NAFTA: Success or Failure?

           This article provides an analysis of the famous NAFTA trade deal by detailing its successes and failures within both an historical and geographical context. As intended and, perhaps, as one would expect, NAFTA has been very successful in helping integrate the economies of the U.S. and Mexico as evident in the fact that "trade between the US and Mexico has risen from 1.3% of combined GDP in 1994 to 2.5% in 2015". Furthermore, the article notes how "Mexico’s real income per person, on a purchasing-power-parity basis, has risen from about $10,000 in 1994 to $19,000." Despite this, however, critics of the deal rightly point out that individual economic gains have been very unevenly distributed and, relatively speaking, could be much greater. 

           When evaluating the merits of a trade deal like NAFTA, it's necessary to do so within a larger historical and economic framework. Specifically, this article discuses how the "full potential" of NAFTA was never reached due to events like the Mexican peso crises from 1994-95, American border controls enacted in the wake of 9/11, and even the growth of China's economy. Importantly, while it's certainly true that NAFTA has led to some job loss, economic historian Brad DeLong points to an estimate that this may only account for around .1% of net job losses in the U.S. economy, "fewer jobs than the American economy adds in a typical month." Beyond this, a more complete assessment shows that manufacturing jobs have been on the decline for several decades, an outcome that has only been accelerated with the rise of automation technologies not to mention a strong dollar and higher quality transportation/communication capacities that have made relocating abroad increasingly attractive. 

             Although NAFTA could very well have never been signed, America's incredibly close physical proximity to Mexico along with the respective size of each countries' economies makes it essentially inevitable they'd be trading partners. Additionally, while concerns about the changing nature of jobs in an increasingly globalized world are legitimate, it's important to remember that, as this article points out, globalization is not a zero-sum game since a greater exchange of goods and services ultimately stands to benefit everyone. Moreover, because of NAFTA Mexico has become more prosperous overall thereby better enabling it to deal with migration (net migration to the U.S. has, in fact, been negative for several years now), an issue which, ironically, some who oppose NAFTA are fervently worried about. What do you think of NAFTA's impact over the last 23 years? 

http://www.economist.com/news/finance-and-economics/21716033-nafta-has-been-disappointment-its-benefits-are-underappreciated-defence

Equal opportunity

Here is the cartoon that I mentioned in class today

https://brightside.me/article/what-you-should-think-about-before-you-judge-others-10155/

Is the U.S. Economy Too Dynamic, or Not Dynamic Enough?

This articles states that US economy has become too volatile and uncertain because of technological advancement and lack of creation of new businesses. Automation causes unemployment and leaves less occupational opportunities for workers without advanced education. At the same time, large corporations are busy increasing their profit and neglect the costly side effects of improved technology that the society must bear. This situation is worsening by the decline in the emergence of the new firms. Since 1977, percentage of new firms entering to the US economy has fallen to half. The market concentration and profit have been increasing for the large companies. So, not enough jobs are created to accommodate the unemployment caused by the technological advancement.

China tightens monetary policy (discreetly)

The People's Bank of China raised short-term rates fractionally. This article discusses why it is such an important move for the Chinese economy especially given its relative lack of independence when it comes to affecting the monetary framework.

The two reasons that the article cites to explain why this policy is important are:
1) The expected slowing of the growth rate. Last year it was 6.7%, it is supposed to go down further this year. Also, foreign investments have been increasing at a slower pace than ever before. Though this may not sound like the ideal time to begin a "monetary tightening cycle" but this has been mostly placed to guard against a shaky housing market and increasing debt in the financial institutions

2) It is changing how China had previously dealt with monetary policies. While before they used to "set specific lending or deposit rates" and never really had an equivalent of the federal funds rate, these current changes are pointing towards tendencies similar to more developed nations.
They are being careful not to breach into the central power of influence who still has the final say on everything.

China is a socialist market system where the government owns 98% of the banking assets. The Central Bank enforces monetary and fiscal policies with the approval of the State Council. These policies work to affect liquidity. The slight increase in rates seems counter-intuitive given how it will increase the cost of borrowing, incentivize saving and reduce spending/investments and ultimately lead to lower aggregate demand which will slow economic growth further. It is interesting to see the central bank prioritizing guarding against a potential housing markets crisis using these tools, though. Higher interest rates also lead to higher mortgage interest rates which may deter consumers from buying houses on credit. Since the amount itself is small enough, it is uncertain how much it will affect overall growth, but maybe it is just enough to prevent potential crises in the housing market or financial institutions.

