Trade Issues

The Minor Mystery of the Euro’s Trade Effect

I do not consider an increase in inter-country trade a good thing in and of itself, though that view is common among economists and in the media.  For most economists increased trade reflects a putative more efficient international allocation of resources derivative from competition on a global scale. 

 Rarely noted is that free trade theory is consistent with a decline in bilateral trade due to the likely possibility of different demand preferences between countries and, more esoteric, re-switching of techniques.  Except in technical articles one tends to find the blanket generalization that liberalising trade increases bilateral and multilateral flows and that is unambiguously a good outcome.  In that context I look at EU trade patterns since the euro’s use became generalized in the early 2000s.

Of vaulting ambition, Macbeth, and what GATT Article 24 actually says

Boris Johnson is a moral (or is it amoral?) coward, dispenser of racist remarks, teller of untruths and general political fantasist. Driven by ambition and lust for power, he appears to have no principles to guide him save expediency and openness to self-serving opportunity.

But sometimes, the truthless soundbite that seemed so useful for a particular moment leaves its author or articulator exposed. And thus it is with Mr Johnson’s “GATT 24” untruth which has now unravelled, and forced Johnson into a rare ‘clarification’.. After all, when even Liam Fox says you’re wrong, you know you’re on a sticky wicket.

The slowing economy of the Single Market and NAFTA era

Ten years on from the full explosion of the Great Financial Crisis in autumn 2008, and Brexit lurking just round the corner…  A lot of the Brexit arguments revolve around the perceived pros and cons of the EU’s Single Market; meanwhile, President Trump has been using force majeure to overturn aspects of the 1994 NAFTA deal.

Given this conjuncture, I thought it would be instructive to take stock and assess, over a longer time-frame, how the UK and other developed economies have performed from an overall macroeconomic perspective. And in particular, whether any impact of the Single Market and NAFTA can be detected.

Does the EU “single market” foster trade?

Much of the debate over Brexit focuses on narrowly on trade in goods.  In that debate one finds relatively little discussion of the performance of the EU internal market with regard to commodity trade (“goods”). The typical argument for the British government negotiating a post-Brexit agreement presumes that EU internal market rules facilitate robust trade outcomes, and that operating outside of it would undermine goods trade.  But has the EU internal market in fact facilitated trade among members?  How should that be assessed?

UK Budget 2017 & OBR forecast: PRIME & Treasury Select Committee

On Wednesday 29 November 2017, PRIME's director, Ann Pettifor, gave evidence at the Committee's invitation to the UK Parliament's Treasury Select Committee, together with Professor Jagjit Chadha, Director, National Institute of Economic and Social Research and Paul Johnson, Director, Institute for Fiscal Studies. A verbatim report of the discussion can be found on the Select Committee's website here. 

How to weather the Brexit storm? Focus less on trade, more on investment

“Strong and stable” seems of a world so far, far away.  The recent Daily Mail headline “PM slaps treacherous Chancellor down” portrays a government in political chaos. Thanks to open, unresolved intra-Brexiteer warfare, ministers are unable to agree the basics of how to exit the European Union. This state of uncertainty intensifies just as the risks to British jobs and living standards are becoming starker and more potent. Ironically, just as we teeter towards the cliff, ONS data reveals that exports of goods to the EU grew over the last three months, while those to the rest of world fell back, a fact not devoid of dark humour.

Single Market Mythologies

Last week a cross-party group of MPs tabled an amendment to the Queen’s Speech calling on the government to commit to staying in the EU single market.  As a result of their support for the unsuccessful amendment, three Labour shadow cabinet members were forced to resign.

The amendment revealed a possible confusion by its supporters about the nature of the single market and the European Union.  

Flaky economics? Brexit, trade and the Treasury estimates

One of the more depressing aspects of the Brexit debate has been that once again the economics profession has not covered itself in glory. The predictions of economists were overwhelmingly pro-remain and not as soundly based as many assumed. Evidence viewed as pro-Brexit could be met by rudeness and we experienced this ourselves. A few economists supported the Brexit case but the middle ground seems to be under-populated, indeed hardly populated at all. This is a real problem since the general public needs neutral referees in such a difficult and fraught issue.

Brexit and Sterling – disaster in the eye of the beholder

Many, and especially Brexit opponents, point to the sharp depreciation of sterling as evidence of imminent economic turmoil leading to disaster. For some, like David Blanchflower, former member of the Bank of England's Monetary Policy Committee, depreciation itself is disaster.

But while Brexit caused a transitory increase in the magnitude of turbulence, this comes from the system itself - financial speculation facilitated by lack of effective regulations.

