How to *Really* Fix Massive US Trade Deficits

♠ Posted by Emmanuel in at 10/16/2017 04:58:00 PM
And the award for best trade villain goes to...
Trumpian idiocy is endangering perfectly good trade deals with Mexico and Canada [NAFTA] as well as with South Korea [KORUS FTA]. The anti-heroes here are two economic illiterates, the vulgarian ignoramus Donald Trump and his Reagan-era trade "enforcer" Robert Lighthizer. To them, the reason for massive US trade deficits is so easy to understand: other countries taking unfair advantage of "gullible" US leaders. For them, the golden age of America--when its manufacturing was strong--is just some kind of protectionist policy away:
For the administration, the core belief is that the trade deficit has caused widespread manufacturing job losses in the US and stagnant wages, which would be reversed by closing the deficit. The administration has set reducing the $64bn annual goods trade deficit with Mexico in particular as the main goal of the renegotiation of the North American Free Trade Agreement now under way. Mr Lighthizer, similarly, is pointing to a persistent bilateral trade deficit with South Korea as he seeks to renegotiate an agreement with Seoul that took effect in 2012. 
Economists possessing any intelligence, however, understand that massive US external deficits are more the products of the US dollar's unique position in the international monetary system and America's lack of savings. Once more, the US current account balance reflects a shortfall of savings relative to investment caused especially by government dissavings (expenditures far exceed income) and low household savings. In a highly integrated world economy, American firms which have become intertwined in global productions chains also stand to lose if Trump gets his way in walling off the US from international trade:
Anne Krueger, who served as the top US official at the IMF and as the World Bank’s chief economist, argues that the dollar’s status as the world’s reserve currency bears more responsibility for the current account deficit than any trade agreement. Also to blame, she says, are the US’s low savings rate and its persistent government budget deficits. The situation is made more complicated by the globalisation of supply chains, which has helped drive down the cost of complicated manufactured goods such as cars.

More than half of US imports are either parts or raw materials, making them crucial to exports. That means cracking down on imports — such as those of steel or auto parts — can hurt US manufacturers and exporters further up the value chain. “If we cut off our deficit with Mexico by cutting off imports of auto parts, then we’re going to be cutting off our own exports,” Ms Krueger says.
This "low savings" argument is well-known and is continually repeated by Stephen Roach. Krueger adds color to this argument by reiterating that, instead of blowing up the US budget deficit further with massive, unfunded tax cuts, Trump should aim to belt-tighten the government purse or--good heavens--raise taxes to narrow the external deficit:
If the trade deficit is the Trump administration’s primary concern, the better option, she argues, would be for Mr Trump and his administration to do the opposite of what they are planning to do and focus on incentives for consumers to save or to improve the US fiscal position — either by raising taxes, cutting spending or a combination of the two. Instead, the administration last week unveiled a plan for tax cuts that most economists expect to weaken the US fiscal position.

The frustrating reality for economists like Ms Krueger has long been that the politics of trade usually run counter to what they see as the obvious economic truths. But Mr Trump may be confronting a new lesson on the link between politics and economics. Nine months into his presidency his attempts to rewrite the rules of global commerce have done more to increase the US trade deficit than to cut it. And for that there may well be a political price.
It's the simplest of single-equation economics. Some people just don't get it...and probably never will.

Mexico, Screw Trump: Only Congress Undoes NAFTA

♠ Posted by Emmanuel in ,, at 10/11/2017 06:41:00 PM
Mexico should put Trump and his protectionista Lighthizer in their place by getting the US congress to stop this idiocy.
I make no bones that I am far more sympathetic to Mexico than Trump's USA at the ongoing North American Free Trade Agreement (NAFTA) "renegotiations." What US Trade Representative Robert Lighthizer is attempting to do is actually beggar-thy-neighbor masquerading as an "update" of NAFTA. Let's not mince words here: No self-respecting nation would agree to such one-sided stipulations--especially to replace ones that aren't so lopsided.

