Author Topic: Trade and Globalization Issues:  (Read 54667 times)

Crafty_Dog

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Stratfror: US, Kenya, Africa
« Reply #300 on: February 07, 2020, 01:27:40 PM »
Stratfor Worldview

SNAPSHOTS
Breaking Ranks, Kenya Enters Bilateral Trade Talks With Washington
4 MINS READ
Feb 7, 2020 | 20:54 GMT

HIGHLIGHTS
As the U.S. moves away from multilateral deals, the White House will use any agreement with Kenya to coax African countries that have hesitated to talk trade directly with Washington....

The Big Picture

The United States and Europe have historically given developing and low-income countries preferential trade access to their markets as a form of development aid. But those agreements are becoming outdated, and the idea of a one-sided agreement for those countries is losing political support in the West. With the White House trade strategy shifting toward bilateral agreements instead of large plurilateral or multilateral deals, it's unsurprising that the United States is trying to negotiate with these countries individually. Kenya is now the first to take Washington up on its offer of talks.

See The Suitors of Sub-Saharan Africa

The United States continues to try to break down plurilateral trade agreements into bilateral agreements, and Kenya appears to be the first sub-Saharan African country on its list. During his visit with Kenyan President Uhuru Kenyatta, U.S. President Donald Trump announced that the United States intends to open formal trade negotiations with the East African nation. Afterward, the Office of the United States Trade Representative published a press release saying that, at the direction of the president, U.S. Trade Representative Robert Lighthizer would officially notify Congress of the U.S. intent to start negotiations as stipulated under the administration's trade promotion authority (TPA) given by Congress.

Many Trade Deals vs. Relying on One Trade Act

The United States wants to end the Generalized System of Preferences (GSP), a program that gives nonreciprocal, duty-free tariff treatment to some products imported from various developing countries. Even more, the administration seeks to replace the African Growth and Opportunity Act, a measure that goes beyond the GSP to significantly enhance tariff-free access for several thousand more goods to the United States for qualifying sub-Saharan African countries. Both moves are part of a broader U.S. trade strategy of shifting toward bilateral trade deals.

The African Union and most African countries would prefer to have a new plurilateral agreement to replace the African Growth and Opportunity Act, which is set to expire in 2025. But Kenya appears to have broken ranks with other African countries as it looks for a more stable trade relationship with the United States. The Trump administration will meanwhile try to use the agreement signed with Kenya as a model for talks with other African countries, although this may not prove easy. Kenyatta, for example, has said that the bilateral negotiations with the United States do not mean it does not support the African Continental Free Trade Area, which comprises 55 African Union member states, forming a market of more than 1.2 billion people. Kenyatta also said that a bilateral agreement with the United States would create a sounder footing for its trade relationship with Washington than does the African Growth and Opportunity Act, which he compared to "training wheels."

The Trump administration will try to use the agreement signed with Kenya as a model for talks with other African countries.

Once the Trump administration formally notifies the U.S. Congress of its intent to enter negotiations, the TPA requires that the Trump administration wait at least 90 days before entering talks. At least 30 days before negotiations begin, the Trump administration must publish its negotiating objectives. These will be the Trump administration's first official trade negotiations with a developing country under the TPA, and the first formal trade talks by any administration with a sub-Saharan African country. It will be important to track U.S. negotiating objectives.

Trade negotiations and a trade deal with Kenya are highly unlikely before the U.S. presidential election in November and official talks cannot begin until early May. Moreover, the Trump administration must notify Congress 180 days before signing an agreement of any potential changes to U.S. trade remedy laws, which the United States uses to enforce trade rules; this could push a signing date to after the November election.

Background

The United States ran a small trade deficit with African Growth and Opportunity Act countries in 2019, importing $20.2 billion worth of products and exporting $14.9 billion, but in years past, the U.S. trade deficit with those countries has been much higher. The deficit peaked at $66 billion in 2008, just eight years after the African Growth and Opportunity Act entered into force. It has fallen since, bottoming out at just $865 million in 2015. U.S. purchases of oil and natural gas from oil-producing countries like Nigeria, Angola, the Republic of the Congo, Gabon and Chad have always comprised the bulk of trade between the United States and African Growth and Opportunity Act countries. Trade between Kenya and the United States, meanwhile, is not particularly extensive. The United States had a trade deficit of just $294 million in 2019 with Kenya, almost entirely due to the textile trade — which the African Growth and Opportunity Act covers. The United States has had a trade surplus with Kenya as recently as 2015.

Crafty_Dog

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WSJ: House votes to remove country of origin labels on meat sold in US
« Reply #301 on: February 21, 2020, 04:05:22 PM »
House Votes to Remove Country-of-Origin Labels on Meat Sold in U.S.
Washington seeks to prevent a long battle over the labels with Canada and Mexico

Country-of-origin labels were mandated by Congress in the 2002 and 2008 farm bills. They require meatpackers to identify where animals are born, raised and slaughtered.
PHOTO: REUTERS
By Tennille Tracy
Updated June 10, 2015 11:31 pm ET

The House voted late Wednesday to remove country-of-origin labels on beef, pork and chicken sold in the U.S., hoping to prevent a protracted battle over the labels with Canada and Mexico.

Wednesday’s 300-131 vote repealing the country-of-origin labels for meat follows a series of rulings by the World Trade Organization finding the labeling discriminates against animals imported from Canada and Mexico.

