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.
- US trade deficit 2016
-- WSJ: 2/8
- The US deficit in its balance of trade on goods and services for 2016 was $502.25 billion, the largest since 2012. This included a larger deficit on trade in goods, and a surplus in services. Though larger in dollar terms, it was down slightly as a percent of US GDP.
- The deficit is likely to increase due to "potential for a stronger dollar, larger federal budget deficits and low national saving rates compared with much of the rest of the world." However, President Trump intends to reduce the deficit in order to stimulate the US economy.
- "The gap fundamentally reflects the fact that Americans consume more than they produce relative to the rest of the world. To shrink the gap, they would either have to produce more or consume less."
- China's foreign exchange reserves fall to 5-year low
-- FT: 2/7
- China's foreign exchange reserves fell below $3 trillion, for the first time in five years. However the rate of decline has slowed recently.
- Reserves had reached almost $4 trillion in June 2014, but since then China's central bank has been selling dollars from its reserves in order to slow the decline in the dollar value of it own currency, the renminbi. The renminbi fell 6.5% against the dollar in 2016, the largest annual decline ever.
- The central bank has tried to stem the flows by raising interest rates and restricting capital outflows.
- Price of gold rises
-- WSJ: 2/7
- The price of gold rose to its highest level in nearly 3 months, to $1,230 per troy ounce on the US gold futures market.
- The rise was unusual, in that gold usually rises when the world's economies are weak, but US and global economic data have been improving recently. The rise probably reflects political uncertainty more than economic weakness, as President Trump has clashed with allies and insurgent politicians in several European countries such as France have moved up in the polls.
- Gold last reached its all-time high of $1,900 per troy ounce in 2011 with the Greek debt crisis and concerns about the future of the Eurozone.
Jan 30 - Feb 5
- US to seek FTA with Japan
-- FT: 2/2
- Having pulled out of the Trans-Pacific Partnership, which included Japan, the Trump administration will now seek a bilateral Free Trade Agreement with Japan.
- President Trump will meet with Japanese Prime Minister Shinzo Abe on February 10, and this will be high on Trump's agenda.
- Mr Abe, who expended much political capital in Japan getting the TPP, will still be pushing the US to rejoin that, but, failing that, he may also be receptive to a bilateral FTA with the same provisions. Mr Trump, on the other hand, may push for additional and more restrictive provisions, such as on currencies and auto parts, that Mr Abe will find it hard to accept.
- Trump's trade adivisor accuses Germany of using undervalued currency
-- FT: Jan 31
- Peter Navarro, head of the Trump administration's newly created National Trade Council, said that the euro is "grossly undervalued" and that Germany is using it to "exploit" its US and EU trading partners.
- This is likely an indication that the Trump administration will be using exchange rates more broadly as subjects of criticism and negotiation. In another meeting, Trumap said of Japan and China, "They play the money market, they play the devaluation market, while we sit here like a bunch of dummies."
- The euro is controlled not by Germany but by the independent European Central Bank. The value of the euro has fallen recently relative to the dollar, as the ECB has used expansionary monetary policy while the US Fed has become more restrictive. The German government has opposed the easy money policies of the ECB.
- Mexico benefits from increased remittances from the US
-- WSJ: 1/30
- Remittances from Mexican immigrants in the US to their families in Mexico have increased since Trump's election, due to concern about effects on Mexico and due to the falling value of the Mexican peso.
- About $25 billion flowed from the US to Mexico in 2015, the largest remittance flow between any two countries in the world. The flow in November was 25% larger than a year earlier.
- President Trump, as a candidate, had suggested blocking remittances to Mexico as a way of pressuring Mexico to pay for his wall.
- Donald Trump limits immigration
-- NYT: 1/28
- Donald Trump issued an executive order immediately limiting immigration. Immigration of any sort from Syria is stopped indefinitely, and immigration from another six countries is stopped for 90 days: Iran, Iraq, Libya, Somalia, Sudan, and Yemen. In addition, admission of refugees from any country is suspended for 120 days.
- During these periods of suspension, the intent is to improve the process for vetting immigrants.
- The action prompted protests at airports where immigrants were being detained or turned back. It also prompted a federal court judge to block implementation of a part of the order.
- Trump formally withdraws from the TPP
-- NYT: 1/24
- The Trans-Pacific Partnership, a free trade agreement among 12 countries including the US but not China, had been a signature achievement of the Obama administration, though it had not been approved by Congress.
- On Monday, Trump signed the order formally ending US participation in the agreement. This was not a surprise, as the TPP had been presumed dead ever since his election, and was very uncertain of being approved by Congress even if Clinton, who said she opposed it, had been elected.
- Nonetheless, this was a strong signal that the Trump administration plans to pursue a different path on trade than all prior administrations of the last half century, both Democratic and Republican.
- UK Supreme Court rules that Brexit must be voted on by Parliament
-- WSJ: 1/25
| NYT: 1/25
- After UK voters in the referendum in June 2016 chose to exit from the European Union, the new Prime Minister Teresa May announced her intention to invoke the EU's Article 50 by the end of March 2017, starting the two-year process of negotiating the terms of exit. A lawsuit was then filed saying that membership in the EU could only be ended with the consent of Parliament, and that lawsuit was finally decided on Tuesday by the UK Supreme Court, confirming that.
