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1. Industrial policy for electric vehicle supply chains and the US-EU fight over the Inflation Reduction Act

Author:
Chad P. Bown
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Inflation Reduction Act (IRA) of 2022 provoked a transatlantic trade spat. After the law was passed, the Biden administration addressed some of the concerns raised by the European Union by writing controversial rules to implement the legislation. These regulations are expected to have complex effects that, in some instances, may offset the intended impact of other provisions in the original legislation. This paper examines how the law, its implementing regulations, policy decisions on leasing, as well as potential critical minerals agreements all have the potential to affect the electric vehicle (EV) supply chain. The EV case study showcases the political-economic complications involved in US and EU attempts to cooperate over clean energy transition policy to address the global externality of carbon dioxide emissions. EVs are but one example of the challenge facing partners with integrated supply chains and similar levels of economic development that share concerns about climate change, rising inequality, workers, other social issues, and democracy itself. The EV conflict laid bare the differing US and EU prioritization of these issues relative to economic efficiency, World Trade Organization rules, the approach to nonmarket economies, and national security vulnerabilities that arise from depending on an authoritarian regime such as China for import sourcing of critical inputs.
Topic:
Industrial Policy, International Trade and Finance, European Union, Supply Chains, and Electric Vehicles
Political Geography:
Europe, North America, and United States of America

2. How COVID-19 medical supply shortages led to extraordinary trade and industrial policy

Author:
Chad P. Bown
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Early in the COVID-19 pandemic, a global shortage of hospital gowns, gloves, surgical masks, and respirators caused policymakers around the world to panic. This paper examines international trade in this personal protective equipment (PPE) during the crisis, with a focus on China, the European Union, and the United States. As the pandemic first hit, China increased imports and decreased exports of PPE, removing considerable quantities of supplies from global markets. For the European Union and United States, the decrease in their imports from China was not immediately replaced by increased trade from other foreign suppliers. Early shortages led to EU and US export controls on their own, domestically produced PPE and other extraordinary policy actions, including a US effort to reserve for itself supplies manufactured in China by a US-headquartered multinational. By April 2020 China’s exports had mostly resumed, and over the rest of the year its export volumes of some products surged, more than doubling compared to pre-pandemic levels. But China’s export prices also skyrocketed and remained elevated through 2020, reflecting severe and continued shortages. This paper documents these facts. It also explores these and other government actions, such as US trade war tariffs and the emergence of US industrial policy in the form of over $1 billion of subsidies to build out its domestic PPE supply chain, as well as potential lessons for future pandemic preparedness and international policy cooperation.
Topic:
Industrial Policy, Economy, Trade, COVID-19, Health Crisis, and Supply
Political Geography:
Global Focus

3. Rethinking the National Export Initiative

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, and Maritime Commerce
Political Geography:
United States

4. Making Labor Market Reforms Work for Everyone: Lessons from Germany

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, and Labor Issues
Political Geography:
United States, Europe, and Germany

5. Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework

Author:
Arvind Subramanian and Kevin Stahler
Publication Date:
11-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Prima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better—Balassa-Samuelson-Penn (BSP)—framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9 percent and with Greece's having deteriorated by 9 percent. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.
Topic:
Economics, Industrial Policy, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Europe

6. US Employment Deindustrialization: Insights from History and the International Experience

Author:
Robert Z. Lawrence and 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, and International Trade and Finance
Political Geography:
United States

7. US Tire Tariffs: Saving Few Jobs at High Cost

Author:
Gary Clyde Hufbauer and 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, and Governance
Political Geography:
United States, China, and America

8. The Services Sector in Asia: Is It an Engine of Growth?

Author:
Donghyun Park and Kwanho Shin
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The underdeveloped services sector in Asia has the potential to become a new engine of economic growth in developing Asia, which has traditionally relied on export-oriented manufacturing to power its growth. In this paper, Park and Shin empirically analyze the prospects for the services sector in Asia. Their analysis of 12 Asian countries indicates that the services sector has already contributed substantially to the region's growth in the past. Somewhat surprisingly, in light of the difficulty of achieving productivity gains in services, they also find that services labor productivity grew at a healthy pace in much of the region. Overall their analysis provides substantial cause for optimism about the role of the services sector as an engine of growth in Asia. However, they caution that some Asian countries where the services sector is currently struggling, such as Korea and Thailand, will find it more challenging to develop the sector.
Topic:
Economics, Emerging Markets, Industrial Policy, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Asia

