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.
Nov 28 - Dec 4
- Trump persuades Carrier to send fewer jobs to Mexico
-- WSJ: 11/30
| NYT: 12/1
| FT: 11/30
| WP: 11/30
- Donald Trump delivered on his campaign promise to stop the Carrier company from moving over 2000 jobs to Mexico. He persuaded Carrier's parent company, United Technologies, to keep 1000 of them in Indiana.
- As inducements to keep jobs in US, the state of Indiana (of which Mike Pence is governor) promised $7 million in economic incentives, and Trump promised that as president he would overhaul the tax code and ease regulations, both in favor of businesses.
- The tax incentives had been offered and rejected previously, so the deciding factor may have been the potential for Trump, as president, to penalize the company by cutting its access to government contracts. United Technologies has over $5 billion in federal contracts. "It may have a played a role in their equation," said Trump. "I never mentioned it. I didn’t feel I had to."
- OPEC decides to cut oil production
-- WSJ: 12/1
| NYT: 12/1
- At a meeting in Vienna, OPEC agreed to cut oil production by 1.2 million barrels a day, or about 4.5%. This came after an agreement in principle two months ago to cut production, after which output surged.
- The price of oil rose on international markets in anticipation and in response, by more than 8%. So did the share prices of U.S. shale oil producers.
- The largest cut, of 485,000 barrels per day, was agreed by Saudi Arabia. Iran, which resisted any cut at all, is allowed to increase output by 100,000 barrels per day. Other cuts are hoped for from non-OPEC members such as Russia.
- Currency news
-- WSJ: 11/30
| WSJ 11/30
| FT: 12/2
- Headline: "For Japan, a Weak Yen May Be Overvalued." Meaning: the depreciated yen is not as helpful for the Japanese economy has might have been expected, in part because so many Japanese companies produce abroad.
- Headline: "In the Upside-Down World of Zimbabwe, $100 Trades for $102." Zimbabwe adopted the US dollar as its currency in 2009 after hyperinflation. Now a shortage of dollars, the printing by government of a parallel US dollar currency, and concerns about the value of dollar-denominated bank deposits are pushing up the value of high-denomination US dollar currency. People will pay more than $100 in small bills or dollar deposits to purchase a $100 bill.
- Headline: "Erdogan’s call for low interest rates batters Turkish lira." After Turkey's central bank had raised its interest rate last week, President Erdogan said "There is no option other than cutting interest rates and I say no more." The currency depreciated 2% in response, and has now dropped more than 20% against the dollar this year.
- China takes the lead on trade agreements
-- WSJ: 11/19
| NYT: 11/20
| FT: 11/19
- With the demise of the Trans-Pacific Partnership after the election of Donald Trump, China is moving ahead with negotiating trade agreements, including with 15 other Asian countries in the RCEP (the Regional Comprehensive Economic Partnership) as well as an even broader Free Trade Area of the Asia-Pacific.
- Speaking at the 21-country Asia-Pacific Economic Cooperation summit in Peru, China's president Xi Jinping said that China would open the door to agreements to free up both trade and international investment. "China will not shut the door to the outside world but will open it even wider."
- Countries of Latin American, some of which had been parties of the TPP, now look to China for trade leadership.
- China vows retaliation if Trump raises tariffs, provoking trade war.
-- WSJ: 11/23
| NYT: 11/23
- US Secretary of Commerce, Penny Pritzker, said that China will retaliate with tariffs or other restrictions against the US if Donald Trump raises tariffs against China, as he said he would do during his campaign.
- For now, China's Vice Premier Wang Yang has said China will take a "wait and see" attitude toward the Trump presidency. They are hoping that US business interests will prevent Trump from precipitating a trade war.
- An editorial in a Communist Party newspaper predicts "A batch of Boeing orders will be replaced by Airbus, U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted."
- China imposes capaital controls
-- WSJ: 11/26
- In an effort to stem the outflow of funds, China said it will impose tighter controls on Chinese companies that seek to invest abroad. Special scrutiny will be directed at "extra-large" foreign acquisitions of $10 billion or more, as well as smaller investments by state-owned firms.
- The moves are a response to the falling value of the Chinese currency and to a surge of foreign direct investment out of China that rose more than 50% in the first nine months of this year.
