Assigned News Items
Note: I will list here, for most of the term, the major news items that have appeared that are relevant for the course. I will usually discuss these, if only briefly, on Tuesdays (or the following Thursdays when Tuesdays are not available). You should be sure to be familiar with them from whatever news sources you are using. Where possible, I will provide links to the items online. I will include something about some of them on exams.
- US customs office placed in Abu Dhabi
-- WSJ: 4/18
- US is opening a customs office in Abu Dhabi, to process travelers before they board flights to the US. Passengers will then be able to bypass customs and immigration lines when they arrive in the US. This is a result of an agreement between the US and the United Arab Emirates. Similar facilities already exist in Canada, Ireland, and Caribbean.
- US airline pilots and both US and European airlines object to the arrangement. Abu Dhabi's Etihad Airways is the only airline with non-stop service from Abu Dhabi to the US. The others complain that this gives Etihad an unfair advantage.
- The Air Line Pilots Association says the agreement puts "U.S. airlines and American jobs at great risk."
- European Parliament votes against plan to rescue EU carbon market
-- NYT: 4/17
| FT: 4/17
- If it had passed, the vote would have withdrawn 900 million carbon allowances, each permitting a polluter to emit one ton of carbon. Reason was to counter the fall in carbon price that has occurred, from more than €30 in 2007 to less than €3.
- Fall was due to the economic downturn. Carbon emissions have risen globally, but they have fallen in Europe by ten percent from 2007 to 2012.
- Businesses welcomed the vote, saying that raising carbon prices in a downturn would have been a mistake.
- Germany approves bailout of Cyprus
-- WSJ: 4/19
| NYT: 4/19
| FT: 4/19
- After months of debate, Germany's lower house of Parliament approved the bailout package for Cyprus. German law requires such approval of any assistance that Germany extends to other EU countries, so without this the bailout could not have gone ahead. This seems to be the final step in approving the bailout.
- The bailout will include €9 billion from the EU and €1 billion from the IMF, plus some "bail-in" by large depositors in Cyprus banks. The Germans are insisting that this is all that will be given, even if Cyprus later says that it needs more.
- Wolfgang Schäuble, Germany's Finance Minister, said "That is a strong signal for the euro." In making the case for the bailout, Schäuble had said that Germany "profits most" from the euro.
- "Japan returns to surplus despite trade gap"
-- FT: 4/9
- Reuters reports Japan "returns to surplus" in spite of trade deficit.
- How? "weaker yen boosted overseas investment income"
- Thus current account became surplus while trade account remains in deficit.
- China's credit rating is downgraded
-- WSJ: 4/10
| FT: 4/10
- For the first time since 1999, a credit rating agency, Fitch, downgraded the debt of China's government, from AA- to A+. It cited "underlying structural weaknesses" in China's economy, and the growing risk of "shadow banking."
- This applies to China's local currency debt, not its debt in international financial markets. The latter is backed by China's massive foreign-exchange reserves.
- The concern is excessive debt by local governments that resulted when loans from state-owned banks stimulated the economy after the global financial crisis. Now these loans may require bailouts of either the local governments or the banks, moving that debt to the central government.
- France attacks "tax havens"
-- WSJ: 4/11
| NYT: 4/11
| FT: 4/10
- French president Hollande, after a scandal due to his budget minister's Swiss bank account, responded by calling for the elimination of international tax havens. The minister had led France's battle against tax evasion.
- From 2015, French banks will have to disclose much more information than now, making it harder to hide their business in tax havens.
- Other EU countries agreed to join France in exchanging information so as to stop tax evasion. The new mechanism is patterned after the US Foreign Account Tax Compliance Act.
- India court disallows drug patent
-- WSJ: 4/2
| NYT: 4/2
| FT: 4/2
- India's Supreme Court rejected the patent of pharmaceutical company Novartis for a cancer drug, Glivek. This will permit Indian generic drug firms to continue producing and selling an equivalent for a much lower price.
- The court ruled that the drug “failed in both the tests of invention and patentability,” a ruling that is expected to apply to many other drugs and open up the use of low-cost generics.
