29 billion dollars a year. The closing arguments for the report state that illegal immigrants aren’t actually the biggest burden on the country but rather un-educated legal immigrants because they are entitled to many more government programs.

                  What are your thoughts on immigration and how reform should come about?

                 

Economic growth and the potential problem in Germany

Let’s look at one of the most powerful countries in Europe, Germany, which has largely driven the Eurozone’s overall recovery this year. Germany showed more expansions of 1.4 percent in industrial production in August than in the previous month; and its gross domestic product (GDP) was increasing 0.7 percent that was over economists' expectations in the second quarter of 2013. It seemed that the anticipation for German industries could remain positive in the short term. Indeed, there are several motivations: superior domestic demands, the moderate inflation, a stable labor market, an increase in new exporting-orders and a historically low interest cost in the euro zone. However, I think that there are still several fatal problems in the longer term, for example the hard shift in energy resources.

On one hand, compared with the United States, the price of German energy is so high that it cuts down its International Competitiveness and causes considerable losses; a rigid and inefficient energy market with rising costs also puts Germany’s market share at risk. On the other hand, the foreign dependency rate of the German economy reached 52 percent in 2012. This ratio indicates that a higher carbon energy policy is not just an issue for some energy-intensive manufacturers, it will affect the entire trade, the German populace, and the fiscal position of the German state. Therefore, I consider that Germany will have a long path to pursue a competitive energy scenario such as exploiting onshore wind and solar power.

As our textbook presented, avoiding additional costs for energy-intensive industries has positive macroeconomic effects on balance of payment, foreign exchange reserve, and terms of trade. Compared with the Germany, the United States has a comparative advantage in heavy industries such as automobile because American’s prices of domestic goods are under the world price but German market prices of same products are higher than that level. Nowadays more importers would like to set their orders from the U.S. companies such as General Motors rather than Volkswagen from Europe, which improves the American economy including adding wages of industrial workers, gaining owner’s capital and extending production possibilities frontier. On the contrary, more German goods with high costs have to remain in the domestic market increasing the unemployment rate and even causing amount of pollution in the long run. So I believe that the upward profit in second quarter can not withstand potentially rising energy prices in the long run, unless Germany speeds up shifting to low-price and clean energy.

Reference:

http://english.cntv.cn/20130814/103760.shtml

http://www.ibtimes.com/uk-industrial-production-trade-data-disappoint-german-industrial-production-records-surprise-1418514

http://www.ogj.com/articles/2013/10/costs-of-electricity-challenge-a-leader-in-renewable-energy.html

Japan Looking to Reduce Import Tariffs

Over the years Japan has relied on heavy import tariffs to maintain domestic agricultural success. However, the Japanese Prime Minister, Shinzo Abe, is looking for a change. As is evident, Japan has been close-minded to the idea of free trade in this sector. By cutting import tariffs dramatically, Japan will be opening up to world trade, giving a chance for other countries to appeal to the domestic consumers in Japan. Nonetheless, Abe has high hopes for the current domestic producers who are at risk to lose domestic market share, believing that they will be able to increase exports of these Japanese “high-end food products”.

Using the standard trade model one could assume that domestic prices would fall to match world prices and that accordingly the price of exports would fall to match world prices as well. The catch here is that the Japanese exports are being marketed as “high-end food products”, allowing them to maintain higher prices. I would like to add my own input here as I believe that domestic pricing will indeed fall to world pricing. I also believe that Japan’s exporting price will fall (not completely to match world pricing), that the quantity of their exports will increase greatly, but these producers individually will not be able to match the revenue they were previously making with the tariffs. 

By utilizing the Hecksher-Ohlin (pg. 3, third paragraph) model we can show that, while these import tariffs are more efficient for a country’s economy than trading at autarky, free trade still provides the greatest increase in relative economic welfare. The tariffs that have been imposed by Japan have increased the welfare of the domestic producers, but hurt other areas of the economy. Therefore, Japan’s decision to lift these import tariffs should prove to be beneficial to the country as a whole, although it will end up hurting domestic producers. As I covered earlier, Abe is trying to minimize these losses by encouraging domestic producers to begin exporting more of these ”high-end” goods as they begin losing domestic market share.

