Category Archive for: International Trade [Return to Main]

Tuesday, June 07, 2016

The Dynamics of Labor Market Adjustment to Trade Liberalization

From Microeconomic Insights:

The dynamics of labor market adjustment to trade liberalization, by Rafael Dix-Carneiro: International trade theory has typically ignored the costs of adjusting to a change in trade policy, focusing instead on static models and long-run conclusions. However, adjustment costs are central to much of the controversy over trade liberalization. This work measures the importance of the dynamics of adjustment in shaping the distributional consequences of trade policy, and characterizes the time it takes for the economy to complete the transition to the new long-run equilibrium. When these adjustment costs are taken into account, the benefits of trade liberalization can be substantially smaller. ...

Tuesday, May 03, 2016

The Davos Lie

Kevin O'Rourke:

The Davos lie: ... If there's one thing that people agree about in Davos, it's that globalisation is a Good Thing. ...
As is well known, many Western societies have become more unequal over the past two decades... During the 1980s and 1990s, the consensus was that this growing inequality was due not to international trade, but to technological change that was systematically favouring skilled over unskilled workers. ...
More recently, however, the debate has swung back towards the view that trade is important in explaining rising inequality...
Unfortunately for Davos, globalisation's losers are becoming increasingly hostile to trade (and immigration)..., ordinary people's attitudes towards globalisation are exactly what Heckscher-Ohlin economics would predict. ...
Economists can tut-tut all they want about working-class people refusing to buy into the benefits of globalisation, but as social scientists we surely need to think about the predictable political consequences of economic policies. Too much globalisation, without domestic safety nets and other policies that can adequately protect globalisation's losers, will inevitably invite a political backlash. Indeed, it is already upon us.

Wednesday, April 20, 2016

101 Boosterism

Paul Krugman:

101 Boosterism: I see that @drvox is writing a big piece on carbon pricing – and agonizing over length and time. I don’t want to step on his forthcoming message, but what he’s said so far helped crystallize something I’ve meant to write about for a while, a phenomenon I’ll call “101 boosterism.”
The name is a takeoff on Noah Smith’s clever writing about “101ism”, in which economics writers present Econ 101 stuff about supply, demand, and how great markets are as gospel, ignoring the many ways in which economists have learned to qualify those conclusions in the face of market imperfections. His point is that while Econ 101 can be a very useful guide, it is sometimes (often) misleading when applied to the real world.
My point is somewhat different: even when Econ 101 is right, that doesn’t always mean that it’s important – certainly not that it’s the most important thing about a situation. In particular, economists may delight in talking about issues where 101 refutes naïve intuition, but that doesn’t at all mean that these are the crucial policy issues we face. ...

He goes on to talk about this in the context of international trade and carbon pricing (too hard to excerpt without leaving out important parts of his discussion).

Monday, April 11, 2016

'What’s Behind The Revolt Against Global Integration?'

Larry Summers:

What’s behind the revolt against global integration?: Since the end of World War II, a broad consensus in support of global economic integration as a force for peace and prosperity has been a pillar of the international order. ...
This broad program of global integration has been more successful than could reasonably have been hoped. ... Yet a revolt against global integration is underway in the West. ...
One substantial part of what is behind the resistance is a lack of knowledge. ...The core of the revolt against global integration, though, is not ignorance. It is a sense — unfortunately not wholly unwarranted — that it is a project being carried out by elites for elites, with little consideration for the interests of ordinary people. ...
Elites can continue on the current path of pursuing integration projects and defending existing integration, hoping to win enough popular support that their efforts are not thwarted. On the evidence of the U.S. presidential campaign and the Brexit debate, this strategy may have run its course. ...
Much more promising is this idea: The promotion of global integration can become a bottom-up rather than a top-down project. The emphasis can shift from promoting integration to managing its consequences. This would mean a shift from international trade agreements to international harmonization agreements, whereby issues such as labor rights and environmental protection would be central, while issues related to empowering foreign producers would be secondary. It would also mean devoting as much political capital to the trillions of dollars that escape taxation or evade regulation through cross-border capital flows as we now devote to trade agreements. And it would mean an emphasis on the challenges of middle-class parents everywhere who doubt, but still hope desperately, that their kids can have better lives than they did.

Friday, April 01, 2016

What’s so Great about Free Trade?

David Glasner (I cut quite a bit -- the original is more than twice as long):

What’s so Great about Free Trade?: Free trade is about as close to a sacred tenet as can be found in classical and neoclassical economic theory. ... Despite the love and devotion that the doctrine of free trade inspires in economists, the doctrine ... has never been popular among the masses. ...
The key to understanding that disconnect is, I suggest, the way in which economists have been trained to think about individual and social welfare, which, it seems to me, is totally different from how most people think about their well-being. In the standard utility-maximization framework, individual well-being is a monotonically increasing function of individual consumption, leisure being one of the “goods” being consumed, so that reductions in hours worked is, when consumption of everything else is held constant, welfare-increasing. Even at a superficial level, this seems totally wrong. ...
What people do is a far more important determinant of their overall estimation of how well-off they are than what they consume. When you meet someone, you are likely, if you are at all interested in finding out about the person, to ask him or her about what he or she does, not about what he or she consumes. Most of the waking hours of an adult person are spent in work-related activities. ... It seems to me that what matters to most people is the nature of their relationships with their family and friends and the people they work with, and whether they get satisfaction from their jobs or from a sense that they are accomplishing or are on their way to accomplish some important life goals. ...
Moreover, insofar as people depend on being employed in order to finance their routine consumption purchases..., the unplanned loss of their current job would be a personal disaster, which means that being employed is the dominant – the overwhelming – determinant of their well-being. Ordinary people seem to understand how closely their well-being is tied to the stability of their employment, which is why people are so viscerally opposed to policies that, they fear, could increase the likelihood of losing their jobs.
To think that an increased chance of losing one’s job in exchange for a slight gain in purchasing power owing to the availability of low-cost imports is an acceptable trade-off for most workers does not seem at all realistic. Questioning the acceptability of this trade-off doesn’t mean that ... in principle, the gains from free trade are[n't] large enough to provide monetary compensation to workers who lose their jobs, but I do question whether such compensation is possible in practice or that the compensation would be adequate for the loss of psychic well-being associated with losing one’s job, even if money income is maintained. ...
The psychic effects of losing a job (an increase in leisure!) are ignored by the standard calculations of welfare effects in which well-being is identified with, and measured by, consumption. And these losses are compounded and amplified when they are concentrated in specific communities and regions...
The goal of this post is not to make an argument for protectionist policies, let alone for any of the candidates arguing for protectionist policies. The aim is to show how inadequate the standard arguments for free trade are in responding to the concerns of the people who feel that they have been hurt by free-trade policies or feel that the jobs that they have now are vulnerable to continued free trade and ever-increasing globalization. I don’t say that responses can’t be made, just that they haven’t been made.
The larger philosophical or methodological point is that ... economic theory can tell us that an excise tax on sugar tends to cause an increase in the price, and a reduction in output, of sugar. But the idea that we can reliably make welfare comparisons between alternative states of the world when welfare is assumed to be a function of consumption, and that nothing else matters, is simply preposterous. And it’s about time that economists enlarged their notions of what constitutes well-being if they want to make useful recommendations about the welfare implications of public policy, especially trade policy.

Tuesday, March 29, 2016

Trade Deficits: These Times are Different

Brad DeLong:

There are big reasons to be for "mercantilist" policies:

  1. In a world in which a country suffers from a shortage of risk-bearing capacity or a savings glut, exports are a very valuable source of aggregate demand.
  2. In a world in which there are substantial spillovers from the creation and maintenance of communities of engineering practice, exports in associated industries are a powerful nurturant and imports a powerful retardant of such communities.
  3. To the claim that subsidies to such communities are better, the proper rebuttal is "subsidies to whom?" Export champions reveal themselves to be competent productive organizations, and policies that encourage competent productive organizations are likely to do more to nurture communities of engineering practice than policies that encourage competent lobbying organizations.

The arguments against "mercantilist" policies are two:

  1. The little one: such policies are inefficient, in that the losers lose more than the winners win.
  2. The big one: such policies are not win-win, and economic policy energy is best devoted to things that are win-win--at least in the behind-the-veil-of-ignorance sense of win-win.

Paul Krugman: Trade Deficits: These Times are Different: "In normal times, the counterpart of a trade deficit is capital inflows...

Monday, March 28, 2016

Paul Krugman: Trade, Labor, and Politics

Why have Republican been more protectionist than Democrats?:

Trade, Labor, and Politics, by Paul Krugman, Commentary, NY Times: There’s a lot of things about the 2016 election that nobody saw coming, and one of them is that international trade policy is likely to be a major issue... What’s more, the positions of the parties will be the reverse of what you might have expected: Republicans, who claim to stand for free markets, are likely to nominate a crude protectionist, leaving Democrats, with their skepticism about untrammeled markets, as the de facto defenders of relatively open trade.
But this isn’t as peculiar a development as it seems. ... It’s true that globalization puts downward pressure on the wages of many workers — but progressives can offer a variety of responses to that pressure, whereas on the right, protectionism is all they’ve got.
When I say that Republicans have been more protectionist than Democrats, I’m not talking about the distant past... Reagan, after all, imposed an import quota on automobiles that ended up costing consumers billions of dollars. And Mr. Bush imposed tariffs on steel that were in clear violation of international agreements, only to back down after the European Union threatened to impose retaliatory sanctions. ...
But protectionism isn’t the only way to fight that downward pressure. ... Consider, for example, the case of Denmark... As a member of the European Union, Denmark is subject to the same global trade agreements as we are... Yet Denmark has much lower inequality than we do. Why?
Part of the answer is that workers in Denmark, two-thirds of whom are unionized, still have a lot of bargaining power. If U.S. corporations were able to use the threat of imports to smash unions, it was only because our political environment supported union-busting. Even Canada, right next door, has seen nothing like the union collapse that took place here.
And the rest of the answer is that Denmark (and, to a lesser extent, Canada) has a much stronger social safety net than we do. In America, we’re constantly told ... we can’t even afford even the safety net we have; strange to say, other rich countries don’t seem to have that problem. ...
And there’s a lesson here that goes beyond this election. If you’re generally a supporter of open world markets — which you should be, mainly because market access is so important to poor countries — you need to know that whatever they may say, politicians who espouse rigid free-market ideology are not on your side.

