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 Mondays (or the following Wednesdays when Mondays 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 questions about some of them on exams.
- Fast track trade legislation introduced
-- WSJ: 4/17
| NYT: 4/17
| WP: 4/17
| ST&R: 4/17
- Senators Hatch (R-Utah) and Wyden (D-Ore) introduced fast track legislation that, if passed, will allow Obama to submit trade agreements for up-or-down votes without amendment. The bill is considered crucial to completion of the negotiations on the Trans-Pacific Partnership with eleven other Asia-Pacific countries.
- Many Democrats oppose this legislation, formally called Trade Promotion Authority, on the grounds that previous trade agreements -- especially NAFTA -- have undermined labor standards and worker rights. Obama insists that the TPP, as it is being negotiated, will do the opposite.
- Wyden fought for and got a provision allowing the Senate to cancel fast-track authority if certain conditions on the negotiations are not met. These include greater transparency and protections for workers, the environment, and human rights. Not included is anything about currency manipulation, which will be left to other legislation.
- IMF lowers its forecast for global economic growth
-- WSJ: 4/15
| NYT: 4/15
| FT: 4/13
- Global economic growth will improve this year, but less than had been expected, as emerging markets are growing more slowly, according to a report from the International Monetary Fund. China's growth has slowed; Brazil is contracting; and Russia is in steep decline. An exception is India, where growth is 7.5%, up from 6.3% last year.
- Global GDP is expected to expand by 3.5% in 2015, just 0.1% faster than last year. This is not enough to undo the legacies of high unemployment and high debt that resulted from the 2008 financial crisis.
- IMF officials, meeting in Washington, are encouraging easy-money policies in Europe and Japan.
- EU files formal anti-trust charges against Google
-- WSJ: 4/16
| NYT: 4/16
| FT: 4/16
- The EU competition commissioner, Margrethe Vestager, filed formal charges against Google, alleging that it steers searches for specific products toward it own in-house shopping sites. There is also a separate charge against Google's Android mobile platform.
- The US FTC investigated Google two years ago and did not choose to file charges after Google agreed to voluntary changes. EU law, unlike US law, protects competitors as well as consumers.
- Google dominates web search in Europe, with 90% there compared to only 65% in the US.
The case recalls the EU case against Microsoft, which led to changes in the firm's behavior and a €2.2 billion fine.
- US import prices falling, as dollar appreciates
-- WSJ: 4/11
| NYT: 4/11
- US import prices fell by 0.3% from February to March, continuing a decline over the last year, during which import prices fell 10.5%.
- Much of the price decline over the year was due to the falling price of oil, but the fall since February was not, as oil rose in price 0.8%. The recent fall in import prices was due instead to the appreciation of the US dollar, which was in turn due to weakening foreign economies and monetary expansions abroad.
- The falling import prices reduce the US rate of consumer price inflation, and therefore may lead the Fed to further delay raising US interest rates.
- Greece makes payment to IMF, avoiding Grexit
-- FT: 4/10
- Greece managed to make the payment of €450m to the IMF that was due on Thursday, confounding expectations that it would default and precipitate Grexit -- Greek departure from the euro.
- The Greek government managed the payment by drawing down cash reserves that it was holding for other purposes, and it will likely do the same for a coming €420m payment to international investors that is due April 14. But its scope for this is shrinking, and it may default in May if it doesn't get new help.
- The EU and IMF have made further help conditional on economic reforms that the current government of Greece has promised not to undertake, due to the hardship they would cause its people.
- US issues its semiannual currency report
-- WSJ: 4/10
- The US Treasury Department issued its semiannual report on currencies, as it is required to do by Congress.
- The report did not name any country as a "currency manipulator." The last time it did name a currency manipulator was 1994, when it name China. It did however criticize both China and South Korea for their currency policies.
- The report also criticized both Europe and Japan for relying too heavily on monetary expansion to stimulate growth, a policy that is understood to have caused their currencies to depreciate and to make exporting harder for their trading partners, including the US. This criticism is likely to be controversial, as the US also relied heavily on monetary expansion to recover from its most recent recession, and it has still not exited from that policy.
