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‘Employment Effects of International Trade’

Via Economist’s view:

Mark Thoma writes:  This is a research summary from the NBER Digest. It discusses work from Autor, Dorn, Hanson, and Song that finds “Workers bear substantial costs as a result of the ‘shock’ of rising import competition”:

Employment Effects of International Trade, by Claire Brunel, NBER Digest: In the past two decades, China’s manufacturing exports have grown dramatically, and U.S. imports from China have surged. While there are many reports of plant closures and employment declines in sectors where import competition from China and elsewhere has been strongest, there is little evidence on the long-run effect on workers. In Trade Adjustment: Worker Level Evidence (NBER Working Paper No.19226), David Autor, David Dorn, Gordon Hanson, and Jae Song examine the impact of exposure to rising trade competition from China on the employment and earnings trajectory of U.S. workers between 1992 and 2007. They find that workers bear substantial costs as a result of the “shock” of rising import competition. The adjustment to such shocks is highly uneven across workers, and varies according to their previous conditions of employment.

(bolding is mine)

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Letter from an angry reader

From Stormy, who has written on global trade for over a decade, sends an e-mail on the discovery that we are losing competitive advantage:

I find it absolutely stunning that the Yves post and MIT study below is considered big news. Four or five years ago, I saw the writing on the wall. Off-shoring, outsourcing…name of the game. All the blather about new technology was just that: blather—otherwise, how do we explain China? It uses cheap labor …as does Vietnam, Mexico…on and on. Apple and IBM are the poster children of the modus operandi. They are American companies in name only.

Eventually, I just gave up singing the song. All the big economic voices have their selling  of corporate profit…. Globalization—poorly designed for all us schmucks. It was designed for the rich….end of story.

WTO rules? Ok: Last time. China played that WTO game by stiffing its own companies to lure the multi-corporations to set up house on Chinese soil. Chinese firms were taxed at twice the rate of foreign firms. Non-existent environmental standards in China, which lowered the cost of doing business. Unions? None. Lowered the cost of doing business. Cheap, slave labor. I could continue…but what is the use? And of course: monetary manipulation. Make cheap in China—sell high in the West. Where were the big economic voices?

And what did the U.S. do? Worry about the consumer stepping up to the plate!—banks charged uxorious rates for credit cards and loans. Extending risky credit was the name of the game. Get every last penny from the American consumer.

Sorry to get so annoyed. I saw all the stupid arguments…they were dodges. Clinton gave Phil Gramm a big wet kiss –and signed the Financial Modernization Act of 1999. Then he told us NAFTA was a win-win…. create jobs at home. Yup Yup. Then Clinton joined the lobbyist crowd and made his millions. Now we have Obama his loves the big CEO`s—

Obama’s efforts to stem outsourcing/offshoring have been silly. Obama’s solution? Cut taxes on corporations to keep them here. China gave tax free ten-year holidays to many corporations. O think he is going to match that? His strategy is classic economic stupidity…a knee jerk solution. And will O match the cheap labor costs? Will he match the low environmental standards? Will he call a halt to monetary manipulation? I suggest, play Name the Corporation who hates American. Name the corporations and the CEO who have shipped jobs overseas—only to send the goods back home.

Shame them. Make it difficult for them. Put a tariff on all goods made abroad by American companies—and exported here. Revisit the idea of what a corporate charter means. Take it away from corporations who consistently stiff us.

Close down tax havens. Get serious about them. Christ, if we think Iraq and Iran are problems….what about Bermuda? Close it down. I am serious. Send in the marines. If we cannot think of ways of really hurting Bermuda and similar uglies….we do not have a country interested in defending itself.
And change the rules of the WTO: Countries must have environment and labor standards. Countries cannot have a two-tiered taxation system—one for indigenous and one for foreign firms. All must be equal. No advantages to foreign firms in order to lure them. Otherwise, ditch the WTO.

It will take a major revolution or an outright collapse to stop all this nonsense. And with Global warming, pollution, resource lost, etc. Etc…. we do not have much time.

