Tag: World Trade

Economically–What Is What?

Before I start–Am I the only one that listening to the BS being spread about the economy?  Just wondering.

Geithner testified that the financial system was “starting to heal,” Treasury Secretary Timothy Geithner said Wednesday that major banks had raised $56 billion since stress tests showed several in need of more capital — a sign of emerging investor confidence.

Sounds good right?  But how good can it be when this was offered about the world economies?

AS reported by Bob Davis of the Wall Street Journal:

Steep declines in the economies of three of the U.S.’s biggest trading partners — Mexico, Japan and Germany — underscored the severity of the global recession and put pressure on major industrialized nations to revive moribund global trade talks

All three countries depend on exports to the U.S. But they have nose-dived as U.S. consumers cut back purchases of autos, electronics and other goods mass produced abroad. For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier. Mexico’s ties to the U.S. are particularly strong because of the North American Free Trade Agreement, and Mexican auto production in the first quarter fell 41% from the year before.

Okay, everything well and good…but if you believe in globalization, how can the US economy be in a rebound?  Who is Geithner bullshitting?  The investors, Congress, the American people, just who?

I realize that economics is about as interesting to most as watching flies mate, but ignoring the facts can only make one more vulnerable.

As of the closing of the markets on 21 May 09, in the 2 days after Geithner made is confidence statement the markets have lost 350+ points…..that does not sound like the investor is too sure of the markets to me.

Recession Breeds Protectionism

Do you recall during the debate on Obama’s stim plan there was a section called “buy American” ?  If so then you will recall all the fuss over it, some saying that it would stifle “free trade”, while others called it protectionism.  After a bit of debate it was removed from the plan as to keep the peace at home and abroad.

World Bank President Robert Zoellick expressed concern Thursday that Group of 20 countries continue to restrict trade flows despite vowing to resist protectionist policies.

Among those restricting trade were 17 members of the Group of 20 (G20) nations, a bloc of advanced and major developing economies that vowed not to cut trade during an emergency summit in November. They include the US, China, India and the European Union.

The study said the national measures to date were limited and would have a small effect on the global economy but warned that protectionism was a slippery-slope that was tried once before during the Great Depression of the 1930s.

Many countries have sought to protect local industries from demise over the last several months through a variety of new tariffs and government subsidies. The global economy is expected to contract this year for the first time since World War II.

The International Monetary Fund’s updated World Economic Outlook, released Wednesday, predicts world economic growth of negative 1.3 percent this year, marking “by far the deepest global recession since the Great Depression”. Not since the 1930s has the global economy undergone a collective contraction.

Member states are deeply divided over how to respond to the crisis, with each seeking to promote its own national business interests at the expense of its rivals. Few if any concrete decisions are expected to emerge. The focus is reportedly on working out how to implement the limited measures agreed to at the G20 leaders’ summit held in Britain earlier this month, including who is to pay for the proposed $500 billion extra emergency loan money for the IMF.

The recession looks like it will last awhile longer……the world recession will hurt everyone.  The deeper it gets the harder that countries may push protectionism.

Oops! There Goes Another Primary Promise!

At the height of his primary-season contest against Democratic rival Hillary Clinton, Obama said the United States should use the “hammer” of threatening to withdraw from NAFTA if Canada and Mexico did not agree to change the pact.  To that I wrote that there would be no renegotiation of NAFTA.  I said that it was a primary promise that would go nowhere.  Damn!  I do so enjoy being a seer!

Pres. Obama wants to work with the leaders of Canada and Mexico to strengthen the North American Free Trade Agreement without renegotiating it, his top trade envoy said.

Obama promised last year to add “enforceable” labor and environmental provisions to the core of the text agreement and change investment provisions that critics say give business too much leeway to flout government regulations.

“The three leaders are all of the mind that we should look for ways to strengthen NAFTA,” U.S. Trade Representative Ron Kirk said Monday. “I think they can be addressed without reopening the agreement.”

Obama pledged during the presidential election campaign that he would use the threat of opting out of NAFTA to force the Canadians and Mexicans to accept new standards for labor and the environment.

The partial reform miscalled free trade, which consists in the mere abolition of protection — the mere substitution of a revenue tariff for a protective tariff — cannot help the laboring classes, because it does not touch the fundamental cause of that unjust and unequal distribution which, as we see today, makes “labour a drug and population a nuisance” in the midst of such a plethora of wealth that we talk of over-production. True free trade, on the contrary, leads not only to the largest production of wealth, but to the fairest distribution. It is the easy and obvious way of bringing about that change by which alone justice in distribution can be secured, and the great inventions and discoveries which the human mind is now grasping can be converted into agencies for the elevation of society from its very foundations.

Agreements like NAFTA, CAFTA, etc are not promoting free trade.  They are however, destroying the manufacturing sector in the US.  It did however promote the spread of globalization which in turn out sourced thousands of American jobs to overseas locations.