- India's patent law was instituted as a requirement of its joining the WTO, but this ruling moves it back in the direction of the absence of intellectual property protection that it had before.
- US trade deficit falls
-- NYT: 4/8
| ST&R: 4/8
- The US trade deficit became smaller in February, as exports rose 0.8% and imports hardly changed. Imports of crude oil fell to their lowest in 17 years.
- Exports of energy and autos were up, while exports of airplanes and farm equipment were down.
- The trade deficit with China was its lowest in 11 months.
- Portugal's austerity, required earlier for bailout, has not solved its problem
-- WSJ: 4/8
| NYT: 4/8
| FT: 4/8
- Having set austerity targets in return for a bailout from the EU, ECB, and IMF, Portugal is finding the targets hard to achieve and is looking for new ways of cutting back.
- Portugal's Constitutional Court struck down some of the policies that the government had planned to use to raise the funds required for the bailout. It will now try to achieve these with spending cuts instead of tax increases.
- It needs to reduce its budget deficit from the current 6.3% of GDP to just 5.5% in order to satisfy the international lenders. If it fails, the lenders will not release the next €2 billion installment of the bailout loan.
Mar 26 - Apr 1
- Japan and EU start talks on FTA
-- WSJ: 3/26
| FT: 3/26
- Japan and the European Union announced that they will soon start negotiations toward a free trade and investment agreement. Both see this as a move to stimulate their weak economies.
- With Japan trying to enter the Trans-Pacific Partnership with eleven other countries including the US, and with the US negotiating an FTA with the EU, this initiative completes a set of trade arrangements involving all of the richest countries of the world. Japan is also embarking on trade negotiations with S. Korea and China.
- Japan seeks elimination of the EU's 10% tariff on cars and 14% tariff on electronics (which S. Korea, with its Korea-EU FTA, already does not pay), while the EU seeks relief from regulations, such as technical standards and safety and environmental rules that limit EU exports to Japan.
- Brics nations agree to create a development bank
-- WSJ: 3/27
| NYT: 3/27
| FT: 3/28
- Leaders of the BRICS group of emerging economics (Brazil, Russia, India, China, and South Africa) held a summit meeting in Durban, S. Africa, where they agreed to set up a development bank that will fund infrastructure and development in emerging markets.
- Details were few, but the objective was to shift power away from the IMF and World Bank, towards these emerging economies, at a time when the richest economies are suffering crises and weak growth.
- In addition, the summit included agreements to swap currencies so as to enable trade to take place in their national currencies instead of the US dollar.
- Negotiations aim to limit Sprint from buying equipment from China
-- WSJ: 3/28
| NYT: 3/28
- As part of negotiations with the US government to permit the Japanese firm Softbank to acquire the US telecoms firm Sprint, a deal is being struck to allow the US government to monitor the firm's equipment purchases. It won't veto those purchases, as that would violate WTO commitments, but the effect is intended to be the same.
- The concern is that telecoms equipment from the Chinese firm Huawei could be used by the Chinese government for purposes that would threaten US national security. Huawei is a private company, but is said to have ties to Chinese intelligence service and military. In October, the House intelligence committee identified Huawei as posing national-security risks, as their equipment could be used for spying
- Huawei, which is second in size only to Ericsson of Sweden, had its spokesman say "Huawei is a company that meets the highest standards of network security, is a trusted vendor to 45 of the world’s top 50 network operators and is an active investor and employer in the U.S."
- Court permits resale of copyrighted imports
-- WSJ: 3/20
| NYT: 3/20
| Economist: 3/23
- The US Supreme Court found in favor of a Thai student in the US whose family shipped him textbooks from Thailand for resale, at a profit, on eBay. This was profitable because the publisher sells the same books at lower prices in low-income countries.
- The publisher had sued the student and won, but the Court threw out the award, arguing that the copyright does not undermine the right to resell. The court argued that to rule otherwise would instead undermine other important rights of those who import copyrighted works (such as libraries) and have a negative effect on international trade.
- The publisher, along with much of the publishing, entertainment, and software industries, argued that this ruling will prevent it from selling products more cheaply in low-income countries, and thus harm people in those countries and reduce US ability to export.