Among other things on the American negotiators' wish list:
  • A US proposal to protect its seasonal produce;
  • A sunset clause floated by the US that would kill NAFTA after five years unless the three parties renegotiated;
  • US insistence on using the pact to cut its $64.3bn trade deficit with Mexico;
  • US desire to see higher US [50%!] and North American content [85% from 60%], so-called rules of origin, in car parts
  • Also, a 5-year "sunset clause" if an extension is not successfully renegotiated
The last three are especially egregious for what is ostensibly a "free trade" agreement: Isn't the market supposed to determine where things are made by whom to sell to others? Moreover, why should a regional trade agreement have stipulations for minimum content from one country and not the others instead of having just regional rules of origin? Maybe they should rename it the NA4USAFTA if the Mexicans and Canadians are dumb enough to agree to such unfair giveaways. The sunset clause makes no sense to the others since it's only meant to facilitate piling on more stipulations favorable largely or solely to the US.

In short, the US wants the others to swallow "poison pills" that are thoroughly unpalatable for its benefit--the very definition of mercantilism. What, then, should Mexico do? I've written about the options it can use before, but also consider who will make the ultimate decision on behalf of the United States to leave NAFTA. That's right, it's not Trump but Congress according to international trade law specialist Joel Trachtman:
Many members of Congress work under the fundamental misunderstanding that the president has the power, on his own, to terminate NAFTA. They are unaware that under the Commerce Clause of the Constitution, while the president is the negotiator and signer of trade agreements, he is not the “decider.” Power to approve, and to terminate U.S. participation in, trade agreements is assigned to Congress[...]

And yet, the Supreme Court has said, in the 1994 case of Barclays v. California, that “the Constitution expressly grants Congress, not the president, the power to “regulate commerce with foreign nations.” If the president, acting alone, were to terminate U.S. participation in NAFTA, he would be imposing regulation on commerce, without congressional participation.
Having assented to these agreements, only congress can undo them. Indeed, the legislature should probably make it eminently clear to Trump that he should not pretend to be able to exit NAFTA using executive power:
While Congress can make specific delegations of powers to the president in the field of trade, it has steadfastly avoided delegating power to the president to terminate trade agreements. So there is little basis for an argument of implicit delegation by virtue of the inclusion in these agreements of clauses allowing the member countries to withdraw.

If President Trump proposes to give notice to terminate NAFTA without congressional approval, U.S. exporters, and U.S. consumers, and perhaps also U.S. members of Congress, should sue. Before we reach that point, Congress could pass legislation specifically denying the president authority to terminate these trade agreements, in order to avoid uncertainty. It has the power, and the responsibility, to do so. The Founders wisely determined that Congress, not the president, is the “decider” in the field of trade.
The Mexicans are right to lobby US firms with continental operations. However, they should also lobby lawmakers to assert their primacy on matters of undoing trade agreements. It is unlikely that a majority wound want to kill NAFTA, so Mexico should start the ball rolling in this respect, too. The Canadian President Justin Trudeau is doing so already even if his country has less to lose for reasons I'll discuss more in another post.

Aside from refusing to be force-fed Trump's s--t, they should appeal to those whose voice really matters for this issue.

Deport-o-Mania 3: Houston's (Non-)Rebuilding

♠ Posted by Emmanuel in , at 10/10/2017 08:32:00 PM
Trump voters ain't gonna fix this destruction.
There's an insightful op-ed in the Washington Post on why Houston's rebuilding is well off-track. Simply put, there are not enough construction workers at the current time. With Trump's various immigration-unfriendly policies in progress, things aren't going to improve anytime soon. The net result is that instead of aiding the reconstruction of the United States' fourth-largest city, Trump is putting it off indefinitely.