9. Performance of the Services Sector in Korea: An Empirical Investigation

Author:
Donghyun Park and Kwanho Shin
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
There is a widespread perception that Korea's services sector lags behind its dynamic world-class manufacturing sector. This paper empirically analyzes the past performance of Korea's services sector in order to assess its prospects as an engine of growth. The analysis resoundingly confirms the conventional wisdom of an underperforming service sector. In light of Korea's high income and development level, the poor performance of modern services is of particular concern. The authors identify a number of factors underlying the poor performance and set forth policy recommendations for addressing them. Overall, Korea faces a challenging but navigable road ahead in developing a high value-added services sector.
Topic:
Development, Economics, Emerging Markets, Industrial Policy, and International Trade and Finance
Political Geography:
Israel and Korea

10. Developing the Services Sector as Engine of Growth for Asia: An Overview

Author:
Marcus Noland and Donghyun Park
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The maturing of the manufacturing sector in many Asian countries, combined with the relative backwardness of its services sector, has made services sector development a top priority for developing Asia. The authors' central objective is to broadly survey and analyze the current landscape of the region's services sector so as to assess its potential to serve as an engine for inclusive economic growth. Their analysis indicates that services are already an important source of output, growth, and jobs in the region. However, its productivity greatly lags that of the advanced economies, which implies ample room for further growth. The impact of the services sector on poverty reduction is less clear but the authors do find some limited evidence of a poverty reduction effect. One key challenge for all Asian countries is to improve the quality of services sector data. Overall, while services sector development is a long and challenging process, creating more competitive services markets by removing a wide range of internal and external policy distortions is vital for improving services sector productivity. As important as such policy reforms are, complementary investments in physical infrastructure and human capital will also be necessary to achieve a strong services sector.
Topic:
Development, Emerging Markets, and Industrial Policy
Political Geography:
Israel and Asia

11. Another Shot at Protection by Stealth: Using the Tax Law to Penalize Foreign Insurance Companies

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, and Markets
Political Geography:
United States and Japan

12. Foreign Manufacturing Multinationals and the Transformation of the Chinese Economy: New Measurements, New Perspectives

Author:
Theodore H. Moran
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
What is the relationship between foreign manufacturing multinational corporations (MNCs) and the expansion of indigenous technological and managerial technological capabilities among Chinese firms? China has been remarkably successful in designing industrial policies, joint venture requirements, and technology transfer pressures to use FDI to create indigenous national champions in a handful of prominent sectors: high speed rail transport, information technology, auto assembly, and an emerging civil aviation sector. But what is striking in the aggregate data is how relatively thin the layer of horizontal and vertical spillovers from foreign manufacturing multinationals to indigenous Chinese firms has proven to be. Despite the large size of manufacturing FDI inflows, the impact of multinational corporate investment in China has been largely confined to building plants that incorporate capital, technology, and managerial expertise controlled by the foreigner. As the skill-intensity of exports increases, the percentage of the value of the final product that derives from imported components rises sharply. China has remained a low value-added assembler of more sophisticated inputs imported from abroad—a “workbench” economy. Where do the gains from FDI in China end up? While manufacturing MNCs may build plants in China, the largest impact from deployment of worldwide earnings is to bolster production, employment, R, and local purchases in their home markets. For the United States the most recent data show that US-headquartered MNCs have 70 percent of their operations, make 89 percent of their purchases, spend 87 percent of their R dollars, and locate more than half of their workforce within the US economy—this is where most of the earnings from FDI in China are delivered.
Topic:
Economics, Industrial Policy, International Trade and Finance, and Science and Technology
Political Geography:
United States, China, and Israel

13. India's Growth in the 2000s: Four Facts

Author:
Arvind Subramanian and Utsav Kumar
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper marks the first attempt at examining the growth performance across Indian states for the 2000s, a period also marked by the global financial crisis. Four key findings are reported. First, consistent with the fact that the 2000s was the best ever decade for Indian macroeconomic performance, growth increased across almost all major states in 2001–09 compared to 1993–2001. Second, nevertheless, there is a continued phenomenon of divergence or rising inequality across states: On average the richer states in 2001 grew faster in 2001–09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001–07 suffered the largest deceleration. Since states with the highest growth were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend—a young population boosting economic dynamism—was evident before 2000, there is little evidence that there was any dividend in the 2000s. Demography alone cannot be counted on for future economic growth.
Topic:
Demographics, Development, Economics, Industrial Policy, International Trade and Finance, and Social Stratification
Political Geography:
South Asia and India

