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Srw 2018 pugel
1. Globaliza(on
and
Emerging
Economies
Tom
Pugel
April
16,
2018
SRW&Co
ASEAN
Global
Leadership
Program
NOT FOR DISTRIBUTION
2. Globaliza(on
The
process
of
integra;ng
markets
for
products,
finance,
and
labor
across
countries.
Key
drivers
of
the
process:
• Interna;onal
trade
in
goods
and
services
• Foreign
direct
investment
• Interna;onal
flow
of
financial
capital:
porIolio
investments
and
cross-‐border
lending
• Interna;onal
movement
of
people
• Interna;onal
communica;ons
and
interna;onal
flow
of
informa;on
and
data
Countries
become
more
interdependent.
NOT FOR DISTRIBUTION
3. World
Trade
in
Goods
and
Services:
Exports
as
a
Percentage
of
World
Produc(on,
1960-‐2016
0
5
10
15
20
25
30
35
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source:
World
Bank,
World
Development
Indicators.
NOT FOR DISTRIBUTION
4. Flows
of
Foreign
Direct
Investment
as
a
Percentage
of
World
Produc(on,
1960-‐2016
Source:
World
Bank,
World
Development
Indicators.
0
1
2
3
4
5
6
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
NOT FOR DISTRIBUTION
5. Cross-‐Border
Capital
Flows
US
$
Trillions,
1990-‐2016
Source:
McKinsey
Global
Ins;tute,
New
Dynamics
of
Financial
Globaliza;on,
August
2017.
Includes
foreign
direct
investment,
porIolio
investment
(equity
and
debt),
and
lending.
Average
percentages
of
world
GDP:
1990-‐2000:
5.3%
2000-‐2010:
11.5
2010-‐2016:
7.1
NOT FOR DISTRIBUTION
6. Stock
of
Foreign
Investment
Liabili(es
US
$
Trillions,
1995-‐2016
Source:
McKinsey
Global
Ins;tute,
New
Dynamics
of
Financial
Globaliza;on,
August
2017.
NOT FOR DISTRIBUTION
7. Cross-‐Border
Bank
Loans
Outstanding
US
$
Trillions,
1996-‐2017
Source:
Bank
for
Interna;onal
Se[lements,
Sta;s;cs
Explorer.
0
5
10
15
20
25
30
1996
1Q
2000
1Q
2004
1Q
2008
1Q
2012
1Q
2016
1Q
NOT FOR DISTRIBUTION
9. Gross
Domes(c
Product
(GDP)
Monetary
value
of
current
produc;on
of
goods
and
services
within
a
country’s
borders,
during
a
period
of
;me.
Measured
by
value
added
in
produc;on
ac;vi;es.
Also
equals
na;onal
income
(approximately).
Nominal
GDP:
Current
product
prices,
regular
money
value.
Real
GDP:
Constant
product
prices,
those
in
the
base
year.
Infla;on-‐adjusted
value.
Other
terms
and
issues
• Total
GDP,
GDP
per
person
(per
capita)
• GNI
(gross
na;onal
income,
also
called
GNP,
gross
na;onal
product):
Adds
net
foreign
income
• Many
items
es;mated;
subject
to
error,
revision
• Not
included:
Most
household
produc;on,
underground
economy
• Not
included:
Capital
gains
or
losses,
value
of
leisure
;me
• Not
adjusted
for
capital
deprecia;on
(→net
domes;c
product)
• Not
the
same
as
na;onal
well-‐being
or
na;onal
happiness
NOT FOR DISTRIBUTION
10. Annual
Percentage
Growth
Rate
of
Real
GDP
Source:
Interna;onal
Monetary
Fund,
World
Economic
Outlook
Database.
-‐4
-‐2
0
2
4
6
8
10
80
85
90
95
00
05
10
15
World
Emerging
and
Developing
Countries
Advanced
Countries
NOT FOR DISTRIBUTION
11. GDP,
Percentage
Shares
of
World
GDP
Source:
Interna;onal
Monetary
Fund,
World
Economic
Outlook
Database.
0
10
20
30
40
50
60
70
80
90
100
1980
1985
1990
1995
2000
2005
2010
2015
Emerging
and
Developing
Countries
Advanced
Countries
NOT FOR DISTRIBUTION
12. Real
GDP
per
Capita,
2011
Prices,
PPP
US
$
PPP
(purchasing
power
parity)
measures
all
product
values
using
a
common
set
of
prices.
