Comments on Alok Sheel "China, India and global headwinds", 25/08/2015
The GFC and its aftermaths exposed some weaknesses of high exposure of those economies to external demand/trade through external shocks in economics weakening. Due to the weakening of many industrial economies and their desire to get out of the weaknesses, the so called imbalances became very fashionable, because some industrial economies with trade deficits could get a boost if their trade deficits were reduced. China was a big target or a case of the imbalances.
Willingly or not, trade imbalances may have been reduced over the past few years. Adjustments of trade imbalances may or may not be optimal to the world economy as a whole or any pair of countries which have bilateral trade imbalance. For example, Australia is generally a capital importing country and trade deficits may be needed to balance its capital needs.
Even in a country that my not always need external capitals, from time to time it may be beneficial to use external capitals. In such cases, trade deficits may de desirable.
Furthermore, differential technical changes and productivity rises between countries may cause trade imbalance that may need a period of optimally transitional adjustment that can take relatively long time to complete.
The lessons from the GFC and its aftermaths is not turning to inward looking and deliberately reduce external trade. The lessons should be explore every part of demands, both internal and external to boost growth. It would be a costly mistake to give up external orientation in the age of globalisation and economic integration and to only focus on internal demand. Any reduction of trade to GDP ratio should be based on fully explore both internal and external demand, as opposed to purely internal orientation.
Showing posts with label international trade. Show all posts
Showing posts with label international trade. Show all posts
2015-08-04
China needs a realistic view on other mega free trade agreements
Comments on He Fan and Xiaoming Pan "China’s negotiation strategies at the crossroads of international trade" 4/08/2015
I have a number of comments on this post.
Firstly, I am not sure the authors really means that "at home, China’s reliance on export-oriented growth faces an unprecedented challenge in the face of shrinking global demand". Has the global demand really shrinked or has the growth slowed?
Secondly, is the remark that "Facilitating GVCs is the leading cause of the proliferation of regional and mega-regional trade negotiations, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP)", correct? Is facilitating GVCs really the leading cause for TPP and TTIP? If it is then there would be huge holes or gaps in those two trade agreements, because China, a very important and the most important country in the value chains of many manufacturing activities is not in either of those two, and it has been deliberately excluded from the TPP that would defeat the purpose of facilitating the GVCs.
Thirdly, while the authors are correct in saying that "in the post-GFC world, exports are evidently no longer the engine of China’s economy", it does not necessarily or automatically mean that exports will never be an engine of growth for ever. In that sense, the new normal in relation to exports may be temporary rather than being permanent. As a result, the remarks that "the ‘new normal’ requires adjustments in domestic economic policies and externally-oriented trade policies and strategies. Trade strategies that are compatible with China’s domestic conditions will help China achieve a stable shift to the new normal", may need some caution, as the situation with exports may change when the global economy puts behind, the temporary "new normal", that is the consequences of the GFC and back to its real "normal".
Alternatively, the exports orientation should not be sacrificed but should adapt to the ever changing world economy and to grab every opportunity to increase trade and exports.
Fourthly, the remark that “in the Pacific Rim, while RCEP and the TPP complement each other in terms of their membership scope and issue coverage, they are in competition to offer the first update to the international trade rules of the WTO”, may represent an one-sided fantasy or day dreaming on the authors part, because the US does and will not think in that way. The authors also indirectly or implicitly acknowledged this point in the statement “despite its increasing trade power and enthusiasm to join international trade rule-making, China is currently excluded from TPP negotiations.”
The following paragraph also reflects the contradictory of the claim of the complementarity of the TPP and RECP: “At the same time, some new sensitive issues — such as SOEs, the environment and labour — pose challenges for China in 21st century trade negotiations and joining the TPP. Handled badly, they can also be impediments to genuinely free trade. The environment was once an area in which Chinese standards once diverged from most developed countries, but today Chinese standards in many areas exceed those of even some TPP member countries.”
Further, the authors also remarked that “the mega-regionals could either turn out to be a stumbling block for genuinely global free trade or pave the way to reaching a multilateral deal within the WTO’s framework.” It is another reflection of some of the contradictions in the authors’ arguments earlier on, as here the so called comlementarity gives way to problems. But that is where China’s approach to trade negotiations should be focused on, that is to say, on what is happening as opposed to what some fantasy may point to.
Nevertheless, I do share the view that China’s SOEs needs to be handled with care, creativity and boldness, by China and its leaders. Some reforms are needed in that particular areas, so China will not be disadvantaged due to its SOEs.
Finally the last sentence by the authors, while understandable, still hinges on wining the sympathy of those which deliberately do not have for China: “the internal reform of the Chinese economy and its changing role in the global economy provide common ground for China, a large developing country, and developed countries to work on their divergence and to agree to a new set of rules.” It is a miserable position to be.
I have a number of comments on this post.
Firstly, I am not sure the authors really means that "at home, China’s reliance on export-oriented growth faces an unprecedented challenge in the face of shrinking global demand". Has the global demand really shrinked or has the growth slowed?