Actually, there's plenty of capital sitting on the sidelines but not enough labor to get the construction work going. This is one industry where automation won't be of much help for the foreseeable future:
Even before Hurricane Harvey made landfall, 69 percent of Texas contractors had trouble filling jobs. Now, it’s estimated that 200,000 Houston homes will require work or complete reconstruction. Who will build these houses? What about the commercial infrastructure and public schools, highways and bridges that also sustained so much damage?
We go back to the same old problem: instead of ramping up immigration to help (re-)build America, the Trumpian set is busy doing the opposite:
One way to do that is to completely overhaul our broken immigration system. The last comprehensive reform was in 1986. Our visa system fails to match supply with demand. Congress must rebalance the numbers and even consider increasing legal immigration so we can attract all the workers we need — high skill, low skill and no skill. As Sen. Jeff Flake (R-Ariz.) said in a recent op-ed, we can’t forget that the ability to work hard sometimes is the only skill a job requires.
The problem is that the likes of Trump and his supporters have the opposite perception: coloreds and other foreigners are "stealing" their jobs. The honest answer is, again, that gringos simply don't want to do construction work in sufficient numbers [1, 2]--otherwise you wouldn't have this problem to begin with. Ultimately, I do believe that Trump is setting the stage for lower potential US economic growth through these racist/protectionist measures.

Just wait and see as Houston remains literally underwater.

Euro Transport Consortia: First Airbus, Now "Railbus"

♠ Posted by Emmanuel in at 10/09/2017 06:19:00 PM
They are the European champions, my friend. They'll compete with the Chinese till the end...
Despite the imminent [?] withdrawal of the United Kingdom from the European Union, its time being considered a part of it can count as a clear success in at least one respect: Its participation in the pan-European aerospace consortium Airbus has more than lived up to expectations. British Aerospace together with France's Aerospatiale as well as their German and Spanish counterparts combined to produce a European powerhouse in civilian commercial aircraft with the resources to compete with American titan Boeing yearly for top sales honors in this lucrative business.

More recently, we've had a "one good turn deserves another" deal with European railway manufacturers Alstom (France) and Siemens (Germany) attempting to become a "European champion" in mobility. As with most mergers among manufacturing concerns nowadays, this attempt to increase scale stems from trying to compete with the upstart Chinese. Enter "Railbus":
Siemens AG and Alstom SA are expected to sign off on a merger of their rail equipment activities to create a new European champion, according to Bloomberg News. A deal has appeal for the German and French companies’ shareholders but governance, antitrust and cost-cutting could yet disrupt the journey. While a combined entity would control only about 14 percent of the 110 billion euro ($130 billion) rail equipment market, according to my rough calculation, the footprint would be bigger in parts of Europe.
An interesting argument in favor of activist European antitrust authorities permitting the merger is that, well, the Chinese have already merged together another rail mega-conglomerate in CRRC:
So will Europe’s antitrust authorities block it? That depends. After the 2015 merger of two Chinese rolling stock companies, the new entity CRRC Corp. dwarfs its international peers. Rail Giants CRRC has won rail contracts as far afield as Chicago and Kenya and China’s Belt and Road initiative will bring yet more international business its way. The fear is that the Chinese company's size plus access to cheap finance will let it crush rivals unless they bulk up too. In absolute terms, CRRC spends seven times more on research and development than Alstom, notes Morgan Stanley.

But it isn't unbeatable, at least not yet. International customers accounted for only 8 percent of CRRC sales last year, when its railway equipment sales declined. The Alstom and Siemens train businesses have performed quite well in the meantime, as rapid urbanization spurs demand for less polluting mass transit.
The great game is on in railways as the Europeans vie for business worldwide with the Japanese and now the Chinese. As with more efficient forms of transportation, sustainability may be the ultimate victor here compared to relying on more polluting road and air transport.

Can US Stocks Rise Still Despite Buyers' Strike?

♠ Posted by Emmanuel in at 10/02/2017 12:50:00 PM
Are companies flush with high-yield bond proceeds buying back stock no matter what?
There's an interesting article over at MarketWatch that brings up all sorts of questions about what really buoys the stock markets and who investors really are. The conventional understanding is that bonds--debt issued by corporations--move in the opposite direction of stocks since the former are regarded as relatively safer assets while the latter are riskier assets. However, bonds and stocks may not be coupled in this manner. Instead, large institutional investors, namely pension funds, tend to shy away from risky investments like equities. So, they buy high-yield corporate debt in large quantities. With many retirees to account for in the near future, they have few options nowadays:
Unlike so-called smart investors, who worry about fundamental influences including the economy, politics and even natural disasters, the nation’s public pensions trustees only care about one thing: “Their sole focus is on making 7.5% through the credit market,” [Cannacord's Brian] Reynolds wrote in a recent note to clients. “They are going to focus on that whether the economy speeds up or slows down, whether there is tax reform or not and whether the Fed raises rates more or has to bring them back down.”