Mar 30 - Apr 5
- Volvo to build factory in US
-- WSJ: 3/30
| FT: 3/31
- Volvo will build a $500 million new factory in the United States, saying that "It is more and more important to produce where you sell." The location will also insulate it partially from currency fluctuations. It considered building in Mexico, but saw the benefits of producing in the US as greater.
- Volvo, based in Sweden but owned by the Chinese company Geely since 2010, has seen its US sales decline from 120,000 a decade ago to 56,000 in 2014. The US factory could eventually be used for Geely to produce cars for the US market.
- The company is in talks with three US states as it decides where to build. It expects to make the choice by the end of May.
- EU is contemplating investigation of Google and other US Internet platforms
-- WSJ: 4/4
| NYT: 4/3
- Already investigating Google for anti-trust violations, the EU has broader concern that Google, Amazon, Apple, and others have too much market power over smaller firms. The European Commission is considering plans to initiate other investigations.
- US technology companies dominate the European "internet platforms," which include search engines, social media, e-commerce platforms, app stores, and price-comparison websites. Europeans are also concerned about illegal and harmful online content, and about whether these companies are paying enough taxes in Europe.
- The EU is also using investigations of the American companies to try to promote the interests of European tech companies, which have found it hard to compete.
- US trade deficit falls to lowest level in more than five years
-- WSJ: 4/3
- The US trade deficit in February was a seasonally adjusted $35.44 billion in February, the smallest since October 2009. Exports decreased 1.6% from January, while imports fell 4.4%.
- The fall was largely a result of the bottlenecks in US ports due to the labor dispute. Many containers are still waiting to be unloaded at the port.
- The rising value of the dollar is also a factor. Over time it will reduce exports and increase the quantity of imports, but in the short run it makes the value of a given quantity of imports smaller.
- US universities are enrolling an unprecedented number of international students
-- WSJ: 3/24
- The Department of Homeland Security released a report saying that there are 1.13 million foreign students currently studying in the US, mostly in colleges and universities. That's an increase of 14% over last year and 85% over 2005.
- 29% are from China, where rising incomes are allowing more to afford full tuition in the US.
- There is increasing concern that foreign students are displacing American students, especially at public universities. But without the tuition from foreign students, many public universities might have to cut back.
- Fish fight
-- WSJ: 3/24
| NYT: 3/28
- More than ten years ago, Vietnam's exports of a farm-raised fish very similar to catfish were exported to the US. Competition with US catfish prompted an anti-dumping suit (still in place) and the prohibition of labeling these fish as "catfish." Now called "basa," Vietnam's exports have grown in spite of the name.
- Now the US catfish industry has persuaded the US government to switch the regulation of these imported fish from the US Food and Drug Administration to the US Department of Agriculture, which will insist on on-site monitoring of Vietnamese fish farms prior to export, and presumably stop the trade, at least for now.
- The argument for making this switch is not that any Vietnamese fish have posed health problems, but that they might, and that if basa were tainted, since they are so similar to catfish, the harm would spread. So the US has argued first that basa are not catfish, but now that they are catfish.
- Swiss National Bank explains why it stopped pegging its currency
-- WSJ: 3/27
- The SNB issued its annual report, including its explanation of why it stopped pegging the Swiss franc to the euro on January 15, after which the franc rose from the pegged rate of CHF1.20/euro to less than CHF1.00/euro.
- "The costs of maintaining the [policy] of CHF1.20 per euro would have been out of all proportion to the benefits for the economy." Specifically, it said that it risked a large loss on the value of its foreign currency holdings, as their value on the market would fall below what it had paid for them. Since it already had over CHF500 billion in foreign currency reserves, the rise in the value of the franc has caused it a loss of about CHF30 billion in the franc value of its reserves.
- Given that it would abandon the peg at some point, it could reduce this loss by stopping sooner rather than later. But the Bank gives no reason why it could not have continued the peg indefinitely, except that its attempts to use monetary policy to reduce the upward pressure on the franc did not succeed.
- China now 3rd largest exporter of arms
-- WSJ: 3/16
| NYT: 3/17
| FT: 3/17
- New report on global trade in arms shows that China has moved into third place as arms exporter with 5% of the market, behind the US (31%) and Russia (27%) and passing Germany.
