CNN: Can tainted toys spark U.S.-China trade tiff?
In this article, the US accuses China of neglecting safety and quality controls, opting for large economic growth instead. Calls in Washington for trade protectionism have now strengthened after poisoned pet food, faulty toys and sub-standard human food was found in the Chinese exports to the US. These strengthened calls come after the US goods trade deficit with China rose to $ 233 billion in 2006 and have come in the form of Senators’ outcry in Congress and ads on television.
This article is describing the call for trade protectionism on the part of the Americans. The reasons for trade protectionism are the infant industry argument, anti-dumping, protecting unemployment, balance of payments, externalities and demerit goods, strategic reasons and unrealistic assumptions of comparative advantage.
In this situation we can directly identify that the Americans want to adopt a policy of protectionism because of the externalities resulting from the trade. These externalities would come in the form of poor quality goods that have already “killed dozens of animals”. The reason why the poor quality goods are still being exported to the US is because of their lower price. However, if the US adopts trade protectionism, then the Chinese goods become more expensive and thus the consumers will be more inclined to buy the better quality American goods (tariff graph omitted due to technical difficulties).
Looking deeper into the situation, we can identify that the Washington is keen to adopt protectionism to stabilise the balance of payments. The trade protectionism would also be strategic. Prior to this incident, there was already concerned talk among Washington lawmakers about “the massive US trade gap [with China]”. This situation offers the excellent opportunity to “pressure China”. Pressuring China is exactly what some US lawmakers want to do. Many claim that the undervalued Chinese yuan gives Chinese goods an unfair comparative advantage.
Looking at it from this perspective, the protectionism is also strategic. As Merrill Weingrod points out in the article, "It [the tainted goods] fuels the anti-China lobby. The next time senators want to bring up protectionist trade regulations, they'll get a sympathetic hearing." It is the perfect chance for the US to slow down the runaway Chinese trade train.
However, trade protectionism also brings about a bigger cost to consumers. This may lead to higher inflation. It could also lead to a trade war with China. Some US lawmakers are weary of this, pointing out that China holds over $ 1 trillion in US assets, making “the US economy vulnerable if China decided to dump dollars in the event of a trade war.”
Although the tainted goods may just be a bit of poisoned pet food and faulty “Thomas the Tank engine trains”, but it signifies a much deeper problem in the trade relations between the US and China. As the article title suggests, this may be the final drop.
Wednesday, July 11, 2007
Tuesday, May 22, 2007
Chapter 13 Homework
Key Question 4
The components of M1 are;
- Currency
- All checkale deposits
The largest component is checkable deposits, by a small margin.
The face value of a coin is greater than its intrinsic value because the recipient is confident that they will be able to exchange the coin for a good of the same value.
Near-monies included in M2 are "certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into curreny or checkable deposits." (McConnell and Brue, 247)
M2 and M3 money supplies are distinguished by their lack of liquidity.
Key Question 6
D=1/P
D=1/1.25
D=0.8
If instead;
D=1/0.5
D=2
From this, we can draw the conclusion that there is an inverse relationship between the purchasing power of the dollar and the price level.
Key Question 7
The basic determinant for the transactions demand is the level of nomial GDP.
The basic determinant for the asset demand for money is the interest rate.
We can add these two, horizontally, to graphically show the asset demand against transaction demand. The result is a downwards sloping curve. The equilibirum interest rate is then determined at the intersection between this curve and the money supply.
a) the expanded use of credit cards may increase the demand for money, and thus the interest rate will decrease.
b) a shortening of worker pay period may increase the demand for money, and thus the interest rate will decrease.
c) an increase in nominal GDP signals an increase in the demand for money, and thus the interest rate will decrease.
The components of M1 are;
- Currency
- All checkale deposits
The largest component is checkable deposits, by a small margin.
The face value of a coin is greater than its intrinsic value because the recipient is confident that they will be able to exchange the coin for a good of the same value.
Near-monies included in M2 are "certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into curreny or checkable deposits." (McConnell and Brue, 247)
M2 and M3 money supplies are distinguished by their lack of liquidity.
Key Question 6
D=1/P
D=1/1.25
D=0.8
If instead;
D=1/0.5
D=2
From this, we can draw the conclusion that there is an inverse relationship between the purchasing power of the dollar and the price level.
Key Question 7
The basic determinant for the transactions demand is the level of nomial GDP.
The basic determinant for the asset demand for money is the interest rate.
We can add these two, horizontally, to graphically show the asset demand against transaction demand. The result is a downwards sloping curve. The equilibirum interest rate is then determined at the intersection between this curve and the money supply.
a) the expanded use of credit cards may increase the demand for money, and thus the interest rate will decrease.
b) a shortening of worker pay period may increase the demand for money, and thus the interest rate will decrease.
c) an increase in nominal GDP signals an increase in the demand for money, and thus the interest rate will decrease.
