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11. Misconceptions about US Trade Deficits Muddy the Economic Policy Debate

Author:
Maurice Obstfeld
Publication Date:
08-2024
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The distrust of openness to the global economy shared by Republican and Democratic leadership derives in part from a faulty premise that persistent US trade deficits have been imposed on the United States by foreign countries and have contributed significantly to US deindustrialization. In fact, the deficits have important domestic sources, and the main drivers of US manufacturing employment decline lie elsewhere. Two theories that blame foreign countries for deficits hold that deficits arose from unfair competition by trade partners or from a “global savings glut.” The author says the first theory is wrong, the second is incomplete, and economic isolationism is not a solution. Trade and current account deficits result generally from an economy’s collective decisions to save and invest. Freer trade does not necessarily raise investment more than saving, and an investment-driven deficit is likely positive for the economy. The years 1998–2001 during and after the Asian financial crisis led to the dollar appreciating and a rise in the US deficit, consistent with the global saving glut theory. But subsequently in the 2000s, foreign capital was not pushed into the United States from abroad; rather it was pulled and the dollar depreciated. The causes were easy financial conditions, a housing bubble, and strong US consumption—trends that ended in a financial crisis. Understanding this history is essential if the United States is to avoid destructive protectionism and other harmful economic policies.
Topic:
Economy, Economic Policy, Free Trade, Trade Deficit, and Deindustrialization
Political Geography:
North America and United States of America

12. Is the United States undergoing a manufacturing renaissance that will boost the middle class?

Author:
Robert Z. Lawrence
Publication Date:
10-2024
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
President Joseph R. Biden Jr. made the goal of his economic policies to “build back better.” He emphasized helping workers without college degrees in order “to grow the economy from the bottom up and the middle out.” The emphasis on a manufacturing renaissance is reflected in the special incentives for US manufacturing in President Biden’s programs: the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. Lawrence finds little evidence of a renaissance in US manufacturing as of July 2024: US manufacturing employment was barely above its pre-COVID levels. Manufacturing output has grown more slowly than GDP since the pandemic, and productivity in manufacturing has not increased since 2017. Moreover, the Bureau of Labor Statistics projects that over the next decade, manufacturing employment will decline and manufacturing output will grow more slowly than GDP. However, Lawrence says, additional manufacturing employment growth could be in the pipeline because of investment projects that have been announced but not yet completed. Lawrence estimates the additional manufacturing employment potential of announcements compiled by the White House as of mid-2024, finding that these projects could boost demand for 1.7 million manufacturing workers—a growth of 13.3 percent above 2022 manufacturing employment levels. It should be noted, however, that these are not estimates of net overall manufacturing employment growth. Some of the increased demand will be offset by losses of fossil fuel–related jobs displaced by the investments as well as declines in manufacturing employment for other reasons. Moreover, the impact of all the projects is just over 1 percent of overall US employment and in most states far too small to significantly change the opportunities for most non-college-educated workers and disadvantaged communities.
Topic:
Economic Policy, Inflation, Manufacturing, and Middle Class
Political Geography:
North America and United States of America

13. Is the World Trade Organization Still Relevant?

Author:
Alan Wm. Wolff
Publication Date:
12-2024
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
There has been a profound shift in American foreign economic policy. The United States has abandoned promotion of a rules-based open international trading system and no longer supports the World Trade Organization (WTO). The United States and its allies created the current world trading system as an essential part of the liberal world order, a series of rules-based international organizations and agreements to help rebuild the global economy and foster peaceful cooperation after World War II. Today, rising populism, heightened geopolitical tensions, and persistent inequality are threatening this order. Wolff emphasizes that the WTO is still relevant to the liberal international order, and it is in the core interest of the United States and other countries to continue to support that order. But he cautions that the WTO needs major reforms if it is to survive as an effective force governing world trade. WTO members must engage in serious negotiations to find acceptable solutions to shared problems. The resulting agreements can be political commitments or adoption of binding rules. Regressing to a lack of accountability for one’s trade policy measures, however, would be unacceptably damaging.
Topic:
Economic Policy, Trade, WTO, and International Order
Political Geography:
North America and United States of America

14. Centralization in National High-Performance Sports Systems: Reasons, Processes, Dimensions, Characteristics, and Open Questions