- EU strikes new bailout deal with Cyprus
-- WSJ: 3/25
| NYT: 3/25
- After the Cyprus Parliament rejected last week's deal to tax all bank depositors, a week of uncertainty ended with a new bailout for Cyprus by the "troika" of international creditors: the European Commission, the European Central Bank, and International Monetary Fund.
- In return, Cyprus will have strict controls on money transfers, and large banks in Cyprus will be forced to close or to become much smaller. Large depositors (over €100,000) and bond holders will take large losses, but small depositors will be protected.
- Most agreed that the alternative to this would have been for Cyprus to leave the eurozone. Economists expect the Cyprus economy to go into deep recession.
- Canada cuts tariffs on sports equipment
-- NYT: 3/22
- Canada's Finance Minister announced Thursday that Canada will end import tariffs on all sports equipment except bicycles, as of April 1. Tariffs have been as high as 18%. Prices of equipment should fall, perhaps helping the government's popularity with parents who buy equipment for their kids.
- The only equipment that most care about is hockey equipment, almost all of which is made in Asia in spite of the tariffs. Thus the tariff was protecting a mostly nonexistent industry. The one notable product still made in Canada is the hockey puck.
- At the same time, Canadian retailers have suffered from competition with American online stores, since US tariffs are lower.
- Japan's Prime Minister Abe commits to joining the TPP talks
-- WSJ: 3/15
| NYT: 3/16
| FT: 3/16
- Talks on the Trans-Pacific Partnership FTA currently include the US plus 10 other countries. Japan would become the second largest of the group.
- The Japanese government has been urged to join the talks by its manufacturers, but it will confront strong opposition from farmers, especially of rice.
- Japan can join the talks only if the other 11 countries agree, and they may not. They worry about slowing down the negotiations, which are hoped to finish by September.
- CITES extends protection to dozens of animal and plant species
-- NYT: 3/15
- The Convention on International Trade in Endangered Species concluded its meeting on Thursday in Bangkok, agreeing to greater protection of threatened species, including five types of shark. Trade in these species will be regulated.
- Shark populations have fallen in recent years due to demand for their fins, mainly in China.
- Agreement was resisted by Japan and China, but countries of South America and West Africa rallied to push it through. Its effectiveness remains to be seen, however, as CITES has no enforcement power.
- EU deals with crisis in Cyprus
-- WSJ: 3/18
| NYT: 3/18
| FT: 3/18
- The debt crisis of Cyprus, member of the EU, prompted the the EU to respond by taxing all bank deposits to fund a bailout, after Germany and the IMF limited what could be provided from EU funds.
- The tax is 6.75% on deposits up to €100,000 and 9.9% above that. EU banks are subject to deposit insurance for deposits up to €100,000. Small depositors are finding they are more vulnerable than expected. Large depositors -- many of whom are Russian -- have already sought protection by splitting deposits into smaller amounts.
- Though said to be a one-time policy prompted by the large size of the Cyprus banks, many worry that depositors elsewhere could be taxed similarly. There is fear of a run on banks in other EU countries that could threaten the stability of the eurozone.
Feb 26 - Mar 11
- Horse meat troubles Europe
-- NYT: 3/9
- The horse meat that has turned up in products that claimed to contain only beef has led an increasing number to question the benefits of European integration.
- The EU is known for its intrusive rules on products and labeling, but now it seems that it cannot prevent mislabeling horse as cow. In fact, the EU does make a lot of rules, but it leaves it to individual countries to enforce them.
- The scandal is prompting some consumers to want to consume only the products of their own country, undermining the benefits that have been achieved by free trade within Europe.
- Argentina told by US court to begin repayment of $1.33 billion of debt
-- NYT: 3/2
- Argentina, in 2002, defaulted on $1.33 billion of its government's debt. In 2005 and 2010 it offered bondholders $.35 on the dollar in debt swaps, which 93% of creditors accepted.
- Among the 7% that did not, a New York hedge fund is leading a group of creditors suing for full repayment, and the court ruled last fall that Argentina must pay all creditors equally. This week, the judge gave Argentina until March 29 to submit a plan for repaying the debt in full.
