President Xi urges G20 to fight against trade protectionism and promote world economic growth

The G20 summit was held from Sep 5, 2013 to Sep 6, 2013. The leaders who took part in this summit discussed the world economy, the system of international finance, employment, trade and other issues. Xi Jinping, the president in China, said that it was very important to reject trade protectionism together so that the G20 members could promote free trade and improve the growth of the world economy. And he came up with three ideas to achieve these goals. First of all, the G20 members should oppose trade protectionism, and develop the openness of the world economy. They need to create a free and open global trading environment to boost facilitation and liberalization of international trade. Second, they “should strengthen the global multilateral trade system”, whose core is inclusive and non-discriminatory. Last but not least, they should promote the global value chain and set up an integrated world market. During this process, they ought to know the division of each country and help developing countries strengthen trade capacity. Xi thinks that the development of the economy depends on the mutual cooperation of each country.  Additionally, Xi also talked with other counties’ presidents to build up good relationships with them.

In my opinion, I agree with Xi’s view. Nowadays, every country cannot be content with their own resources, technology, capital and so on. So if they can trade freely, it will help them promote a lot. Furthermore, we learned that free trade was beneficial to “Pareto Improving” at the country level, which means that we can make more people better off without making others worse off. Additionally, international trade has an effect on the terms of trade. If a country can increase the TOT, it will make the country better off, because the country can earn more money from exporting and save more money from importing. Also, consumers and producers can attain the gains from trade. For example, consumers can import more goods that are scarce in their countries and producers can obtain cheaper material to lower costs. There are a lot of benefits for trading, so it is important for countries to boost trade without making many restraints, such as tariffs, trade barrier, etc.

Sources Researched:

                        

http://english.cntv.cn/program/newsupdate/20130907/100956.shtml

http://news.xinhuanet.com/english/china/2013-09/07/c_132700299.htm

New Zealand Terms Of Trade Rise 4.9%

In this article it states that New Zealand has 4.9% increase in term of trade. As we learned in class we learned that Term of trade is simply the Price or monetary amount of exports divided by the monetary amount of imports.In this article it is stated that "Terms of trade is a measure of the purchasing power of New Zealand's exports abroad. An increase means that New Zealand can buy more imports for the same amount of exports". Now this here is a confusing statement because if that is true wouldn't term of trade go down if New Zealand used it in its next quarter to buy more imports. The other problem I see with the statement above are the words purchasing power. When it says purchasing power of New Zealand's exports abroad it seems in a way misleading to what it actually is which is just the price at what others have paid for their exports. The way one might actually interpret the statement might be as if New Zealand has more disposable income because their exports and that might not exactly be the case.

The was another statement that made wonder if terms of trade is a necessary number and that was "The terms of trade increase of 4.9 percent reflected higher dairy prices,". This statement indicates that there are other factors than the quantity of an export that effect terms of trade. The one factor that I thought of was exchange rate of one country to another. This factor could in deed increase term of trade for a country for exports since it would involve multiple countries and all their exchange. In fact this could be used in reverse and New Zealand could try to buy all of its imports where their currency is stronger, just like a consumer tending to buy where it is more convenient.

To summarize Terms of trade increased in New Zealand and the way the article use the term seemed to be misleading to what it actually means and an increase in the terms of trade was because of an increase in the price of dairy but that may not only be factor that effects the price of exports. If you have an opinion or feel I have mistated something please feel free to post a comment. 

Some Blogging Basics

NOTE TO STUDENTS: COMMENTS AND/OR QUESTIONS POSTED TO THIS ENTRY DO NOT COUNT FOR GRADED CREDIT
Once you are logged in to Blogger using your SAU Google login, starting to write your blog post is pretty easy. Another way to sign in is to visit the blog website, and if you are not already logged in, you can click "sign in" at the top right of the screen, and log in using your "sau.edu" email address and email password.
If you have accepted the invitation to join the blog as an author, you will now see "International Trade Class Blog" in your blogroll and you can simply click the orange button with the pencil icon inside of it to create a new post. If you do not see this, and you have not accepted the invitation, then go to find the email and accept the invitation, or EMAIL ME requesting me to re-send the invitation.
Once you have begun a new post, there are a few things that I recommend. First, when you refer to an outside source (and you should always be incorporating some outside source to show a connection between the class theories and the real world), as I have done in today's post about industrial policy when referencing this article by Robert Atkinson and Michael Lind, you should embed the link into the text that you have selected by: (1) highlighting the text where you want the link to appear; (2) clicking the "Link" button at the top of the formatting bar in the "Compose" view of the post editor; and (3) pasting the URL of the web source you have mentioned in the box.
If you so choose, you can also upload images into your post by clicking the picture icon button (just to the right of the "Link" button"), then adding a link to a web location for your picture or uploading a picture into Blogger from your own computer. The same goes for videos (the button next over from the "picture" link. If your video appears on a website, but isn't available on YouTube, you can still embed it using by pasting the "embed code" from that website into the html code. I have done this for the "Daily Show" clip (which I know not to be available via YouTube) embedded below. This is slightly more advanced, but definitely doable.

Finally, if you really like doing your text editing in Word and not in your web browser, MS Word 2007 and up allows you to save your Blogger login information so that you can automatically publish to the blog directly from your Word application on your computer (and also save a local copy to your hard drive). In word, simply start as if you are going to create a new document, but instead select "New Blog Post" from the "New" dialog box. Word will prompt you for your blog's host (Blogger), as well as your login name/password. You may have problems linking the accounts if you maintain more than one blog with your "sau.edu" login name.