Author:
Wolfgang Maennig
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Chair for Economic Policy, University of Hamburg
Abstract:
Centralization provides for the bundling of tasks that are relevant to the achievement of an institution's goals. Centralization is discussed in almost all areas of life: For example, in politics (more centralized structures in France vs. more decentralized structures in Germany), in economics (centrally planned organization as in the former COMECON-Countries), decentralized decision-making at the individual level in market economies), and at the corporate level. Objects of centralization can be, for example, decision-making processes, products, personnel and customer groups. In some cases, the aim is to centralize (only) certain objects, while other activities are to remain decentralized, for example. In some cases, centralization in some areas virtually necessitates decentralization in others: For example, centralization by product usually leads to decentralization by sales area. Synergy effects, specialization advantages and, ultimately, cost degression effects are cited as benefits or advantages of more centralization; duplication of work and infrastructure can be avoided. Decision-making processes can be accelerated and simplified – subordinate or geographically distant units do not participate in the decision-making process. Unified concepts and strategies can be better enforced. “Density effects" must also be taken into account: There often are positive spill-over effects between people with related activities, for example, due to imitation and learning effects, but also due to the exchange of experience, which leads to an increase in the productivity of those involved. However, the decentralization tendencies that have emerged as a result of the Corona pandemic, for example through homeworking, partly question this finding. One of the disadvantages of centralization is that large centralized companies have high demands on information and decision-making systems because the experience, problems and ideas for solutions that arise decentrally have to reach the decisionmakers and therefore often (but not always) react more slowly to external changes. Less consideration may be given to regional peculiarities. Due to the standardization usually associated with centralization the scope for adaptation to specific circumstances may be lost. Centralization can increase the distance of decision-makers from "grassroots" concerns. The non-central units can suffer from devaluation, delegitimization, and demotivation, possibly associated with a long-term decrease of activities. The restricted competition of ideas can lead to a long-term decline in competitiveness, since the reduced competencies of the decentralized employees can inhibit their individual performance development. Centralization leads to a greater burden on central decisionmakers because the quantity and complexity of decisions increase. Individuals affected by centralization (in a different location) may experience family relocation problems and additional financial problems. The Corona pandemic and the current China discussion have brought additional arguments into the discussion with contagion risks for (too) many and (too) strong dependencies/blackmail possibilities on centralized procurement. And Ukraine's energy supply, which is based on relatively few large nuclear power plants, illustrates the possible increased susceptibility of certain centralized structures to crises.
Topic:
Sports, Economic Policy, Olympics, and Centralization
Political Geography:
Europe, Germany, and Global Focus

15. India’s economic development since independence: An interpretative survey

Author:
Kunal Sen
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
When India became a republic in 1950, the economy was primarily agrarian, with threefifths of output originating from agriculture. In the sixty years since independence, there has been a significant transformation of economic activity away from agriculture, with less than one-fifth of output now originating from agriculture and the rest from manufacturing and services. Since the 1980s, along with structural change, there has been strong economic growth, till 2010, followed by a period of declining growth. In this paper, we describe India’s economic foundation, paying particular interest to the processes of economic growth and structural change. We begin with a brief discussion of the patterns of growth and structural change since independence. We then discuss the economic policies that have underpinned India’s economic development. Next, we discuss the evolution of the three main economic sectors—agriculture, industry, and services. We then provide a summary of India’s regional performance. We end with a discussion of India’s economic performance in the post-2014 period.
Topic:
Agriculture, Development, Economic Growth, Economic Policy, and Industry
Political Geography:
South Asia and India

16. US-EU climate change industrial policy: Pulling in different directions for cooperation, competition, and compromise

Author:
Cordelia Buchanan Ponczek
Publication Date:
08-2023
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
The United States and the European Union agree on prioritizing policies to address climate change, which includes securing supply chains for components essential to low-carbon technology. Despite this agreement, their policies to address climate change and low-carbon technology could foster competition. The US Inflation Reduction Act (IRA) reflects the competitive advantage of the US to draw in the best talents, capabilities, and resources from outside sources. This leads to a disconnect between the industrial policy benefits of the IRA within the US and the potential competitive impact the IRA has on US relationships with allies. The EU’s policies are shaped by the bloc’s desire to respond to external actors—including China and Russia—while protecting the common market and building up its internal capability to ensure security of supply. This is complicated by individual member-state objectives. The 2024 US presidential election could bring change: A Republican administration might not share the EU’s outlook on climate change, the need for government intervention, or even the close transatlantic relationship seen during the Biden administration.
Topic:
Climate Change, Governance, European Union, Economic Policy, and Geoeconomics
Political Geography:
Europe, Finland, and United States of America