We have to start thinking outside the box. And listen to the squeals from the very rich.

doug

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Innovation and production

 Yves Smith points to a MIT study on how much bigger the conversation should be than the political arguments of offshoring and outsourcing suggest.  And the complexities of applying ‘just in time’ sorts of global production systems through a complicated supply chain.

From that post is this excerpt:

And a new report by MIT on innovation and production (hat tip Marcy Wheeler) has an almost desperate undertone. It starts by pointing out how the data understate how bad the competitive erosion is:

One of the key danger points identified in these reports is the declining weight of the U.S. in the global economy. Even though the U.S. share of world manufactured output has held fairly steady over the past decade, economists have pointed out that this reflects good results in only a few industrial sectors. And even in those sectors, what appear to be productivity gains may be the result of underestimating the value of imported components. A close look at the composition of a worsening trade deficit shows that even in high-tech sectors the U.S. has a deteriorating picture. While the output of U.S. high tech manufacturing is still the largest in the world and accounted for $390 billion of global value added in high-tech manufacturing in 2010, U.S. share of this world market has been declining, from 34 percent in 1998 to 28 percent in 2010, as other countries made big strides ahead into this market segment.
Jobs are another huge concern. The great spike in unemployment over the past five years was disproportionately due to loss of manufacturing jobs. And as the economy revived, such jobs were very slow to return. In fact it is clear that many of them never will.

It makes clear how far hollowing out has gone in the manufacturing sector, and how the economy has lost so many components critical to innovation that it isn’t clear how to restore them. The researchers went beyond the venture capital darlings to find what it called “Main Street Manufacturers.” It found they were at a serious disadvantage due to the lack of firms with complimentary know-how in their ecosystem. After quoting the experience of one firm, the authors noted:

Read more at Naked Capitalism

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The Land Grabbers — the review

by David Zetland from Aguanomics

The Land Grabbers — the review

Fred Pearce sent me a review copy of his new book, The Land Grabbers: The New Fight over Who Owns the Earth, which I enjoyed very much for its detailed description of the pros and cons resulting from foreigners investing in land in developing countries.

In the book, Pearce appears to see more cons with land deals than I do. Perhaps that’s because he saw only bad land deals, or perhaps he associates ALL large-scale agriculture with exploitation, inefficiency and environmental degradation. Any of you who read my paper (“The Political Economy of Land and Water Grabs”)* will know that I am annoyed that we do not have a good definition of when a land deal is a “bad” grab or “good” foreign direct investment (FDI). Pearce appears to call ALL deals grabs, but I think there are many well-run, sustainable farming operations that produce profits for the farmer, good jobs for locals, and quality food for markets.

Anyway, here are my notes on the 300pp+ book, which has six parts and 27 chapters covering “grabs” from buy-side and sell-side locations in Europe, N and S America, Africa and SE Asia.

