US apparel and footwear imports as a percentage of total US imports: 5%
US apparel and footwear import duties as a percentage of total US import duties: 40%
From the American Apparel and Footwear Association, who chose to present those two numbers using two pie charts.
Timothy Taylor, managing editor of the JEP, points to some recent literature on the effect of trade adjustment assistance. In Contemporary Economic Policy, Kara M. Reynolds and John S. Palatucci find that
using propensity score matching techniques we find that while the required training component of the program improves the employment outcomes of beneficiaries, on average the TAA program has no discernible impact on the employment outcomes of the participants…
We do find strong evidence, however, suggesting that those workers who participate in TAA-funded training opportunities are more likely to obtain reemployment, and at higher wages, when compared to TAA beneficiaries who do not participate in training.
That’s in line with prior research suggesting that the only realized benefits accrue to trainees. But note that due to some data limitations:
It is possible that these results are being driven by differences between the training and nontraining participant samples that we are unable to control for. Recall that although TAA beneficiaries must participate in training in order to receive extended unemployment benefits, nearly 20% of TAA participants receive a waiver from the training requirement. Program administrators are allowed to grant waivers for a wide variety of reasons, including the health, age, and skill level of the worker. Waivers are also granted to workers who can prove that training is unavailable in their area. Although we control for such characteristics as the age and education level of the participant, we do not have information on other characteristics such as the health status or the local labor market conditions of the participant. It is likely that workers in poor health would be both more likely to receive a waiver and more likely to remain unemployed. Moreover, workers in small rural areas may be limited in both the number of training and the number of new employment opportunities.
Kevin Gallagher isn’t very keen on the Trans-Pacific Partnership:
The Trans-Pacific Partnership is best understood as President Barack Obama’s extension of the Bush-era doctrine of “competitive liberalization.”… The Trans-Pacific Partnership (TPP) certainly isn’t about raising standards of living. The most ambitious estimates of the gains from the TPP suggest that participating nations will gain a mere one-tenth of 1 percent of the gross domestic product. Sixty percent of the projected gains go to Vietnam and the United States, and the other 20 percent goes to Malaysia—largely because the U.S. already has trade pacts with the other proposed big players in the TPP.
However, the proposed deal is far from popular in Asia. In exchange for the small portions of trade and growth that will go to some big exporters and foreign investors, each TPP nation will have to give up many of the policies they use to make trade and foreign investment work for employment, growth, and financial stability…
the investment and financial-services provisions in the TPP would restrict the ability of these nations to use joint ventures, local content rules, and regulation of cross-border financial flows to spread benefits, stimulate local manufacturing, promote employment, and provide financial stability.
It may be difficult to grasp that the TPP could harm the broader economic interests of both the U.S. and smaller Asian nations. But if balanced development requires a managed form of capitalism, then a trade deal like the TPP, which strengthens investors and weakens governments, can harm Asians and Americans alike…
I can’t say I share all those concerns, but it’s fair to say that the TPP isn’t a traditional trade deal in the sense of cutting tariffs and quotas. That column comes from a special issue of The American Prospect devoted to critiquing the TPP. For a contrary view, see Fred Bergsten and Jeff Schott, though much of their support for the initiative seems grounded in foreign-policy concerns rather economic benefits.
This forthcoming Journal of Economic Perspectives article by Jonathan Eaton and Sam Kortum on the Ricardian model of trade is fantastic. It walks the reader from Ricardo (1818) to Mill (1844) to Dornbusch, Fischer, and Samuelson (1977) to Eaton and Kortum (2002) to the modern frontier. Put it on your syllabi.
Are you a young trade economist? Want Avinash Dixit, Robert Staiger, and Alberto Trejos to read your paper on trade policy and international trade co-operation? Entries for the WTO’s 2012 Essay Award for Young Economists are due by June 1.
I’m seeing a lot of news about the US federal government dropping its practice of zeroing in calculating antidumping duties. The WTO news item is uninformative. I don’t have time this week to follow the latest developments, so I’ll just drop links:
FT:
The US has reached deals with the European Union and Japan to drop a contentious practice in its anti-dumping calculations known as “zeroing”, ending a longstanding international trade dispute in order to prevent retaliation against American products. The agreements, signed in Geneva, will close the books on a fight that began in 2003 when the EU first filed a case against the US at the World Trade Organisation.
