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  • Author: Lindsay Oldenski
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Reshoring—when firms shift manufacturing production back to the United States—has been getting a great deal of publicity lately. Oldenski examines the most recent data on the global operations of US firms and concludes that although some companies have reversed their previous offshoring decisions, there is no evidence of a widespread reshoring trend. But this should not be considered a defeat for US competitiveness. US multinationals continue to move operations offshore, but they also continue to grow stronger, producing more in their US operations and adding more to total US exports. The structure of US manufacturing has changed, but the ability to adapt to the changing nature of global business has been and will continue to be crucial to the continued growth of US manufacturing.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Theodore Moran
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For more than a decade, China has complained about what it maintains has been a pattern of erratic and politicized treatment of Chinese investors when they attempt to acquire US companies. The Chinese want the Committee on Foreign Investment in the United States (CFIUS) to be more open and transparent in its rulings and to not discriminate against Chinese firms. The United States is not likely to accede to these demands in any formal or legal manner. Moran proposes practical steps to address the concerns of Chinese investors without diluting CFIUS procedures. He provides a national security threat assessment filter, which allows Chinese investors—like investors of all nationalities—to determine when their proposed acquisitions might pose a genuine threat and when any such threat is simply not plausible. He also suggests that first-time Chinese investors seek expert counsel to overcome the secrecy surrounding CFIUS objections to figure out how to proceed with problematic acquisitions.
  • Topic: Economics, Markets, Foreign Direct Investment
  • Political Geography: United States
  • Author: Jeffrey Schott, Eujiin Jung, Cathleen Cimino-Isaacs
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
  • Topic: Economics, International Trade and Finance, Politics, Bilateral Relations
  • Political Geography: United States, China, Asia, Korea
  • Author: William R. Cline
  • Publication Date: 11-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The latest semiannual fundamental equilibrium exchange rate (FEER) estimates find that the US dollar is now overvalued by about 10 percent, comparable to levels in 2008 through early 2010 and again in 2011. Unlike then, the current strong dollar does not reflect a weak renminbi kept undervalued by major exchange rate intervention by China. Instead, China's current account surplus has fallen sharply relative to GDP, and its recent intervention has been to prevent excessive depreciation rather than to prevent appreciation. Additionally, declines in the real effective exchange rates (REERs) for major emerging-market economies and resource-based advanced economies, driven by falling commodity prices in recent months, have strengthened the dollar. Recent increases in the REERs for the euro area and Japan have removed their modest undervaluation identified in the last FEERs estimates in May, and the Chinese renminbi remains consistent with its FEER. The dollar's rise by nearly 15 percent in real effective terms over the past two years could impose a drag of nearly one-half percent annually on US demand growth over the next five years. As the Federal Reserve moves to normalize US monetary policy, it may need to consider a gentler rise in interest rates than it might otherwise have pursued, both to temper possible further strengthening of the dollar in response to higher interest rates and to help offset the demand compression from falling net export
  • Topic: Economics, International Trade and Finance, Monetary Policy, GDP
  • Political Geography: United States, China
  • Author: Caroline Freund
  • Publication Date: 02-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As the United States struggled with unemployment and other effects of the Great Recession in January 2010, President Barack Obama set the goal of doubling exports within five years and creating 2 million new export-related jobs. Four years later, however, exports are less than halfway toward that goal and the rate of export growth is slowing. More worrisome, the administration's strategy failed to boost average export growth from historical levels, despite the robust recovery in international trade after the collapse of 2009. The National Export Initiative (NEI) has come up short.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets, Maritime Commerce
  • Political Geography: United States
  • Author: Joseph E. Gagnon, Brian Sack
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The dramatic increase in the Federal Reserve's balance sheet since 2009 has attracted the attention of economists, pundits, and ordinary citizens. The amount of assets held by the Fed recently crossed $4 trillion and will likely continue to rise to a peak of about $4.5 trillion. This run-up in asset holdings has resulted from the Fed's large-scale asset purchase programs, which were intended to support economic growth. However, a side-effect of these asset purchases is the creation of unprecedented amounts of liquidity in the financial system.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States
  • Author: Tomas Hellebrandt
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Great Recession, which cost tens of millions of jobs, a collapse of asset values around the world, and threatened the global financial system, has generated renewed concern over the long-standing issue of the fairness of the distribution of wealth and income in many societies. Economic inequality has increased in the United States and many other advanced economies over the past 20 to 30 years. This trend generated less worry in the boom years, when unemployment rates were low and cheap credit enabled consumers to borrow and maintain higher standards of living, masking the impact of growing income disparity on consumption patterns and perceptions of well-being.