Made Everywhere (Repost)

Another Repost, but good food for thought as we introduce the basic concepts of trade and trade accounting from Chapter 1.

What does "Made in ______" really mean? On Wednesday, we briefly discussed the idea of gross trade versus value-added trade in the context of the iPhone. The argument was that when the final assembly of the iPhone is imported to the US, its full value (say, about $200) is counted as imports from China to the US in the US trade balance. But really China's value-added is only about $6.50. The rest is made up of components built elsewhere, as well as design, marketing, and financial services that are carried out here, in the US. Scott Lincicome offers a nice graphical example showing how these vertical supply chains work, and where things are typically made from start to finish (I do have a minor quibble with him including the sewing machines in the supply chain, because those aren't really "components", but let's look past that).
The bottom line is that vertical FDI allows firms to specialize production of various stages of production in multiple locations to best exploit the gains from trade and comparative advantage.
We will talk more about the gains from trade and comparative advantage in Chapters 2-4 of the textbook, and more about vertical FDI in Chapters 5 and 7. However, the way that comparative advantage is exploited internally by the firm when it engages in FDI highlights the distributional impacts of trade along the lines of comparative advantage: For the country that is sending capital abroad, the shareholders who own the capital win, as do consumers; the workers who were once employed by that firm domestically lose; yet, the net effect is positive.

How Big Are (or Aren't) the Gains from Trade (RePost)

The following is a re-post from last fall, but the information and data are certainly relevant.

One of the things trade economists have traditionally enjoyed doing to hammer home the gains from trade is to cite seemingly outrageous numbers about the positive impacts of trade. For instance, there is this 2003 report from the US International Trade Commission that estimates the net costs from trade restrictions for 1990 to be about $170,000 per job saved (but yes, jobs were saved by protection!). Or, there are these calculations that take a more nuanced approach sector-by-sector:

Industry	Annual loss to economy from barriers = Cost	Net employment loss if barrier is removed = jobs "saved"	Annual cost PER JOB SAVED
Textile and apparel	$ 10.04 billion	55,000	$ 182,545
Maritime transport	$ 2.79 billion	2,450	$ 1,138,775
Dairy	$ 1.01 billion	2,083	$ 484,878
Motor vehicles	$ 710 million	3,400	$ 208,824
Sugar	$ 661 million	1,694	$ 390,200
Meat	$ 185 million	100	$ 1,850,000
Steel mills	$ 162 million	1,265	$ 128,063
Nonrubber footwear	$ 147 million	1,316	$ 111,702

From McConnell and Brue, 2002

Source: compiled from United States International Trade Commission data released December 1995. Data are for 1993.

New research has called these claims into question, at least somewhat. Jonathan Dingel summarizes some of the new research on trade (which includes contributions by Arkolakis et al., Ossa, and the opinions of Prescott) using more advanced trade models here. Arkolakis, et al. find that the gains from trade in these "new models" is "not much" - maybe 4-7 percent of GDP. But, these gains depend on the estimation of elasticity coefficients, which may vary by industry. When these coefficients are estimated separately for different industries, the gains from trade increase by about 6 fold, to somewhere between 24 and 42% of GDP.
Thus, the gains from trade may well be large after all.

Sugar Quotas

Trade restrictions (both tariffs and quotas) are harmful to (static) efficiency because they distort the allocation of resources across sectors. The story of the US Sugar Program is a useful cautionary tale about the politics of protection, and also illustrates the fact that not all trade restrictions are alike. 

So, the first question we can ask is, why are quotas (potentially) worse than other restrictions, namely tariffs. The neoclassical explanation is that quotas are more likely to allow a domestic monopolist to continue to exert market power over the domestic market. Since a tariff merely adds onto the price at which foreign producers can compete in the domestic market, a domestic monopolist facing foreign competition still must compete as a price-taker at the tariff-inclusive price - it's the same as if the domestic market were still competitive. When the government intervenes with a quota, the effect depends on the domestic market structure in the industry where it is applied (as we might see in Chapter 9 if we have time to cover it). Without getting into the technical details of the theory, applying a quota in a competitive market is the same as applying a tariff designed to allow an equal quantity of imports into the country because the market is competitive either way. Applying a quota in a monopolistic domestic market is worse for domestic welfare because it signals to the monopolist precisely which portion of domestic demand will be allowed in as imports. Hence the domestic monopolist is able to monopolize the remainder of the market and earn "economic rents." 

But as you might expect, there is more to the story than neoclassical theory. Another problem with quotas is that they can be easily manipulated by the country imposing them so as to show favoritism towards some countries over others. As noted by Anne Krueger (1990) in the case of the sugar quota, this was precisely the reason for initiating the sugar program in 1934 and again in 1948. In particular, the allocation of imports under the sugar quota was at first concentrated to Cuba's sugar industry. Why Cuba? Because in 1934 and 1948, the Communists were still not yet in charge in Cuba, and the US wanted to keep it that way. We all see how that story ended in 1959. 

Unfortunately, with the fall of the Batista Regime and Fidel Castro's rise to power, the Sugar Quota didn't die. The Sugar Quota itself had created domestic interests that had a strong incentive to lobby for the continuation of the quota. The Quota was briefly suspended in 1974, but was reinstated by Ronald Reagan in 1981. This, combined with direct subsidies to corn and corn-based sugars, has led to a vast majority of sweetened foods and drinks being made with high fructose corn syrup, rather than cane sugar, which is otherwise the less costly sweetener to produce. 