Canada and Mexico won a final WTO ruling in May, and are now seeking retaliatory actions valued at a combined $3.7 billion a year. Canada has threatened trade restrictions on a range of U.S. products, including meat, wine, chocolate, jewelry and furniture.

Supporters of the House bill said a repeal of the labeling law is the only way to prevent retaliatory measures that could affect several U.S. industries.

“If COOL worked, perhaps there would be a response other than repeal,” said House Agriculture Committee Chairman Mike Conaway (R., Texas), the sponsor of the bill. “But the fact is COOL has been a marketing failure.”

Country-of-origin labels, known as COOL, were mandated by Congress in the 2002 and 2008 farm bills, and require meatpackers to identify where animals are born, raised and slaughtered. The information is then printed on meat packages sold in grocery stores. The labels aren’t required on meat sold in restaurants.

In 2014, the U.S. imported more than 2 million head of cattle from Canada and Mexico and brought in nearly 5 million hogs from Canada.

The House’s vote in favor of repeal moves the fight about origin labels to the Senate, where key members remain divided on the issue.

Senate Agriculture Chairman Pat Roberts (R., Kan.) has showed a strong interest in a repeal, but the top Democrat, Sen. Debbie Stabenow of Michigan, said Wednesday that she will oppose efforts to get rid of them altogether.

“I plan on working with my Senate colleagues to develop legislation that ensures consumers have information about where their food comes from while also meeting our international trade obligations,” Ms. Stabenow said.

Canada and Mexico contend that labeling requirements put their cows and pigs at a disadvantage—not because consumers snub their products but because U.S. meatpackers don’t want to go through the hassle and expense of tracking imported animals. As a result, meatpackers offer lower prices for hogs and cattle from Canada and Mexico.

Consumer advocates, among the biggest supporters of the labels, say international trade deals should not trump consumers’ access to information about their food.

“If Congress repeals [the labels], then the next time consumers go shopping for a steak or chicken for their families, they won’t be able to tell where that product came from,” said Chris Waldrop, director of the Food Policy Institute at Consumer Federation of America. “That’s completely unacceptable. Consumers want more information about their food, not less.”

In a report to Congress in April, the Agriculture Department said the costs of putting country-of-origin labels on meat outweighed the benefits. It found little evidence to suggest consumers would buy more products with a U.S. label.

Andrew Bates, a spokesman for the Trade Representative office, said the U.S. plans to object to Canada and Mexico’s request for retaliatory action in the WTO. The trade organization is scheduled to consider the countries’ request on June 17.

“Canada and Mexico did not provide any justification for their requests, but we would note that the annual values appear to be substantially inflated,” Mr. Bates said.

Write to Tennille Tracy at tennille.tracy@wsj.com


Crafty_Dog

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WSJ: US to stop collecting tariffs for three months
« Reply #303 on: March 27, 2020, 11:37:47 PM »
U.S. Plans to Stop Collecting Import Tariffs for Three Months, Officials Say
Move aimed at helping U.S. businesses

President Trump could still overrule the plans to suspend the tariffs.
PHOTO: ALEX BRANDON/ASSOCIATED PRESS
By Alex Leary and William Mauldin
Updated March 27, 2020 7:04 pm ET

WASHINGTON—The Trump administration is preparing to suspend collection of import tariffs for three months to give U.S. companies financial relief amid the coronavirus pandemic, according to administration officials.

“Customs duties will be suspended for three months,” a senior administration official said Friday.

Companies would still be liable for the tariffs at a later date, which hasn’t been determined, another official said. There would be no formal changes to tariff policy, officials said.

Asked about The Wall Street Journal’s report at a news briefing late Friday, Mr. Trump called the report “fake news.”

Mr. Trump signed a roughly $2 trillion economic-stimulus bill Friday as the economy has been brought to a standstill by the coronavirus pandemic.

Business groups have called for tariff relief. They have faced resistance from trade hawks and domestic industries such as steel calling for protection from what they see as unfairly traded imports.

U.S. Customs and Border Protection in recent days sent out a formal notice saying it would provide temporary delays for customs duties on a case-by-case-basis, only to rescind the offer on Thursday.

Even so, the administration officials said the White House was now moving to stop the collection of tariffs, while leaving the tariffs in place.

A spokesman for Robert Lighthizer, the U.S. trade representative, didn’t immediately reply to a request for comment.

The plans for tariff-payment delays doesn’t by itself mean the administration is backing away from the use of trade barriers to defend domestic industry. Trade experts say the combination of the 2020 presidential election and a possible recession suggests the administration would face a political backlash if it removed the tariffs, including in manufacturing-heavy states of the Midwest.

“This whole crisis is a vindication of President Trump’s tariff policies, which over the last three years have already begun to bring some of our supply chains and jobs home,” White House trade and manufacturing adviser Peter Navarro told the Journal last week.

On Friday, Mr. Navarro was appointed by Mr. Trump to oversee government efforts to arrange private production of essential items during the pandemic. Mr. Navarro couldn’t immediately be reached by phone Friday.

Mr. Trump has imposed global tariffs on steel and aluminum imports, as well as tariffs on hundreds of billions of dollars of Chinese products in a trade war sparked off by China’s treatment of American intellectual property and trade secrets.

Other imports also face duties based on findings of foreign “dumping” or subsidies, and the U.S. maintains usually low tariffs on a host of products from most countries under international agreements.

Washington and Beijing in January signed a “phase one” agreement that serves as a truce in the trade war. The U.S. didn’t remove tariffs on any Chinese products under that pact, they only reduced the rates of some tariffs.