- Over the five years since 2009, China's arms exports grew 143%. Its top customer is Pakistan, and unlike many other arms exporters, "China does not discriminate politically between buyers," according to a retired colonel.
- China's arms imports also fell, by 42%, and it moved from being the top arms importer to number 3. The top arms importers are now India and Saudi Arabia.
- Gulf airlines argue that they are not subsidized
-- WSJ: 3/18
| NYT: 3/18
| FT: 3/19
- Executives from Emirates Airline of Dubai and Etihad Airways of Abu Dhabi objected to allegations that their success is based on subsidies from their governments, insisting that they do not receive any.
- The two airlines, plus Qatar Airways also from the Gulf, have expanded in recent years, taking market share from established carriers with a reputation by using a reputation for good service. Emirates now has the largest capacity of any international airline.
- Their speeches are a response to a report being circulated by the big three US carriers (American, United, and Delta) alleging over $40 billion in subsidies and unfair advantages. The US carriers have asked the Obama administration to review the "open-skies agreement" with the UAE and Qatar. Responding to one allegation, the president of Emirates said "Tosh."
- China-led development bank joined by US western allies
-- WSJ: 3/18
| NYT: 3/18
| FT: 3/17
| WP: 3/18
- The Asian Infrastructure Investment Bank (AIIB) was initiated by China as rival to the Washington-based World Bank and the US-dominated Asian Development Bank. This is a response, in part, to the failure of the US to give China and other emerging economies increased voting power in the existing financial institutions, in which the US has a veto, and which are traditionally led only by Americans and Europeans.
- The UK has now announced that it will apply to become a founding member of the AIIB, and the UK was followed by France, Germany, and Italy. Australia, Japan, and South Korea have all now indicated that they might join as well.
- The US has pressed its allies not to join, arguing that the AIIB would lack the high standards imposed on borrowers by other institutions. The allies have now decided that China "is such a large export and investment market [that they] cannot afford to stay on the sidelines."
- A reporter in China noted that "The U.S.-dominated world order has begun to collapse." An expert on China in Brussels said "China is shaping an alternative universe and getting America’s European allies to support it."
- ECB QE begins
-- WSJ: 3/10
| FT: 3/10
- Following last month's pledge by the European Central Bank to initiate Quantitative Easing, the Eurozone national central banks began buying sovereign debt, even at negative interest rates.
- The plan is to buy about €850bn of eurozone government debt, plus additional private sector debt. EU rules forbid the ECB from bailing out member governments, and this complicates but doesn't prevent the process.
- The purpose is stimulate the economy and to reverse or prevent deflation, which has begun in some of the countries. The eurozone's unemployment rate is over 11%.
- Euro falls close to parity with dollar
-- WSJ: 3/14
| NYT: 3/12
| FT: 3/14
- The euro fell against the dollar on Friday to $1.0482, its lowest since 2003.
- The reasons for the recent decline include both the ECB QE and the expectation that the Fed will raise interest rates in coming months.
- The fall in the euro is to be expected, and is part of the mechanism by which the ECB QE is expected to work: It will make European goods cheaper and stimulate demand.
- Tea Party divided on renewal of Export-Import Bank
-- NYT: 3/10
- "The Export-Import Bank guarantees loans to overseas customers of thousands of American companies." It is an 81-year old institution that will disappear June 30 if not renewed by Congress.
- Some conservative Republicans oppose renewal, saying that it is "crony capitalism" mainly benefitting big companies like Boeing and Caterpillar. In fact it also benefits many small companies that export, including ones owned by Tea Party Republicans. So there is division among Republicans on whether to renew. Unlike some other issues, those opposed need not persuade any Democrats, as all they need to do is to not act.
- Is the Ex-Im Bank subsidizing exports? That's not clear: "The bank operates on fees it charges its users and, so far, has made money for the government."
Feb 23 - Mar 8
- President Obama releases 2015 Trade Policy Agenda
-- ST&R: 3/6
- “...trade policy done right ... is among the nation’s best tools to address the challenges of globalization and technological change and promote American interests and values.”