Industrial Policy, Mercantilism, and "Dynamic Comparative Advantage"

A recent post by law and policy experts Robert Atkinson and Michael Lind claims that "ECON 101 is Killing America." They make ten specific points, of which some carry a certain amount of validity and some of which do not. The more valid points can be boiled down in to one broad point, which Noah Smith paraphrases quite well, and is Matthew Yglesias echoes. According to Smith and Yglesias, Atkinson and Lind argue that Mercantilism got something right that classical economists like Smith and Ricardo missed, specifically that by focusing on static notions of efficiency, the classical economic students learn at the undergraduate level ignores the benefits of industrial policy and mercantilism on long run growth.

This is essentially true. Economics, both as a profession and in my own classes may focus too much on the distortions created by monopolies, government intervention, and public choice concerns of corruption, special interest groups, and so-called government failure and too little on the benefits of government intervention. At the same time I am perhaps quicker than some of my peers to point out the prevalence of market failures, as well as the Herculean assumptions one must accept in order for the basic propositions about welfare and efficiency can be expected to hold.

Yet, the idea that (government) industrial policies might help the economy in the long run is nothing new. In the extreme, formerly Socialist economies in the Soviet Union and Eastern Europe experimented with industrial policy in the form of complete government control over the economy with spectacularly disastrous results. To a lesser extent, Brazil experimented with a form of industrial policy known as "Import-Substitution Industrialization" based largely on the Prebisch Thesis (Frankenhoff, 1962). Brazil's experiment collapsed under the weight of mounting government deficits that were needed to sustain the industrial sectors in which the government was attempting to build comparative advantage (Baer, 2008). Based on these historical experiences, I remain largely a believer in the virtues of free trade under most circumstances.

That being said, there is still a strong argument for the fact that focusing on comparative advantage and the static gains from trade for providing the sole basis of evaluating industrial policy is misguided. There is something to the notion of "dynamic comparative advantage" as well as to the notion that using de facto tax revenues from government-controlled natural resource enterprises to develop new comparative advantages in industrial sectors that complement resource extraction. To (badly) paraphrase the Shumpeterian notion of creative destruction, an economy which is always statically efficient may actually do worse in the long run because it is not growing by innovating.

Most of the class will focus on the basic welfare propositions we have encountered over the last few (and next few) classes. Throughout the course, however, I do look forward to having a dialog on what those propositions may be sweeping under the rug.

US, EU considering world's biggest free trade pact

 U.S. and European officials are in talks to join together to create the world's largest free trade agreement.  The agreement would help boost both economies, but it is just in the preliminary stages right now.  Negotiations could begin as early as next year.  Two issues that are currently holding negotiators back are the EU's carbon trading scheme that could penalize airlines for not meeting EU standards, and also the EU restrictions on genetically modified foods and pesticides.  US labor unions are supporting this deal because the European social welfare and the environmental standards are better than those in the US.  They favor a trade agreement with the EU more than they would a developing country because American workers would be at a competitive disadvantage due to the lower wages and inferior labor standards in those countries.  In five years, this trade agreement could add up to $180 billion to both countries' economies.

I think it would be a good idea for both countries to keep moving forward with this deal.  It would help both countries when they are both struggling with their economies.  It says that it would help the US a little more than the EU, but both can use all the help that they can get.  I also think that since the EU has restrictions on genetically modified foods and pesticides that it could help make natural foods more affordable in the US and make it easier for Americans to eat healthy.

http://www.usnews.com/news/politics/articles/2012/12/11/us-eu-considering-worlds-biggest-free-trade-pact

Senate Passes Russian Trade Agreement

This article discusses how the senate agreed to pass a Russian trade bill that is expected to assist the United States in our struggling economy. Despite slow growth in our domestic economy, if Obama signs the bill then most analysts affirm that there would be a boost in American jobs. This is not the only benefit for the creation of jobs, but would also expand new markets and U.S. exports of goods and services to Russia would also increase and is expected to double over the next five years. This is a great chance for us to expand our economy and would greatly benefit American exports. Although many trade restrictions were eliminated between the U.S. and Russia, the main concern of this bill was condemning Moscow for human rights abuses. Moreover, this has infuriated Russia because the our government will freeze their assets and deny Russians visas if there were further implications of human rights abuse. This past summer Russia joined the World Trade Organization which was also beneficial to the United States because Russia then lowered tariffs for other member countries. As we have learned in class, by eliminating tariffs and quotas, or in this case lowering them, will decrease the amount of deadweight loss and increase consumer surplus. Personally, I believe this is great news for our domestic economy, but will come at a hefty price to Russians because they will ultimately lose a lot of revenue with increased imports. Not to sound selfish, but the fact that Russia has one of the strongest economies as of today, I believe they can ultimately suffer a small loss in export revenue. 

 http://www.nytimes.com/2012/12/07/business/global/senate-passes-russian-trade-bill-with-conditions.html?_r=0

The Solar Panel Industry

The solar panel industry is a very competitive market. The US as well as China see this industry as a valuable thing to have for different reasons. This lead them to a trade war with both sides passing tariffs and subsides in an effort to get an advantage over the other. The result is very cheap goods which is good for whoever is buying them but not so good for the 2 governments and the producers who have gone into debt to produce them.  It is this trade war that lead to prices being so low and it is irrational. Both countries should stop all government help to the industry and let free trade do its thing by letting markets pick winners and losers.


http://www.nytimes.com/2012/11/08/business/energy-environment/us-affirms-tariffs-against-chinese-solar-companies.html?_r=3&

Chinese Shop Abroad, Buying Luxury Products

The Chinese luxury buyers are the major group to help the bullish performance of the U.S. and the Europe luxury market over the past couple years. According to the report on China's luxury market in 2011 says China's luxury market is worth than $16.03 billion, is growing by about 25% a year, and soon replace Japan as the top luxury product consuming country by 2015.