Why tax reform is a lot harder than it looks

http://money.cnn.com/2017/02/12/pf/taxes/tax-reform-pass-through/index.html?iid=hp-stack-dom

Tax, the main revenue of the government, plays a significant role of redistributing the wealth in the society. Business tax reform has been marked as a biggest issue for years.

Last week, President Trump stated, “we’re in the process right now of working on a major tax reform that will massively reduce taxes on our workers and businesses.” There are a lot of different comments after the news was released. In this article, it says that tax reform is a lot harder than it looks because there are so many constituent interests and competing demands to balance.

To be more specific, the House plan would lower the top pass-through rate to 25%, Trump to 15%. By doing that, the highest tax rate on regular wage income would fall to just 33%. There are possibilities that shareholders and owners of pass-throughs who also happen to work at those firms will be tempted to recharacterize their paychecks as "business" income to get the lower tax rate. Therefore, the lawmakers are concerned about people gaming the system in this way.

This is only one of the many concerns about the tax reform. We can see that there is a long and tough way to go.

Trumponomics breaks all the rules, but will it also break the U.S. economy?

President Trump amongst his executive orders and twitter ranting has yet to see his economic plans follow through. For a "former" businessman to claim that he would pull money out of politics and the Hill is a bold statement. However, nothing he has put forth so far has shown the public what he promised. He currently has not presented Congress with any economic plans but he is flip flopping between market intervention and laissez faire capitalism. He is an advocate from protectionist trade policies and investing in big infrastructure projects (the much anticipated wall). Trump rarely listens to experts or rather people who are much more informed than he is. So it is no surprise that he will consider any advice given to him by economists who question his ideas and policies. "Trumponomics" maybe a new term but the idea behind it can be seen if we look back to the Reagan administration. However, he seems to be planning to do much at once. Cutting corporate taxes, gutting business regulations, and favoring exports over imports is something that the US economy has never seen in its history all at once. Low taxes for the rich, less regulations for banks and Wall Street at large would in my opinion greatly affect the economy.

If we go according to Trump's words, such expensive infrastructure will be paid from taxpayers dollars, which means the middle class will be left to carry the burden. The rich will just become a little more comfortable while the middle class will slowly diminish if this continues. Trump's economy might reap benefits in the near future but long term affects could be catastrophic to the American economy.





http://business.financialpost.com/news/economy/trumponomics-breaks-all-the-rules-but-will-it-break-the-u-s-economy

The Multi-Billion-Euro Exit Charge That Could Sink Brexit Talks

February 8th sparked Britain's withdrawal from the EU when it passed though parliament. By March 2017 Britain will have officially begun the process of exiting the EU.  EU officials are not going to make this easy for the British, however. In Brussels, officials are sending a bill to the British for contributions close to their membership dues until 2020, from anywhere from €24.5 billion to €72.8 billion.

The rationale behind this has three elements, all dealing with Britain's legal obligation to pay. Along with 27 other countries, Britain approved the EU's seven-year budget to start in 2013, and is being told to cover the amount they still have to pay, about €29.2 billion. Second, they are being told to cover investment commitments in the form of "cohesion funding" for poorer countries. Lastly, they are expected to cover the pensions of Eurocrats. If Britain does not cough up, it will likely be brought before the International Court of Justice.

With this, Britain and the EU face a number of problems posed with this billing. Within Article 50, it is required that the withdrawing country must maintain a future relationship with the EU.  If the bill goes unpaid, that relationship will likely be strained. There are loopholes to be found within the negotiations, such as easing the pressure of the bill's amount if Britain agrees to giving money to infrastructure projects or help with defense build-up in needy countries. If Britain does this, this will stress the EU's budget, potentially making wealthier member countries pay more for Britain's absence. Finally, PM Theresa May has done little to prepare Britain for this future bill- she has not even mentioned it in speeches she has given on the subject of Brexit. When the bill comes to life, it is likely that her political career will fall apart.

Regardless of the outcome, the process will be interesting and unprecedented. Unluckily for Britain, the EU's goodwill has vanished and Britain will be negotiating as a third-party, not a partner. One thing is for sure, there will be deadlock.

