# Natural disasters and global supply chains

I was on holiday in Bangkok last weekend and witnessed the city’s flooding first hand. Via Sébastien, here’s the global-supply-chain angle on the story:

The world’s biggest names in hard-drive manufacturing, for example, operate from Thailand, where suppliers and customers come together.

Until the floodwaters came, a single facility in Bang Pa-In owned by Western Digital produced one-quarter of the world’s supply of “sliders,” an integral part of hard-disk drives. Over the weekend, workers in bright orange life jackets salvaged what they could from the top floors of the complex. The ground floor resembled an aquarium and the loading bays were home to jumping fish.

“Surely one of the inevitable impacts of this is that never again will so much be concentrated in so few places,” said John Monroe, an expert on storage devices at Gartner, a technology research firm. He estimated it would take a full year for hard-drive production to return to preflood levels.

Séb discusses whether Thailand’s floods and Japan’s earthquake will cause companies to geographically diversify their supply chains.

# New US ag subsidies to replace old US ag subsidies

The next five-year agricultural plan farm bill will cover 2013-2017. The NY Times looks at where Congress is headed, in a piece titled “Farmers Facing Loss of Subsidy May Get New One“:

Lawmakers’ reluctance to simply eliminate a subsidy without adding another in its place demonstrates how difficult it is for Washington to trim the federal largess that flows to any powerful interest group. Indeed, the $5 billion program that lawmakers are willing to throw under the tractor, known as the direct payment program, was created in 1996 as a way to wean farmers off all such supports — and instead was made permanent a few years later… It is unclear how much support a new subsidy would garner, since many lawmakers view farm programs as a likely source of budget savings. Critics say that farm subsidies today have little to do with helping struggling family farmers. Instead, they go predominantly to well-financed operations with large landholdings. All told, the subsidies amount to about$18 billion a year — about half of 1 percent of the federal budget…

Direct payments have come under fire, however, because farmers get them whether markets are high or low. The new subsidy, called shallow-loss protection, would act as a free insurance policy to cover commodity farmers against small drops in revenue. Most commodity farmers already buy crop insurance to protect themselves against major losses caused by large drops in prices or damage to crops. Those policies typically guarantee 75 to 85 percent of a farmer’s revenue, with the federal government spending $6 billion a year to pay more than half the cost of farmers’ premiums. The proposed new subsidy would add another layer of protection to guarantee 10 to 15 percent of a farmer’s revenue, paying out not only in years of heavy losses, but also when revenue dipped less severely… It is unclear how much the proposal would cost taxpayers. Dr. Schnitkey said the plan could pay farmers$40 billion over 10 years. That would be \$20 billion less than the programs it replaced, including direct payments and some smaller subsidies.

But Dr. Smith, the Montana State economist, said the cost could be much greater because the plan used recent high crop prices as its benchmark.

# Now in Econometrica

A couple of trade papers that have been circulating for a long time are now finally in published form in this month’s issue of Econometrica:

Rob Johnson and Guillermo Noguera describing not-yet-posted research:

[W]e combine time series data on sectoral production and bilateral trade with benchmark input-output tables for the OECD and major emerging markets, covering 80-90% of world trade and GDP. We find rapid and accelerating declines in the domestic content of exports of most countries. Preliminary results suggest that the value added content of trade declined by nearly twice as much in the decade from 1995-2005 than in the prior two decades. These declines are concentrated within manufacturing sectors, and not due to the changing composition of world trade. At the bilateral level, there are large differences in the rate and timing of changes across trading partners. Further, we detect cyclical patterns in the value added content of trade, which tends to rise in recessions due to the compression of demand in sectors that are most vertically specialized.

# AEA 2012

The preliminary program for January’s AEA meetings is online. I’ll post some trade highlights when the conference comes around.

# International trade in summer 2011

The agendas for the Princeton IES Summer Workshop (June 28–30) and the NBER Summer Institute trade session (August 1–4) are online.

# Romer on the dollar

Christina Romer has a nice introduction to the “strong dollar” mantra and the economics of exchange rates in the NY Times. She concludes:

Perhaps it is time for a more adult conversation. The exchange rate is the purview of market economics, not of the Treasury or strong-dollar ideologues.

# Trade Policy Disaster: Lessons from the 1930s

Doug Irwin has posted the preface to his forthcoming Ohlin Lectures book, Trade Policy Disaster: Lessons from the 1930s, on his website.

# Made in a series of places

John McCain got in trouble in some circles for saying that the iPhone is “built in the USA.” Leo Gerard corrected him by saying “the iPad and the iPhone are made in China, they’re not made in America.”

In a world of vertical specialization, what does “made in” mean? The product itself is pretty clear on the issue: “Designed by Apple in California. Assembled in China.”

[Photo by Chen Zhao]

Apple fails to mention that they’re assembling components manufactured in Taiwan, but you can forgive them for that. Maybe labels should just default to “Made in a series of places.”

Previous editions: