The US motor industry resistance has begun, with General Motors leading the charge. A senior GM executive has defended the company’s use of Mexican plants, indicating it will not yield to political pressure to relocate manufacturing jobs to the US.
This guest post on the issue of the wider global impact of Brexit is from Paul Donovan, Global Economist at UBS in London. The British referendum decision to end the country’s EU membership may seem an isolated event. Something for the UK to worry about, certainly. Something for the EU to muse over. But not, necessarily, something that Asia should be concerned about. This attitude is a mistake, in my view. The UK referendum matters because it signals trends that will shape the world economy. These trends are important for Asia and Asian investors. Leaving aside the details of EU membership, the referendum result marks a victory for “anti-politics”. This is the politics of being against something rather than for something. Anti-politics suggests “if only we get rid of this one thing, all our troubles will be over”.
A guest post by Peter Doyle, economist and former IMF staffer _______ I very much hope—and expect—that Brexit will be rejected. But the 200-odd pages of HMT density on trade theory are intended to intimidate, not illuminate. They distract from the key issue; the impact of Brexit on the Euro.
- Our chat with Sebastian Mallaby on Alan Greenspan
- Our long chat with Paul Volcker (plus transcript and highlights)
- Brad DeLong on Hamiltonian economics and US economic history
- Inside the Washington Post: a chat with Marty Baron and Shailesh Prakash (plus transcript)
- Clay Shirky and Emily Parker on Xiaomi, technology and information flows in China (updated with transcript)
- Simon Kuper’s panel on the cultural forces of football
- Claudia Goldin on the history of women in the workplace (updated with transcript)
- Our podcast chat with Reihan Salam
- Our chat with Esther Duflo — now with transcript
- Our chat with Esther Duflo
Alphachatterbox is available on Acast, iTunes, and Stitcher.
One of the go-to guys on trade litigation between the US and China is Bill Perry, a Seattle-based attorney who spent the 80s at the US International Trade Commission, the Office of Chief Counsel and Office of Antidumping Investigations, and the US Department of Commerce. While tackling all sorts of anti-dumping and countervailing duty cases, he runs a blog that covers what it says on the tin: US China Trade War And if you ask him about the fast-escalating case involving China’s ZTE Corp, Bill will offer you one word: Hòumén (back door or 后门 in simplified Chinese.
For years the Chinese government accumulated claims on the rest of the world, with foreign reserves soaring almost continuously to a peak level of just under $4 trillion in 2014. Then things went into reverse:
Earlier this month at the annual meetings of the American Economic Association in San Francisco, Justin Yifu Lin argued that China’s growth slowdown has been mainly the result of external and cyclical factors rather than structural transformation. His case rests on the idea that other East Asian and emerging-market economies had also decelerated in recent years, some of which — Hong Kong, Singapore, Taiwan — do not have the same structural problems that are thought to plague China’s economy. Furthermore, Brazil’s decline has been much sharper than China’s, while India in 2012 also slowed dramatically before rebounding; China can rebound too.
We missed this earlier this month, but it is worth a reprise. How do you create a global reserve currency? Some clues by way of a speech by Benoît Cœuré, ECB board member, earlier this month: At constant exchange rates, the euro’s share of global foreign exchange reserves has remained broadly unchanged since 2007-08. The decline in 2014 in the share of the euro at market exchange rates was a reflection of the depreciation of the euro. There is therefore no evidence that global foreign exchange reserve managers actively rebalanced their portfolios away from the euro in 2014, or in 2011-2012 for that matter. This year the euro has been increasingly used as a funding currency by international borrowers, owing to the historically low interest rates in the euro area. Investment-grade corporations in advanced economies, mainly the United States, were particularly active issuers of international bonds denominated in euro, whose proceeds are swapped back into dollars. In April 2015 Mexico became the first sovereign state to issue a bond denominated in euro with a maturity of 100 years. Moreover, the share of the euro as an invoicing or settlement currency for extra-euro area trade remained broadly stable again last year. Finally, the euro is used as a reference currency for the anchoring of exchange rates, mainly in countries neighbouring the euro area and countries that have established special institutional arrangements with the EU or its Member States.