  • Topic: Debt, Economics, International Trade and Finance, Poverty, Social Stratification, Financial Crisis
  • Political Geography: United States, United Kingdom, Germany, Spain, Italy, Ireland
  • Author: C. Fred Bergsten
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: A bipartisan majority in both Houses of Congress is insisting that the United States include a provision in future trade agreements that would bar currency manipulation. A letter from 60 senators to Secretary of the Treasury Jacob Lew and United States Trade Representative (USTR) Michael From an on September 23, 2013, called for "strong and enforceable foreign currency manipulation disciplines" in the Trans-Pacific Partnership (TPP) while 230 members of the House of Representatives told President Barack Obama on June 6, 2013, that "it is imperative that (the TPP) address currency manipulation.to create a level playing field for American businesses and prevent more US jobs from being shipped overseas." The trade promotion authority (TPA) legislation proposed by congressional trade leaders on January 9, 2014, establishes the avoidance of currency manipulation as a "principal US negotiating objective" in its future trade agreements.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Monetary Policy
  • Political Geography: United States
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Mark Twain once wrote an essay about the difficulties of learning what he called "The Awful German Language." Similar barriers to comprehension seem to plague those trying to explain recent German economic performance. By most measures, Germany has the best functioning labor market among large economies in the West, with levels of employment reaching those in the United States at the end of the turbo-charged 1990s. A debate has stirred, however, about whether this success has come with a price—specifically, whether Germany's domestic structural reforms have lowered living standards for Germany's low income workers and worsened income inequality and whether Germany is fortuitously and perhaps selfishly riding a wave of strong foreign demand for German exports.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets, Labor Issues
  • Political Geography: United States, Europe, Germany
  • Author: Edwin M. Truman
  • Publication Date: 03-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The vital role played by the International Monetary Fund (IMF) in stabilizing the world economy and financial system is in serious jeopardy. The failure in mid-January by the US Congress to approve IMF reform legislation that had been pending for more than three years did not simply bring to a screeching halt a decade of slow progress reforming the governance of the Fund to make it more representative, legitimate, and therefore effective. Congress's balking on this issue also did substantial, actual damage to the US reputation around the world, as the leaders of many countries called into question Washington's ability to deliver on promises made in international economic agreements.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Reform
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Cathleen Cimino
  • Publication Date: 07-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Unconventional extraction methods, namely horizontal drilling and fracking, are transforming global energy production, consumption, and trade. Th e extraction of large amounts of oil and gas from shale formations has led to an unprecedented surge of domestic production in the United States. Th e US Department of Energy (DOE) is now processing more than 40 applications from domestic producers to export liquefi ed natural gas (LNG). While experts still disagree about the magnitude and duration of the energy boom, we are at the "dawn of a US oil and gas renaissance" (Houser and Mohan 2014).
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: United States, North America
  • Author: Avinash D. Persaud
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Bailouts and bail-ins of failing financial institutions have been hotly disputed in the global financial crisis of the last five years. At the height of the crisis, several failing banks were bailed out with taxpayer money so they could service their debts, but as public outrage mounts, policymakers are increasingly looking at bailing in these institutions before using taxpayer funds. Bail-ins, also called haircuts, require the troubled institution's creditors to write off some of the debt or agree to a restructuring of the debt, which reduces their holdings. The public has demanded the imposition of these costs on creditors and bond - holders, arguing that if bad lending as well as bad borrowing went unpunished it would be encouraged. Additionally, the yawning fiscal deficits that have followed bailouts have led to unpopular fiscal retrenchment.