14. Intra-Firm Trade and Product Contractibility

Author:
J. Bradford Jensen, Andrew B. Bernard, Peter K. Schott, and Stephen J. Redding
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the determinants of intra-firm trade in US imports using detailed country-product data. We create a new measure of product contractibility based on the degree of intermediation in international trade for the product. We find important roles for the interaction of country and product characteristics in determining intra-firm trade shares. Intra-firm trade is high for products with low levels of contractibility sourced from countries with weak governance, for skill-intensive products from skill-scarce countries, and for capital-intensive products from capital-abundant countries.
Topic:
Economics, Industrial Policy, International Trade and Finance, and Markets
Political Geography:
United States

15. Buy American: Bad for Jobs, Worse for Reputation

Author:
Gary Clyde Hufbauer and Jeffrey J. Schott
Publication Date:
02-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On January 28, 2009, the US House of Representatives passed its economic stimulus plan, the American Recovery and Reinvestment Act of 2009. Out of the bill's 700 text pages, a small half-page section attracted enormous media attention: the section requiring that all public projects funded by the stimulus plan must use only iron and steel produced in the United States (box 1). Another provision, which drew less attention, extends the so-called Berry Amendment (an old Buy American provision) to uniforms purchased by the Department of Homeland Security.
Topic:
Economics, Globalization, Government, Industrial Policy, International Political Economy, International Trade and Finance, and International Affairs
Political Geography:
United States

16. From Industrial Policy to Innovative Policy: Japan's Pursuit of Competitive Advantage

Author:
Marcus Noland
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Japan faces significant challenges in encouraging innovation and entrepreneurship. Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. The evidence indicates that most resource flows went to large, politically influential “backward” sectors, suggesting that political economy considerations may be central to the apparent ineffectiveness of Japanese industrial policy.
Topic:
Development, Foreign Exchange, and Industrial Policy
Political Geography:
Japan and Asia

17. Offshoring, Outsourcing, and Production Relocation-Labor—Market Effects in the OECD Countries and Developing Asia

Author:
Jacob Funk Kirkegaard
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This working paper evaluates the validity of available data on and the extent of the impact of offshoring on service-sector labor markets in the United States, EU-15, and Japan. A three-tier data validity hierarchy is identified. The impact of offshoring on employment in the three regions is found to be limited. Correspondingly, developing Asia is unlikely to experience large employment gains as a destination region. The paper highlights the case of the Indian IT industry, where the majority of job creation has been in local Indian companies rather than foreign multinationals. Domestic entrepreneurs have played a crucial role in the growth of the Indian IT-related service industry. However, increased tradability of services and associated skill bias in favor of higher skilled workers could have an uneven employment impact on developing Asia. Some high-skilled groups are benefiting and will continue to benefit dramatically from new employment opportunities and rising wage levels. Meanwhile, the same skill bias may eliminate many employment opportunities for unskilled or low-skilled groups in the region. Developing Asian countries therefore face a double educational challenge in the coming years: the need to simultaneously improve both primary and higher education.
Topic:
International Relations, Development, Economics, and Industrial Policy
Political Geography:
United States, Japan, and Asia

18. Russia's Challenges as Chair of the G-8

Author:
Anders Åslund
Publication Date:
03-2006
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On January 1, Russia became the chair of the Group of Eight (G-8), the exclusive group of the biggest industrial democracies. This chairmanship raises many eyebrows. Russia was originally included in the G-8 to help lock in its democratic reforms, 1 but Russia is no longer even semidemocratic. Last year, US senators John McCain and Joseph Lieberman sponsored a resolution urging President Bush to work for the suspension of Russia's membership until the Russian government accepted and adhered to “the norms and standards of free, democratic societies as generally practiced by every other member nation of the Group of 8 nations.” Jeffrey Garten ( Financial Times , June 28, 2005) has called Russia's chairmanship “farcical,” saying, “Two trends are changing the world for the better—freer markets and democratization. . . . But, alone among the summit member Russia is moving in the opposite direction. . . . Moscow's leader - ship of the G-8 reduces the credibility and the relevance of the group to zero.”
Topic:
International Relations, Democratization, and Industrial Policy
Political Geography:
Russia, Europe, and Asia

