Globalization stuff

My recent commentaries from the Singapore Business Times:
Business Times - 10 Apr 2007
Globalisation's threat to 'jobs of the future'
Free trade could become a major victim of the growing white-collar revolt

IN ONE of those cheap made-for-television dramas I was watching a few days ago, the viewers followed the tragic tale of a single middle-class woman who loses her job, applies for bankruptcy and together with her two young daughters is evicted from her home in the suburbs of Philadelphia.
She is forced to join the ranks of the homeless in the city. She and her daughters end up spending their nights in public parks and begging for money until one day the woman is killed by another homeless person.
Anyone who is familiar with the profiles of the homeless population in America's cities knows that the chances of encountering members of a middle-class family among the homeless are close to zero. There is still a solid safety net in this country, ranging from public assistance to private charities that ensure that those who are laid off and cannot find jobs can still obtain food and shelter for quite a while.
Most members of the homeless class tend to be single men (and a few women) who are physically or mentally incapacitated as a result of drug addiction, alcoholism and a variety of mental problems.
In fact, in a booming American economy with a very low rate of unemployment, any healthy man or woman (including hundreds of thousands of illegal immigrants) could probably find a job today - although that wouldn't necessarily mean a good-paying or a professional job.
Indeed, what is grabbing the attention of the media these days are not non-existent soccer mom-turned-homeless, but the problems facing professional men and women who belong to the middle class - book-keepers, teachers, real estate agents, graphic designers and even, yes, computer programmers - who barely make ends meet.
Huge debts
They (and their spouses) work long hours, including on weekends, and rarely go on vacations; they accumulate huge debts on their credit cards and have problems paying their mortgages; and they are very worried that they won't be able to pay the costs of their kids' higher education, not to mention the catastrophic health crisis.
Hence the sad story I had read in my local newspaper recently about a single professional woman in her early 50s who has worked as a real estate agent for several years, making a nice monthly salary which helps to pay for her house and the high-school education of her young son.
Unfortunately, two years ago she was diagnosed with cancer and discovered that her medical insurance plan would not cover the treatment.
She has already spent close to US$150,000 on many medical procedures, including three major operations, and has concluded that she would have to sell her house and rent instead a small apartment and, that more important, she will not be able to finance her son's college tuition.
No, she won't become a homeless anytime soon, and if her health improves, she could probably live a comfortable life compared to a poor unskilled woman who subsists on her low minimum-wage job of flipping burgers in the local McDonald's.
But if you are a young or middle aged man or woman, with a university degree who acquired skills in what were supposed to be the 'jobs of the future' in, say, the computer industry or microbiology, you expected to be enjoying a very comfortable middle-class existence by the time you reached your 50s and perhaps even get ready to retire.
And if you've failed in achieving your professional and financial goals - because of lack of career opportunities, a loss of a job or a lousy medical insurer - you feel that you were cheated, and you do get very, very angry.
And yes, like most members of the middle class, you do vote in elections! Which explains why many members of Congress, reflecting the rising sentiments among their voters, are embracing a more economic populist and protectionist agenda, and why, indeed, globalisation and free-trade are not 'in' any more, especially among professionals working in the knowledge-based industries of tomorrow, who were supposed to come out as the economic winners as they became part of the process leading to the opening of national borders to the free movement of money, products and people.
Consider the following list of selected occupations: computer programmers; data entry keyers; film and video editors; mathematicians; interpreters and translators, economists; graphic designers; accountants; microbiologists; and financial analysts. At the dawn of the globalisation age, most economists (who are on this list) had predicted that these were exactly the kind of occupations that the young and the ambitious should study now. Yes, many of those working in agriculture, textile and car industries could lose their jobs because of the competition from low-paid workers in the emerging economies.
But for every American worker who lost his job in a collapsing textile manufacturer, five new American graphic designers would - for sure! - be joining the US job market, it was predicted.
It all sounded great. But according to Alan Blinder, a professor of economics at Princeton University, the above occupations would be the most vulnerable in the coming years, mainly because they could be 'offshored' to an economy like China or India.
Prof Blinder, a former US Federal Reserve Board vice-chairman, who for years has been bullish on globalisation, and in particular free-trade, predicts in recent articles and interviews that the delivery of information and services via the Internet could threaten as many as 40 million US jobs in the next 20 years.
'If you look back in history, (overseas job loss) has been concentrated in manufacturing,' Prof Blinder said in a recent interview on a news show on CNBC. 'But I think as you look forward, one of the dominant forces, if not the dominant force, will be the electronic delivery of services, including upper-end services - computer programming, manuscript editing, science, accounting'.
Tariffs opposed
Prof Blinder, who has been advising some of the leading Democratic presidential candidates, stresses that he continues to oppose tariffs and trade barriers but believes the government should do more for workers whose jobs are lost to cheap foreign competition. He still insists that that US trade with low-wage countries such as China and India is certainly good business for them and can create jobs in the United States.
But he worries now the upper levels of the American job market in those promising white-collar occupations are poised to change in a fashion similar to the shift that hit factory workers a generation ago.
Ironically, many jobs that require less education but also involve more direct human contact - auto mechanics, gardening, massage and flipping burgers - would be less affected, if at all, by globalisation.
Most economists, including Prof Blinder, agree that globalisation is not the only major factor that is creating the growing financial pressures on middle-class professionals.
Automation, especially the introduction of computers, the lack of a public health insurance programme and expanding social-economic inequality have all contributed to the sense of unease and insecurity among many white-collar workers.
But it is sometimes more convenient for a politician to blame the problems on the foreigners who supposedly steal American jobs as well as put downward pressure on US salaries. And it is clear that Congress is going to be more responsive in the coming years to the complaints coming for middle-class voters.
Revamping education
Prof Blinder suggests that the US government should respond by trying to revamp the US educational system to prepare students for jobs that are likely to stay in the country. He wants the tax code revised to encourage companies to create and maintain jobs in the US and that ensure that health insurance and retirement funds remain portable.
Even under the best-case scenarios, such changes could take years. So in the short term at least, expect that free trade to become a major victim of the growing white-collar revolt.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
