The Road to War (Part I: Trade)

[LeveragedBuyout]

http://blogs.ft.com/beyond-brics/20...e-picture-is-looking-gloomy-for-global-trade/

Five reasons why the picture is looking gloomy for global trade…
Sep 24, 2014 6:42pmby Shawn Donnan

The World Trade Organisation released its latest forecasts for global trade on Tuesday and it is not a pretty picture. The WTO’s economists have lowered their forecasts sharply. They now expect global trade volumes to grow just 3.1 per cent this year, down from the 4.7 per cent they predicted in the spring. The main reasons for the gloom should be familiar by now: the slow recovery in those all-important developed economies and the return of geopolitical threats such as the Ukraine crisis.

This downgrade was pretty sharp from the WTO but I wouldn’t be surprised if there are more to come in the months ahead.

Here’s five reasons to be gloomy:

1. Global trade in the first six months of the year actually grew at an incredibly slow 1.8 per cent. That means that to hit its 3.1 per cent forecast for 2014 the WTO is counting on a major rebound in the second half of the year. Some countries like the US and China have reported some reasonably good monthly trade numbers over the summer. But is it going to last?


Source: WTO

2. European demand just doesn’t seem to be recovering. That matters because European imports represent almost a third of global merchandise imports. So if European companies and consumers are not buying, that hurts global trade.


Source: WTO

The EU’s members also have not been trading much with each other.


Source: WTO

3. Emerging economies look like a very mixed bag.

There’s those like China where trade is holding up.


Source: WTO

Those like Russia and Thailand where, thanks to political or geopolitical turmoil, things, predictably, are not looking great.




Source: WTO

And some big heavyweights like India and Indonesia where the trade numbers have not been looking at all good this year.


Source: WTO

4. Latin America actually saw trade contract by 0.8 per cent in the first half of 2014 thanks largely to a collapse in non-oil commodities and reduced demand from big Asian trading partners. For the year, the WTO is forecasting that exports from central and south America will grow by just 0.4 per cent and that imports will actually contract by 0.7 per cent, a reflection of the slowing economy in Brazil.

Things look pretty good in Mexico.




Source: WTO

But much less so in Argentina and Brazil.




Source: WTO

5. It may go without saying but geopolitical crises and Ebola outbreaks are not conducive to trade. Or reliable forecasts. Or, as WTO economists put it:

Tensions between the European Union and the United States on the one hand and the Russian Federation on the other over Ukraine have already resulted in trade sanctions on certain agricultural commodities, and the number of products affected could widen if the crisis persists. Conflict in the Middle East is also stoking uncertainty, and could lead to a spike in oil prices if the security of oil supplies is threatened. Finally, an outbreak of Ebola haemorrhagic fever in West Africa has proven difficult to contain, and any spread of the disease could trigger a broader panic with major economic implications for West Africa, and perhaps even beyond the region. The presence of several such low probability/high cost risk factors has made the trade forecast particularly difficult to gauge this year.​

 

[LeveragedBuyout]

Germany Replaces China as World’s Trade-Surplus Boogeyman - Real Time Economics - WSJ

• 

• September 30, 2014, 3:33 PM ET

Germany Replaces China as World’s Trade-Surplus Boogeyman
ByIan Talley
China’s devalued exchange rate has made it a pariah of U.S.-based manufacturing and a beloved target of countless U.S. political diatribes and bills seeking to censure Beijing for its currency policy.

But it is key U.S. ally Germany that’s sapping growth from the global economy, according to the latest tally of trade surpluses by the International Monetary Fund.

Germany has replaced China as the largest surplus economy in the world.

Why does that matter?

Fostering growth where exports far outweigh imports means that expansion comes at the expense of other economies. Instead of encouraging German domestic consumers to boost growth in its weaker eurozone members, for example, Berlin’s economic policies have hindered Europe’s recovery, the IMF and U.S. officials have repeatedly warned.