China’s New Carbon Proposal

I have been writing for many years and this is one of the best stories I have ever seen.

China has proposed that importers of Chinese-made goods should be responsible for the carbon dioxide emitted during their manufacture.

China’s top climate change negotiator, Li Gao, said his country should not pay for cutting emissions caused by the high demands of other countries.

China’s latest suggestion would see its own huge export sector be exempted from any new treaty.

Beijing argues that rich nations buying Chinese goods bear responsibility for the estimated 15-25% of China’s carbon emissions that are created by its production of exports.

“It is a very important item to make a fair agreement,” Mr Li said in Washington.

He argued that it was unfair to put the highest burden on China.

“We produce products and these products are consumed by other countries, especially the developed countries. This share of emissions should be taken by the consumers but not the producers,” he said.

Mr Li also criticized proposals by the US to place carbon tariffs on goods imported from countries that do not limit those gases blamed for a rises in global temperatures.

Mr Li also criticised proposals by the US to place carbon tariffs on goods imported from countries that do not limit those gases blamed for a rises in global temperatures.

Working out quite how to put Mr Li’s suggestion into practice would be a logistical nightmare, other delegates in Washington said, even if the idea was ever agreed in principle.

Asking importers to handle emissions “would mean that we would also like them to have jurisdiction and legislative powers in order to control and limit those,” top EU climate negotiator Artur Runge-Metzger said.

I am still trying to digest the idea….what would be next…..China could not be held responsible for faulty or dangerous products?  This seems a bit silly….but if they get their way then I will look a bit silly, huh?

Obama’s Trade Policy

During the campaign, Obama said he generally supports free-trade policies but also signaled a tougher approach that is only now beginning to be outlined. Both in Kirk’s testimony yesterday and in a policy statement issued by new Obama appointees at the Office of the U.S. Trade Representative, the administration vowed to make tougher labor and environmental standards prerequisites for trade deals. Rather than stressing the signing of new agreements, the administration indicated that it will instead prioritize stricter enforcement of existing ones before the World Trade Organization — the Geneva-based body that arbitrates global trade.

The Obama administration is aggressively reworking U.S. trade policy to more strongly emphasize domestic and social issues, from the displacement of American workers to climate change.

Even as world trade takes its steepest drop in 80 years amid the global economic crisis, the administration is preparing to take a harder line with America’s trading partners. It will seek new benchmarks before supporting already-written trade agreements with Colombia and South Korea and is suggesting that it will dig in its heels on global trade talks, demanding that other countries make broader concessions first.

Those divides appear to be more unbreachable than ever as world leaders move to protect their domestic industries from the ravages of the financial crisis, embracing new trade barriers aimed at imported goods and other measures meant to restrict the flow of capital outside their borders. In the United States, more Americans are blaming cheap imports for job losses at home and congressional leaders pressed successfully to include a “buy American” provision in the $787 billion stimulus program to give an edge to U.S.-made products.

Yet the administration still appears to be toeing a line, saying it will move to address the concerns of American workers while also carefully avoiding words and deeds that directly smack of protectionism.

Though Obama said before the elections that he would seek to renegotiate the North American Free Trade Agreement, he has since backed away from that statement, vowing during his recent trip to Canada to avoid protectionism. Obama’s opposition to a stronger version of the “buy American” provisions added to the stimulus bill last month by congressional Democrats is also viewed as a major reason it was eventually watered down before the bill reached his desk for signing.

Globalization

Globalization: Truth Not Spoken

This election cycle there is a lot said and a lot used about free trade and globalization in the campaigns. The region known as the Rust Belt is the area hit the hardest by free trade agreements. This area includes Pennsylvania, Ohio, and any place that has lost manufacturing jobs because of agreements like NAFTA. Each of the candidates has their own little world which they preach from on the benefits of globalization and free trade. The truth is more disastrous that any of them want to admit. And actually, some of them go as far to make each of their proposals sound like the answer to the economic woes of the people.

The Democratic Leadership Council’s economist, Rose has said, “The growth in trade and technology over the past three decades has generated meaningful employment growth for the middle class. As a general rule, middle-class jobs are not disappearing.” Unfortunately not everyone agrees with this analysis. A report by the Economic Policy Institute found the following:

• In 2006, the impact of trade flows increased the inequality of earnings by roughly 7%, with the resulting loss to a representative household (two earners making the median wage and working the average amount of (household) hours each year) reaching more than $2,000. This amount rivals the entire annual federal income tax bill paid by this household.

• Over the next 10-20 years, if some prominent forecasts of the reach of service-sector offshoring hold true, and, if current patterns of trade roughly characterize this offshoring, then globalization could essentially erase all wage gains made since 1979 by workers without a four-year college degree.