Secondly, is the remark that "Facilitating GVCs is the leading cause of the proliferation of regional and mega-regional trade negotiations, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP)", correct? Is facilitating GVCs really the leading cause for TPP and TTIP? If it is then there would be huge holes or gaps in those two trade agreements, because China, a very important and the most important country in the value chains of many manufacturing activities is not in either of those two, and it has been deliberately excluded from the TPP that would defeat the purpose of facilitating the GVCs.
Thirdly, while the authors are correct in saying that "in the post-GFC world, exports are evidently no longer the engine of China’s economy", it does not necessarily or automatically mean that exports will never be an engine of growth for ever. In that sense, the new normal in relation to exports may be temporary rather than being permanent. As a result, the remarks that "the ‘new normal’ requires adjustments in domestic economic policies and externally-oriented trade policies and strategies. Trade strategies that are compatible with China’s domestic conditions will help China achieve a stable shift to the new normal", may need some caution, as the situation with exports may change when the global economy puts behind, the temporary "new normal", that is the consequences of the GFC and back to its real "normal".
Alternatively, the exports orientation should not be sacrificed but should adapt to the ever changing world economy and to grab every opportunity to increase trade and exports.
Fourthly, the remark that “in the Pacific Rim, while RCEP and the TPP complement each other in terms of their membership scope and issue coverage, they are in competition to offer the first update to the international trade rules of the WTO”, may represent an one-sided fantasy or day dreaming on the authors part, because the US does and will not think in that way. The authors also indirectly or implicitly acknowledged this point in the statement “despite its increasing trade power and enthusiasm to join international trade rule-making, China is currently excluded from TPP negotiations.”
The following paragraph also reflects the contradictory of the claim of the complementarity of the TPP and RECP: “At the same time, some new sensitive issues — such as SOEs, the environment and labour — pose challenges for China in 21st century trade negotiations and joining the TPP. Handled badly, they can also be impediments to genuinely free trade. The environment was once an area in which Chinese standards once diverged from most developed countries, but today Chinese standards in many areas exceed those of even some TPP member countries.”
Further, the authors also remarked that “the mega-regionals could either turn out to be a stumbling block for genuinely global free trade or pave the way to reaching a multilateral deal within the WTO’s framework.” It is another reflection of some of the contradictions in the authors’ arguments earlier on, as here the so called comlementarity gives way to problems. But that is where China’s approach to trade negotiations should be focused on, that is to say, on what is happening as opposed to what some fantasy may point to.
Nevertheless, I do share the view that China’s SOEs needs to be handled with care, creativity and boldness, by China and its leaders. Some reforms are needed in that particular areas, so China will not be disadvantaged due to its SOEs.
Finally the last sentence by the authors, while understandable, still hinges on wining the sympathy of those which deliberately do not have for China: “the internal reform of the Chinese economy and its changing role in the global economy provide common ground for China, a large developing country, and developed countries to work on their divergence and to agree to a new set of rules.” It is a miserable position to be.
2015-07-29
China is a market economy
Comments on Gary Clyde Hufbauer and Cathleen Cimino-Isaacs "Is China a market economy?" 29/07/2015
While it was understandable that at the time when China joint the WTO, it was not unreasonable to regard some parts of the Chinese economy were not market economy, it is no longer reasonable to use that as a trade barrier or as a tool for anti dumping purpose. Fifteen years have past since then and China has changed a lot. Yes, there are some sectors where there may be monopolies, duopolies or oligopolies still operate, but they are not too different from some western and industrialised countries. For example, some utility industries in Australia operate as monopolies or oligopolies.
The following paragraph from the author is telling that it is not a legal issue as opposed to a policy one. It is a form of imperialism in action:
"Whether the United States takes a hard-line mix-and-match approach, rather than grant China market economy status across the board, could well turn on policy considerations rather than legal parsing. Among these considerations will be the general atmosphere of commercial relations with China in 2015 and 2016, including the evolution of the renminbi exchange rate (devaluation would inspire a hard-line approach) and the outcome of the US–China Bilateral Investment Treaty negotiations (success would have the opposite effect)."
The authors' recommendations are not particularly unreasonable in that any firms whether they are state owned or not, should publish any information as an ordinary firm would. However, there is a danger that those recommendations could be abused and used for more than what are recommended for.
Further the accusations of China manipulates its currency does not have merits at all. One cannot use trade surplus or deficit with a country alone as a test of whether a currency is fair valued or not. China can have surplus with some countries and deficits with some other countries as well as about balanced trade with the rest. The US have run trade deficits with many countries for very long time and those countries include free exchange countries. If surplus or deficit is the sole measure, then why the free exchange rate countries have not had their currencies moved in the direction to balance their trade with the US?
PS: I have had a look at the Eastasiaforum website and could not find my comments there even by 9.23 am, 30 July 2015. Maybe the use of the phrase imperialism caused the editors some headaches. I only meant economic imperialism, in the sense similar to past imperialists which, when they were losing their former powers, tried to create difficulties for either new comers of new power or left some difficulties to their former colonies. In Chinese, the phrase "垂死挣扎“ adequately describes such behaviours.
While it was understandable that at the time when China joint the WTO, it was not unreasonable to regard some parts of the Chinese economy were not market economy, it is no longer reasonable to use that as a trade barrier or as a tool for anti dumping purpose. Fifteen years have past since then and China has changed a lot. Yes, there are some sectors where there may be monopolies, duopolies or oligopolies still operate, but they are not too different from some western and industrialised countries. For example, some utility industries in Australia operate as monopolies or oligopolies.