Concern over global trade imbalances is why finance leaders from the world’s top economies have vowed not to use their exchange rates to gain a competitive advantage over other countries. (Though without a global currency cop, there’s little to stop tit-for-tat currency depreciations across the world.)

That’s why the U.S. took Germany to task late last year in its semiannual currency report, and is why Berlin is likely to be targeted in the next review due out in a few weeks.

Under pressure from the U.S., China has appreciated its currency by around 30% since 2006, not including inflation. Although the IMF says China’s yuan is still between 5%-10% undervalued, it estimates the euro to be up to 15% undervalued for Germany’s economy.

It’s not just Europe’s problem, however. Worth $18.5 trillion, Europe’s collective economy is the largest in the world. The regional recession and the potential for a triple dip back into economic contraction still on the horizon are putting the brakes on global growth.

As the IMF plans to revise down its outlook for the global economy next week at a gathering of top finance officials from around the world, Germany is likely to come under pressure to do more to fuel domestic growth, and in turn, help the European and global economies rev up.

 

[LeveragedBuyout]

http://ftalphaville.ft.com/2014/10/07/1998042/more-on-the-overvalued-renminbi/

More on the overvalued renminbi
Izabella Kaminska Author alerts | Oct 07 13:10

For a couple of years now we’ve made the case that the Chinese currency isn’t undervalued as many people believe, but rather, overvalued — especially, once all the other fundamentals are considered.

But, of course, the mantra that the Chinese renminbi is being repressed by the government is so ingrained in investor consciousness, it’s the sort of “whacky” out of the box thinking that tends to draw sceptical denial.

In the last few days, however, a number of analysts seem to have realised that something has changed in the nature of global capital flows, which may mean views that were taken for granted for years no longer really apply.


Here, for example, was Deutsche Bank’s George Saravelos arguing that Europe is now the new China when it comes to both current account surpluses and demand for foreign assets.

And now we have Lombard Street Research’s Charles Dumas adding to the debate by point out the current valuation of the renminbi may be unsustainable if China is to maintain its upper hand in the trade arena. Though he stops short of saying that it’s much more likely that government forces haven’t really been suppressing the renminbi as much as propping it up. More so, that all they need to do to lower the value is to allow domestic bad investments to fail.

From Dumas on Tuesday:

China’s growth slowdown to less than 5% in the medium term (on our forecasts) is a major, slow-motion shock for the world economy and financial markets. Among other things it is weakening commodity and energy prices, reversing the long-term bull market of 1999-2011. It is also sapping the rest of Pacific Asia, not to mention Germany, which has depended for much of its vim and vigour over the past few years on China’s extravagantly wasteful capex.

Well, beggar-my-neighbour devaluations are becoming a serial habit in Japan, and now the euro zone has joined in the fight for a low exchange rate. Everybody knows the dollar has been strong, but it spent 2011-13 at its lowest real level since the Second World War, so some revival is hardly a surprise. But the Chinese yuan is also extremely buoyant, once we look beyond the dollar rate, which is in any case less than 2% below its early-2014 peak.



The scales in the chart above are proportionate, and appreciation against the currencies of China’s main trading partners since the yuan became fully valued in 2010 has been far greater than against the dollar. Can China, with its rebalancing needs, afford it?

As Dumas argues, China’s way of coping with the crisis was to raise investment to unprecedented levels, and that while this sort of unbalanced growth can go on for a long time, the longer it is maintained, the worse the crisis is when the crunch comes.

At FT Alphaville we’ve called this the “doozer” effect. If you build it, they (the fraggles) will come. And as long as you are happy to keep building it, there isn’t a problem whether the fraggles come or not.

To the west, of course, this appears as unbalanced growth. What’s the value of building stuff if there aren’t any fraggles to use or gobble that stuff up? Building just for the love of building makes zero sense at all to a non-doozer.