An important caveat, however, notes that even as globalization raises national income, it can still reduce the incomes of most workers. Global integration has at least two potential impacts on American wages. First, workers employed in industries directly in competition with low-cost imports from abroad can expect to see immediate job dislocation and/or downward wage pressures. Second, as relative prices change across industries, the return to factors of production, including different kinds of labor inputs, can be expected to change as well.

As the campaigns for the presidency move on, we are constantly bombarded with the benefits of the world economy, in this case globalization. But as with anything when politics is involved facts and figures are used to influence and inspire voters. But there is a basic axiom of economic theory is all too often ignored, or, even actively hidden. For example, Bradford, Greico, and Hufbauer (2005), in what they bill as a comprehensive accounting of the gains and losses attributable to trade liberalization, count only the costs of direct displacement by imports as a debit in the balance sheet of globalization, and do not even acknowledge the possibility of permanent wage losses through a broader labor market. Failing to count the largest cost of globalization is, of course, an excellent way to make the cost/benefit analysis of integration come out well to those favoring the status quo.

If one has a finger in speculation then globalization is a profitable endeavor. But if one is a worker then globalization spells only one thing—unemployment and/or low wages.

Trade Takes A Hit In Economic Slide

I know this might not be the most interesting subject for most, but to understand what we will be looking at down the road it is essential.

U.S. exports slid to a seven-month low and the number of Americans filing claims for unemployment benefits surged to the highest level since 1982, signaling the economy is shrinking even faster than previously estimated.

The export slump, caused by recessions spreading through U.S. trading partners, spurred a widening in the trade deficit to $57.2 billion in October, a Commerce Department report showed in Washington today. Initial jobless claims rose more than forecast to 573,000 in the week ended Dec. 6, the Labor Department said.

Rising joblessness will deepen the pull-back in spending by consumers, and the worsening trade balance removes what had been a source of support for an economy that’s been in a recession for a year. The Bush administration said the Labor report shows why U.S. senators should approve an emergency loan for automakers, to prevent a bigger hit to jobs from that industry’s collapse.

American exports dropped 2.2 percent to $151.7 billion as foreign purchases of U.S. aircraft, automobiles, chemicals and food waned. The trade gap was projected to narrow to $53.5 billion, according to the median forecast in a Bloomberg News survey of 70 economists. The shortfall was $56.6 billion in September.

Imports declined 1.3 percent to $208.9 billion, the lowest level since March. Decreases in demand for foreign-produced automobiles, televisions, computers and fuel reflected the worsening slump in U.S. consumer and business spending.

Rather than helping shrink the trade gap last month, as most economists predicted, oil contributed to the deterioration. A record $15.56-a-barrel drop in the price of imported crude in October was swamped by a 70.9 million-barrel jump in purchases that was also the biggest ever, the report showed. Excluding petroleum, the trade gap was little changed at $24.5 billion.

The economy has lost 1.9 million jobs so far this year as payrolls dropped for 11 consecutive months. U.S. companies eliminated 533,000 jobs in November, the most since 1974, and the unemployment rate increased to a 15-year high of 6.7 percent, the government said last week.

So far this year, weekly claims have averaged 412,000, compared with an average of 321,000 for all of 2007, when employers added a total of 1.1 million jobs.

Rising unemployment and the persistent credit crisis raise the likelihood the recession that began in December 2007 will turn into the longest slump in the postwar era. The U.S. economy contracted at a 0.5 percent annual pace in the third quarter.

Exerpts were from an article from Bloomberg.com

None of the news is good news….and it will continue and quiet possibly get much worse.

CAFTA–Conclusion

The recent economic downturn in the United States and across the world has caused significant alarm in Central America, especially due to the region’s close links with the US economy. Some Central American officials have begun to question the wisdom behind integration with an economy that seems to be imploding, and are taking steps to immunize their own economies from the effects of the crisis. Member states of the Central American Integration System met on October 4, 2008 in Tegucigalpa, and agreed on a strategy to promote regional economic cooperation and development. The plan includes the investment of $5 billion into the region’s agricultural sector, with a special emphasis on grain production. However, it will be no easy task for Central America to withstand the economic decline of their number one trade partner, especially since economic integration with the US has been developing over the past several decades. Costa Rican economist Eduardo Lizano summed up the problem by stating: “The chief hope was that Central America would receive increased investment to produce goods for export to the United States. With a considerably lower level of consumption in the United States, those investments will not be made and the expected benefits will not materialise, or will be diminished.” This points to one inherent danger of global integration: that it leaves countries vulnerable to the ripple effects of poor economic decisions made elsewhere in the world.