  • Topic: Debt, Economics, Markets, Financial Crisis, Reform
  • Political Geography: United States
  • Author: William R. Cline
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: This semiannual review finds that most of the major international currencies, including the US dollar, euro, Japanese yen, UK pound sterling, and Chinese renminbi, remain close to their fundamental equilibrium exchange rates (FEERs). The new estimates find this result despite numerous significant exchange rate movements associated with increased volatility in international financial markets at the beginning of the fourth quarter of 2014, and despite a major reduction in the price of oil. The principal cases of exchange rate misalignment continue to be the undervalued currencies of Singapore, Taiwan, and to a lesser extent Sweden and Switzerland, and the overvalued currencies of Turkey, New Zealand, South Africa, and to a lesser extent Australia and Brazil. Even so, the medium-term current account deficit for the United States is already at the outer limit in the FEERs methodology (3 percent of GDP), and if the combination of intensified quantitative easing in Japan and the euro area with the end to quantitative easing in the United States were to cause sizable further appreciation of the dollar, an excessive US imbalance could begin to emerge.
  • Topic: Economics, Foreign Exchange, International Trade and Finance, Monetary Policy
  • Political Geography: Africa, United States, Japan, Turkey, South Africa, Brazil, New Zealand
  • Author: Natalia Aivazova
  • Publication Date: 08-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Five years since the global economic crisis began in 2008, many of the world's advanced economies are still struggling with sluggish growth and high levels of joblessness, especially among younger workers. In June 2013 the European Council expressed concern that “youth unemployment has reached unprecedented levels in several Member States” and called for “urgent action.” Much of the debate in Europe and the United States has focused on fiscal and monetary measures; while macroeconomic policy can address cyclical problems, a wide consensus recognizes the need to address structural challenges. One such challenge is a mismatch between the skills demanded by employers and those available among the population, especially younger workers. This mismatch can be addressed in part through the implementation of apprenticeship programs. The European Council recently concluded that “high quality apprenticeships and work-based learning will be promoted, notably through the European Alliance for Apprenticeships.” However, in the United States, where many are struggling to find jobs after graduating, apprenticeship programs hardly draw government and private-sector resources. Boosting apprenticeships could give both European and US workers the much-needed skills and competitive edge.
  • Topic: Economics, Markets, Labor Issues, Youth Culture
  • Political Geography: United States, Europe
  • Author: William R. Cline, Joseph E. Gagnon
  • Publication Date: 09-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Five years after the Federal Reserve and the Treasury allowed the investment bank Lehman Brothers to fail, their actions (or inaction) remain a focus of debate. Some argue that it was an inconsistent policy to have let Lehman fail while making emergency loans to save other large financial institutions in the same time frame. In this Policy Brief we present evidence that the Fed and Treasury had a sound reason to have bailed out other institutions while letting Lehman fail. Simply put, Lehman was insolvent—probably deeply so—whereas the other institutions arguably were solvent. In addition, the other institutions had abundant collateral to pledge, whereas what little collateral Lehman had to pledge was of questionable quality and scattered across many affiliated entities. Thus, federal officials, at least in hindsight, appear to have followed the dictum of Walter Bagehot (cited above), which has guided central banks for almost 150 years.
  • Topic: Debt, Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States
  • Author: David J. Stockton
  • Publication Date: 12-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Janet Yellen, who will serve as the 15th chair of the Board of Governors of the Federal Reserve System after her likely confirmation in December 2013, has the experience, intelligence, and judgment to be an excellent successor to Ben S. Bernanke. But she will need to employ all those strengths, and then some, to deal with the challenges facing the nation's central bank. Her success in confronting these challenges will profoundly affect the United States and world economies. Five key challenges await her.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States
  • Author: William R. Cline
  • Publication Date: 11-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Since the previous estimates of fundamental equilibrium exchange rates (FEERs) in this series in May (Cline 2013), numerous exchange rates have moved substantially in response to the announcement in late May that the US Federal Reserve would likely begin to "taper" its quantitative easing program of large-scale asset purchases. The new estimates here again take as their point of departure the medium-term current account projections of the most recent World Economic Outlook (WEO) of the International Monetary Fund (IMF 2013b). However, because of a seeming inertia in the Fund's projections despite large exchange rate moves, this round of calculations pays special attention to compiling alternative estimates for economies with large changes in exchange rates.