- If it were not for the falling yuan, China would be encouraging outward FDI as it serves to acquire technology and management expertise.
- The TPP is dead
-- WSJ: 11/11
- The Trans-Pacific Partnership, an FTA of 12 countries including the US, has now been abandoned by the Obama administration.
- The hope had been to get it approved by the Republican majority in Congress during the lame duck session after Hillary Clinton, who opposed the TPP, would have been elected. But with the election of Donald Trump, who opposed the TPP even more strongly, the Republican leadership in Congress refuses to support the TPP.
- The failure of the TPP is expected to prompt China to push ahead faster with negotiating the RCEP -- Regional Comprehensive Economic Partnership -- a tariffs-only FTA that includes 16 countries in Asia and does not include the US.
- UK and India discuss possible FTA
-- WSJ: 11/8
| NYT: 11/8
- UK Prime Minister Theresa May visited India and focused on trade in her discussion with India's Prime Minister Modi. As the UK leaves the EU, she hopes to negotiate trade relationships with other countries such as India.
- Complicating the discussion is India's desire for greater availability of visas for Indian workers to enter the UK, given that the Brexit vote was largely about reducing immigration.
- India's complaints: The high cost of visas and "a requirement that foreign students from outside the European Union must find a job four months after they finish their studies or face deportation."
- Post-election currency news
-- WSJ: 11/13
| FT: 11/9
| FT: 11/11
- The Mexican peso depreciated 13% after the US election, reflecting concern over the policies that President Trump will enact regarding Mexico.
- Emerging market currencies depreciated also after the Trump election. In addition to the Mexican peso, the Brazilian real also fell in response to Trump's expected spending and tax cuts which will likely lead the Fed to raise US interest rates.
- The US dollar rose on exchange markets, its largest weekly gain in over a year. Some had expected the dollar to fall in response to Trump's protectionist proposals, but the expected rise in US interest rates seems to have mattered more.
Oct 31 - Nov 6
- Obama pushing to ratify TPP
-- WSJ: 11/2
- President Obama is pushing for the Trans-Pacific Partnership to be approved by Congress after the election, during the lame-duck session. He views the TPP as one of his signature achievements and part of his legacy.
- To prod members of Congress toward approval, he has been providing campaign support for allies that he hopes to persuade to vote yes. He is also working with prominent Republican lawmakers, as passage is likely to require more Republican votes than Democrats.
- The argument he and his cabinet are making is less about the economics of the TPP than about its importance for foreign policy, shoring up alliances around the Pacific and countering the growing influence of China.
- Egypt lets its currency float
-- WSJ: 11/4
| NYT: 11/4
| FT: 11/3
- Egypt's central bank stopped trying to support its currency, the Egyptian pound, letting it float and depreciate to the level that it had been trading on the black market. Efforts to support it had been inadequate due to a shortage of reserves, and the government had been rationing foreign exchange. Moving to a floating exchange rate was a surprise, as "analysts had expected it to opt for a managed float of the currency or announce a sharp devaluation."
- This was in response to weakness in the economy, including the low revenues from tourism and low foreign direct investment. Egypt has been pressed by international lenders, such as the IMF, to let its exchange rate reflect market forces.
- One reason for the need to devalue has been the high rate of inflation in Egypt, reaching 14.1% in September. Consumer prices will be pushed even higher by the devaluation, however, and this may provoke further social unrest.
- German economists say that the ECB's monetary stimulus is now "inappropriate"
-- FT: 11/2
- A German Council of Economic Experts, which issues a report annually, now says that the "exceptionally loose monetary policy," including negative interest rates by the European Central Bank, is no longer appropriate and risks financial instability.
- The ECB president, Mario Draghi, had said last month that it had no plans to stop carrying out quantitative easing after the current program is scheduled to end in March 2017.
- The German group said, "Willingness to reform has faded, and some member states lack necessary budget discipline. Monetary policy masks these problems and increasingly threatens financial stability. An exit from the expansionary monetary policy is becoming more and more difficult."
- China's currency continues to fall, but markets don't care
-- WSJ: 10/25
- The Chinese yuan has fallen 1.6% against the US dollar in October, but this has not prompted markets to flee the yuan as happened last year when the Yuan dropped suddenly.