On the crazy Black Friday in the U.S., you may notice that there are lots of Chinese consumers staying in line and waiting for buying luxury products at a cheaper price. Now, more and more Chinese luxury buyers go abroad, especially go to Europe . Chinese shoppers aren't spending money the same way they once were.

As shown in the article, "the Federation of the Swiss Watch Industry figures that in September's the total values of Swiss watch export was 2.7 percent lower than in the same month a year earlier in 2011 The biggest downturn in sales came from China, where sales are down around 27 percent, while in Hong Kong sales were down 19 percent.""Chinese payment processing company UnionPay recorded foreign transactions were up 33 percent from a year earlier, which is a sign that Chinese are making more and more luxury purchases abroad "

The export data of September show that the worst down of the whole luxury industry export not only just the Swiss Watch Industry, and the weakened Chinese luxury market. It has been cause by the China's export tariffs, product pricing strategies, Chinese desire of luxury goods make the huge difference on the prices of the same product in two different countries. "Sometimes in excess 300% up to four-fifths of Chinese luxury goods consumption reportedly takes place overseas", according to Why Are Luxury Goods So Expensive In China.

"Louis Vuitton's Speedy 30 handbag, for example, retails in China for 5,750 yuan (US$907) but costs US$763 in Hong Kong and US$632 in France. A 30 ml bottle of Estee Lauder's Advanced Night Repair Synchronized Recovery Complex sells for 1050 yuan (US$165) in China but for just US$52 on the company's official American website."

High duty is the major factor that keeping the luxury product at a much higher price than other countries. "According to HSBC's China Luxury Tax Report, there are three types of taxes on imported luxury goods in China: consumption tax, VAT and custom duty. For example, the current consumption tax, VAT and custom duty for cosmetics are 30%, 17% and 10%, respectively, which are high compared with elsewhere.""In China, imported gold, silver and jewelry attract a duty of 10 percent. Clothing and watches are levied at 20 percent. The highest tax rate is for cosmetics and liquors, 50 percent."

Now, very few Chinese will buy luxury product in China unless they are very rich and don't care about the huge differences of the price. Since the prices of luxury product in the U.S. and Europe are much lower than China, Chinese have spent lots of money on luxury goods when they go abroad. And then, the money goes abroad,too.

In conclusion, when a country put high duties on a imported good, it will hurt the country itself. There is not much possibility and not much help to reduce the duties. What China should do is to have its own luxury industry and luxury brand culture.

Source:

Luxury Watches and China's Slowdown
Written on November 1, 2012 AT 9:44 AM BY ADMIN

http://www.jewelryne.ws/luxury-watches-and-chinas-slowdown/

Why Are Luxury Goods So Expensive in China?
http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1502&MainCatID=15&id=20120321000001

Trade Deal Between U.S. and Europe May Come to the Forefront

There is a very promising possibility that a free trade agreement between the U.S. and Europe may be coming soon. While the U.S. and Europe are already on fairly agreeable trading terms, this has the potential to make trading between the two countries even better. Thus far; it was said that no one seems to believe that its a bad idea, and it has been talked about for some time now. However, because the two countries already trade well, they have been busy making agreements with other growing countries instead. Now it seems that it will finally be a serious topic that will make progress, and is coming closer to reality than every before. 

Even though having a free trade agreement will help both the U.S. and Europe, deciding on the terms and conditions of a free trade agreement, and getting the majority to agree on a position is not easy. The trade agreement between the two countries is going to take time. Some markets are worried that the free trade agreement will leave them out; for instance some of the agriculture groups in the U.S. are not allowed to export genetically altered corn or soy products or sell cheese with the name Parmesan, to Europe. However, everyone cannot always be made happy, and the free trade agreement will help many. The two countries are hoping that it will help to stimulate the economies. 

As we discussed in class, free trade is a good thing for the majority. Having free trade between Europe and the U.S. will make trading even easier, and it will help the economies, especially since free trade doesn't cost taxpayers anything. This is something that Europe and the U.S. should really work to get passed, and put into practice. There are sure to be many grateful businesses as well as individuals whom will benefit from this new agreement. 

http://www.nytimes.com/2012/11/26/business/global/trade-deal-between-us-europe-may-pick-up-steam.html?pagewanted=2

Skills Don't Pay the Bills

In this article it discusses how factories are in need of skilled workers to do the jobs that are there. Factory work is not like it used to be; before, one could get a good paying factory job right out of high school, now one needs a college education to work in the factories. The education required to work the machines that are in factories today include: metallurgy, physics, chemistry, pneumatics, electrical wiring, and computer coding. These are all skilled jobs that require college to get to, and yet the pay is only $10.00 an hour. The factories cannot afford to raise their wages in order to stay competitive globally, and potential employees go else where with there skills to receive higher wages for their work. 