To which, for years, the Chinese were able to reply: well a) you don’t understand us,we’re doozers, and b) we look to the long, long term. And it’s clear from our demographics and our capital distribution that there’s still a helluva lot of people who can benefit from all that building.

Which is true to a certain degree.

The big turning point for the global economy isn’t linked as much to the Chinese administration becoming aware that this distortion is untenable from a capitalism perspective, but rather China finally appreciating that this sort of thinking eventually runs you into resource-based constraints.

There is, in other words, an escapable cost to aimless capital expenditure, and that cost is wasted cheap energy and irreparable climate change, the sort that must be spared if civilisation’s future is to be preserved.

Yes, it’s wishy washy hippy thinking. But this is seriously significant on the global economic stage. The underlying point being that the Chinese are getting green.

Something which creates all sorts of problems for a global resource supply chain system that has thus far profited immensely from China’s massive disregard for such issues.

Building aimlessly and consuming no longer cuts it. Not because the economic trick doesn’t work, but because the resource costs are too great.

As Dumas notes, this is why China would benefit hugely from entering the FX race to the bottom:

All the evidence, particularly unchanged import volumes for over a year now, suggests the necessary downswing of investment is beginning. When 48% of GDP slows, so does household income, eroding hopes for consumer growth – in the short term. So export growth is the only palliative. A lower exchange rate would also help non- financial profit margins, cushioning the descent of that 48% capex ratio.

The problem for the global economy is that it might really initiate an outright race to the bottom. And by that we mean a massively scaled-up version of a supermarket price war.

In the supermarket version, of course, it’s the corporate that can subsidise negative margins (a.k.a give stuff away for free) for longest, whilst making back-door efficiencies based on better anticipation of consumer desire (and thus control) as well as dedicated loyalty to their system, that wins in the end.

That depends on having a large capital buffer that you can burn through whilst you wait to dominate.

The sovereign version of the race to the bottom is no different. The most efficient and best capitalised system will prevail.

Whilst it’s clear in Dumas’ might that a devalued renminbi is in China’s interests at this stage, he also notes that the problem with such a strategy is if a decline in the renminbi worsens an already alarming race to the bottom with other currencies, shocking the global economy outright.

He views this from the perspective that any devaluation would significantly increase China’s need to find robust stores of value for the foreign claims that would be generated by the processes.

There are, however, only two ways to achieve that. One, the way China has always gone about it, namely, centralising foreign claims and allocating them on a mass elephant-type basis where the government believes they will benefit the state most. Alternatively, by liberalising the market and allowing the Chinese population to allocate those claims where they themselves see fit, opening them up to the dangers of capital destruction if they make bad decisions.

Dumas sees the first as resembling “evident manipulation”, meaning it’s a much less likely route to be taken than the latter.

We, however, don’t think that’s the case.

In fact, what we think is that neither route represents “manipulation” at all. Much more likely is the fact that it’s China’s unashamed capex obsession which has thus far prevented an outright race to a global capital destruction bottom.

All that productivity, after all, has to be targeted somewhere.

So, unless capital can be artificially protected by government tactics that prevent Chinese inland investments from going bust, and in that way from destroying the renminbi’s reputation as a safe store of value, that capital will not have an incentive to stick around domestically at all. That capital wants to be preserved.

It’s the key reason why the Chinese government is now stuck between a rock and a hard place. On one hand the value of the renminbi must be defended, so that the shock of a Chinese slowdown doesn’t destabilise markets and prompt a massive reevaluation of Chinese purchasing power abroad to the country’s overall detriment. On the other hand it needs to redirect more of its now much more highly educated work force to where it might still be needed in a resource-useful way – hence the focus on all that investment in Africa and much of the developing world.

It thus all comes down to protecting the value of China’s foreign claims to disguise the reality of how a resource-light country managed to get ahead on the international global stage in the first place: namely, by offering up a generation’s worth of human capital to non-domestic interests on extremely unequal grounds.