The following paragraph from the author is telling that it is not a legal issue as opposed to a policy one. It is a form of imperialism in action:
"Whether the United States takes a hard-line mix-and-match approach, rather than grant China market economy status across the board, could well turn on policy considerations rather than legal parsing. Among these considerations will be the general atmosphere of commercial relations with China in 2015 and 2016, including the evolution of the renminbi exchange rate (devaluation would inspire a hard-line approach) and the outcome of the US–China Bilateral Investment Treaty negotiations (success would have the opposite effect)."
The authors' recommendations are not particularly unreasonable in that any firms whether they are state owned or not, should publish any information as an ordinary firm would. However, there is a danger that those recommendations could be abused and used for more than what are recommended for.
Further the accusations of China manipulates its currency does not have merits at all. One cannot use trade surplus or deficit with a country alone as a test of whether a currency is fair valued or not. China can have surplus with some countries and deficits with some other countries as well as about balanced trade with the rest. The US have run trade deficits with many countries for very long time and those countries include free exchange countries. If surplus or deficit is the sole measure, then why the free exchange rate countries have not had their currencies moved in the direction to balance their trade with the US?
PS: I have had a look at the Eastasiaforum website and could not find my comments there even by 9.23 am, 30 July 2015. Maybe the use of the phrase imperialism caused the editors some headaches. I only meant economic imperialism, in the sense similar to past imperialists which, when they were losing their former powers, tried to create difficulties for either new comers of new power or left some difficulties to their former colonies. In Chinese, the phrase "垂死挣扎“ adequately describes such behaviours.
2013-10-05
Balanced and unbalanced growth again
Comments on Edward Oughton "Connecting China’s broadband ambitions to development",5/10/2013,http://www.eastasiaforum.org/2013/10/03/connecting-chinas-broadband-ambitions-to-development/
Balanced economic growth perhaps needs s clear definition. This is because it is not clear how the idea of balanced growth needs to be reconciled with comparative advantage theory in international trade.
To illustrate the point, if every country has the same economic structure, is that a balanced or unbalanced world economy?
Secondly, if comparative advantage theory has relevance (as I suppose it does), it means a country’s economic structure is to a large degree determined by its comparative advantage. Then it follows that the balanced growth must be consistent with this path of growth along the lines of changing comparative advantage.
PS: These comments seem to be at odd with the title, this is because the article started with the following: "Premier Li Keqiang recently stressed at the World Economic Forum that structural economic reform is pivotal if China is to achieve a sustainable economic growth trajectory.
China evidently needs to balance its economy to avoid overreliance on its manufacturing base. The government’s latest plan to invest $US323 billion in expanding fixed-line and wireless broadband connectivity will bring it one step closer to this goal by helping to spur the development of its service sector."
It seems people are so with balance and imbalance and it is very fashionable.
Balanced economic growth perhaps needs s clear definition. This is because it is not clear how the idea of balanced growth needs to be reconciled with comparative advantage theory in international trade.
To illustrate the point, if every country has the same economic structure, is that a balanced or unbalanced world economy?
Secondly, if comparative advantage theory has relevance (as I suppose it does), it means a country’s economic structure is to a large degree determined by its comparative advantage. Then it follows that the balanced growth must be consistent with this path of growth along the lines of changing comparative advantage.
PS: These comments seem to be at odd with the title, this is because the article started with the following: "Premier Li Keqiang recently stressed at the World Economic Forum that structural economic reform is pivotal if China is to achieve a sustainable economic growth trajectory.
China evidently needs to balance its economy to avoid overreliance on its manufacturing base. The government’s latest plan to invest $US323 billion in expanding fixed-line and wireless broadband connectivity will bring it one step closer to this goal by helping to spur the development of its service sector."
It seems people are so with balance and imbalance and it is very fashionable.
2013-02-19
Savings, investments and industrialisation/urbanisation versus external balance
Comments on Michael Pettis “Ten
signals to watch as the world resets”, 19/02/2013,
http://www.businessspectator.com.au/bs.nsf/Article/China-rebalancing-growth-markets-GDP-trade-pd20130219-52RAQ?OpenDocument
I am not too sure how much finance
Professor Michael Pettis understands economics, even the basic
economic principles.
China is still industrialising and
urbanising. It's level of per capita income is very low compared to
industrialised countries. It has more than half of its population,
probably more 700 million, still live in rural villages. There are a
lot of infrastructures that need to be built to facilitate its
industrialisation and urbanisation.
Naturally, that needs investments, huge
investments over many years.
It is against this background that
Professor argues the following highly questionable points:
"China must bring both its savings
rate and its investment rate down sharply. If it can bring savings
down faster than investment, China is probably rebalancing in the
right way, and this should show up as strong growth and a declining
trade surplus."
Without savings and investments, how
could China industrialise and urbanise?
This is where some academics just
simply follows some popular topical sayings and prescribe non-sense
ideas.
Given its needs for investments, the
sensible policy is to channel its savings to investments in
infrastructure and urban constructions to accommodate the transfer of
hundreds of millions of rural people to urbanised living.
