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  • Author: Jeffrey J. Schott
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: China’s policies in Xinjiang, Hong Kong, and the South China Sea and its ongoing support for Iran, North Korea, and Venezuela pose major challenges for the United States, where bipartisan pressure is growing to ramp up punitive sanctions against leading Chinese firms and financial institutions. Financial sanctions freeze the US assets or bar US entry of the targeted individuals and firms and prohibit US financial firms from doing business with them. Schott explains why US officials should carefully weigh the risks to international financial markets and US economic interests before imposing punitive sanctions on major financial institutions engaged with China. The collateral costs of such sanctions would be sizable, damaging US producers, financial institutions, and US alliances. By restricting access of major banks to international payments in US dollars and barring use of messaging systems like SWIFT, tougher US financial sanctions would effectively “weaponize” the dollar; friends and foes alike would be pushed to seek alternatives to dollar transactions that, over time, would weaken the international role of the dollar. Instead of doubling down on current unilateral financial sanctions, US policy should deploy sanctions in collaboration with allies and calibrate trade and financial controls to match the expected policy achievements.
  • Topic: Human Rights, Sanctions, Finance, Economy
  • Political Geography: China, Asia, North America, United States of America
  • Author: Gary Clyde Hufbauer
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Open Sub-navigation BackOpen Sub-navigation Publications Back Policy Briefs Working Papers Books PIIE Briefings Open Sub-navigation Commentary Back Op-Eds Testimonies Speeches and Papers Topics & Regions PIIE Charts What Is Globalization? Educational Resources Open Sub-navigation Back Senior Research Staff Research Analysts Trade Talks Open Sub-navigation Back RealTime Economic Issues Watch Trade & Investment Policy Watch China Economic Watch North Korea: Witness to Transformation 中文 Open Sub-navigation Back All Events Financial Statements Global Connections Global Economic Prospects Stavros Niarchos Foundation Lectures Trade Winds Open Sub-navigation Back News Releases Multimedia Media Center Open Sub-navigation Back Board of Directors Staff Employment Contact Annual Report Transparency Policy POLICY BRIEF VIEW SHARING OPTIONS Will industrial and agricultural subsidies ever be reformed? Gary Clyde Hufbauer (PIIE) Policy Brief21-5 March 2021 Photo Credit: REUTERS/Denis Balibouse One economic argument for government subsidies is that they are necessary to compensate firms and industries for benefits they provide to society at large but cannot capture in the prices they charge for goods or services. For example, subsidies to renewable energy are defended because renewable energy limits carbon emissions. When a major economy subsidizes extensively, however, its trading partners are drawn into the game, with losses all around. As the prisoner’s dilemma suggests, a better outcome would entail mutual restraint. But the goal of mutual restraint is no less difficult in international trade than it is in international arms control. Both the European Union and the US federal system try, in different ways, to regulate industrial subsidies. Hufbauer examines efforts to contain unjustifiable subsidies and proposes modest improvements, bearing in mind that as countries struggle to overcome the global economic downturn resulting from the COVID-19 pandemic, there is little appetite for restoring a free market economy—one in which firms compete with minimum government assistance or regulation. Selective upgrading of the rulebook may nevertheless be possible.
  • Topic: Agriculture, Government, Reform, European Union, Regulation, Manufacturing, Industry, COVID-19, Subsidies
  • Political Geography: Europe, North America, United States of America
  • Author: Robert Z. Lawrence
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Afrequently voiced complaint from the Trump administration was that US firms have faced a competitive disadvantage in exports because the US market is open and US tariffs are low but US trading partners protect their markets with high tariffs. The administration used this concern to justify raising US tariffs whenever it could. Lawrence argues that these claims should be more nuanced and account for the extensive unilateral liberalization by many countries over the past 30 years and that the grievances that motivated the Trump trade policies are increasingly misplaced. Many developing countries have reduced their tariffs unilaterally to rates that are far lower than they applied three decades ago and far less than the bound rates reflected in their World Trade Organization (WTO) obligations. Globally, on average, tariffs were not raised during the global financial crisis of 2008 and continued to decline through at least 2018. Even when shocks from imports resulted in serious injury to domestic industries, several developing countries temporarily provided safeguard protection but at levels that were lower than their WTO bound rates. This evidence of import liberalization also suggests that rising protectionism was not responsible for the slow growth in world trade that has been evident since 2011. It remains uncertain whether countries will now respond to disruptions to global supply chains since 2018 caused by Trump’s trade policies and the COVID-19 pandemic by reversing their tariff liberalization stance, but the sustained enthusiasm for new megaregional trade agreements suggests many countries will not.