"The Multi-Billion-Euro Exit Charge That Could Sink Brexit Talks." The Economist.  The Economist Newspaper, 11 February 2017."

Huge protests force Romania’s government to reverse itself on corruption

Over the course of the last week, Romania's new prime minister, Sorin Grindeanu, has faced massive protests with crowds ranging in the hundreds of thousands. This is due to the controversial order concerning corruption that the 3-week old prime minister aims to implement. This emergency decree would effectively legalize corruption by decriminalizing "financial misconduct" that would result in a loss of the equivalent of $47,600 or less by government officials. This order comes after the country has been trying earnestly to combat the corruption scandals that have plagued the country.

In November 2015 following the deaths of 64 people in a Bucharest nightclub, protesters took to the streets in opposition to the corruption that ran rampant in the government. The protesters managed to take down the previously elected government. However, after what seemed like such great progress, Romanians see themselves still attempting to remedy the same problem that took so many lives in 2015.

The party that aims to implement the decree is the Social Democrat Party (PSD). The party's leader, Liviu Dragnea, has been charged with abuse of power after it was discovered that he offered $26,000 in contracts to associates that allegedly did no work. With the continuation of this corruption, it has been speculated that the prime minister will resign soon. What might be the long term results of rampant corruption in the government and the continual transitioning of governments due to protest rather than elected governments that finish their respective terms?

Considering that corruption is a public failure, we are led to think that state-run contracting could be reduced so that private businesses can run the market more efficiently. Do you agree?

The Economist: Injured reserve Should America want a strong dollar? It’s complicated

     This article discusses a question Trump asked his National Security Advisor: Should America want a strong dollar? If the dollar rises than the money in dollars that an American holds is  now worth more. However, buying anything in dollars is more expensive. If the dollar rises "because the Fed is inducing a deflationary recession, that's probably not good for anyone". If the dollar rises because there has been a discovery of a resource in the US that is high in value, that is also good for most Americans. These descriptions are familiar to most people who have taken basic economic courses. However, the article goes farther into describing overvaluation and under valuation. The author argues that the US dollar is overvalued due to current account deficits. This is primarily due to the fact that the dollar is the reserve currency for the world. So, other countries collect dollars to maintain their exchange rate. A lot of trade is done in dollars so it is easier for you or a company to have a reserve of dollars. Only the USA can provide Reserve-Currency Services. The article explains this is due to the resources and wealth of the US in their ability to provide dollar-based assets; other countries do not have this ability with out creating changes in those dollars and bonds. The US has historically held this role and held the responsibilities " like cooperating with other countries in crises to provide emergency dollar liquidity".  There isn't a straight forward answer to Trump's question. But there are a lot of factors that need to be understood before deciding relationships with other countries.  What is the implication of having a president who promotes protectionist policies on the dollar? Should the US continue to have this role?

Link to Economist Article

The Economist "Logistics companies fear the return of hard borders: Boxed in"

       This article highlights the new challenges facing international trade because of the protectionist policies from Trump and the British leaving the European Union. The growth in express delivery has been record breaking for some companies. The ease and mobility of purchasing things and moving it through countries is due to free-trade areas and lower tariffs. The ease of shipping between countries comes from strong international policies that promote international trade. However, in recent months the changing policy to protectionism has created problems for international trade. “Mr. Trump’s threats to raise tariffs on goods from China and Mexico, together with the indication last month from Theresa May, Britain’s prime minister, that the country will leave the EU’s customs union,” cause concerns that trade will fall dramatically causing problems for manufacturing countries and for shipping services. With the change of a physical boundary between UK and the EU it’s unlikely to cause physical disruptions because packages have already gone through EU checks. This article outlines the difficulty in classifying some products for the proper tax. Additionally, with protectionist policies coming from Trump and the British it is likely that consumers and producers will start seeing huge expenses similar to these “Sending an item from Britain to Switzerland (outside the EU) costs 150% more than it does to Italy (inside the EU)”.  This will not only cause problems in the shipping industry but it will be a huge expense for domestic manufacturers as they will be limited to only domestic consumers.      

LINK

Logistics companies fear the return of hard borders

This article addresses the concerns logistics firms such as Fed Ex are experiencing as we face a world with declining globalization. Obviously, there is the issue of the tariffs proposals from President Trump, but these logistics firms also have concerns in Europe. With Britain leaving the European Union, there will be a "hardening" of their border with the rest of Europe.