  • Many grabs convert “fallow” land to industrial-scale agriculture, but local communities often “cultivate” this land in long rotations of crops, grazing and recovery. Their methods are not just sustainable; they are cheaper and more productive for meeting a diverse range of local needs. Nomadic herders have practiced sustainable land management for centuries.
  • Such methods are also egalitarian. Poor farmers can eat, but poor urban residents will suffer from political corruption and/or favoritism.
  • That said, Pearce seems over-suspicious of markets (and financial instruments) that can improve food security and supply, views that I recently called shortsighted and misleading.
  • Food security, for example, is often used as an excuse for protectionism that favors local food growers over consumers. Grabs directed at security also fuel “countervailing” grabs in which market supplies are replaced by managed supplies that will waste calories, inputs and environmental flows. Yes, the Saudis are engaging in grabs, but that was only after their failure to grow wheat at home (a bad idea that wasted water) and their exposure to volatile food markets. The trouble with their “grab” strategy is that they will not be able to export food if large-scale shortages arise and their “indigenous” farms are wasting water now that they will need in the future. It’s far more efficient, for example, to rely on markets for supplies, store a year’s supply of grain in case of market failure, and save water for cultivation should market interruptions last longer than a year.
  • Land grabs are also often water grabs. The weak property rights that allow land grabs (by definition, a grab takes land from other users) are almost surely accompanied by even weaker rights over water and even greater misuse of that water.
  • Grabs, as a business strategy, often depend on corrupt dictators who will not be around as long as the 50-99 year contracts may promise, making it difficult to invest over the long term or care about sustainability.
  • Even worse, most grabs are arranged in distant bureaus, where “buyers” and “sellers” may not have a clear idea of what they’ve agreed, let alone who else may be interested/affected by their agreement.
  • It seems that Pearce considers deals involving foreigners to be “bad” while deals with locals are “good,” but local thieves are not just more common, but more thorough, since they know the maximum local tolerance for greed.
  • That said, it’s great to improve local productivity. It just takes a lot longer because locals do not just “copy/paste” good ideas from other areas. The upside is that locals who develop “organically” will have diversified, robust systems that will contribute to market stability. Pearce would agree with this assessment, I am sure, but local is not the ONLY way to go…
  • Remember remember remember that foreigners cannot just show up and exploit (at least not in these post-colonial days) — they need corrupt local partners, and THOSE people are the ones with power to make or break a deal (as I discussed in my paper).
  • Unsustainable operations are a bigger problem than grabs. They are fueled by a combination of short-term thinking (high discount rate) that may be fed by over-capitalization (need to generate cash to pay off debt), poor property rights (get money before land is gone), tragedies of the commons (get water before neighbors take it), etc. These problems occur in ALL countries, but they can be minimized by stable, sensible policies.
  • Land grabbers may be taking “marginal” land (often conservation areas, etc.) but only because domestic farmers have already taken prime land, often before environmental perspectives had any weight.
  • Pearce appears to laud reverse grabs, e.g., when Chavez or Mugabe break large farms into smaller holdings, but those “fair” actions are often driven by corruption or revenge. Even worse, the land often ends up with cronies who cannot farm instead of poor farmers who can.
  • Remember that there would be NO land grabs if individuals or communities had title to their land! That’s why many grabs are occurring in Africa — about 80 percent of the land there is “managed” using informal, communal methods.
  • Pearce also covers the interesting case of “green grabs” — where environmentalists take land out of production (or protect it), to keep it pristine. These grabs sometimes exclude locals from their traditional lands; they can also be sustainable (e.g., locals live in the lands under traditional conditions, while earning money from fees paid by foreign tourists who want to hunt beasts with cameras or guns).
  • Pearce loses his way when discussing “grabs” in Australia that are really FDI. That’s not the case in Cambodia, where corruption underpins land seizures, but it’s not good to mix up fair deals (even if they upset nationalists who prefer to avoid competing with foreigners for land) with theft.
  • There’s an interesting discussion of grabs in Malaysia and Indonesia, in which rainforests are cut down for timber and palm oil plantations. It’s not just that these grabs impoverish locals of their traditional lands, or that the biofuels produced on the land may actually be “carbon positive” but that the wood products produced from them are certified “good” by the FSC when they really are not. The main point is that eco-labels are meaningless unless there’s a 100 percent accurate way to prevent counterfeits — and that’s hard in corrupt countries.
  • Take this last point with my point on property rights and long term views above, and you will see how real sustainability results from accurate pricing of resources that belong to a community over the long term (50+ years).
  • The world’s largest sugar farm in Sudan uses 2.4mafy (~3,000 GL), or 4 percent of the Nile’s flow!
  • Water grabs, no surprise, reduce environmental flows that nourish wetlands that traditional users depend on for food, fiber and fish. No rights = hunger.
  • Mega farms may be unsustainable, but subsistence farms cannot generate enough production. Perhaps the middle way — small-scale, mixed-use farms managed by owner/entrepreneurs who innovate and adapt to local conditions — are the best way to feed the world over the long run. Oh, and don’t forget that these guys need to trade and benefit from trade.