Business Times - 05 Apr 2007
No cause for celebration
THE Free Trade Agreement (FTA) between the US and South Korea that was reached at the last minute on Sunday after long and gruelling negotiations of several months should have been regarded as one of the major geo-economic and geo-strategic victories won by the Bush administration.
But US officials in Washington are still not celebrating, noting that it still has to win the backing of the Democratic controlled Congress, where rising populist economic sentiments are also making it difficult for the White House to persuade lawmakers to extend the president's trade promotion authority (TPA) - or 'fast track' - which expires in 90 days.
Indeed, White House spokeswoman Dana Perino told reporters that the administration remained 'hopeful' about the chances of passing the trade accord with South Korea in Congress.
'It's always difficult to pass free trade legislation in Congress,' she noted, adding: 'That's not new.'
In fact, the deadline for concluding the negotiations in Seoul was determined by political and legislative considerations since under the TPA that will expire in June 30, Congress is required to have a 90-day period to review and debate a proposed trade agreement.
Under the TPA, a trade accord reached by the administration can only be accepted or rejected by Congress. Foreign governments will be less inclined to negotiate trade deals with the White House without the 'fast track' process.
The FTA between the US and South Korea - East Asia's third-largest economy - is the biggest US trade accord in the last 15 years since the US signed the North American Free Trade Agreement (Nafta) with Mexico in 1993. Trade analysts expect that the US$75 billion trade between the two countries could increase at least US$20 billion and that under the agreement, most of US exports to South Korea will eventually enter duty free into South Korea.
Moreover, South Korea remains an important military ally of the US, especially against the backdrop of the tension with North Korea over its nuclear military programme. And the new FTA could help cement the strategic ties between Washington and Seoul which came under pressure, especially from domestic opinion in South Korea in recent years.
Hence, Bush administration officials hope that the trade accord's strategic value will help persuade Democrats, as well as Republicans who are sceptical about its economic value, to back it. Opponents of the new FTA include businesses and unions representing the car industry who have been concerned about the failure of the Americans to penetrate the Korea car market.
One such opponent is Representative Charles Rangel, a Democrat from New York who is the chairman of the powerful House Ways and Means Committee - the point man on trade in current negotiations with the White House on a possible compromise with regard to extending the TPA.
The Democrats insist that the administration commits itself to including new provisions in future trade deals to protect workers' rights before they agree to renew the 'fast track' authority.
As of Monday, the administration will not be able to submit new trade accords to Congress under the current TPA. That certainly is eroding Washington's flexibility in its negotiations with its trade partners on reactivating the stalled Doha talks on liberalising global trade.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
Business Times - 03 Apr 2007
Washington gets tough over China's trade deficit
FACING growing pressure from US lawmakers and business people critical of what they considered to be Washington's benign attitude of neglect towards the rising trade deficit with China - which climbed to US$232.5 billion last year - the Bush administration has announced that it is planning to impose fees of up to 20 per cent on coated paper and paperboard from Chinese companies that are allegedly subsidised by the Chinese authorities.
The announcement by Commerce Secretary Carlos Gutierrez amounts to a US threat to impose sanctions - or 'countervailing duties' which are equal to the size of the foreign government subsidies to certain companies - on Chinese paper imports.
It marks a change in American policy - which, for the last 23 years, refrained from imposing countervailing duties on so-called non-market economies. It indicates that Washington does not apply that designation to China anymore.
'China's economy has evolved to the point that we can add another trade remedy tool,' Mr Gutierrez told reporters last Friday. 'The China of today is not the China of years ago. Just as China has evolved, so has the range of our tools to make sure Americans are treated fairly.'
The decision will be finalised on June 13, following more discussions inside the administration as well as possible negotiations with China, with the duties scheduled to be imposed on Aug 7.
The administration's action comes as a response to a petition filed by Ohio-based paper company New Page Corp, which accused China of unfair competition.
While the Chinese imports of paper amounted to only US$224 million last year, trade analysts are concerned that imposing sanctions on China could encourage other American industries to seek countervailing duties on imports from China, including textiles and steel from China and other emerging markets that are graduating from the non-market-economy status.
Indeed, the Bush administration filed a case against China with the World Trade Organisation (WTO) early this year which accused Beijing of violating WTO rules by illegally subsidising paper as well as other products. The complaint by the New Page Corp was supported by the heads of several other industries.
If other US industries will press Washington to impose duties on imports of Chinese steel, textile and machinery, contending that Beijing provides illegal subsidies to these sectors of its economy, that could certainly ignite a major trade battle between the two countries.
But the Bush administration is betting that the preliminary decision could put pressure on the Chinese to change their policies while sending a message to the Democrats - who control Congress - that Washington is embracing a tough approach in dealing with the economic problems that have created tension between the Americans and the Chinese.
Critics of China on Capitol Hill include both Democrats and Republicans. They have blamed China's 'unfair' trade policies - including its refusal to revalue its currency - for the rising US trade deficit with China and the loss of many American manufacturing jobs.
These China-bashing and protectionist messages have gained support among American voters and helped populist Democratic candidates win Congressional races.
Moreover, the announcement last Friday comes at a time when the Bush administration is trying to win support from the Democrats to extend the president's trade promotion authority (TPA), which allows him to negotiate trade deals without Congressional intervention, before it expires by the end of June.
The administration is in the process of negotiating a free trade agreement with South Korea and has notified Congress that it had reached new trade accords with Peru, Colombia and Panama.
But the Democrats are insisting that the administration commit itself to clauses that include guaranteeing workers' rights in new trade deals before they agree to extend the TPA.
Seen from that perspective, the decision to threaten China with sanctions over trade could strengthen its position in the negotiations with the Democrats.
There is no guarantee, however, that the countervailing duties on Chinese paper imports would help appease the China-bashers and protectionists on Capitol Hill.
If anything, the move could create a political momentum in Congress in favour of increasing even more pressure on China to revalue the yuan.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
Business Times - 30 Mar 2007
Should Americans worry about their trade deficit?
Economists differ over whether large trade gaps are a drag on America's economic growth