  • Topic: Emerging Markets, World Trade Organization, Trade Wars, Protectionism
  • Political Geography: China, Asia, North America, United States of America
  • Author: Simeon Djankov, Eva (Yiwen) Zhang
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: New business applications have surged in the United States since the start of the COVID-19 pandemic. The growth is driven largely by startups in online retail, transportation, and personal services. Many of these new entrepreneurs are self-employed and were likely laid off and forced into entrepreneurship by necessity. No official data are available yet on the number of businesses destroyed in 2020, because business data for firms that close without entering bankruptcy are lagging. But the authors calculate that firm births may have surpassed firm deaths during the pandemic. While this boom in business entry is a tribute to the adaptability and potential innovative spirit in US capitalism, one should not be overly optimistic about jobs created in this wave of startups. As many of these new startups are by people forced to strike out on their own, the number of jobs created per new firm is even smaller than it was during previous US recessions. And like online businesses started around the last recession (e.g., Uber, Airbnb, and Venmo), some of these new firms may turn out to be major contenders in their sectors, displacing workers employed by their traditional rivals.
  • Topic: Science and Technology, Labor Issues, Financial Crisis, COVID-19
  • Political Geography: North America, United States of America
  • Author: Joseph E. Gagnon, Steve Kamin, John Kearns
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: COVID-19 vaccination programs are generally understood to be a prerequisite for a return to normalcy in our social and economic lives. Emergency measures to research, test, produce, and distribute vaccines have been expensive, but increases in GDP resulting from the vaccines are expected to exceed those costs by wide margins. Few studies have quantified the economic costs and benefits of different rates of COVID-19 vaccination, however. This Policy Brief focuses on developing such a quantitative assessment for the United States; the approach may be applied to other countries as well. Two illustrative scenarios support the conclusion that most plausible options to accelerate vaccinations would have economic benefits that far exceed their costs, in addition to their more important accomplishment of saving lives. This Policy Brief shows that if, for example, the United States had adopted a more aggressive policy in 2020 of unconditional contracts with vaccine producers, the up-front cost would have been higher but thousands of lives would have been saved and economic growth would have been stronger. Instead, the federal government conditioned its contracts on the vaccines’ being proven safe and effective. The projections presented in this analysis show that even if unconditional contracts led to support for vaccines that failed the phase III trial and ultimately were not used, the cost would have been worth it.
  • Topic: Economics, Health, Crisis Management, COVID-19, Health Crisis
  • Political Geography: North America, United States of America
  • Author: Egor Gornostay, Madi Sarsenbayev
  • Publication Date: 06-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: An intense debate has erupted over whether the unprecedented size of the US fiscal stimulus will cause the US economy to overheat and generate high inflation. To date, the debate has focused primarily on the United States, even though many other developed economies responded to the COVID-19 crisis with unprecedented economic stimulus packages. By some measures, Japan stands out: The total amount of its three consecutive stimulus packages is estimated to exceed 50 percent of its GDP, about twice as high as the US fiscal packages (about 26 percent of US GDP). However, overheating concerns are not being actively raised for Japan. This Policy Brief finds that although Japan’s headline number looks astonishingly high, the actual size of its discretionary fiscal measures is about 16 percent of GDP, substantially smaller than the total size of the US packages. US fiscal stimulus is the largest among Group of Seven (G7) countries relative to GDP, justifying the attention economists have given it. The United Kingdom is estimated to spend more than Japan as a proportion of GDP, but even the UK stimulus program markedly lags behind that of the United States. If additional stimulus measures making their way through the legislative process in Canada are counted, Japan’s fiscal stimulus looks even smaller and would amount to being only average in size among G7 countries. Given this and the lackluster performance of its economy in the first quarter of 2021, it is unlikely that Japan will find itself in overheating territory any time soon.
  • Topic: Inflation, G7, COVID-19
  • Political Geography: Japan, Asia, North America, United States of America
  • Author: Matthew Levitt
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: In the sixth in a series of TRANSITION 2021 memos examining the Middle East and North Africa, Matthew Levitt reimagines the U.S. counterterrorism enterprise with a view to its long-term sustainability. Since the September 11 attacks, Washington has poured funding into a largely military-led response to terrorism, but today both Democrats and Republicans stress the need to end “forever” wars, focus limited resources on protecting the homeland, and lean more on foreign partners to address terrorism in their neighborhoods. Yet any shift in posture must seek a maximum return on the twenty-year U.S. investment in counterter­rorism while also keeping up with terrorists’ exploitation of new technologies, from drones to encrypted communication to social media. This will require finding areas of policy overlap between counterterrorism and Great Power competition, and disentangling U.S. counterterrorism budgets from the military budgets on which they have been grafted over the past two decades. More broadly, the author explains, “convincing partners to share more of the counterterrorism burden will require that Washington repair its damaged credibility and demonstrate the staying power to meet its alliance commitments.” In the coming weeks, TRANSITION 2021 memos by Washington Institute experts will address the broad array of issues facing the Biden-Harris administration in the Middle East. These range from thematic issues, such as the region’s strategic position in the context of Great Power competition and how to most effectively elevate human rights and democracy in Middle East policy, to more discrete topics, from Arab-Israel peace diplomacy to Red Sea security to challenges and opportunities in northwest Africa. Taken as a whole, this series of memos will present a comprehensive approach for advancing U.S. interests in security and peace in this vital but volatile region.