19. Firm Structure, Multinationals, and Manufacturing Plant Deaths

Author:
J. Bradford Jensen and Andrew B. Bernard
Publication Date:
09-2006
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Plant shutdowns shape industry productivity, the dynamics of employment, and industrial restructuring. Plant closures account for more than half of gross job destruction in US manufacturing. This paper examines the effects of firm structure on US manufacturing plant closures. Plants belonging to multi-plant firms and those owned by US multinationals are less likely to exit. However, the superior survival chances are due to the characteristics of the plants rather than the nature of the firms. Controlling for plant and industry attributes, we find that plants owned by multi-unit firms and US multinationals are much more likely to close.
Topic:
Economics, Human Welfare, and Industrial Policy
Political Geography:
United States

20. Tradable Services: Understanding the Scope and Impact of Services Offshoring

Author:
Lori G. Kletzer and J. Bradford Jensen
Publication Date:
09-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
We develop a new empirical approach to identify tradable service activities. Contrary to conventional views of service activities as nontradable, we find a significant number of service industries and occupations that appear tradable and substantial employment in these tradable activities. Workers employed in tradable service activities differ from those employed in tradable manufacturing and nontradable services. Workers in tradable service activities have higher skill levels and are paid higher wages than manufacturing workers or workers in nontradable service activities. In general, we find little evidence that tradable service activities have lower employment growth than other service activities. However, evidence suggests lower employment growth at the lowest end of the skill distribution. There is also evidence of higher worker displacement rates in tradable services. Workers displaced from tradable service activities are different from displaced manufacturing workers: Displaced tradable service workers have higher skills and higher predisplacement earnings than displaced manufacturing workers.
Topic:
Economics, Human Welfare, Industrial Policy, and International Trade and Finance

21. The Chinese Economy: Prospects and Key Policy Issues

Author:
Morris Goldstein
Publication Date:
04-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
No abstract is available.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
China and Asia

22. Breaking Up Is Hard To Do: Global Co-dependency, Collective Action, and the Challenges of Global Adjustment

Author:
Catherine L. Mann
Publication Date:
01-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Global imbalances have continued, indeed deepened, far longer than both researchers and pundits would have thought. On the US side, the current account deficit at about $630 billion (2004q1-3, AR) and 5.5 percent of GDP (2004q3) falls outside the oft-quoted range of 4-5 percent after which, research on industrial countries suggests, economic forces tend to narrow the imbalance. There is some-what less research on the persistence of global imbalances from the standpoint of the rest of the world, in part because individually most of those imbalances are not so notable. Clearly though, collectively growth in the rest of the world has come to be co-dependent on US demand patterns.
Topic:
International Relations, Development, Economics, and Industrial Policy
Political Geography:
United States

23. Steel Policy: The Good, the Bad, and the Ugly

Author:
Gary C. Hufbauer and Ben Goodrich
Publication Date:
01-2003
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
While the US steel industry has been in distress for decades, the “steel crisis” of 1999-2001 was particularly acute. More than 30 steel producing and steel processing firms fell into bankruptcy between 1997 and 2001, and most of the failures occurred after President Bush took office. During his presidential campaign, Bush promised steelworkers that he would not neglect them. As the crisis worsened, the steel industry and the United Steel Workers of America (USWA) pressed the Bush administration to make good on its campaign promise.
Topic:
Government, Industrial Policy, and International Trade and Finance
Political Geography:
United States and America

24. The Future of North Korea

Author:
Marcus Noland
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Korean peninsula has entered a period of considerable change and uncertainty. This paper attempts to sketch out how internal and external forces may shape outcomes in North Korea over the next several years. The range of plausible outcomes is huge, and the paper identifies four possible end states: successful reform and engagement, “muddling through,” elite conflict that could affect the nature of the state, if not the regime, and finally, mass mobilization that could threaten the regime itself. This analysis proceeds under a number of assumptions.
Topic:
Development, Government, and Industrial Policy
Political Geography:
Israel, East Asia, and North Korea