- Trade agreements are intended to increase US exports "and the better paying jobs they support."
- Objectives for 2015: Finish TPP; make progress on TTIP; in the WTO, an Information Technology Agreement and a Trade in Services Agreement; renew GSP; on labor, make improvements with Colombia, Bangladesh, and other countries; on environment, enforce obligations under trade agreements; hold trade partners accountable in cases of dumping and subsidies.
- Oregon Senator is crucial for Fast Track
-- NYT: 3/4
- Oregon Senator Ron Wyden, ranking Democrat on the Finance Committee, is the crucial link between Republicans and Democrats in forging agreement to give Obama Trade Promotion Authority (TPA). Both sides are looking to him to come up with a bill that will satisfy critics.
- Republicans, many pro-trade, nonetheless resist giving more power to Obama. Democrats, concerned about trade's effect on jobs, want assurances that trade agreements will be pro-labor and pro-environment.
- To satisfy Democrats, Wyden is proposing a "shut-off valve" to be used if details of agreements are not satisfactory. Republicans object that this would undermine the purpose of TPA and discourage other countries from negotiating.
- Denmark's currency peg is under pressure
-- WSJ: 3/3
- Nationalbank, the Central Bank of Denmark, bought a record amount of foreign currency in February as it maintained its peg of the krone to the euro. Its purchases totaled over $25 billion, about 9% GDP.
- The pressure results in part from the European Central Bank's moves toward Quantitative Easing, intended to lower euro interest rates and making the Danish krone more attractive to hold.
- The Danes have pushed their own interest rates down to help maintain the peg, but that may not be enough, and they are considering temporary capital controls or transaction taxes.
- Greece and its lenders agree on 4-month extension
-- WSJ: 2/21
| NYT: 2/21
| FT: 2/21
- The bailout was scheduled to end at the end of February, and this extension avoids an immediate crisis. It does not resolve any of the disagreements between the new Greek government and the lenders.
- The agreement is a reversal for Tsipras, the new Greek leader who had promised to kill the bailout and its commitments for Greek austerity. The Troika -- EU, ECB, & IMF -- have agreed to reduce the targets for Greece's government surplus.
- Details remain to be worked out in the next few days, and the agreement could some apart. But meanwhile, lending to Greek banks is resuming, reducing pressure on financial markets.
- West-coast-port labor dispute reaches tentative agreement
-- WSJ: 2/21
| NYT: 2/21
| WP: 2/21
- Port employers on the US west coast and the longshoreman's union reached a tentative 5-year agreement on a new contract, after 9-month standoff that has slowed passage of goods through the ports and caused weeks of delays. Ports should now become fully operational, though it will take weeks to catch up.
- During the dispute, workers engaged in deliberate slowdowns, and last week the employers shut them out completely. Last week the White House sent Secretary of Labor Thomas Perez to urge agreement.
- The most contentious issue had to do with arbitration. This has been resolved, though in what way has not yet been announced.
- EU proposes capital markets union
-- WSJ: 2/19
| NYT: 2/19
- The EU laid out plans for integrating the capital markets of the member countries, in an effort to stimulate investment in the EU and revive its economy.
- The proposed Capital Markets Union would help companies to raise money by selling asset-backed securities throughout Europe, rather than relying on bank financing.
- The focus is intended to be especially on small and medium sized businesses.
- Members of both parties oppose granting TPA to Obama
-- NYT: 2/10
- Both left-leaning Democrats and Tea-Party Republicans in Congress oppose further trade agreements and therefore oppose granting Trade Promotion Authority, or Fast Track, to Obama. This is one issue on which the Republican leadership and Obama agree, but they may not get their wish due to opposition from within both parties.
- Obama sees the Trans-Pacific Partnership, TPP, as central to his "strategic pivot to Asia" and TPA is needed for that to succeed.
- Some Democrats view all trade agreements as harmful to US wages and jobs. Populist conservatives see the trade agreements as catering to the interests of Wall Street and large corporations.