Professor is understndably worried more
about so called external balance. But that should not necessarily
require a cut of both savings and investments. As long as savings are
balanced by investments, external trade should also be balanced.
That is probably economics 101 and even
a finance professor should understand that.
Apparently Professor Pettis does not
appear to.
This is also why many Chinese
university students are so disappointed with their professors and
lectures.
Now we can see some of the reasons why
that is the case.
2013-01-10
Effect of globalisation on the supply side
Comments on Stephen Grenville “Why forecasting has broken down”, 10/01/2013, http://www.businessspectator.com.au/bs.nsf/Article/Global-economy-fiscal-policy-forecasting-models-ec-pd20130108-3R4MS?OpenDocument
I think the reasons why those international forecasters consistently got their forecasts wrong you mentioned are correct ones, though there might be more than those.
I think there might be a different effect of globalisation on the aggregate demand and supply of an economy.
The conventional frameworks for macroeconomics may suffer from lacking a closer look at the effect of globalisation on the supply side in the context of a serious supply side shock in the wake of the GFC and the ensuing various other related government debts and fiscal problems.
Let's say various macro policies do have an effect on increasing the aggregate demand of an economy, but that may not necessarily restore the domestic supply side when international supply can substitute domestic supply due to their advantages in being unaffected by the supply side forces that exist in the more advanced economies such as the US and EU.
This increased effect of globalisation and trade substitution on the side supply may suggest that the full recovery of the advanced economies to their normal growths may take longer time even though the macroeconomic policy particularly the monetary policy is much more accommodating now as compared to the 1930s.
Unless the governments can come up with new ways to restore the domestic supply side of an economy, the road to recovery will be long and hard for those economies.
I think the reasons why those international forecasters consistently got their forecasts wrong you mentioned are correct ones, though there might be more than those.
I think there might be a different effect of globalisation on the aggregate demand and supply of an economy.
The conventional frameworks for macroeconomics may suffer from lacking a closer look at the effect of globalisation on the supply side in the context of a serious supply side shock in the wake of the GFC and the ensuing various other related government debts and fiscal problems.
Let's say various macro policies do have an effect on increasing the aggregate demand of an economy, but that may not necessarily restore the domestic supply side when international supply can substitute domestic supply due to their advantages in being unaffected by the supply side forces that exist in the more advanced economies such as the US and EU.
This increased effect of globalisation and trade substitution on the side supply may suggest that the full recovery of the advanced economies to their normal growths may take longer time even though the macroeconomic policy particularly the monetary policy is much more accommodating now as compared to the 1930s.
Unless the governments can come up with new ways to restore the domestic supply side of an economy, the road to recovery will be long and hard for those economies.
2012-12-19
America and power games in Asia
Comments on Yang Razali Kassim “East Asia Summit 2012: Asia’s power game unfolds”, 12/12/2012, http://www.eastasiaforum.org/2012/12/12/east-asia-summit-2012-asias-power-game-unfolds/
It appears that the third layer game has far reaching implications for the power play in East Asia, given it is out of the desire of ASEAN for its centrality purpose. RCEP seems to suggest that it will be difficult for any power to unilaterally act to attempt to purposefully exclude any important regional players. This is particularly noteworthy given the proceedings of other economic negotiations, particularly with some exclusivity.
The regional economic links and further integration is likely to be a central feature of future development in the region that will shape the eventual regional institutions and the attitudes of individual countries towards some difficult issues, including disputes among countries.
It appears that the third layer game has far reaching implications for the power play in East Asia, given it is out of the desire of ASEAN for its centrality purpose. RCEP seems to suggest that it will be difficult for any power to unilaterally act to attempt to purposefully exclude any important regional players. This is particularly noteworthy given the proceedings of other economic negotiations, particularly with some exclusivity.
The regional economic links and further integration is likely to be a central feature of future development in the region that will shape the eventual regional institutions and the attitudes of individual countries towards some difficult issues, including disputes among countries.
2012-08-01
New application of comparative advantage trade theories
Comments on Christopher Findlay and Dean Parham "
Blurred borders: ‘offshoring’ Australian business", 31/07/2012 http://www.eastasiaforum.org/2012/07/31/blurred-borders/
It seems the new model is a development of the comparative advantage trade theories albeit at the production/value chain as compared to the whole production process.
It also implies that new comparative advantages may have a strong focus on fast innovation and rapid response, as compared to the past simple capital/labor type.
It is a more complex model with fine distinction of elements of sources of comparative advantage.
Economists must also be innovative and creative in theorising new practice and economic reality.
Businesses must also be highly adaptive to globalisation trends and regional and global economic integration.
2012-07-15
Dutch Disease can be managed to minimise ill effects
Comments on Ken Henry "
Ken Henry: why Australia’snon-mining sector will continue to struggle", 12/07/2012,
https://theconversation.edu.au/ken-henry-why-australias-non-mining-sector-will-continue-to-struggle-8224
This is where many economists and government officials have been lacking in creativity and in bringing a whole practical package together to deal with challenges, although the current challenges from mining boom is a good one.
Dr Henry should realise that the Henry Taxation Review's recommendation on the mining tax is a good economic theory but is not very applicable in practice and it was this combination together with bungles by politicians and bureaucrats that have resulted the current poor state of the MRRT.