Source:
Interna;onal
Monetary
Fund,
World
Economic
Outlook
Database.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1980
1985
1990
1995
2000
2005
2010
2015
World
Emerging
and
Developing
Countries
Advanced
Countries
NOT FOR DISTRIBUTION
13. Real
Investment
as
a
Percent
of
GDP
Source:
Interna;onal
Monetary
Fund,
World
Economic
Outlook
Database.
0
5
10
15
20
25
30
35
40
1980
1985
1990
1995
2000
2005
2010
2015
World
Emerging
and
Developing
Countries
Advanced
Countries
NOT FOR DISTRIBUTION
14. Growth
Rate
of
Real
Exports
of
Goods
and
Services
Source:
Interna;onal
Monetary
Fund,
World
Economic
Outlook
Database.
-‐15
-‐10
-‐5
0
5
10
15
980
985
990
995
000
005
010
015
World
Emerging
and
Developing
Countries
Advanced
Countries
NOT FOR DISTRIBUTION
15. Consumer
Price
Infla(on
Rate
Source:
Interna;onal
Monetary
Fund,
World
Economic
Outlook
Database.
0
20
40
60
80
100
120
1980
1985
1990
1995
2000
2005
2010
2015
World
Emerging
and
Developing
Countries
Advanced
Countries
NOT FOR DISTRIBUTION
16. MSCI
Equity
Indexes
Source:
Global
Financial
Data.
0
200
400
600
800
1000
1200
1400
Jan-‐88
Jan-‐93
Jan-‐98
Jan-‐03
Jan-‐08
Jan-‐13
Jan-‐18
Emerging
Markets
Advanced
Countries
(World
Index)
NOT FOR DISTRIBUTION
17. Growth
Accoun(ng
Supply-‐Side
Sources
of
Long-‐run
Growth
Consider
average
annual
growth
rates
(g)
over
long
periods
of
;me:
g(Y)
=
[a⋅g(K)
+
(1-‐a)⋅g(L)]
+
g(overall
produc(vity)
Three
major
sources
of
growth
of
real
GDP
(Y)
over
;me:
Ø Growth
in
the
capital
stock
(K)
Ø Growth
in
labor
input
(L)
Ø Growth
in
overall
produc;vity
(total
factor
produc;vity)
The
growth
in
the
two
factor
inputs
K
and
L
affect
GDP
growth
as
a
weighted
average,
with
weights
a
and
(1-‐a).
The
weights
indicate
the
rela;ve
importance
of
each
of
K
and
L
in
produc;on.
NOT FOR DISTRIBUTION
18. Growth
Accoun(ng
for
China
Sources: Real GDP from All China Data Center, China Data Online; Capital Stock and Employment from Robert Feenstra,
Robert Inklaar, and Marcel P. Timmer, Penn World Table 9.0.
Note: Uses α = 0.5.
1960-‐
1978
1978-‐1
993
1993-‐
2014
Annual
growth
rate
real
GDP
4.6
9.2
9.3
Contribu(ons
to
output
growth:
Growth
of
capital
stock
2.8
3.8
5.3
Growth
of
labor
(employment)
1.5
1.3
0.4
Growth
of
TFP
0.3
4.1
3.6
NOT FOR DISTRIBUTION
19. Growth
Accoun(ng
for
China
Note: Uses α = 0.5.
1960-‐
1978
1978-‐1
993
1993-‐
2011
2011-‐2
016
Annual
growth
rate
real
GDP
4.6
9.2
9.6
7.1
Contribu(ons
to
output
growth:
Growth
of
capital
stock
2.8
3.8
5.2
5.0
Growth
of
labor
(employment)
1.5
1.3
0.5
0.2
Growth
of
TFP
0.3
4.1
3.9
1.9
A
new
period
begins
Sources: Real GDP from All China Data Center, China Data Online; Capital Stock and Employment from Robert Feenstra,
Robert Inklaar, and Marcel P. Timmer, Penn World Table 9.0. Extended approximately to 2016.NOT FOR DISTRIBUTION
20. Lack
of
Convergence:
Stuck
at
Low
Income
Data: Penn World Table 9.0. For comparisons between countries, use PPP
real GDP per capita measured in 2011 U.S. dollars (rgdpe divided by pop).
Examine convergence using each country’s PPP real GDP per capita relative
to U.S. PPP real GDP per capita, for each year 1960-2014.