At FT Alphaville we’ve flagged concerns about the perfect storm of declining petrodollar/sweatdollar recycling flows, a Fed tightening schedule, and a regulatory environment increasingly averse to cross-border repos and funding, with potential unintended (or perhaps intended but grossly under appreciated) effects for offshore dollar liquidity. Why dollar liquidity, not euro, sterling or yen? Well, obviously, because the dollar remains the premier global reserve asset.
To understand what happened in China this week we think the best financial analogy for China’s management of its economy and its external capital account is this: think of it as a giant money market fund. So when the currency was officially devalued three times, it was equivalent to the Great China Money Market (GCMM) fund “breaking the buck”, a rare event when presumed safe investments turn out to not be so safe as thought. We’re going to explain what that means in two posts, the first of which is the extended history of China’s economic management needed to realise how the world got to this point in the first place.
At length. Because haven’t you heard? Germany is a hypocritical creditor. It won’t give Greece the debt relief which it received itself in the 1950s. Thomas Piketty said it. So it must be true:
Quite obviously, not many people take China’s own statistics at face value. Also quite obviously, China is a hard economy to accurately measure anyway. It’s really quite big and its pace of change has made grasping any bit of it for very long more than difficult.
If you ever needed proof that California-based techies live in a bubble of self-deluded superciliousness, where (to their minds) nothing of any value ever happened until Silicon Valley or Ayn Rand ideologues came along, look no further than the following article from Techcrunch posted this weekend. As the opener paragraphs report (our emphasis): Money is pouring into fintech. In 2014, global investment in financial technology startups spiked to more than $12 billion. That’s three times what it was just a year prior, according to Accenture. There have also been some huge funding wins this year. Most recently, zero-commissions trading app Robinhood announced $50 million round and financial education site NerdWallet attracted $64 million in funds. Those are big, headline-grabbing numbers.
You can sign up to receive the email here. Senate Democrats revolted against President Barack Obama, blocking a Republican-backed bill that would have granted him the necessary “fast track” authority to close a major Pacific trade deal. The White House played down the defeat as a “procedural snafu”. But it means yet another delay for the mooted Trans-Pacific Partnership with Japan and 10 other Pacific Rim economies. Are Obama’s efforts to pass the deal worth it? Probably, says Martin Wolf , but the benefits of multilateral deals will be modest and come with risks. “They must not become an alternative to the WTO or an attempt to push China to the margins of trade policy making.” (FT)
You can sign up to receive the email here. Oil topped $68 a barrel after falling to a five-year low near $45 in January. Saudi Arabia raised its selling prices in response to stronger demand and traders are looking beyond the currently well-supplied market to growing consumption and a slowdown in US oil output. (FT) Saudi Arabia has shown little inclination to curb its production, which has risen above 10m barrels a day, as it moves to expand its market share. It also said that it remained committed to infrastructure and development projects but admitted it would need to “rationalise” spending in light of low oil prices. (FT) The rebound in prices boosted inflation expectations and set prices tumbling across major government bond markets, pushing yields to levels not seen since the ECB began QE earlier this year. (FT)
You know that the rise in the dollar is having an impact when US newspapers write trend pieces about how great it will be to take a vacation in Europe. Here’s an excerpt from a recent Washington Post story headlined “The best places in the world to visit while the dollar is this strong”:
Canada is a large, diversified economy in which commodity extraction plays a (relatively) small role. Yet historically its currency, which was once known as the Canadian peso thanks to its 30 per cent devaluation against the US dollar in the 1990s, seems to have been driven by changes in the oil price. Here’s a chart comparing two-month changes in the amount of US dollars you can buy with a single Canadian dollar against changes in the price of West Texas Intermediate: