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Posts Tagged ‘Project Syndicate’

The US Will Lose Its Trade War with China

Posted by hkarner - 23. September 2018

Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the Financial Times, he is the author of Capitalism 4.0, The Birth of a New Economy, which anticipated many of the post-crisis transformations of the global economy. His 1985 book, Costs of Default, became an influential primer for Latin American and Asian governments negotiating debt defaults and restructurings with banks and the IMF.

In handicapping the US-China conflict, Keynesian demand management is a better guide than comparative advantage. In principle, China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus.

LONDON – The United States cannot win its tariff war with China, regardless of what President Donald Trump says or does in the coming months. Trump believes that he has the upper hand in this conflict because the US economy is so strong, and also because politicians of both parties support the strategic objective of thwarting China’s rise and preserving US global dominance.

But, ironically, this apparent strength is Trump’s fatal weakness. By applying the martial arts principle of turning an opponent’s strength against him, China should easily win the tariff contest, or at least fight Trump to a draw.2

Economists since David Ricardo have argued that restricting imports reduces consumer welfare and impedes productivity growth. But that is not the main reason why Trump will be forced to back down in the trade war. In handicapping the US-China conflict, another economic principle – rarely used to explain the futility of Trump’s tariff threats – is much more important than Ricardo’s concept of comparative advantage: Keynesian demand management.

Comparative advantage certainly influences long-term economic welfare, but demand conditions will determine whether China or America feels more pressure to sue for trade peace in the next few months. And a focus on demand management clearly reveals that the US will suffer from Trump’s tariffs, while China can avoid any adverse effects.

From a Keynesian perspective, the outcome of a trade war depends mainly on whether the combatants are experiencing recession or excess demand. In a recession, tariffs can boost economic activity and employment, albeit at the cost of long-term efficiency. But when an economy is operating at or near its maximum capacity, tariffs will merely raise prices and add to the upward pressure on US interest rates. This clearly applies to the US economy today.

US businesses could not, in aggregate, find extra low-wage workers to replace Chinese imports, and even the few US businesses motivated by tariffs to undercut Chinese imports would need to raise wages and build new factories, adding to the upward pressure on inflation and interest rates. With little spare capacity available, the new investment and hiring required to replace Chinese goods would be at the cost of other business decisions that were more profitable before the tariff war with China. So, unless US businesses are sure the tariffs will continue for many years, they will neither invest nor hire new workers to compete with China.

Assuming that well-informed Chinese businesses know this, they will not cut their export prices to absorb the cost of US tariffs. That will leave US importers to pay the tariffs and pass on the cost to US consumers (further fueling inflation) or to US shareholders through lower profits. Thus, the tariffs will not be “punitive” for China, as Trump seems to believe. Instead, the main effect will be to hurt US consumers and businesses, just like an increase in sales tax.

But let us concede that the tariffs may price some Chinese goods out of the US market. Where will the competitively priced imports that undercut China come from?

In most cases, the answer will be other emerging economies. Some low-end goods such as shoes and toys will be sourced from Vietnam or India. Final assembly of some electronic and industrial machinery may relocate to South Korea or Mexico. A few Japanese and European suppliers may displace high-end Chinese suppliers. Thus, to the very limited extent that tariffs do prove “punitive” for China, the effect on other emerging markets and the global economy will not be damaging “contagion” but a modest boost to demand that results from displacing Chinese exports to the US.

True, Chinese exporters may experience modest losses as other producers take advantage of the US tariffs to undercut them. But this should have no effect on Chinese growth, employment, or corporate profits if demand management is used to offset the loss of exports. The Chinese government has already started to boost domestic consumption and investment by easing monetary policy and cutting taxes.

But China’s stimulus measures have so far been cautious, as they should be considering the negligible impact that US tariffs have had on Chinese exports. If, however, evidence starts to emerge of export weakness, China can and should compensate with additional steps to boost domestic demand. In principle, China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus. But would the Chinese government be willing do this?

This is where bipartisan US support for a “containment policy” toward China paradoxically works against Trump. China’s rulers have so far been reluctant to use overt demand stimulus as a weapon in the trade war because of strong commitments made by President Xi Jinping to limit the growth of China’s debt and to reform the banking sector.

But such financial policy arguments against Keynesian policy are surely irrelevant now that the US has presented the battle over Trump’s tariffs as the opening skirmish in a geopolitical Cold War. It is simply inconceivable that Xi would attach higher priority to credit management than to winning the tariff war and thereby demonstrating the futility of a US containment strategy against China.

This raises the question of how Trump will react when his tariffs start to hurt US businesses and voters, while China and the rest of the world shrug them off. The probable answer is that Trump will follow the precedent of his conflicts with North Korea, the European Union, and Mexico. He will “make a deal” that fails to achieve his stated objectives but allows him to boast of a “win” and justify the verbal belligerence that inspires his supporters.

Trump’s surprisingly successful rhetorical technique of “shout loudly and carry a white flag” helps to explain the consistent inconsistency of his foreign policy. The US-China trade war is likely to provide the next example.