  • Topic: Economics, Foreign Exchange, International Trade and Finance, Markets, Monetary Policy, Governance
  • Political Geography: United States
  • Author: Joseph E. Gagnon
  • Publication Date: 11-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: There is a long-standing debate among economists and policymakers on the benefits of flexible versus fixed exchange rates (Klein and Shambaugh 2010). In principle, flexible exchange rates allow a country's central bank to focus on stabilizing economic growth and inflation, which are the ultimate goals of monetary policy. However, some argue that in practice central banks often do not use their powers wisely and it may be better to restrict their freedom by requiring them to peg their currency to that of an important trading partner. Others note that flexible exchange rates are far more volatile than fundamental factors can explain (Flood and Rose 1995), raising the possibility that they may introduce wasteful cross-sectoral fluctuations in economic activity. One common viewpoint is that flexible exchange rates may be fine for large countries but that the smallest countries are better off with fixed exchange rates (Åslund 2010).
  • Topic: Economics, Foreign Exchange, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States, Japan, China, United Kingdom
  • Author: Robert Z. Lawrence, Lawrence Edwards
  • Publication Date: 10-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Manufacturing is a key sector of the US economy. Although value added in manufacturing represented just 11.9 percent of GDP in 2012, manufacturing activity is strongly associated with economic growth, because manufacturing serves as the fulcrum of supply chains that combine and process raw materials and services to produce goods.1 In addition, the sector is among the most dynamic—accounting for about 70 percent of US spending on business research and development—and it regularly outstrips the rest of the economy in productivity growth. Over the long run, the contributions of US manufacturing to total output growth have been steady. Measured in 2005 dollars, for example, the share of manufacturing in US output was about the same in 2005 as in 1947.
  • Topic: Economics, Emerging Markets, Industrial Policy, International Trade and Finance
  • Political Geography: United States
  • Author: Simon Johnson, Jeffrey J. Schott
  • Publication Date: 10-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In July 2013, the United States and the European Union launched negotiations on a Transatlantic Trade and Investment Partnership (TTIP). The talks aim to craft a comprehensive accord matching or exceeding the reforms achieved in their previous trade pacts. Since both sides have included financial services in prior free trade agreements (FTAs), they implicitly recognized that the TTIP accord would also cover this sector. But what will be included in the financial services chapter is still subject to debate.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements, Bilateral Relations
  • Political Geography: United States, Europe
  • Author: Gary Clyde Hufbauer
  • Publication Date: 01-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States suffers from a severe self-inflicted wound. Together, federal and state governments impose almost the highest corporate tax rate found among advanced countries, 39 percent. Only Japan is fractionally higher. The high US rate has adverse consequences—lost investment, lost jobs, and less innovation—and goes a long way to explain slipping US competitiveness in the world economy.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets
  • Political Geography: United States, Japan
  • Author: Philip K. Verleger
  • Publication Date: 02-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States has initiated new sanctions against Iran aimed at preventing it from collecting revenue from exports of crude oil. The European Union has followed, embargoing all imports of Iranian crude from July 1, 2012 and preventing any firms from entering into new contracts to import Iranian oil after January 23, 2012. The new US and EU sanctions could be the most draconian in many years. If implemented fully, US sanctions would force trading partners to choose between the United States and Iran. EU sanctions would cut Iran off from an important market. These sanctions, while reducing Iranian income, could pose a very serious economic threat to countries that have significant trade with the United States and/or import significant quantities of oil from Iran.