Monday, March 14, 2016

'A Fundamental Shift in the Nature of Trade Agreements'

Tim Taylor:

A Fundamental Shift in the Nature of Trade Agreements: Controversy over agreements that seek to encourage free trade has been going on for decades. But the nature of the underlying trade agreements has fundamentally shifted. The old trade agenda under first the GATT and then its successor the World Trade Organization was focused on reducing tariffs and other trade barriers. The new generation of trade agreements are about assuring that interlocking webs of production that cross international borders will be enabled to function. Richard Baldwin explores the change in "The World Trade Organization and the Future of Multilateralism," published in the Winter 2016 issue of the Journal of Economic Perspectives. Here's a taste of his theme:

"[T]he rules and procedures of the WTO were designed for a global economy in which made-here–sold-there goods moved across national borders. But the rapid rising of offshoring from high-technology nations to low-wage nations has created a new type of international commerce. In essence, the flows of goods, services, investment, training, and know-how that used to move inside or between advanced-nation factories have now become part of international commerce. For this sort of offshoring-linked international commerce, the trade rules that matter are less about tariffs and more about protection of investments and intellectual property, along with legal and regulatory steps to assure that the two-way flows of goods, services, investment, and people will not be impeded. It’s possible to imagine a hypothetical WTO that would incorporate these rules. But in practice, the rules are being written in a series of regional and megaregional agreements like the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union. The most likely outcome for the future governance of international trade is a two-pillar structure in which the WTO continues to govern with its 1994-era rules while the new rules for international production networks, or “global value chains,” are set by a decentralized process of sometimes overlapping and inconsistent megaregional agreements."

Let's unpack these dynamics a bit. Baldwin argues that the rounds of international trade talks starting with the GATT in 1946 displayed what he calls "juggernaut" dynamics. Before the multilateral trade talks, there wasn't much reason for exporters in a country to care about whether the country imposed tariffs on imports. But the multilateral trade talks shifted the political balance, because exporters realized that in order to get lower tariffs in their foreign markets, their own country would need to reduce its tariffs, too. Moreover, each time tariffs were reduced, it tended to weaken firms and industries that faced tough import competition, while benefiting export-oriented firms. Thus, export-oriented firms were in a stronger position to advocate for future tariff cuts as well.

But by the 1990s, there was a rise in global supply chains that crossed international borders. Many emerging markets figured out pretty quickly that if they wanted to be part of global supply chains, they not only needed to reduce their tariffs, but they also needed to implement rules about protection of investment and intellectual property, as well as pursuing the "trade facilitation" agenda of making it easier for goods to move across borders. Literally hundreds of these regional trade agreements hae already been signed, and these were not "shallow" agreements focused on reducing tariffs a bit, but "deep" agreements that got way down into the nitty-gritty of facilitating cross-border trade.

Here are a couple of figures from Baldwin to illustrate the point. The bars in the left-hand figure show the number new regional trade agreements signed each year, and the blue line show the typicaly number of "deep" provisions in these treaties. The right-hand figure shows the number of bilateral investment treaties signed each year--there was clearly a boom in such treaties from the late 1990s into the early 2000s.

The controversial megaregional trade agreements now in the news are mostly about combining and standardizing provisions that are pretty much already incorporated in these hundreds of regional agreements. As Baldwin writes; "The thousands of bilateral investment treaties, for instance, are not all that different, and so network externalities could be realized by melding them together. The emergence of so-called megaregionals like the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership should be thought of as partial multilateralization of existing deep disciplines by sub-groups of WTO members who are deeply involved in offshoring and global value chains."

My sense is that this fundamental shift in trade agreements from "shallow" to "deep" is part of what drives the controversy surrounding them. The new generation of trade agreements aren't just about reducing tariffs or trade barriers as traditionally understood; instead, they are full of very specific rules that seek to harmonize and facilitate business flows across international borders. There is an uncomfortable sense that in the process of negotiating the details, there are too many times when juicy little plums are included for favored special interests. The fundamental economic arguments for the overall benefits of free trade, even though it is a disruptive force, have to be re-interpreted through a haze of fine print in such cases.

Baldwin sees some difficult issues emerging with a two-track system of wold trade agreements. He writes:

"The megaregionals like the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership, however, are not a good substitute for multilateralization inside the WTO. They will create an international trading system marked by fragmentation (because they are not harmonized among themselves) and exclusion (because emerging trade giants like China and India are not members now and may never be). Whatever the conceptual merits of moving the megaregionals into the WTO, I have argued elsewhere that the actual WTO does not seem well-suited to the task. ...

"What all this suggests is that world trade governance is heading towards a two-pillar system. The first pillar, the WTO, continues to govern traditional trade as it has done since it was founded in 1995. The second pillar is a system where disciplines on trade in intermediate goods and services, investment and intellectual property protection, capital flows, and the movement of key personnel are multilateralised in megaregionals. China and certain other large emerging markets may have enough economic clout to counter their exclusion from the current megaregionals. Live and let live within this two-pillar system is a very likely outcome."

Saturday, March 12, 2016

'The Benefits of Free Trade: Time to Fly My Neoliberal Freak Flag High!'

Brad DeLong:

The Benefits of Free Trade: Time to Fly My Neoliberal Freak Flag High!: I think Paul Krugman is wrong today on international trade. For we find him in “plague on both your houses” mode. ... [see here and here]

So I guess it is time to ... fly my neoliberal freak flag high...

On the analytics, the standard HOV models do indeed produce gains from trade by sorting production in countries to the industries in which they have comparative advantages. That leads to very large shifts in incomes toward those who owned the factors of production used intensively in the industries of comparative advantage: Big winners and big losers within a nation, with relatively small net gains.

But the map is not the territory. The model is not the reality. An older increasing-returns tradition sees productivity depend on the division of labor, the division of labor depends on the extent of the market, and free-trade greatly widens the market. Such factors can plausibly quadruple the net gains from trade over those from HOV models alone, and so create many more winners.

Moreover, looking around the world we see a world in which income differentials across high civilizations were twofold three centuries ago and are tenfold today. The biggest factor in global economics behind the some twentyfold or more explosion of Global North productivity over the past three centuries has been the failure of the rest of the globe to keep pace with the Global North. And what are the best ways to diffuse Global North technology to the rest of the world? Free trade: both to maximize economic contact and opportunities for learning and imitation, and to make possible the export-led growth and industrialization strategy that is the royal and indeed the only reliable road to anything like convergence.

So I figure that, all in all, not 5% but more like 30% of net global prosperity--and considerable reduction in cross-national inequality--is due to globalization. That is a very big number indeed. But, remember, even the 5% number cited by Krugman is a big deal: $4 trillion a year, and perhaps $130 trillion in present value.

As for the TPP, the real trade liberalization parts are small net goods. The economic question is whether the dispute-resolution and intellectual-property protection pieces are net goods. And on that issue I am agnostic leaning negative. The political question is: Since this is a Republican priority, why is Obama supporting it without requiring Republican support for a sensible Democratic priority as a quid pro quo?

That said, let me wholeheartedly endorse what Paul (and Mark) say here:

as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins—but we now have an ideology utterly opposed to such redistribution in full control of one party…. So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking….

Friday, March 11, 2016

Paul Krugman: Trade and Tribulation

"Politicians should be honest and realistic about trade":

Trade and Tribulation, by Paul Krugman, Commentary NY Times: Why did Bernie Sanders win a narrow victory in Michigan, when polls showed Hillary Clinton with a huge lead? Nobody really knows, but there’s a lot of speculation that Mr. Sanders may have gained traction by hammering on the evils of trade agreements. Meanwhile, Donald Trump, while directing most of his fire against immigrants, has also been bashing the supposedly unfair trading practices of China and other nations.
So, has the protectionist moment finally arrived? Maybe, maybe not...
To make sense of the debate over trade, there are three things you need to know.
The first is that we have gotten to where we are — a largely free-trade world — through ... diplomacy, going all the way back to F.D.R. This process combines a series of quid pro quos — I’ll open my markets if you open yours — with rules to prevent backsliding.
The second is that protectionists almost always exaggerate the adverse effects of trade liberalization. Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. ...
And yes, Mr. Sanders is demagoguing the issue...
That said, not all free-trade advocates are paragons of intellectual honesty. In fact, the elite case for ever-freer trade ... is largely a scam..., in general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle ... the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.
Why, then, did we ever pursue these agreements? A large part of the answer is foreign policy... And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now. Are they saying that we should rip up America’s international agreements? Have they thought about what that would do to our credibility and standing in the world? ...
The larger point in this election season is, however, that politicians should be honest and realistic about trade, rather than taking cheap shots. Striking poses is easy; figuring out what we can and should do is a lot harder. But you know, that’s a would-be president’s job.

Monday, March 07, 2016

Paul Krugman: When Fallacies Collide

Does protectionism cause recessions?:

When Fallacies Collide, by Paul Krugman, Commentary, NY Times: The formal debates among the Republicans who would be president have exceeded all expectations. Even the most hardened cynics couldn’t have imagined that the candidates would sink so low, and stay so focused on personal insults. Yet last week, offstage, there was in effect a real debate about economic policy between Donald Trump and Mitt Romney, who is trying to block his nomination.
Unfortunately, both men are talking nonsense. Are you surprised?
The starting point for this debate is Mr. Trump’s deviation from free-market orthodoxy on international trade. Attacks on immigrants are still the central theme of the Republican front-runner’s campaign, but he has opened a second front on trade deficits, which he asserts are being caused by the currency manipulation of other countries, especially China. This manipulation, he says, is “robbing Americans of billions of dollars of capital and millions of jobs.”
His solution is “countervailing duties” — basically tariffs — similar to those we routinely impose when foreign countries are found to be subsidizing exports in violation of trade agreements.
Mr. Romney claims to be aghast. In his stop-Trump speech last week he warned that if The Donald became president America would “sink into prolonged recession.” Why? The only specific reason he gave was that those duties would “instigate a trade war and that would raise prices for consumers, kill our export jobs and lead entrepreneurs and businesses of all stripes to flee America.”
This is pretty funny if you remember anything about the 2012 campaign. ... Mr. Romney was saying almost exactly the same things Mr. Trump is saying now. ...
More important than Mr. Romney’s awkward history here, however, is the fact that his economic analysis is all wrong. Protectionism can do real harm, making economies less efficient and reducing long-run growth. But it doesn’t cause recessions.
Why not? ... In fact, a worldwide trade war would, by definition, reduce imports by exactly the same amount that it reduces exports. There’s no reason to assume that the net effect on employment would be strongly negative.
But didn’t protectionism cause the Great Depression? No, it didn’t — protectionism was a result of the Depression, not its cause. ...

So there you have it. The good news is that there was a real policy debate going on within the G.O.P. last week. The bad news is that it was junk economics on both sides.

Friday, March 04, 2016

'Trade, Trump, and Downward Class Warfare'

This is from Mark Kleiman (via Brad DeLong):

Trade, Trump, and Downward Class Warfare, by Mark Kleiman: A conversation with my Marron Institute colleague Paul Romer yesterday crystallized an idea I’d been toying with for some time. In a nutshell: opponents of taxing the rich have destroyed, on a practical level, the theoretical basis for believing that free trade benefits everyone.
The Econ-101 case for free trade is straightforward: Trade benefits those who produce exports and those who consume imports (including producers who use imported goods as inputs). It hurts the producers of goods which can be made better or more cheaply abroad. But the gains to the winners exceed the gains to the losers: that is, the winners could make the losers whole and still come out ahead themselves. Therefore, trade passes the Pareto test.
[Yes, this elides a number of issues, including path-dependency in increasing-returns and learning-by-doing markets on the pure-economics side and the salting of actual agreements with provisions that create or protect economic rents on the political-economy side. It also ignores the biggest gainers from trade: workers in low-wage countries, most notably the Chinese factory workers whose parents were barefoot peasants.]
So when the modern Republican Party (R.I.P), in the name of “small government” and opposition to “class warfare,” set its face against policies to redistribute the gains from economic growth, it destroyed the theoretical basis for thinking that a rising tide would lift all the boats, rather than lifting the yachts and swamping the trawlers. Free trade without redistribution (especially the corrupt version of “free trade” with corporate rent-seeking written into it) is basically class warfare waged downwards. ...