Two years into the agreement, DR-CAFTA has failed to fulfill its promises in Central America. The pact has been controversial since its onset, drawing criticism from across the globe and sparking numerous popular protests in El Salvador, Costa Rica, and Guatemala. DR-CAFTA has plenty of critics in Washington as well; it passed the U.S. Senate and Congress by very slim margins of 54-45 in the Senate and 217-215 in the House. A new administration under Barack Obama, who voted against DR-CAFTA in the Senate, may re-address the stipulations of the accord, as the President-elect has promised to do with NAFTA. However, solving the chronic problems caused by this trade pact would require a vast overhaul of U.S. foreign policy, as well as a fundamental shift in its economic ideology. The United States should promote a foreign policy that values and promotes strong and stable allies through a fair-minded economic program that no longer rewards global exploitation. A major reassessment of DR-CAFTA, and the unbridled capitalistic profiteering which it embodies, could be an important step in this country’s path to progress and positive change in Latin America, and across the globe.

CAFTA–Part 3

With the loss of protective import tariffs, most Central American farmers have no chance of competing with the US government-subsidized agricultural sector. For example, economist and CAFTA specialist Adolfo Acevedo explains that farmers in the Sébaco Valley of Nicaragua can produce rice for about $8.45 per 100 pounds, while US farmers produce the same amount for $9.40. According to Acevedo, this should imply a comparative advantage for Nicaraguan farmers. However, due to government subsidies, US rice enters the Nicaraguan market at the artificially low price of $7.65 and beats out domestic producers. Rice and corn, two of the most heavily subsidized U.S. crops, have flooded into Central American markets as a result of DR-CAFTA. Between 2006 and 2007, rice exports to the region rose 31 percent, while corn exports rose by 36 percent, according to the US Department of Agriculture.

Nevertheless, DR-CAFTA enthusiasts argue that Central American farmers can gain through the production of “specialty products” – fruits, nuts, and other goods not produced in the United States – for which the region would have a comparative advantage. However, the vast majority of Central American farmers do not have the capacity to trade these products on the international market. Small to medium-scale producers, a category that includes about 80 percent of farmers in countries like Nicaragua, are unable to produce such product lines on a large enough scale to compete in the export market or to comply with strict sanitary standards imposed by U.S. regulations. According to Matilde Rocha, a Nicaraguan activist, “the producers of specialty products are [often] too small to export individually and they lack knowledge about the rules of the market and trade regulations.” Thus, most of these farmers are forced to either sell their products to intermediary export companies (which skim off most of the profits) or to sell their land to large-scale agro-businesses.

This has led to the concentration of the food export industry into a very limited number of hands. In Nicaragua, 70 percent of the country’s export earnings go to a mere fifty businesses that possess the facilities and capital to take advantage of trade with the US. To cite an example, only one dairy processing plant in the entire country has the capacity to pasteurize milk according to USDA standards, and that plant is owned by a foreign dairy conglomerate, Parmalat. Thus, while Central American economies may have experienced a moderate amount of growth over the past few years, the benefits of U.S. trade are being reaped by only a select few, causing economic inequality to sharpen throughout the region.

CAFTA–Part 2

Continuation of the report issued by the Council on Hemispheric Affairs:

Contrary to initial promises, DR-CAFTA has largely failed to expand Central American export markets, instead bolstering imports from the US to the region. In fact, Central American countries were better off prior to DR-CAFTA. Before this new deal was signed, 80 percent of Central American exports already entered the US duty-free under existing agreements including the Caribbean Basin Initiative, which was implemented in 1984. Under this previous initiative, Central American countries maintained tariffs on many US imports to prevent goods from flooding domestic markets and paralyzing the growth of nascent industries in the region. However, in a push to implement DR-CAFTA, the Bush administration threatened Central American governments with the removal of existing trade preferences, thus strong-arming them into signing an agreement that was not truly in their best interests. Despite rhetoric about DR-CAFTA’s benefits to Central America, the accord was in fact designed to remove the region’s existing protective tariffs, “leveling the playing field” to give the US significantly more access to Central American markets.

Upon implementing DR-CAFTA, Central American governments removed all tariffs on 80 percent of US industrial goods and most agricultural products. United States Trade Representative Robert B. Zoellick enthusiastically pointed out that “small countries can be big export markets for the United States,” and went on to say that “CAFTA will expand opportunities for US exports in everything from construction equipment to high-tech software, from fruits and vegetables to financial services.” Indeed, many Central American countries have seen imports from the U.S. grow dramatically since the implementation of DR-CAFTA. In 2006, imports to El Salvador from the United States jumped 16.7 percent, turning the country’s previous trade surplus of $118 million into a deficit of over $286 million. Likewise, in Honduras and Guatemala, trade deficits with the U.S. multiplied by two and three times in the first year after DR-CAFTA’s implementation. Not surprisingly, these uneven trade balances are causing negative repercussions in a number of Central American and Caribbean countries, and consequently lowering the standard of living across the region.