Low-income countries: Less than 10% of U.S. level.
• For 111 countries that have full data, 41 countries were less than 10% in
1960. Of these 41, 24 did not rise above 10% subsequently.
• For all 182 countries, 30 countries were less than 10% for all years with
data.
NOT FOR DISTRIBUTION
21. Lack
of
Convergence:
Stuck
at
Middle
Income
Again, use data from Penn World Table 9.0.
Again, examine convergence using each country’s PPP real GDP per
capita relative to U.S. PPP real GDP per capita, for each year
1960-2014.
Middle-income countries: Between 10% and 50% of U.S. level.
• For 111 countries that have full data, 53 countries were in the range
10%-50% of the U.S. level in 1960. Of these 53, 39 did not rise
above 50% subsequently.
• For all 182 countries, 125 countries were less than 50% for all years
with data. 95 countries appear to be stuck between 10% and 50%
of the U.S. level.
Only 15 countries that had less than 50% of the U.S. level in 1960
have (rather) clearly moved to high-income status (greater than 50% of
the U.S. level).
• Cyprus, Greece, Ireland, Italy, Malta, Portugal, Spain
• Japan, Hong Kong, Singapore, South Korea, Taiwan
• Israel, Trinidad and Tobago, Equatorial GuineaNOT FOR DISTRIBUTION
22. Thwar(ng
Convergence:
Middle
Income
Trap
A country that has grown to reach a moderate level of per capita
income often fails to continue to grow fast enough to achieve a
high income level, e.g., close to the United States and Western
Europe.
Possible ingredients:
• Less scope for easy shifts from low-productivity rural
(agriculture) to higher productivity urban (basic
manufacturing and services)
• Other industry shifts needed (out of unskilled labor-
intensive, toward domestic consumer services; away from
basic exports, toward more creative technologies)
• Need better financial markets and institutions
• Rule of law, legal system become more important
• Education becomes more important
• Need different government policies
NOT FOR DISTRIBUTION
23. Logic
of
Interna(onal
Trade:
Compara(ve
Advantage
A
country
has
two
ways
to
“produce”
a
unit
of
a
product:
• Use
some
of
its
factor
resources
(e.g.,
capital,
labor,
land)
to
produce
the
product
directly.
• Use
some
of
its
factor
resources
to
produce
some
other
product,
export
that
other
product,
and
use
the
revenue
to
buy
(import)
the
product
from
a
foreign
supplier.
Efficiency:
Do
whichever
is
lower
cost.
Compara(ve
advantage:
A
country
will
import
products
that
it
would
otherwise
produce
at
a
rela;vely
high
opportunity
cost
(domes;c
resource
cost),
and
pay
for
these
imports
by
expor;ng
products
that
it
can
produce
at
a
rela;vely
low
opportunity
cost.
NOT FOR DISTRIBUTION
24. Why
Would
Opportunity
Costs
Differ
Between
Countries?
Supply-‐side
differences:
Compara;ve
advantage
and
disadvantage.
• Technologies
(or
other
intangibles)
used
in
producing
products
differ
across
countries
(e.g.,
produc;vity
differences):
Ricardo.
• Availability
of
factors
needed
for
produc;on
differs
across
countries:
Heckscher-‐Ohlin
theory
[H-‐O]
based
on
factor
endowments
and
factor
intensi;es
in
produc;on.
A
country
exports
products
that
use
its
rela;vely
abundant
factor(s)
intensively
and
imports
products
that
use
its
rela;vely
scarce
factor(s)
intensively.
• Large
scale
economies
tend
to
concentrate
large-‐scale
produc;on
in
a
few
loca;ons.
Demand
side
differences:
Demand
for
a
product
is
rela;vely
large
in
some
countries,
small
in
others.
NOT FOR DISTRIBUTION
25. Shares
of
the
World’s
Factor
Endowments,
2010-‐2014
For
each
row,
larger
numbers
indicate
rela;vely
abundant
factors
for
that
country
and
smaller
numbers
indicate
rela;vely
scarce
factors.