Politics and International Trade

I was recently reading a dissertation on the impact of institutions, governance quality, and public spending on international trade. The first chapter of the dissertation discussed the WTO and the many studies done on the effects the WTO has had on international trade. One study from Andrew Rose cited in the dissertaion determined that the WTO had no significant economic impact on trade. After Rose released his study many other studies came out also trying to measure the impact of the WTO, a study from Balding had some interesting findings. He found the WTO did increase trade, however it did so unevenly across countries, in fact many countries experience no significant impact on trade. Balding's research also found that Rose's results for real total trade may have been more accurate than thought, however Balding found that after joining the WTO, a countries exports will increase, while imports remain constant or decrease. After reading this dissertation I further researched the WTO, what i gathered from the WTO's official website is that essentially the objective of the WTO is to facilitate trade agreements among member countries. The question that came to me after gathering all of this information is, is the WTO necessary? First off, it has differing impacts on its member countries, i suspect the countries that benefit aren't winners by accident. However whether the WTO is corrupt in favor of certain countries is another issue. My real question is, if the WTO doesn't have the impact they say they do, why do we need them, why can't the markets of each country decide who to trade with, instead of the politicians negotiating, since they obviously need a peer mediator (the WTO) to get things done. I suspect more free leaning markets could figure out trading issues amongst themselves, better than a group of politicians.


http://search.proquest.com/abicomplete/docview/304850017/141295D391F65C54710/1?accountid=28567

http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm

                      CHINA AND TANZANIA ON ECONOMIC AND TRADE RELATIONS
Countries engaging in trade have both to benefit in relation to what their trade terms state. All the countries have to benefit in as much as they are able to deliver the required trade products, be it technology or products. Tanzania and China signed many trade agreements on trade and technological cooperation and these include; foreign aid from China direct to Tanzania including technological aid, and funding of many other projects. All this in fact have trade compositions that Tanzanian has to agree in the terms. we see also  how Tanzania and China share trade benefit of about $290 million and each country benefits on the maximum of its contribution.
                    In fact, there is one member in the terms that gains much, and the other gains less depending on what is requires for the Country. China exports about $million to Tanzania and imports $110 million from Tanzania. Tanzania is not also passive in the trade, it contributes for the imports that go to China in the amount mentioned above and this trade, where both of the players do not lose completely but in one way or the other they gain.
   When we speak opening to international trade or avoiding no-trade policy, we speak of the ability to consume outside the PPF though producing on the along it. So, now Tanzania has the chance to export things that would only be consumed in the country and also not being able to produce them if it was not open to the international economic and technological agreements. Agreements are always to bind the two partners to fulfill their obligations.
  When we come to relate this with our class materials, especially on both Models, Ricardian and Heckscher we find the truth underlying the type of trade partnership between Tanzania and China. Regarding Ricardian model, we see that China has technological comparative advantage over Tanzania especially when we look on the things that are made in Tanzania and those made in China, and also looking at what China exports, we see includes also technology
    Looking on Hecksche-Ohlin model, we see both of the countries offer the products which are not available in the other partners area. The two countries offer different products due to different resources, for instance, Tanzania exports products such as dry sea foods, raw leather, log,, course copper and wooden crafts which are available in the country. China in turn offers, chemical equipment, electrical suppliers, and steel which not only have a presence in China but also have elements of technological advantage. The article in fact gives a hint that, trade is always between two or more partners and it does not count how one gains or loses but the way the economic principle will guide the course of agreement. Therefore, all the partners in trade have to know that, there must be a loss and gains when we engage in trade, or not all will benefit in the same way as we see China gaining $million and Tanzania gaining $110 million. We saw also that, a country that donates to a foreign country, benefits more that the country that receives a donation. It is now what we see between Tanzania and China.
        The question is, will Tanzania gain more than that if it rejects steels, foodstuff,light industrial products, and other products which it possess as resources?The second question is, if China retaliates by stopping foreign aid in technological form, will it be affected by the decision done?And what is the function of the foreign aid to Tanzania?

Source:http://tz.china-embassy.org/eng/ztgx/jj/t421433.htm

Trans-Atlantic Trade Pact

Trade officials such as the European Union’s trade commissioner, Karel De Gucht, are looking towards creating a trans-Atlantic trade pact between the European Union and the United States.  This pact will seemingly increase benefits in both parts of the world.  The outputs between the two will increase and would keep China out of the loop.  They are trying to be more productive and have more effective products.  This creates competition for China to try and make its own products better. 