But now the game has changed. China has grown up from its doozer days. And it’s not clear at all that it is in its interests to fuel a race to the bottom based on everyone outproducing everyone else in a unsustainable way.​

 

[LeveragedBuyout]

Good news, if it means a trade war is less likely. As I said previously, perhaps it's time to change CCP to the Chinese Capitalist Party.

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Capitalism’s Biggest Fan Is Asian… And Communist | The Diplomat

Capitalism’s Biggest Fan Is Asian... And Communist
A new Pew Research poll found that capitalism’s biggest supporters are all in Asia.

By Zachary Keck
October 11, 2014

It’s no secret that the last few years have been hard on capitalism, with the Great Recession and the resulting global tide of populist fervor. But just how bad have the last few years been for capitalism? Well, its most ardent supporter these days is a “communist” nation.

That’s at least one way to interpret a new Pew Research poll exploring views on inequality and opportunity in 44 nations across the world.

One of the main findings of the report is that publics in the emerging and developing world are far more optimistic about their countries’ future than their counterparts from developed nations. In the developed world, a median of 66 percent of respondents said children growing up in their country today will be worse off financially than their parents, compared to just 28 percent who said they’ll be better off financially.

By contrast, only a median of 25 percent of respondents in emerging countries said children growing up in their country today will be worse off than their parents financially, and 50 percent said today’s kids would be better off. This was roughly equivalent to the 51 percent of respondents in developing world who said children growing up today in their country would be be better off financially than their parents, although 39 percent of the developing world said today’s children would be worse off financially.

Pew also asked respondents about their views on inequality and capitalism. A global median of 60 percent of respondents said that the gap between rich and poor was a “very big problem” in their country. Views on inequality were fairly consistent across the board, with a median of 60 percent of people in both emerging and developing economies saying that inequality was a very big problem in their country, and 56 percent of people in the developed world saying the same.

Despite the concern over inequality, support for free market capitalism remained fairly strong. A global median of 66 percent agreed that most people are better off in a free market economy, even if some people are rich and some people are poor. Support for capitalism was greatest among the developing world, where 71 percent of respondents supported capitalism, but capitalism’s approval rating was still over 60 percent in both the developed and emerging world.

Across the board, however, Asian nations led the way in support for capitalism. Among the 10 developed nations included in the survey, for example, South Korea was the most supportive of capitalism, with 78 percent of South Koreans saying capitalism benefits most people, compared to a median of 63 percent across all advanced economies. Similarly, the 80 percent of Bangladeshis who supported capitalism was higher than in any of the other eight developing economies surveyed.

Support for capitalism in the Socialist Republic of Vietnam, on the other hand, was not only the highest among the emerging economies, but the highest of all 44 nations included in the survey. No less than 95 percent of Vietnamese respondents said most people were better off under free market capitalism. That’s a whopping 15 points higher than in Bangladesh, which had the second highest level of support for capitalism of all the countries in the survey.

Among the emerging economies, support for the free market was the second highest in the People’s Republic of China, another nominally socialist country. 76 percent of Chinese respondents said most people were better off under free market capitalism, compared to 18 percent of Chinese who disagreed.

Thus, capitalism is most popular is a nominally socialist nation, and its four biggest fans are all Asian nations.

 

[LeveragedBuyout]

Dollar Strength May Be Irritating Washington - Real Time Economics - WSJ

• 

• October 10, 2014, 4:32 PM ET

Dollar Strength May Be Irritating Washington
ByIan Talley
The dollar’s strength may be finally irritating Washington.

U.S. Treasury Secretary Jacob Lew
Agence France-Presse/Getty Images
Earlier this week, U.S. Treasury Secretary Jacob Lew didn’t seem all that bothered about the dollar’s recent rise.

But Friday he reminded his counterparts meeting at the annual IMF and World Bank meetings here that they need to stick to their currency commitments against competitive devaluation. “In light of the weakening global backdrop, it is especially important that all G-7 and G-20 countries adhere steadfastly to their exchange rate commitments,” he said in prepared remarks to the IMF’s steering committee.