The average factory worker at this time is 56 years old. This is a very serious problem; if the factories cannot bring in the workers they need then they may be forced out of business (causing even more jobs to be lost). It would be difficult to move the factories overseas due to the skill required to work the machines. If the factories in the United States are to survive they need to find a way to raise wages, yet be competitive in the global market. If this means finding ways to cut overhead costs, or perhaps making it easier to man the machines, then they should look into it.

These factories could be a way to help lower unemployment, with the jobs that they need. The question is how can we help both unemployment and the factories keep in the global market without leaving? Perhaps the answer lies within the past. If everyone else around us is still in the developing stage, then perhaps we need to find ways to lower the skill sets needed, but without lowering our standards, and technology (perhaps we need to make the technology even better). This way we can compete in the global market now, as well as be one of the best in the market later on when everyone else is at the stage we are at now. If the United States wants to help with unemployment then the avenue of the factory may be the way to look. There is a lot of work involved in a project like this, yet if it could be successful, the reward has the potential to be great.

http://www.nytimes.com/2012/11/25/magazine/skills-dont-pay-the-bills.html?pagewanted=1&_r=0

Smoot-Hawley Tariff

How many of you went shopping on Black Friday looking for shoes? I did! Ever wonder why shoes are so expensive in the US? It is because there is a depression era tariff on imported shoes that has raised prices by as much as 67.5% for the last 80 years. It is called the Smoot-Hawley Tariff. In an economy like this one it does not help American families to have to pay more for essential goods. While some very specific niche shoes are still made in the US a majority of shoes are not longer produced domestically, although these manufacturers still employ many US skilled laborers in marketing, research ect. The tax is also regressive so more expensive designer shoes have a lower tax then mass produced sneakers. The text discusses dumping tariffs in which a foreign firm is exporting goods at a price below its average cost of production. The home firm will then respond by tariffing imports and are calculated as the difference between foreigns local price and export price. Is this what is going on here? Raising prices by 67.5% seems a bit excessive if this was the case in my opinion. What do you guys think? Is this protecting or hurting the typical American consumer?

KRUEGER, B. (1012). A shoe tariff with a big footprint.WallStreet Journal , Retrieved from http://online.wsj.com/article/SB10001424127887324735104578123523795505336.html?KEYWORDS=tariff

How much does it cost to save a U.S. worker?

Last month we spent a long time to analyze tariff, quota and subsidy. Let’s talk about a real case about tariff-----“tire safeguard case”.

The U.S. International Trade Commission suggested to levying Chinese exports tires for three consecutive years to 55%, respectively, 45% and 35% ad valorem special tariffs on June 29, 2009. According to the procedure, Sept. 4, the Office of the U.S. Trade Representative submitted the final recommendations of the report on China's exports to the U.S. tire special safeguard case to U.S. President Barack Obama. On September 11, Obama agreed this suggestion.

 

American claimed that Chinese tires disrupted the U.S. market. In addition, it was Chinese tire exports caused the U.S. tire workers unemployed. Moreover, Consumer tire imports from China, the volume increased by 215%, and the amount had a 295% growth from 2004 to 2008. Chinese tire damaged the tire industry in the United States. By imposing this sanction, employment in the U.S. tire industry grew by 1,200 jobs (Gary Clyde Hufbauer and Sean Lowry atthe Peterson Institute).

 

However, it also brought side effects. How much did those 1,200 jobs cost? About $1.1 billion and that’s about $900,000 per job. After we learned the theory in class, we knew that it is rational and normal to lose money and efficiency if you want to set a high tariff to protect your industry. In short term, it did help the workers. But as soon as this tariff expired in 2012 US workers would lose their jobs again.

 

What Chinese did to fight back? On September 13, the Ministry of Commerce in accordance with Chinese laws and rules of the WTO started Anti-dumping and countervailing review process of automotive products and chicken products imported from U.S. Just like what we played in class most people chose to be hawk rather than dove. Nobody can be better off from this game.

 http://www.forbes.com/sites/kenrapoza/2012/01/25/obamas-half-truth-on-china-tire-tariffs/

http://www.ixgw.com/2012/09/us-china-tire-special-safeguard-measures-expire-a-lose-lose-worth-the-candle/

Gloomy Forecast for Russian Suppliers

Russia's entry into the WTO in August has some economists worried, as pointed out by Vladimir Putin last Wednesday. For years, Russia has used import duties to protect its industries from lower world prices. While consumers will benefit from lower-costing imported goods now made available, firms that have been able to succeed through artificially high prices and a lack of competition will now be vulnerable. This isn't exactly great news for some consumers, however, as their jobs may be at risk. Russia has managed to maintain a lower unemployment rate than the US that has been continuously falling. However, that trend may change as Putin mentions the fact that many of Russia's cities are specialized in one single industry. Worker mobility across sectors is therefore limited.

Putin goes on to say that they need to take measures to prevent the employment rate from falling. My question is what can Russia do to prevent this without using subsidies or tariffs that violate WTO rules?

http://www.chicagotribune.com/news/sns-rt-us-russia-putin-wtobre8ak14w-20121121,0,4780718.story

http://en.ria.ru/business/20121121/177640103.html

Natural-Gas Exports Could Lift U.S. Trade and Economy

Demand for liquified natural gas in Europe in Asia is very high, but the price for it is $10 to $16 per million British thermal units.  It is much cheaper in the US right now at 3.70 per million British thermal units.  The problem however is that the US does not have the needed facilities to liquify gas for exports.  This presents a good opportunity for President Obama to add billions of dollars to the US economy, create thousands of jobs, and narrow the trade deficit.  The price of natural gas in the US has fallen so low that many companies no longer think of it as profitable to drill, and the number of drilling rigs gas fallen by almost half this year.  If the US starts exporting it, it would drive the price up a bit and make it more profitable for companies.