Undoubtedly, the initial design of a mining tax by the Henry Review was very ambitious and elegant in theory. But the problem was it is too theoretical but not practical. An alternative one could be as simple as a pure addition to the company tax with an link to either terms of trade using mineral exports and all imports or the relative prices of mineral exports.
Of course, that additional tax should be mostly given to the states where the additional profits are generated, with some left the to the commonwealth for national adjustment to the mining boom.
States, of course, would be part of the adjustment process using that additional profit tax revenue from mining companies.
This can limit the rise of the Australian dollar and a lower dollar is conducive to lessen the impact of the mining boom, that is, the Dutch Disease.
The so called Dutch Disease can be managed with a good national policy.
Only purely relying on the market that gives to the rise of Dutch Disease.
The main viewpoint and argument in this article belongs to the latter.
Dr Henry should realise that the Henry Taxation Review's recommendation on the mining tax is a good economic theory but is not very applicable in practice and it was this combination together with bungles by politicians and bureaucrats that have resulted the current poor state of the MRRT.
Undoubtedly, the initial design of a mining tax by the Henry Review was very ambitious and elegant in theory. But the problem was it is too theoretical but not practical. An alternative one could be as simple as a pure addition to the company tax with an link to either terms of trade using mineral exports and all imports or the relative prices of mineral exports.
Of course, that additional tax should be mostly given to the states where the additional profits are generated, with some left the to the commonwealth for national adjustment to the mining boom.
States, of course, would be part of the adjustment process using that additional profit tax revenue from mining companies.
This can limit the rise of the Australian dollar and a lower dollar is conducive to lessen the impact of the mining boom, that is, the Dutch Disease.
The so called Dutch Disease can be managed with a good national policy.
Only purely relying on the market that gives to the rise of Dutch Disease.
The main viewpoint and argument in this article belongs to the latter.
2012-07-04
What is the criterion for economic balance or not?
Comments on Ligang Song and Huw McKay "Rebalancing the Chinese economy to sustain long-term growth", July 3rd, 2012, http://www.eastasiaforum.org/2012/07/03/rebalancing-the-chinese-economy-to-sustain-long-term-growth/
While it popular to say that the Chinese economy is unbalanced, it seems not convincing and rational basis has been presented to put it beyond dispute or doubt, except to use the facts of China has surplus in trade and its investment/consumption shares are high/low.
What economic models would demonstrate that balanced trade is always optimal and that a lower/higher investment/consumption are always optimal over the course of economic development and when people and nations clearly can have different preferences?
Further, investment is absolutely necessary for economic growth, especially for developing countries which have relatively low physical capitals and inadequate infrastructure and low urbanisation. Besides, better technologies are embedded in investment
Let’s look at some of the arguments in this article. It argues “Although the non-state sector accounted for the majority of industrial output in 2007, the SOEs accounted for more than 53 per cent of non-agricultural fixed investment while employing only 13 per cent of the total workforce. These discrepancies reflect the fact that SOEs operate in capital-intensive heavy industries. But they also suggest an inefficient allocation of capital across sectors and underline that there are still large distortions in China’s factor markets.”
While it popular to say that the Chinese economy is unbalanced, it seems not convincing and rational basis has been presented to put it beyond dispute or doubt, except to use the facts of China has surplus in trade and its investment/consumption shares are high/low.
What economic models would demonstrate that balanced trade is always optimal and that a lower/higher investment/consumption are always optimal over the course of economic development and when people and nations clearly can have different preferences?
Further, investment is absolutely necessary for economic growth, especially for developing countries which have relatively low physical capitals and inadequate infrastructure and low urbanisation. Besides, better technologies are embedded in investment
Let’s look at some of the arguments in this article. It argues “Although the non-state sector accounted for the majority of industrial output in 2007, the SOEs accounted for more than 53 per cent of non-agricultural fixed investment while employing only 13 per cent of the total workforce. These discrepancies reflect the fact that SOEs operate in capital-intensive heavy industries. But they also suggest an inefficient allocation of capital across sectors and underline that there are still large distortions in China’s factor markets.”
2011-12-31
Morici's failure in intellectual
Comments on Peter Morici “A lifeline
for the US middle class”, 31/12/2011,
http://www.businessspectator.com.au/bs.nsf/Article/US-economy-middle-class-oil-energy-growth-pd20111230-Q25BW?OpenDocument
Peter Morici, while recognising some
roles of the trade, has failed fundamentally and miserably to grasps
some of the most important fundamental implications of trade, that
is, income/wage equalisation.
Until he properly takes that into
account, he will not be able to come up with useful and practical
policy recommendations.
He has always tended to blame the
emerging economies, their governments for Americans' problems.
Unfortunately that only shows his
failures in intellectual, even though he is a professor and was the
chief economist of US trade commission some times ago.
That is also a fundamental problem with
most US elites that has been at the root of the problems US has been
faced, even though the $US and the largest economy status have
afforded it with unparalleled advantages over other countries.
2011-10-06
What China should do on rare earth minerals?
Comments on Nabeel A Mancheri “China’s export restrictions on rare earths”, 6/10/2011, http://www.eastasiaforum.org/2011/10/06/china-s-export-restrictions-on-rare-earths/
While there are complaints of China's export restrictions on rare earth minerals, most do not show the impact on prices of those minerals. It would be useful to include price information in such discussions.