“G-7 countries should stand by their commitment to orient fiscal and monetary policies toward domestic objectives using domestic instruments and not target exchange rates,” Mr. Lew said. “G-20 members should move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility reflecting underlying fundamentals, avoid persistent exchange rate misalignments, refrain from competitive devaluation, and not target exchange rates for competitive purposes.”

Amid a weaker global outlook, the strengthening U.S. recovery has attracted investors and bolstered the greenback’s valued against a host of other currencies.

Adding to Washington’s headaches, officials in U.S. allies Europe and Japan have in recent months appeared to be talking down the value of their exchange rates. Those currency differentials essentially exports their problems overseas, with the U.S. economy having to do the heavy lifting as its products become more expensive in the global market place.

 

[LeveragedBuyout]

India Considers China Import Duties | The Diplomat

India Considers China Import Duties
In a bid to reduce its trade deficit with China, India considers import duties on Chinese goods.

By Ankit Panda
October 15, 2014

On Monday, India officials said that they would consider imposing import duties on Chinese goods to rein in the growing trade imbalance between the two countries. India’s Department of Industrial Policy and Promotion (DIPP) Secretary Amitabh Kant noted that India “will do this because [India] can not sustain this [trade deficit] for over a long period.” While India and China share a massive trade volume, the balance is heavily in China’s favor. Last year, New Delhi exported $15 billion worth of goods to China while importing $51 billion in return.

“This trade deficit [between India and China] is not sustainable in the long run and therefore it is very important to understand for Chinese companies that in the coming years, India will have to put some kind of safeguards,” Kant added.

The trade imbalance issue is important for the Indian government and featured prominently during Chinese President Xi Jinping’s recent September 2014 visit to India. Indian Prime Minister Narendra Modi noted that he “raised the issue of [the] trade imbalance between the two countries.” He added that he “urged President Xi to give our companies better market access and investment opportunities in China.” Although that visit did not result in any immediate measures to help balance India-China trade, Xi assured Modi that he would take “concrete steps” to help reduce India’s deficit.

The Indian government has additionally invited Chinese firms to begin manufacturing goods in India. “Chinese companies should actually manufacture the same goods [that they export to India] in India. We welcome Chinese companies. You please invest and manufacture in India. We will welcome telecom equipment, power equipment but kindly manufacture in India,” Kant said.

Beyond the current rate of growth of the trade deficit, Indian officials remain concerned that matters could worsen as China begins dumping cheaply manufactured goods in the Indian market at prices below market rates to push out domestic competitors (with plans to eventually raise prices again). In a similar case, the United States Department of Commerce placed import duties on Chinese solar products, drawing Beijing’s ire.

Should India move to place tariffs on Chinese goods, the issue could drive a wedge between China and India. Beijing would likely perceive the decision as protectionism and condemn India for stifling the competitiveness of Chinese firms.

 

[LeveragedBuyout]

Are we beginning to see the world consolidate into separate economic blocs that find it easy to form agreements within, but struggle to liberalize trade across blocs?

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The WTO’s Reform Crisis by Emily Jones - Project Syndicate


ECONOMICS

EMILY JONES
Emily Jones is Deputy Director of the Global Economic Governance Program, University of Oxford.

OCT 23, 2014
The WTO’s Reform Crisis
OXFORD – The World Trade Organization’s director-general, Roberto Azevêdo, has called for an urgent shakeup of his institution. Last week, he declared the WTO to be in “the most serious situation [it] has ever faced,” and now he is convening crisis talks with member countries. One of the main reform proposals, reportedly advocated by the United States and the European Union, is to move away from consensus-based decision-making – one of the WTO’s founding principles. That might boost efficiency, but it also could jeopardize one of the WTO’s greatest assets: its legitimacy.