The pact requires China to buy $200 billion more in U.S. exports than it previously did, and Mr. Trump has said he expects the pact to be upheld.

The two countries have recently seen tensions grow over the virus, which spread from China, as well as a spat that has seen both nations reduce the number of foreign correspondents permitted from the other country.


DougMacG

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The trade protectionists had it at least partly right
« Reply #304 on: March 29, 2020, 10:42:36 AM »
And I was at least partly wrong.  Countries need to maintain strategic production capabilities at home.
--------------------------------------------------------------------------------------

Coronavirus India: India bans export of wonder drug - Hydroxychloroquine

https://www.msn.com/en-in/news/other/coronavirus-india-india-bans-export-of-wonder-drug-hydroxychloroquine/ar-BB11FcsI

Crafty_Dog

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Re: Trade and Globalization Issues:
« Reply #305 on: March 29, 2020, 12:09:10 PM »
"Countries need to maintain strategic production capabilities at home."

Exactly so!

DougMacG

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Re: Trade and Globalization Issues:
« Reply #306 on: March 29, 2020, 12:20:52 PM »
Comparative advantage, the philosophical basis of free trade, works, if by "works" you mean "maximizes efficiency at the expense of redundancy and anti-fragility."

https://twitter.com/amconmag/status/1244300786751823872

https://www.theamericanconservative.com/articles/why-didnt-we-test-our-trades-antifragility-before-covid-19/
---------------------------------------------
Best choices typically involve trade-offs.
« Last Edit: March 29, 2020, 12:26:45 PM by DougMacG »

DougMacG

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Trade and Globalization Issues: Why didn't we test our anti-fragility
« Reply #307 on: April 01, 2020, 08:39:50 AM »
Referred to at US economy, here is the text of the article:

https://www.theamericanconservative.com/articles/why-didnt-we-test-our-trades-antifragility-before-covid-19/

Why Didn’t We Test Our Trade’s ‘Antifragility’ Before COVID-19?
Deliberately shocking the system under normal conditions would have been key to surviving the crisis. Here's how.


( By Travel mania/shutterstock)
MARCH 28, 2020|12:01 AM
GENE CALLAHAN AND JOE NORMAN
On April 21, 2011, the region of Amazon Web Services covering eastern North America crashed. The crash brought down the sites of large customers such as Quora, Foursquare, and Reddit. It took Amazon over a week to bring its system fully back online, and some customer data was lost permanently.

But one company whose site did not crash was Netflix. It turns out that Netflix had made themselves “antifragile” by employing software they called “Chaos Monkey,” which regularly and randomly brought down Netflix servers. By continually crashing their own servers, Netflix learned how to nevertheless keep other portions of their network running. And so when Amazon US-East crashed, Netflix ran on, unfazed.

This phenomenon is discussed by Nassim Taleb in his book Antifragile: a system that depends on the absence of change is fragile. The companies that focused on keeping all of their servers up and running all the time went completely offline when Amazon crashed from under them. But the company that had exposed itself to lots of little crashes could handle the big crash. That is because the minor, “undesirable” changes stress the system in a way that can make it stronger.

The idea of antifragility does not apply only to computer networks. For instance, by trying to eliminate minor downturns in the economy, central bank policy can make that economy extremely vulnerable to a major recession. Running only on treadmills or tracks makes the joints extremely vulnerable when, say, one steps in a pothole in the sidewalk.

What does this have to do with trade policy? For many reasons, such as the recent coronavirus outbreak, flows of goods are subject to unexpected shocks.

Both a regime of “unfettered” free trade, and its opposite, that of complete autarchy, are fragile in the face of such shocks. A trade policy aimed not at complete free trade or protectionism, but at making an economy better at absorbing and adapting to rapid change, is more sane and salutary than either extreme. Furthermore, we suggest practicing for shocks can help make an economy antifragile.

Amongst academic economists, the pure free-trade position is more popular. The case for international trade, absent the artificial interference of government trade policy, is generally based upon the “principle of comparative advantage,” first formulated by the English economist David Ricardo in the early 19th century. Ricardo pointed out, quite correctly, that even if, among two potential trading partners looking to trade a pair of goods, one of them is better at producing both of them, there still exist potential gains from trade—so long as one of them is relatively better at producing one of the goods, and the other (as a consequence of this condition) relatively better at producing the other. For example, Lebron James may be better than his local house painter at playing basketball, and at painting houses, given his extreme athleticism and long reach. But he is so much more “better” at basketball that it can still make sense for him to concentrate on basketball and pay the painter to paint his house.

And so, per Ricardo, it is among nations: even if, say, Sweden can produce both cars and wool sweaters more efficiently than Scotland, if Scotland is relatively less bad at producing sweaters than cars, it still makes sense for Scotland to produce only wool sweaters, and trade with Sweden for the cars it needs.

When we take comparative advantage to its logical conclusion at the global scale, it suggests that each agent (say, nation) should focus on one major industry domestically and that no two agents should specialize in the same industry. To do so would be to sacrifice the supposed advantage of sourcing from the agent who is best positioned to produce a particular good, with no gain for anyone.

Good so far, but Ricardo’s case contains two critical hidden assumptions: first, that the prices of the goods in question will remain more or less stable in the global marketplace, and second that the availability of imported goods from specialized producers will remain uninterrupted, such that sacrificing local capabilities for cheaper foreign alternatives.