I am not familiar with the situation of rare earth mineral deposits, production and supplies in both China and in the world. I think if China produces 97% of world supplies, a fair rule for China to play should be index the prices of rare earth minerals with other international minerals and metal prices and imposes some sort of royalties based on such indexation.
Australia is an introducing mineral resources rent tax on some minerals, following the failure of an earlier attempt by the Rudd government to introduce a mining super profit tax.
Arguably, there are some differences between China and Australia in terms of the ownership of minerals (more broadly the land). Private ownership of land is not as significant in China as in Australia. The Chinese government arguably has stronger legal authority to impose a mineral rent tax based on the ownership status.
Once the mineral rent issue is resolved, China should not impose export quotas, so both Chinese and non-Chinese customers of rare earth will face the same price.
Of course, China can take additional measures based on environmental concerns, but that should be done on the non-discriminatory basis, that is, not targeting trade.
2011-05-16
Australia is undoubtedly a lucky country
Comments on Mumble blog “Australia’s miracle economy: fact or fiction?”, 16/05/2011, http://blogs.theaustralian.news.com.au/mumble/index.php/theaustralian/comments/australias_miracle_economy_fact_or_fiction/
While the points could be regarded as well made, it would be more helpful to or clearer to readers if a table showing period averages for the three countries were presented.
Secondly, while worldwide forces affect many countries, the charts, particularly the budget balance one, do show that Australia has been lucky due to the mining boom, so has been Canada. Improved and higher terms of trade helped to achieve better budget outcomes in both countries.
Thirdly, the chart with employment shows Australia benefited more than Canada, due to labour shortage as a result of the mining boom.
In contrast, Britain has not got this luck. And it is still struggling in the wake of the GFC, while we Australians are riding on another mining boom as commodity prices rise through the roof again and even higher!
While the points could be regarded as well made, it would be more helpful to or clearer to readers if a table showing period averages for the three countries were presented.
Secondly, while worldwide forces affect many countries, the charts, particularly the budget balance one, do show that Australia has been lucky due to the mining boom, so has been Canada. Improved and higher terms of trade helped to achieve better budget outcomes in both countries.
Thirdly, the chart with employment shows Australia benefited more than Canada, due to labour shortage as a result of the mining boom.
In contrast, Britain has not got this luck. And it is still struggling in the wake of the GFC, while we Australians are riding on another mining boom as commodity prices rise through the roof again and even higher!
2011-05-03
Doha round difficulties and approaches to WTO negotiations
Comments on Ann Capling “The end of Doha as we have known it: what next for Australian trade policy?” 3/05/2011, http://www.eastasiaforum.org/2011/05/03/the-end-of-doha-as-we-have-known-it-what-next-for-australian-trade-policy/
I have to say that I am very unfamiliar to WTO Doha round negotiations, not to mention the causes of current difficulties.
I would like to ask a question however. Why could WTO adopt a rather different approach to member negotiations by having a forward opt in strategy?
Such a strategy would be to advance a version of forward and make it an agreement among them first if there are at least a set minimum number of countries or with a set minimum share of world trade agree to a clause, with it open for other members to opt in at a later stage. Once opting in, a country should only move forward.
This strategy would settle on agreements and leave disagreements aside.
With proper provisions or revision to existing rules, it could avoid the current cumbersome negotiations and make gradual and steady advancement and could potentially replace the needs for regional trade agreement for many countries.
In fact, such a strategy could be applied to some other international organisations, such as different UN bodies.
More specifically, UN climate change negotiations.
I have to say that I am very unfamiliar to WTO Doha round negotiations, not to mention the causes of current difficulties.
I would like to ask a question however. Why could WTO adopt a rather different approach to member negotiations by having a forward opt in strategy?
Such a strategy would be to advance a version of forward and make it an agreement among them first if there are at least a set minimum number of countries or with a set minimum share of world trade agree to a clause, with it open for other members to opt in at a later stage. Once opting in, a country should only move forward.
This strategy would settle on agreements and leave disagreements aside.
With proper provisions or revision to existing rules, it could avoid the current cumbersome negotiations and make gradual and steady advancement and could potentially replace the needs for regional trade agreement for many countries.
In fact, such a strategy could be applied to some other international organisations, such as different UN bodies.
More specifically, UN climate change negotiations.
2011-04-29
Government and its carbon committee to blame
Comments on Siobhain Ryan “Tony Windsor's carbon call for BHP”, 29/04/2011, http://www.theaustralian.com.au/national-affairs/tony-windsors-carbon-call-for-bhp/story-fn59niix-1226046579423
While Tony Windsor has an obvious point, the government and the carbon committee have not helped in their own duties either, by not having stated of a broad trade neutral approach or framework.
That largely is the problem with the government and the committee.
Why haven’t they announced such a broad framework in the first place and leave any details to be worked out? Is an announcement of intention that difficult?
So Windsor may suffer a problem himself too, as a member of the committee.
While Tony Windsor has an obvious point, the government and the carbon committee have not helped in their own duties either, by not having stated of a broad trade neutral approach or framework.
That largely is the problem with the government and the committee.