Physical
Capital
Highly
Skilled
Labor
Medium-‐
Skilled
Labor
Unskilled
Labor
Crop
Land
Pasture
Land Forestland
United States 14.1
19.0 3.9 0.2 10.5
8.3
8.1
Canada 1.6
1.5 0.6 0.1 3.2
0.5
9.1
Japan 4.9
6.1 2.2 0.4 0.3
0.0
0.7
Germany 4.0
1.9 1.8 0.4 0.8
0.2
0.3
France 3.2
1.5 1.2 0.5 1.3
0.3
0.4
United Kingdom 3.1
1.7 1.2 0.4 0.4
0.4
0.1
Other industrialized
Countries
15.8
9.5 5.9 1.6 6.7
13.4
6.7
China 18.5
12.9 27.8 15.7 8.1
13.1
5.4
Indonesia 3.6
0.9
3.7
5.1
3.1
0.4
2.4
Other developing
countries
34.7
45.9 55.4 80.8 68.7
63.9
69.2
• Each
column
adds
to
100%.
All
values
are
approxima;ons.
• The
“world”
refers
to
138
countries
(29
industrialized
countries
and
109
developing
countries)
for
which
reasonable
data
are
available.
• Physical
capital
and
land
categories
are
for
2014,
and
labor
categories
are
for
2010.
• Highly
skilled
labor:
Adults
who
have
some
college
(post-‐secondary
educa;on).
• Medium-‐skilled
labor:
Adults
who
have
completed
primary
(first-‐level)
educa;on
but
have
no
college
(post-‐secondary
educa;on).
• Unskilled
labor:
Adults
who
have
not
completed
primary
(first-‐level)
educa;on.
NOT FOR DISTRIBUTION
26. Na(onal
Gains
or
Losses
from
Interna(onal
Trade?
Interna;onal
trade
allows
a
country
to
do
something
that
it
cannot
do
by
itself:
• The
country
as
a
whole
can
consume
a
value
of
products
beyond
its
ability
to
produce
products
locally.
• Generally,
each
country
that
trades
gains
from
trade.
Overall
global
gains:
• Increase
in
the
efficiency
of
use
of
global
resources:
• Trade
is
a
posi;ve-‐sum
ac;vity.
(Not
a
zero-‐sum
ac;vity,
as
implied
by
simple
discussions
of
compe;;veness.)
NOT FOR DISTRIBUTION
27. No
Trade
and
Free
Trade,
Import
Product,
Small
Country
Free
No
trade
trade
Domes;c
price
PN
PWo
Domes;c
consump;on
QN
Q4
Domes;c
produc;on
QN
Q1
Quan;ty
imported
-‐-‐-‐
Q4
−
Q1
Shi3
from
no
trade
to
free
trade
Change
in
domes;c
producer
surplus:
Loss
of
area
PNABPWo
Change
in
domes;c
consumer
surplus:
Gain
of
area
PNACPWo
Net
effect
on
na;onal
well-‐being:
Gain
of
area
ACB
Sdom
Sfor
Ddom
$/Q
Q
PN
PWo
Q1
QN
Q4
A
B
C
NOT FOR DISTRIBUTION
28. Openness
to
Trade:
Economic
Growth
Outward-‐oriented
development
strategies:
South
Korea,
Taiwan,
Singapore,
Hong
Kong
World
Bank
2002
study
iden;fied
newly
globalizing
developing
countries
• Rela;vely
low
involvement
in
interna;onal
trade,
high
tariffs
in
1980.
• Then,
post-‐1980,
greatly
increased
interna;onal
trade
(as
%
of
GDP),
and
substan;ally
lowered
tariff
rates.
Average
annual
rates
of
growth
of
real
GDP:
Newly
Other
Globalizing
Developing
1960s
1.4
2.4
1970s
2.9
3.3
1980s
3.5
0.8
1990s
5.0
1.4
NOT FOR DISTRIBUTION
29. Protec(on
Against
Imports,
Tariff
(small
impor(ng
country)
Free
trade
Tariff
(t)
Domes;c
price
PWo
P‘=(1
+
t)PWo
Domes;c
consump;on
Q4
Domes;c
produc;on
Q1
Quan;ty
imported
Q4–Q1
Shi3
from
free
trade
to
tariff
Change
in
dom.
producer
surplus:
Change
in
dom.
consumer
surplus:
Government
tariff
revenue:
Net
effect
on
na;onal
well-‐being:
Sdom
Pʹ′
B
G
$/unit
units
Q1
Q4
Sfor
Ddom
(1+t)PWo
PWo
Sfor+
tariff
NOT FOR DISTRIBUTION
30. President
Trump:
U.S.