  • Topic: Conflict Resolution, Foreign Policy, International Trade and Finance, Markets, Oil, Sanctions
  • Political Geography: United States, Europe, Iran, Middle East
  • Author: Robert Z. Lawrence
  • Publication Date: 10-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: America deserves credit for not having succumbed to the global financial crisis by repeating the protectionist mistakes of the 1930s. Nonetheless, since 2007, although lip service has been paid to boosting US exports, its trade policy accomplishments have been modest. This is unfortunate because active trade policies can promote American living standards and facilitate America's return to full employment and sustained growth. These policies can also help to create a global trade order that advances American interests. This policy brief argues that the United States needs new initiatives that discipline foreign practices, increase access to foreign markets, revitalize the World Trade Organization (WTO), improve the administrative and regulatory environment for trade, and assist workers and communities adversely affected by change.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, Global Recession, Monetary Policy, Financial Crisis
  • Political Geography: United States, America
  • Author: Joseph E. Gagnon Gagnon
  • Publication Date: 07-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Widespread currency manipulation, mainly in developing and newly industrialized economies, is the most important development of the past decade in international financial markets. In an attempt to hold down the values of their currencies, governments are distorting capital flows by around $1.5 trillion per year. The result is a net drain on aggregate demand in the United States and the euro area by an amount roughly equal to the large output gaps in the United States and the euro area. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies and instead achieved sustainable growth through higher domestic demand.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States, America, Europe
  • Author: C. Fred Bergsten, Joseph E. Gagnon
  • Publication Date: 12-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: More than 20 countries have increased their aggregate foreign exchange reserves and other official foreign assets by an annual average of nearly $1 trillion in recent years. This buildup of official assets—mainly through intervention in the foreign exchange markets—keeps the currencies of the interveners substantially undervalued, thus boosting their international competitiveness and trade surpluses. The corresponding trade deficits are spread around the world, but the largest share of the loss centers on the United States, whose trade deficit has increased by $200 billion to $500 billion per year as a result. The United States has lost 1 million to 5 million jobs due to this foreign currency manipulation.
  • Topic: Economics, Globalization, International Cooperation, International Trade and Finance, World Trade Organization
  • Political Geography: United States
  • Author: William R. Cline
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Halfway through this presidential election year, there is great uncertainty about how, when, and even whether the United States will restore fiscal sustainability. As shown by the near-default because of the impasse over the debt ceiling in July 2011, the two parties have been in sharp opposition on this issue. The Republicans have insisted that adjustment be accomplished by spending cuts rather than tax increases. Two hundred and thirty eight Republican congressmen and 41 Republican senators have signed the Grover Norquist pledge to oppose any attempt to raise marginal tax rates or reduce deductions without implementing offsetting tax reductions. In contrast, Democratic lawmakers have tended to emphasize the maintenance of social and entitlement programs and expressed a willingness to restore higher tax rates if necessary.
  • Topic: Economics, Monetary Policy, Financial Crisis, Governance, Law
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Martin Vieiro
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The need for US corporate tax reform is blindingly obvious. Conservatives contend that the top corporate tax rate— whether measured in statutory or effective terms—is the second highest in the Organization for Economic Cooperation and Development (OECD). Liberals argue that the US corporate tax system is riddled with complex “loopholes,” enabling many firms—whether incorporated or not—to pay less than their fair share.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Governance
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Sean Lowry
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In his 2012 State of the Union address, President Obama claimed that "over a thousand Americans are working today because we stopped a surge in Chinese tires." The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to "play by the rules" and serves as a plank in his larger platform of insourcing jobs to America.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Governance
  • Political Geography: United States, China, America
  • Author: William R. Cline
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For several years China has run persistent current account surpluses that have been widely seen as the most serious single source of global imbalances on the surplus side, and mirrored by persistent systemically large US current account deficits on the other side. In recent years, however, both imbalances have shown moderation (figure 1). China's surpluses have posed questions of international policy rules, because they have reflected in part an unwillingness to allow the exchange rate to appreciate sufficiently to act as an effective equilibrating mechanism. Exchange rate intervention resulted in a massive buildup of international reserves, which rose from $615 billion at the end of 2004 to $3.2 trillion at the end of 2011 (IMF 2012a).
  • Topic: Economics, Emerging Markets, Foreign Exchange, International Trade and Finance
  • Political Geography: United States, China, Israel
  • Author: Gary Clyde Hufbauer, Meera Fickling, Woan Foong Wong
  • Publication Date: 05-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States has experienced persistent trade deficits for decades, and thoughtful observers have concluded that deficits cannot be sustained at levels much exceeding 4 percent of GDP annually. There are only two ways to decrease the trade deficit: reduce imports or increase exports. For global economic health, increased exports are a far better proposition.