 

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Japan’s Successful Economic Model

Posted by hkarner - 21. September 2018

Adair Turner, a former chairman of the United Kingdom’s Financial Services Authority and former member of the UK’s Financial Policy Committee, is Chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.

Japan’s GDP growth lags most other developed economies, and will likely continue to do so as the population slowly declines. But what matters for human welfare is GDP per capita, and on this front, the country excels.

TOKYO – Nearly everyone says that Japan’s economic model has imploded. Since 1991, growth has averaged just 0.9% versus 4.5% over the previous two decades. Slow growth, combined with large fiscal deficits and near zero inflation, has driven government debt from 50% of GDP to 236% of GDP.

Abenomics, the cluster of reforms initiated by Prime Minister Shinzo Abe when he came to power six years ago, promised to get inflation up to 2%. But five years of zero interest rates and massive quantitative easing have failed to achieve this. A fertility rate of 1.4 and near-zero immigration mean that Japan’s workforce could shrink by 28% over the next 50 years, making health care for the elderly unaffordable and dramatically increasing the fiscal deficit, which is already running at 4% of GDP. Den Rest des Beitrags lesen »

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Europe’s Refugee Scandal

Posted by hkarner - 19. September 2018

Gordon Brown

Gordon Brown, former Prime Minister and Chancellor of the Exchequer of the United Kingdom, is United Nations Special Envoy for Global Education and Chair of the International Commission on Financing Global Education Opportunity. He chairs the Advisory Board of the Catalyst Foundation.

Long-term educational and employment needs have historically been severely undervalued in humanitarian planning. But, as much as refugees need proper food, shelter, and health care today, they also need the knowledge and tools to build new lives and contribute to society tomorrow, whether in their home country or in a new one.

LONDON – It has long been known that the Moria refugee camp on the Greek island of Lesbos is plagued by overcrowding, unsanitary conditions, and rampant violence, including riots that have left many injured. But when aid workers reported in April that children as young as ten were attempting suicide, another tragic facet of the refugee crisis was highlighted: 30 million children around the world are currently displaced, many in appalling conditions. The crisis is not just putting them in danger today; it is threatening to destroy their futures.

In the Moria camp, children live in fear. Recent riots have displaced hundreds of camp residents and badly injured several. This is traumatizing for children who are with their families, but even more so for the many who are unaccompanied. Making matters worse, many children lack even basic shelter, with thousands of families crammed into cheap donated tents that often aren’t even waterproof. Last winter, three people died of carbon monoxide poisoning while trying to stay warm. Den Rest des Beitrags lesen »

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Das globale Handelssystem könnte zusammenbrechen

Posted by hkarner - 19. September 2018

Sep 17, 2018 Anne O. Krueger, Project Syndicate

Anne O. Krueger

Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the School of Advanced International Studies, Johns Hopkins University, and Senior Fellow at the Center for International Development, Stanford University.

WASHINGTON, DC – Zehn Jahre nach dem Konkurs von Lehman Brothers wissen wir, dass multilaterales Handeln entscheidend dabei war, zu verhindern, dass sich die sogenannte „Große Rezession“ zu etwas noch Schlimmerem entwickelte, als sie ohnehin schon war. Damals war es das globale Finanzsystem, das wankte. Heute ist es das globale Handelssystem, das in Gefahr ist.

Der
Multilateralismus hat der Welt in den letzten 70 Jahren gute Dienste
geleistet. Man muss es den USA sehr zugutehalten, dass sie nach dem
Zweiten Weltkrieg Vergeltung und Reparationen vermied und stattdessen
den Weg zur Gründung der drei wichtigen Wirtschaftsinstitutionen wies,
die die Grundlage der noch heute bestehenden internationalen
Wirtschaftsordnung bilden: dem Internationalen Währungsfonds, der
Weltbank und der Welthandelsorganisation (WTO; ehemals das Allgemeine
Zoll- und Handelsabkommen (GATT)). Den Rest des Beitrags lesen »

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A Better Bailout Was Possible

Posted by hkarner - 18. September 2018

Rob Johnson

Rob Johnson is President of the Institute for New Economic Thinking and a senior fellow and Director of the Global Finance Project for the Franklin and Eleanor Roosevelt Institute.

George Soros is Chairman of Soros Fund Management and Chairman of the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union.

Back in 2008, a critical opportunity was missed when the burden of post-crisis adjustment was tilted heavily in favor of creditors relative to debtors. The result was not only prolonged stagnation, but also the Republican Party’s embrace of demagogic populism and the election of Donald Trump.

NEW YORK – The recent exchange between Joe Stiglitz and Larry Summers about “secular stagnation” and its relation to the tepid economic recovery after the 2008-2009 financial crisis is an important one. History does not repeat itself, but it rhymes, Mark Twain reportedly once said. But, to paraphrase Bob Dylan, in light of our recent economic history, history doesn’t rhyme, it swears.1

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The Global Economy’s Fundamental Weakness

Posted by hkarner - 14. September 2018

Richard Kozul-Wright

Richard Kozul-Wright, Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, is the author of Transforming Economies: Making Industrial Policy Work for Growth, Jobs and Development.