The current impetus for reform is driven by the desire to bring global trade negotiations back to the WTO. With multilateral talks floundering – the WTO’s Doha Round talks stalled again this summer, as India blocked implementation of the “Bali Package,” the modest agreement reached at last year’s ministerial conference – some of the WTO’s largest members, notably the US and EU, are pursuing bilateral and regional trade agreements.

These efforts include the US-EU Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The US and the EU are also leading the charge on theTrade in Services Agreement (TiSA), assembling a coalition of like-minded WTO members for closed-door negotiations on further liberalization and new rules for their mutual trade in services. To date, none of these non-WTO talks include the other major players in global trade – China, India, and Brazil.

The reason most of the large “plurilateral” negotiations are taking place outside of the WTO is simple: agreements within the WTO need the approval of all members to proceed. But unanimous approval is likely only when the content of agreements is not controversial – hence the proposal to abandon the rule.

Such a reform would eliminate individual countries’ veto power, allowing agreements to progress within the WTO even if certain members oppose them. This proposal is a game changer. The result is that plurilateral negotiations – talks involving only some countries rather than the WTO’s entire membership – would likely become the organization’s main way of doing business.

To be clear, the WTO, like its predecessor, the General Agreement on Tariffs and Trade, has always allowed sub-groups of countries to form “members-only” plurilateral agreements, including regional integration initiatives, like the EU, and bilateral deals. Many of these agreements benefited members and non-members alike.

Countries are also allowed to negotiate regional trade agreements outside of the WTO. But the WTO’s consensus norm has helped to ensure that such agreements do not undermine the global trading system’s multilateral core. Currently, if a sub-group wants to pursue talks on a specific issue like trade facilitation or government procurement, it generally must do so within the WTO, with all members approving the agreement. Trade governance has remained fundamentally multilateral.

Though dropping the consensus norm might help deliver agreements and make the WTO more “efficient,” it poses real risks to the organization’s legitimacy. Moving from consensus to voting, as some advocate, would disenfranchise the WTO’s smallest and poorest members. These countries lack the market size to be invited into plurilateral clubs. Their major avenue for influence is the threat of a veto.

Some commentators suggest that letting plurilateral agreements become the norm for trade liberalization is not a problem as long as their benefits are extended to all WTO members. That misses the point. Modern trade negotiations are as much about setting a new regulatory agenda as they are about reducing tariffs. The risk for small countries is that in a world of globalized production, all states would be forced to conform to regulatory standards set by clubs of big market players.

Marginalizing the smallest countries would hurt not only them, but also the WTO as a whole. The WTO is widely perceived as having greater legitimacy than many international organizations, including the International Monetary Fund and the World Bank, precisely because all members have a say. The short-term efficiency gains from dropping consensus may well be outweighed by higher long-term costs.

So what is the way forward? One possible reform would be to spell out clear criteria for when a country may use its veto power. An individual member’s interest in holding up talks needs to be weighed against the interests of all, and in light of the WTO’s mandate.

In the current stalemate over the Bali Package, India argues that its stance is legitimate, because it is helping millions of poor, food-insecure Indian farmers. Opponents, including the US, argue that India’s food-security program is distorting world prices and harming poor farmers in Africa. An independent panel could play the role of arbiter, evaluating the competing claims and helping to overcome the political posturing on both sides.

Moreover, plurilateral negotiations need clear guidelines, which should include transparency, with all WTO members allowed to observe proceedings. For example, the TiSA talks on new services rules exclude other WTO members. There must also be mechanisms clearly specifying how countries can join an existing plurilateral agreement, including the possibility of opt-out clauses. Crucially, those countries that join later should not have to make greater concessions than founding members.

As the WTO’s members debate reform proposals, they need to ensure not only that the WTO becomes more efficient, but also that it is inclusive and delivers on development. Anything else would risk the institution’s long-term legitimacy and effectiveness.