So what happens in Scotland if the Swedes suddenly go crazy for yak hair sweaters (produced in Tibet) and are no longer interested in Scottish sweaters at all? The price of those sweaters crashes, and Scotland now finds itself with most of its productive capacity specialized in making a product that can only be sold at a loss.

Or what transpires if Scotland is no longer able, for whatever reason, to produce sweaters, but the Swedes need sweaters to keep warm? Swedes were perhaps once able to make their own sweaters, but have since funneled all their resources into making cars, and have even lost the knowledge of sweater-making. Now to keep warm, the Swedes have to rapidly build the infrastructure and workforce needed to make sweaters, and regain the knowledge of how to do so, as the Scots had not only been their sweater supplier, but the only global sweater supplier.

So we see that the case for extreme specialization, based on a first-order understanding of comparative advantage, collapses when faced with a second-order effect of a dramatic change in relative prices or conditions of supply.

That all may sound very theoretical, but collapses due to over-specialization, prompted by international agencies advising developing economies based on naive comparative-advantage analysis, have happened all too often. For instance, a number of African economies, persuaded to base their entire economy on a single good in which they had a comparative advantage (e.g, gold, cocoa, oil, or bauxite), saw their economies crash when the price of that commodity fell. People who had formerly been largely self-sufficient found themselves wage laborers for multinationals in good times, and dependents on foreign charity during bad times.

While the case for extreme specialization in production collapses merely by letting prices vary, it gets even worse for the “just specialize in the single thing you do best” folks once we add in considerations of pandemics, wars, extreme climate change, and other such shocks. We have just witnessed how relying on China for such a high percentage of our medical supplies and manufacturing has proven unwise when faced with an epidemic originating in China.

On a smaller scale, the great urban theorist Jane Jacobs stressed the need for economic diversity in a city if it is to flourish. Detroit’s over-reliance on the automobile industry, and its subsequent collapse when that industry largely deserted it, is a prominent example of Jacobs’ point. And while Detroit is perhaps the most famous example of a city collapsing due to over-specialization, it is far from the only one.

All of this suggests that trade policy, at any level, should have, as its primary goal, the encouragement of diversity in that level’s economic activity. To embrace the extremes of “pure free trade” or “total self-sufficiency” is to become more susceptible to catastrophe from changing conditions. A region that can produce only a few goods is fragile in the face of an event, like the coronavirus, that disrupts the flow of outside goods. On the other hand, turning completely inward, and cutting the region off from the outside, leaves it without outside help when confronting a local disaster, like an extreme drought.

To be resilient as a social entity, whether a nation, region, city, or family, will have a diverse mix of internal and external resources it can draw upon for sustenance. Even for an individual, total specialization and complete autarchy are both bad bets. If your only skill is repairing Sony Walkmen, you were probably pretty busy in 2000, but by today you likely don’t have much work. Complete individual autarchy isn’t ever really even attempted: if you watch YouTube videos of supposedly “self-reliant” people in the wilderness, you will find them using axes, radios, saws, solar panels, pots and pans, shirts, shoes, tents, and many more goods produced by others.

In the technical literature, having such diversity at multiple scales is referred to as “multiscale variety.” In a system that displays multiscale variety, no single scale accounts for all of the diversity of behavior in the system. The practical importance of this is related to the fact that shocks themselves come at different scales. Some shocks might be limited to a town or a region, for instance local weather events, while others can be much more widespread, such as the coronavirus pandemic we are currently facing.

A system with multiscale variety is able to respond to shocks at the scale at which they occur: if one region experiences a drought while a neighboring region does not, agricultural supplementation from the currently abundant region can be leveraged. At a smaller scale, if one field of potatoes becomes infested with a pest, while the adjacent cows in pasture are spared, the family who owns the farm will still be able to feed themselves and supply products to the market.

Understanding this, the question becomes how can trade policy, conceived broadly, promote the necessary variety and resiliency to mitigate and thrive in the face of the unexpected? Crucially, we should learn from the tech companies: practice disconnecting, and do it randomly. In our view there are two important components to the intentional disruption: (1) it is regular enough to generate “muscle memory” type responses; and (2) it is random enough that responses are not “overfit” to particular scenarios.

For an individual or family, implementing such a policy might create some hardships, but there are few institutional barriers to doing so. One week, simply declare, “Let’s pretend all of the grocery stores are empty, and try getting by only on what we can produce in the yard or have stockpiled in our house!” On another occasion, perhaps, see if you can keep your house warm for a few days without input from utility companies.

Businesses are also largely free of institutional barriers to practicing disconnecting. A company can simply say, “We are awfully dependent on supplier X: this week, we are not going to order from them, and let’s see what we can do instead!” A business can also seek out external alternatives to over-reliance on crucial internal resources: for instance, if your top tech guy can hold your business hostage, it is a good idea to find an outside consulting firm that could potentially fill his role.

When we get up to the scale of the nation, things become (at least institutionally) trickier. If Freedonia suddenly bans the import of goods from Ruritania, even for a week, Ruritania is likely to regard this as a “trade war,” and may very well go to the WTO and seek relief. However, the point of this reorientation of trade policy is not to promote hostility to other countries, but to make one’s own country more resilient. A possible solution to this problem is that a national government could periodically, at random times, buy all of the imports of some good from some other country, and stockpile them. Then the foreign supplier would have no cause for complaint: its goods are still being purchased! But domestic manufacturers would have to learn to adjust to a disappearance of the supply of palm oil from Indonesia, or tin from China, or oil from Norway.