17. The role of space technologies in power politics: Mitigating strategic dependencies through space resilience

Author:
Markus Holmgren
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
Space activity is experiencing a boom with the scope and importance of space technologies and services fuelling rapid growth upon growth. While the space boom is catalysing transferral of the ownership of previously public infrastructure and capabilities to corporate control, many space technologies have critically important military and civilian applications. As the importance of space sectors grows, both public and private cyberoperations targeting space infrastructure proliferate. This makes it more difficult to attribute the perpetrators of cyber operations. The United States’ lead in the space sector is increasing. Starlink, a satellite internet constellation operated by the US-based company SpaceX, will serve to bind many nations to one more US-controlled communication architecture. As a result of the implications of space technologies for comprehensive security, building space resilience is becoming paramount. States must diversify their supply of space-related services and tighten cooperation with like-minded states.
Topic:
Security, Foreign Policy, Defense Policy, Economic Policy, and Geoeconomics
Political Geography:
Europe and Finland

18. Mexico’s domestic decay: Implications for the United States and Europe

Author:
Lauri Tahtinen
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
President Andrés Manuel López Obrador (AMLO) has challenged Mexico’s democratic institutions, including the electoral commission INE, and relies on the military to run sectors of the economy and to provide internal security. Recognizing the continuing strategic importance of its southern neighbor, the United States is attempting to “friend-shore” American industry to Mexico despite trade disputes. Mexico’s economic convergence with the US is giving way to ideological divergence. In the past year, Mexico has called NATO’s stance on Ukraine “immoral” and openly aligned with the leftist, anti-US dictators of Cuba, Nicaragua, and Venezuela. Mexico’s internal development and shifting external stance could spark a return to a United States focused on the protection of its 19th-century borders instead of its 20th-century global footprint. European attention to the future of Mexico can help diversify the country’s trade and other partnerships, as well as shine a light on its democratic decay.
Topic:
Security, Defense Policy, Democracy, Europe, and Economic Policy
Political Geography:
Europe, Latin America, North America, Mexico, and United States of America

19. Ukraine’s political model recast: Assessing new opportunities and risks

Author:
Arkady Moshes and Ryhor Nizhnikau
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
The Ukrainian political model is in flux. The war against Russia has eroded the core elements of the old order, in which elections were a focal point of the political contestation and the main mechanism for resolving political conflicts. Oligarchs have lost their critical role in Ukrainian politics. Their impact on the media and the party system has weakened considerably, which is a very positive development for the country’s democratic progress. At the same time, the disappearance of the oligarchs as a quasi-institution facilitates the process of power concentration around President Volodymyr Zelenskyy and his Office. Given the absence of elections due to martial law, this poses the risk that the new political model might be tailored to the incumbent’s needs to the detriment of the public interest. As the war becomes protracted, societal pressure to reactivate comprehensive reforms in the country, including the fight against corruption, is increasing. This creates certain tensions between the national leaders and the general public. Ostensibly, the incumbent president cannot and will not be able to ignore this demand, especially if it is firmly and consistently supported by Western actors.
Topic:
Democracy, Oligarchy, Domestic Politics, Economic Policy, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

20. EU-China relations in an uncertain world: Walking a geopolitical tightrope

Author:
Sinikukka Saari, Niklas Helwig, Juha Jokela, and Mikael Mattlin
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
After the 2008 financial crisis, the EU’s approach towards China shifted from overconfidence in European normative power to an embrace of unconditional economic engagement with China. The EU policy of de-risking is critically important, but it needs to be carefully considered, managed, and communicated to China. US-China tensions and American debates on China impact the EU’s approach. Nevertheless, there are significant differences between European and US positions on China irrespective of which party holds power in the US. China’s position on Russia’s war of aggression is a make-or-break issue for the EU. By actively enabling Russia’s invasion, China is harming its own long-term interests in Europe and globally. It is in Europe’s interests to avoid framing current international dynamics in terms of “the West and the rest”. Although this discourse may be popular domestically, there is a danger of it becoming a self-fulfilling prophecy.
Topic:
International Relations, European Union, Geopolitics, and Economic Policy
Political Geography:
China, Europe, Asia, and United States of America