- US files case in WTO against China's export subsidies
-- WSJ: 2/12
| NYT: 2/12
| FT: 2/12
- The US administration has filed a complaint in the WTO saying that China illegally subsidizes exports in multiple sectors, including agriculture, medical goods, and more.
- "The case being brought by Washington alleges that China provides discount services and cash bonuses tied to export performance to businesses located in 179 'demonstration bases' spread across the country." (FT)
- Obama's agressive action coincides with his need to get cooperation from Congress on trade deals and Fast Track, and is an effort to show that he is tough on trade.
- Currency changes, wanted and unwanted.
-- WSJ: 2/11
| NYT: 2/10
| NYT: 2/11
| FT: 2/10
- G20 Finance Ministers met in Istanbul and gave their support to expansionary monetary policies to boost the world economy, a stance that in effect encourages policies that will cause currencies to depreciate, sometimes called "currency wars."
- The Russian currency, the ruble, continued its fall against the dollar and the euro. Many in Russia are upset by this and are trying to shift out of the ruble, but the head of Russia's central bank continues to argue in favor of letting the market determine the rubles's value.
- Venezuela announced that it would ease its rigid exchange controls and allow markets a greater role in determining the value of its currency, the bolivar. Under pressure from falling prices of its exported oil, the bolivar is expected to depreciate.
- Italy's Finance Minister argued that the recent fall in the value of the euro was desirable, moving currencies closer to rates that are justified by the fundamentals and making it easier for the Eurozone's weaker economies, like Italy, to compete internationally.
- Obama plans tax on US profits held overseas
-- WP: 2/2
| FT: 2/2
- Obama is proposing to levy a $238 billion one-off tax on overseas cash holdings of US corporations.
- Cash is held abroad because profits would be taxed when brought back to US. This tax will be less that half of that.
- He will also propose a tax on foreign earnings to reduce that incentive in the future.
- US auto exports up and oil imports down
-- WSJ: 2/6
| WSJ: 2/6
- US auto exports rose to a record high in 2014, for 3rd year in a row. Many of these are made by non-US companies at factories in the US.
- US oil imports fell for 2014, reducing their share of the US trade deficit to less than 20%, compared to 40% five years ago.
- Other imports rose, however, and the US trade deficit remained high.
- China's trade surplus hit a record high in January, even as exports fell
-- FT: 2/7
- China's exports were 3.3% less in January than a year earlier, but imports were down 19.9%.
- Both results were unexpected, and led to a trade surplus of a record $60 billion.
- China's manufacturing sector shrank, but the main reason for this change was the fall in the prices of imported commodities, especially coal and oil. Oil imports fell only 0.6% by volume but 41.8% by value.
Jan 26 - Feb 1
- US and EU pushing for more sanctions against Russia
-- WSJ: 1/26
| FT: 1/26
- While visiting India, Obama said he would increase sanctions against Russia in response to a separatist attack in Ukraine backed by Russia.
- EU leaders also said they were willing to consider a response, changing from their prior talk of reducing the sanctions.
- "The EU has already introduced restrictions on trade, defense and energy links with Russia and has targeted dozens of Russian officials and separatist leaders with a freeze on assets and travel restrictions." (WSJ) Increased sanctions could mean more Russian companies excluded from Western financial markets, ban of more exports, or -- as a last resort -- removal of Russia from the Swift Network of global financial transactions.
- Election in Greece prompts conflict with EU over bailout terms
-- WSJ: 1/27
| NYT: 1/27
| FT: 1/27
- The leftist party, Syriza, which won the Greek election, and its newly elected Prime Minister Alexis Tsipras, has promised to reverse the public spending cuts that were demanded of it by the EU, ECB, and IMF (the "Troika") in return for a bailout of its public finances and were agreed to by the previous government.
- If it delivers on this promise, as seems likely, the EU will have to decide how to respond and may force Greece into default on its debt and exit from the euro. The EU resists doing that, in part out of fear of encouraging similar political outcomes in other stressed EU countries.
- Tsipras is also demanding that the EU forgive 1/3 of its debt, while the EU, on the other hand, is requiring further reforms by the end of February in order to pay the last part of its bailout.