Saturday, February 20, 2016

'How Did Globalization Affect German Manufacturing Workers?'

From VoxEU:

How did globalization affect the job biographies of German manufacturing workers?, by Wolfgang Dauth, Sebastian Findeisen, and Jens Südekum: What are the labor market effects of globalization? This question dates back, at least, to the seminal work by Stolper and Samuelson (1941), but even today relatively little is known about the micro-level impacts of trade shocks on the job biographies of single workers. How are different individuals affected? Does it depend on their initial sectoral affiliation, location, and personal characteristics? Do they systematically adjust to globalization by moving across industries, regions, or plants to mitigate import shocks or to benefit from export opportunities? Does this endogenous mobility occur smoothly, or does it involve disruptive unemployment spells? And what are the cumulated long-run effects of trade shocks? These are central concerns for policymakers who worry about the distributive consequences of trade liberalizations. ...

Moving forward to the conclusion:

Summing up, our key insight is that German manufacturing workers benefited at large from this particular globalization episode. Yet, there have been winners and losers. Moreover, we find that individuals systematically adjust to globalization, and we discover a notable asymmetry in the individual labor market response to positive and negative shocks.
Trade shocks do not seem to trigger much ‘voluntary’ sorting from import-competing to export-oriented manufacturing industries. The patterns we observe in the data are more consistent with a type of mobility that is ‘forced’ by job displacement and unemployment. The push effects out of import-competing manufacturing industries are not mirrored by comparable pull effects into export-oriented branches. Often, the direction of the move is to the service sector.
We also find strong heterogeneity across different types of workers. Younger and less-skilled individuals, for example, are hit harder by import shocks but also benefit more from export opportunities. Women and men are affected similarly from import penetration, but men seem to materialize the benefits of rising export exposure better than women, thereby fueling the gender-wage gap. The basic upshot is that trade causes strong distributional effects in the German labor market, and our micro-level empirical findings might be informative for policymakers to design targeted policies that aim at those who benefit the least from globalization.

Wednesday, January 13, 2016

TPP not Equal to 'Free Trade'

Jared Bernstein:

TPP not equal to 'free trade': I have written extensively/a> on this point: there’s a big difference between those magical words “free trade” that everyone invokes in this town whenever the topic comes up, and actual trade deals. But I think Rep. Sandy Levin thoroughly nailed this distinction in testimony before the International Trade Commission this morning:

We all recognize that trade can be beneficial. The issue is not whether Members of Congress such as myself could pass an Econ 101 class, as President George W. Bush’s Chair of the Council of Economic Advisers, Gregory Mankiw, recently put it. Instead, the issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class.

What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement in our trade agreements? What do they have to say about providing a five-year or an eight-year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? And what about trade in services on the internet or the offshoring of jobs that result from greater capital mobility? Does the theory of comparative advantage address these new issues?  No – and yet those are the kinds of issues at the crux of the debate over the TPP Agreement today.

Levin’s full testimony is here and looks very thoughtful.

He points to a new World Bank report that models the growth impact of the TPP by 2030 on both member and non-member countries. The magnitude of the US impact–maybe 0.3-0.4 percent–belies a lot of the noise you hear about this sort of thing, and is surely statistically indistinguishable from no change at all.

But if such modelling is in the ball park at all, the benefits of the deal are substantial to some emerging economies. The Bank predicts that the TPP will boost Vietnam’s exports by 30%. However, to their credit, they also simulated the impact of non-member countries, which lose export share to TPP members, showing that once again, the punchline is that “free trade” is a misnomer, a mixed bag with winners and losers.

Monday, December 14, 2015

'Offshoring and Unskilled Labor Demand: Evidence That Trade Matters'

From Vox EU:

Offshoring and unskilled labour demand: Evidence that trade matters, by Juan Carluccio, Alejandro Cuñat, Harald Fadinger, and Christian Fons-Rosen: ... Conclusions The empirical evidence suggesting that globalisation is indeed affecting the income distribution in industrialised countries is much stronger than initially thought, at least as far as the manufacturing industry is concerned. In fact, the productivity gains from having access to cheaper inputs through offshoring are not being distributed equally between different economic actors in our rich societies. Consequently, political resistance to free trade by certain groups has a clear rationale as long as the effects discussed above are not addressed through more effective redistribution policies.

Tuesday, October 20, 2015

The Lofty Promise and Humble Reality of International Trade

I have a new column:

The Lofty Promise and Humble Reality of International Trade: How should we feel about international trade? Should we applaud it for its ability to lift the world’s poor out of poverty, lower the price of goods, and increase the variety of products we can consume? Or should we be concerned about the effects it has on employment, inequality, and the availability of decent jobs within the US?
As we shall see, this is not an easy question to answer. ...

Saturday, October 17, 2015

''Those Who are Left Out in the Cold''

Branko Milanovic:

Disarticulation goes North: ... In a recent piece published in the New York Times, Paul Theroux, after traveling through the American South, was shocked by the depth of poverty there, wrought in his opinion by the destruction of jobs that have all gone to Asia and import of cheap commodities from China. He was even more distraught by the apparent lack  of interest of American political and economic elites who seem to even fail to notice the plight of the Americans in states like Mississippi and most ironically in Arkansas where philanthropists such as the Clinton Foundation have not been much seen even as they proudly boast of  efforts “to save the elephants in Africa”.  
The key issue raised by Theroux was whether trade, that is, globalization was responsible for this plight. The second issue that was raised was why there is so little empathy with the domestic poor or interest in doing something about their destitution. ...
One can safely claim, to the extent that these things that be causally proven, that the rapid worldwide progress in poverty alleviation is due to globalization. It is also true that on any income or consumption metric, poverty in parts of Africa is much worse than in Mississippi. But of course none of that may be politically or socially relevant because national populations seldom care about cosmopolitan welfare functions (where happiness of every individual in the world is equally valued).  They work with national welfare functions where a given level of destitution locally is given a much greater weight than the same destitution abroad. There are studies that show the revealed difference in implicit national vs. cosmopolitan weighting of poverty (the ratio for the US is estimated at 2000 to 1); there are arguments for this, going back to Aristotle who in Nicomachean ethics thought that our level of empathy diminishes as in concentric circles as we move further from a very narrow community. And there are also political  philosophy arguments (by Rawls) why co-citizens do care more for each other than for the others.
But I think that it is insufficient to leave this argument at a very abstract level where one group of Americans would have a more cosmopolitan welfare function and better perception of global benefits of trade and another would be more nativist and ignorant of economics. I do not think that the real difference between the two groups has to do with welfare concerns and economic literacy  but with their interests. Many rich Americans who like to point out to the benefits of globalization worldwide significantly benefited and continue to benefit from the type of globalization that has been unfolding during the past three decades. The numbers, showing their real income gains, are so well known that they need no repeating.  They are large beneficiaries from this type of globalization because of their ability to play off less well-paid and more docile labor from poorer countries against the often too expensive domestic labor. They also benefit through inflows of unskilled foreign labor that keep the costs of the services they consume low. Thus rich Americans are made better off by the key forces of globalization: migration, outsourcing, cheap imports, which have also been responsible for the major reduction of worldwide poverty.  Perhaps in a somewhat crude materialist fashion I think that their sudden interest in reducing worldwide poverty is just an ethical sugar-coating over their economic interests which are perfectly well served by globalization. Like every dominant class, or every beneficiary of an economic or political regime, they feel the need to situate their success within some larger whole and to explain that it is a by-product of a much grander betterment of human condition.
A new alliance, based on the coincidence of interests, is thus formed between some of the richest people in the world and poor people  of Africa, Asia and Latin America. Those who are left out in the cold are the domestic lower-middle and middle classes squeezed between the competition from foreign labor and indifference of national ruling classes. ...
The idea that globalization is a force that is good and beneficial for all is an illusion. Tectonic economic changes such as those brought by globalization always have winners and losers. (The first sentence of my forthcoming book “Global inequality”, Harvard University Press, April 2016, says exactly that.) Even if globalization is, as I believe, a positive phenomenon overall, both economically ... and ethically because it allows for the creation of something akin to community of all humankind, it is, and will remain, a deeply contradictory and disruptive force that would leave, at times significant groups of people, worse off. Refusing to see that is possible only if one is blinded by ideology of universal harmonies or by own economic interests.

Tuesday, October 06, 2015

'TPP Take Two'

Paul Krugman:

TPP Take Two: I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership; although I don’t share the intense dislike of many progressives, I’ve seen it as an agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things... But the WH is telling me that the agreement just reached is significantly different from what we were hearing before, and the angry reaction of industry and Republicans seems to confirm that.
What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Rs in general are mad because the labor protection stuff is stronger than expected. All of these are good things from my point of view. I’ll need to do much more homework once the details are clearer. ...

Monday, October 05, 2015

Is Donald Trump Right to Call NAFTA a ''Disaster''?

At MoneyWatch

Is Donald Trump right to call NAFTA a "disaster"?: Recently, Donald Trump made a strong claim about the North American Free Trade Agreement (NAFTA) in an interview on CBS 60 Minutes:
"It's a disaster. ... We will either renegotiate it, or we will break it. Because, you know, every agreement has an end. ... Every agreement has to be fair. Every agreement has a defraud clause. We're being defrauded by all these countries."
Is he right? Was NAFTA a disaster? ...

I also talk about immigration.

Thursday, September 24, 2015

'America’s Collapsing Trade Initiatives'

Robert Kuttner:

America’s Collapsing Trade Initiatives: ...Obama's trade policy is in tatters. The grand design, created by Obama's old friend and former Wall Street deal-maker, trade chief Mike Froman, comes in two parts: a grand bargain with Pacific nations aimed at building a U.S.-led trading bloc to contain the influence of China, and an Atlantic agreement to cement economic relations with the European Union.
Both are on the verge of collapse from their own contradictory goals and incoherent logic.
This past June, the president, using every ounce of his political capital, managed to get Congress to vote him negotiating authority (by the barest of margins) for these deals. Under the so-called fast-track procedure, there is a quick up-or-down vote on a trade agreement that can't be amended.
The assumption was that the administration could deliver a deal backed by major trading partners. But our partners are not playing. ...
The U.S. negotiators, increasingly, are prepared to give away the store, to get a deal. ...
It is a bit premature to write the obituaries for these deals. Never underestimate the power of corporate elites. But one has to ask, what was Obama thinking? The U.S. faces serious economic challenges from an economy that is still stagnant for regular people. And we face complex national security challenges from China. These trade deals address neither challenge, much less the even more daunting economic woes in Europe. ...