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: United States
  • Author: William R. Cline, John Williamson
  • Publication Date: 05-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: This policy brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data, which for exchange rates are the average rates of April 2011, and for the IMF's balance of payments forecasts, those published in the April 2011 issue of World Economic Outlook (WEO; see IMF 2011a). It is the central study in what has now become a regular annual cycle, in which we draw out what we believe to be the implications of the IMF's forecasts for the pattern that exchange rates need to take if the world is to approach a reasonably satisfactory medium-run position. This past year we also published an interim policy brief (Cline and Williamson 2010b) in which we updated our calculations to the average exchange rates of October 2010, as well as commented on Brazilian Finance Minister Guido Mantega's description of international monetary events as constituting "currency wars." As in the previous year, however, the November 2010 policy brief updated our estimates only for intervening changes in market exchange rates. We did not make use of the IMF's revised autumn WEO forecasts to update our estimates of FEERs; on the contrary, we assumed the FEERs estimated in May 2010 were correct. In contrast, this policy brief presents totally new estimates of FEERs.
  • Topic: Economics, Monetary Policy
  • Political Geography: United States, China
  • Author: Gary Clyde Hufbauer, Woan Foong Wong
  • Publication Date: 04-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In his State of the Union address, President Barack Obama stressed four ingredients of American prosperity: faster innovation, better education, less deficit, and more jobs. As the president recognized in his address, the US free enterprise system drives the private sector to innovate, invest, and create jobs. This policy brief concentrates on how reforming the corporate tax system can strengthen the private sector, thereby spurring both innovation and job.
  • Topic: Economics, Globalization, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: United States
  • Author: Trevor Houser
  • Publication Date: 06-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Like clock-work, as US gasoline prices approached $4 a gallon in spring 2011, energy security moved to the forefront of the American political debate. Global oil prices have recovered from their collapse during the financial crisis more quickly than expected due to resilient developing-country demand and political instability throughout the Middle East and North Africa. As with past oil price spikes, politicians have been quick to offer silver bullet solutions to lower gas prices and make America more energy secure. But given the complexity of the US energy system and global energy markets, it is difficult for even informed observers to evaluate how far current proposals go in solving the country's energy security challenge.
  • Topic: Energy Policy, Oil, Natural Resources, Biofuels
  • Political Geography: United States, America, Middle East, North Africa
  • Author: Jeffrey J. Schott
  • Publication Date: 06-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) remains stalled despite the political impetus provided by the Seoul G-20 Summit in November 2010. The major trading nations have not revised their positions enough to propel new negotiations on agriculture, manufactures, and services. There is now little chance to complete an agreement this year and little indication that current efforts could succeed next year.
  • Topic: Economics, International Cooperation, International Trade and Finance
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Martin Vieiro
  • Publication Date: 10-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States holds contradictory views about large corporations. When Americans speak of breakthroughs in research and engineering, they are justly proud of large firms that pioneered railroads and steam engines in the 19th century, automobiles, electric power, and oil exploration in the 20th century, and computers, software, and biotechnology in the 21st century. Yet when talk turns to paying taxes, public opinion holds that large corporations should pay a higher statutory tax rate than other business firms, and enjoy fewer deductions in computing their taxable income. Despite common sense and the teachings of economics, tax discrimination is alive and well.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States, America
  • Author: Nicolas Véron
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Credit Rating Agencies (CRAs) are prominent participants in the assessment of credit risk by financial markets. They determine and publish credit ratings, which represent the CRA's opinions on issuers' relative probability of default. The market for credit ratings is currently dominated in most western countries by three players: n Standard Poor's (S) is a division of the McGraw- Hill Companies, a US-based media group whose ownership is dispersed (the largest shareholder is Capital Group, with 12 percent of shares); n Moody's Corporation is an autonomous US-based listed company with dispersed ownership (the largest shareholder is Berkshire Hathaway, with 12.5 percent of shares); n Fitch Ratings is a division of the Fitch Group which is jointly owned by Fimalac, a Paris-based listed investment vehicle (60 percent of shares), and the US-based Hearst Corporation (40 percent of shares).
  • Topic: Debt, Economics, Globalization, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Anders Åslund
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After 18 years, Russia is finally on the verge of acceding to the World Trade Organization (WTO). No country has struggled for so long to become a member of this important organization. The last impediment was removed on November 9, when Russia and Georgia concluded an agreement on monitoring trade flows across their disputed border. The WTO Working Party, which oversaw the negotiations, then approved Russian accession on November 10, clearing the way for formal membership to be adopted at the WTO ministerial conference to be held December 15–17, 2011 (WTO 2011).
