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.
- Leaders of US, Canada, and Mexico met in Mexico, marking the 20th anniversary of NAFTA
-- WSJ: 2/20
| NYT: 2/19
| FT: 2/19
- Barak Obama, Stephen Harper, and Enrique Peña Nieto, the met in Toluca, Mexico, for their "Tres Amigos Summit" marking the 20th anniversary of the North American Free Trade Agreement, NAFTA. They announced several agreements, to ease travel among the countries for people and for goods. But the meeting was a disappointment, in that Obama faces opposition at home on both trade and immigration.
- In the 20 years of NAFTA, jobs have not moved from the US and Canada to Mexico, as some feared, but neither has Mexico's income risen relative to the others, as many hoped. Intra-regional trade has grown, but not faster than trade with the rest of the world.
- Obama's trade representative, Michael Froman, argues that the negotiation of the Trans-Pacific Partnership, TPP, which includes Canada and Mexico, represents Obama delivering on his campaign promise to "renegotiate NAFTA." Critics scoff.
- France making changes to attract FDI
-- NYT: 2/17
| FT: 2/17
- President François Hollande met with foreign investors and promised to limit taxes and simplify regulations, in order to make France more friendly for inflows of foreign direct investment. He also promised grants for foreign startups.
- As a socialist president, not previously very friendly to business, his time in office has been marked by a slump of inward FDI. He responded recently to rising unemployment with a "responsibility pact" that would cut labor costs and simplify labor regulations.
- Corporate taxes in France are currently higher than in Germany, and he promises to "harmonize" with Germany by 2020.
- The US Fed issued its final rules on US operations of foreign banks
-- NYT: 2/19
| FT: 2/19
- In the works for several years, these rules have now been weakened somewhat for foreign banks, but they are still viewed as harsh. Mainly, the Fed pushed back by one year the deadline for compliance.
- The aim is to lessen the likelihood that the US government will be asked to bail out banks when they get in trouble, including the US operations of foreign banks. To accomplish this, the Fed is requiring larger foreign banks to hold greater "capital" in their US operations, not just have access to capital held abroad.
- Though the rules on foreign banks are the same as have applied for some time to US banks, the foreign banks still complain that the rules create an "uneven playing field." Officials in Europe have said they might retaliate against US banks in Europe.
- Data on China's trade are questioned
-- WSJ: 2/13
| FT: 2/13
- China reported exports up in January by 10.6% and imports up by 10%. This was unexpected, leading analysts to question the data.
- This is not unusual, as China's reports of data in February are often strange and hard to interpret. The reason is the week-long holiday of the lunar calendar, which moves around from year to year. Economic activity responds to this holiday, but in unpredictable ways. This is partly because of a mass migration of workers to their homes for the holiday.
- Another explanation, however, is that exporting firms were "over-invoicing" export shipments in order to circumvent capital controls (thus disguising capital inflows as receipts for exports).
- Switzerland votes to restrict immigration
-- WSJ: 2/10
| NYT: 2/10
| FT: 2/10
- 50.3% of voters voted to extend a quota system on non-EU immigrants to cover EU immigrants as well. The Swiss government had opposed this initiative, but it was pushed by the ultraconservative Swiss People’s Party. The referendum does not specify the size of quotas, which might perhaps be set high enough not to bind.
- Swiss net immigration has been about 1% of population for the last seven years. This has caused concern about competition for jobs and has been said to push up property prices and rents and to congest the local transport system.
- This is contrary to a 1999 agreement that Switzerland signed to allow Swiss and EU nationals to move freely. That agreement also included access to other important markets, which this will invalidate, and may make it harder for Swiss businesses to operate in the EU.
- Kazakhstan devalues currency by close to 20%
-- WSJ: 2/12
| NYT: 2/12
| FT: 2/12
- The Kazakh central bank, the National Bank of Kazakhstan, devalued its currency, the tenge, by almost 20% on Tuesday.
- This came as a surprise, as the economy was doing well and its international reserves were not declining.
- The move is an effort to remain competitive with currencies in nearby countries, including Russia, Ukraine, and Turkey. But these and other changes are widely attributed to the US "tapering" of monetary expansion.
- US gray-market car exports to China
-- NYT: 2/12
- US is trying to crack down on "gray market" exports: Goods bought at retail in the US and sold abroad at higher prices, contrary to the wishes of their producers. A spokesman for BMW says: "Illegal exports deny legitimate customers here in the U.S. the popular vehicles, which are in high demand."