Monday, May 14, 2007
Chapter 12 Homework (Part 2)
7. Key Question
The full-employment budget measures what the Federal budget deficit or surplus would be with existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP in each year. It allows economists to adjust the actualy Federal budget deficits and surpluses to eliminate the automatic changes in tax-revenues.
It can differ from the actual budget if there is economic expansion or recession.
On page 219, figure 12.3, GDP2 reflects a zero deficit or surplus of full-employment budget. To further the country's GDP, I would raise government spending. In terms of the graph, this would cause an upward shift in G.
10. Key Question
The political business cycle is when politicians use expansionary fiscal policy right before an election, and contractionary fiscal policy right after an election, to dampen excessiev aggregate demand.
The full-employment budget measures what the Federal budget deficit or surplus would be with existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP in each year. It allows economists to adjust the actualy Federal budget deficits and surpluses to eliminate the automatic changes in tax-revenues.
It can differ from the actual budget if there is economic expansion or recession.
On page 219, figure 12.3, GDP2 reflects a zero deficit or surplus of full-employment budget. To further the country's GDP, I would raise government spending. In terms of the graph, this would cause an upward shift in G.
10. Key Question
The political business cycle is when politicians use expansionary fiscal policy right before an election, and contractionary fiscal policy right after an election, to dampen excessiev aggregate demand.
Thursday, May 10, 2007
Chapter 12 homework : Questions 2 and 3
2.
Multiplier = 1 / (1-0.8)
= 1/ 0.2
= 5
$25 Billion / 5 = necessary government spending
The government must spend $5 Billion to increase the GDP by $25 Billion
3.
To end severe demand pull inflation, contractionary fiscal policy may be in order. To do this, the government would have to decrease public spending, increase taxes, or somehow combine both. This would then cause an inward shift of AD, bringing down the price level.
Someone who would want to preserve the size of the government would increase taxes rather than decrease public spending, and someone who thinks the public sector is too large would do the opposite.
Multiplier = 1 / (1-0.8)
= 1/ 0.2
= 5
$25 Billion / 5 = necessary government spending
The government must spend $5 Billion to increase the GDP by $25 Billion
3.
To end severe demand pull inflation, contractionary fiscal policy may be in order. To do this, the government would have to decrease public spending, increase taxes, or somehow combine both. This would then cause an inward shift of AD, bringing down the price level.
Someone who would want to preserve the size of the government would increase taxes rather than decrease public spending, and someone who thinks the public sector is too large would do the opposite.
Saturday, May 5, 2007
High Unemployment Rates in Europe - Structural Problems or Deficient Aggregate Demand?
1)UNEMPLOYMENT IN EUROPE
After reading page 207 of McConnell and Brue's "Economics", I have come to the conclusion that the high rates of unemployment in Europe are not solely due to structural problems or deficient aggregate demand.
I find validity in both arguments. The idea that the high amount of social security in Europe, along with union contracts limiting the ways an employer can fire an employee, does indeed discourage workers from taking new jobs, which are not abundant because employers are weary of employing people. This is something I know first hand, as my father would come home with stories of incompetent people he could not fire because of labour laws.
However, the low aggregate demand does not make matters better. Although page 207 does not give this information, earlier in chapter 9, on page 156, we can see a table where the average propensity to consume of USA, Canada, UK, Netherlands, Germany, Italy, Japan and France are displayed. As is suggested by deficient aggregate demand, the mainland European countries had a substantially lower average propensity to consume. This may explain the reason why Europe isn't producing as much. They simply don't need as much.
Rather than state black and white which is the real cause, I would say that the low aggregate demand is what enables the government policies and union contracts to be imposed, without destructive effects to the economy.
2)US 1996-2000 ECONOMIC GROWTH WITH LOW INFLATION
The US was able to maintain low levels of inflation, with high levels of GDP and greater than full-employment between the years of 1996-2000, through strong aggregate supply. As the economy expands, represented aggregate demand shifting out and greater than full-employment, the rate of inflation should technically rise. However, seeing as aggregate supply also shifted out, the inflation rate was kept down.
After reading page 207 of McConnell and Brue's "Economics", I have come to the conclusion that the high rates of unemployment in Europe are not solely due to structural problems or deficient aggregate demand.
I find validity in both arguments. The idea that the high amount of social security in Europe, along with union contracts limiting the ways an employer can fire an employee, does indeed discourage workers from taking new jobs, which are not abundant because employers are weary of employing people. This is something I know first hand, as my father would come home with stories of incompetent people he could not fire because of labour laws.
