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 questions about some of them on exams.
- China FDI into US is raising concerns in US
-- NYT: 10/6
- As China has expanded its ownership of companies in the US, members of the US government are considering expanding reviews of these investments and perhaps blocking more of them than is now done.
- The Committee on Foreign Investment in the United States (CFIUS), an inter-agency group guided by the US Treasury Department, has in the past occasionally signaled concerns about certain foreign investments in the US on grounds of national security, and these investments have usually then not gone ahead.
- A recent investment that has prompted this concern was the purchase by the Chinese Dalian Wanda Group of both a Hollywood production company, Legendary Entertainment, and the AMC Theaters chain. Lawmakers have expressed "growing concerns about China’s efforts to censor topics and exert propaganda controls on American media."
- The UK currency falls suddenly in value
-- WSJ: 10/7
| FT: 10/7
- The British pound fell more than 6% against the dollar in just 2 or 3 minutes during the morning of October 7 in Asia. This was its biggest drop since June 24, after the Brexit vote, and it reached the pound's lowest level since May 1985. It quickly bounced back, but was still trading down 1.8%.
- The pound has fallen 4.6% since the UK Prime Minister, Theresa May, announced that formal proceedings to take the UK out of the EU would begin in March 2017. The drop began the same minute that the Financial Times reported that the French President, Francois Hollande, said that the EU would take a tough stance over Brexit negotiations.
- Such a large and rapid change is likely the result of computer automated trading on the exchange markets, with computers monitoring news releases. But some disagree and attribute this either to human error or to humans trying to manipulate the market.
- Globalization is slowing and anti-globalization is rising
-- WSJ: 10/6
| NYT: 10/4
| FT: 10/7
- Leaders at meetings in Washington, DC, of the IMF and World Bank are concerned that both FDI and trade have dropped or are growing more slowly than before. At the same time, many politicians are advocating trade barriers to stimulate their own economies. And both are related to a slowdown in global growth, which the IMF forecasts at only 1.6% this year.
- Both the trans-Pacific TPP and the trans-Atlantic TTIP appear unlikely to be approved (TPP) or completed (TTIP) this year, as had been hoped. And there has been a sharp increase in anti-trade measures (anti-dumping, etc.).
- There was concern, too, about the anti-trade rhetoric of some political figures in the US and Europe. Most avoided mention of Donald Trump, but "He has been a sort of Voldemort for the global economic order — like the villain in Harry Potter, his name is spoken only in hushed tones and behind closed doors."
Sep 26 - Oct 2
- OPEC agrees to cut oil output
-- WSJ: 9/29
- In a change of its position, the 14-member OPEC (Organization of the Petroleum Exporting Countries) agreed on the need to cut output of oil in order to increase its price.
- A committee will draft a plan on how much each member should reduce output, and that plan will be brought to a meeting November 30 in Vienna for approval. That will be contentious, but the cut is not expected to be large.
- OPEC hasn't limited production since 2008, in part because of efforts to keep market share in competition with US producers, and more recently because Saudi Arabia has refused to cut output unless Iran does.
- China's currency added by IMF to the SDR basket
-- WSJ: 10/1
| FT: 9/30
- The SDR (Special Drawing Right) is a basket of major currencies used by central banks as a reserve. The IMF has now formally added the Chinese renminbi to that basket -- which previously included only the dollar, euro, yen, and pound -- thus acknowledging the currency's importance in international trade and finance.
- China has been lobbying for this for years, and got the IMF to agree to it a year ago. The aim of China is "reducing the global dominance of the US dollar while also overcoming domestic opposition to currency reforms at home." The dollar is still by far the world's dominant currency in use, involved in 90% of all currency trades.
- China has been pushing for the SDR to play a larger role in international finance. The World Bank recently issued SDR-denominated bonds for the first time.
- Slump in global trade
-- WSJ: 9/27
| FT: 9/27
- The WTO forecast that global trade would increase by only 1.7% this year, the slowest since 2008, and well below its previous forecast. The IMF sees the world economy in danger of deflation and calls on governments to take action, and not just rely on central banks to stimulate their economies.
- The fall is accompanied by an increase in "anti-globalization rhetoric" in the US and around the world from populist politicians. This is a cause for concern, but the IMF says this is not a cause of the trade slowdown, which is due more to the slowing economy. Others disagree.
- It is expected that 2016 will be the first time in 15 years that world trade has grown more slowly than output.
- WTO rules that EU continues illegally to subsidize Airbus
-- WSJ: 9/23
| FT: 9/22
- Continuing a 12-year dispute between the EU/Airbus and the US/Boeing, the WTO has ruled that the EU has failed to eliminate its subsidies to Airbus, as it was required to do in an earlier WTO ruling.
- The US hailed the ruling as a victory, while the EU objected to parts of the report and will appeal the decision. A similar previous finding of US subsidies for Boeing still awaits a decision on a similar issue, which is likely to find against the US.
- If not resolved, the US may be permitted to impose more than $5 billion in annual tariffs against EU exports.
- Currency news:
-- WSJ: 9/21
| WSJ: 9/21
| FT: 9/20
- South Africa's rand rose in value due to rising prices for its exports of platinum and manganese.
- Japan's yen rose in value 1% on Wednesday, continuing its rise of 20% against the dollar in 2016. This is contrary the the intent and hopes of the Japanese government and central bank, "adding to the pressure on Japan’s fragile economy."