Critics will complain that such government management of trade flows, even with the noble aim of rendering an economy antifragile, will inevitably be turned to less pure purposes, like protecting politically powerful industrialists. But so what? It is not as though the pursuit of free trade hasn’t itself yielded perverse outcomes, such as the NAFTA trade agreement that ran to over one thousand pages. Any good aim is likely to suffer diversion as it passes through the rough-and-tumble of political reality. Thus, we might as well set our sites on an ideal policy, even though it won’t be perfectly realized.

We must learn to deal with disruptions when success is not critical to survival. The better we become at responding to unexpected shocks, the lower the cost will be each time we face an event beyond our control that demands an adaptive response. To wait until adaptation is necessary makes us fragile when a real crisis appears. We should begin to develop an antifragile economy today, by causing our own disruptions and learning to overcome them. Deliberately disrupting our own economy may sound crazy. But then, so did deliberately crashing one’s own servers, until Chaos Monkey proved that it works.

Gene Callahan teaches at the Tandon School of Engineering at New York University. Joe Norman is a data scientist and researcher at the New England Complex Systems Institute.

G M

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Re: Trade and Globalization Issues: Why didn't we test our anti-fragility
« Reply #308 on: April 01, 2020, 01:14:05 PM »
Antifragility is a vital concept.


Referred to at US economy, here is the text of the article:

https://www.theamericanconservative.com/articles/why-didnt-we-test-our-trades-antifragility-before-covid-19/

Why Didn’t We Test Our Trade’s ‘Antifragility’ Before COVID-19?
Deliberately shocking the system under normal conditions would have been key to surviving the crisis. Here's how.


( By Travel mania/shutterstock)
MARCH 28, 2020|12:01 AM
GENE CALLAHAN AND JOE NORMAN
On April 21, 2011, the region of Amazon Web Services covering eastern North America crashed. The crash brought down the sites of large customers such as Quora, Foursquare, and Reddit. It took Amazon over a week to bring its system fully back online, and some customer data was lost permanently.

But one company whose site did not crash was Netflix. It turns out that Netflix had made themselves “antifragile” by employing software they called “Chaos Monkey,” which regularly and randomly brought down Netflix servers. By continually crashing their own servers, Netflix learned how to nevertheless keep other portions of their network running. And so when Amazon US-East crashed, Netflix ran on, unfazed.

This phenomenon is discussed by Nassim Taleb in his book Antifragile: a system that depends on the absence of change is fragile. The companies that focused on keeping all of their servers up and running all the time went completely offline when Amazon crashed from under them. But the company that had exposed itself to lots of little crashes could handle the big crash. That is because the minor, “undesirable” changes stress the system in a way that can make it stronger.

The idea of antifragility does not apply only to computer networks. For instance, by trying to eliminate minor downturns in the economy, central bank policy can make that economy extremely vulnerable to a major recession. Running only on treadmills or tracks makes the joints extremely vulnerable when, say, one steps in a pothole in the sidewalk.

What does this have to do with trade policy? For many reasons, such as the recent coronavirus outbreak, flows of goods are subject to unexpected shocks.

Both a regime of “unfettered” free trade, and its opposite, that of complete autarchy, are fragile in the face of such shocks. A trade policy aimed not at complete free trade or protectionism, but at making an economy better at absorbing and adapting to rapid change, is more sane and salutary than either extreme. Furthermore, we suggest practicing for shocks can help make an economy antifragile.

Amongst academic economists, the pure free-trade position is more popular. The case for international trade, absent the artificial interference of government trade policy, is generally based upon the “principle of comparative advantage,” first formulated by the English economist David Ricardo in the early 19th century. Ricardo pointed out, quite correctly, that even if, among two potential trading partners looking to trade a pair of goods, one of them is better at producing both of them, there still exist potential gains from trade—so long as one of them is relatively better at producing one of the goods, and the other (as a consequence of this condition) relatively better at producing the other. For example, Lebron James may be better than his local house painter at playing basketball, and at painting houses, given his extreme athleticism and long reach. But he is so much more “better” at basketball that it can still make sense for him to concentrate on basketball and pay the painter to paint his house.

And so, per Ricardo, it is among nations: even if, say, Sweden can produce both cars and wool sweaters more efficiently than Scotland, if Scotland is relatively less bad at producing sweaters than cars, it still makes sense for Scotland to produce only wool sweaters, and trade with Sweden for the cars it needs.

When we take comparative advantage to its logical conclusion at the global scale, it suggests that each agent (say, nation) should focus on one major industry domestically and that no two agents should specialize in the same industry. To do so would be to sacrifice the supposed advantage of sourcing from the agent who is best positioned to produce a particular good, with no gain for anyone.

Good so far, but Ricardo’s case contains two critical hidden assumptions: first, that the prices of the goods in question will remain more or less stable in the global marketplace, and second that the availability of imported goods from specialized producers will remain uninterrupted, such that sacrificing local capabilities for cheaper foreign alternatives.

So what happens in Scotland if the Swedes suddenly go crazy for yak hair sweaters (produced in Tibet) and are no longer interested in Scottish sweaters at all? The price of those sweaters crashes, and Scotland now finds itself with most of its productive capacity specialized in making a product that can only be sold at a loss.

Or what transpires if Scotland is no longer able, for whatever reason, to produce sweaters, but the Swedes need sweaters to keep warm? Swedes were perhaps once able to make their own sweaters, but have since funneled all their resources into making cars, and have even lost the knowledge of sweater-making. Now to keep warm, the Swedes have to rapidly build the infrastructure and workforce needed to make sweaters, and regain the knowledge of how to do so, as the Scots had not only been their sweater supplier, but the only global sweater supplier.