LOU Dobbs is neither a member of the US Congress nor of President George W Bush's Cabinet, and he has no plans to run for the White House in 2008. Yet, when it comes to US trade and immigration policies, he is one of the most powerful figures in America. His programme on CNN, Lou Dobbs Tonight, is one of America's most popular television news shows and on it he rallies the Americans against 'free-trade corporatists and faith-based economics' as he preaches the message of economic nationalism that seems to be gaining more and more support among the American public and Congress.
The consequences 'of faith-based free trade will be eye-popping in the disaster it wreaks on our economy and working Americans', Mr Dobbs commented recently. 'We're borrowing about US$3 billion a day just to pay for our imports, and our trade debt now stands at US$5 trillion,' he warned, calling on the new Democratic leadership on Capitol Hill to recognise that 'their majority was won as a result of growing middle-class concerns over job insecurity, stagnant wages and disgust at a class of elites that has subordinated the well-being of our middle class to the dictates of corporate masters'.
More specifically, Mr Dobbs has urged the Democrats 'to acknowledge that so-called free trade has come at an inordinate cost to working men and women in this country', arguing that the American economy has lost three million manufacturing jobs as a result of 'these so-called free trade agreements that enable corporate America to export plants, production and jobs to cheap foreign labour markets', while 'millions more American jobs remain at risk of being outsourced'.
It is not surprising that Mr Dobbs' prominent visibility has helped to spread his populist economic battle, in particular his argument that the growing trade deficit was one of the leading threats to US economic security. As conservative columnist and former presidential candidate Pat Buchanan put it, the growing US trade deficit is a 'malignant tumour in the intestines of the US economy, and unattended, it will one day kill this country's tenure as the world's mightiest industrial power', stripping America 'of our manufacturing and production base'.
There is no doubt that this type of rhetoric taps into America's old mercantilist tradition, that accepted as a given that America's freedom was tied to its 'economic independence'.
One of America's founding fathers and its first treasury secretary, Alexander Hamilton, wrote that 'not only the wealth, but the independence and security of a country, appear to be materially connected with the prosperity of manufactures', and instructed that every nation 'ought to endeavour to posses within itself all the essentials of a national supply, including the means of subsistence, habitation, clothing and defence'.
While this kind of mercantilist dogma is rejected today by mainstream American economists, many of them seem to accept the conventional wisdom that the large US trade deficits, including the one recorded in 2006, were a burden on America's economic growth, since the increase in imports into the United States ends up displacing domestic production and reduces growth of real gross domestic product (GDP).
Indeed, the reports by the US Commerce Department issued in February this year, indicating a record US trade deficit for 2006 of US$763.6 billion, including an unexpected jump in December's monthly deficit, were greeted by economic analysts with warnings that the growing trade deficit was acting as a drag on the overall economic growth.
But Daniel Griswold, director of the Centre for Trade Policy Studies in the pro-free market Cato Institute, does not buy into this conventional wisdom and counters that the economic evidence 'more comfortably fits the alternative interpretation that an expanding economy promotes rising imports and an expanding current account deficit'.
In fact, his examination of annual changes in the current account balance compared to economic growth since 1980 shows that a 'worsening' deficit was typically associated with faster economic growth, and an 'improving' deficit with slower growth.
In a recent analysis titled Are Trade Deficits a Drag on US Economic Growth?, Mr Griswold demonstrates that economic growth has been more than twice as fast, on average, in years in which the current account deficit grew sharply compared to those years in which it actually declined. 'In reality, trade deficits tend to be pro-cyclical, growing when the economy expands and contracting when the economy slows or slips into recession,' he writes.
Hence, as US Treasury Secretary Henry Paulson said recently, the 'the last time we ran a trade surplus (1991) our economy was in recession'. At the same time, during the strong economic growth under former president Bill Clinton was accompanied by the 'worsening' of the US trade deficit. Mr Griswold explains that the belief that a growing trade deficit means slower growth rests on the 'enduring myth' that a surge in imports displaces domestic production and that it therefore subtracts from economic growth. Mr Griswold's figures that tracked changes in trade flows and in GDP since 1980 suggest that, in fact, faster import growth has been associated with faster domestic economic growth.
In years since 1980 in which imports of goods and services fell as a share of GDP from the previous year, economic growth averaged 2.1 per cent. In years in which imports grew by up to 0.5 per cent of GDP, growth averaged 3.3 per cent. And in years in which imports surged by more than 0.5 per cent of GDP, growth averaged 3.6 per cent. Mirror imaging the American economic reality, Japan had a trade surplus all during its long recession in the 1990s.
How can the seeming paradox of faster growth and expanding trade deficits be explained? While Mr Griswold agrees that the evidence certainly does not suggest that an expanding trade deficit somehow fuels more rapid economic growth or that a trade deficit is necessarily good for the overall economy, he proposes that 'causation flows from economic growth to the trade balance'.
An expanding economy increases demand not only for domestic production but also for imports, while at the same time promoting more domestic investment as businesses seek to meet rising demand and capitalise on new investment opportunities. 'Rising investment opportunities, in turn, attract foreign capital to the United States to fund investment over and above what can be financed through domestic savings alone,' Mr Griswold writes.
And those capital inflows are the flip side of the current account deficit. 'The greater the net inflows of capital from abroad, the greater the current account deficit needs to be to accommodate those inflows,' he notes. And that explains why when GDP growth gathers speed, so does domestic investment, inflows of foreign capital, and the current account deficit.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.