In general, I support lowering trade restrictions, but the details of trade agreements are important. Just because a deal is proposed does not necessarily mean it's a good one. I haven't kept up with the details of the current negotiations, but for the most part those that have appear less than impressed.

Wednesday, September 23, 2015

'Chinese Spillovers'

Paul Krugman:

Chinese Spillovers: China is clearly in economic trouble. But how worried should we be about spillovers from China’s woes to the rest of the world economy? I have in general been telling people “not very”, although it’s a bigger issue for Japan and Korea. But Citi’s Willem Buiter suggests that it could be a quite big deal, leading to a global recession. ... So could he be right?
Let me start with the case for not worrying too much, which comes down to the fact that China’s economy, while big, is still a small fraction of the global economy...
One possibility is ... that a Chinese slump could, via its impact on commodity prices, do a lot more harm to some other emerging markets than the above analysis suggests. I’m still working on this, although so far I don’t seem to be finding much there.
Another possibility is an international version of the financial accelerator. As Buiter points out, many emerging markets seem to be vulnerable thanks to private-sector foreign currency debt (which was so deadly in 1997-98). ...
Maybe, also, we could see some version of the financial contagion so obvious in the 1990s. Troubles in Brazil might make investors leery of other emerging markets, driving up interest spreads and forcing fiscal austerity that worsens the downturn. Or for matter, to the extent that the same hedge funds have been buying assets in a number of emerging nations, losses in one place could force them to liquidate assets elsewhere, causing a sort of global debt deflation. That was a popular story in the 1990s...
Overall, I’m not convinced of the Buiter thesis; China still seems to me not big enough to bring down the rest of the world. But I’m not rock-solid in that conviction, largely because we’ve seen so much contagion in the past. Stay tuned.

Friday, September 18, 2015

'A Knee-Jerk Free Trader Response is Faith-Based'

Dani Rodrik:

Trade within versus between nations: ...economics does not offer unconditional policy prescriptions. Every graduate student learns that depending on the background specifications, any policy x  can be good or bad. A minimum wage can lower or raise employment (depending on whether employers have monopsony power); a natural resource discovery can raise or lower growth (depending on the likelihood of the Dutch disease); fiscal consolidation can expand or contract output (depending on the respective strengths of expectational versus Keynesian effects). And yes, the dictum that free trade benefits a nation depends on a long list of qualifying conditions.
So the proper response to the question “is free trade good?” is, as always, “it depends.” When an economist says “I support free trade” s/he must mean that s/he judges the circumstances under which free trade would not be desirable to be very rare or unlikely to obtain in the context at hand.
Many of the conditions under which free trade between nations is guaranteed to be desirable are unlikely to hold in practice. Market imperfections, returns to scale, macro imbalances, absence of first-best policy instruments are ubiquitous in the real world, particularly in the developing world on which I spend most of my time. This does not guarantee that import restrictions will be necessarily desirable. There are many ways in which governments can screw up, even when they mean well. But it does mean that a knee-jerk free trader response is faith-based rather than science-based. ...

[He goes on to answer a question about differential support for trade within nations versus trade between nations.]

Friday, August 28, 2015

How Rubio Would Deal With China

In the WSJ, Marco Rubio says Obama hasn't been tough enough with China on economic issues:

President Obama has continued to appease China’s leaders ...[with] his insufficient responses to economic ... concerns

What would he do?

For years, China has subsidized exports, devalued its currency, restricted imports and stolen technology on a massive scale. As president, I would respond not through aggressive retaliation, which would hurt the U.S. as much as China, but by greater commitment and firmer insistence on free markets and free trade. This means immediately moving forward with the Trans-Pacific Partnership and other trade agreements.

So, unlike Obama, who wants to move forward immediately with the TPP and other trade agreements, he'd move forward immediately with the TPP and other trade agreements.

Wednesday, June 17, 2015

'TPP Versus NAFTA'

Paul Krugman:

TPP Versus NAFTA: Many people — myself included — thought that TPP would, in the end, follow the model of NAFTA: a Democratic president would push the agreement through Congress, but the bulk of the votes would be Republican. But it doesn’t seem to be going that way. Why?
Lydia DePillis suggests that procedural differences and the changed political environment are what changed. Maybe. But I’d suggest three additional factors.
First, while non-trade issues like dispute settlement and intellectual property already loomed large in NAFTA, it was nonetheless more of a genuine trade agreement than TPP...
Despite this, the real case for NAFTA involved foreign policy — which is also true for TPP (administration officials tell me that it’s really about geopolitics.) But that case was much more compelling for NAFTA, which was about rewarding Mexican reformers. ...
Finally, I think it’s fair to say that the liberal intelligentsia has been somewhat radicalized by Republican extremism; making common cause with those who share your basic values matters more than it seemed to a couple of decades ago. ...
So it really is a different game, and TPP supporters need to realize that old rules no longer apply.

Saturday, June 13, 2015

'Decline and Fall of the Davos Democrats'

Paul Krugman:

Decline and Fall of the Davos Democrats: OK, I didn’t see that coming: even though I have come out as a lukewarm opponent of TPP, I assumed that it would happen anyway... But no, or not so far. ...
Or to put it another way, one way to see this is as the last stand of the Davos Democrats.
If you talk to administration officials — or at least if I talk to them (they may be telling me what they think I want to hear) — they offer a fairly sophisticated defense of this deal. ...
I’m not fully convinced, but this is a reasonable discussion.
But the overall selling of TPP, to some extent by the administration and much more so by its business allies, has been nothing like this. Instead, it has been all lectures from Those Who Know How the Global Economy Works — the kind of people who go to Davos and participate in earnest panels on the skills gap and the case for putting Alan Simpson in charge of everything — to the ignorant hippies who don’t. You know, ignorant hippies like Joseph Stiglitz and Elizabeth Warren.
This kind of thing worked in the 1990s, when Davos Man actually did seem to know how the world works. But now Davos Democrats are known as the people who told us to trust unregulated finance and fear invisible bond vigilantes. They just don’t have the credibility to pull off arguments from authority any more. And it doesn’t say much for their perspicacity that they apparently had no idea that the world has changed.
TPP’s Democratic supporters thought they could dictate to their party like it’s 1999. They can’t.

Friday, May 22, 2015

Paul Krugman: Trade and Trust

The Obama administration is risking its credibility over the trade deal:

Trade and Trust, by Pau Krugman, Commentary, NY Times: One of the Obama administration’s underrated virtues is its intellectual honesty. Yes, Republicans see deception and sinister ulterior motives everywhere, but they’re just projecting. The truth is that, in the policy areas I follow, this White House has been remarkably clear and straightforward about what it’s doing and why.
Every area, that is, except one: international trade and investment.
I don’t know why the president has chosen to make the proposed Trans-Pacific Partnership such a policy priority. Still, there is an argument to be made for such a deal, and some reasonable, well-intentioned people are supporting the initiative.
But other reasonable, well-intentioned people have serious questions about what’s going on. ...
The administration’s main analytical defense of the trade deal came earlier this month, in a report from the Council of Economic Advisers. Strangely, however, the report didn’t actually analyze the Pacific trade pact. Instead, it was a paean to the virtues of free trade, which was irrelevant to the question at hand.
First of all, whatever you may say about the benefits of free trade, most of those benefits have already been realized. ...
In any case, the Pacific trade deal isn’t really about trade. Some already low tariffs would come down, but the main thrust of the proposed deal involves strengthening intellectual property rights — things like drug patents and movie copyrights — and changing the way companies and countries settle disputes. And it’s by no means clear that either of those changes is good for America. ...
As I see it, the big problem here is one of trust.
International economic agreements are, inevitably, complex, and you don’t want to find out at the last minute ... that a lot of bad stuff has been incorporated into the text. So you want reassurance that the people negotiating the deal are listening to valid concerns, that they are serving the national interest rather than the interests of well-connected corporations.
Instead of addressing real concerns, however, the Obama administration has been dismissive, trying to portray skeptics as uninformed hacks who don’t understand the virtues of trade. But they’re not...
It’s really disappointing and disheartening to see this kind of thing from a White House that has, as I said, been quite forthright on other issues. And the fact that the administration evidently doesn’t feel that it can make an honest case for the Trans-Pacific Partnership suggests that this isn’t a deal we should support.

Thursday, May 14, 2015

'Defend Workers and the Environment Before Voting Fast Track'

Jeff Sachs weighs in on the TPP, TTIP, and TPA:

Defend Workers and the Environment Before Voting Fast Track: President Barack Obama is making a full-court press for two new international business agreements, one with Asian-Pacific countries known as Trans-Pacific Partnership (TPP) and the other with European countries known as the Trans-Atlantic Trade and Investment Partnership (TTIP). To secure these, he is calling on Congress to pass Trade Promotion Authority (TPA), also known as "fast track," so that when TPP and TTIP come up for a Congressional vote, they can only be voted up or down, without amendments. ...
The president portrays TPP and TTIP as part of an overall program of "middle-class economics" in which "everybody gets a fair shot, everyone does his fair share, and everybody plays by the same set of rules." That means "making sure that everybody has got a good education," "women are getting paid the same as men for doing the same work," "making sure that folks have to have sick leave and family leave," and "increasing the minimum wage across the country." It means pushing for investments in infrastructure and faster Internet.
The problem, however, is that the president has not succeeded in getting any of those middle-class policies in place. ...
If the U.S. were a fairer society, in which Obama's vision of everybody getting a fair shot truly applied, then TPP and TTIP would be much easier calls. The losers from trade and offshoring would reliably get help from the winners; workers hit by the agreements would have a clear path to new skills, re-training, family support, adjustment assistance, a higher minimum wage, and all of the other protections that the president rightly seeks but can't secure. Yet America today is not that kind of society. The TPP and TTIP would hand another gift to the multinational companies that are lobbying so hard for the two agreements without providing real protections for workers (and for the environment as well). ...
Obama and the Republicans in Congress have not made the case to American workers that trade policies under TPP and TTIP will be part of a fair, middle-class, and environmentally sustainable economy.