So we see that the case for extreme specialization, based on a first-order understanding of comparative advantage, collapses when faced with a second-order effect of a dramatic change in relative prices or conditions of supply.

That all may sound very theoretical, but collapses due to over-specialization, prompted by international agencies advising developing economies based on naive comparative-advantage analysis, have happened all too often. For instance, a number of African economies, persuaded to base their entire economy on a single good in which they had a comparative advantage (e.g, gold, cocoa, oil, or bauxite), saw their economies crash when the price of that commodity fell. People who had formerly been largely self-sufficient found themselves wage laborers for multinationals in good times, and dependents on foreign charity during bad times.

While the case for extreme specialization in production collapses merely by letting prices vary, it gets even worse for the “just specialize in the single thing you do best” folks once we add in considerations of pandemics, wars, extreme climate change, and other such shocks. We have just witnessed how relying on China for such a high percentage of our medical supplies and manufacturing has proven unwise when faced with an epidemic originating in China.

On a smaller scale, the great urban theorist Jane Jacobs stressed the need for economic diversity in a city if it is to flourish. Detroit’s over-reliance on the automobile industry, and its subsequent collapse when that industry largely deserted it, is a prominent example of Jacobs’ point. And while Detroit is perhaps the most famous example of a city collapsing due to over-specialization, it is far from the only one.

All of this suggests that trade policy, at any level, should have, as its primary goal, the encouragement of diversity in that level’s economic activity. To embrace the extremes of “pure free trade” or “total self-sufficiency” is to become more susceptible to catastrophe from changing conditions. A region that can produce only a few goods is fragile in the face of an event, like the coronavirus, that disrupts the flow of outside goods. On the other hand, turning completely inward, and cutting the region off from the outside, leaves it without outside help when confronting a local disaster, like an extreme drought.

To be resilient as a social entity, whether a nation, region, city, or family, will have a diverse mix of internal and external resources it can draw upon for sustenance. Even for an individual, total specialization and complete autarchy are both bad bets. If your only skill is repairing Sony Walkmen, you were probably pretty busy in 2000, but by today you likely don’t have much work. Complete individual autarchy isn’t ever really even attempted: if you watch YouTube videos of supposedly “self-reliant” people in the wilderness, you will find them using axes, radios, saws, solar panels, pots and pans, shirts, shoes, tents, and many more goods produced by others.

In the technical literature, having such diversity at multiple scales is referred to as “multiscale variety.” In a system that displays multiscale variety, no single scale accounts for all of the diversity of behavior in the system. The practical importance of this is related to the fact that shocks themselves come at different scales. Some shocks might be limited to a town or a region, for instance local weather events, while others can be much more widespread, such as the coronavirus pandemic we are currently facing.

A system with multiscale variety is able to respond to shocks at the scale at which they occur: if one region experiences a drought while a neighboring region does not, agricultural supplementation from the currently abundant region can be leveraged. At a smaller scale, if one field of potatoes becomes infested with a pest, while the adjacent cows in pasture are spared, the family who owns the farm will still be able to feed themselves and supply products to the market.

Understanding this, the question becomes how can trade policy, conceived broadly, promote the necessary variety and resiliency to mitigate and thrive in the face of the unexpected? Crucially, we should learn from the tech companies: practice disconnecting, and do it randomly. In our view there are two important components to the intentional disruption: (1) it is regular enough to generate “muscle memory” type responses; and (2) it is random enough that responses are not “overfit” to particular scenarios.

For an individual or family, implementing such a policy might create some hardships, but there are few institutional barriers to doing so. One week, simply declare, “Let’s pretend all of the grocery stores are empty, and try getting by only on what we can produce in the yard or have stockpiled in our house!” On another occasion, perhaps, see if you can keep your house warm for a few days without input from utility companies.

Businesses are also largely free of institutional barriers to practicing disconnecting. A company can simply say, “We are awfully dependent on supplier X: this week, we are not going to order from them, and let’s see what we can do instead!” A business can also seek out external alternatives to over-reliance on crucial internal resources: for instance, if your top tech guy can hold your business hostage, it is a good idea to find an outside consulting firm that could potentially fill his role.

When we get up to the scale of the nation, things become (at least institutionally) trickier. If Freedonia suddenly bans the import of goods from Ruritania, even for a week, Ruritania is likely to regard this as a “trade war,” and may very well go to the WTO and seek relief. However, the point of this reorientation of trade policy is not to promote hostility to other countries, but to make one’s own country more resilient. A possible solution to this problem is that a national government could periodically, at random times, buy all of the imports of some good from some other country, and stockpile them. Then the foreign supplier would have no cause for complaint: its goods are still being purchased! But domestic manufacturers would have to learn to adjust to a disappearance of the supply of palm oil from Indonesia, or tin from China, or oil from Norway.

Critics will complain that such government management of trade flows, even with the noble aim of rendering an economy antifragile, will inevitably be turned to less pure purposes, like protecting politically powerful industrialists. But so what? It is not as though the pursuit of free trade hasn’t itself yielded perverse outcomes, such as the NAFTA trade agreement that ran to over one thousand pages. Any good aim is likely to suffer diversion as it passes through the rough-and-tumble of political reality. Thus, we might as well set our sites on an ideal policy, even though it won’t be perfectly realized.

