Asian regionalism: More hype than bite

Richard Pomfret assesses Asian regionalism:

Since the turn of the century, attention has turned east as over 70 RTAs have been signed by East Asian countries. This is striking because during earlier post-1947 waves of RTAs the only serious Asian agreement was ASEAN and this had little impact on trade. China, Japan, Korea, Mongolia and Taiwan stood out as practically the only countries showing complete respect for the MFN principle…

Asian regionalism is posing challenges to international relations, but what is its economic basis and likely economic impact?…

In sum, the pattern for China, as for East Asia in general, in the first half of the 2000s was one of talking regionally but acting bilaterally…

Although regionalism may be viewed as an alternative to multilateralism, in the East Asian context there may be little conflict between the two, at least in their economic consequences. Duty payments on intra-Asian trade tend to be low as a result of trade liberalisation and of the prevalence of duty-drawback systems in response to the production fragmentation and networks which emerged over the last two decades. To the extent that the new RTAs include discriminatory tariffs, as in the China-ASEAN FTA, they tend to be narrow in scope and coverage, with trivial economic impact. To the extent that bilateral or regional agreements include trade facilitating measures, progress in reducing trade costs by improved customs operation and so forth tends to benefit all trades and in practice is non-discriminatory. To the extent that they simplify foreign investment procedures and intra-firm trade, they may start as bilateral but are likely to proliferate until multilateral…

A negative economic consequence of using RTAs for political ends is the lack of transparency about which rules actually apply; even when RTAs are implemented many traders continue to trade on an MFN basis rather than invoking bilateral agreements, e.g. less than 15% of Singapore’s trade with preferred partners is conducted under the terms of bilateral agreements…

In sum, the recent East Asian regional agreements are less threatening to the world trade system than they may appear. They do not threaten the MFN tariff structure in a meaningful way, and if they can promote trade facilitation this will likely benefit Asia-traders from all countries. The major threat is political rather than economic…

Do read the full article.

Clive Crook: "The utter folly of China-bashing"

Congressional populists and think tank economists alike want the administration to push China to revalue the renminbi. Clive Crook dissents:

So much is wrong with this approach that it is hard to know where to start. To begin with, an aggressive posture is unlikely to force China to change. The best argument for a moderate appreciation of the renminbi is that it would serve China’s interests. If China’s leaders are not persuaded of that, intemperate foreign demands are unlikely to change their minds.

Put that aside, though, and suppose that China did capitulate and let the renminbi appreciate briskly. What would that do to America’s current account deficit? The answer is: not much…

[A] meaningful improvement in the US current account deficit will require higher private saving and a smaller budget deficit at home – variables that, unlike China’s currency policy, are under the control of the US Congress. Why then give so much greater emphasis to what China needs to do? Perhaps the China-bashers think that Beijing is more susceptible to US threats than Congress is to elementary economics. Come to think of it, that might be a close call.

Full column in the FT (subscription required).

Clive Crook: “The utter folly of China-bashing”

Congressional populists and think tank economists alike want the administration to push China to revalue the renminbi. Clive Crook dissents:

So much is wrong with this approach that it is hard to know where to start. To begin with, an aggressive posture is unlikely to force China to change. The best argument for a moderate appreciation of the renminbi is that it would serve China’s interests. If China’s leaders are not persuaded of that, intemperate foreign demands are unlikely to change their minds.

Put that aside, though, and suppose that China did capitulate and let the renminbi appreciate briskly. What would that do to America’s current account deficit? The answer is: not much…

[A] meaningful improvement in the US current account deficit will require higher private saving and a smaller budget deficit at home – variables that, unlike China’s currency policy, are under the control of the US Congress. Why then give so much greater emphasis to what China needs to do? Perhaps the China-bashers think that Beijing is more susceptible to US threats than Congress is to elementary economics. Come to think of it, that might be a close call.

Full column in the FT (subscription required).

American fear vs American ability

Did the IT surge cause the 1990s productivity boom?

The only problem is, the explanation doesn’t work, according to John Van Reenen at the London School of Economics. … He said that the prices of information technology fell in Europe, too. And Europeans bought information technology. But they had no productivity miracle.