After the WTO found that the United States had not brought its antidumping methodologies into compliance, the EU and Japan requested authorization to impose hundreds of millions of dollars of trade retaliation. Had these agreements not been reached today, substantial volumes of U.S. exports could have been closed out of markets in the EU and Japan, resulting in job loss for U.S. workers and financial loss for U.S. farms and businesses…
Under the agreements signed today, the United States will complete the process – which began in December 2010 – of ending the zeroing practices found in these disputes to be inconsistent with WTO rules. In return, the EU and Japan will drop their claims for trade retaliation.
Politics-oriented coverage from The Hill includes this detail: “the Obama administration said it will try to negotiate a future deal at the WTO to permit the practice.” Here’s Scott Lincicome on the news.
Richard Florida says “While it’s commonly thought that globalization has put the world’s global cities on an increasingly level playing field, substantial differences in prices persist”:
What should leap to mind? Trade costs.
The biggest price gap (a ratio of 100) is for a good that is completely non-tradable and varies greatly in quality (bus fare is 7 cents in Mumbai and $7 in Oslo). A good of relatively uniform quality that is perishable varies quite a bit (Big Mac, from $2 in Shanhai to $6 in Oslo). A durable good with a high value-to-weight ratio, the iPad 2, exhibits less variation, a ratio of under two ($1058 in Buenos Aires and $548 in Bangkok). So it looks like trade costs are a pretty good explanation for nominal price differences.
That iPad gap may not be as large as it seems. You’ll want to adjust for taxes. The VAT is 21% in Argentina and 7% in Thailand.
How can there still be a ~$350 price difference when one can probably mail an iPad to most countries for less than a hundred bucks? Shouldn’t arbitrage drive price differences for identical products down to the shipping cost? Not so fast. It turns out it’s quite difficult to arbitrage iPads. Apple tracks its customers and doesn’t allow bulk purchases.
Why is gasoline, a very homogeneous and fungible commodity, $2 in Amsterdam but only 42 cents in Dubai? Taxes in the former and subsidies in the latter.
In short, these data are a lesson about trade costs. You’ll notice that Richard Florida didn’t title his post “why you should buy a bus ticket in Mumbai instead of Oslo”!
(Relatedly, price comparisons of personal services, as opposed to goods, suggest a lesson about global labor mobility. A one-hour Thai massage costs $6 in Bangkok and about $100 in New York City!)
An update on the Panama Canal expansion from the Economist that focuses on the west coast’s reaction:
But what can the California ports do? Floating cargo from Asia to the east coast by boat will always be cheaper, concedes Christopher Lytle, the executive director of the Port of Long Beach. But unloading in Long Beach and taking the train to New York can be faster by a week, he says. So California’s ports must compete on speed, which is increasingly important for time-sensitive goods such as fashion wear or consumer electronics. Let the lawn chairs go and keep the iPads, he reckons.
A lot must happen to keep that advantage in speed, however. One bottleneck is that short truck ride to the railway yard. Not only do the trucks account for much of the port’s air pollution (even though they are dramatically cleaner than just a decade ago), but they clog up stretches of the I-710 freeway, wasting precious time. One of the port’s plans is therefore to build a new, better and closer railway yard…
David Pettit, a lawyer at the National Resources Defence Council and one of those environmentalists who so frustrate Mr Baker, says that he fully understands the threat posed by the canal. But moving the railway yard to another community, and thus polluting it, is not the answer. Better, he says, to put the railway yard right on the docks. That would take up too much space, replies the port. The combatants have only until 2014 to work out their answer and build it.
[HT: Clayton]
Here’s how the World Development Report 2009 summarized a Peruvian trade-facilitation project:
BOX 8.9 Exporting by mail in Peru—connecting small producers to markets
In many countries small enterprises are often excluded from export chains because they operate in villages or small towns or do not have the needed information to export. In Peru a trade-facilitation program called “Easy Export” connects small producers to markets. The key to this program is the most basic of transport networks—the national postal service.
How does it work? An individual or firm takes a package to the nearest post office, which provides free packaging. The sender fills out an export declaration form, and the post office weighs the package and scans the export declaration form. The sender pays the fee for the type of service desired. Goods with values of $2,000 or less can be exported. The main benefit is that the exporter does not need to use a customs agent, logistics agent, or freight forwarder or to consolidate the merchandise; even the packaging is provided. Firms or individuals need only to go to a post office with a scale and a paper scanner and to use the Internet to complete the export declaration for the tax agency.
Has it made a difference? Within six months of inception, more than 300 firms shipped goods totaling more than $300,000. Most users are new exporters—microentrepreneurs and small firms, producing jewelry, alpaca and cotton garments, food supplements (natural products), cosmetics, wood art and crafts, shoes and leather, and processed food. And many of them are in the poorest areas of the country.