We must learn to deal with disruptions when success is not critical to survival. The better we become at responding to unexpected shocks, the lower the cost will be each time we face an event beyond our control that demands an adaptive response. To wait until adaptation is necessary makes us fragile when a real crisis appears. We should begin to develop an antifragile economy today, by causing our own disruptions and learning to overcome them. Deliberately disrupting our own economy may sound crazy. But then, so did deliberately crashing one’s own servers, until Chaos Monkey proved that it works.

Gene Callahan teaches at the Tandon School of Engineering at New York University. Joe Norman is a data scientist and researcher at the New England Complex Systems Institute.

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DougMacG

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Re: Trade and Globalization Issues:
« Reply #310 on: November 15, 2020, 07:49:05 AM »
Any comments on the Asian trade agreement announced.  China and Japan in.  US out.  Did Trump make a mistake staying out or are allies making a mistake jumping in with China?  Is this tied to Trump losing the election or timed to not interfere with it?

https://www.scmp.com/news/china/diplomacy/article/3109939/china-declares-victory-15-asian-nations-sign-worlds-biggest

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GPF: The World's Largest Trade Pact
« Reply #311 on: November 21, 2020, 08:42:38 PM »
The World's Largest Trade Pact
The headline-grabbing deal isn’t particularly emblematic of a shifting balance of power in East Asia.
By: Geopolitical Futures
Regional Comprehensive Economic Partnership
(click to enlarge)

Judging solely by its headline figures, the newly inked 15-member Regional Comprehensive Economic Partnership (RCEP) – by most metrics the world’s largest trade pact short of the World Trade Organization – is impressive in its size and scope. Its members account for around 29 percent of global economic output, similar levels of global trade value and nearly a third of global investment. If implemented, it will dramatically reduce tariffs on a wide range of goods and make some headway on untangling a morass of regulatory complications currently impeding trade. And reaching agreement on the pact is indeed no small feat, considering the extreme range of differences in the economies involved, along with deep strategic and economic concerns held by many members about China’s inclusion.

This is why you’re seeing a lot of headlines about how RCEP is a "China-led alternative" to the higher-standard Trans-Pacific Partnership (TPP) – and something that highlights waning U.S. influence over the trade-obsessed region to Beijing. To be sure, America's withdrawal from the TPP in 2017 disappointed regional allies like Japan, Australia and Singapore and deepened suspicion about U.S. interest in the region. U.S. trade moves targeting allies or potential strategic partners like Thailand and Vietnam had a similar effect. But RCEP itself isn’t particularly emblematic of a shifting balance of power in East Asia. This is, in part, because the details of the agreement don't quite live up to its billing. Its main effect will be in harmonizing a number of existing trade agreements among its member states; it doesn’t really attempt to write the rules for trade in services, intellectual property or investment – aspects of regional economies that will matter more and more going forward. There are also serious doubts about how much of it will actually be implemented, as it leaves ample room for countries to continue imposing non-tariff barriers on trade. And, ultimately, the opportunity for the U.S. to reengage with regional trade will remain wide open; the CPTPP (the TPP’s successor) was designed to make it as easy as possible for the U.S. to rejoin if and when domestic politics make it feasible.


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GPF: Trade Snarls
« Reply #313 on: August 06, 2021, 05:45:01 PM »
   
Grinding Gears of Global Shipping
There are too many points of failure for things to snap back to working order quickly.
By: Geopolitical Futures
Shipping Demand and Pricing Continues to Soar
(click to enlarge)

The epochal global supply chain snarl isn’t going away. The COVID-19 pandemic exposed widespread structural fragilities in the global trading system, first through production slowdowns and then, almost as quickly, a slingshot recovery in demand. This, along with labor shortages, left finely tuned logistics networks overwhelmed and off-balance. This is illustrated through unprecedented congestion at Western ports, where ships and (just as important) shipping containers have been stuck in pileups. Ships are waiting for berths. Shipping containers are waiting for truckers (facing a deep labor shortage) or space on railways (which are at capacity). Major exporters like China, then, have been stuck waiting unusually long times for ships and shipping containers to return. Countless other hiccups in supply chains near and far are further complicating the situation. The disruptions in supply, along with record shipping costs, are perhaps the foremost driver of inflation in many countries.

It’s anyone’s guess how long it will take to untangle this mess. There are simply too many single points of failure – each of which can affect a dozen more – for things to snap back to working order quickly. However the immediate situation plays out, though, there’s likely to be immense long-term implications as countries across the globe scramble to try to rewire the global trading system around their needs.

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Re: Trade and Globalization Issues:
« Reply #314 on: August 13, 2021, 08:20:28 PM »
Outbreak fallout. China’s latest COVID-19 outbreak is starting to hit major global supply chain networks. A terminal at China’s Ningbo-Zhoushan port – the world’s busiest shipping port by cargo tonnage – reportedly remains closed after shutting down Wednesday, apparently due to a positive test. In response, container shipping rates between China and the U.S. reached record highs yet again. The number of container ships waiting at anchor to enter the ports of Los Angeles and Long Beach has tripled since June.

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GPF
« Reply #315 on: August 20, 2021, 12:15:03 PM »
Supply chain snarls intensifying. China's Ningbo port, the world's busiest by cargo volume, is expected to remain partially shut down for several more weeks following a modest COVID-19 outbreak earlier this month. Several carmakers in China, meanwhile, are scaling back production due to the interminable chip shortage. Toyota, which was among the best-prepared automakers for the disruptions, said earlier this week that it will have to slash production by as much as 40 percent in September.