Even though drilling for natural gas poses the threat of contaminating land and water, I think it is a good idea to start exporting the liquified natural gas.  It could help boost the economy and also help those looking for work by providing about 60,000 long term jobs and around 8,000 temporary construction jobs for the new facilities.

http://www.bloomberg.com/news/2012-11-25/natural-gas-exports-could-lift-u-s-trade-and-economy.html

A FTA Between South Korea And Turkey

Recently I read a news online that Turkey and Korean signed a Free Trade Agreement on August,2012[i], which will expand bilateral trade between the two countries.

However, it seems that this FTA is not likely to bring significant benefits to the Korean economy. According to the report by the Korea Institute for International Economic Policy, an FTA with Turkey would translate into a 0.01 percent increase in South Korea's gross domestic product in the short term but tariff tax income will decline by 26.44 billion won ($24.25 million) on average every year.[ii]

As we learned on the class, large country gains from tariff in the free trade environment since when the increase of the tariff income outweighs the deadweight loss then the country gain in the net effect. Apparently Korea is a large country so it lost its benefit in tariff income by this FTA. In another hand, a free trade agreement is a good policy to prevent tariff war between countries and promote the expansion of trade. At the same time, home consumers benefit at the expense of home producer’s profit since the price of products will decrease and home producer will be faced with a more competitive market environment.

---

[i] http://www.arirang.co.kr/News/News_View.asp?nseq=134445&code=Ne2&category=2

[ii] http://www.koreatimes.co.kr/www/news/nation/2012/11/120_124465.html

Analysis of the U.S. and European Union Dairy Export Subsidies (make-up post)

We know from our class discussions that export subsidies cause losses in consumption and production efficiencies for small countries, and for large countries, they cause both losses in addition to losses in tax revenue for the government. When looking at the recent U.S. dairy export subsidies, numerous member countries of the World Trade Organization claimed that the subsidies were a 'dangerous retreat' into protectionism and that they would cause subsidy wars. Well, the term 'subsidy war' is not very accurate because unlike a trade war with an optimal tariff, no terms-of-trade benefits are realized by any countries after export subsidies are put in place. Thus, assuming the member countries in the WTO understand the negative consequences of an export subsidy for the U.S. , they would have less of an incentive to engage in more retaliatory subsidies against the subsidizing country than it would in a trade war with an optimal tariff. This is mainly because with partial equilibrium, an export subsidy would hurt the U.S. more than it hurts each of the small WTO countries. Thus, even though the dairy subsidy makes everyone worse off, it would actually make the small countries relatively better off than the U.S.. In criticism of the dairy subsidy, Peter Grey, Australia's WTO ambassador, said "Subsidy wars only drive prices even lower, thereby delaying economic recovery further. They punish those trying to compete without the help of subsidies, and particularly damage unsubsidized farmers in the developing countries, jeopardizing their agricultural production, food security and their most competitive export sectors". Grey is right about subsidies delaying economic recovery further, and yes, subsidies (or 'subsidy wars') do drive down the world price, but only when a large country implements them. However, domestic prices rise above the world price by the amount of the subsidy, so Grey is only partially correct about subsidy 'wars'.

At the heart of the U.S. dairy subsidies is the Dairy Export Incentive Program. The DEIP was designed within the Department of Agriculture (USDA) to help dairy producers sell at prevailing world prices by giving cash handouts to producers as bonuses. These bonuses for the dairy producers would have been beneficial in any way other than in the form of export subsidies. Thus, in the case of dairy export subsidies, or any other subsidies for that matter, government handouts, contrary to popular belief, do not improve welfare, and they do not even improve the welfare of the producers at the government's expense/demise, but they are lose-lose situations for everyone involved. I can't think of any other instance where a bonus could actually HURT you, wow. So why did the European Union do the same thing in implementing dairy export subsidies? Perhaps because officials within its CAP (Common Agricultural Policy) felt pinched by the weakening demand for dairy and because the debt crisis was heating up. What Europe's CAP has essentially done is disproportionately put an excessive amount of attention towards the dairy sector while diverting more attention away from other sectors like pork and sugar beets. Even with all this new popularity, ironically enough, European dairy farmers aren't happy for the most part because the subsidies didn't help enough and in part because of milk production limits contained within the dairy subsidy rules. All in all, the U.S. and European dairy export subsidies have limited  the options that producers and consumers have in terms of maximizing their welfare and they have allowed U.S. and European governments to distort how competitive dairy producers really are.

Sources researched:

   http://en.mercopress.com/2009/05/28/us
   http://www.fas.usda.gov/excredits/deip/deip-new.asp
http://online.wsj.com/article/SB125594282440993761.html

Cigarette Consumption Tax

In April 2009, Obama signed a 62 cent consumption tax increase on cigarettes.  This tax increase was not done to decrease the consumption of cigarettes, but to raise government revenue.  As we have learned in class, the introduction or increase in a consumption tax will reduce production of the good which will increase its price.  The increase in price, however, do not go to producers, it goes to the government. This was the real purpose behind raising the consumption tax on cigarettes.  They wanted to raise funds for the expansion of healthcare for children.  A positive side effect was that the number of smokers decreased, but the spending on cigarettes increased $18 billion in three years proving that a consumption tax does indeed decrease the quantity bought, increase the price and increase the government revenue.