The WTO’s Reform Crisis by Emily Jones - Project Syndicate

 

[LeveragedBuyout]

American Protectionism Threatens US-China Trade | The Diplomat

American Protectionism Threatens US-China Trade
For all its complaints about Beijing’s unfair trade policies, the U.S. unfairly targets Chinese goods.

By Bill Watson
October 28, 2014

The United States and China have one of the largest trading relationships in the world, at over $550 billion per year. U.S. policymakers are right to cry foul when the Chinese government distorts that trade to protect domestic interests. Unfortunately, U.S. policymakers do the same thing and, in the process, harm the U.S.-China relationship.

One example is Washington’s continued use of so-called “non-market economy methodology” when deciding whether Chinese goods are being “dumped” into the U.S. market at unfairly low prices. The designation is a holdover from the Cold War that exists today only because its mystical formula enables U.S. officials to impose higher punitive tariffs to protect inefficient domestic industries.

The practice is actually illegal under World Trade Organization rules. But when China joined the organization in 2001, the United States insisted that an exception be created, allowing it to continue discriminating against Chinese imports for 15 years. Time has passed, and unless the United States government changes its practice by the end of 2016, it will be in flagrant violation of U.S. trade obligations.

Unfortunately, the United States is almost certainly not going to comply. There is a shameful history of law-breaking by U.S. trade officials abusing the non-market economy methodology. Both U.S. law and international trade rules have been consistently stretched or outright ignored for decades, and there is little indication that this trend will change.

The U.S. government tries to justify its discriminatory treatment of Chinese imports by claiming that Beijing is in fact still a non-market economy. To be sure, the Chinese government retains an outsized role in directing its country’s economic affairs through influence in the labor market and banking industry as well aggressive macroeconomic interventions. But the days of large-scale central planning are long gone.

Most importantly, Chinese exporters are profit-seeking enterprises that make their own pricing decisions based on market factors like the cost of production and consumer demand. Critics point to government influence in upstream industries that affects the price that exporters pay for raw materials, but those distortions simply do not justify a non-market economy designation. For one thing, dumping determinations are supposed to compare export price with domestic sales—if both are distorted by low costs of production, there is no dumping. Secondly, in many industries, China’s government is less distortive of production costs than other developing countries that have never been treated as non-market economies.

Furthermore, if Chinese firms are getting an unfair advantage due to government intervention, there are other mechanisms for U.S. authorities to use against them. The United States can impose duties to offset foreign subsidies without violating WTO rules. The procedures for imposing those duties are much more transparent than the non-market economy methodology used today.

China’s non-market economy designation is not justified by economic realities or by an interest in countering unfair Chinese government policies. Its purpose and impact are to increase the discretion of U.S. trade officials to protect some U.S. businesses from legitimate Chinese competition.

It’s very important to understand the costs of that protection. In addition to the general harm that trade barriers impose on consumers and businesses, non-market economy treatment threatens the U.S.-China trade relationship and the global trading system.

We should be careful not to underestimate the negative impact that reneging on WTO commitments will have for U.S. businesses trading or investing in China. The issue of non-market economy treatment ranks much higher on China’s foreign economic policy priorities than keeping it does for the United States. For example, China has made revoking designation a necessary prerequisite for negotiating bilateral free trade agreements with other countries.

American credibility is also at stake. U.S. trade officials and politicians are constantly accusing China of skirting global trade rules. A common refrain is that China’s newly acquired status as an economic power entails greater responsibility. Such exhortations ring hollow when the United States continues to treat China as a second-class citizen, especially when that treatment violates fundamental rules of the very system China is expected to value.

The good news is that the United States has two years to make this right. The Obama administration can act to end the entire dispute simply by reclassifying China as a market economy. The sooner it does so, the more impact the change will have on fostering goodwill, something the U.S.-China trade relationship desperately needs. If this administration doesn’t act, the next administration may come into office with a very ugly trade conflict on its hands.