Over the course of the past decade, the global economy has recovered from the 2008 financial crisis by riding a wave of debt and liquidity injections from the major central banks. Yet in the absence of steady wage growth and productive investments in the real economy, the only direction left to go is down.

GENEVA – When Lehman Brothers declared bankruptcy ten years ago, it suddenly became unclear who owed what to whom, who couldn’t pay their debts, and who would go down next. The result was that interbank credit markets froze, Wall Street panicked, and businesses went under, not just in the United States but around the world. With politicians struggling to respond to the crisis, economic pundits were left wondering whether the “Great Moderation” of low business-cycle volatility since the 1980s was turning into another Great Depression.

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The Makings of a 2020 Recession and Financial Crisis

Posted by hkarner - 14. September 2018

Brunello Rosa is co-founder and CEO at Rosa & Roubini Associates, and a research associate at the Systemic Risk Centre at the London School of Economics.

Although the global economy has been undergoing a sustained period of synchronized growth, it will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it.

NEW YORK – As we mark the decennial of the collapse of Lehman Brothers, there are still ongoing debates about the causes and consequences of the financial crisis, and whether the lessons needed to prepare for the next one have been absorbed. But looking ahead, the more relevant question is what actually will trigger the next global recession and crisis, and when.

The current global expansion will likely continue into next year, given that the US is running large fiscal deficits, China is pursuing loose fiscal and credit policies, and Europe remains on a recovery path. But by 2020, the conditions will be ripe for a financial crisis, followed by a global recession. Den Rest des Beitrags lesen »

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Education in the Age of Automation

Posted by hkarner - 13. September 2018

Lee Jong-Wha

The race is on between technology and education. The outcome will determine whether the opportunities presented by major innovations are seized, and whether the benefits of progress are widely shared.

SEOUL – As digital technologies and automation have advanced, fears about workers’ futures have increased. But, the end result does not have to be negative. The key is education.

Already, robots are taking over a growing number of routine and repetitive tasks, putting workers in some sectors under serious pressure. In South Korea, which has the world’s highest density of industrial robots – 631 per 10,000 workers – manufacturing employment is declining, and youth unemployment is high. In the United States, the increased use of robots has, according to a 2017 study, hurt employment and wages. Den Rest des Beitrags lesen »

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A Fragmented Multilateralism?

Posted by hkarner - 12. September 2018

Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Senior Fellow at the Brookings Institution.++++

With multilateral frameworks under attack, a new system in which country groupings – based on, say, geography or worldview – would formulate their own sets of rules may seem like a viable alternative. But the trend toward increasingly close economic and even social interdependence demands global rules and standards.

WASHINGTON, DC – Amid ongoing attacks by US President Donald Trump, the battle for the future of multilateralism has commenced. Previous demands for pragmatic reforms have escalated into pressure for the wholesale transformation – or even total destruction – of the global framework of multilateral institutions. Trump seems to prefer a “system” in which bilateral deals replace the multilateral rules-based order. As the US is still the world’s most advanced (and one of the largest in terms of market prices) economy in the world, he believes America can get the best “deal” by negotiating alone, unbound by international rules – a view that extends to military affairs.

Although multilateralism had made substantial progress since the end of the Second World War, there was a need for continuous reform, owing to changes in the structure of the world economy. By the late 1990s, emerging-market economies had grown in size and market share, overtaking the “Quad” (the US, Canada, the European Union, and Japan), which had dominated the General Agreement on Tariffs and Trade and the GATT’s successor, the World Trade Organization. A similar change in “economic weight” affected the International Monetary Fund and the World Bank. At the heart of this change was the spectacular growth of China Den Rest des Beitrags lesen »

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Who Really Creates Value in an Economy?

Posted by hkarner - 12. September 2018

Mariana Mazzucato, Professor in the Economics of Innovation and Public Value and Director of the Institute for Innovation and Public Purpose at University College London, is the author of The Value of Everything: Making and Taking in the Global Economy.

Ten years after the global economic crisis, profits have recovered, but investment remains weak. Ultimately, the reason is that economic policy continues to be informed by neoliberal ideology and its academic cousin, “public choice” theory, rather than by historical experience.

LONDON – After the 2008 global financial crisis, a consensus emerged that the public sector had a responsibility to intervene to bail out systemically important banks and stimulate economic growth. But that consensus proved short-lived, and soon the public sector’s economic interventions came to be viewed as the main cause of the crisis, and thus needed to be reversed. This turned out to be a grave mistake.

In Europe, in particular, governments were lambasted for their high debts, even though private debt, not public borrowing, caused the collapse. Many were instructed to introduce austerity, rather than to stimulate growth with counter-cyclical policies. Meanwhile, the state was expected to pursue financial-sector reforms, which, together with a revival of investment and industry, were supposed to restore competitiveness. Den Rest des Beitrags lesen »

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