Guest Contributor William Krist: Negotiations for a Trans-Pacific Partnership Agreement

The only major current trade negotiation that the U.S. is engaged in at this time is the negotiation for a Trans-Pacific Partnership (TPP) Agreement with eight other nations in Asia and the Americas.  And Canada and Mexico are expected to join the negotiations in December.  If successful, the resulting free trade area would include Australia, Brunei Darussalam, Canada, Chile, Mexico, New Zealand, Peru, Singapore, and Vietnam, as well as the U.S.  With multilateral negotiations in the WTO now stalled, the TPP offers the best opportunity for additional trade liberalization.  More importantly, if done right, this agreement could provide a template for future WTO negotiations and for a broad agreement with the 21 member nations in Asia Pacific Economic Cooperation (APEC) forum, a group of 21 Pacific Rim countries that includes China, Indonesia and Russia.

Negotiators made progress in the most recent round of negotiations held in San Diego from July 2 to 10, although there are a number of controversial issues that remain.  The next negotiating round is scheduled for September 6 to 15 in Leesburg, Virginia, although it is unlikely that negotiators will resolve the critical issues until after the U.S. presidential election.

Click here to view a background paper on the TPP and key issues.

 

 

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment.  Anthony Gausepohl is his Research Assistant at the Woodrow Wilson Center.

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The Global Economy’s Missing Piece

With China’s growth stalling and Europe fighting to stay afloat, the world economy is in desperate need of a superhero that will help it stabilize and prosper. In tough times of the past, markets could always rely on the monetary toolbox and the fiscal leadership of United States to prevent global catastrophe. However, in a recent article in Foreign Policy Journal, the German Marshall Fund’s Kati Suominen explains why this time the U.S. will not be there, and what implications that has for future global governance and economics.

Suominen discusses how following World War II, the United States was the global economy’s “quarterback,” leading the offensive with the Bretton Woods summit and the creation of the groups of five, seven and eight who would later establish the World Trade Organization (WTO). During that time, the U.S. dollar became the standard for much of the world’s reserve currency, and the effects of the Federal Reserve Bank’s decisions spanned far beyond Constitution Avenue. She deduces that globalization didn’t just appear out of thin air, but was rather a “U.S.-led order that generated prosperity unimaginable only a few decades ago.” And it was from this “American-led order” that the Asian Tigers boomed and G-5 became the G-20, with “emerging nations such as China and India demanding greater power at the table.”

Suominen notes that while this “U.S.-made” system brought prosperity it also brought more challenges and America saw its credibility around the world chip away facing great fiscal uncertainty and a massive trade deficit. While she does not blame this all on President Obama, she does criticize his administration for deflecting the responsibility of Europe’s debt crisis to Germany and leaving any promise of economic recovery in the BRIC’s hands. From her criticism, she makes four critical recommendations: impose fiscal discipline and promote long-term policy, better integrate the world marketplace with a freer exchange of ideas and resources, equip the IMF with the tools to solve financial risk, and incentivize the international community to enforce many of regulations and protections already in place. Suominen concludes that the “new world order arouse because of American strength, vision and leadership…today, American leadership is again essential.”

Posted By: Jonathan Sherman

Sources: NPR

Photo Credit: G-20 Summit in Pittsburgh courtesy of Flickr user International Monetary Fund

Is School Too Easy?

A report released last week suggests that schools are failing on a wide scale to provide a productive and effective learning environment for their students.  The report was based on an analysis of the background surveys of the National Assessment of Educational Progress. Known as the Nation’s Report Card, these assessments are administered every two years by the National Center for Education Statistics.

Many schools are simply not challenging students and large percentages of students report that their school work is “too easy.” For instance, twenty-nine percent of eighth-grade math students nationwide report that their math work is often or always too easy. In some states like Virginia, nearly a third of middle-school students reported their work was often or always too easy.

This finding was consistent across grades and subject matter. 57 percent of eighth-grade history students report that their work is often or always too easy. Elementary school students also revealed that they aren’t being challenged by their math work—37 percent of fourth-grade students reported that their math work is often or always too easy. Among high school students, 21 percent of 12th-graders said their math work was often or always too easy, while 56 percent and 55 percent respectively found their civics and history work often or always too easy.

The problem is not just that the work is too easy.  Students simply aren’t being asked to engage in rigorous learning activities.  Almost a third of eighth-grade students report reading fewer than five pages a day either in school or for homework. That’s below what many experts recommend for students in middle school. Eighth-grade students across the country also report that they rarely write lengthy answers to reading questions on tests: approximately one-third of students write long answers on reading tests twice per year or less.

The issues are similar at the high school-level. Thirty-nine percent of 12th-grade students, for example, say that they hardly ever or only once or twice a month write about what they read in class. Nearly one-third said they write long answers on reading tests two times a year or less.

There are some other troubling conclusions, including that these issues are exacerbated for low-income and minority students and that students are not being prepped for STEM coursework later on (e.g. 72% of eighth graders report not being taught anything about technology or engineering).