Controlling Eurozone current account surpluses - revisit the Treaty of Rome!

When the Treaty of Rome was first signed in 1957, it included an article 104 which required member states "to pursue the economic policy needed to ensure the equilibrium of its overall balance of payments and to maintain confidence in its currency, while taking care to ensure a high level of employment and a stable level of prices".

The Treaty of Maastricht repealed this article entirely. That was a mistake.  It's time to bring back a similar provision.

The variable relationship between trade and GDP

Earlier this week, the World Trade Organisation published its latest trade statistics and outlook – and was in pessimistic mode:

“World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%....With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.”

But the relationship between trade and GDP for individual countries is far less clear. The extent of change in the share of trade in the economy differs enormously between countries – and is not correlated in any evident way with the rate of increase in GDP.

The Treasury and the economic consequences of Brexit

The Treasury’s reports on the long-term and short-term impact of Brexit are misleading in the way their assessments – which are little more than guesstimates – are presented.  

While we simply cannot sensibly quantify how things will work out 15 years from now, it is likely that a post-Brexit UK’s economic performance would be somewhat worse if the same cluster of neoliberal policies is pursued..

The EU has delivered many gains for working people, but its economic policies – notably in relation to the eurozone - have failed. But for the UK to leave the EU now, with a government dedicated to ultra-free trade dogma, unregulated capital and right-wing nationalism, would change matters only for the worse.

The German current account surplus requires deficits elsewhere

Germany is a member of a currency union over which it has no monetary authority. So no one can accuse the country of ‘manipulating’ its currency. Yet, Germany is displaying huge current account surpluses that are illustrative of a dangerous imbalance which when corrected will cause violent disruptions to trade and lead to populist and autarkic political rhetoric. This is what awaits us when the global economy slows further.

Eurozone’s so-called recovery masks a dark secret: mercantilism

Broad opposition in Europe to the Trans-Atlantic Trade and Investment Partnership has prompted its supporters to summon the “protectionist” spectre.  In response to the criticism of TTIP by US presidential candidates and progressive politicians in Europe they, according to media reports, are talking up the end of “free trade” that has allegedly brought so many benefits (to so few).

By contrast, we find little reporting of the considerably stronger spread of EU mercantilism, the witch’s familiar of fiscal austerity. 

A Europe Day reflection: don't swallow the Treasury line, but it's still better to remain

It’s Europe Day, and I for one am pleased that at last, Prime Minister David Cameron has today started to make a wider political case for remaining in the European Union.  To be frank, the EU has big disadvantages, most notably in the economic sphere.  And it is hopeless always to posit the case for “remain” on the basis of the assumed natural superiority of the British and their institutions, as our establishment so often do.  

The Treasury report on the economics takes us down a wrong path.  But "Remain" remains the better political option.

The secret, anti-democratic and (new-style) protectionist TPP

I do not have any pretension to detailed knowledge of the Trans-Pacific Partnership Agreement, the newly finalised “free trade” (sic) deal between the US and other (mainly Asian) countries, which excludes China as an act of policy.  I am not alone of course in my ignorance, as the deal – shockingly, given its enormous scope and implications - still remains a state secret. 

UK balance of trade in goods with EU and rest of world worsens in Q3

The UK trade figures for the 3rd Quarter of 2013 and for September were released late last week. chancellor George Osborne's original aim (as expressed in his Mais lecture of February 2010) to rebalance the UK economy away from debt-fuelled "growth" and into greater investment and exports has yet to happen.  Here are the trade in goods figures in charts for the EU countries and non-EU ones.

Weidmann - the whole burden of adjustment must fall on deficit countries

Exactly a year ago today, Jens Weidmann, President of the German Bundesbank, made a really important speech at Chatham House, London, on "Rebalancing Europe".  It was clear, concise and to the point.  It is also utterly contemporary -  could have been given today. And it said loud and clear - don't expect Germany to budge one centimetre.  The whole burden of adjustment rests on the deficit countries.

Euro-fission contest hots up – GDP, trade, employment diverge

Today’s GDP figures from Eurostat and several national ministries, following trade and (un)employment figures, show more clearly than ever the centrifugal force of the European crisis.

Germany’s GDP grew by 0.5% in the first Quarter (Q1) of 2012, an export-led rebound from Q4 2011, when it declined by 0.2%.  Greece, on the other hand, is still on Charon’s ferryboat (price one Greek coin) across the river Styx to the economic Underworld, as the following GDP graph from the Hellenic Statistical Authority shows… yes, graphically.