As Reynolds explains, 7.5% is generally what pension trustees have to earn on assets to cover the gap between what pensions have promised to pay out and what they actually have. The general perception among pension trustees is that equities are too risky, and safe 10-year Treasury notes are currently yielding just 2.31%. And since their biggest worry is to not be too careful, pension funds have been gobbling up higher-yield corporate debt and credit instruments.

Through August, high-yield bond issuance reached $1.21 trillion, already just shy of the full-year record of $1.23 trillion in 2016, according to data provided by Fitch Ratings. Institutional leveraged loan issuance hit $1.07 trillion through August, already breaking the 2016 record of $973.1 billion. Assuming the pace of flows remains the same, the puts high-yield issuance on track to exceed $1.8 trillion and leveraged loan issuance to top $1.6 trillion.
Corporations issuing high-yield paper are therefore flush with cash from selling all this high-yield debt. For a long time now, many have chosen not to invest the proceeds, but rather buy back their shares on the open market. Therefore stock investors may understandably quit the stock market at these incredibly elevated valuations, but companies will continue buying back shares. It's said that "real" investors haven't been the main buyers of stocks since the end of the Great Recession, but rather companies buying back stock using bond sale proceeds:
Companies have used that cash to be the primary buyers during the current bull market, while what Reynolds described as the “main investors” have been net sellers. “Main investors” include mutual funds, insurers, hedge funds, households, foreign buyers, broker dealers, pension funds and exchange-traded funds.

Since the S&P 500 index hit its bear-market bottom in March 2009, it has soared nearly fourfold, even though “main investors” have sold a total of $9.89 billion worth of stock, Reynolds said, using Bloomberg data. That’s because the cumulative total of corporate stock repurchases has been about $3.2 trillion, he said.

And since the credit market has grown by $3.3 trillion since the credit crisis, Reynolds sees it as nearly a one-to-one correlation between the credit boom, share buybacks and the bull market.
I have my doubts about this version of events as to why stocks can thus keep rising indefinitely. Many of the gainers are not the sorts who issue boatloads of high-yield debt, but rather blue-chip corporations issuing investment-grade debt like components of the Dow Jones Industrial Average 30, the larger Standard and Poors 500 components, and giant tech stocks on the Nasdaq Index like Facebook, Amazon, Apple, Netflix and Google. If high-yield issuers were indeed the main beneficiaries, then you would expect smaller, less creditworthy companies to outperform large ones. However, that has not really been the case with the Russell 2000 index being outperformed by the aforementioned indices over this time frame.

It's food for thought, though, and shines a light on the role played by stock buybacks in buoying the market.

Trade War! Boeing vs Bombardier, US vs Canada & UK

♠ Posted by Emmanuel in at 9/29/2017 05:47:00 PM
Will Delta really fly Bombardier CS100s? Of Canada has trade "friends" like the US, who needs enemies...
When it comes to capital-intensive businesses, commercial aircraft is among the most demanding of sheer funding. Especially when it comes to developing all-new models, the level of research and development required equates to a lot of money spent. Today's case in point is Canadian jetliner manufacturer Bombardier. Its niche is jets smaller than the smallest offerings of the industry titans Boeing [737] and Airbus [A320]. You'd think that not competing directly with them puts it in a safe spot, but no:
Boeing’s beef with Bombardier concerns the CS100 jet, which has slightly more than 100 seats, a market niche that Boeing executives were once pretty sniffy about, possibly with good reason. Bombardier ran into all kinds of financial difficulties developing and trying to sell the innovative C Series, which led to a $1 billion bailout by Quebec in 2015. Bombardier persisted, yet no sooner had Delta thrown it a lifeline by placing a firm order for a few dozen C Series jets, Boeing fired off a complaint to the U.S. government.