Students cannot be expected to thrive in an increasingly competitive, knowledge-based economy with this as their intellectual foundation.  This void of learning obviously puts students at an enormous disadvantage should they choose to attend college and pursue a major such as science or engineering (or one requiring writing and analytical skills for that matter).  Even those who choose not to pursue higher education are still potentially graduating below the requisite intellectual capacity expected of them.  Reforms aimed at the school system cannot just focus on improvements in teachers or facilities but must make clear that the goal is to improve the learning experience itself.

Posted by: Sean Norris

Sources: Center for American Progress, The Organization for Economic Cooperation and Development

Photo Credit:Math Meeting Board and Lesson” courtesy of flickr user judybaxter

Does the Federal Reserve Bank needs to think bigger?

Just before the 4th of July, Fed leaders struggled to formulate a comprehensive solution to our nation’s economic problems. Atlanta Fed leader Dennis Lockhart proposed extending the Fed’s program of trading more short-term bonds for longer-term ones while Chicago Fed President Charles Evans criticized the extension of “Operation Twist,” by arguing that doing so would only reduce 10-year Treasury bonds by 1/10th of a percent. Fed leaders continue to present what they consider “balanced approaches” to using monetary policy as means for economic recovery, but fail to pinpoint what the right vehicle is.

That is why Carnegie Mellon economist Allan Meltzer believes that “to get out of our bad economic situation, we need coherent long-term fiscal policy, especially entitlement reform.” Meltzer contends that the Central Bank pays way more attention to the short term rather than the long term, and preachers what Nobel Prize Economist Milton Friedman proposed that “monetary policy operates in long lags.” He stresses that “the problem with the short term is that data reported for today is subject to revision, or reflect only transitory changes.” Meltzer criticizes Chairman Ben Bernanke for panicking when he shouldn’t have, charging Bernanke with the miss-handling of the banks’ $1.5 trillion extra in reserves, and sending much of the cash that banks received when the Fed freed up $600 billion to them in bond-buying overseas.

He believes that the bank’s use of the Phillips Curve is leading to a more inaccurate impression of the tradeoff between the inflation and unemployment rate, suggesting that the bank commit to using the Taylor Rule instead to better gage the interest rate accordingly. Meltzer concludes that “rule-based monetary policy” has brought our economy much better results in years past, and asks the Federal Reserve bank to stop counting on “politicians, the public, businesses and labor” to accept higher interest rates as an accepted force for economic recovery.

Posted By: Jonathan Sherman

Sources: The Wall Street Journal, Reuters

Photo Credit: The Fed 2 courtesy of Flickr user Adam Fagen

Can a City Sway the Global Economy?

In this age of globalization and faster communication, cities are finding more and more ways to reinvent and renew their image. In Tim Campbell’s recent book Beyond Smart Cities: How Cities Network, Learn, and Innovate he explores the recent vehicle of urban development and integration of “urban communication.” Cities are communicating with one another in increasingly intricate ways, traveling to one another’s locations and learning about one city’s innovative ways of solving the issues others may face. Campbell prefaces his findings by stating that the world has grown to 1,000 cities of between 500,000 and 5,000,000 inhabitants.  In 1995,  less than 700 cities fell within this range.  By 2020, over 1,200 cities are expected to fall within these parameters. Once cities fall within this range, Campbell explain, they begin to have what he describes as enough “sway” to impact major geo-political decisions around the world.

Campbell derives his conclusions from a survey conducted by 43 people in 165 cities that fall within the range of nearly 1000 with a population size between 500,000 and 5,000,000 people that Campbell describes as “knowing the city well, but not enough to speak for it.” In looking at how these people communicate with one another, he found that much of the international communication facilitated between these 43 subjects traveled north to south, and that major regional centers for trade and exchange like Paris and Singapore were where much of the study’s subjects communicated frequently. Examining the communications between cities of between 500,000 and 5,000,000 people, Campbell found over 10,000 exchanges, and found that people from larger cities study the work of smaller cities because they’re easier to understand.

Campbell then separates the cities into two groups which he categorized as “reformers” and “non-reformers,” and labeled cities as “reformers” if they had at least 3-5 major policy shifts in recent years to which he asked what their most pressing concerns were. He found the major concerns of the reformers to be policy-oriented, while he found the major concerns of the non-reformers to be more budget-oriented. He concludes his research and the book that derives from it by looking at number of “city case studies,” to which he codes three types of cities to be either “technical, corporate or ad hoc,” and identifies three varied forms of communication “tissue of remembering, cloud of trust, or a sponsor.”   Those that are “technical” cities bring on smart people to brainstorm and implement new ideas, while those that are corporate cities have a structured way of doing things. Likewise, those that build “clouds of trust” build networks and partnerships that they work with to bring out common reform, while those that are “sponsors,” support business and civic exchanges and facilitate forums that spur ideas for better urban planning. All in all, smart cities base their reforms in social capital and collective learning, facilitating what Campbell explains as Ikujiro Nonaka’s concept of “Ba,” the art of externalizing one’s learning experience to build a network of trust, confidence, cooperation and innovation.