  • Topic: Security, Military Affairs, Counter-terrorism, Military Spending, 9/11
  • Political Geography: North America, United States of America
  • Author: Dennis Ross, Robert Satloff
  • Publication Date: 02-2021
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: A revamped approach to the alliance should stay focused on shared goals, from ensuring a stable oil market to promoting a more tolerant version of Islam at home and abroad. In the fourth in a series of TRANSITION 2021 memos examining the Middle East and North Africa, Dennis Ross and Robert Satloff discuss the U.S. relationship with Saudi Arabia. Over the past four years, the Trump administration embraced Riyadh almost unconditionally, looking the other way even after outrages such as the killing of journalist Jamal Khashoggi. But now, the Biden administration has vowed to “reassess” the alliance, adopting a posture informed by American interests and values alike. A more balanced approach makes sense, the authors contend, recognizing the fundamental U.S. interest in the direction of social and economic reform underway in the kingdom. Such a policy should stay focused on shared goals, from ensuring a stable oil market to pushing back against Iran, promoting Arab-Israel normalization, preventing nuclear proliferation, countering terrorism, reducing or ending regional conflicts, and encouraging a more tolerant version of Islam at home and abroad. The authors add that “while there is a role for punitive steps in response to outrageous actions, measures implemented out of appropriate context or imposed in a way to cause public embarrassment have the potential to trigger a backlash within the kingdom that could diminish U.S. influence, slow the pace of reform, or both.” In the coming weeks, TRANSITION 2021 memos by Washington Institute experts will address the broad array of issues facing the Biden-Harris administration in the Middle East. These range from thematic issues, such as the region’s strategic position in the context of Great Power competition and how to most effectively elevate human rights and democracy in Middle East policy, to more discrete topics, from Arab-Israel peace diplomacy to Red Sea security to challenges and opportunities in northwest Africa. Taken as a whole, this series of memos will present a comprehensive approach for advancing U.S. interests in security and peace in this vital but volatile region.
  • Topic: Diplomacy, Oil, Alliance, Joe Biden
  • Political Geography: Saudi Arabia, North America, United States of America, Gulf Nations
  • Author: Michael Eisenstadt, David Pollock
  • Publication Date: 02-2021
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: Areas for especially timely U.S.-Israel cooperation include climate resilience, agtech, and medical research, as well as longstanding work in the military and security arenas. In the fifth in a series of TRANSITION 2021 memos examining the Middle East and North Africa, Michael Eisenstadt and David Pollock assess the multifaceted strengths of the U.S.-Israel partnership and its prospects for growth under the Biden administration. Areas for especially timely cooperation include climate resilience, agtech, and medical research, as well as longstanding work in the military and security arenas. Israel’s recent normalization deals with several Arab states only further widen the horizon. “Israel is a world-class innovator in technologies that will be critical to meeting future challenges, including artificial intelligence, information technology, and cybersecurity; sustainable water, food, and energy solutions; and high-tech medicine,” explain the authors. “All these areas are supportive of America’s foreign policy priorities.” In the coming weeks, TRANSITION 2021 memos by Washington Institute experts will address the broad array of issues facing the Biden-Harris administration in the Middle East. These range from thematic issues, such as the region’s strategic position in the context of Great Power competition and how to most effectively elevate human rights and democracy in Middle East policy, to more discrete topics, from Arab-Israel peace diplomacy to Red Sea security to challenges and opportunities in northwest Africa. Taken as a whole, this series of memos will present a comprehensive approach for advancing U.S. interests in security and peace in this vital but volatile region.
  • Topic: Security, Climate Change, International Cooperation, Alliance
  • Political Geography: Middle East, Israel, North America, United States of America
  • Author: Dennis Ross
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: A reimagined approach to Iran nuclear talks could extend the country’s breakout time, preserve U.S. negotiating leverage, and strengthen American alliances in Europe and across the Middle East. In the first in a series of TRANSITION 2021 memos examining policy challenges across the Middle East, esteemed diplomat and policymaker Dennis Ross provides an innovative approach to reengaging Iran in nuclear diplomacy. His ideas have the potential to extend Iran’s breakout time, preserve U.S. negotiating leverage, and strengthen U.S. alliances in Europe and across the Middle East. Ross explains: “If regime change is not a realistic or advisable goal, the objective must be one of changing the Islamic Republic’s behavior. While this would be difficult, history shows that the regime will make tactical adjustments with strategic consequences when it considers the price of its policies to be too high.” In the coming weeks, TRANSITION 2021 memos by Washington Institute experts will address the broad array of issues facing the Biden-Harris administration in the Middle East. These range from thematic issues, such as the region’s strategic position in the context of Great Power competition and how to most effectively elevate human rights and democracy in Middle East policy, to more discrete topics, from Arab-Israel peace diplomacy to Red Sea security to challenges and opportunities in northwest Africa. Taken as a whole, this series of memos will present a comprehensive approach for advancing U.S. interests in security and peace in this vital but volatile region.
  • Topic: Foreign Policy, Diplomacy, Nuclear Power, Joe Biden
  • Political Geography: Europe, Iran, Middle East, Israel, Palestine, North America, United States of America