Boeing’s fear, as its legal complaint makes clear, is that one day Bombardier will become a much stronger competitor. But Boeing’s aircraft sales are eight times larger than Bombardier's today. Taking legal action makes Boeing seem like both the playground bully and the class snitch.
Interestingly enough, it appears the first major trade war of the Trump administration will not be against China or Mexico, the usual targets of his anti-trade rhetoric. Instead, it will be against supposedly friendly Canada. To make a long story short, Boeing (which doesn't make the same-sized jets, again) complained to the US Commerce department that Bombardier received substantial subsidies in launching its latest mode, the CS100. Being then asked that tariffs be applied on Bombardier CS100s being sold Stateside. In this activity they were more than successful:
The U.S. Commerce Department’s decision to tag Bombardier Inc.’s newest plane with retaliatory tariffs of more than 200 per cent[219.6% to be exact] was a blatant abuse of power. The complainant, Boeing Co., had asked for only an 80-per-cent penalty. Wilbur Ross, the commerce secretary, went bigger to remind the world that he could. “The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” Ross said in a press release.
You read that right: the Commerce department almost tripled the tariff Being sought since it wanted to make an example of these Canadian trade miscreants:
Ross’s move was the equivalent of the schoolyard tough smearing a Cheez Whiz sandwich on the face of an innocent. He used the Bombardier press release to remind that his department had initiated 65 trade-related investigations since Inauguration Day, a 44 percent increase from the same period a year earlier. Economic historians have a term for this sort of behaviour: beggar-thy-neighbour. It comes from the Great Depression, when countries resorted to tariffs to “protect” jobs and only ended up making things worse.
Note that this is just an initial ruling; the ultimate tariff applied (if any) may be lower. However, rest assured that the Canadians are understandably outraged. At stake is an order for 125 CS100s ordered by the US-headquartered Delta Airlines. We're entering trade war territory as Canadian government figures are threatening to rescind a defense contract to buy 18 F-18 Super Hornet jet fighters from Boeing:
[Canadian Foreign Minister] Freeland also repeated the threat to cancel the Liberal government's planned sole-source purchase of Boeing Super Hornet jet fighters. The Liberal government has been clear that this case "very much has a bearing" on the decision to buy the warplanes, said Freeland. "The government of Canada cannot treat, as a trusted partner, a company which is attacking our aerospace sector."

Prime Minister Justin Trudeau was even more blunt. Speaking two weeks ago beside British Prime Minister Theresa May, Trudeau said the fighter deal is all but dead. "We won't do business with a company that's busy trying to sue us and trying to put our aerospace workers out of business,'' he said.
I mentioned that it's not only the US against Canada, but also the US against the UK. You see, Bombardier has wing assembly operations in Northern Ireland, and Ulster would lose a lot of economic opportunities if the US mega-tariff holds. With May's government relying on the support of Northern Irish lawmakers--and her attempts to build a relationship with Trump--in mind, the result is disappointing:
It’s no wonder Theresa May says she’s “bitterly disappointed” by the U.S. Commerce Department’s decision to impose punitive import duties on Bombardier Inc.’s new jetliner. It hurts the U.K. prime minister in several ways at once. First, it’s a blow to a big employer: More than 4,000 work for the company in Belfast, Northern Ireland, where the plane’s wings are built. Second, Northern Ireland is a sensitive area for British politics: It is only because May’s Conservatives have the support of 10 lawmakers from the region that she’s able to govern.  

Third, it’s a personal embarrassment: After spending political capital at home to try to build a close relationship with Donald Trump, she raised the issue with him both by phone and in person, with no obvious result.
Going forward, the UK is said to be reconsidering awarding more defense contracts to Boeing:
British defence minister Michael Fallon has also criticised Boeing. He ruled out cancelling existing orders with Boeing for nine P-8 spy planes and 50 Apache helicopters, but added the U.S. firm was seeking other UK contracts. 