Why haven’t they announced such a broad framework in the first place and leave any details to be worked out? Is an announcement of intention that difficult?
So Windsor may suffer a problem himself too, as a member of the committee.
2011-04-15
Time to consider and reform international exchange rate regime
Comments on Max Corden “Global imbalances and the paradox of thrift”, 15/04/2011, http://www.eastasiaforum.org/2011/04/13/global-imbalances-and-the-paradox-of-thrift/
Yes, I'd agree that this is an excellent piece of analysis over the issues of international balance or imbalance.
On top of the views on the core balance issues, I'd add that the past history and various painful experiences have also shown a more difficult issue in terms of excessive volatilities of floating exchange rate regime.
Just consider the dramatic swings and changes in rate between the US and the euro over the short period since the creation of the euro.
How much the rate has changed, back and forth?
Is it compatible with the macroeconomic goal of price stability?
Or, have those changes in the relative price of imports versus exports really reflected the underlying relative economic conditions?
Were they conducive to businesses involved in external trade?
It seems that while free international exchange rates regime has its merits, it also has considerable downside. It is uncertain whether its advantages outweigh its disadvantages.
It may be time to study what an ideal international exchange rates regime should be, so to balance the positive and negative sides to maximise net benefits for all nations.
Yes, I'd agree that this is an excellent piece of analysis over the issues of international balance or imbalance.
On top of the views on the core balance issues, I'd add that the past history and various painful experiences have also shown a more difficult issue in terms of excessive volatilities of floating exchange rate regime.
Just consider the dramatic swings and changes in rate between the US and the euro over the short period since the creation of the euro.
How much the rate has changed, back and forth?
Is it compatible with the macroeconomic goal of price stability?
Or, have those changes in the relative price of imports versus exports really reflected the underlying relative economic conditions?
Were they conducive to businesses involved in external trade?
It seems that while free international exchange rates regime has its merits, it also has considerable downside. It is uncertain whether its advantages outweigh its disadvantages.
It may be time to study what an ideal international exchange rates regime should be, so to balance the positive and negative sides to maximise net benefits for all nations.
2011-03-28
China’s current account
Comments on Yang Yao “China’s current account surplus and inflation”, 27/03/2011, http://www.eastasiaforum.org/2011/03/27/china-current-account-surplus-and-inflation/
While Prof. Yao argues the following:
"As a result, external demand for China’s exports will be strong. While there was a trade deficit in February, this was transitory, likely caused by the spring festival holidays, and China will continue to accumulate large reserves of foreign exchanges this year.
China is moving back toward what happened between 2004 and 2008 where inflationary pressures were high due to large trade surpluses. It is predictable that the Chinese authorities will now deploy a combination of tools to stabilise domestic prices."
While everything is possible, whether China's current account will keep being surplus or will turn to deficit is an open question and there is no certainty for it to be in surplus in the not so distant future, given that so many people have been arguing the so called Lewis turning point in terms of China's rural labour surplus.
It is important to get that judgement right before rush to policy prescriptions.
Having said that, however, it would be prudent to temporarily lift certain import duties effectively by reimburse consumers for buying those goods, before a potential permanent lift.
Another point is that should the US recovery is sustained at a reasonable pace the prevailing international pressure on trade imbalance is more likely to subside substantially. That will have policy implications for both surplus and deficit countries.
In terms of Wong's comments, yes China should have considerable room to consider some direct measures to increase its imports from the US. The question is that China may like to increase more imports of high tech products that the US is not willing to export them.
The US has a policy dilemma in its hands, to contain China's rapid technological advance and limitary spending on the one hand, and to export more to China on the other.
While Prof. Yao argues the following:
"As a result, external demand for China’s exports will be strong. While there was a trade deficit in February, this was transitory, likely caused by the spring festival holidays, and China will continue to accumulate large reserves of foreign exchanges this year.
China is moving back toward what happened between 2004 and 2008 where inflationary pressures were high due to large trade surpluses. It is predictable that the Chinese authorities will now deploy a combination of tools to stabilise domestic prices."
While everything is possible, whether China's current account will keep being surplus or will turn to deficit is an open question and there is no certainty for it to be in surplus in the not so distant future, given that so many people have been arguing the so called Lewis turning point in terms of China's rural labour surplus.
It is important to get that judgement right before rush to policy prescriptions.
Having said that, however, it would be prudent to temporarily lift certain import duties effectively by reimburse consumers for buying those goods, before a potential permanent lift.
Another point is that should the US recovery is sustained at a reasonable pace the prevailing international pressure on trade imbalance is more likely to subside substantially. That will have policy implications for both surplus and deficit countries.
In terms of Wong's comments, yes China should have considerable room to consider some direct measures to increase its imports from the US. The question is that China may like to increase more imports of high tech products that the US is not willing to export them.
The US has a policy dilemma in its hands, to contain China's rapid technological advance and limitary spending on the one hand, and to export more to China on the other.
2011-03-23
Don't resort to China bashing on carbon tax
Comments on Rob Burgess “Labor's return to protectionism”, 23/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/carbon-tax-climate-change-Garnaut-Kraehe-pd20110323-F7RMU?opendocument
While I agree with the essence of the argument for a proper, fair, effective and simple border mechanism to account differences in emission reduction regimes and I have advocated for a simple border trade adjustment, the mentality of China bashing or demonising China to attract sympathy and support used in this article is grossly inappropriate and simply ignores the facts that China is doing much more than Australia's proposed carbon tax.
