US Policy Changes Vol.37 (Trade Vol.5 – Metro areas, Currency exchanges, Globalization)

Here are @BrookingsInst’s articles on trade, metro areas, currency and globalization. Excerpts are on our own.

Americans most affected by trade voted for Trump (12/14/2016) | @joeparilla and @MarkMuro1 @BrookingsMetro
… Economic theory acknowledges that global trade offers benefits that should be celebrated and exacts costs that cannot be ignored. As the Council on Foreign Relation’s Edward Alden details in a new book, this reality led to the creation of the U.S. Department of Labor’s Trade Adjustment Assistance (TAA) in 1962. …
brookingsinst-tradedisplacement
The program’s Consolidated Petitions Database, which has been geocoded and provided online by Public Citizen, offers an estimate of the number of workers at trade-affected companies, including both layoffs and employment reductions through attrition. …
… Since 1994, the top 10 metro areas in terms of total TAA-certified workers include the largest metros in the country — New York, Los Angeles, Chicago, Dallas, Philadelphia, and Boston. Also in the top 10 are export-intensive midsized metros like Detroit, Charlotte, and Portland. El Paso — on the U.S.–Mexico border — rounds out the top 10. Small metro areas—those with populations between 50,000 and 500,000—house 21 percent of TAA-certified workers while micropolitan areas (those with populations under 50,000 residents with a core city of at least 10,000) and rural areas account for a combined 29 percent of TAA-certified workers.
… the most intense effect of trade displacement is in smaller communities in the Midwest and South… …the Carolinas, Tennessee, Pennsylvania, and parts of Ohio and Michigan that depend on manufacturing industries that are subject to global competition and technological automation (Map 1). …
Yet business as usual will not suffice. The TAA program, as it is currently deployed, has not been particularly effective in helping displaced workers. Its scale is insufficient relative to the scale of displacement. Indeed, MIT’s David Autor and colleagues find that most displaced workers rely on Social Security and disability benefits rather than the retraining resources provided by TAA. …

Rise in dollar shows short-term support of Trump’s pro-business platform (12/7/2016) | Barry P. Bosworth @thehill @BrookingsEcon
… However, it is also important to view these changes from a longer-term perspective where the value of the dollar has been steadily appreciating for the past five years – 30 percent since early 2011. During that period the United States has been a lone bright spot in the global economy.
With unemployment below the historic norm, record levels of corporate profits, and the Federal Reserve now poised to raise interest rates, financial capital is being redirected to dollar-denominated assets. It is the judgment of global investors that the United States has completed its long recovery from the financial crisis and is on the verge of a return to normality. …
… On the other hand, for those who are employed in export-based jobs, the high cost of American-made goods will tend to drive down exports and increase the pressures to produce abroad.
Second, for comparisons with trade, it is important to focus on real, or inflation-adjusted, values since, for many countries, the change in the nominal exchange rate is simply an offset to relatively high rates of domestic inflation. …
… Most recent studies of U.S. trade suggest a lag response stretching over 2-3 years.
Those studies also typically conclude that a 10 percent appreciation of the dollar would lead to a long-run increase in the U.S. trade deficit by about 1 percent of GDP. Thus, we should anticipate that a continued strong dollar should exert a drag on the U.S. economy as a widening of the trade deficit from the current 3 percent of GDP to about 4 percent in the next 1-2 years.
… At present, the strong dollar reflects investors’ relative optimism about their prospective returns on dollar-denominated assets, and not a precursor of a deteriorating trade performance. …

Donald Trump and the future of globalization (11/18/2016) | @BrinaSeidel and @laurencechandy @BrookingsInst
Figure 1: Globalization trends, 1870-2015
Figure 2: Global shares of trade, capital markets, and migration
We may see countries retaliate against U.S. protectionist policies. … The threat has already been made explicit by the state-sponsored Chinese tabloid, Global Times, which proposed that China respond to aggressive trade policies by cancelling contracts with U.S. suppliers…and by…Nicolas Sarkozy who has suggested that the Europe Union impose a tax on U.S. products and limit the participation of foreign companies in EU public contracts if Trump withdraws from the Paris climate accord.
… In the past week, politicians from Italy, Hungary, Greece, and elsewhere have invoked Trump’s victory as justification for policies that reverse the pattern of globalization.
Alternatively, countries may repudiate global norms and institutions that underpin the globalized economy, if they feel that the U.S. is no longer committed to upholding the liberal economic order. …