Boeing has risen since 2000 from a relatively minor defence supplier to become one of Britain’s top five following the purchase of C-17 transporters and Apache attack helicopters, according to defence analyst Francis Tusa.
The game commences. Whether Canada and likely the UK take the US to the WTO for a complaint will depend on what tariff is ultimately applied to the Bombardier CS100 Stateside.

Did Xi, Macron & Merkel Make US Stocks Great Again?

♠ Posted by Emmanuel in at 9/26/2017 05:58:00 PM
It's probably not Trump, or Invader Zim for that matter, making the world economy great again.
There are any number of mysteries as to why US-listed stocks are reaching all-time highs early in the presidency of Donald Trump. As business media always explains, markets abhor uncertainty. With Trump you certainly have very little certainty. In trade, he's killed the Trans-Pacific Partnership (TPP), and threatens to pull out of the North American Free Trade Agreement (NAFTA) and the Korea-US Free Trade Agreement (KORUS). For good measure, he's spoken about pulling out of the World Trade Organization (WTO) over his disdain for multilateralism. Nor has he delivered yet on massive tax cuts for corporations, so it makes you wonder what's buoying US stocks.

One argument is that Trump is simply coasting on favorable economic conditions his predecessor Barack Obama created Stateside. Another is that, actually, it was other global leaders responsible for creating such profitable conditions worldwide which attract investors. And, since S&P 500-listed companies derive about 43.2% of their revenues from outside the US, they are able to capitalize on improvements in the business climate elsewhere.

Sebastian Mallaby brings this argument forward by bluntly stating that it's other countries' leaders making American stocks great again and not Trump:
Last year, in the wake of President Trump’s election, financial markets took off on a wild sprint, apparently believing his promise to make America great again. Ten months later, the financiers are wiser: The president’s immigration clampdown alarms them; his divisive response to Charlottesville appalls them. Despite the heady expectations of this past winter, there has been no sign of an infrastructure plan; few expect serious tax reform given the bungling of health-care legislation, not to mention the sidelining of Gary Cohn, the tax plan’s chief Sherpa. And yet, as if by a miracle of levitation, the Standard & Poor’s 500-stock index is still about a fifth above its level on the day of the election. What’s happening?

The short answer is that foreign leaders have done a surprisingly good job of making foreign countries great again. From Xi Jinping’s China to Emmanuel Macron’s France, politicians are delivering policies that businesses want. As a result, the world economy is growing faster than at any time since the post-crisis bump of 2010. The yuan and the euro have risen sharply against the dollar. A more competitive greenback and the prospect of strong exports have supported U.S. stock prices. A Chinese communist and a French technocrat have done more for American business than Trump has.
In the remainder of the op-ed, Mallaby goes into the specific actions the leaders of China, France, Germany and so on have taken to improve their countries' economic conditions--and the rest of the world economy as a result. I too am in the camp believing that US stocks are being buoyed by the rest of the world economy rather than by anything Trump has done. If anything else, American companies are doing well in spite of instead of because of his term. Ironically, his ineptitude is aiding corporations by pushing down the value of the dollar, making foreign earnings appear larger after converting them back to USD.

Kim Jong-Un [Hearts] Markets, Sort Of

♠ Posted by Emmanuel in at 9/25/2017 06:00:00 PM
We sorta knew they love rockets...but markets too?!
The perception we often get is that North Korea is the archetypal Communist state, with collectivist means of production concentrated in mostly rural communities churning out goods which the government tells to make in what quantities. Actually, the old-style command economy is on the outs. For several years now, the hermit kingdom has been experimenting with the use of markets. Mind you, it's not because of any sort of enlightened about the virtues of capitalism. Rather, it's being done out of survival. Indeed, North Korea may be more resilient than believed because of these partial market-oriented reforms:
Byung-Yeon Kim, a professor at Seoul National University, began interviewing North Korean defectors seven years ago to learn more about their country's economy. One wouldn't have thought there was much to discover: Often described as "Stalinist," the hermetic regime to the north seemed to preside over a crude, centrally planned system, with peasants toiling away for a pittance in collective farms and state-owned factories, dependent on food aid and growing poorer with each passing year.