Bottom Line: I give this book FOUR STARS for its vivid description of the problems related to land grabs that benefit outsiders at a cost to locals whose land is taken from them. Read it to understand the choices between hunger and food, rebellion and stability but don’t forget that property rights (legal, traditional or communal) would stop unfair grabs while allowing local people to benefit from their resources, locally and globally.


* The working paper is no longer online, due to spurious copyright claim by the publisher of the book where it eventually appeared. Email me if you want to see it.

reposted from Aguanomics

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The NY Times Is Misleading. And Who Is Correct? Eurostat or China Customs?

The NY Times Is Misleading. And Who Is Correct? Eurostat or China Customs?

by Rebecca Wilder

The NY Times reports quite a dire situation as regards the slump in the value of Chinese exports to the European Union in July:

Data published this month showed that China’s exports to the European Union had sunk 16.2 percent in July to $29.4 billion, compared with July 2011.

This statistic (bolded by yours truly) is misleading.

First, China Customs measures exports in nominal dollars. If you look at Chinese exports measured in, let’s say euros, it doesn’t look quite as bad. In July, exports to the European Union (EU 27) dropped -3.6% over the year measured in euros versus a -16.2% annual decline measured in dollars. The dollar appreciated against the euro over the measurement period so the drop in China’s exports to the EU 27 is much lower in euros.

Note: This is only an approximation since I use the average monthly exchange rate, which is unlikely to align perfectly with China Customs’ measurement period.

An interesting corollary to the FX impact on ‘value’ statistics is the various statistical agencies that report presumably the same statistic. Eurostat publishes import data by partner and in euros. Using the average exchange rate over the month, I calculate the value of EU 27 imports from China reported in dollars for comparison to the China Customs data. Eurostat data is available only through June.
In June, Eurostat reports that EU 27 imports from China dropped -11.1% measured in dollars compared to the reported -1.1% annual reduction in exports from China to the EU 27 by China Customs. Clearly the trend is downward; but the Eurostat data only loosely matches the China Customs data. Balance of payments statistics are subject to large ”errors and omissions”.

Note: In the chart below, Eurostat data is illustrated in the series “EU imports from China”, while China Customs data is illustrated in the series “Exports to EU”.

So who’s right? Eurostat or China Customs? Part of the differentiation involves the timing of the FX moves (remember I use the monthly averages); but that is unlikely the full story here. I’d err on the side of Eurostat, and notice the trend looks pretty bad no matter who’s estimating the trade data.

Rebecca Wilder

cross posted with  The Wilder View…Economonitors

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World Trade Turning Down

by Rebecca Wilder

World Trade Turning Down

Something different for today: world trade. Recently, South Korea and Taiwan released July 2012 trade statistics, where annual export growth was seen contracting at a 8.8% and 11.6% rate, respectively. The annual pace of export growth in Taiwan contracted for the fifth consecutive month, where that in South Korea turned negative following a 1.1% annual rate in June 2012.

On balance, exports in key Asian markets, such as South Korea, Taiwan, and China, are seen as leading indicators for world demand due to their intermediate nature of production in the supply chain. And the signal there is not good for global demand.

The Netherlands Bureau for Economic Policy Analysis and JP Morgan make available world trade statistics and a global PMI, respectively.

The correlation between the 3-month percentage annual rate of change of world trade and the global PMI have a 77% correlation dating back to 1998. Although the world trade statistics are current as of May 2012, the June and July global PMI, 49.1 and 48.4, respectively, do confirm the weakness seen in the Asian country export data and portend deterioration in this measure of world trade.

A simple bivariate regression of the 3-month growth trend in world trade on the global PMI implies a 3-month annualized contraction of 0.66% in July. This is far from the pace of contraction in 2009 – according to this statistic, World trade declined at its fastest 3-month trend rate in January 2009 of 50.5%. Furthermore, there’s no precipitous downtrend in the PMI that would suggest a sharp contraction in world trade.

I can only conclude that it’s too early to call stabilization in World trade, rather the opposite. However, the pace of contraction could be quite mild if policy makers ease globally.

Rebecca Wilder

cross posted with  The Wilder View…Economonitors

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