The Strict U.S. Sugar Quota: Supporters and Opponents and Why It Isn't Working

Sugar protectionism has been a contentious issue in the U.S. since close to the beginning of our nation's history in 1789. The sugar quota, which was established in 1934 via the first Sugar Act, is no less contentious. We know that quotas are bad because they are limit consumer choices, raise prices consumers pay and lead to more volatility in the market, so let's look at who supports and opposes the U.S. sugar quota, the degrees to which they support or oppose it, and how high the opponents want the quota raised numerically. One strong supporter of the sugar quota (specifically a lower one) is the federal government (specifically the Department of Agriculture) largely because of its own sugar program but moreover because the quota is effectively tax revenue for it stemming from higher sugar prices domestically due to the limited sugar quantity and the fact that tariffs (although low within the quota amount) are paid on imported sugar. One of the large incentives for the government that stems from the production is quota rents, which we discussed in class. In this case, the government does get quota rents in the form of specialty sugar certificates, which are effectively quota licenses. U.S. sugar farmers and the American Sugar Alliance also support a relatively lower quota (although not as strongly as the USDA)  because they don't believe that the supply of sugar is facing a shortage, and because of their general belief that the USDA's actions have shown that the U.S. sugar program is feasible. Food and beverage manufacturers are the leading opponents of the quota and want the quota's impact to be lessened by persuading the USDA to raise the sugar quota amount. Their primary reason for opposing the quota recently was the fact that U.S. sugar supplies were down by 2.8% last year. They recommended that the quota amount should have been increased by 961,000 tons so as to provide a comfortable supply for sugar consumers. The Sweeteners Users Association also opposes the quota and this year it wanted the quota amount increased by between 728,000 and 961,000 tons because of its reasoning that an increase would help to improve sugar stocks in U.S. markets.

After more thought about the issue, I came up with this question: Why is the sugar quota not working?. Well, the sugar quota is not working because the sugar industry is not an 'infant industry' in the U.S. since it was active since around the time of our country's beginnings in 1789 and prior to that point in time. Also, large domestic sugar producers have not represented the interests of consumers or many investors, but have lobbied the government for minimum prices and lower quotas through special interest groups instead. Thus, since the quota is still in place, making the supply of sugar more limited, they have directed a substantial amount of capital away from smaller sugar producers, and thus have limited the small sugar producers' ability to raise capital from a broader range of investors. This distortion of capital movement that the quota has created has allowed a small influential number of sugar producers to keep the labor force in the sugar industry low. This, in turn, keeps the amount of capital low and thus holds down the net welfare in the U.S.. While many investors view an increase in the sugar quota as  a precursor to more volatility in the market, sugar prices are only more volatile with a lower quota left in place than the volatility that would result from just a flat across-the-board tariff. As we can see, quotas create even more instability than tariffs, and the tariff-based nature of the sugar quota added onto the quota makes for an especially negative combination. The sugar quota, if left unchanged from now on, would take away potential tax revenue that the government would have been ensured to collect had a tariff, and only a tariff, been in place. Thus, in practice, quotas and tariffs are not equivalent in practice, but the two compounded together only makes problems worse.   

Sources Researched:

http://www.reuters.com/article/2012/03/28/usa-sugar-quota-idUSL2E8QS1SO20120328

http://online.wsj.com/article/SB10001424052702303816504577314034112332296.html

http://www.tampabay.com/opinion/columns/end-the-import-quotas-on-sugar/1081947

http://edis.ifas.ufl.edu/sc019

A Tariff Battle In Solar World

Yesterday, the U.S. International Trade Commission made a final arbitration   that have identified the solar panels and cells and other modules imported from China as a category of goods that make substantial damage to related industries in the United States. The U.S. anti-dumping and countervailing duty ("dual") tariff will be levied on such products.[i]

‘Anti-dumping Duty’ is  protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. In the United States, anti-dumping duties are imposed by the Department of Commerce and often exceed 100%. They come into play when a foreign company is selling an item significantly below the price at which it is being produced.[ii]

As we learned this week from the textbook, when we tax the import goods, the solar panels and cells, since the amount that we import is remarkable we can assume U.S. is a large import country, the supply of solar products in China will decrease because of the higher cost. The world’s price will increase. The solar producer in USA will produce more solar products to get profit while the consumption decreases. In this way this anti-dumping duties protect the Home country’s polar industry so that save domestic jobs. In addition, the reduction in the amount of imports led to the reduction of foreign exchange payments which can also improve the U.S. international trade balance of payments.  However, a tariff war could break out if China retaliates for the tariffs. 

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[i] Sourced fromhttp://www.oregonlive.com/washingtoncounty/index.ssf/2012/11/post_25.html

[ii] Sourced from  http://www.investopedia.com/terms/a/anti-dumping-duty.asp#ixzz2BhMAO8CO

Opening Trade with Latin America

In recent presidential debates, Mitt Romney has discussed in his plans as president that within the first 100 days in office that he will launch vigorous public democracy and trade promotion effort with Latin America.  What economic benefit will this give the United States?  What impact would it have on the United States?  Is this something that the United States should be considering no matter which one becomes president?

I can see how it would allow us to trade products at a closer locations (in turn reducing cost of transporting) then what we may be currently doing if trading at a further location.  This leads to make me also wonder that if we were to choose to trade with Latin America over the current locations would that cause tension/issues with the current location?