However, the low aggregate demand does not make matters better. Although page 207 does not give this information, earlier in chapter 9, on page 156, we can see a table where the average propensity to consume of USA, Canada, UK, Netherlands, Germany, Italy, Japan and France are displayed. As is suggested by deficient aggregate demand, the mainland European countries had a substantially lower average propensity to consume. This may explain the reason why Europe isn't producing as much. They simply don't need as much.
Rather than state black and white which is the real cause, I would say that the low aggregate demand is what enables the government policies and union contracts to be imposed, without destructive effects to the economy.
2)US 1996-2000 ECONOMIC GROWTH WITH LOW INFLATION
The US was able to maintain low levels of inflation, with high levels of GDP and greater than full-employment between the years of 1996-2000, through strong aggregate supply. As the economy expands, represented aggregate demand shifting out and greater than full-employment, the rate of inflation should technically rise. However, seeing as aggregate supply also shifted out, the inflation rate was kept down.
Monday, April 30, 2007
Chapter 11 Homework
Key Quesiton 4
a) Equilibrium: $300 Billion. It is not neccesarily the full employment level of output, because the output has to be compatible with the demand.
b) These price levels will not be equilibrium because the amount of real GDP demanded and supplied do not match.
c) Some factors of aggregate demand are;
- consumer wealth,
- taxes,
- consumer expectations
- real interest rates
Key Question 5
a) Productivity
a) Equilibrium: $300 Billion. It is not neccesarily the full employment level of output, because the output has to be compatible with the demand.
b) These price levels will not be equilibrium because the amount of real GDP demanded and supplied do not match.
c) Some factors of aggregate demand are;
- consumer wealth,
- taxes,
- consumer expectations
- real interest rates
Key Question 5
a) Productivity
Thursday, April 26, 2007
Save Your Money At 4.25% - Charles Schwab's Formula To Success
Going after 'lazy money' with 4.25% checking
In his article, Mr. Charles Schwab has offered consumers an incredible deal; to deposit their money in his bank with 4.25% interest, no ATM costs, and free checking. Good deal, right? But as the article points out, "With the average interest-checking account now yielding only 2 percent, you wouldn't think Schwab would have to double that to make a splash."
Schwab identified that there is a lot of "lazy money" in the market: money that people want to invest, and watch 'grow'. With his interest rate at twice that of the average, he is attracting a lot of this money.
Consumers have two options;
1) Place the money in the bank (like Schwab's) and gain profits on the interest, or
2) Invest the money stocks and bonds and risk profit or loss or invest in capital.
The opportunity cost of putting the money in the bank is that you forego a potentially higher return in the stock market or wherever you have invested the money. The opportunity cost of investing the money is that you forego the stable, assured interest rate return.
Looking at the graph, where "The Y-axis represents the real interest rate, and since an increase in the real interest rate makes households and firms want to place more money in the bank (and more money in the bank means more money to loan out), there is a direct relationship between real interest rate and Supply of Loanable Funds," (Mr. Welker's Blog (Welker's Wikinomics)).
The direct relationship between the real interest rate and the Supply of Loanable Funds means that as the real interest goes up, as has happened in this article, so will the amount of money that people place in the banks. In other words, the higher interest rate means that people would rather place their money in Mr. Schwab's bank, than invest it. In addition to the costumers gained as transfers from other banks, due to the higher interest rate, this can account for Charles Schwab's success.
In his article, Mr. Charles Schwab has offered consumers an incredible deal; to deposit their money in his bank with 4.25% interest, no ATM costs, and free checking. Good deal, right? But as the article points out, "With the average interest-checking account now yielding only 2 percent, you wouldn't think Schwab would have to double that to make a splash."
Schwab identified that there is a lot of "lazy money" in the market: money that people want to invest, and watch 'grow'. With his interest rate at twice that of the average, he is attracting a lot of this money.
Consumers have two options;
1) Place the money in the bank (like Schwab's) and gain profits on the interest, or
2) Invest the money stocks and bonds and risk profit or loss or invest in capital.
The opportunity cost of putting the money in the bank is that you forego a potentially higher return in the stock market or wherever you have invested the money. The opportunity cost of investing the money is that you forego the stable, assured interest rate return.
Looking at the graph, where "The Y-axis represents the real interest rate, and since an increase in the real interest rate makes households and firms want to place more money in the bank (and more money in the bank means more money to loan out), there is a direct relationship between real interest rate and Supply of Loanable Funds," (Mr. Welker's Blog (Welker's Wikinomics)).
The direct relationship between the real interest rate and the Supply of Loanable Funds means that as the real interest goes up, as has happened in this article, so will the amount of money that people place in the banks. In other words, the higher interest rate means that people would rather place their money in Mr. Schwab's bank, than invest it. In addition to the costumers gained as transfers from other banks, due to the higher interest rate, this can account for Charles Schwab's success.
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