Trade War Erupts On No. 1 U.S. Farm Export to China

The Chinese’s retaliation measures have a strong impact on soybean.
The US price of soybean has dropped dramatically while at the same time its price in Brazil is surging.
Brazil which is already the main soybeans’ exporter will take advantage of the current mayhem between the US and China How a crop used in hog rations and cooking oil got caught up in a huge trade war — Read here www.bloomberg.com/graphics/2018-soybean-tariff/

Baldwin on Globalization: “A Lot of the Narrative Is Based on the US as If It Were the Whole World” –

Today, tariffs on USD 34bn of Chinese imports in the US will increase and China will do the same on US imports in China. That’s a nonsense policy as it will hurt both American and Chinese people.

I thought it was interesting to come back on the globalization process as described by Richard Baldwin in an interview with ProMarket. This interview was done on March 6 and Trump just started to announced measures on tariffs. Baldwin view is now more severe on Trump’s trade policy.

In a tweet today, he mentioned Navarro and Lighthizer a close counselor on trade and the US trade representative. ”Navarro & Lighthizer want to undo the global value chains – not liberalize trade that will encourage them”

This cartoon he tweeted this morning also reflects the absurdity of the current US trade policy

Observers in rich countries are seriously “misthinking” globalization, argues Richard Baldwin—and he has taken it upon himself to correct our error.
Now head of London’s Centre for Economic Policy Research and founder of its influential economics portal VoxEU.org, at the beginning of the 1990s the professor of international economics sat on George H.W. Bush’s CEA and for over a decade now has been attempting to make sense of the changes to international trade unleashed by the IT revolution about that same time. 

The outcome of this decade of thinking—and what Baldwin offers as the solution to our own misthinking—is his 2016 book The Great Convergence (which Larry Summers classed in the company of no less than Keynes as one of the five best books on globalization).

The book takes up the task of connecting the logic behind two remarkable changes to the distribution of global wealth:
1) the Great Divergence, when, starting with the Industrial Revolution in the early 1800s, the wealth of the G7 countries overtook that of the ancient civilizations, which had held the bulk of the world’s wealth for four millennia, at an extraordinary clip; and
2) the Great Convergence, which took off in the 1990s and has seen “a century’s worth of rich nations’ rise [reversed] in just two decades.” 

Baldwin explains these grand processes of divergence and convergence with what he calls the “three-cascading-constraints view” of globalization. As he tells it, prior to the Industrial Revolution, production and consumption were “bundled” geographically because of three constraints on trade: high transport costs, high communication costs, and high face-to-face interaction costs.

The first “unbundling” of production from consumption happened thanks to the steam engine and other innovations in transport starting in the 1800s. Production remained geographically clustered, though, due to high communication costs that required technical knowhow to be physically near other factors of production.

This all changed with the IT revolution of the 1990s, which lowered communication costs and facilitated knowledge transfer across global supply chains. This supercharged the Great Convergence between the G7 and the emerging economies.

The third constraint—the high cost of face-to-face interaction—remains largely in place, but not for long, says Baldwin.

In a recent interview with ProMarket, he explained why he believes the cat is out of the bag for globalization and the third constraint is likely to continue to disintegrate—regardless of Trumpism, tariffs, or trade wars. 

[This interview was conducted on March 6, 2018. It has been edited for length and clarity.]
Baldwin on Globalization: “A Lot of the Narrative Is Based on the US as If It Were the Whole World” –
— Read here promarket.org/baldwin-globalization-lot-narrative-based-us-whole-world/

Microeconomic impact of the White House’s trade measures

Nails, lobsters, peanut butter or bourbon all these products are suffering from the trade measures taken by the White House. The disruptions they imply are just anecdotal now but this will change progressively as these measures will persist. From microeconomic at the beginning, the impact will become macroeconomic and at the expenses of all.

Read more here

nyti.ms/2Ij6zI4

Economists are rebelling on economic protectionism

US economists are mobilizing against Donald Trump’s protectionist measures. The interdependence of developed and emerging countries, but also the dependence on global trade are today too important to take the risk of changing the rules abruptly. In view of the on cooperative political climate, we can not rule out retaliation and escalation that would be very detrimental to growth, employment and standard of living. The experiences of the past must necessarily help us to think.

“Over a thousand economists have written to Donald Trump warning his “economic protectionism” and tough rhetoric on trade threatens to repeat the mistakes the US made in the 1930s, mistakes that plunged the world into the Great Depression.

The 1,140 economists, including 14 Nobel prize winners, sent the letter on Thursday amid an escalating row over trade between the US and the European Union. Trump has imposed tariffs on steel and aluminium imports but has granted temporary reprieves to the EU, Australia and other countries.

“In 1930, 1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act,” the authors write, citing a trade act that many economists argue was one of the triggers for the Great Depression….”

Continue reading here in the Guardian

The virtuous loop between activity in the manufacturing sector and world trade

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The world trade rebound will continue in the forthcoming months. That’s what the graph between world trade growth and the Markit index suggests. The robust level of the manufacturing index is consistent with a stronger momentum on world trade.
Every region of the world shows an improvement in the manufacturing activity according to Markit. This will support a balanced growth scheme at the world level.A higher Markit index will boost trade and therefore world growth.

markitworld&worldtrade

The momentum at the world level is strong and robust. The Euro Area is in a catchup period with a high momentum on new orders and on employment. The business cycle is virtuous. There are reasons to be optimistic on the Eurozone environment.
The situation is more specific in the US after hurricanes. The most important contributor to the ISM increase is the item on delivery. There were strong needs and it was difficult to deliver due to disruption and delays.
The situation is robust in Japan and the Brits are still optimistic on their activity.
Indices for emerging countries are robust. The situation is good for emerging countries: growth in developed countries + higher commodity prices + growth in China is steady + good financial conditions (the impact of Fed’s hikes on interest rates have been very limited)
The marginal slowdown is associated with a marginally lower index in China.
world-markit-sept-2017

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