Friday, May 01, 2015

'Ten Facts about U.S. Trade'

Since I've posted quite a few things skeptical of the trade agreements the Obama administration has been promoting, including an article of my own, it's fair to give the White House's response. However, the response is speaking in general about trade, and I also think it's fair to ask the degree to which the TPP and the TTIP will provide these benefits, and how the benefits will stack up against the costs (the benefit side is covered to some degree on pages 45 and 46 of the full report):

Ten Facts about U.S. Trade, The White House: President Obama’s top priority is to make sure the United States builds on its economic momentum by continuing to grow businesses, create jobs, and expand the middle class. That is why the President is committed to free and fair trade agreements that level the playing field and benefit American businesses and workers. This report presents original empirical evidence, alongside a summary of the extensive economic literature, on a broad range of effects of enhanced U.S. trade and U.S. free trade agreements (FTAs).[1] Highlights from this report include:
1. U.S. businesses must overcome an average tariff hurdle of 6.8 percent, in addition to numerous non - tariff barriers (NTBs) , to serve the roughly 95 percent of the world’s customers outside our borders. The United States is already one of the most open markets in the world, meaning that the main impact of new trade agreements would be to decrease foreign barriers to U.S. exports. In 2014, almost 70 percent of U.S. imports crossed our borders duty - free, but many of our trading partners maintain higher tariffs that create steep barriers to U.S. exports.
2. Exporters pay higher wages, and the average industry’s export growth over the past twenty years translated into $1,300 higher annual earnings for the typical employee. Studies of U.S. manufacturing industries document that, on average, export - intensive industries pay workers up to 18 percent more than non - export - intensive industries. Controlling for industry, location, and worker characteristics, CEA finds that the average industry’s increase in exports in the 1990s and 2000s translated into an additional $1,300 in annual earnings for the typical middle - class worker.
3. Middle - class Americans gain more than a quarter of their purchasing power from trade. Trade allows U.S. consumers to buy a wider variety of goods at lower prices, raising real wages and helping families purchase more with their current incomes. This is especially important for middle - class consumers who spend a larger share of their disposable income on heavily - traded food and clothing items. Compared to a world with no trade, median - income consumers gain an estimated 29 percent of their purchasing power from trade.
4. Over the past twenty years, the average industry’s increase in exports translated into 8 percent higher labor productivity, or almost a quarter of the total productivity increase over that time. About half of all U.S. imports are inputs that businesses use to produce final goods, which lowers firms’ production costs by making a greater variety of inputs available at lower prices. Additionally, economic research shows that trade increases productivity for businesses and the economy as a whole.
5. When countries make trade deals with China, outsourcing of American jobs increases, while U.S. trade agreements do not change the rate of U.S. investment abroad. Trade agreements with China offer countries preferential access to the vast Chinese market while accepting low labor and environmental standards. U.S. FTAs, on the other hand, raise standards across the board and help U.S. businesses export to foreign markets while still producing goods here. U.S. foreign direct investment (FDI) in FTA partner countries shows little to no change after completion of a trade agreement. However, China’s completion of a trade agreement increases U.S. FDI in China’s FTA partners.
6. Trade raises labor standards and incomes abroad, helping developing countries lift people out of poverty and expanding markets for U.S. exports. Research suggests that trade has helped decrease poverty by raising wages around the world and also finds that expanding U.S. market access promotes higher - quality employment in less - developed countries as workers shift from informal to formal employment. Enforceable labor standards, which form a central part of trade agreements the United States is currently negotiating, have also complemented trade’s direct effects.
7. For every 1 percent increase in income as a result of trade liberalization, pollution concentrations fall by 1 percent. This happens because the adoption of clean technologies spread through trade more than offsets emissions resulting from increased transportation or production. Current trade agreements amplify these effects: the Administration includes environmental commitments as a core part of its values - driven trade approach, including commitments to protect oceans, combat wildlife trafficking, and eliminate illegal logging.
8. Trade helps lower the gender wage gap , with a 10 percentage point decrease in tariffs leading to a 1 percentage point drop in the wage gap. CEA studied the relationship between tariffs and the gender wage gap, finding that industries with larger tariff declines saw greater reductions in the wage gap. Trade also decreases discrimination based on race and immigration status and is correlated with better human - rights conditions.
9. The United States has a $43 billion surplus in agricultural trade and is a worldwide leader in agriculture , employing almost 1.5 million American workers. In 2014, one - half of the wheat, rice, and soybeans produced in the United States was exported, along with over two - thirds of almonds and walnuts and four - fifths of cotton and pistachios. The U.S. Department of Agriculture (USDA) estimates that every $1 in agricultural exports stimulates another $1.22 in related business activity, so that agricultural exports increased total economic output by almost $350 billion in 2014.
10. The United States is the global leader in services exports. Over the past 34 years, real U.S. services exports have grown more than seven - fold, particularly in areas like insurance and financial services. As a result , knocking down barriers to services trade is especially important for the American workforce. Compared to the average across 40 other countries, including most advanced economies and large emerging markets, the United States has lower trade barriers in 14 out of 18 different service sectors. By one estimate, if U.S. services reached the same export potential as manufactured good s, total U.S. exports could increase by as much as $800 billion.
[ 1] This report complements work already published in Chapter 7 of the Council of Economic Advisers’ (CEA) 2015 Economic Report of the President.

Tuesday, April 28, 2015

Why Trade Deals Don't Get More Public Support

At MoneyWatch:

Why trade deals don't get more public support, by Mark Thoma: Although President Obama supports the Trans-Pacific Partnership (TPP) trade agreement, he's running into resistance from many progressives. Why are they opposed to a deal that negotiators have worked on for years, includes the U.S. and 11 Pacific Rim nations (but not yet China) and accounts for 40 percent of the global economy? ...

Update: See also Americans Get Free Trade's Dark Side - Noah Smith.

Sunday, April 26, 2015

'This Is Not A Trade Agreement'

This is not a subtweet:

This Is Not A Trade Agreement, by Paul Krugman: OK, Greg Mankiw has me puzzled. Has he really read nothing about TPP? Is he completely unaware of the nature of the argument?
Personally, I’m a lukewarm opponent of the deal, but I don’t see it as the end of the Republic and can even see some reasons (mainly strategic) to support it. One thing that should be totally obvious, however, is that it’s off-point and insulting to offer an off-the-shelf lecture on how trade is good because of comparative advantage, and protectionists are dumb. For this is not a trade agreement. It’s about intellectual property and dispute settlement; the big beneficiaries are likely to be pharma companies and firms that want to sue governments.
Those are the issues that need to be argued. David Ricardo is irrelevant.

Wednesday, March 11, 2015

'Fear of Cheap Foreign Labor in the Long Depression: 1873-1879'

Tim Taylor:

Fear of Cheap Foreign Labor in the Long Depression: 1873-1879: The US economy was in a continuous recession for 65 months from October 1873 to March 1879. Historians call is the "Long Depression," because the Great Depression from 1929 to 1933 saw "only" 42 consecutive months of economic decline. For comparison, the more recent Great Recession lasted 18 months. ...

Precise government statistics are not available for this time period, of course, but estimates of the unemployment rate for the later part of this period often exceeded 20%, and some exceeded 30%. For those with a job, real wages fell by half. Even those real wages were often paid in the form of company scrip, which could only be used at the company store, and was worth substantially less than cash. ... Output fell sharply. ...

And what was the cause of this collapse? At least one writer back in October 1879, writing for the Atlantic Monthly, believed that globalization and competition from China, India, and Brazil were to blame. An author identified as W.G.M. wrote an essay called "Foreign Trade No Cure for Hard Times," which through the magic of the web can be read online here. W.G.M. argued: 

"We read in a London paper that the Chinese government have purchased machinery, and engaged experienced engineers and spinners in Germany to establish cotton mills in China, so as to free that country from dependence upon English and Russian imports. Though China is somewhat tardy in her action, we may be certain that she is thorough. ... More than this, the time is  not far distant when the textiles from the Chinese machine looms, iron and steel and cutlery from the Chinese furnaces, forges and workshops, with everything that machinery and cheap labor can produce, will crowd every market. The four hundred millions of China, with the two hundred and fifty millions of India,--the crowded and pauperized populations of Asia,--will offer the cup of cheap machine labor, filled to the brim, to our lips, and force us to drink it to the dregs, if we do not learn wisdom. It is in Asia, if anywhere, that the world is to find its workshop. There are the masses, and the conditions, necessary to develop the power of cheapness to perfection, and they will be used. For years we have been doing our utmost to teach the Chinese shoemaking, spinning and weaving, engine driving, machine building, and other arts, in California, Massachusetts, and other States; and we may be sure they will make good use of their knowledge; for there is no people on earth with more  patient skill and better adapted to the use of machinery than the Chinese. When the Chinese government is doing for China, Dom Pedro is doing for Brazil [this would be Dom Pedro II, the last ruler of the Empire of Brazil], though in a different form."

It gives me a smile to think that that dangers of global competition from China, India, and Brazil were being stated so eloquently back in 1879! ...

I wonder how the 1879 argument would have differed if the writer had been able to see how little progress the economies of China and India had made even 100 years after the writing of the article in 1979! For me, an ongoing lesson is that when economic times are rough, blaming other countries is always an easy temptation. ...

'TPP at the NABE'

Paul Krugman:

TPP at the NABE: I was in DC yesterday, giving a talk to the National Association of Business Economists. The subject was the Trans-Pacific Partnership; slides for my talk are here.
Not to keep you in suspense, I’m thumbs down. I don’t think the proposal is likely to be the terrible, worker-destroying pact some progressives assert, but it doesn’t look like a good thing either for the world or for the United States, and you have to wonder why the Obama administration, in particular, would consider devoting any political capital to getting this through.
Actually, I was glad to see Larry Summers weigh in on the same subject in yesterday’s FT. Reading that piece, you may wonder what just happened – did Larry come out for the deal or against it? The answer, I think (slide 1), is that he basically supported an idealized TPP that could have been, but came out against the TPP that actually seems to be on the table. And that means that he and I are in a similar place.
So, about the deal. ...

See also Brad DeLong and Tyler Cowen.

Sunday, March 08, 2015

'A Trade Deal Must Work for America’s Middle Class'

Larry Summers:

A trade deal must work for America’s middle class: Over the next few months the question of US participation in the Trans-Pacific Partnership trade deal is likely to be resolved one way or the other. It is, to put it mildly, a highly controversial issue. ... I believe that the right TPP is very much in the American national interest.
First, in considering what is most fundamental — the interests of American workers... The view now is that trade and globalisation have increased inequality... But increases in the extent of US trade are driven largely by technology and by the increased sophistication of developing country economies — not by trade agreements. ...
Arrangements such as TPP have the potential to tilt the gains from trade towards the American middle class. This is due to the fact that the US has been a very open market for a long time. It means that properly negotiated trade agreements bring down foreign barriers and promote exports to a much greater extent than they ... benefit imports.
Crucially, TPP is necessary to let American producers compete on a level playing field... Only through TPP do we have the chance to manage international competition in the interests of American workers through binding arrangements in areas such as labour and environmental standards. ...

Wednesday, March 04, 2015

'No Guarantees, No Trade!'

Friederike Niepmann and Tim Schmidt-Eisenlohr of the NY Fed's Liberty Street Economics blog:

 No Guarantees, No Trade!: World trade fell 20 percent relative to world GDP in 2008 and 2009. Since then, there has been much debate about the role of trade finance in the Great Trade Collapse. Distress in the financial sector can have a strong impact on international trade because exporters require additional working capital and rely on specific financial products, in particular letters of credit, to cope with risks when selling abroad. In this post, which is based on a recent Staff Report, we shed new light on the link between finance and trade, showing that changes in banks’ supply of letters of credit have economically significant effects on firms’ export behavior. Our research suggests that trade finance helps explain the drop in exports in 2008–2009, especially to smaller and poorer markets. ...