- Argentina's President Christina Fernandez de Kirchner said it would repay these creditors -- whom she called "vulture funds" -- but only the same $.35 on the dollar as others.
- US companies "Park" profits abroad to reduce their tax payments
-- WSJ: 3/11
- The Wall Street Journal examined the accounts of 60 large US firms and found that their profits are increasingly being "parked" in other countries with lower corporate tax rates than the US.
- This saves the firms money, as the funds are not taxed by the US until they are returned to the US. But it reduces US tax revenues substantially.
- How are they able to do this? By shifting ownership of intellectual property (patents) to subsidiaries in low-tax countries, so that when the firm pays for use of that property, the firm's profit falls and the subsidiary's profit rises.
- Germany's Merkel speaks positively of Turkey's EU Accession
-- NYT: 2/25
| FT: 2/25
- German Chancellor Angela Merkel visited Turkey's Prime Minister Recep Tayyip Erdogan, and argued in favor of "opening a new chapter" in negotiations for Turkey to join the European Union.
- Germany and Turkey have close relations because of the many Turkish guest workers who came to Germany in the 1960s and remained. Turkey is an important trade partner of Germany. Nonetheless, until now Germany's attitude toward Turkish accession has not been positive.
- Turkey made many structural reforms years ago in order to qualify for EU membership, but since then the attitudes toward Turkish membership have weakened both in Turkey and in parts of the EU. But as Turkey has grown recently faster than the EU, some are seeing it more in the EU interest than in Turkey's for the two to join together.
- UK lost its AAA credit rating
-- WSJ: 2/23
| FT: 2/23
- Moody's changed the credit rating of United Kingdom government debt from Triple-A to Double-A1 with a "stable outlook", prompted by the UK's slowing economy and its rising debt-to-GDP ratio. The other ratings agencies, S&P and Fitch, still have UK as AAA, but with a "negative outlook."
- The British currency fell to a two-year low on the news. It is not expected that UK borrowing costs will rise much.
- This is a blow to the UK government, which has justified spending cuts as needed to maintain its high credit rating.
- Assorted trade news
-- WSJ: 2/20
| NYT: 2/21
| FT: 2/21
- Japan's trade deficit grew to a record level in January (after seven months of unprecedented deficits). Exports to Europe and US were less than expected, although total exports did grow.
- Egypt's imports of wheat are suffering, as Egypt's currency has fallen. Egypt is the world's largest importer of wheat, which it uses to provide subsidized bread to its poor.
- Iceland may become an energy exporter, using its surplus of electricity produced by a geothermal power station. Only 17% is used by households and local industry, with much of the rest used in aluminum smelting. Plans are now being considered for an undersea cable to connect Iceland to the EU grid, where Iceland's electricity would qualify as renewable.
- US-EU FTA Proposed
-- WSJ: 2/14
| NYT: 2/14
| FT: 2/14
- Obama included in his State of the Union Message a call for a Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU. Talks could begin in May or June, and it is hoped that they will be completed within two years, during the term of the current European Commission. It would then have to be approved by the EU's 27 member states, by the European Parliament, and by the US Congress.
- Enthusiasm in both the US and the EU is said to be due to hopes that an FTA will stimulate growth in both economies, as well as offsetting some of the growing economic power of China. Officials have been working for the last year to try to lay the groundwork for this.
- Many difficult issues will have to be resolved, such as subsidies to agriculture, different attitudes towards genetically modified crops and other agricultural practices, and harmonizing regulations on products such as food, cars, toys, and pharmaceuticals. Agreement on regulations between these two large players could set standards that other countries would then adopt.
- G-20 agrees not to manipulate currencies
-- WSJ: 2/16
| NYT: 2/17
| FT: 2/16
- Finance ministers of the Group of 20 met in Moscow, where they agreed not to manipulate their currencies, letting exchange rates be determined by the markets.
- However, they also declined to interfere with efforts, such as by Japan, to stimulate its economy with monetary expansion, even though that is understood to cause a currency to depreciate.