- PM May will now hurry to submit legislation to Parliament, asking it to approve the Brexit action. The Parliament is expected to approve it, even though a majority of members opposed Brexit. They are likely, however, to try to dictate the terms of any agreement.
- The decision was expected. It had not been known, however, whether the court would insist that regional governments of Scotland, Wales, and Northern Ireland must be consulted, which would have at least prolonged the process since each was likely to be opposed. The court ruled, however, that Mrs. May does not need to consult them.
- UK PM May intends "clean Brexit"
-- WSJ: 17
| NYT: 1/18
- Prime Minister Theresa May says UK does not want "partial membership" in EU, meaning that UK will not try to remain part of the common market with zero tariffs on UK-EU trade, and that it will insist on control of immigration.
- Advocates of Brexit say the UK will be better off negotiating its own trade agreements with other countries, which it cannot do as part of the EU, and that it will also be free of the EU's onerous regulations. Opponents fear the loss of access to the EU market and disruption of UK industry.
- May has said that the UK will initiate the exit process by the end of March, thus starting a two-year period of negotiations on the terms of the exit.
- Elite meet at annual gathering in Davos
-- WSJ: 1/18
| NYT: 1/19
- Davos, Switzerland, hosted its annual gathering of heads of state, business leaders, and academics, the World Economic Forum. These are the elites that populist uprisings have opposed in backing Brexit, Donald Trump, and rising political stars in Europe.
- Meetings sought to "reform capitalism" to make markets and globalization more beneficial to the world's middle class. Emphasis was on things like training of workers, rather than on any policies of redistribution that might hurt these elites.
- These leaders were much more optimistic this year than in recent years, as business prospects have improved, and they expect economic stimulus and tax cuts from the incoming Trump administration.
- China's Xi defends globalization at Davos
-- WSJ: 1/17
| NYT: 1/18
| FT: 1/17
- In the first time that China's president has attended the Davos meetings, President Xi Jinping spoke strongly in favor of "economic globalization" (in contrast, perhaps, to just "globalization" which might include openness in non-economic areas).
- Other heads of state were absent from Davos, perhaps concerned with backlash against globalization and the elites. Germany's Angela Merkel did not attend. The US was represented by Vice President Biden and Secretary of State Kerry
- Mr Xi contrasted his own views with those of President-elect Donald Trump though without naming him. Trump has been critical of trade and especially China, . "Countries should view their own interest in the broader context and refrain from pursuing their own interests at the expense of others." "As the Chinese saying goes: People with petty shrewdness attend to trivial matters while people with great vision attend to governance of institutions."
- US to file WTO complaint against China over aluminum
-- WSJ: 1/12
| FT: 1/12
- President Obama has filed a new case at the World Trade Organization objecting to the cheap financing that China provides to its industry, specifically its aluminum industry. The claim is that this financing constitutes and illegal subsidy. Since similar financing is provided to other industries in China, the case has implications beyond aluminum, to other products such as steel which China has also been over-producing.
- Obama: "China gives its aluminium industry an unfair advantage through underpriced loans and other illegal government subsidies. These kinds of policies have disadvantaged American manufacturers and contributed to the global glut in aluminium, steel, and other sectors."
- This US action against China is not unusual. This is the 16th case that the Obama administration has brought against China in the WTO, in addition to many anti-dumping cases brought against China under US law.
- Indonesia relaxes export ban
-- FT: 1/12
- In 2014, Indonesia had banned export of some mineral ores, in an effort to promote the growth of its domestic industries for processing these minerals. This week it announced and end to the ban on exports of nickel ore and bauxite, and extended permission to export copper concentrate.
- The ban, though opposed by mining companies, had prompted them to pledge investment in smelters and other processing facilities. Now those companies and other investors fear that their investments will lose money. Removing the ban also caused the world price nickel (used to produce stainless steel) to fall 5% on Thursday to a 4-month low.
- The government of Indonesia has been under political pressure over various issues, including social inequality. According to one commentator, "The government is doing this at least in part because it is so spooked by the social unrest"
- Currency news
-- WSJ: 1/9
| WSJ: 1/11
| WSJ: 1/12
- China's reserves of foreign currency continue to drop, as it supports the yuan. Its reserves are now the smallest since March 2011. The declining value of the yuan has prompted capital outflows from China, which are resisted by capital controls but nonetheless make the problem worse.
- Turkey's currency, the lira, has been falling ever since the government imposed a state of emergency after the failed coup attempt in July. Efforts to stem the decline, such as exhorting the public to sell off their foreign-currency savings, have not succeeded, and the currency tumbled 1.9% in Istanbul on Tuesday.
- Mexico's peso has fallen to record lows, prompted by concerns about President Trump's trade policies toward Mexico. In his press conference this week, Trump said "Mexico has taken advantage of the United States. It’s not going to happen anymore."