To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries. And that is precisely what Professor Van Reenen’s research suggests…

But that is, of course, the paradox of the American position. We hate experiencing major adjustments … that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

From the NYT via Mark Thoma, who adds:

I agree that the disutility of “experiencing major adjustments” needs to be considered and minimized to avoid the rise of protectionist sentiment. But an issue that isn’t mentioned, the distribution of the gains from trade and from technologically induced structural change, is also part of the political forces driving the opposition to trade liberalization. If faster response to change means that losers from the adjustment process are churned out more quickly, the politics will continue to build against globalization.

Hilary Clinton (D-Punjab)

The Economist has said that Barack Obama has free trade instincts, but his staffers don’t seem to be on the same page. Here’s a headline they circulated to reporters:

HILLARY CLINTON (D-PUNJAB)’S PERSONAL FINANCIAL AND POLITICAL TIES TO INDIA

The Clintons have reaped significant financial rewards from their relationship with the Indian community, both in their personal finances and Hillary’s campaign fundraising. Hillary Clinton, who is the co-chair of the Senate India Caucus, has drawn criticism from anti-offshoring groups for her vocal support of Indian business and unwillingness to protect American jobs. Bill Clinton has invested tens of thousands of dollars in an Indian bill payment company, while Hillary Clinton has taken tens of thousands from companies that outsource jobs to India. Workers who have been laid off in upstate New York might not think that her recent joke that she could be elected to the Senate seat in Punjab is that funny.

Obama has apologized for the memo, but he ought to also explain why the zero-sum, ‘us vs them’ perspective on outsourcing embodied in the memo is wrong.

Running to the hills

Very interesting work on African geography and development by Nathan Nunn & Diego Puga:

In Africa, between 1400 and 1900, four simultaneous slave trades, across the Atlantic, the Sahara Desert, the Red Sea and the Indian Ocean, led to the forced migration of as many as 18m people. The economies they left behind were devastated: political institutions collapsed, and societies fragmented.

For African people fleeing this slave trade over the centuries, rugged terrain was a positive advantage. Enslavement often took place through raids by one group on another, and hills and mountains provided plenty of lookout posts and hiding places (caves, for example) for those trying to escape. In general, countries with flatter, more passable terrain lost more of their population to the traders.

Today, however, that same geographical ruggedness is an economic handicap, making it expensive to transport goods to port; raising the cost of irrigating and farming the land; and simply making it more expensive to do business… hundreds of years of flight from the slave trade has left the African population disproportionately concentrated in hilly areas…

So the slave trades left a doubly toxic economic legacy in Africa: not only did they devastate the population in many areas, with long-lasting impacts which still persist centuries later; they also left the African population concentrated in areas which make contemporary economic development harder.

From the non-technical column. Technical discussion paper.

Doha dissection

It’s tough to pull off a track stand. The Doha round is falling over, says Simon Evenett:

It was bad enough when the Doha Round of trade negotiations was deadlocked; now there are dangerous signs that what progress has been made is unravelling. Over the past four weeks the leading trading powers have moved backwards from a number of established positions. Either senior trade negotiators are planning an extraordinarily welcome summer surprise or they are positioning themselves for the blame game when the music finally stops.

Evenett is disturbed by this state of affairs, arguing that Doha needs to be completed before the US presidential election in 2008, as trade liberalization never does well on the campaign trail. He says “procrastination is a luxury WTO members cannot afford.”

On the other hand, procrastination looks like the most likely outcome. I doubt any serious progress will be made this summer. And so does Evenett, I suspect, given that most of his column reads more like an autopsy than a prescription to save the patient. Many are already thinking of the aftermath:

[S]talemate looms. Much depends on how the associated media game is played. Maybe a graceful way will be found to conclude the negotiations without an agreement? Maybe senior trade negotiators and WTO officials will argue for continuing the talks after an 18-24 month hiatus? Or will the talks collapse into irreparable acrimony? Much depends on how the major trading powers fancy their chances at the “blame game.” Indeed, I often wonder if the current tactics of some trading nations are aimed at completing the Doha Round or aimed at positioning themselves for the next multilateral trade negotiation.

Read the full piece for a number of insights into the last month or so of trade (non-)negotiations.

[Apologies for mixing bicycling and medical metaphors throughout. I blame Tom Friedman. 🙂 ]