In fact, as Kim lays out in his new book "Unveiling the North Korean Economy: Collapse and Transition," that popular image is almost entirely wrong. By necessity, virtually all North Koreans, from farmers to army commanders, now buy and sell goods and services in capitalist markets -- whether to survive or, in some cases, to get rich. The economy is growing and wages are rising; until recent rounds of United Nations sanctions, North Korea was about as dependent on foreign trade as the U.K. or Italy.

This will come as a disappointment to those who hoped that popular discontent would spell the end of the North Korean regime; despite decades of isolation, the country has stabilized economically even as it rapidly develops its nuclear and missile arsenals. Kim is more sanguine: He sees the spread of markets and money as a threat to dictator Kim Jong Un -- whom U.S. President Donald Trump now derides as "Rocket Man" -- and a point of pressure that the outside world can exploit. We spoke last week soon after North Korea tested its first thermonuclear device but before its latest missile test flew over Japan. A lightly edited transcript:
To be sure, North Korea is hardly booming. Still, it is actually quite externally involve as its trade levels are nearly similar to global averages [!] according to Prof. Kim. Note though that much of this market activity occurs in the informal sector. Prof. Kim adds:
Since Kim [Jong-un] took power in 2011, the economy has stabilized. While the rate of growth isn't that high, overall the economy has grown 1 to 2 percent for the last five years.

It's not really a Stalinist economy anymore. North Korea experienced a severe crisis in the late 1990s, when several hundred thousand people starved to death because of famine. Afterwards, the economy changed dramatically. Before, the regime repressed any kind of market activities. But nowadays, households participate more in the informal economy than the official economy. About 70 to 90 percent of household income comes from markets.

The reason is quite simple: The government cannot pay a salary sufficient to live on. I talked to one high-ranking diplomat who served in London and defected to South Korea last year. He said that he received a monthly salary of 2,000 North Korean won. At that time, the market rate was 3,000 North Korean won to the dollar. A typical North Korean household needs $50 per month for survival; the remaining part of this need is filled by markets. Some 70 percent of households participate in markets, while only 50 percent participate in the official economy. It's a hugely informalized or marketized economy.
Second, North Korea is not a closed economy anymore. I estimate the economy's trade dependency ratio is higher than 50 percent. The world average is 58 percent.
So, are there any truly Soviet-style economies left out there in the year 2017? Our usual suspect may not even be on the list. I guess that's progress of a sort.

Foreign Investment, Duterte Drug War Victim

♠ Posted by Emmanuel in , at 9/17/2017 12:18:00 PM
Unlike poor, defenseless Philippine teenagers, foreign investors have successfully avoided Duterte's Philippines.
Philippine strongman Rodrigo Duterte has elicited international condemnation over his bloody drug war,  whose most visible result are thousands of deaths among poor Filipinos unfortunate enough to live in open areas targeted for anti-drug operations. While primarily a security issue, there are also apparent economic consequences for Duterte's "reign of terror" (as the Catholic Church describes it) being waged on the civilian population as foreign direct investment dries up.

In fact, foreign direct investment [FDI] pledges have fallen for the four consecutive quarters Dutertet has been in power.
Investment pledges made by foreign firms slid 55 percent year-on-year to P18.2 billion in the second quarter, the fourth straight quarter that commitments dropped. In a report Friday, the Philippine Statistics Authority (PSA) said foreign investments approved by seven investment promotion agencies (IPAs) from April to June declined from P40.4 billion in the same three-month period last year.

As of the end of the first six months, IPA-approved foreign investments totaled P41 billion, down 38.4 percent from P66.6 billion a year ago. To recall, foreign investment pledges fell 12.8 percent year-on-year to P22.9 billion in the first quarter. Also, approved foreign investments declined 9.3 percent year-on-year to P125.7 billion in the fourth quarter of last year after commitments dropped by a faster 45 percent to P26.7 billion in the third quarter of 2016. It meant that foreign investors’ pledges decreased in the first four quarters of the Duterte administration.
In brief, what we have here is a political risk issue. Would-be foreign investors fear for their safety in a country where a Korean businessperson has been falsely accused of involvement in the drug trade and killed inside of police headquarters in a kidnap-for-ransom scheme. There's also the problem of possible losses of market access. First, the European Union is evaluating whether to continue preferential trade access to the EU under its Generalized System of Preferences Plus (GSP+). Under GSP+, duty-free rates can be availed if participating countries meet various conventions, of which those concerning human rights are coming under scrutiny:
The Philippines was granted beneficiary country status under the EU-GSP+ in December 2014, allowing the country to export 6,274 eligible products duty-free to the EU market. The alleged cases of extrajudicial killings as part of President Duterte’s drug war, however, has put at risk the country’s GSP+ privileges.