The real costs of China's measures to reduce its emissions intensity of GDP are much higher than the cited $16 per ton.
China has a higher target for the share of renewable energies. China forces heavy emitting factories to close down and stop the supply of electricity to its residents and industries to achieve its targets.
Do anyone with an independent and rational mind think it does not have costs to do those? How did the assumption of $16 per ton factor them into account?
China has done more than Australia has and is likely to do much more than Australia would in the future, even though Australia emits many times than China does on the per capita.
Besides, how would Australia account for and pay for its much higher per capita emissions to those countries that emit much less per capita?
Taking a holistic view, China bashing and demonising China in the area of emissions is extremely unwise and will unfortunately harm Australia’s national interests and international standing. It shows a lack of intellectual intelligence and narrow mindedness, possibly stupidity, by some.
PS: A border carbon adjustment scheme must be supplemented with another international adjustment scheme to account for the differences in per capita emissions between countries. Only when they go hand in hand, a border adjustment for carbon tax can be justified.
While I agree with the essence of the argument for a proper, fair, effective and simple border mechanism to account differences in emission reduction regimes and I have advocated for a simple border trade adjustment, the mentality of China bashing or demonising China to attract sympathy and support used in this article is grossly inappropriate and simply ignores the facts that China is doing much more than Australia's proposed carbon tax.
The real costs of China's measures to reduce its emissions intensity of GDP are much higher than the cited $16 per ton.
China has a higher target for the share of renewable energies. China forces heavy emitting factories to close down and stop the supply of electricity to its residents and industries to achieve its targets.
Do anyone with an independent and rational mind think it does not have costs to do those? How did the assumption of $16 per ton factor them into account?
China has done more than Australia has and is likely to do much more than Australia would in the future, even though Australia emits many times than China does on the per capita.
Besides, how would Australia account for and pay for its much higher per capita emissions to those countries that emit much less per capita?
Taking a holistic view, China bashing and demonising China in the area of emissions is extremely unwise and will unfortunately harm Australia’s national interests and international standing. It shows a lack of intellectual intelligence and narrow mindedness, possibly stupidity, by some.
PS: A border carbon adjustment scheme must be supplemented with another international adjustment scheme to account for the differences in per capita emissions between countries. Only when they go hand in hand, a border adjustment for carbon tax can be justified.
2011-03-22
The 'trade-not-aid' strategy versus other strategies
Comments on Kevin P. Gallagher “China challenges Washington’s ‘trade-not-aid’ strategy in Latin America”, 19/03/2011, http://www.eastasiaforum.org/2011/03/19/china-challenges-washingtons-trade-not-aid-strategy-in-latin-america/
The different approaches are likely to coexist for a very long time to come.
Undoubtedly, there will be some approaches that are between the US one and the China one.
The US has not only elements of containment of other systems, but also elements of spreading its own system through various means.
On the other hand, China's approach is consistent with its non-interference principle in international dealings. It does not have a strategy to export its system, at least since the end of the Mao era.
Will the US attempt to contain such influences of China to conduct another form of containment?
If it does, will it be likely to be successful?
The different approaches are likely to coexist for a very long time to come.
Undoubtedly, there will be some approaches that are between the US one and the China one.
The US has not only elements of containment of other systems, but also elements of spreading its own system through various means.
On the other hand, China's approach is consistent with its non-interference principle in international dealings. It does not have a strategy to export its system, at least since the end of the Mao era.
Will the US attempt to contain such influences of China to conduct another form of containment?
If it does, will it be likely to be successful?
BRIC should be really golden
Comments on Mauricio Mesquita Moreira “Brazil and its Chinese challenges”, 17/03/2011, http://www.eastasiaforum.org/2011/03/17/brazil-and-its-chinese-challenges/
There are holes in the BRIC?
The speed of growth of China's economy and its impact on many markets can be huge and may cause economic and industry dislocations, some short term, some along new emerging international competitiveness and comparative advantages.
However, Brazil may realise that the shares of both its exports to and imports from China have risen significantly, that is a result of China's rapid economic growth and external trade.
One should look at both the positive and negative sides of increased trade - mostly likely the benefits overweigh the negative side.
It is unrealistic to expect that such rapid changes in trade don't have any costs associated with them. Standard trade theories suggests there are political economy implications of trade due to changes in international competitiveness. They also point out gains from trade.
One has to manage changes.
There are holes in the BRIC?
The speed of growth of China's economy and its impact on many markets can be huge and may cause economic and industry dislocations, some short term, some along new emerging international competitiveness and comparative advantages.
However, Brazil may realise that the shares of both its exports to and imports from China have risen significantly, that is a result of China's rapid economic growth and external trade.
One should look at both the positive and negative sides of increased trade - mostly likely the benefits overweigh the negative side.
It is unrealistic to expect that such rapid changes in trade don't have any costs associated with them. Standard trade theories suggests there are political economy implications of trade due to changes in international competitiveness. They also point out gains from trade.
One has to manage changes.
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