Trade
Policy
2017
Elec;on
campaign:
45%
tariff
on
imports
from
China
35%
tariff
on
imports
from
Mexico
January
2017,
days
awer
becoming
president:
United
States
withdraws
from
Trans-‐Pacific
Partnership
agreement.
Launches
inves;ga;ons:
• Steel
and
aluminum
• Solar
panels
and
washing
machines
• Viola;ons
of
intellectual
property
rights
by
China
December
2017:
United
States
(and
the
European
Union)
fail
to
recognize
China
as
a
“market
economy”
for
inves;ga;ons
of
allega;ons
of
dumping
by
Chinese
firms.
NOT FOR DISTRIBUTION
31. President
Trump:
U.S.
Trade
Policy
2018
Solar
Panels
and
Washing
Machines
Sec;on
201,
Global
Safeguard:
Allows
the
President
to
impose
temporary
protec;on
if
there
is
a
surge
of
imports
of
a
product.
Inves;ga;ons
by
the
U.S.
Interna;onal
Trade
Commission,
which
recommended
ac;ons
by
the
President.
January
2018:
President
acts.
NOT FOR DISTRIBUTION
32. President
Trump:
U.S.
Trade
Policy
2018
Solar
Panels
• Import
share
of
U.S.
market
is
95%.
• Top
exporters
to
United
States:
Malaysia,
South
Korea,
Vietnam,
China.
• China
is
the
top
global
producer,
but
its
exports
to
the
United
States
limited
by
previously
imposed
an;dumping
and
countervailing
du;es
(dumping
and
subsidies).
• U.S
employment
in
solar
panel
produc;on:
2,000
people.
• U.S.
employment
in
ac;vi;es
related
to
installing
and
using
solar
panels:
240,000
people.
Safeguard
terms:
Awer
an
ini;al
amount
of
imports
each
year:
Tariff
of
30
percent
first
year,
declining
to
15%
in
fourth
and
final
year.
Chinese
government
response:
Ini;ates
inves;ga;on
of
sorghum
imports
from
the
United
States:
dumping
and
subsidies.
NOT FOR DISTRIBUTION
33. President
Trump:
U.S.
Trade
Policy
2018
Washing
Machines
Washing
machines:
• Import
share
of
U.S.
market
is
25%.
• Top
exporters
to
United
States:
South
Korea,
Mexico.
Safeguard
terms:
First
year:
In
addi;on
to
standard
tariff:
• Addi;onal
20%
tariff
on
first
1.2
million
machines
imported.
• Addi;onal
50%
tariff
on
machines
imported
above
that
amount.
• Addi;onal
50%
tariff
on
imported
parts
used
to
produce
washing
machines,
above
an
ini;al
amount.
Tariff
rates
decline
annually,
end
awer
three
years.
NOT FOR DISTRIBUTION
34. President
Trump:
U.S.
Trade
Policy
2018
Steel
and
Aluminum
Sec;on
232:
Allows
the
President
to
impose
protec;on
if
imports
are
a
threat
to
U.S.
na;onal
security.
Inves;ga;on
by
the
U.S.
Department
of
Commerce,
which
recommended
ac;ons
by
the
President.
March
2018:
President
acts.
NOT FOR DISTRIBUTION
35. President
Trump:
U.S.
Trade
Policy
2018
Steel
• Import
share
of
U.S.
market
is
27%.
• Top
exporters
to
United
States:
Canada,
Brazil,
South
Korea,
Mexico,
Russia,
Turkey,
Japan,
Germany,
Taiwan.
• Chinese
exports
of
steel
to
the
United
States
(about
3
percent
of
total
U.S.
imports)
limited
by
previously
imposed
an;dumping
and
countervailing
du;es
(dumping
and
subsidies).
• U.S.
steel
produc;on
has
been
steady
since
the
mid-‐1980s.
• U.S.
military
use
of
steel
about
3%
of
U.S.
produc;on.
• U.S
employment
in
steel
produc;on:
140,000
people.
• U.S.
employment
in
steel-‐using
industries:
Millions
of
people.
President
Trump:
• Imposes
25%
tariff
on
steel
imports.
• Allows
temporary
exemp;ons
for
steel
imports
from
Canada,
Brazil,
South
Korea,
Mexico,
European
Union
countries,
Argen;na,
Australia.
About
half
of
U.S.
steel
imports.
• U.S.
firms
can
request
specific
product
exemp;ons.
NOT FOR DISTRIBUTION
36. President
Trump:
U.S.