- "In essence, the Group of 20 expressed a view that loose monetary policy, including steps that weaken currency values, are acceptable when used to stimulate domestic growth but should not be used to benefit in global trade." (NYT)
- EU proposes Tobin Tax
-- WSJ: 2/14
| FT: 2/14
- A Tobin Tax, named after economist James Tobin, would be a very small tax on financial transactions, intended to reduce speculative financial flows.
- Such a tax was proposed by the European Commission, to be applied by major eurozone countries on transactions in all financial centers. It would levy a 0.1% tax on stock and bond trades, and a 0.01% tax on derivatives transactions.
- The tax is opposed by large financial institutions, as well as by the governments of both the US and the UK.
- US trade deficit shrank in December
-- WSJ: 1/9
| NYT: 1/9
| FT: 1/9
- From November to December, the US trade deficit fell by nearly 21%, the biggest such drop in nearly four years. Exports rose and imports fell.
- In the oil sector, US imports fell due to new technology for production and more efficient use of oil by demanders.
- These data may cause a revision in GDP data for the 4th quarter of 2012, turning it from a contraction to a slight expansion.
- ECB's Draghi fuels the currency wars
-- WSJ: 2/8
| NYT: 2/8
| FT: 2/8
- Mario Draghi, President of the European Central Bank, made comments that were interpreted as pushing down the value of the euro, and as a result, the euro fell.
- What he stated was that the rise in the euro would cause the ECB to expect lower inflation, therefore inducing it to greater monetary expansion.
- This was seen as another salvo in the "currency wars," with central banks of US and Japan also pursuing policies that would depreciate their currencies.
- Venezuela devalues currency by 32%
-- WSJ: 2/9
| NYT: 2/9
| FT: 2/9
- Venezuela changed its official exchange rate from 4.3 bolivars/dollar to 6.3 bolivars/dollar, a 32% devaluation. The black-market exchange rate had been more than 20 bolivars/dollar.
- Since 2003, Venezuela has maintained strict currency controls. This is the fifth time since then that it has devalued.
- Since the last devaluation, prices had risen 98%. This necessitated the devaluation, although the devaluation will also make inflation even worse.
Jan 29 - Feb 4
- US to increase visas for skilled workers
-- WSJ: 1/30
| FT: 1/30
- Both Obama and a bipartisan group of senators proposed policy changes for immigration, including more border security, pathway to citizenship for migrants in US, and more visas for skilled workers.
- Four senators introduced a bill to increase the number of visas for skilled workers, such as engineers and computer programmers. The current limit of 65,000 H-1B visas for such workers, sought by 350,000 applicants in 2012, was reached in just 10 weeks. The bill would increase the cap on private-sector workers to 115,000, with an "escalator" permitting that to rise. And it would remove the cap entirely on workers with advanced degrees in science, etc.
- Technology companies such as Microsoft, Oracle, and Intel have been lobbying for such changes for some time. They say there is a shortage of highly skilled labor in the US.
- Events in the "currency wars"
-- WSJ: 1/31
| WSJ: 1/31
| FT: 1/31
- After the Korean won rose agains the Japanese yen almost 20%, Korea's deputy finance minister said it was considering taxes on currency trading and bonds to reduce "hot money flows" into Korea. Such taxes are sometimes called "Tobin Taxes," since they were proposed years ago by Nobel Laureate James Tobin.
- The Japanese yen has fallen dramatically in recent weeks, and the effects are already showing up in profits of Japanese companies. The fall is a response to the new Japanese government's increased efforts to fight deflation.
- The euro has risen substantially since July 2012 (12% against the dollar) and has now reached its highest since November 2011. It had fallen earlier due to worries that the eurozone might split apart. Those concerns have eased, and at the same time many other countries are using expansionary monetary policies, pushing their currencies down and the euro up. This could be hard on the eurozone economy, and may prompt the ECB too to try to push the euro down.
- Trade barriers come and go
-- NYT: 2/4
| FT: 1/29
| ST&R: 1/29
- For over a decade, Argentina has required import licenses on a host of goods. This requirement is now being removed, thus freeing trade. But at the same time, Argentina raised tariffs on 100 products to their WTO-constrained maximum: 35%.
