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Weekly Discussion Topic – what happened to the U.S. recovery? • Productivity drop of 1.9% in 1st quarter • Poor jobs number in April (+150,000 jobs) – GDP growth vanished (0.1% at annual rate) – May jobs report (+225,000, Unemployement @5.5%, but LFPR continues to decline • Challenges: – Strong rise in U.S. dollar – Consumer and producer confidence weak – Would be serious if U.S. falls into another recession, having recovered only weakly from 2009 – Interest rates are beginning to climb Alternative Weekly Topic • The Clinton Foundation Topic #4 - Changes in the Patterns of Global Trade • Everyone senses that global trade patterns have changed a great deal • The new global powerhouses are generally referred to as the BRICs – Not sure Russia really belongs and the deep recession in Brazil has made it, at least for now, a poor destination for investment Changing Direction of Global Trade • The rise of Brazil, China, Russia, India in the world trading system: • U.S. Trade imbalance with China very large (about 70% of U.S. total trade imbalance) TOTAL 2013 122,016.3 440,433.5 -318,417.2 China, Brazil and India • China: $2,210 Billion exports, $1,820 Billion in imports • Brazil: $243 Billion in exports, $233 B. in imports (total) • India: $294 B. in exports, $490 B. in imports (total) • Much smaller players in world markets – could argue that this is where the opportunity is • Russian Federation: $529 B. in exports, $335 B. in imports – Exports are primarily in the energy sector – Longer-term, European economies are going to look for a more stable source of energy • Compared to U.S. figures of $1,546 billion (exports) and $2,336 billion (imports) – U.S. remains largely a “closed economy” Persistent Deficits of U.S. are creating a global problem • Recycling of dollars by China and others leads to large capital flows • Chinese holdings of U.S. debt ($1.2 Trillion) create a political problem (has been as high at $2.2 trillion) – If U.S. has a significant political (or security) dustup with China, they might respond by dumping TBonds – Credit markets would rapidly destabilize. International Holdings of U.S. Debt – February 2015 Country Holdings China Japan Belgium Caribbean Banking Centers Oil Exporters Brazil Russia $1,224B 1,224B 345 351 297 260 70 • Maturing of Trade Relations may partially solve problem – Costs are rising rapidly in China – Environmental concerns are forcing the gov’t. to aim for slower growth • Thankfully, Japan’s interests and those of China are not aligned – Japan would be in a position to partially take up slack if China dumped its holdings of bonds – Most worrisome case is when a single country holds most of the debt and can exert political influence Other Dangers to the International Trading System • Competitive Devaluations – Newest tool in stabilization policy – Economic tools to address a recession: Fiscal Policy, Monetary Policy and Devaluations • The latter was supposed to only work for smaller nations, but larger nations are now trying to stimulate trade in this manner (e.g. Japan) • Is clearly a beggar-thy-neighbor attempt to use trade as an economic stimulus – But, all nations cannot use, so should any? Further Dangers to the Stability of International Trade • Expiration of Multi-Fibre Agreement (19742005) – MFA was meant to allow for slow adjustment to cheap imports by developed nations – No mechanism put in place as a replacement – Small developing nations (e.g. Bangladesh) are going to be the big losers – Nations are setting new, less favorable tariff policies Inability of the WTO to adequately address Intellectual Property • Copyright and patent infringement is commonplace, and hard to stop • Theft of physical products is a crime – stealing a song (or software) is often regarded as normal • As noted last time, patent drugs are a particularly troubling problem – Morally, they should be “free”, but providing them at little or no cost suppresses drug development Competition between Government “firms” and private businesses • Airbus started as a government initiative by France and Germany • R&D funded by the respective governments – Counter-argument is that Boeing is supported by extensive defense contracts • But, so is EADS (European Aeronautic Defence and Space company • In old days, MITI (Japan) was the bigger problem – Ministry of International Trade and Industry MITI • Directly targeted specific industries (shipbuilding, steel) – Government money and competition policy “forbearance” used to encourage dominance of world markets – Worked well sometimes – failed miserably others (DRAMs and artificial intelligence) – Makes concept of level playing field an absurdity • MITI has largely ceased these practices under international pressure Industrial Policy • Nations continue to conduct Industrial Policy that threatens free competition – Hard to stop, and difficult to put restrictions on after a nation has funded R&D and investment. – A good example at the moment is robotics • Key players are Google, Amazon, Apple, IBM and others • But government also funds (substantially) research through universities (National Robotics Initiative) • Can only note that governments are frequently wrong, and not all IP will work out. End of Day #4 • Suggestions for Day 5?