The products and sectors of automotive safety features and medical devices are trying to improve throughout these countries.  De Gucht and the trade commission are likely to keep these goals among others.  Europe would like to export different automotive safety features to the U.S. such as seat belts, steering, and lights etc.  But overall, the trade commission would like to set a standard for all countries in the trans-Atlantic trade pact.

This trade pact would benefit both the United States and the European Union.  It will allow for better free trade, allow countries to specialize and create a less diverse, but still highly technological, product supply.  Since the trans-Atlantic pact will not include large trading companies such as China or India, the prices of products may rise since there is not as much of a product supply available.  However, this pact will force those trading companies to keep innovating to keep up with the high standards of the products traded in the pact.  The countries will specialize using their best assets, modern capital and highly productive and specialized labor.  

Further Thinking About The Impact on Hong Kong From Shanghai Free Trade Zone

http://www.scmp.com/business/economy/article/1326794/hong-kong-must-be-ready-competition-shanghai-free-trade-zone-chan

http://www.tid.gov.hk/english/trade_relations/mainland/trade.html

Last week, a new type of free trade zone in Shanghai, China, was announced to open. It is an experiment in economic and financial reform on mainland China. In this restricted area, banks and other organizations are allowed to do something that is tightly controlled in China, including eased regulation of interest rate and freer convertibility of China's currency, the yuan. The more frequent fluctuation of yuan may affect Chinese import and export price of products. But what is the impact on Hong Kong which is located to the south of mainland China.

Hong Kong is known as the financial and transfer center in Asia. The free trade zone in Shanghai may compete with Hong Kong in financial operation and investment because Hong Kong was the first place to conduct offshore yuan business. But Hong Kong has its own advantages such as geographic position and mature financial regulation. I think it is not easy to use what we learn in classes to describe the impact of Hong Kong in this area. But I want to talk about the impact of the TOT on Hong Kong.

We can see from the second link that mainland China is the largest trading partner of Hong Kong. Hong Kong exports 54.3% and imports 47.1% of its goods with China. We assume that Hong Kong exports manufactured products to mainland China and import consumer goods from mainland China. Thus, the TOT of Hong Kong is equal to the price of manufactured products over the the price of consumer goods. The impact from the free trade zone in Shanghai involves the interest rate and the value of the yuan. I think these two factors may not affect much about the price of manufactured products and consumer goods because the government of China will try to keep the interest rate and the value of yuan stable in the short term so that China is able to maintain a steady economic growth. In the long term, I think the value of yuan may increase gradually which may have impact on both manufactured products and consumer goods. I pose a question here, what is the impact of TOT on Hong Kong in the competition against the free trade zone in Shanghai in the long term?

Trade Issues with India

The United States and India have been having an agreement for years to set up trade between the two countries. But India being the third largest economy in the world they are the 13^th largest trading partner with the United States. This is due in large part to the trade restrictions that India put on their trades with other countries. As found in India Undermines Its Own Economy.  This talks about how India puts unfair amounts of tariffs on goods at the borders. They also have enormous amounts of restriction on entries to new industry.  These tariffs and other restrictions that India is putting on its own economy is making it hurt badly. This can be seen by the fact that their economy is only going to grow at 5% witch is its lowest in a decade.

By doing these things to its own people leads to America not wanting to trade with them. This causes their terms of trade to drop; this is because if there is no one out there trading with you then your terms of trade is going to drop. This can be caused by the import price going through the roof because other countries might tax you for their goods. By doing this though the U.S. is also hurting its own terms of trade because they are taking the third largest economy off the list because it has weird laws.  This cuts into the Unites States terms of trade decreasing also, because they are missing out on all the demand from India if they were to trade more with them. So the price of our exports will drop not dramatically but somewhat thus hurting our terms of trade. So I ask you do you think that in order to help both of our countries should we open up more trade with India?

Trade gap with China costs the US $37 billion in wages

According to a study sited by Trade gap with China costs the US $37 billion in wages, the US's growing trade deficit with China is costing the US middle wage jobs.  The study says that the US has lost 2.7 million jobs since 2001 when China joined the World Trade Organization.  Workers relocated to other industries supposedly saw a decrease in pay as well.  In short, this article is showing the negatives of trade with China and insisting that the US should limit trade between the two countries to some extent.