Friday, January 30, 2015

'Don't Trade Away Our Health'

Joe Stiglitz:

Don't Trade Away Our Health: A secretive group met behind closed doors in New York this week. What they decided may lead to higher drug prices for you and hundreds of millions around the world.
Representatives from the United States and 11 other Pacific Rim countries convened to decide the future of their trade relations in the so-called Trans-Pacific Partnership (T.P.P.). Powerful companies appear to have been given influence over the proceedings, even as full access is withheld from many government officials from the partnership countries.
Among the topics negotiators have considered are some of the most contentious T.P.P. provisions — those relating to intellectual property rights. And we’re not talking just about music downloads and pirated DVDs. These rules could help big pharmaceutical companies maintain or increase their monopoly profits on brand-name drugs. ...

Wednesday, January 21, 2015

'Rising Fears About Losing and Replacing Jobs'

Tim Taylor:

Rising Fears About Losing and Replacing Jobs: The General Social Survey is a nationally representative survey carried bout by the National Opinion Research Center at the University of Chicago and financially supported by grants from the National Science Foundation. Starting in 1977 and 1978, and intermittently over the years since then, it has included these two questions:

Thinking about the next 12 months, how likely do you think it is that you will lose your job or be laid off—very likely, fairly likely, not too likely, or not at all likely?

About how easy would it be for you to find a job with another employer with approximately the same income and fringe benefits you have now? Would you say it would be very easy, somewhat easy, or not easy at all?

Back in 1980, Charles Weaver wrote an article about the patterns of the answers in the first wave of this data. He updates the results and looks for patterns over time in "Worker’s expectations about losing and replacing their jobs: 35 years of change," in the January 2015 issue of the Monthly Labor Review, published by the US Bureau of Labor Statistics. ...

Both simple comparisons and more sophisticated analyses suggests that fear about losing and replacing jobs has been rising over time. Here's the simple comparison from Weaver: "Compared with workers in 1977 and 1978, workers in 2010 and 2012 expressed significantly less job security. They were more afraid of losing their jobs (11.2 percent versus the earlier 7.7 percent) and were less likely to think that they could find comparable work without much difficulty (48.3 percent versus the earlier 59.2 percent)."

The more detailed breakdown of the data shows which groups have seen their labor market fears increase the most. On the question how likely you are to lose your current job, the answer for the population as a whole rose 3.5 percentage points from 1977-78 to 2010-12. But for blue-collar craft workers the increase was 11.1 percentage points, and for blue collar operatives the rise was 9.7 percentage points. Also, from the early to the most recent survey, those in the age 50-59 age bracket were 8.2 percentage points more likely to think that they were likely to lose their job.

On the issue of whether workers expected to be able to find a comparable job, the answer for the population as a whole dropped 10.9 percentage points from 1977-78 to 2010-12. For those with "some college," but not a college degree, the expectation fell by 23.1 percentage points, and for white collar workers in clerical jobs it fell by 23.9 percentage points. Interestingly, for workers 60 and over the confidence in being able to fine a comparable job was actually 1.7 percentage point greater in the 2010-12 results than in the 1977-78 results.

An obvious question is whether the greater fears about losing jobs and replacing jobs are a relatively recent development--in particular, whether they happened only in the aftermath of the Great Recession--or whether this has been a steady trend over time. Stewart runs through a number of different statistical exercises to consider this point...

Stewart writes: "In 2010 and 2012, more workers feared losing their jobs, and far fewer workers said that it would be easy to find a comparable job, than in 1977 and 1978. ... Some may infer that the lower job security felt by Americans in 2010 and 2012 was an aberration, based upon the unusual conditions presented by the recent recession. But the reality is that the downward trend in feelings of job security has been going on for the last 35 years, apart from the “extra push” it has received from the “`Great Recession,' ..."

As I mentioned in yesterday's blog post, I think the most powerful fear in the current labor market is not about mass unemployment, but instead is a concern that the available alternative jobs may be of lower quality in terms of wages, benefits, work conditions, job security, and the prospect for a future career path.

Sunday, December 21, 2014

'The Net Petroleum Exporter Myth'

Bill McBride at Calculated Risk:

Katie Couric and the Net Petroleum Exporter Myth: To understand what the general public is hearing about oil, I watched a Yahoo video yesterday with Katie Couric explaining the decline in oil prices.

In general the piece was very good. Couric started by explaining that the decline in oil prices could be explained in two words: Supply and Demand.  She discussed reasons for more supply and softening demand. ...

But then Couric mentioned a myth I've heard several times recently. She said:

In fact, [the U.S.] is now the world’s largest producer of petroleum, and for the last two years, it has been selling more to other countries than it’s been buying. Who knew?

"Who knew?"  No one, because it is not true. Yes, the U.S. is the largest producer this year (ahead of Saudi Arabia and Russia), but the U.S. is NOT "selling more to other countries than it's been buying".

The source of this error is that the U.S. is a net exporter of refined petroleum products, such as refined gasoline. Here is the EIA data on Weekly Imports & Exports of crude oil and petroleum products.  The U.S. is importing around 9 million barrels per day of crude oil and products, and exporting around 4 million per day (mostly refined products). The U.S. is a large net importer! ...

Monday, November 03, 2014

'The World Is Still Not Flat'

Justin Fox:

The World Is Still Not Flat, by by Justin Fox: Globalization marches on. But the pace isn’t all that fast, and the overall level of global connectedness still hasn’t gotten back to its all-time peak of 2007. The overwhelming majority of commerce, investment, and other interactions still occur within — not between — nations.
That’s the message from the just-released DHL Global Connectedness Index 2014...
The big news..., other than global connectedness getting back close to its 2007 peak, is that the breadth of connectedness is still declining. Breadth is a measure that reflects how many different countries a particular country is interacting with and the distances over which interactions occur, among other things. ...
This global decline in the breadth of connectedness ... suggests that “with the big shift in economic activity to emerging markets, the world is in some sense getting pulled apart.” For the past couple of decades, globalization been largely driven by trade, investment, and other interactions between developed countries and developing ones. Now the action is among the developing countries (and formerly developing countries), which is having the effect of re-regionalizing many economic flows. ...

[There's quite a bit more in the full post.]

Sunday, September 28, 2014

'The rise of China and the Future of US Manufacturing'

Acemoglu, Autor, Dor, Hansen, and Price (I've noted this paper once or twice already in recent months, but thought it worthwhile to post their summary of te work):

The rise of China and the future of US manufacturing, by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, Vox EU: The end of the Great Recession has rekindled optimism about the future of US manufacturing. In the second quarter of 2010 the number of US workers employed in manufacturing registered positive growth – its first increase since 2006 – and subsequently recorded ten consecutive quarters of job gains, the longest expansion since the 1970s. Advocating for the potential of an industrial turnaround, some economists give a positive spin to US manufacturing’s earlier troubles: while employment may have fallen in the 2000s, value added in the sector has been growing as fast as the overall US economy. Its share of US GDP has kept stable, an achievement matched by few other high-income economies over the same period (Lawrence and Edwards 2013, Moran and Oldenski 2014). The business press has giddily coined the term ‘reshoring’ to describe the phenomenon – as yet not well documented empirically – of companies returning jobs to the United States that they had previously offshored to low-wage destinations. 
Before we declare a renaissance for US manufacturing, it is worth re-examining the magnitude of the sector’s previous decline and considering the causal factors responsible for job loss. The scale of the employment decline is indeed stunning. Figure 1 shows that in 2000, 17.3 million US workers were employed in manufacturing, a level that with periodic ups and downs had changed only modestly since the early 1980s. By 2010, employment had dropped to 11.5 million workers, a 33% decrease from 2000. Strikingly, most of this decline came before the onset of the Great Recession. In the middle of 2007, on the eve of the Lehman Brothers collapse that paralysed global financial markets, US manufacturing employment had already dipped to 13.9 million workers, such that three-fifths of the job losses over the 2000 to 2010 period occurred prior to the US aggregate contraction. Figure 1 also reveals the paltriness of the recent manufacturing recovery. As of mid-2014, the number of manufacturing jobs had reached only 12.1 million, a level far below the already diminished pre-recession level.

Figure 1. US employment , 1980q1-2014q3

Source: US Bureau of Labor Statistics.