The beneficiary status under the GSP+ necessitates the implementation of the 27 international treaties and conventions on human rights, labor rights, environment and governance. Results of the latest review are expected to come out this year.
Following the EU's lead, others are encouraging fellow democracies to impose economic sanctions on the Philippines to discourage Duterte's violence against his own people. As you would expect, Philippine investment authorities are up in arms:
Trade and Industry Secretary Ramon Lopez on Tuesday hit The New York Times (NYT) for urging the international community, in an editorial, to impose trade sanctions against the Philippines for extrajudicial killings under the Duterte administration's campaign on illegal drugs.

"The editorial by The New York Times last March 24, calling for trade sanctions against the Philippines, is baseless and unfair," Lopez said in a statement. "Any form of trade sanction against the Philippines is uncalled for, unfounded and undeserved," the Trade chief emphasized.

In an editorial, titled "Accountability for Duterte," the American daily urged foreign governments to "hit" President Rodrigo Duterte "where it may hurt the most" – trade – in a bid to hold the Philippine leader accountable over the alleged killings in his "deadly" war on illegal drugs.
It's a cliche to say that businesspersons appreciate the lack of uncertainty, but with Duterte in charge of the Philippines, let's say no one is rushing to make investments in a country that's becoming increasingly isolated due to human rights concerns when there are so many far more predictable places to invest.

Premier League Post-Brexit & Post-Free Movement

♠ Posted by Emmanuel in , at 9/12/2017 03:06:00 PM
Premier League clubs would have a harder time hiring European talent like N'golo Kante after leaving the EU.
The top flight of British football--the Premier League--is arguably not the most competitive in Europe if you go by the number of European Champions League winners it has produced. That said, the overall level of competition may be rather higher given its higher wages than comparable first divisions in other European countries. Something that has enabled a lot of transfer activity to the Premier League was being part of the European Union, where freedom of movement is part of the deal for EU citizens.

The UK's impending [sort of?] exit from the European Union is causing some consternation among Premier League clubs that will lose easy accessibility to European footballing talent. Instead of being readily available almost as though they were British, European players would now fall under the same restrictions facing migrant workers from elsewhere in the world. Fewer marquee European names playing in England due to these restrictions could negatively impact Premier League revenues:
England’s standing in the soccer world would be diminished if EU stars gravitated to other countries after Brexit, potentially cutting the value of future TV rights after the current 8-billion-pound ($10.5 billion) deal expires. Players from the bloc are allowed in to the U.K. under EU freedom of movement rules, while athletes from elsewhere must meet criteria that only permit the highest level of foreign players, judged on criteria including age and how many times they have played for their national team.
It's  not going to be the same. That said, there are plans afoot to tailor immigration rules to the demands of this sport:
The league says that, under current rules that apply to athletes from outside the EU, two French players who were crucial to Leicester City winning the championship in 2016, Riyad Mahrez and N’Golo Kante, wouldn’t have gained admittance to the U.K. in a post-Brexit world.

The government wants to develop an immigration system that’s in the best interest of the whole of the U.K., and plans to make initial proposals for a new policy later in the autumn, a spokesman said. “We recognize the importance of sport to the nation and within that the contribution that international talent makes,” the government said in a statement. “We are in discussions with key representatives from the sport sector, including the Premier League, regarding the challenges and opportunities that our EU exit brings.’’
Together with most things concerning Brexit, the fate of hiring foreign footballers is up in the air. Then again, there is no certainty that the departure will happen.