- A stark example is a Florida businessman who buys luxury cars in the US for $55,000-$75,000 and sells them in China for three times those prices. "We’re taking advantage of a legitimate arbitrage situation," he said. This trade amounts to an estimated 35,000 cars per year.
- These exports violate the policies of the car manufacturers, and the US government, through the Secret Service and federal prosecutors, attempts to enforce those policies, especially when the traders make false claims in order to purchase and ship the cars. The Florida man claims there is no law against this, however, and is fighting it.
- US trade deficit increases in December
-- WSJ: 2/7
| NYT: 2/7
- The US trade deficit rose from $34.56 billion in November to $38.70 billion in December, as exports fell 1.8% and imports rose 0.3%. Increase was expected, but not this large.
- Decline in exports is attributed to slowing growth abroad. Exports to Europe fell 8.9%. But exports fell also to Canada, Mexico, China and Japan.
- Over the whole year, however, exports were up and imports down -- especially of energy. The trade deficit for the full year was the smallest since 2009.
- Investigators probe foreign exchange (Forex) manipulation
-- NYT: 2/4
| FT: 2/4
- Allegations that traders have colluded to rig exchange rates have prompted a global investigation, said to be as bad as the previous investigation of manipulation of the Libor (London Inter-bank Offer Rate) interest rate that began three years ago.
- Regulators in London, Europe, and the US are investigating, with cooperation from at least 15 large banks, some of which have fired some of their traders. The result, as with the Libor scandal, may be banks having to pay another billions of dollars in fines.
- The claim is that firms and individuals were using chat rooms and phones to rig prices that were then used as benchmarks for other trades.
- Dutch far-right politician calls for the Netherlands to exit from EU
-- WSJ: 2/6
| FT: 2/6
- Dutch politician, Geert Wilders, of the far-right Freedom Party, presented a study that said the Netherlands would be better off if it left the European Union. He points to Norway and Switzerland, both outside the EU and doing well, as examples of what the Netherlands could achieve if it left the EU.
- Such an exit -- dubbed "NExit" -- would according to the study restore Dutch sovereignty, create jobs, boost income, and allow its companies to grow. Concerns include the money that the Netherlands pays for the EU to transfer to poorer countries, plus the opening of migration from some of those countries. Economists argue that NExit would be disorderly and harmful for both the Netherlands and the rest of the EU.
- Wilders's party is leading in the polls for the election to the European Parliament, due in May. Wilders is one of several populist leaders in EU countries who are doing well in the polls arguing against the EU. Wilders first achieved prominence, but not popularity, with anti-Muslin rhetoric. His shift to being anti-EU has made him more popular.
Jan 27 - Feb 2
- Reid opposes Fast Track
-- WSJ: 1/30
| NYT: 1/31
| FT: 1/30
- Senator Harry Reid, Majority Leader, said that he would oppose passing Trade Promotion Authority (TPA), also known as Fast Track. This is a blow to President Obama's agenda for negotiating trade agreements with Asia and Europe, which are supported by many Republicans.
- Fast Track sets a time table for considering international trade agreements, and requires they be voted up or down without amendment. The latter is considered crucial for getting other countries to sign on to agreements, since without it any agreement is subject to change by the US Congress. Obama had called for Fast Track in his State of the Union message the day before.
- Reid, like many other Democrats, has long worried that trade agreements will hurt US labor, as well as human rights and the environment. He worries now that it will hurt the Democrats' chances of keeping its majority in the Senate in the 2014 elections. However, until now he has avoided publicly disagreeing with Obama on this.
- Google sells Motorola to China's Lenovo
-- WSJ: 1/30
| NYT: 1/30
| FT: 1/30
- Google, having bought the mobile phone business of Motorola two years ago for $12.5 billion, has agreed to sell it to China's Lenovo for $2.91 billion. Lenovo is the computer company that earlier bought IBM's PC business and, last week, bought IBM's server business.
- Google's main motivation in buying Motorola was to obtain its patents, and doing so risked antagonizing other hardware makers that use Google's Android software. In the sale to Lenovo, Google will keep the majority of the patents.
- Lenovo is attracted by getting improved access to the US market, but the deal will still have to be approved by CFIUS, the Committee on Foreign Investment in the U.S., which watches for national-security concerns and has blocked other international investments.
- Republicans re-open consideration of US immigration reform
-- WSJ: 1/31
| NYT: 1/28
| FT: 2/1
- Seven months after the Senate passed an immigration bill, Republican leaders of the House of Representatives went public with a set of principles for immigration reform. It includes a path to legal status for many adult illegal immigrants and a path to citizenship for those brought to the US illegally as children.