Anonymous said…
Excellent commentary.

One of the aspects of free-trade globalization that must be faced is that most citizens of the US do not have sufficiently unique skills to avoid foreign job competition. Hence, true and full universal free markets, including labor markets, would probably lead to a further "neo-feudalism" in this the US.
Anonymous said…
Hello and thanks for reading this post!

The issue of taxes has never been easy on mankind. As you know, the resource collected from the public through taxation is always greater than the amount which can be used by the government. The difference is called compliance cost, and includes for example the labor cost and other expenses incurred in complying with tax laws and rules. This has repercussions on different aspects of taxation, from personal income taxes to payroll taxes.

One of the most interesting things related to taxes are the proportional, progressive, and regressive taxation systems. This is an area where a property tax attorney would tell you that a progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. The opposite of a progressive tax is a regressive tax, where the tax rate decreases as the amount to which the rate is applied increases. In between is a proportional tax, where the tax rate is fixed as the amount to which the rate is applied increases. Progressive taxes reduce the tax incidence of people with smaller incomes, as they shift the incidence disproportionately to those with higher incomes. Regressive taxes reduce the tax incidence of people with higher incomes, as they shift the incidence disproportionately to those with smaller incomes.

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Best regards,

Michael Stevenson
All Tax Questions Website
Douglas Castle said…
Dear Leon:

My compliments on an excellent and insightful post, especially in your discussion of the rather thorny issue of taxation.


Douglas Castle

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