Details of Mitt Romney's Plan

US and Latin America Trade: Recent Trends and Policy Issues

Euro effect on world trade

After this big financial crisis that has been happening in  Europe their currency value has been depreciating and that in many ways will affect world trade, because Europe does a lot of trading with many other countries and Europe is a fairly large continent. But the depreciation of their currency does affect all parties involved in 2 ways. Firstly other countries purchasing European goods will be able to get more quantity per good at the same price which has a negative impact on European producers who end up worse of in the trade although they will probably export more. But parties buying European exports will come off with the longer end of the stick and keep buying more because they are getting it a cheaper price so they will keep buying more and more. However European countries trading with each other will see no benefit when trading with each other and possible in some manner will suffer a negative impact on them and even more countries that import to Europe will suffer  because with a weaker Euro they buy less from other countries which will hurt those countries that export to Europe.

Ireland FDI

Ireland, during the Celtic Tiger, experienced a very large amount of FDI from countries across the globe.  After the collapse of the tiger, the amount of FDI declined, but this year, McDonald’s made the announcement that it plans to add 700 jobs to the Irish economy within the next three years.  If three years is considered the short-run, according to the specific- factors model, this inflow of capital should increase wages, decrease the returns on capital, land, and overall increase in the PPF for Ireland.  If three years is considered to be the long-run, according to the Heckscher-Ohlin model, the only change in the economy would be an outward shift in the PPF.  One thing neither of these models takes into consideration is unemployment because both assume full employment. I wonder if there would be similar effects as the model if unemployment was variable.  I would think that there will still be an overall increase in the PPF regardless of the time period. In the short-run, FDI would create an increase in wages only in the sense that it will create jobs and those who did not have an income now will earn one.

http://www.reuters.com/article/2012/11/01/us-ireland-growth-idUSBRE8A01CG20121101

The Differences Between Offshoring and Outsourcing, and Offshoring's Benefits

Outsourcing and offshoring have become important topics of contention in this Presidential election season. A few months ago, President Obama criticized Mitt Romney's campaign for saying that Bain Capital outsourced its services instead of offshoring. While criticizing Romney, Obama said "What Governor Romney and his advisers don't seem to understand is this: "If you're a worker whose job went overseas, you don't need somebody trying to explain to you the difference between outsourcing and offshoring." Here, Obama is implying that the worker learns that outsourcing and offshoring are the same thing by their experience of being laid off due to his/her job moving overseas. On the contrary, outsourcing and offshoring are not the same thing. Yes, offshoring and outsourcing both involve the movement of jobs from one place to another. However, outsourcing is more broad than offshoring. Offshoring is the movement of a business process performed at a company in one country to the same or a different company in another country, whereas outsourcing is an occurance in which a business process is contracted out to an independent organization or outside business unit. President Obama is right in the sense that any differences between outsourcing and offshoring would probably not be relevant to the worker who lost his/her job because regardless, he/she is out of work. Thus, the worker would probably not care what the difference between the two is, or about the fact that there is a difference. As for the Romney side, Romney's senior adviser Eric Fehrnstrom was on the attack, depicting outsourcing as "what the Obama campaign does when they hire an outside telemarketing vendor to provide telemarketing services" and that outsourcing "is done by companies every day. They take functions and they allow vendors to do it instead of handling it in house. Offshoring is the shipment of American jobs overseas. And in that Washington Post story, which the president is using now to attack American companies by name, there are no examples of jobs being taken from the United States and shipped overseas." Fehrnstrom was referring to the Washington Post story which said that Bain Capital invested in companies that pioneered the outsourcing of jobs to low-wage countries. Fehrnstrom is correct in his assessment of offshoring and in his examples he uses to illustrate the difference between offshoring and outsourcing. His implied claim that there has been no evidence of negative effects on the U.S. from outsourcing or offshoring is complimentary to what we learned in class. In class, we learned that offshoring results in an expanded PPF because producers can produce more with the same amount of resources. We also learned that a new isoquant is created above the original income line, and the slope (ratio of low-skill wage to high-skill wage) is flatter; thus the wage ratio of low-skilled workers to high-skilled workers declined. However, output increased along with overall income in accordance with the new isoquant so there are net benefits from offshoring. Another key net benefit from offshoring is the increased demand for skilled workers, and since the U.S. is abundant in skilled labor, it actually benefits. Clearly, Obama makes outsourcing and offshoring out to have negative connotations, while Fehrnstrom points out that the Obama campaign outsources all the time by using outside telemarketing vendors. I noticed that neither Obama nor Fehrnstrom explicitly defined outsourcing or offshoring, which is why I felt that defining and further-outlining them would be important. Ultimately, offshoring is more specific relative to outsourcing because when it occurs, the entity receiving jobs in the different country must be either the same company or a different company. Outsourcing, however, because of its definition, can apply to any business unit or organization within the same country or to a different country, thus outsourcing is more general. Overall, both sides of the Presidential race pose legitimate arguments about offshoring and outsourcing, but at the end of the day, regardless of how much Obama and Romney might speak out against outsourcing/offshoring, they both use and encourage them whether they know it or not.      

Sources researched:

http://content.usatoday.com/communities/theoval/post/2012/06/obama-jabs-romney-over-outsourcing-offshoring/1#.UJHguMXhomU

http://www.washingtonpost.com/business/economy/romneys-bain-capital-invested-in-companies-that-moved-jobs-overseas/2012/06/21/gJQAsD9ptV_story.html