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1. Tariffs and Monetary Policy: A Toxic Mix

Author:
Michael D Bordo and Mickey D. Levy
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The ratcheting up of tariffs and the Fed’s discretionary conduct of monetary policy are a toxic mix for economic performance. Escalating tariffs and President Trump’s erratic and unpredictable trade policy and threats are harming global economic performance, distorting monetary policy, and undermining the Fed’s credibility and independence. President Trump’s objectives to force China to open access to its markets for international trade, reduce capital controls, modify unfair treatment of intellectual property, and address cybersecurity issues and other U.S. national security issues are laudable goals with sizable benefits. However, the costs of escalating tariffs are mounting, and the tactic of relying exclusively on barriers to trade and protectionism is misguided and potentially dangerous. The economic costs to the United States so far have been relatively modest, dampening exports, industrial production, and business investment. However, the tariffs and policy uncertainties have had a significantly larger impact on China, accentuating its structural economic slowdown, and are disrupting and distorting global supply chains. This is harming other nations that have significant exposure to international trade and investment overseas, particularly Japan, South Korea, and Germany. As a result, global trade volumes and industrial production are falling. Weaker global growth is reflected in a combination of a reduction in aggregate demand and constraints on aggregate supply.
Topic:
International Trade and Finance, Monetary Policy, Economic growth, Tariffs, and Industry
Political Geography:
Japan, China, Europe, Asia, South Korea, Germany, North America, and United States of America

2. The U.S.-China Trade War: Is There an End in Sight?

Author:
Simon Lester and Huan Zhu
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Donald Trump was a trade “hawk” long before he became president. In the late 1980s, he went on the Oprah Winfrey show and complained about Japan “beating the hell out of this country” on trade (Real Clear Politics 2019). As president, he has continued with the same rhetoric, using it against a wide range of U.S. trading partners, and he has followed it up with action (often in the form of tariffs). While many countries have found themselves threatened by Trump’s aggressive trade policy, his main focus has been China. As a result, the United States and China have been engaged in an escalating tariff, trade, and national security conflict since July 2018, when the first set of U.S. tariffs on China went into effect and China retaliated with tariffs of its own. In this article, we explore the U.S.-China economic conflict, from its origins to the trade war as it stands today. We then offer our thoughts on where this conflict is heading and when it might end.
Topic:
Economics, International Trade and Finance, Tariffs, Trade Wars, and Donald Trump
Political Geography:
China, Asia, North America, and United States of America

3. Assessing Global Financial Stability

Author:
Tobias Adrian
Publication Date:
06-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In the decade since the global financial crisis, there has understandably been great concern about potential threats to global financial stability, and policymakers have wisely remained vigilant in watching for warning signs of possible economic risk. At the International Monetary Fund (IMF), we remain committed to providing our 189 member countries with farsighted analyses of trends in the financial markets, thus guiding them toward sound policy choices that help maintain economic stability.
Topic:
International Trade and Finance, Global Recession, Financial Crisis, Economy, Economic growth, Risk, IMF, and Financial Stability
Political Geography:
Global Focus

4. Toward a Rules‐​Based International Monetary System

Author:
John B. Taylor
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Over the past few years I have been making the case for moving toward a more rules-based international monetary system (e.g., Taylor 2013, 2014, 2015, 2016a, 2016b, 2017). In fact, I made the case over 30 years ago in Taylor (1985), and the ideas go back over 30 years before that to Milton Friedman (1953). However, the case for such a system is now much stronger because the monetary system drifted away from a rules-based approach in the past dozen years and, as Paul Volcker (2014) reminds us, the absence of a rulesbased monetary system “has not been a great success.” To bring recent experience to bear on the case, we must recognize that central banks have been using two separate monetary policy instruments in recent years: the policy interest rate and the size of the balance sheet, in which reserve balances play a key role. Any international monetary modeling framework used to assess or to make recommendations about international monetary policy must include both instruments in each country, the policy for changing the instruments, and the effect of these changes on exchange rates. Using such a framework, I show that both policy instruments have deviated from rules-based policy in recent years. I then draw the policy implications for the international monetary system and suggest a way forward to implement the policy.
Topic:
International Cooperation, International Trade and Finance, Monetary Policy, and Central Bank
Political Geography:
Global Focus

