China’s pure exporter subsidies: Protectionism by exporting
Fabrice Defever, Alejandro Riaño 04 January 2013
The West perennially complains about China subsidising industry geared towards its domestic market. But what will happen when China enacts its latest Five Year Plan’s emphasis on domestic growth? This column argues that ending ‘pure-exporter subsidies’ – subsidies that boost Chinese exports while simultaneously protecting the least efficient, domestically oriented firms – will benefit Chinese consumers, but will cost the rest of the world.
On 17 September last year, the US requested consultations with China concerning a wide range of export-contingent measures – grants, tax preferences and interest-rate subsidies, totalling at least $1 billion – in apparent violation of the WTO’s Agreement on Subsidies and Countervailing Measures, China’s accession protocol and article XVI of the GATT. The EU joined the consultations shortly after on 28 September.
China, WTO, trade, welfare
Global imbalances: What role for the WTO?
Juan A. Marchetti, Michele Ruta, Robert Teh 02 January 2013
Globally, large current account imbalances prevail. This column argues that they also continue to represent a systemic risk for the world economy. The WTO has a clear-cut role in the institutional effort to address these imbalances. However, this role has more to do with opening services and government procurement markets than with the often invoked trade sanctions in response to exchange rate misalignments.
The world witnessed a large build-up of current account and merchandise trade imbalances, both in absolute and relative terms, prior to the global financial and economic crisis (see Table 1 and Figure 1). Current account/merchandise trade surpluses were most pronounced among the East Asian economies (e.g. China), oil exporters (e.g. Saudi Arabia) and the ‘core’ Eurozone countries (e.g. Germany). The US and the Eurozone periphery countries had large and persistent deficits. While imbalances contracted after the crisis, they remained large both in absolute terms and in relation to GDP.
WTO, trade, liberalisation, current account imbalances
Can trade policy set information free?
Susan Ariel Aaronson 22 December 2012
The internet is an expanding opportunity for growth. This column argues that in recent years, however, policymakers and market actors have been undermining its potential. Governments and market actors are reducing both access to information and freedom of expression, as well as moving towards a splintered, non-global internet. Commitment to an open, free and global internet will be hard, but if bilateral, regional or multilateral trade agreements encourage interoperability, we might see some harmony among signatories’ privacy, online piracy, and security policies.
Although the internet is creating a virtuous circle of expanding global growth, opportunity, and information flows (Lendle et al. 2012), policymakers and market actors are taking steps that undermine access to information, reduce freedom of expression and splinter the internet (Herald 2012). Almost every country has adopted policies to protect privacy, enforce intellectual property rights, protect national security, or thwart cyber-theft, hacking, and spam.
Frontiers of economic research International trade
globalisation, trade, technology, internet
Value-added exchange rates
Rudolfs Bems, Robert Johnson 06 December 2012
With the rise of complex, globalised supply chains is the real effective exchange rate (REER), the most commonly used measure of competitiveness, now outdated? If it is, what should replace it? This column presents a ‘Value-Added REER’ and shows that it differs substantially from the conventional REER. Because it is possible to construct a new Value-Added REER from existing data, policymakers interested in improving their understanding of competitiveness might well consider including it in their toolbox.
Real effective exchange rates (REERs) are widely used to gauge competitiveness. Yet conventional REERs, based on gross trade flows and consumer price indexes (CPIs), are not well suited to that role when imports are used to produce exports – i.e., with vertical specialisation in trade.
Competition policy Global economy International trade
competitiveness, Germany, global imbalances, China, globalisation, trade, supply chains, iPhone
Why does finance matter for trade? Evidence from new data
Marc Auboin, Martina Engemann 03 December 2012
What effect does trade finance have on international trade? This column uses new data to stress the importance of trade finance for international trade both in crisis and in non-crisis periods. The major policy lesson is that there must be high levels of market incentives for supplying trade credit, particularly during a period of ‘deleveraging’ of the financial system. That said, trade credit statistics could be vastly improved if we wish to continue comparing global trade finance transactions against global trade.
