Global Trade and the State of the Union

SOTUUnsurprisingly, the State of the Union address focused primarily on the domestic economy. President Obama emphasized issues such as the looming sequester and the need for immigration, entitlement, and tax reform. In terms of major announcements on the international trade front, the President revealed that the US aims to start talks with the EU towards creating a “comprehensive transatlantic trade and investment partnership.” This is a significant development for a multitude of reasons. A free trade partnership between the US and the EU would streamline trade by reducing regulatory barriers and tariffs, thereby expanding the already huge amounts of exchange. Not only would a transatlantic free trade agreement heighten the interconnectedness of these two massive markets, it would drive growth, deflect increasing competition from China, and would help reestablish the authority of the United States and Europe as leaders of the global economy.

The President also announced that the US is on course to finish negotiations over the Trans-Pacific Partnership, an agreement that will substantially increase US trade presence in the Pacific. There was no date given about when the talks would be complete, but it appears that things are falling into place. In addition, the President outlined some domestic economic policies that were relevant to global trade issues. For instance, President Obama’s unveiling of the “Fix-It-First” program, which intends to put people to work on urgent infrastructure repairs, could improve US trade performance through more efficient and faster travel times. Smart Grid enhancement would make the US a more appealing place to do business and it would protect vital information trade-lanes from cyber disruptions. The energy boom, both through enhanced fossil fuel production and clean energy development, will allow the US to dramatically increase its energy exports and could fundamentally transform the global energy trade. Through the creation of innovation centers, President Obama wants to accelerate the continuing trend of re-shoring in order to increase US export trade.

While domestic issues were clearly the main theme of the address, it is vital that President Obama address the larger context issues of global trade to enact policy that will take advantage of new economic opportunities. It would also be a mistake to underestimate the potential of trade as a key engine of economic growth for the US and the global community. A secure and healthy global economic structure is important in order to maintain further international stability.

Posted by: Matthew Goldberg

Sources: Wilson Center, United States Trade Representative, ABC News, Department of Energy

Photo Credit: Presidential Seal courtesy of flickr user Dave Newman

Currency Devaluation and the Threat of Global Currency War

moneyThe rapid devaluation of the Japanese yen has created fresh fears of global currency instability. Citing perennially slow economic growth, Shinzo Abe—the newly elected Prime Minister of Japan—decided to crackdown on deflation through aggressive monetary policy easing that would significantly devalue the yen. However, policy-makers from the EU and the US have decried Japan’s move as an attempt to gain a competitive trade advantage by cheapening its currency so that its goods and services cost less, thereby increasing export trade. The Euro in particular has seen a marked rise that may hurt the EU’s economic recovery if growth and demand for European goods were to slow down.  Japan has stressed that it is not deliberately trying to devalue its currency, saying the yen’s decline has more to do with a market correction following a period of strength. Nevertheless, there has been heated rhetoric demanding that Japan halt, or at least slow down, yen devaluation.

In order to diffuse tensions, the G7 (Group of Seven) countries—comprising the US, the UK, France, Germany, Italy, Canada, and Japan—said they would “consult closely” on any action in foreign exchange markets. Furthermore, the G7 avoided criticizing Japan and stated that “We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.” Japanese policy-makers were reassured by the announcement and according to Taro Aso, the Japanese finance minister, the statement “properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets.”

The statement by the G7 comes ahead of a meeting of G20 finance ministers and central bankers in Moscow on Friday. It is expected that Japan will come under scrutiny for its currency policy. Hopefully, the members of the G20 will be able to reach some sort of agreement to regulate and resolve tensions that have arisen from exchange rate discord in order to avoid a potential currency war.

Posted by: Matthew Goldberg

Sources: New York Times, Reuters, Financial Times, CNN Money, Finance Enquiry

Photo Credit: Forex Money for Exchange in Currency Bank courtesy of flickr user epSos. de

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

Greece Should Stay with Eurozone

Is exit the only option? The path to the drachma can seem very tempting. But, the reality will prove difficult, damaging, and politically dangerous. Stay or leave, Greece faces a period of real austerity. Government revenues do not cover pension costs, government salaries, or other government expenses.

Can the Greeks weather the economic storm? Can the Greeks create the institutions that will lead to long-term growth—including a tax and spending system that works?

Read the full article by PAGE Director, Kent Hughes, on US News & World Report.

 

Posted by: PAGE Staff

Photo Credit: Greek flag and the European Union flag by flickr user liako

You Are Invited: Lessons from Africa for Europe on the financial crisis and regional monetary policies

New Rules for Global Finance, Heinrich Böll Stiftung – North America, and the Woodrow Wilson

International Center for Scholars

Present

 Lessons from Africa for Europe on the financial crisis and regional monetary policies

Wednesday, April 18, 2012   9:30-11am

 5th Floor Conference Room

 Introduction

Steve McDonald, Director, Africa Program and Project on Leadership and Building State Capacity, Woodrow Wilson Center

Kent Hughes, Director, Program on America and the Global Economy, Woodrow Wilson Center

 Discussants:

 Professor Victor Murinde, Director, African Development Institute

Professor Mthuli Ncube, Chief Economist, African Development Bank

More Discussants TBD

Moderator:

Kent Hughes, Director, Program on America and the Global Economy, Woodrow Wilson Center

This event will be live webcast and can be viewed here.

 

RSVP (acceptances only) to ncoplin@new-rules.org

The Woodrow Wilson Center is located in the Ronald Reagan Building at 1300 Pennsylvania Avenue, N.W. (Federal Triangle Metro stop on the Blue/Orange Line). For a map and directions see: http://www.wilsoncenter.org/

Please bring photo ID and allow time for the security checkpoint.

Woodrow Wilson International Center for Scholars

One Woodrow Wilson Plaza, 1300 Pennsylvania Ave., N.W. Washington, DC  20004-3027

Tel: 202-691-4000  Fax: 202-691-4001  http://www.wilsoncenter.org

The Atlantic Century

Yesterday, Kent Hughes, Director of the Program on America and the Global Economy, spoke at the Information Technology and Innovation Foundation.  The occasion was the release of an updated version of ITIF’s study The Atlantic Century: Benchmarking U.S. and E.U. Innovation and Competitiveness.  To learn more about the event, watch the video, or the read the report, click here.

Posted by: PAGE Staff