Bill Watson is a trade policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies and author of the new Cato Institute study, “Will Non-Market Economy Methodology Go Quietly into the Night? U.S. Antidumping Policy Toward China after 2016.”

 

[AUSTERLITZ]

Though i don't understand in depth all of the above,its knowledgable reading them i have to say.Great job.

 

[LeveragedBuyout]

Though i don't understand in depth all of the above,its knowledgable reading them i have to say.Great job.

Thank you for your support, @AUSTERLITZ . I think you may be the only other reader of this thread! It's not so important to understand all of the fine details of the trade friction that is building, as it is to see the big picture narrative. The liberal free trade order has bound the world together, both by increasing global prosperity, and also providing an outlet for competition that can serve as an alternative to geopolitical ambitions (i.e. war). However, just as you alluded to in your thread (BATTLE REPORT #16 Fall Gelb:Blitzkrieg 1940 ) in explaining the rise of the Nazis, the Great Depression played an inescapable and critical role. And the Great Depression was largely caused by retaliatory tariffs and the breakdown of trade.

It's worrying, and something to keep an eye on. The details are less important, but my goal with this thread is to track the intensity of the friction, and see if it continues to build, or eventually subsides.

As always, thank you for your support!

 

[AUSTERLITZ]

Actually ur wrong,there are many viewers of ur thread..see 1000 views and even in analyst forum u are acknowledged as economy expert.There are no replies because these are highly specialized complicated topics and the viewers don't really know what to reply ,they don't have enough knowledge or in depth understanding to ask intricate questions or formulate their own views.

 

[LeveragedBuyout]

Actually ur wrong,there are many viewers of ur thread..see 1000 views and even in analyst forum u are acknowledged as economy expert.There are no replies because these are highly specialized complicated topics and the viewers don't really know what to reply ,they don't have enough knowledge or in depth understanding to ask intricate questions or formulate their own views.

Thanks for the background information. I sometimes question whether I am contributing information that other users here find useful, or if I'm forcing the square peg of economic matters into the round defense hole that is PDF. However, if there is a silent audience benefiting from these posts, I shall press onward.

And to anyone reading: please feel free to contribute and ask questions. I constantly learn new things from these articles, too, so let's learn together.

 

[SvenSvensonov]

Thanks for the background information. I sometimes question whether I am contributing information that other users here find useful, or if I'm forcing the square peg of economic matters into the round defense hole that is PDF. However, if there is a silent audience benefiting from these posts, I shall press onward.

And to anyone reading: please feel free to contribute and ask questions. I constantly learn new things from these articles, too, so let's learn together.

I'll say this, and don't need a response in return as this is largely rhetorical, but I read all the economic and finance news you post. I may not log-on to PDF to do so, and thus my views might not actually count or register as a view, but I am here and greatly appreciate the information you provide, whether that information comes in the form of an article or your analysis. If I can I will contribute, but so far you have done a lot more than I ever could have.

 

[AUSTERLITZ]

Thanks for the background information. I sometimes question whether I am contributing information that other users here find useful, or if I'm forcing the square peg of economic matters into the round defense hole that is PDF. However, if there is a silent audience benefiting from these posts, I shall press onward.

And to anyone reading: please feel free to contribute and ask questions. I constantly learn new things from these articles, too, so let's learn together.

It would be helpful when posting an article to explain in a few words any economic terms used in it ,which will help the layman understand the meaning of the post.Or u make a short gist of what article means and how it affects ground realities present it in ur own words in a paragraph or so at the end.I think this will simplify reading and understanding.

 

[LeveragedBuyout]

It would be helpful when posting an article to explain in a few words any economic terms used in it ,which will help the layman understand the meaning of the post.Or u make a short gist of what article means and how it affects ground realities present it in ur own words in a paragraph or so at the end.I think this will simplify reading and understanding.

That's a great idea. I will try and post an executive summary before each post to pull out the main points. Thanks.