We examine the reasons behind the recent decline in US manufacturing employment (Acemoglu et al. 2014). Our point of departure is the coincidence of the 2000s swoon in US manufacturing and a significant increase in import competition from China (Bernard et al. 2006). Between 1990 and 2011 the share of global manufacturing exports originating in China surged from two to 16% (Hanson 2012). This widely heralded export boom was the outcome of deep economic reforms that China enacted in the 1980s and 1990s, which were further extended by the country’s joining the World Trade Organization in 2001 (Brandt et al. 2012, Pierce and Schott 2013). China’s share in US manufacturing imports has expanded in concert with its global presence, rising from 5% in 1991 to 11% in 2001 before leaping to 23% in 2011. Could China’s rise be behind US manufacturing’s fall?
The first step in our analysis is to estimate the direct impact of import competition from China on US manufacturing industries. Suppose that the economic opening in China allows the country to realise a comparative advantage in manufacturing that had lain dormant during the era of Maoist central planning, which entailed near prohibitive barriers to trade. As reform induces China to reallocate labour and capital from farms to factories and from inefficient state-owned enterprises to more efficient private businesses, output will expand in the sectors in which the country’s comparative advantage is strongest. China’s abundant labour supply and relatively scarce supply of arable land and natural resources make manufacturing the primary beneficiary of reform-induced industrial restructuring. The global implications of China’s reorientation toward manufacturing – strongly abetted by inflows of foreign direct investment – are immense. China accounts for three-quarters of all growth in manufacturing value added that has occurred in low and middle income economies since 1990.
For many US manufacturing firms, intensifying import competition from China means a reduction in demand for the goods they produce and a corresponding contraction in the number of workers they employ. Looking across US manufacturing industries whose outputs compete with Chinese import goods, we estimate that had import penetration from China not grown after 1999, there would have been 560,000 fewer manufacturing jobs lost through 2011. Actual US manufacturing employment declined by 5.8 million workers from 1999 to 2011, making the counterfactual job loss from the direct effect of greater Chinese import penetration amount to 10% of the realised job decline in manufacturing.
These direct effects of trade exposure do not capture the full impact of growing Chinese imports on US employment. Negative shocks to one industry are transmitted to other industries via economic linkages between sectors. One source of linkages is buyer-supplier relationships (Acemoglu et al. 2012). Rising import competition in apparel and furniture – two sectors in which China is strong – will cause these ‘downstream’ industries to reduce purchases from the ‘upstream’ sectors that supply them with fabric, lumber, and textile and woodworking machinery. Because buyers and suppliers often locate near one another, much of the impact of increased trade exposure in downstream industries is likely to transmit to suppliers in the same regional or national market. We use US input-output data to construct downstream trade shocks for both manufacturing and non-manufacturing industries. Estimates from this exercise indicate sizeable negative downstream effects. Applying the direct plus input-output measure of exposure increases our estimates of trade-induced job losses for 1999 to 2011 to 985,000 workers in manufacturing and to two million workers in the entire economy. Inter-industry linkages thus magnify the employment effects of trade shocks, almost doubling the size of the impact within manufacturing and producing an equally large employment effect outside of manufacturing.
Two additional sources of linkages between sectors operate through changes in aggregate demand and the reallocation of labour. When manufacturing contracts, workers who have lost their jobs or suffered declines in their earnings subsequently reduce their spending on goods and services. The contraction in demand is multiplied throughout the economy via standard Keynesian mechanisms, depressing aggregate consumption and investment. Helping offset these negative aggregate demand effects, workers who exit manufacturing may take up jobs in the service sector or elsewhere in the economy, replacing some of the earnings lost in trade-exposed industries. Because aggregate demand and reallocation effects work in opposing directions, we can only detect their net impact on total employment. A further complication is that these impacts operate at the level of the aggregate economy – as opposed to direct and input-output effects of trade shocks which operate at the industry level – meaning we have only as many data points to detect their presence as we have years since the China trade shock commenced. Since China’s export surge did not hit with full force until the early 1990s, the available time series for the national US economy is disconcertingly short.
To address this data challenge, we supplement our analysis of US industries with an analysis of US regional economies. We define regions to be ‘commuting zones’ which are aggregates of commercially linked counties that comprise well-defined local labour markets. Because commuting zones differ sharply in their patterns of industrial specialisation, they are differentially exposed to increased import competition from China (Autor et al. 2013). Asheville, North Carolina, is a furniture-making hub, putting it in the direct path of the China maelstrom. In contrast, Orlando, Florida (of Disney and Harry Potter World Fame), focuses on tourism, leaving it lightly affected by rising imports of manufactured goods. If the reallocation mechanism is operative, then when a local industry contracts as a result of Chinese competition, some other industry in the same commuting zone should expand. Aggregate demand effects should also operate within local labour markets, as shown by Mian and Sufi (2014) in the context of the recent US housing bust. If increased trade exposure lowers aggregate employment in a location, reduced earnings will decrease spending on non-traded local goods and services, magnifying the impact throughout the local economy.
Our estimates of the net impact of aggregate demand and reallocation effects imply that import growth from China between 1999 and 2011 led to an employment reduction of 2.4 million workers. This figure is larger than the 2.0 million job loss estimate we obtain for national industries, which only captures direct and input-output effects. But it still likely understates the full consequences of the China shock on US employment. Neither our analysis for commuting zones nor for national industries fully incorporates all of the adjustment channels encompassed by the other. The national-industry estimates exclude reallocation and aggregate demand effects, whereas the commuting-zone estimates exclude the national component of these two effects, as well as the non-local component of input-output linkage effects. Because the commuting zone estimates suggest that aggregate forces magnify rather than offset the effects of import competition, we view our industry-level estimates of employment reduction as providing a conservative lower bound.
What do our findings imply about the potential for a US manufacturing resurgence? The recent growth in manufacturing imports to the US is largely a consequence of China’s emergence on the global stage coupled with its deep comparative advantage in labour-intensive goods. The jobs in apparel, furniture, shoes, and other wage-sensitive products that the United States has lost to China are unlikely to return. Even as China’s labour costs rise, the factories that produce these goods are more likely to relocate to Bangladesh, Vietnam, or other countries rising in China’s wake than to reappear on US shores. Further, China’s impact on US manufacturing is far from complete. During the 2000s, the country rapidly expanded into the assembly of laptops and cell-phones, with production occurring increasingly under Chinese brands, such as Lenovo and Huawei. Despite this rather bleak panorama, there are sources of hope for manufacturing in the United States. Perhaps the most encouraging sign is that the response of many companies to increased trade pressure has been to increase investment in innovation (Bloom et al. 2011). The ensuing advance in technology may ultimately help create new markets for US producers. However, if the trend toward the automation of routine jobs in manufacturing continues (Autor and Dorn 2013), the application of these new technologies is likely to do much more to boost growth in value added than to expand employment on the factory floor.
References
Acemoglu D, V Carvalho, A Ozdaglar, and A Tahbaz-Salehi (2012), “The Network Origins of Aggregate Fluctuations.” Econometrica, 80(5): 1977-2016.
Acemoglu D, D H Autor, D Dorn, G H Hanson, and B Price (2014), “Import Competition and the Great US Employment Sag of the 2000s.” NBER Working Paper No. 20395.
Autor, D H and D Dorn (2013), “The Growth of Low Skill Service Jobs and the Polarization of the US Labor Market.” American Economic Review, 103(5), 1553-1597.
Autor D H, D Dorn, and G H Hanson (2013a) “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” American Economic Review, 103(6): 2121-2168.
Bernard A B, J B Jensen, and P K Schott (2006), “Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of US Manufacturing Plants.” Journal of International Economics, 68(1), 219-237.
Bloom N, M Draca, and J Van Reenen (2012), “Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT, and Productivity.” Mimeo, Stanford University.
Brandt L, J Van Biesebroeck, and Y Zhang (2012), “Creative Accounting or Creative Destruction? Firm-Level Productivity Growth in Chinese Manufacturing.” Journal of Development Economics, 97(2): 339-351.
Hanson, G (2012), “The Rise of Middle Kingdoms: Emerging Economies in Global Trade.” Journal of Economic Perspectives, 26(2): 41-64.
Mian, A and A Sufi (2014), “What Explains the 2007-2009 Drop in Employment?” Econometrica, forthcoming.
Pierce, J R and P K Schott (2013), “The Surprisingly Swift Decline of US Manufacturing Employment.” Yale Department of Economics Working Paper, November.

Thursday, September 18, 2014

National Attitudes on International Trade

[Travel day -- heading south for the winter -- so just a few quick ones before hitting the road.]

Tim Taylor:

National Attitudes on International Trade: Americans, who are sometimes caricatured as being especially supportive of free trade, are actually among those most opposed. People from the low-income countries of the world, far from feeling oppressed by international trade, are often among its stronger supporters. The Pew Research Center has a new survey out--"Faith and Skepticism about Trade, Foreign Investment"--on the responses of people in 44 nations to questions about the effects and consequences of international trade. Here is a sampling of the evidence...

Thursday, August 21, 2014

Who Wins and Loses from Global Trade?

At MoneyWatch

Who wins and loses from global trade?: Why are most economists more in favor of free trade than the general public?
One reason may be that the models economists use to evaluate the impact of global trade often overlook some significant ways it affects jobs, income and social services. ...

Sunday, August 10, 2014

'The US Manufacturing Base is Surprisingly Strong'

According to this research, "the preponderance of net job loss in the US manufacturing sector comes within companies that stay at home and do not invest abroad":

The US manufacturing base is surprisingly strong, by Theodore H. Moran and Lindsay Oldenski, Vox EU: Introduction Recently, a number of studies, descriptive employment statistics, and statements by US politicians have raised concerns about the strength of US manufacturing. For example, in a January 2014 Journal of Economic Perspectives article, Martin Baily and Barry Bosworth expressed concern about the recent absolute decline in US manufacturing employment, as well as the long-recognised decreasing share of manufacturing within overall US employment. They also argued that productivity growth in manufacturing can be attributed solely to the unusual performance of computer production rather than to the accomplishments of the manufacturing sector more broadly. US Senator Bernie Sanders of Vermont states on his website that “The manufacturing sector in Vermont and throughout the United States has eroded significantly in recent years and must be rebuilt to expand the middle class”. President Barack Obama has based his corporate tax reform proposals on the view that US manufacturing firms must be discouraged from “shipping jobs overseas” (State of the Union 2013).

To be sure, the evidence is indisputable that manufacturing employment has been steadily declining as a share of total US employment, and the absolute number of US manufacturing jobs has plummeted by almost 30% just since 2000. But the perennial focus on employment masks important signs of the growing strength of the US manufacturing base. In a recent Peterson Institute for International Economics (PIIE) policy brief (Moran and Oldenski 2014), we analyse the most detailed and up-to-date data on the state of US manufacturing.

  • Our research shows that the overall size of the US industrial base – real value-added in manufacturing – has been growing rapidly for more than four decades, and is on track to surpass the all-time 2006-7 high before the end of 2014.
  • In contrast to other researchers, we show that US manufacturing growth is broad-based and includes subsectors such as transportation equipment, medical equipment, machinery, semiconductors, communications equipment, and motor vehicles, as well as computers and electronics.
  • Moreover, contrary to widespread hand-wringing about weakening competitive performance on the part of US firms and workers, productivity in the manufacturing sector has been growing, both absolutely and relative to other sectors of the US economy.

At the same time, the most recent data show that the productivity growth in US manufacturing is also strong in comparison to other countries.

  • Finally, our research shows clearly that increased offshoring of manufacturing operations by US multinationals is associated with increases in the size and strength of their manufacturing activities in the US.

Indeed, the preponderance of net job loss in the US manufacturing sector comes within companies that stay at home and do not invest abroad. Of particular note is the large feedback to US R&D and other high-skilled services from outward investment on the part of US manufacturing multinationals. ...

Conclusions A careful look at the most recent and detailed data shows that despite falling employment, the US manufacturing base is growing larger, more productive, and more competitive. The results of our empirical analysis show that the expansion of operations abroad by US manufacturing multinationals leads to particularly strong increases in economic activity – including creation of greater numbers of high-paying manufacturing jobs – by those same firms in the US domestic economy. The policy implications are clear – any measures that the US might take to hinder or dis-incentivise outward expansion by US firms would lead to less robust economic activity – and fewer good US jobs at home, not more.

Friday, July 18, 2014

Stiglitz Interview

Joseph Stiglitz Hails New BRICS Bank Challenging U.S.-Dominated World Bank & IMF

Transcript - Part 1

Joseph Stiglitz on TPP, Cracking Down on Corporate Tax Dodgers

Transcript - Part 2

Tuesday, July 08, 2014

'Why Hasn't the Yen Depreciation Spurred Japanese Exports?'