However, this article fails to look into other factors that come into play.  For instance, it fails to site any information on the price of goods in the market upon opening more trade to China, which should lower prices of those goods which we are importing.  Therefore, the relative prices of such goods would be lower for some Americans.  This article could be getting at the Pareto optimal outcome of the situation.  By opening trade with China, the US has seen a drop in jobs in certain sectors while seeing a decline in prices of imported goods.  This results in some being better off while those workers in sectors that are now imported are worse off.  This demonstrates a Pareto optimal outcome which states that for some to be better off, some must also be worse off.  Opening trade will lower prices in the economy as a whole, but not everyone will benefit from the decision.

Trade Gap Costing U.S. Jobs Billions in Wages

The article I choose to read, Trade Gap With China Costs the US $37 Billion in Wages, discusses how the growing trade deficit between China and the US are costing the US $37 billion in wages, according to a study by the Economic Policy Institute. This study states that 2.7 million jobs have been lost in the US since 2001, when China entered the World Trade Organization. The bulk of these jobs came from the manufacturing sector. The displaced employees were re-employed in non-trade-related industries, they lost an average of $13,504 per worker making around $37 billion in wage losses over the year. According to Robert Scot, the EPI director of trade, "Allowing the US - China trade deficit to continue growing would eliminate many more jobs in manufacturing and further erode the wages of US workers". The study shows that minority workers in the US have been particularly hard hit by the worsening trade relations with China. This article thinks that the trade deficit is a main problem with middle class jobs being lost.


In class we have discussed wages in free trade. We have also learned about how wages are determined. In class we discussed wages in free trade by using a "Home" and "Foreign" country. We also used two sectors in the countries do see how wages would be determined. In our example we used Wine and Cloth.

These equations show how the wages in each sector can be found. In the case of this article the main issue is just one sector, manufacturing. Because the manufacturing jobs are going to China, workers are getting pushed into different sectors because the US must start to specialize in other areas. In this case the new sectors have lower wages than those of a manufacturing job. The article discusses how allowing the trade deficit to continue growing will make US wages decrease more. This is somewhat similar to one of the questions on the first test. The main factor to wages is the productivity. If China is more productive in the manufacturing sector the jobs will go to China and have an increasing effect on their wages. I do not fully agree with what the article is trying to say. I do not necessarily think it is the trade deficit that is hurting our wages. China is simply becoming more productive in certain manufacturing areas. Because of this the jobs are going to China. Thus in turn manufacturing jobs in the US are being "lost". Those workers are then being moved to other sectors where they are unable to make higher wages. I feel that instead of putting the blame onto China, the US could focus on increasing productivity.

MPL: USA v. Emerging Economies

 How is the United States marginal productivity of labor sizing up to other emerging markets these days? Over the past decade high labor productivity rates in emerging markets (i.e China and India) have been worrisome to people in the United States economy, but this article by the Federal Reserve Bank of New York explains who some of the winners and losers will be to increased MPL abroad. I ask the question, should the United States try to intervene in any way (i.e tariffs) to protect the losers at home?

As we have discussed in class, an increase in MPL for any country is viewed as a good thing. This can strengthen the wages in the sector and raise the living standard within the country. We have also talked about in class that with an increase in MPL this drops the price in the good or service being sold making it more affordable for consumers to attain the good or service. Another thing is that countries who tend to have lower MPL will be worse off compared to those with a higher MPL.

In this case the two major emerging markets that are experiencing rapid gains from increased MPL is China and India. From 1995 to 2005 China's labor productivity rose 6.4%, India's rose 4.4%, while the United States only rose 2%. The direct effect that they will have on the US economy is that there will be increased competition. These competing firms will either have to exit the market or become more efficient. Although firms will face competition this will help the US consumer as prices drop due to increased supply. The effects of United States exporters should increase as fast labor growth leads to more income, thus the purchasing of more goods.

So again, with an increased MPL from foreign countries, is it beneficial to the overall US economy for tariffs to be imposed?                