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Trade Issues: We're running out of everything
« Reply #317 on: October 10, 2021, 02:56:50 PM »
One data point:  "shipping a parcel from Shanghai to Los Angeles is currently six times more expensive than shipping one from L.A. to Shanghai. "

https://www.msn.com/en-us/money/news/america-is-choking-under-an-e2-80-98everything-shortage-e2-80-99/ar-AAPeokg

   - Is that what they call trade balance?  We sell and ship NOTHING, in relative terms, to China.  We are sending EMPTY ships back to China for them to re-fill. 

Biden kicked out the guy that played chicken with the Chinese and almost got them, and he has done nothing to follow up on the progress that was made.

The Biden policy is put more taxes, regulations and assorted brakes on our producers to make what is wrong, exponentially worse.

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How China became the single point of failure
« Reply #319 on: Today at 07:16:43 AM »
How China became the single point of failure

China now accounts for the largest share of manufacturing output.

The trend began in 1980 and accelerated beginning in the early 1990's. This was a synergistic process with several benefits to Western companies who offshored to China.

During the period of turmoil following the death of Mao in 1976, political titan Deng Xiaoping survived a series of palace schemes by Mao loyalists and other powerful interests.

The concern was that Deng would undermine the Cultural Revolution and press for reform.

After consolidating power at the Third Plenary Session of the CCP in 1978, Deng did exactly that.

He instituted a series of initiatives designed to gradually elevate China to a position of power in the world, centered on four domains:

Agriculture
Economy
Science
Defense

The reforms began a period of phenomenal growth, and stands as one of the more remarkable economic revolutions in human history.

Note well, this is not intended to valorize Deng, as he was behind a great many terrible human rights abuses and violations of decency.

In 1980, Deng began to rapidly force modernization of the manufacturing and economic base of China, with the key goals of: moving from light to heavy industrial manufacturing, controlling many key raw materials, and creating a consumeristic society with larger spending power.

Essential to this approach was hybridizing Mao's hardline Communism with capitalism and global trade.

Private ownership (technically) of companies, farmland, and productive assets increased, so long as the CCP/PLA retained primary benefit.

The combination of an aggressive subsidy model, cheap labor, export-focused manufacturing base, and expanding containerized shipping industry was too much for Western companies to resist.

Offshoring exploded in the 1990's as the preferred business model of MBA's everywhere.

Fueled by China's importance as the ascendant manufacturing hub of the world - from steel to electronics to consumer goods - the ocean shipping industry began realigning global routes.

Further, China established its own shipping companies and shipbuilding capacity.

Now, one thing to understand about containerized ocean freight is that it follows a hub-and-spoke model.

Super busy deepwater ocean ports see the largest vessels and throughput of containers, with cargo going to smaller-volume ports on smaller ships via the mega-ports.

This process is called "transshipment".

Larger containerships are more efficient per TEU (twenty foot container-equivalent, the standard unit of measure for the industry), but are limited by how deep they travel in the water ("draft").

Transshipping means efficiency

As of 2016, 7 of the 10 busiest ports in the world by throughput of containers were Chinese thank to its massive exports and transshipment activity.

South Korea, once the heavy shipbuilding leader, was overtaken by China in 2012, with the gap widening again in 2017.
Part of Deng's plan, set down all the way back in 1978-1980, was to establish control of both manufacturing AND transport.
With the world's economy incrementally more and more reliant on Chinese labor, Chinese subsidies, and Chinese ports, the die was cast.

By 2013, China was ready to enact the next phase of this program, and announced the Belt and Road Initiative.
Thanks to the consolidation of the ocean shipping industry since the 1990's, fewer and fewer carriers are operating ships, crews, and infrastructure such as port terminals.

Most of these carriers are state-owned, or at least heavily subsidized by govt's and banks.

With China dominating such a large percentage of global port capacity via its domestic capacity, BRI, or carriers relying on Chinese ports to streamline operations, any economic contagion that affects China will have myriad knock-on effects for the global economy.

Companies worldwide rely on Chinese manufacturing - 94% of F1000 corps have significant exposure to disruptions there.
All ocean carriers depend on higher-margin freight from China to help offset losses in every other country, and build huge alliances around Chinese demand.

Further, with the COVID-19 outbreak coming during Lunar New Year when Chinese ex-pats return home, a number of workers may or may not be returning to their foreign jobs or schooling.

Freight forwarders are feeling the sting, as most of these middlemen rely on China freight.

As COVID-19 spreads from Wuhan, the China's major coastal cities - manufacturing and logistics hubs all - have slowed to a crawl.

Major ocean carriers have begun skipping port calls, which means less capacity for US and Euro exporters
Cargo airlines, also dependent on the transshipment model via major air routes and hubs, are in as much of a pickle.

Draymen (container trucking), customs brokers, warehousemen, and delivery companies are struggling with less freight in circulation.

Logistics and transportation - globally a $4 trillion industry - has been completely upended by the sudden and dramatic slowdown of China.

The companies who rely on their Chinese factories, labor, and shipping services - from Amazon to tiny mom and pop firms - are crippled.

While the trade war has had a significant impact on manufacturing, retail sales, and logistics between China and the West, COVID-19's impact seems to be likely to have a more sustained and durable effect.

Uncertainty is the capital killer.

NO ONE really knows for sure what will happen next.

Sourcing and manufacturing that relocated from China during the trade war can't hide from a bioweapon.
Port and logistics providers can only reorient so fast.

What is our next and possibly only move begins with
Reshoring