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121. Global E-Commerce Talks Stumble on Data Issues, Privacy, and More

Author:
Gary Clyde Hufbauer and Zhiyaou (Lucy) Lu
Publication Date:
10-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In early 2019, several important members of the World Trade Organization (WTO) submitted noteworthy proposals in a realm of international commerce that has evolved faster than rules to govern it: e-commerce or digital trade. While countries agree on less controversial subjects like banning unsolicited commercial electronic messages, the three leading WTO members—China, the European Union, and the United States—have big differences in their approaches to more challenging issues: data flows, data localization, privacy invasions by data collectors, transfer of source code, imposition of customs duties and internet taxes, and internet censorship. Their differing viewpoints lead Hufbauer and Lu to conclude that the prospect of reaching a high-level WTO e-commerce agreement is not promising. To reach an agreement, either most of the contentious issues must be dropped or the number of participating countries must be sharply reduced. A WTO accord, even of low ambition, would have value if only to establish basic digital norms on matters such as banning unsolicited commercial messages and protecting online consumers from fraudulent practices. A more ambitious accord covering the controversial issues should be negotiated in bilateral and/or plurilateral/regional pacts rather than in the WTO.
Topic:
Economics, World Trade Organization, Finance, Privacy, and Data
Political Geography:
China, Europe, Asia, North America, United States of America, and European Union

122. WTO'ing a Resolution to the China Subsidy Problem

Author:
Chad P. Bown and Jennifer A. Hillman
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
Topic:
Economics, World Trade Organization, Tariffs, and Trade
Political Geography:
Japan, Europe, Asia, North America, United States of America, and European Union

123. Should Monetary Policy Take Inequality and Climate Change into Account?

Author:
Patrick Honohan
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Should central banks take more account of ethical issues, notably the impact of monetary policy actions on the distribution of income and wealth and on efforts to combat climate change, in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these issues.
Topic:
Climate Change, Economics, Monetary Policy, Inequality, and Central Bank
Political Geography:
North America, Global Focus, and United States of America

124. Average Inflation Targeting Would Be a Weak Tool for the Fed to Deal with Recession and Chronic Low Inflation

Author:
David Reifschneider and David Wilcox
Publication Date:
11-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The Federal Reserve faces two important monetary policy challenges: First, since the Great Recession it has struggled to move inflation convincingly up to the 2 percent target level. Second, during the next recession it will struggle to deliver enough support to the economy unless the recession is unusually mild. As a result, the search is on for alternative policy frameworks that might allow the Fed to achieve its monetary policy objectives more effectively. Among the alternatives is average inflation targeting (AIT). The basic idea is simple: Instead of aiming to return inflation over the medium term to the target rate of 2 percent, the Fed would aim to return the average of inflation over some period to the target rate. The crucial innovation of AIT is that when inflation has been running below the target rate, it would have the Fed aim for above-target inflation in the future, in order to bring average inflation up toward the target. Simulations of the Fed’s workhorse econometric model of the US economy (the FRB/US model) suggest that AIT would be a weak addition to the Fed’s policy toolkit for dealing with recessions and persistently low inflation. In addition, simple versions of AIT would sometimes compel the Fed to run an undesirably restrictive monetary policy. AIT is thus not a very appealing alternative to the current framework.
Topic:
Economics, Global Recession, Monetary Policy, and Federal Reserve
Political Geography:
North America, Global Focus, and United States of America

125. US-China Trade War: Both Countries Lose, World Markets Adjust, Others Gain

Author:
Sherman Robinson and Karen Thierfelder
Publication Date:
11-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The terms of the US-China trade war change often, but the tariff escalations have inflicted documented economic damage on both countries. Expanding the conflict will only increase the damage and reverberate across the world economy. This Policy Brief uses a computable general equilibrium model of the global economy to analyze three scenarios that could unfold in coming months. The first scenario is the current situation (as of June 2019). Two additional scenarios assume implementation of proposed US tariffs and Chinese responses. The models project the situation after the two countries and the rest of the world adjust across a time horizon of three to five years. For the United States, higher tariffs raise prices and reduce demand for consumers and producers. For China, the tariffs raise the prices of consumer goods but have less direct impact on producers, because the Chinese have exempted some intermediate inputs. US exports and imports decline under all three scenarios. But China can successfully divert its exports away from the United States and escape maximum economic damage.
Topic:
Economics, Global Markets, Finance, Trade Wars, and Trade
Political Geography:
China, Asia, North America, and United States of America

126. Keeping Up with the Future: Upgrading Forecasts of Political Instability and Geopolitical Risk

Author:
Cullen S. Hendrix and Sooyeon Kang
Publication Date:
07-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The nature and magnitude of geopolitical risk is changing more rapidly than the ability to anticipate it, with increasingly severe economic consequences. This Policy Brief discusses the economic costs and risks associated with episodes of political instability, arguing that firms, government agencies, and international institutions must update their forecasting and risk assessment efforts to take global factors into account. Since the global financial crisis, political instability has shifted from emerging-market countries in the developing world to larger, more globally impactful econo¬mies. Acknowledging this changing risk profile—and developing better tools to predict major episodes of instability—will allow both policymakers and firms to plan with greater confidence.
Topic:
Economics, Geopolitics, Economy, and Political stability
Political Geography:
Global Focus

127. Creating a Euro Area Safe Asset without Mutualizing Risk (Much)

Author:
Alvaro Leandro and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
Topic:
Economics, Sovereign Wealth Funds, Banks, and Risk
Political Geography:
Europe and Global Focus

128. Measuring the Rise of Economic Nationalism

Author:
Monica de Bolle and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Since the mid-2000s, the platforms of major political parties in both advanced and emerging-market economies have increasingly emphasized policies that stress national sovereignty, reject multilateralism, and seek to advance national interests through measures that come at the expense of foreign interests. This paper documents this shift by evaluating the policy platforms of the largest political parties (about 55 in total) in the Group of Twenty (G-20) countries with regard to trade policy, foreign direct investment (FDI), immigration, and multilateral organizations. Preference shifts with respect to industrial policy, competition policy, and macroeconomic populism are also examined. In advanced economies, the biggest shifts were toward restrictions on immigration and trade and toward macroeconomic populism. In emerging-market economies, the largest preference shifts were toward industrial policies favoring specific sectors, macroeconomic populism, and industrial concentration. Trade protectionism and skepticism toward multilateral organizations and agreements have increased in both advanced and emerging-market economies. As of 2018, economic policy preferences in emerging-market economies were more nationalist and less liberal than in advanced countries, but the gap has narrowed. Right-wing parties tend to be more nationalist than left-wing parties in the areas of immigration restrictions, FDI restrictions, and antimultilateralism, but there is no significant difference with respect to trade protectionism.
Topic:
Economics, International Trade and Finance, Nationalism, Politics, Populism, and Macroeconomics
Political Geography:
Global Focus

129. Chinese Investments in the US and EU Are Declining—for Similar Reasons

Author:
Jacob Funk Kirkegaard
Publication Date:
09-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
Topic:
Economics, International Trade and Finance, National Security, Foreign Direct Investment, and Investment
Political Geography:
China, Europe, Asia, North America, and United States of America

130. Does Trade Reform Promote Economic Growth? A Review of Recent Evidence

Author:
Douglas A. Irwin
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
Topic:
Economics, Reform, Economic growth, and Trade
Political Geography:
Global Focus