Academic interest in the role of trade finance has grown in the context of the financial crisis of 2008-09 and the subsequent economic downturn, just as policymakers’ interest was once caught by the Asian financial crisis (IMF 2003).
trade, international trade, financial crisis, Trade finance, Great Recession, trade credit, trade insurance
Firm organisation: What we know and why we should care
Laura Alfaro, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman 02 December 2012
Increasingly, people are pointing the finger of blame for economic woe at large firms. This column argues that organisation design is often affected by government trade policy. If firm organisation design has implications for consumer welfare (in terms of prices and quality of product), evidence suggests that governments should make sure that in future, trade policy and corporate governance policy are more complementary.
A series of corporate calamities in the 2000s has helped to arouse suspicion amongst policymakers and the public that corporate organisation matters. Internal organisation issues are blamed for lost jobs, lost pensions and lost fortunes (e.g. Enron, Worldcom); for plane crashes in the US, lead-painted toys from China1, and, most devastatingly of all, the global crisis. These outcomes are increasingly ascribed to unaccountable managers, misaligned ownership structures, outsourcing and other internal organisation issues.
Industrial organisation International trade
trade, protectionism, firms, firm organisation
Sparking off the magic of diasporas
Alireza Naghavi, Chiara Strozzi 18 November 2012
Does emigration create a brain drain or – as commentators have recently been suggesting – do diasporas in fact represent a net brain gain? This column argues that if sending countries can protect intellectual property rights, they will foster the necessary diaspora knowledge networks to significantly help economic development in sending countries.
In a keynote address at the second annual Global Diaspora Forum in Washington, DC, this summer, Hillary Clinton, the US Secretary of State, said she believes that diaspora communities could help solve problems back in their home countries: “By tapping into the experiences, the energy, the expertise of diaspora communities, we can reverse the so-called ‘brain drain’ that slows progress in so many countries around the world, and instead offer the benefits of the ‘brain gain’”.
Global economy International trade Migration
immigration, trade, emigration, IPR, diasporas
Can the EU mobilise resources for peace in its neighbourhood?
Thorvaldur Gylfason, Per Magnus Wijkman 04 November 2012
Today, most of Europe is free from dictatorships and conflict. Yet, these spectres loom in neighbouring states and nearby regions. This column suggests that this year’s Nobel Peace Prize, awarded to the EU, was perhaps a call to action. Can the EU, preoccupied as it is with a growing Eurozone crisis, encourage peace and democracy in its neighbourhood? And what are the lessons we can learn from recent EU policy history?
Since its formation more than 60 years ago, the EU has played a major role in post-war reconciliation and reconstruction1. Ever-closer economic integration, supported by common institutions, has been the EU’s means to preventing conflicts among democratic European states.
Development EU policies Europe's nations and regions Politics and economics
EU, trade, Conflict, Balkans, Middle East, North Africa, MENA
Africa gets hit by Eurozone crisis
Monica Eaton, Michael J Ferrantino 04 September 2012
The Eurozone debt crisis is not simply a problem for industrialised countries. This column shows how its effects are being felt throughout Africa.
There is currently an asymmetric contraction in merchandise trade focused on Europe. Data from CPB World Trade Monitor show real Eurozone imports declining by 7.7% in the 12 months ending May 2012, at a time when real world trade has expanded by 3.0%. Moreover, the contraction is already nearly half as large as the greatest year-on-year contraction of Eurozone imports in the Great Trade Collapse (18.2% for the period ending April 2009). Africa and the Middle East are more connected to Europe than are other regions, and contain a number of small, trade-exposed economies.
Development Europe's nations and regions International trade
Africa, trade, Eurozone crisis
Trade and inequality: From theory to estimation
Oleg Itskhoki, Marc Muendler, Stephen Redding, Elhanan Helpman 20 May 2012
What is the effect of trade on inequality? This column presents a unique study examining wage inequality in Brazil after liberalisation. Starting from a closed economy, the column finds that wage inequality will initially rise as only some firms take advantage of the new opportunities. But as trade costs continue to fall and more firms start to trade, wage inequality peaks and begins to fall back.
Until recently, research on the labour market effects of international trade has been heavily influenced by traditional theories such as the Heckscher-Ohlin and Specific Factors models. Those theories provide predictions about relative wages across skill groups or across occupations and sectors. In contrast to predictions of those theories, empirical studies find increased wage inequality in both developed and developing countries, growing residual wage dispersion among workers with similar observed characteristics, and increased wage dispersion across plants and firms within sectors.
International trade Poverty and income inequality
Inequality, trade, liberalisation, Brazil