Trade
Policy
2018
Aluminum
• Import
share
of
U.S.
market
is
52%.
• Top
exporters
to
United
States:
Canada,
China,
Russia,
United
Arab
Emirates,
Mexico,
Argen;na,
Bahrain.
• U.S.
aluminum
produc;on
has
been
declining
since
2012.
• U.S.
military
use
of
aluminum
not
that
large.
U.S.
military
does
require
some
high-‐purity
aluminum,
only
one
U.S.
smelter
produces
it.
• U.S
employment
in
aluminum
produc;on:
58,000
people.
President
Trump:
• Imposes
10%
tariff
on
aluminum
imports.
• Allows
the
same
temporary
exemp;ons
for
countries
as
for
steel.
About
half
of
U.S.
aluminum
imports.
• U.S.
firms
can
request
specific
product
exemp;ons.
NOT FOR DISTRIBUTION
37. President
Trump:
U.S.
Trade
Policy
2018
China:
Intellectual
Property
Rights
Sec;on
301:
Allows
the
President
to
address
unfair
trade
prac;ces
by
foreign
country
governments.
Nego;a;on,
with
threat
of
tariffs
on
U.S.
imports
from
the
foreign
country.
Inves;ga;on
by
the
U.S.
Department
of
Commerce.
• Found
unfair
Chinese
prac;ces,
including:
Ø Chinese
government
requires
joint
ventures
for
U.S.
companies
inves;ng
in
China,
leads
to
forced
technology
transfer.
Ø Chinese
government
requires
prior
approval
for
U.S.
companies
inves;ng
in
China,
forces
technology
transfer.
Ø Chinese
government
directs
its
companies
to
use
foreign
direct
investment
to
obtain
foreign
intellectual
property.
• Recommended
ac;ons
by
the
President.
NOT FOR DISTRIBUTION
38. President
Trump:
U.S.
Trade
Policy
2018
China:
Intellectual
Property
Rights
March
2018:
President
acts.
• Threatens
to
impose
tariffs
of
25%
on
U.S.
imports
of
$50
billion
from
China.
• Threatens
addi;onal
restric;ons
on
Chinese
direct
investment
into
the
United
States
(e.g.,
acquisi;ons
of
U.S.
companies).
• Will
bring
complaint
to
the
World
Trade
Organiza;on
alleging
Chinese
government
viola;on
of
WTO’s
intellectual
property
rules.
On
April
3,
President
issues
list
of
1,333
products
that
may
be
subject
to
the
25%
tariff.
NOT FOR DISTRIBUTION
39. President
Trump:
U.S.
Trade
Policy
2018
On
the
Verge
of
a
Trade
War
April
2:
Chinese
government
imposes
25%
on
Chinese
imports
of
pork
and
7
other
products
from
the
United
States
and
15%
tariffs
on
120
other
products.
Total
of
$3
billion
of
U.S.
exports.
• Response
to
U.S.
tariffs
on
steel
and
aluminum.
April
3:
U.S.
government
issues
list
of
1,333
Chinese
export
products
threatened
with
25%
tariffs.
April
4:
Chinese
government
issues
list
of
106
U.S.
export
products
(including
soybeans)
that
will
be
subject
to
tariffs,
in
response
to
U.S.
list.
April
5:
Trump
says
he
is
considering
tariffs
on
$100
billion
more
of
Chinese
exports
to
the
United
States.
April
6:
Chinese
government
states
it
will
fight
back
if
necessary,
using
a
range
of
responses.
NOT FOR DISTRIBUTION
40. President
Trump:
Apparent
Misconcep(ons
about
Trade
President
Trump
says
or
implies
Economic
analysis
says
Trade
between
countries
is
a
zero-‐sum
ac;vity.
Trade
is
a
posi;ve-‐sum
ac;vity,
both
countries
gain
from
trade.
The
country’s
trade
balance
is
about
trade
in
goods.
The
country’s
trade
balance
is
about
both
goods
and
services.
GDP
and
employment
from
both.
The
country's
trade
balance
is
about
trade
with
each
individual
foreign
country.
The
trade
balance
that
ma[ers
for
a
country
is
its
trade
balance
with
the
rest
of
the
world.
The
country’s
trade
balance
is
about
trade
barriers
and
other
unfair
government
prac;ces.
The
country’s
trade
balance
is
driven
by
the
country’s
macroeconomic
situa;on.