I’m afraid that I found “The Quiet Driver of Economic Growth: Exports“, a NYT Economix post by Binyamin Appelbaum, to be more confusing than illuminating. In this post, I’ll try to explain why one must be careful in interpreting a number of economic statistics.
Appelbaum writes:
The estimates of the nation’s economic performance last year, released Friday, highlight a striking trend: Exports have never been more important.
Foreign buyers purchased more than $2 trillion in goods and services, the first time exports have topped that threshold. And those exports accounted for almost 14 percent of gross domestic product, the largest share since at least 1929.
We usually talk about exports alongside its opposite number, imports, and since the United States buys much more than it sells – our “trade deficit” — the general impression is that foreign trade is a drag on the economy. But that tends to obscure the importance of exports, which have accounted for about 10 percent of G.D.P. over the last two decades and, since the recession, considerably more…
Much of the rise in exports is a consequence of domestic problems… This is a good thing on the whole. The ability of American companies to make money in foreign markets is helping to offset the pain of those domestic problems.
I found this confusing in three senses:
National accounts
To the extent that gross domestic product is our measure of economic performance, should we think about net exports or gross exports? Recall the expenditure definition of GDP:
Y = C + I + G + X – M
If you want to talk about — in accounting terms, not causal terms — what’s happening to US GDP, then net exports are informative. They appear on the right-hand side. When you talk about gross exports while holding gross imports constant, you are losing information. If X and M both increased by the same amount, then GDP would not increase, but X/GDP would rise.
Suppose that I were describing a firm’s economic performance to you. If we had an accounting definition of our performance that said
corporate profits = revenues – costs,
would the following claim seem reasonable? “We usually talk about revenues alongside their opposite numbers, costs, and since the company buys much more than it sells — our ‘negative profits’ — the general impression is that doing business is a drag on the firm. But that tends to obscure the importance of revenues, which have accounted for 110 percent of (the absolute value of) net profits…”
If you care about the international component of GDP, you are losing information when you switch from looking at net exports to solely considering exports. If you look at the BEA press release, you learn that real exports grew 4.7% and real imports grew 4.4%. But recall that we run a trade deficit, so real imports are growing from a larger base. If we go to table 3 of the full BEA announcement (pdf), my reading is that net exports moved from -$562b in the third quarter to -$582b in the fourth quarter. If I’m reading the table correctly, then net exports actually fell. That means that the way we usually talk about trade, which looks at net exports, tells you something different than what is implied by looking at gross exports (implicitly holding imports constant).
Are exports offsetting domestic problems?
Exports as a share of GDP is a ratio. If exports stay the same while GDP shrinks, the exports-to-GDP ratio will rise. Is that a sign of exports offsetting domestic problems? I suppose that it is if the counterfactual is that exports would shrink at the same rate of GDP. But if net exports actually fell, then the increase in the trade deficit “reduced” US GDP (in accounting, not causal, terms), so exports/GDP seems like the wrong statistic to study.
What do exports “account for”?
Applebaum writes that “exports accounted for almost 14 percent of gross domestic product” and that we’ve negleted “the importance of exports, which have accounted for about 10 percent of G.D.P. over the last two decades.” I do not know what the phrase “accounts for” means in these statements.
It’s true that Y = C + I + G + X – M, so exports are a component of GDP. But when I read “accounts for”, I imagine a decomposition of GDP into pieces that sum to 100%. That’s not true when you talk about gross exports. We’re back to the distinction between gross values and value-added measures that I have repeatedly emphasized. What would it mean to say that “exports account for 223% of Hong Kong’s GDP“?
I would suggest that exports/GDP is meaningless as a measure of how international commerce has benefited the US economy during the last quarter. At worst, the “accounts for” language might cause readers to interpret the measure as representing a decomposition of GDP’s components.
Conclusions
Be careful with economic statistics! There are important differences between gross exports and net exports and between gross value and value added.
I’ve tried to be careful here, but I may have read Applebaum’s post or written my post too quickly, so if I’ve made an error in handling statistical definitions or the BEA data, please point it out in the comments. Thanks!
Caveats
I’ve tried to write carefully, but there’s a danger that readers might think I’m treating “net exports” as a scorecard for US economic performance. I am certainly not saying that exports are good and imports are bad. Remember that the current account deficit is the amount by which domestic investment exceeds domestic savings. These outcomes are jointly determined in general equilibrium. My story about “net profits” was an accounting analogy, not an economic analogy.
Addendum (28 Jan, 12pm): Here’s my Twitter exchange with Appelbaum. It doesn’t change anything I said above.
Trade Diversion 