- Starting in 2003, Japan banned all imports of beef from the US, due to concerns about mad cow disease. These restrictions were eased somewhat in 2006, and are being eased more now, allowing imports of beef from cattle under 30 months old.
- US and Mexico reached agreement raising the minimum price for tomatoes from Mexico, with some minimum prices more than doubling. The minimum price had been put in place more than a decade ago, to suspend an antidumping case from the mid-1990s. Florida growers asked last fall to end the agreement, so that they could restart the antidumping case. But that might have prompted an exchange of other trade barriers between the US and Mexico. Instead, the new higher minimum prices will apply to a larger range of tomatoes, almost half of US consumption of which come from Mexico.
- Trade among developing countries now exceeds their trade with developed countries
-- Economist: 1/19
- Recent data from World Bank, reported by The Economist, show that it is no longer true that poor countries trade more with rich countries than with each other.
- During the last decade, intra-developing country trade has grown twice as fast as trade between developed and developing countries. This is not really surprising, as developing countries have been growing faster than developed in all respects, with their share of world trade doubling from 16% in 1991 to 32% in 2011.
- This does not mean that developing countries have ceased to depend on the economic health of the developed world, but just that they now depend as much on each other.
- World economy subject of discussion at Davos
-- NYT: 1/26
| FT: 1/28
- Movers and shakers from business, academia, government, and international institutions converged at their annual meeting in Davos to discuss the world economy.
- Greatest economic growth is expected in newly emerging economies of Africa and Latin America (other than Brazil and Argentina). For Africa, there is concern that its growth is mostly in commodities, and that it needs investment in infrastructure and an industrial base.
- Consensus was that the world economy is fragile, with only weak expansion in the advanced economies, if even that. But there was no consensus on what to do about it.
- UK Prime Minister plans referendum on membership in EU
-- WSJ: 1/23
| NYT: 1/23
| FT: 1/23
- David Cameron, conservative PM of the UK, announced that he would renegotiate the terms of the UK membership in the EU, and then ask UK voters, by 2017, to decide in a referendum whether to continue membership.
- He had listed, a year before at the 2012 Davos meeting, his complaints about the EU, whose regulations in the name of social protection he said place burdens on business and on member governments.
- He says his aim is not to leave the EU, but only to improve the terms of UK membership. Nobody quite knows, yet, what a UK exit from the EU -- called "brixit" by some -- would really mean.
- Walmart pledges to buy more in US
-- NYT: 1/16
| FT: 1/16
- Walmart announced that it will increase its sourcing of American-made products by $50 billion over the next 10 years. That seems to represent about 1.5% of its annual total.
- It will buy more goods already produced here, and also help suppliers expand production in US.
- Reasons include public relations within US, but also rising wages abroad, falling energy costs here, and short delivery times.
- Germany to bring home the gold
-- WSJ: 1/17
| NYT: 1/17
- Germany's central bank says it will return some of its gold reserves -- 300 tons -- currently being held in France and in the US. The move will have no policy implications, as Germany continues its commitment not to sell its gold, and it could have done so anyway, even when it was held abroad.
- The Deutsche Bundesbank has the world's second largest gold reserves, after the US. Only 31% of that is currently held in Germany. Most of the rest is in the US, but some in France. The latter will all be returned immediately. Just 8% of the gold in the US will be returned. Total value moved will be $36 billion.
- This comes after (but supposedly not in response to) a popular movement in Germany to repatriate its gold. "Economists had viewed the debate with bewilderment, seeing it as entirely divorced from reality, given that gold has played no official role in international monetary policy since the collapse of the Bretton Woods agreement in 1973." (WSJ)
- New research re-evaluates global trade data
-- FT: ?1/17/a>
- New research by the OECD and WTO tracked trade by the origins of components and services, rather than final products. Result is a changed perspective on bilateral trade imbalances.
- "We have to think about goods and services as 'made in the world', forcing a radical change in how we need to look at trade flows." (OECD)
- US trade deficit with China, previously thought to be $176 bill in 2009, is now seen to be $131 bill, since so much of the value of China's exports comes from other countries such as S. Korea and Japan.