Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight. Somehow those old narratives are being forgotten, I wonder why.
Willem Buiter has a longer explanation.
When will we start screaming about the Buy Canadian and Buy European procurement clauses?
Marc Melitz nicely summarizes the empirical and theoretical literature on “international trade and heterogeneous firms” for the New Palgrave Dictionary of Economics, 2nd Edition.
Dani Rodrik: “Global financial regulation is a bad idea because it is neither desirable, nor prudent, nor feasible.”
Ben Nelson points to a study by Gary Hufbauer and Jeff Schott that the Buy American provision of the stimulus bill would only “create” 1,000 jobs in the steel industry because it is so capital-intensive.
Willem Buiter condemns the Buy American provision of the spending package as dramatically as possible:
There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly…
The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.
The Doha round isn’t going anywhere, so Pascal Lamy will keep himself busy with the equally thankless task of monitoring “whether individual countries were using illegal trade restrictions in their stimulus packages and not abiding by WTO rules.” “I will do this not very gratifying job of watchdog.”
India is banning imports of Chinese toys for six months, claiming safety interests. Given that India has no domestic safety standards for toys, I think Chinese exporters may be unhappy.
Oxford’s Alberto Behar and Ben Nelson are working to build a really rigorous trade gravity model. They combine Anderson and van Wincoop’s general equilibrium multilateral resistance approach with Helpman, Melitz, and Rubinstein’s emphasis on firm heterogeneity and the extensive margin.
We argue that one needs to take both AvW and HMR’s findings into account, otherwise interpretation of the effects of trade frictions will be misleading. We therefore unite these two strands of the literature. We derive a theoretically grounded gravity equation and then extend a method of approximating MR [multilateral resistance] terms, developed by Baier and Bergstrand (2009), to the case of firm heterogeneity…
For all our observations, traditional linear estimates bias downwards the effect of observable trade barriers on country-level trade flows. This difference, rather than the firm-level bias in the opposite direction highlighted by HMR, is arguably more relevant for policy…
Consistent with AvW’s “Implication 1”, larger countries have larger firm-level elasticities of bilateral trade in response to multilateral changes in trade costs. However we show that, once firm entry into trade is accounted for, this is no longer unambiguously true in theory for overall elasticities at the country level. Moreover, on balance we find a negative correlation in the data between country size and bilateral trade elasticities once changes in the extensive margin are accounted for.
Trade Diversion 