- Many other Republicans oppose this, wanting either to abandon it or postpone it until after the next elections. The latter fear that this issue will divide Republicans at a time when they might otherwise by unified in opposition to Obama.
- A major motivation for the pro-reform contingent is to attract Latino and other immigrant voters to the Republican Party. Another is to slow the outflow of high-skilled workers who train in the US but then are not allowed to stay and contribute to the US economy.
- Argentina currency falls sharply, causing fears for other emerging markets
-- WSJ: 1/25
| NYT: 1/25
| FT: 1/25
- The Argentine peso fell 10% on Thursday and continued to fall on Friday, prompting concerns about other emerging market currencies, which then also fell. Some were reminded of the "financial contagion" that afflicted Asian currencies and others in 1997, though others insist this is not the same.
- The fall is caused in part by expectation of US monetary tapering and by slowing growth in China, but more directly it is caused by (and is also a cause of) high inflation in Argentina.
- Argentina responded Friday by loosening limits on purchases of dollars. Meanwhile, the Argentine central bank has spent heavily out of his dollar reserves to stem the fall in the peso. Reserves have fallen from $52.6 billion three years ago to $29 billion. On Friday alone they spent $160 million.
- World elite gather at Davos
-- WSJ: 1/24
| NYT: 1/21
| FT: 1/22
- The annual World Economic Forum at Davos, Switzerland, convened last week, with such notables Shinzo Abe, Bill Gates, and Matt Damon joining the CEOs of many of the world's largest businesses. Not attending, however, were Warren Buffett, nor the CEOs of Apple, General Electric, Google, and Facebook.
- The atmosphere at Davos always mirrors the world economy, and this year it is optimistic. This year, unlike the last several, it is growth of the US economy that is feeding this optimism, as emerging markets are showing cause for concern, especially slower growth in China. One theme was that technology is now leading the world economy, instead of banking and finance.
- Also present were heads of state and diplomats, seeking to solve the problems of the Middle East: US Secretary of State John Kerry, Iranian President Hasan Rouhani, Syrian Foreign Minister Walid al-Moallem, and Israeli Prime Minister Benjamin Netanyahu.
- New restrictions on electronic trade
-- FT: 1/22
| FT: 1/25
- Argentina, in an effort to curb capital flight, on Wednesday imposed restrictions on online shopping. Buyers on Amazon.com and similar sites must now sign a declaration and submit it when they collect their packages at the customs office. And they are limited to two purchases per year, up to a value of $25, beyond which they pay a 50% tax. The policies are explicitly protectionist, as a cabinet official said "We must ask ourselves if we want Argentine industry, Argentine workers."
- Russia is requiring extra paperwork on all parcels for personal use, with the result that DHL and FedEx have suspended deliveries to individuals in Russia. The motive is said to be to prevent consumers from evading import taxes by underreporting value of goods they purchase.
- US Congress fails to approve increased funds for IMF
-- FT: 1/14
- In 2010, led by the US, G20 had agreed that advanced economies would increase the role of emerging economies in IMF and also increase its funding.
- The US budget package agreed Jan 13 did not include increased funds for IMF, in spite of intense lobbying by US Treasury and the White House.
- This breaks the "contract" that the US had with other countries and will prevent reform that would have made IMF governance fairer for emerging economies.
- Indonesia bans mineral exports
-- NYT: 1/12
| FT: 1/12
- Indonesia announced a ban on unprocessed mineral exports, effective Jan 12 2014, but not actually binding for major exporters until 2017. Indonesia is a major producer of the world's gold, nickel, copper, tin and thermal coal. It produces more than 15% of global nickel supply.
- Purpose is to push mineral companies to process minerals inside Indonesia, increasing the "value added" there. Companies are required to build smelters to convert ore into pure minerals by 2017.
- Government claims this will promote industrial development. Mining companies and economists say it will cause mass lay-offs and reduce export revenues.
- US Democrats are critical of Trans-Pacific Partnership (TPP)
-- WSJ: 1/15
| NYT: 1/15
- White House wants "fast track" rules for passing trade agreements, but Democrats fear that TPP will reward countries with poor records on human rights and environment.
- Documents leaked by WikiLeaks show that the environmental chapter of what is being negotiated looks like US is giving in to the other 11 TPP countries, allowing environmental protections to be not legally binding.
- USTR Froman says "We have worked closely with the environmental community from the start and have made our commitment clear." But the other 11 countries argue that strong enforceable environmental rules would hurt their growing economies.