- China's currency now the 5th most used
-- WSJ: 1/28
| FT: 1/29
- Based on data from the Swift international currency clearing system, 2.2% of world payments are now conducted using the Chinese currency, the renminbi.
- This puts it at number 5, after the US dollar, the euro, the British pound, and the Japanese yen, and now ahead of the Canadian dollar and the Australian dollar.
- China as made changes in institutions and policies to encourage use of the renminbi, and its use more than doubled from the previous year.
- US dollar rise is hard on US firms
-- WSJ: 1/21
| NYT: 1/25
- The dollar has risen 19% since May against a basket of currencies, and much more against the euro.
- The US government's official position is that a strong dollar is good for the US, and it usually does reflect the strength of the US economy. But the strong dollar is harmful in many ways to the US economy.
- Firms selling US-made products abroad find dollar value of their foreign prices falling, and can't raise them fast enough. And if they do, demand falls. Profits take a hit either way. In contrast, US firms that use inputs from abroad for products they sell in the US, find the inputs cheaper and they do better. US tourists abroad benefit and are more likely to travel there. Foreign tourists in the US are hurt, and reduce their visits to US, which also hurts US companies that sell to them here.
- European Central Bank begins policy of Quantitative Easing
-- WSJ: 1/23
| NYT: 1/23
| FT: 1/23
- ECB President Mario Draghi announced the start of a program of Quantitative Easing, buying €60bn-a-month of European bonds to stimulate the eurozone economy. This will include both government and private sector bonds.
- The reason is weakness of the eurozone economies, and in particular the threat of deflation -- the rate of price inflation becoming negative. The aim of the policy is to raise the rate of inflation to the ECB's target of just under 2%. The move is resisted especially by the government of Germany, which fears that this will reduce pressure on other eurozone members to reform their economies.
- The ECB is the last major central bank to embark on QE. The US Fed did it first and was followed by the UK and Japan.
- Davos meeting addresses the state of the global economy
-- WSJ: 1/21
- Events over the last year have weakened the interconnections of the global economy, hurting the process of globalization that has "helped raise hundreds of millions out of poverty," said the director of a London think tank at the annual Davos meeting of world leaders.
- "...I think that the prospects of European deflation and a sudden stop in growth in China are the two things I’d be most worried about," says an economist at Harvard's Kennedy School.
- Unexpected events of the past year included the Russian invasion of Crimea and the unrest in Ukraine, and the drop in the world price of oil.
- Oil price falls to new lows
-- WSJ: 1/13
| NYT: 1/13
- The price of oil on world markets fell below $50 per barrel for the first time in almost six years. Price had already fallen by half during 2014.
- OPEC, the Organization of Petroleum Exporting Countries, has considered and rejected the option of reducing output in order to support the price.
- Fall is good news for drivers, bad news for oil producers, including the shale-oil producers in the US.
- Politics in Greece raise anew concerns about it leaving the euro.
-- WSJ: 1/12
| FT: 1/12
- Greece will have an election on Jan 25, and the leading candidate promises to end the austerity imposed on Greece by the EU and IMF to bail it out of its financial crisis.
- Though the candidate no longer disavows the euro, many question whether Greece will be able to stay in the Eurozone without the support of other members that will be conditional on continued austerity in Greece.
- Some outside Greece are now questioning also whether keeping Greece in the Eurozone is really that essential, although the creation of the euro was intended to be permanent for all members.
- Swiss central bank stops intervening to keep its currency value down
-- WSJ: 1/16
| NYT: 1/16
| FT: 1/16
- Switzerland had maintained a ceiling on its exchange rate against the euro for over three years. On January 15, they ceased their intervention and their currency rose 39% against both the euro and the dollar.
- Switzerland had tried to keep its currency value down because the attractions of their financial markets were pulling in investors and creating demand for their currency. They had been concerned that a currency appreciation would hurt their exports. But the intervention has swelled their holdings of foreign assets, and the expectation of monetary easing by the European Central Bank promised to cause an even greater inflow that the Swiss were unwilling to accommodate.
- The move was a surprise, as usually central banks communicate and coordinate their interventions, but the Swiss did not inform other central banks or the IMF before the change.