 

Click here to check out Tim’s event at the Wilson Center

 

Posted By: Jonathan Sherman

Sources: Tim Campbell’s Presentation of “Beyond Smart Cities: How Cities Network, Learn and Innovate” at the Woodrow Wilson Center on May 24, 2012

Credit: Photo Courtesy of Beyond Smart Cities Official Website by Tim Campbell and Routledge/Earthscan Publisher

The Tangible Effects of Austerity

One of our recent blog posts discussed the debate about austerity in Europe and here in the United States.  But what specific components of the economy will be affected by austerity measures and what effect would those measures have on the U.S. economy as a whole?

Both Europe and state economies within the U.S. have tried their hand at significant budget cuts so it’s worth examining the fallout in both cases.  Budget cuts have been heavily focused on areas like public education (both higher and lower), infrastructure, and research and development.  This is not by coincidence.  These areas, especially education, along with social welfare programs usually make up the majority of discretionary spending in state governments (particularly in large states like FL and PA) and state legislators and many governors have made public promises to not raise taxes under any circumstances.  Without the prospect of raising revenue through taxes, austerity (i.e. reducing deficits) can really only come in the form of budget cuts, and those cuts are most likely to come from those sections of the budget listed above.

Unfortunately, spending in education, infrastructure and manufacturing, and innovation is necessary for American competitiveness in a global economy and many have argued, most notably President Obama and his economic team, it is a surefire way to stimulate the economy.

The macroeconomic effects of the austerity experiment in Europe and at the state-level are muddled enough in terms of growth and job creation that it has been declared both a success and failure.  As such, the debate is still in full swing at the federal level as the U.S. approaches its so called “fiscal-cliff” at the end of this calendar year.

The cliff, and the debate itself, will have several components.  The first is whether or not to extend the Bush tax cuts and if so, to whom?  Similarly, programs for payroll tax deduction ($120 billion) and extended jobless benefits ($40 billion) will expire at yearend unless they are renewed.  And lastly, the types of budget cuts that have occurred in state and European governments discussed above are set to go into effect with mandatory 10% cuts on all discretionary spending beginning January 2013– reducing federal expenditures by $85 billion.  The mandatory cuts are part of the Budget Control Act that was passed last year after the debt-ceiling fiasco; the compromise that ended the standoff mandated that the cuts begin in January 2013 if Congress had not agreed to a debt reduction plan by that time (which of course, they have not).

With that date approaching, the austerity debate will become as prominent in Washington as it is in Brussels and in state capitols across the country.  If the mandatory cuts and tax increases occur, the nation’s GDP will likely lose several percentage points.  But even if there is a resolution, budget debates will continue and education, infrastructure, and R&D will all be on the chopping block.  The budget proposed by Rep. Paul Ryan (R-WI), the Chair of the House Budget Committee, has become the de-facto fiscal platform of the Republican Party and proposes significant cuts to all the areas discussed above.  Meanwhile, President Obama continues to insist that spending in such areas is a national priority.

The role of things like education, innovation, and infrastructure are central to America’s economy in a globalized market.  Policy makers would do well to carefully consider and debate any cuts to those areas and not simply sacrifice them for politically harder issues like defense spending and tax reform.

Posted by: Sean Norris

Sources: The New York Times, Forbes, CNN, The Guardian, The Telegraph

Photo Credit: Paul Ryan courtesy of flickr user Gage Skidmore

Guest Contributor William Krist- Obama’s Goal to Double Exports: A Midterm Analysis

Today’s report on the U.S. trade performance for May 2012 shows that the Obama Administration is roughly on track to achieve the President’s lofty goal of doubling U.S. exports over the five year period ending in 2014.  President Obama made this commitment, which would mean increasing exports from the 2009 level of $1.56 trillion to over $3 trillion, in his 2010 State of the Union address.  The objective of expanding exports is to promote U.S. employment, particularly in high paying manufacturing jobs.

To put this goal in perspective, exports just barely doubled in the ten years from 1999 to 2008. In fact, exports have not doubled over a five year period since the 1970s, and even then the doubling was mostly due to inflation.

Shortly after his 2010 State of the Union speech, Obama created the National Export Initiative and an Export Promotion Cabinet by executive order, giving them the responsibility of increasing U.S. exports.  While the Administration deserves a lot of credit for progress made to date, it needs to be noted that it is difficult to untangle the effects of U.S. export promotion activities from other uncontrollable effects such as changes in foreign demand and global business cycles, and the import policies of other countries.

Additionally, even as our exports have increased rapidly, U.S. imports have grown at an even faster rate. This means that the overall net effect of trade on our economy continues to be negative.  While doubling U.S. exports is a worthy goal, a better goal would be to achieve a balance of our exports and imports over the course of the business cycle.

For a more in-depth analysis of the Administration’s export initiative click here.

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment. Anthony Gausepohl is a Research Assistant at the Woodrow Wilson Center.