Is globalization’s second wave about to break? (w PDF; 10/4/2016) | @BrinaSeidel and @laurencechandy @BrookingsInst
… Globalization’s first wave, which lasted from 1870 to 1914, is viewed today as the embodiment of the liberal open economic paradigm. … For instance, around half of all British savings were channeled abroad over this period, while half of Argentina’s entire capital stock was foreign owned by 1914. …
… The passage of the Smoot-Hawley Tariff act in the U.S. against the backdrop of the Great Depression set off a retaliatory backlash among the world’s major economies that crippled global trade. …
The essence of globalization is the movement of goods, money, and people across international borders. …Figure 1
We find that, while the process of economic integration has slowed, there is only limited evidence so far of an absolute decline. In addition, today’s level of integration matches or exceeds the heights of globalization’s first wave. This could equally imply that globalization has reached unsustainable levels or that no such levels exist.
… First, one of our three series (goods) is a measure of flows, whereas the other two (money and people) are measures of stocks. … Second, our series for goods and money are expressed in terms that differ from contemporary measures cited in economic reports and the media. …
GOODS
… At the end of the first wave of globalization in 1913, merchandise exports peaked at 7.9 percent of global GDP. That peak was surpassed as early as 1970, when tariff reductions under the General Agreement on Tariffs and Trade were still at an early stage, the standardization of shipping containers was being established, and the rise of export manufactures from the developing world had yet to occur. Goods exports have since been propelled to far greater heights, reaching 19.7 percent of global income in 2008.
That share stood at 15.1 percent in 2015, having declined continuously for the previous four years. …
The recent slump in trade growth… Both cyclical and structural factors are at work. The latter include the exhaustion of gains from both the incorporation of previously-closed economies into global markets and the fragmentation of value chains across borders—commonly referred to as the second unbundling. …
… While trade in services is considerably smaller than trade in goods, its value as a share of global GDP has doubled in the past 30 years and has proved more resilient during the recent trade slowdown… Figure 2
…the trend towards creeping protectionism using non-tariff barriers. … This risk is real, but for now remains speculative. …
MONEY
… Contemporary annual estimates from 1990 onward are built at the country level from independent estimates of external debt, foreign direct investment (FDI), and portfolio equity stocks. …
Four caveats are immediately worth noting. …
During the first wave of globalization, the developing world’s foreign capital stock peaked at 32.4 percent of GDP in 1914. … Despite falling precipitously during the Great Recession…30.1 percent, is at its highest level in a century. …
FDI’s rise is a defining component of globalization’s second wave and is synonymous with the growing role of international finance beyond traditional areas such as railways and extractive industries into new sectors including commerce and industry.
…the foreign-held portfolio stock as a share of low-income country GDP remains negligible at only 0.4 percent in 2014. …
…debt relief, and the nurturing of domestic debt markets through the issuance of debt denominated in domestic currency and the encouragement of purchases by local financial institutions. …
Concerns about the de-globalization of foreign capital since the Great Recession have centered on a different phenomenon: the reduction in inter-bank lending. …
Figure 3
MIGRATION
… Flows—as opposed to stocks—of long-distance migration along certain routes are well documented from ports and customs statistics. Other routes, especially those overland, are not formally recorded. Accounts of short-distance migration are missing altogether for most of the world. …
… Our benchmark for age at migration is the median age at entry of migrants to the U.S. each year, drawn from official U.S. records. Our benchmark for migrant’s life expectancy is U.S. life expectancy for the respective age, gender, and year of U.S. migrants, obtained again from U.S. records, and discounted by the ratio of U.S. life expectancy at birth to global life expectancy at birth. …
… At the end of globalization’s first wave in 2015, the global migrant stock is estimated to have peaked at 2.5 percent of the global population, although it stayed close to this level into the 1930s before beginning its descent. The share began to climb again in the 1970s and surpassed its previous peak for the first time in 1988. It rose further in the 2000s and today stands at 3.3 percent. …
The U.S. migrant stock hovered at close to 14 percent of its population throughout globalization’s first wave before falling precipitously. That share has rebounded since 1970 and in 2015 stands a fraction short of its historical high at 13 percent. …
Figure 4
…both the absolute number and global share of migration flows has remained relatively stable in the past two decades. …a lower age of migration, longer life expectancy for migrants, and/or lower return rates. …
CONCLUSION
Table 1: Benchmarking globalization across two waves
… The past two decades have been described as an era of hyper-globalization during which both the level and rate of global integration was judged as having intensified. Based on our analysis, it is reasonable to conclude that this period is over. … Our speculative assessment is that the coming years will be characterized either by stabilization in the level of globalization, or further growth in the degree of integration but at a more modest pace than in the past.

The case for the Trans-Pacific Partnership (10/4/2016) | @solis_msolis @BrookingsFP