NOT FOR DISTRIBUTION
41. Interna(onal:
U.S.
Current
Account
Balance
Source: Federal Reserve Bank of St. Louis, FRED.
-7
-6
-5
-4
-3
-2
-1
0
1
2
1970Q1
1975Q1
1980Q1
1985Q1
1990Q1
1995Q1
2000Q1
2005Q1
2010Q1
2015Q1
PercentageofGDP
NOT FOR DISTRIBUTION
42. Current
Account
Balance:
What
Does
It
Mean?
The
current
account
balance
(CA)
includes
the
trade
balance
(exports
of
goods
and
services
(X)
minus
imports
of
goods
and
services
(M)),
as
well
as
inflows
and
ouIlows
of
income
payments.
We
usually
assume
that
the
current
account
balance
is
(approximately)
equal
to
the
trade
balance
CA
≈
(X
−
M).
The
current
account
balance
is:
• Equal
to
net
(nonofficial
and
official)
foreign
financial
investment
(or
borrowing)
• Equal
to
the
difference
between
na;onal
saving
(S)
and
domes;c
real
investment
(I).
CA
=
S
−
I
The
trade
balance
is
equal
to
the
difference
between
na;onal
produc;on
of
goods
and
services
and
na;onal
purchases
of
goods
and
services
(X
−
M)
=
Y
–
(C
+
I
+
G)
NOT FOR DISTRIBUTION
45. U.S.
Monetary
Policy
and
the
Federal
Reserve
Ul(mate
goals
or
targets:
Dual
mandate
(1977
law)
…maintain
long
run
growth
of
the
monetary
and
credit
aggregates
commensurate
with
the
economy's
long
run
poten;al
to
increase
produc;on,
so
as
to
promote
effec;vely
the
goals
of
maximum
employment,
stable
prices
and
moderate
long-‐term
interest
rates.
Instruments:
What
the
central
bank
controls
directly.
Tradi(onal:
Open
market
opera;ons
(omo’s)
Discount
rate
(loans
to
financial
ins;tu;ons)
Reserve
requirements
More
Recent:
Bank
capital
and
liquidity
requirements
Interest
rate
on
deposits
at
the
Fed
Unconven(onal:
Large
scale
asset
purchases
(quan;ta;ve
easing,
a
varia;on
on
omo’s)
Forward
guidance
Opera(ng
targets:
Fed
funds
rate
Size/composi;on
of
Fed’s
total
assets
NOT FOR DISTRIBUTION
48. 0
2
4
6
8
10
12
14
16
18
20
1970
Q1
1975
Q1
1980
Q1
1985
Q1
1990
Q1
1995
Q1
2000
Q1
2005
Q1
2010
Q1
2015
Q1
U.S.
dollar
trillions,
2009
prices
U.S.
Poten(al
and
Actual
Real
GDP
Potential
Actual
Sources: U.S. Congressional Budget Office, U.S. Bureau of Economic Analysis.
NOT FOR DISTRIBUTION
49. U.S.
Unemployment
Rate
Source:
Federal
Reserve
Bank
of
St.
Louis,
FRED.
0
2
4
6
8
10
12
Jan-70
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
Jan-05
Jan-10
Jan-15
Percent
NOT FOR DISTRIBUTION
52. Fed:
Process
to
Reduce
Its
Balance
Sheet
Mortgage-backed and Federal
Agency Securities
Long-Term Treasuries
Brian
Bonis,
Jane
Ihrig,
Min
Wei,
"Projected
Evolu;on
of
the
SOMA
PorIolio
and
the
10-‐year
Treasury
Term
Premium
Effect,”
FEDS
Notes,
September
22,
2017.
NOT FOR DISTRIBUTION
53. What
Will
Be
the
Path
for
the
Fed
To
Adjust
its
Opera(ng
Targets?
In
each
of
December
2015,
December
2016,
March
2017,
June
2017,
December
2017,
and
March
2018,
the
Fed
raised
the
fed
funds
rate
target
range
by
25
basis
points.
The
current
target
is
now
1.50-‐1.75
percent.
In
October
2017
the
Fed
began
a
gradual
reduc;on
of
the
size
of
its
balance
sheet.
What
should
the
Fed
do
during
the
next
year?
• Alter
the
fed
funds
target?
• Speed
up
or
slow
down
the
rate
of
reducing
its
balance
sheet?
NOT FOR DISTRIBUTION