- The drop this time has been more gradual, and seems to reflect a rising dollar, rather than a falling yuan, since the yuan has risen against the euro and the Japanese yen.
- China manages the value of the yuan, now using its massive foreign reserves to slow its fall. But it is "burning through its foreign-exchange reserves" which "fell by $18.79 billion in September to $3.17 trillion."
- Canada-EU FTA moves ahead
-- NYT: 10/28
| FT: 10/28
| FT: 10/27
- Regional leaders in Belgium dropped their objections to Belgium signing the CETA -- the Comprehensive Economic and Trade Agreement -- an FTA of the EU and Canada. Farmers and other workers in Wallonia had protested the CETA outside the EU headquarters in Brussels, believing that global competition is undermining their livelihood.
- This opens the way to Canada and the EU signing the agreement at a summit meeting on Sunday, Oct 30.
- Wallonia's premier, Paul Magnette, said negotiations had led to a better deal for Wallonia's farmers and improvement in CETAs arbitration system. "The amended and corrected CETA is more than just the old CETA. It offers more guarantees and it is what I will defend," he said. However, Charles Michel, Belgium’s prime minister, said "The treaty itself has not been touched, not a comma has been touched."
- Sweden's currency drops to six-year low
-- FT: 10/27
- Sweden's currency, the krona, fell to a six-year low on Thursday. It fell one percent against the euro, to SKr9.82/€. This is almost its lowest ever, having hit SKr10.00/€ only once, during the financial crisis.
- The reason was a surprise announcement by the Swedish Central Bank, the Riksbank, that it would keep its key interest rate at negative 0.5% for six months longer than previously said.
- The Swedish economy has been doing well lately, which had led some to expect the currency to rise. The finance minister had said that the krona's decline was "not really logical" and a local bank said it was "fundamentally unjustified." However, the governor of the Riksbank welcomed the fall, since it will contribute to higher inflation.
- Canada-EU FTA in jeopardy
-- WSJ: 10/22
| NYT: 10/22
| FT: 10/21
- The Comprehensive Economic and Trade Agreement (CETA), a free trade agreement that was negotiated between Canada and the European Union, now looks like it may not be approved by the EU. Wallonia, a poor, southern region of Belgium, has prevented Belgium's government from approving the deal, which must be approved by all the member countries of the EU in order to go into effect.
- The Walloon minister-president, Paul Magnette, "wants to curb the power of corporations in future EU trade agreements with the U.S. and other countries," and is not opposed to Canada per se. Rather, he is concerned with the adverse economic effects of globalization. But the main concern of many in Wallonia is their dairy industry, and competition with Canada's cows.
- EU negotiators have tried hard to satisfy the concerns of those blocking the agreement, but so far without success.
- American lobsters declared not an invasive species in the EU
-- FT: 10/14
- The Swedish government had requested that Homerus Americanus, the American lobster, be banned as an invasive species, because 32 lobsters had been found in Swedish national waters since 2008. Concern was that American lobsters would spread disease and reproduce together with European lobsters, creating hybrids.
- An EU scientific committee had given provisional approval to the move, but without support from other EU member states, that decision has now been reversed. There had been fierce lobbying by both the Maine lobster industry and by the European restaurant industry, where American lobsters are popular.
- Maine's lobster industry suspects that the lobsters in Swedish waters were put there by animal rights activists to protest the way lobsters are prepared as food (they are boiled alive). "It’s a lobster liberation thing," said one.
- China moves further away from being named a currency manipulator
-- FT: 10/14
- The US Treasury keeps a "currency watchlist" based on three criteria suggestive that a country may be a "currency manipulator." China now meets only one of these criteria, and may leave the list completely early next year. Others on the watchlist are Germany, Japan, South Korea, Switzerland, and Taiwan.
- The change was that China's current account surplus fell below 3% of GDP for the year ending in June. For the past 18 months, China has been intervening in the exchange markets to keep the Chinese currency from falling, not to keep it from rising as a currency manipulator would do.
- Presidential candidate Donald Trump has said that he would declare China a currency manipulator on "day one" of his presidency. Doing so would likely prompt the US to levy tariffs on China's exports, which could in turn cause a trade war.
- 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.