5. International Developments in the Insurance Sector: The Road to Financial Instability?

Author:
Therese M. Vaughan and Mark A. Calabria
Publication Date:
05-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
International activity related to the regulation and supervision of financial services has exploded since the global financial crisis. The crisis exposed weaknesses in the structure for regulating internationally active banks, and motivated a number of work streams aimed at strengthening standards (most notably, significant revisions to the Basel capital standard for internationally active banks, now known as Basel III). The insurance sector was also stressed by the meltdown in financial markets that occurred in 2007-2008, albeit far less than the banking sector, and, with the exception of AIG, it is generally recognized that insurers played little role in the financial crisis, and that traditional insurance activities do not pose a systemic risk to the financial system.1,2 Nonetheless, the insurance sector has also been targeted for a new stream of regulatory initiatives at the international level. The most important organizations with respect to these activities are the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), both based in Basel, Switzerland. The purpose of this paper is to review these developments and to highlight potential concerns for U.S. insurance markets.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Global Focus

6. The Resolution of Systematically Important Financial Institutions: Lessons from Fannie and Freddie

Author:
Mark A. Calabria
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
There was perhaps no issue of greater importance to the financial regulatory reforms of 2010 than the resolution, without taxpayer assistance, of large financial institutions. The rescue of firms such as AIG shocked the public conscience and provided the political force behind the passage of the Dodd-Frank Act. Such is reflected in the fact that Titles I and II of Dodd-Frank relate to the identification and resolution of large financial entities. How the tools established in Titles I and II are implemented are paramount to the success of Dodd-Frank. This paper attempts to gauge the likely success of these tools via the lens of similar tools created for the resolution of the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
Topic:
Economics, International Trade and Finance, Financial Crisis, and Reform

7. Does Immigration Impact Economic Freedom?

Author:
Benjamin Powell, Alex Nowrasteh, J. R. Clark, Robert A. Lawson, and Ryan H. Murphy
Publication Date:
05-2014
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The economics literature generally finds a positive, but small, gain in income to native-born populations from immigrants and potentially large gains in world incomes. But immigrants can also impact a recipient nation's institutions. A growing empirical literature supports the importance of strong private property rights, a rule of law, and an environment of economic freedom for promoting long run prosperity. Although the literature on the impact of economic freedom on various social and economic outcomes is quite large, comparatively little work has tried to explain economic freedom as a dependent variable. This paper empirically examines how immigration impacts a region's policies and institutions. We find small but positive increases in institutional quality as a result of immigration.
Topic:
Economics, Human Welfare, International Trade and Finance, and Immigration

8. Antitrust Enforcement in the Obama Administration's First Term: A Regulatory Approach

Author:
William F. Shughart II and Diana W. Thomas
Publication Date:
10-2013
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
During his presidential campaign, Sen. Barack Obama criticized sharply the lax anti-trust law enforcement record of the George W. Bush administration. Subsequently, his first assistant attorney general for antitrust even went so far as to suggest that the Great Recession was, at least in part, caused by federal antitrust policy failures during the previous eight years. This paper sets out to investigate how and in what ways antitrust enforcement has changed since President Obama took office in 2009. We review four recent antitrust cases and the behavioral remedies that were imposed on the defendants in those matters in detail. We find that the Obama administration has been significantly more active in enforcing the antitrust laws with respect to proposed mergers than his two predecessors in the White House had been. In addition, the Federal Trade Commission, together with the Department of Justice, withdrew a thoughtful report on the enforcement of Section 2 of the Sherman Act and issued new merger guidelines and a new merger policy remedy guide, all of which have moved antitrust law enforcement away from traditional structural remedies in favor of very intrusive behavioral remedies in an unprecedented fashion. That policy shift has further transformed antitrust law enforcers into regulatory agencies, a mission for which they are not well-suited, resulting in the Department of Justice and Federal Trade Commission being more vulnerable to rent seeking.
Topic:
Economics, International Trade and Finance, Markets, Governance, and Law Enforcement

9. Why Growth Is Getting Harder

Author:
Brink Lindsey
Publication Date:
10-2013
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
For over a century, the trend line for the long-term growth of the U.S. economy has held remarkably steady. Notwithstanding huge changes over time in economic, social, and political conditions, growth in real gross domestic product (GDP) per capita has fluctuated fairly closely around an average annual rate of approximately 2 percent. Looking ahead, however, there are strong reasons for doubting that this historic norm can be maintained.
Topic:
Economics, Globalization, International Trade and Finance, Markets, Financial Crisis, and Governance
Political Geography:
United States

10. World Hyperinflations

Author:
Steve H. Hanke and Nicholas Krus
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
This chapter supplies, for the first time, a table that contains all 56 episodes of hyperinflation, including several which had previously gone unreported. The Hyperinflation Table is compiled in a systematic and uniform way. Most importantly, it meets the replicability test. It utilizes clean and consistent inflation metrics, indicates the start and end dates of each episode, identifies the month of peak hyperinflation, and signifies the currency that was in circulation, as well as the method used to calculate inflation rates.
Topic:
Economics, Globalization, International Trade and Finance, Markets, Monetary Policy, and Financial Crisis