With it being more difficult to transport goods from one nation to the next, and the potential for high tariffs, the logistics industry could be hit hard. Declining globalization will likely affect both logistics firms and consumers.

As of now, a lot of this is speculation, so hopefully reality fails to meet this drastic and negative expectations.

http://www.economist.com/news/business/21716074-fedexs-founder-will-spend-more-time-campaigning-free-trade-logistics-companies-fear

"Under Armour tries to recover from Trump compliment"

The article, "Under Armour tries to recover from Trump compliment" by Ahiza Garcia, looks at the effects that personal politics can have on business. The CEO of Under Armour made a comment about how Trump is good for business because of his focus on creating jobs. This comment caused some customers to want to boycott Under Armour and even two of its sponsees, Steph Curry and Misty Copeland, to denounce the positive comment toward Trump. The company then issued a statement denouncing Trump's travel ban in an effort to appease customers.

This article highlights one of the problems businesses face in today's increasingly polarized political environment: whether or not taking a political stance will harm a company's profits. For companies like Under Armour, who is facing falling revenues, taking a controversial or unpopular political stance could further diminish profits.  Remaining silent on political issues is one option for companies afraid of alienating customers. I think companies and their top employees can express political opinions, but need to be prepared for backlash against the company.

http://money.cnn.com/2017/02/10/news/companies/under-armour-nike-trump-adidas/index.html?iid=SF_River

Trump's new health secretary already planning changes to Obamacare

Tom Price was just sworn in as the health secretary and yet has not had time to settle in his new position when he is already looking at the Affordable Care Act, also known as the Obamacare. President Trump announced that he will be working with Tom Price in repealing and replacing the law when it comes to health care. The article also mentions that even before Price was being sworn in, the Health & Human Services Department submitted a draft with the new rules proposed to the ACA. They are trying to approve these new changes by mid-April because that would give people enough time to adjust their plans before the 2018 year begins. Some of the items being proposed are listed below.

• “Maintaining the cost-sharing subsidies, which provides federal funds to help reduce low-income enrollees' deductibles and co-pays. A federal judge last year ruled Congress did not authorize the payments, but stayed her ruling until later this month.
• Limiting consumers' ability to sign up for coverage outside of the open enrollment period so that people don't wait until they are sick to purchase plans.
• Eliminating Obamacare taxes levied on health insurers.
• Requiring people to pay any premiums owed before they can re-enroll.
• Giving states more regulatory authority and flexibility.”

Insurance companies are counting on Trump’s administration to implement rules that will benefit them. Such as denying insurance to those people who apply for health insurance and have pre-existing conditions. This was one of the rules under the Obamacare, you were supposed to be insured even if you had a pre-existing condition. Another regulation they are trying to implement is that those who are 50 years and older will have higher rates in order to reduce rates for the younger generation. However, I believe these two regulations are unfair because those who are 50 and older are retired or disabled and no longer have an income in which they can rely on, as well as they will be unable to afford these higher rates. Also, those who have pre-existing conditions might have to receive expensive treatment that they might not be able to pay out of pocket. If they are not allowed to buy health insurance then they will be unable to receive the proper treatment they need. 

Link: http://money.cnn.com/2017/02/10/news/economy/tom-price-health-secretary-trump-obamacare/index.html?iid=SF_LN

How to Make America Greater: More Immigration

How to Make America Greater: More Immigration

https://www.nytimes.com/2017/02/07/business/economy/restricting-immigration-would-make-america-smaller-not-greater.html?ref=economy

This article written in the New York Times, discusses the importance of immigration in order to improve the US economy.  Many of Trump's policies, including this one, lack foresight for the consequences of large immigration ban.  There may be a small minority of US workers whose income is lowered through job competition with the incoming migrants, but the overall economic benefit is disproportionally larger than they loss they incur.  In fact, this article explains the idea that immigration may actually be equal to or greater than the value of trade.  Immigration of workers to the United States has helped tremendously to make our economy more efficient, and significantly increased GDP.  It is reported that some 26 million foreigners in the America contributed about 2 trillion dollars to the America economy last year.  It is nice to see that benefit to the common good is not mutually exclusive creating a strong healthy economy, I wish Trump would see this.  I am curious to learn more about this and see what Professor Skosples might have to say about this is class.  

Click Here for the article.

Sam Stull