  • Topic: Conflict Resolution, Economics, International Trade and Finance, Markets, Bilateral Relations
  • Political Geography: Russia, United States, Georgia
  • Author: William R. Cline, John Williamson
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The currency markets have been extremely disturbed for the last three months. The period witnessed a major strengthening of the US dollar in September, then the European currency crisis, a recovery of the euro when the markets believed that the crisis was being controlled, and then a rebound of the dollar. In view of these developments, those who follow currency movements need a new guide as to how the current values of currencies compare to our estimates of fundamental equilibrium exchange rates (FEERs). That is the main object of this paper.
  • Topic: Economics, Globalization, International Political Economy, Monetary Policy
  • Political Geography: United States, Europe
  • Author: Nicholas R. Lardy
  • Publication Date: 03-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: China's policy response to the global financial and economic crisis was early, large, and well-designed. Although Chinese financial institutions had little exposure to the toxic financial assets that brought down many large Western investment banks and other financial firms, China's leadership recognized that its dependence on exports meant that it was acutely vulnerable to a global recession. Thus they did not subscribe to the view sometimes described as “decoupling,” the idea that Asian countries could passively weather the financial storm that originated in the United States and other advanced industrial economies. They understood that absent a vigorous policy response China inevitably would suffer from the backwash of a sharp economic slowdown in its largest export markets—the United States and Europe.
  • Topic: Economics, Financial Crisis
  • Political Geography: United States, China, Europe, Asia
  • Author: Peter B. Kenen
  • Publication Date: 03-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Today, the international monetary system is based largely on the US dollar, but reserve currency diversification has begun, thanks to the advent of the euro, and it is apt to continue. Eventually, the renminbi could acquire reserve currency status, and the resulting reserve currency diversification could be more disruptive than it has been to date. To forestall that possibility the quasi-currency issued by the International Monetary Fund (IMF), Special Drawing Rights (SDRs), could be made to play a larger role in the international monetary system, precluding potentially disruptive diversification and achieving more orderly growth in the stock of international reserves.
  • Topic: Economics, International Political Economy, International Trade and Finance, Monetary Policy
  • Political Geography: United States
  • Author: Jeffrey J. Schott, Meera Fickling
  • Publication Date: 07-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: A year ago, we wrote a policy brief titled Setting the NAFTA Agenda on Climate Change, which explored issues of energy and environmental cooperation among the three North American countries in light of the climate legislation that had recently passed the US House of Representatives. Similar legislation did not pass the Senate, and Congressional leaders are now considering much more modest measures aimed at reducing greenhouse gas (GHG) emissions and reforming US energy policy.
  • Topic: Climate Change, Economics, International Trade and Finance, Treaties and Agreements
  • Political Geography: United States, North America
  • Author: Gary Clyde Hufbauer, Julia Muir
  • Publication Date: 06-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On May 31, 2010 a majority of the Lower House of the National Diet of Japan approved legislation that would reverse a decade's worth of effort to fully privatize key subsidiaries of Japan Post Holdings Co. Ltd. Besides postal services, the state-run postal system offers banking and insurance services, through Japan Post Bank (JPB) and Japan Post Insurance (JPI), respectively. These are the financial engines of Japan Post and were the units slated for privatization. Both subsidiaries have long received favorable government treatment, tilting the playing field against private banks and insurance firms, whether foreign or domestic. The government of Japan is in clear violation of its commitments under the World Trade Organization (WTO), and if the Upper House approves the legislation, Japan will reverse the efforts made by the United States and the European Union, as well as domestic private banks and insurance firms, to establish a level playing field. What's more, Japan risks having a formal WTO dispute brought against it.
  • Topic: Economics, Government, Privatization
  • Political Geography: United States, Japan, Europe
  • Author: Daniel H. Rosen
  • Publication Date: 06-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On Sunday, June 13, 2010 representatives from China and Taiwan held a third round of talks in Beijing on an Economic Cooperation Framework Agreement (ECFA) that would liberalize important aspects of cross-Strait economic relations. Details of what was agreed and what remains under negotiation are still trickling out, and in any case the nature of this framework is that various elements will be agreed upon on an ongoing basis rather than at once. But it is clear from available details that ECFA will be an ambitious accord that fundamentally changes the game between Taiwan and China and hence affects the regional economy and even the transpacific tempo for the United States.
