December 14, 2012

Jonathan Kay: The key to Canada’s economic advantage over the United States? Less income inequality.

Americans would be well-served by looking to Canada for lessons on taming income inequality. As FDR showed the world in the ’30s, sometimes it takes a socialist to save capitalism from itself.

As I’ve argued before, a good way to describe the Canadian economic approach might be “hardheaded socialism,” the term Stephen Marche coined on Bloomberg.com back in July. But many conservatives are allergic to the s-word. So instead, it might be marketed, for American consumption, as the Northern New Deal — an especially apt term, given that the other nations that embrace its policies are Scandinavian nations such as Sweden.

The good news, here in Canada, is that we have so far avoided the massive upsurge in income inequality that has afflicted the United States. As a new TD Economics report indicates, median household income (not average, but median — the difference obviously is important in this context) has been higher in Canada than in the United States since 2006, and income inequality in this country has been flat since the late ’90s. The top 1% of Canadian earners take home about 13% of all income, roughly the same level it was 15 years ago. Household income growth was solid from 1998-2010 across every single income quintile.

What’s the reason for this? According to TD, it’s “rebounding government transfers, rising minimum wages in Canada (up by more than 50% on average nationwide since the late 1990s), and a respectable pace of job creation within several lower-wage areas of the service sector.” TD might have also added a few other factors — such as our well-regulated banking sector, which completely avoided a sub-prime crisis that destroyed $11-trillion in household wealth, and a universal health-care system that ensures working-class families don’t have to hold a yard sale to pay for dialysis or chemotherapy.

December 12, 2012

...what will be the pillars of the Obama administration’s economic policy toward China?

Romney lost, and it was Romney supporters who were most supportive of the next president confronting China. Nearly two-thirds of Republicans backed getting tougher with Beijing, up 11 percentage points in just a year. Democrats, on the other hand, prioritized building stronger economic relations with China (53%) over getting tougher with China (39%). Democrats’ backing for confrontation was up 6 points since 2011, but it remained the minority sentiment among those in Obama’s party.

Likely components of the administration's economic policy towards China

The first will likely be more complaints about Chinese subsidies and trade practices filed with the WTO, given the president’s campaign promises and his record during his first term. Washington has been relatively successful with such cases in the past, and pursuing multilateral dispute settlements has the added advantage of avoiding a direct bilateral confrontation with China.

The second will be the pursuit of trade agreements that notably do not include China. The most important of these is the Trans-Pacific Partnership (TPP), a free trade agreement among a growing list of nations bordering the Pacific. It is the Obama administration’s avowed aim to construct a TPP with standards so high — especially rules regarding behavior by state-owned enterprises — that China could never join without transforming its economic system. This stance in part reflects the fact that two-thirds (67%) of the U.S. public believe China practices unfair trade, according to a 2012 survey by the Chicago Council on Global Affairs.

The likely 2013 launch of a U.S.-European Union free trade negotiation — effectively a Trans-Atlantic Partnership, a bookend for the TPP — primarily reflects majority (58%) sentiment in the United States that increased trade with Europe would be a good thing for the United States. But it can also be seen as an attempt to establish U.S.-European, rather than Chinese, technical and regulatory standards as global business norms.

The Obama administration is unlikely to label China a currency manipulator, which is something Mitt Romney promised he would do on his first day in office. In Obama’s first term, the White House had multiple opportunities to do so and declined, even though the renminbi was weaker against the dollar than it is now.

http://www.pewglobal.org/2012/12/10/u-s-china-economic-relations-in-the-wake-of-the-u-s-election/

This is the first article I have read that discussed the significance of the current TPP and US-EU trade negotiations in the context of our trade issues with China. Neither include China and both seem to be designed to marginalize - to the extent possible - China's emergence as an economic power by forcing it to change the way it does business in order to compete in the world economy.

December 12, 2012

US-EU Free Trade Pact: Trading Foes Considering Largest Free Trade Deal In The World

After years of battling each other on trade issues, U.S. and European officials are contemplating a dramatic change in direction: joining together in what could be the world's largest free trade pact in an attempt to boost their struggling economies.

Discussions are in the most preliminary of stages and there would be significant obstacles to overcome, including sharp differences on agriculture, food safety and climate change legislation. Still, top EU and U.S. officials have said they want to see it happen. And America's main labor group, often the biggest opponent of U.S. trade pacts, says it wouldn't stand in the way.

Labor unions have opposed previous U.S. free trade deals with developing countries, arguing that American workers would be at a competitive disadvantage because inferior environmental and labor standards in those countries allow for lower wages. But the giant U.S. labor umbrella organization, the AFL-CIO, says it wouldn't have those concerns in a deal with the EU, arguing that European social welfare and environmental standards exceed those in the U.S.

Negotiators would face a host of tricky issues that have previously led to trans-Atlantic trade spats. The two sides currently are fighting over the EU's carbon trading scheme that could penalize airlines not meeting EU standards. There are also substantial disagreements over intellectual property enforcement and food safety issues. More broadly, agricultural issues, including EU restrictions on the use of genetically modified foods and pesticides, are likely to challenge negotiators.

http://www.huffingtonpost.com/2012/12/11/us-eu-free-trade-pact_n_2276387.html

The negotiations between the US and EU should be interesting. Frankly I hope the EU prevails on most subjects, particularly carbon trading and environmental issues, food safety, gmo foods and pesticides, labor rights and financial market taxes and regulations.

December 9, 2012

Krugman: Rise of robots and the reshoring” of manufacturing to the United States

Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.

The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!

http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/

Increasing automation in manufacturing seems to be the main reason that manufacturing employment is declining in all countries even while manufacturing output continues to increase.