Mary Amiti, Oleg Itskhoki, and Jozef Konings:

Why Hasn't the Yen Depreciation Spurred Japanese Exports?, by Mary Amiti, Oleg Itskhoki, and Jozef Konings, Liberty Street Economics: The Japanese yen depreciated 30 percent from its peak in the fourth quarter of 2011 against its trading partners. This was expected to boost its exports as the lower yen makes Japanese goods more competitive on global markets. Instead, the volume of Japanese exports of goods actually fell by 0.6 percent over this same period, as can be seen in the chart below. Weaker external demand surely contributed to this poor export performance. Yet over the same period, U.S. goods exports grew by more than 6 percent, which suggests that other factors are also at play. In this post, we draw on our recent paper “Importers, Exporters, and Exchange Rate Disconnect” that highlights another channel to help explain these puzzling developments. In that study, we show that a key to understanding why there is low pass-through from exchange rates into export prices is that large exporters are also large importers, so they face offsetting exchange rate effects on their marginal costs. In the case of Japan, the connection between the yen and production costs has been made stronger since the country replaced nuclear power with imported fuels in the aftermath of the 2011 earthquake.
It has been well established that exchange rate changes are not fully passed through to export prices in foreign currency terms; that is, a 10 percent depreciation in the yen results in a less than a 10 percent fall in Japanese export prices and, thus, a relatively smaller boost to export quantities in response to a depreciation. This low pass-through has generally been attributed to “local currency pricing” and to “pricing-to-market.” If firms choose to invoice their exports in foreign currency terms, then prices are “sticky” in that currency, so exchange rate changes mechanically translate into changes in the exporter’s markup, with a weaker yen increasing the profit margin of exporters. A local currency pricing study shows that Japanese exporters to the United States generally invoice in U.S. dollars. In addition, exporting firms often tend to adjust their markups in response to an exchange rate depreciation, even if they do not invoice in the foreign currency, with the size of this adjustment depending on demand conditions in each export market.
The new finding in our study is that the incomplete pass-through is the most pronounced for exporters with large import shares—each additional 10 percentage points of imports in total variable costs reduces exchange rate pass-through by over 6 percentage points. We also show that large exporters are import-intensive, have high foreign market shares, set high markups, and actively move them in response to changes in their marginal costs. Thus, the prices of the largest firms, which account for a disproportionate share of trade, are insulated from exchange rate movements both through the hedging effect of imported inputs and through active offsetting markup adjustment in response to cost shocks. ...

Tuesday, July 01, 2014

Stiglitz: Making the case for industrial policy

I have a new article at MoneyWatch:

Stiglitz: Making the case for industrial policy: Nobel Prize winning economist Joseph Stiglitz's latest book, "Creating a Learning Society: A New Approach to Growth, Development, and Social Progress," co-written with Bruce C. Greenwald, takes on one of the most sacred ideas in economics, the benefits of free trade between nations. Ever since Adam Smith and David Ricardo pointed out the benefits of absolute and comparative advantage, economists have promoted the advantages of specialization and trade among nations: Protectionism of markets or industries within a country is to be avoided, and open markets are the key to prosperity for all.
There may be winners and losers within a country, with an example of the latter being workers who become unemployed as production moves to countries with an advantage in a particular industry. Still, it's generally possible to compensate the losers and still have enough left over to make everyone in a country better off.
But is this true always and everywhere? If not, what are the exceptions to the argument that free trade has the potential to make everyone better off? And when is protectionism in one form or another justified? ...

Thursday, March 27, 2014

'Nafta Still Bedevils Unions'

I still believe international trade makes us better off on net, but there are winners and losers from these agreements and we don't do anywhere near enough to help those who are hurt by these deals -- no wonder they are opposed:

Nafta Still Bedevils Unions, by Annie Lowrey, NY Times: Two decades after its enactment, the North American Free Trade Agreement — better known as Nafta — remains a source of deep disagreement among economists.
Maybe it has led employers to add tens of thousands of jobs. Or perhaps it has caused the loss of 700,000 jobs. Maybe it has been “a bonanza for U.S. farmers and ranchers,” as the United States Chamber of Commerce has said. But perhaps it has depressed wages for millions of working families. Then again, maybe all sides are wrong: “Nafta brought neither the huge gains its proponents promised nor the dramatic losses its adversaries warned of,” wrote Jorge G. Castañeda in an essay for Foreign Affairs this winter. “Everything else is debatable.”
But for labor groups, there is no debate: Nafta hurt American jobs and household earnings. And the sweeping trade agreement cast a shadow that persists today, spurring deep skepticism of the major trade deals the Obama administration is negotiating with Europe and a dozen Pacific Rim countries. ...
On Thursday, the A.F.L.-C.I.O. released a report excoriating Nafta... Among its conclusions: That Nafta increased corporate profits while depressing wages; that its labor-protection provisions have not improved labor conditions on the ground; that its environmental standards have not protected the environment; and that higher trade flows have not meant shared prosperity. ...

Saturday, March 15, 2014

'On the Wrong Side of Globalization'

Joe Stiglitz:

On the Wrong Side of Globalization: Trade agreements are a subject that can cause the eyes to glaze over, but we should all be paying attention. Right now, there are trade proposals in the works that threaten to put most Americans on the wrong side of globalization.
The conflicting views about the agreements are actually tearing at the fabric of the Democratic Party, though you wouldn’t know it from President Obama’s rhetoric. In his State of the Union address, for example, he blandly referred to “new trade partnerships” that would “create more jobs.” Most immediately at issue is the Trans-Pacific Partnership, or TPP, which would bring together 12 countries along the Pacific Rim in what would be the largest free trade area in the world.
Negotiations for the TPP began in 2010, for the purpose, according to the United States Trade Representative, of increasing trade and investment, through lowering tariffs and other trade barriers among participating countries. But the TPP negotiations have been taking place in secret, forcing us to rely on leaked drafts to guess at the proposed provisions. At the same time, Congress introduced a bill this year that would grant the White House filibuster-proof fast-track authority, under which Congress simply approves or rejects whatever trade agreement is put before it, without revisions or amendments.
Controversy has erupted, and justifiably so. Based on the leaks — and the history of arrangements in past trade pacts — it is easy to infer the shape of the whole TPP, and it doesn’t look good. There is a real risk that it will benefit the wealthiest sliver of the American and global elite at the expense of everyone else. The fact that such a plan is under consideration at all is testament to how deeply inequality reverberates through our economic policies. ...

Friday, February 28, 2014

Paul Krugman: No Big Deal

It's not clear that the Trans-Pacific Partnership is a good idea:

No Big Deal, by Paul Krugman, Commentary, NY Times: Everyone knows that the Obama administration’s domestic economic agenda is stalled in the face of scorched-earth opposition from Republicans. And that’s a bad thing: The U.S. economy would be in much better shape if Obama administration proposals like the American Jobs Act had become law.
It’s less well known that the administration’s international economic agenda is also stalled, for very different reasons. In particular,... the proposed Trans-Pacific Partnership, or T.P.P. — doesn’t seem to be making much progress...
And you know what? That’s O.K. It’s far from clear that the T.P.P. is a good idea. ... I am in general a free trader, but I’ll be undismayed and even a bit relieved if the T.P.P. just fades away. ...
There’s a lot of hype about T.P.P. .... Supporters like to talk about the fact that the countries at the negotiating table comprise around 40 percent of the world economy, which they imply means that the agreement would be hugely significant. But trade among these players is already fairly free, so the T.P.P. wouldn’t make that much difference.
Meanwhile, opponents portray the T.P.P. as a huge plot, suggesting that it would destroy national sovereignty and transfer all the power to corporations. This, too, is hugely overblown. ...
What the T.P.P. would do, however, is increase the ability of certain corporations to assert control over intellectual property. Again, think drug patents and movie rights.
Is this a good thing from a global point of view? Doubtful. ... True, temporary monopolies are, in fact, how we reward new ideas; but arguing that we need even more monopolization is very dubious — and has nothing at all to do with classical arguments for free trade. ...
In short, there isn’t a compelling case for this deal... Nor does there seem to be anything like a political consensus in favor, abroad or at home. ...
So what I wonder is why the president is pushing the T.P.P. at all. ... My guess is that we’re looking at a combination of Beltway conventional wisdom — Very Serious People always support entitlement cuts and trade deals — and officials caught in a 1990s time warp, still living in the days when New Democrats tried to prove that they weren’t old-style liberals by going all in for globalization. ...
So don’t cry for T.P.P. If the big trade deal comes to nothing, as seems likely, it will be, well, no big deal.

Thursday, December 12, 2013

Trans Pacific Partnership is Not Especially Important

Paul Krugman argues that the Trans Pacific Partnership is no big deal:

I’ve been getting a fair bit of correspondence wondering why I haven’t written about the negotiations for a Trans Pacific Partnership...
The answer is that I’ve been having a hard time figuring out why this deal is especially important. ...
The big talk about TPP isn’t that silly. But my starting point for things like this is that most conventional barriers to trade — tariffs, import quotas, and so on — are already quite low, so that it’s hard to get big effects out of lowering them still further. ...
An aside: one little-known aspect of the literature on trade liberalization is that to get any kind of large effect it’s necessary to drop the assumption that markets are highly competitive and efficient, and assume instead that there are large inefficiencies that will be reduced as a result of international competition. ...
As I read it, to make TPP something really important you have to (a) bring China inside, which isn’t on the table right now and (b) have major effects on foreign direct investment. ...
OK, I don’t want to be too dismissive. But so far, I haven’t seen anything to justify the hype, positive or negative.

Monday, November 04, 2013

Paul Krugman: Those Depressing Germans

Why won't policymakers "around the world to face up to the nature of our economic problems"?:

Those Depressing Germans, by Paul Krugman, Commentary, NY Times: German officials are furious at America, and not just because of the business about Angela Merkel’s cellphone. What has them enraged now is one (long) paragraph in a U.S. Treasury report... In that paragraph Treasury argues that Germany’s huge surplus on current account — a broad measure of the trade balance — is harmful, creating “a deflationary bias for the euro area, as well as for the world economy.”
The Germans angrily pronounced this argument “incomprehensible.” “There are no imbalances in Germany which require a correction of our growth-friendly economic and fiscal policy,” declared a spokesman for the nation’s finance ministry.
But Treasury was right, and the German reaction was disturbing. For one thing, it was an indicator of the continuing refusal of policy makers in Germany, in Europe ... and around the world to face up to the nature of our economic problems. For another, it demonstrated Germany’s unfortunate tendency to respond to any criticism of its economic policies with cries of victimization. ...
Five years after the fall of Lehman, the world economy is still depressed, suffering from a persistent shortage of demand. In this environment, a country that runs a trade surplus is, to use the old phrase, beggaring its neighbors. It’s diverting spending away from their goods and services to its own, and thereby taking away jobs. ...
Furthermore,... Germany ... shares a currency with its neighbors, greatly benefiting German exporters, who get to price their goods in a weak euro instead of what would surely have been a soaring Deutsche mark. Yet Germany has failed to deliver on its side of the bargain: To avoid a European depression, it needed to spend more as its neighbors were forced to spend less, and it hasn’t done that.
German officials won’t, of course, accept any of this. They consider their country a shining role model,... and the awkward fact that we can’t all run gigantic trade surpluses simply doesn’t register.
And the thing is, it’s not just the Germans. Germany’s trade surplus is damaging for the same reason cutting food stamps and unemployment benefits in America destroys jobs — and Republican politicians are about as receptive as German officials to anyone who tries to point out their error. In the sixth year of a global economic crisis whose essence is that there isn’t enough spending, many policy makers still don’t get it. And it looks as if they never will.