Australian wages will fall behind unless productivity improves

In the article I read this week. Its titled stated that Australian wages  which had the highest average monthly wage in 2011 will fall behind unless productivity improves . When it stated that wages will fall behind the article meant that the wage would not increase as rapidly as in China, Poland, Turkey, Mexico and South Africa which in the this article are stated to be growing in productivity. Unfortunately low productivity will not be the only factor to effect low wages because an expected drop in the Australian dollar will also affect the wage. In the end what will help Australia increase productivity to increase wages is to improve productivity through industrial relations, tax reforms, and a review on the current immigration policy to attract people with the wanted skills.Now as we learned in class a country with a higher MPL or Marginal productivity of Labor means a higher wage and a higher standard of living so it is true that if productivity does not increase then wages will not increase. The solutions in the article seem to be each valid in someway. In the idea to look at immigration policy I can see that this would make the factor of Labor which in class we always see as fixed increase and this idea while we have not discussed in detail we can begin to think that in a way it is a little impractical to see labor as fixed depending on immigration. When it comes to industrial relations I can only think about somewhat help them import or operate more. Unfortunately I can't think about a way that tax reform can help since it would distribute tax money differently but where to?Lastly I would like to leave you readers with some food for thought. If we have a slow or none existant increase in wage will the standard of living change? In fact what will happen to standard of living in this situation? The reason I ask is because I believe that people are arrogant and they would prefer to go to debt instead of decreasing the standard of living in the country.

Experimental Free-Trade Zone Opens in Shanghai

On September 29, 2013, Shanghai Pilot Free-Trade Zone has been launched, which is the first free-trade zone opened by China. It includes Waigaoqiao Free-Trade Zone, Waigaoqiao Free-Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone. Also, The Chinese government wants to spread this pilot to other parts of the country so that they can rebuild a rapid developing economy. Within this zone, people from all around the world are allowed to convert currency, invest and import and export of goods freely. Many restrictions are reducing. However, many people do not know the details about this new experiment, so they urge the government to give more information as soon as possible.

Because restrictions on export and import, especially tariffs and taxes, decrease, the prices of products go down. Then many Chinese people may buy a lot of things from other countries. Therefore, competition of Chinese companies becomes much fiercer. What’s more, I remember there was a question in the first test, “international capital movements tend to hurt labor in donor countries”. A reason is that less capital supports companies in donor countries and if some companies do not have enough money to operate their activities, they will layoff workers. On the contrary, it is beneficial to labor in China, because people have more opportunities to find jobs. I think there are still other advantages of capital movements. For donor countries, investors, who can make the capital flow to the most efficient places, can earn much more money. Capital movements can also help donor countries improve their international positions. For the recipient countries, not only can they reduce unemployment, but also can solve the problem of fund storage in domestic.

I pose a question--Will the Free-Trade Zone in Shanghai threaten Hongkong’s economy, where “has a major capitalist service economy characterized by low taxation and free trade”?  

source:

http://www.nytimes.com/2013/09/30/business/international/experimental-free-trade-zone-opened-in-shanghai.html?_r=1&

Product Rule Fun

COMMENTS ON THIS POST WILL NOT COUNT FOR CREDIT.
I feel a little guilty for Zach remembering the product rule in class yesterday, then deciding to “simplify” the problem by taking natural logs, and thus not using his contribution to show the final result. So, because you all know how I worry that you’ll lose sleep over such things, Here are the steps we would take to get the result without taking logs. Enjoy, and have a great weekend.

(1) w_m = p_m MPL_m.
(2) dw_m = p_m dMPL_m+MPL_m dp_m .
Dividing by w_m we have:
(3) (dw_m/w_m) = (p_mdMPL_m/w_m) + (MPL_m dp_m/w_m).
Recalling from equation (1) that w_m = p_m MPL_m, we have:
(4) (dw_m/w_m) = (p_m dMPL_m)/(p_m MPL_m) + (MPL_m dp_m)/(p_m MPL_m).
Cancelling like terms in the numerators and denominators on the right-hand side, we have the final result (which is identical to the version in which we started off by taking logs):
(5) (dw_m/w_m) = (dMPL_m/MPL_m) + (dp_m/p_m).
If you’re bored this weekend, try this out on the example we did using log differences to show that the Cobb-Douglass production function has the property of constant returns to scale.

If you’ve read this far, you’ll probably enjoy knowing that while at VMI, since I wore a uniform, I also had to maintain haircut and shave standards that were also roughly in line with military uniform codes. Have a good weekend.