  • Topic: Economics, International Cooperation, International Trade and Finance, Treaties and Agreements, Bilateral Relations
  • Political Geography: United States, China, Taiwan
  • Author: Gary Clyde Hufbauer, Theodore H. Moran
  • Publication Date: 06-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The US House of Representatives has just passed the American Jobs and Closing Tax Loopholes Act (HR 4213). This bill will hurt American workers, reduce American exports, and make American companies less competitive in the international marketplace. Since the US Senate has already passed companion legislation, the American Workers, State, and Business Relief Act (S 3336), these ill-considered bills could soon be reconciled in conference and become the law of the land. If so, American firms and workers will pay the price.
  • Topic: Economics, International Trade and Finance, Markets, Labor Issues
  • Political Geography: United States, America
  • Author: Trevor Houser
  • Publication Date: 05-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On May 12, 2010, Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) released details of their proposed American Power Act, a comprehensive energy and climate change bill developed over the preceding nine months by the two senators, chairmen of the Senate Foreign Relations and Homeland Security Committees respectively, along with Senator Lindsey Graham (R-SC).1 With US unemployment just below 10 percent and the sunken Deepwater Horizon drilling rig's ruptured well pouring thousands of barrels of oil into the Gulf of Mexico each day, the senators promised that if passed the bill will: (1) reduce US oil consumption and dependence on oil imports; (2) cut US carbon pollution 17 percent below 2005 levels by 2020 and over 80 percent by 2050; and (3) create jobs and restore US global economic leadership. In this policy brief we evaluate the effectiveness of the proposed American Power Act in achieving those goals.
  • Topic: Climate Change, Environment, Government
  • Political Geography: United States
  • Author: Jeffrey J. Schott
  • Publication Date: 05-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For the past 18 months, the G-20 summit countries have worked together to contain the global economic crisis and encourage a sustainable economic recovery. As part of these efforts, the G-20 leaders have sought to constrain the protectionist pressures that invariably arise during times of economic stress and to maintain an open international trading regime. The G-20 trade agenda, as enunciated in the three summit declarations, has covered two specific trade actions: a “standstill” on new protectionism and a charge to complete the Doha Round of multilateral trade negotiations.
  • Topic: Development, Human Rights, International Organization, International Trade and Finance
  • Political Geography: United States, Washington
  • Author: Gary Clyde Hufbauer, Theodore H. Moran
  • Publication Date: 05-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As presidential candidate, Barack Obama repeatedly advocated tax “reforms” aimed squarely at US-based multinational enterprises (MNEs). As president, he again declared—in the same State of the Union address that laid out an ambitious goal for export expansion—that “it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America."
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer
  • Publication Date: 04-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: These are difficult times. Not only are 10 percent of Americans unemployed but the federal budget is out of whack thanks to the specter of rising entitlement outlays. A natural impulse in difficult times is to protect domestic products and domestic producers. The tone of political economy during the global recession of 2007–09 is no different from that in past recessions—but louder because the economic damage is more severe. Emblematic of this spirit is a proposal to discriminate against foreign-owned insurance companies, using the tax code.
  • Topic: Economics, Labor Issues, Financial Crisis
  • Political Geography: United States
  • Author: William R. Cline
  • Publication Date: 08-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On June 21, 2010, in the run-up to the G-20 meeting in Toronto, China announced that it would shift to a more flexible exchange rate policy. From mid-June to July 30 the yuan rose 0.8 percent against the dollar. In contrast, the currency had remained fixed (at about 6.83 yuan to the dollar) from September 2008 to early June 2010. Pressure not only from the United States and the European Union but also from Russia, Brazil, and India as well as the IMF seems likely to have played a role in China's decision, although concerns about domestic inflation may also have been a factor.
  • Topic: Economics, Monetary Policy
  • Political Geography: United States, China
  • Author: Richard J. Smith
  • Publication Date: 08-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The 1987 Montreal Protocol to the Vienna Convention on the Protection of the Ozone Layer was a pivotal agreement in the history of global environmental negotiations. It established a process that remains an important precedent for dealing with global environmental problems, including global warming. What made the negotiation of that agreement such an iconic event, and what useful lessons does it hold for climate change negotiators?
  • Topic: Climate Change, Environment
  • Political Geography: United States