- Mexico's peso fell to its lowest level ever against the dollar, having fallen 13% this year and 33% over the past two years. Reasons are said to include prospects of higher US interest rates, the fall in prices of Mexico's oil exports, slower GDP growth, and the rise in the polls of Donald Trump.
- Canada and China begin talks for possible FTA
-- NYT: 9/22
- Prime Minister Justin Trudeau announced, during a visit to Canada by China's Premier Li Keqiang, that talks with China would begin on a possible free trade agreement.
- In August, Mr Li had made a similar announcement, but Canadian officials had said it was premature. Now it appears that several contentious issues -- labor standards, environmental protections and the role of Chinese state-owned firms -- have been resolved.
- This is part of Trudeau's efforts to develop stronger ties with China, efforts that have included that Canada is negotiating an extradition treaty with China.
- US lifts sanctions on Myanmar
-- WSJ: 9/15
| NYT: 9/15
- President Obama announced that the US would end its economic sanctions on Myanmar, after he met with Myanmar's de facto leader and Nobel laureate, Aung San Suu Kyi.
- Myanmar was known as Burma until 1989 after the country was taken over by its military. US sanctions were imposed in 1997. Removing the sanctions is meant to recognize and reward the moves the country has made recently toward democracy with last year's election that was won by Ms Aung San Suu Kyi. Some object that those moves are incomplete, especially as the military retains some seats in the parliament.
- The sanctions limit trade with Myanmar in jade and precious stones and limit Americans in doing business with the country's military officials and their affiliates. Other sanctions on doing business with Myanmar were lifted by Obama in May. And Myanmar will now be eligible for US trade preferences for developing countries. Sanctions imposed by Congress, related to North Korea and to arms sales and military cooperation, will remain.
- UK Approved the Hinkley Point Nuclear Project
-- WSJ: 9/16
| NYT: 9/16
- The UK government announced that it had approved the building of a nuclear power station, Hinkley Point, the first new plant in a generation. It will be owned 2/3 by the state-owned French firm EDF, and 1/3 by a Chinese firm.
- The project had been controversial in part because of the Chinese participation, but also because of a commitment to pay a high price for the electricity that it produces.
- Previously, the new Prime Minister, Theresa May, had put the project on hold due to security concerns, but this decision is apparently meant to signal that the UK is open to foreign investment in spite of the Brexit vote.
- World Bank President likely to serve a second term
-- FT: 9/15
- The President of the World Bank, Jim Yong Kim, is nearing the end of his five-year term and it now looks likely that he will serve a second term. This is of interest, because there is broad feeling within the Bank and also among policy professionals that he has not been effective and should be replaced.
- The implicit rules, ever since the Bretton Woods institutions were created after World War II, have been that the head of the World Bank would be American and the head of the IMF would be European. Pressures to give other parts of a world more of a role prompted the US to select Mr. Kim in 2012, as a Korean-born American. But as the President of Dartmouth, a medical doctor and an anthropologist, the development community did not view him, even then, as an appropriate choice.
- The reappointment is being pushed by the Obama administration before the election. No other candidates have emerged, and Mr Kim has been able to get the support of China, India, and Brazil for a second term.
- Hanjin bankuptcy strands cargo at sea
-- WSJ: 9/8
- One of the world's biggest shipping lines, Hanjin Shipping Co. of South Korea, filed for bankruptcy protection last week.
- As a result, the company's container ships are unable or unwilling to access ports and they are stranded at sea. Some ports won't let them in, because of uncertainty about who will pay for the port's services, as the company says it has no money. Other ports are being avoided in fear that creditors will seize the ships. They are carrying as much as $14 billion worth of cargo.
- Containers carry 95% of the world's manufactured goods. Of this, Hanjin accounts for only 3.2% of global capacity, but the disruption for those affected is substantial. Retailers are stocking up for the holiday season, and this may interfere with that, if not resolved soon.
- G20 Summit Meeting finished in China
-- WSJ: 9/6
| FT: 9/5
- Leaders at the G20 Summit in Hangzhou, China, which was held Sunday and Monday September 5-6, issued a communiqué calling for actions to increase global growth and improve the lives of ordinary citizens. They said they must "civilise capitalism" and address concerns about free trade and globalization.
- The communiqué steered largely clear, however, of a major topic of concern at the summit, which has been China's suplus of steel and its exports of steel onto world markets. It did include setting up a global body to monitor steel overproduction. China produces half of the world production of steel, and has begun to close some factories to deal with this.
- The leaders also committed to resist protectionist pressures and avoid competitive devaluations of their currencies.
- Egypt reimposed a zero-tolerance policy on imports of wheat contaminated with the fungus ergot
-- Economist: 9/3
- Most countries allow grain with up to 0.05% ergot, which is harmless. Egypt last year enforced a ban on imports with even trace amounts, which hardly any exporters could achieve. It disrupted markets, Egypt abandoned the policy, but now has reimposed it. This will likely reduce imports close to zero and push up prices both to consumers and to the government which buys wheat to provide low-cost bread to the masses.
- A UN study had found that the fungus posed no risk to Egyptian crops, but Egypt's own scientists ("pseudo-scientists" says the Economist) reached the opposite conclusion.
- This is only one example of many policies that Egypt uses to interfere with trade, motivated by protectionism and permitting corruption.