Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
April 30, 2012

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  New Book
The United States Should Establish Permanent Normal Trade Relations with Russia

Anders Åslund and Gary Clyde Hufbauer
  The United States Should Establish Permanent Normal Trade Relations with Russia The US Congress is facing a critical vote on granting permanent normal trade relations (PNTR) to Russia in connection with its membership to the World Trade Organization (WTO). If Congress votes "yes," US exports of goods and services to Russia could double from $11 billion in 2011 to $22 billion in 2017, adding jobs in the services, agriculture, manufacturing, and high-technology sectors of the US economy. With Russia becoming the newest WTO member, it offers significant export opportunities for US poultry, pork, pharmaceuticals, and aircraft. The United States has already negotiated strong market access terms with Russia in their 2006 bilateral agreement, but these gains can be achieved only if the United States terminates application of the Jackson-Vanik Amendment to Russia, thereby granting it PNTR status. Åslund and Hufbauer make a compelling case why Jackson-Vanik no longer serves any purpose and why Congress must vote "yes" to grant Russia PNTR. A "no" vote will place US farmers, manufacturers, and workers at a severe disadvantage at a time when US competitors are gearing up to reap substantial benefits from Russia's WTO accession.

>> Preview and purchase book online

Why I Changed My Vote

Adam S. Posen
  Adam S. Posen Adam Posen explains his vote for no change to policy at the April Monetary Policy Committee (MPC) meeting of the Bank of England. As a result of the additional quantitative easing that the MPC undertook starting in October 2011, Posen expects that inflation will be below but close to target over the forecast horizon, starting at the end of this year, and that GDP growth will continue to improve from here through 2013. The latest data have convinced him that for now an additional ₤25 billion in asset purchases could be unnecessary. Underlying growth is picking up—that is, quantitative easing (QE) and the British economy are responding as Posen expected it would—with the mixed indicators on inflation.

>> Read full op-ed
>> See also: Does Monetary Cooperation or Confrontation Lead to Successful Fiscal Consolidation?

  Policy Brief 12-10
Framework for the International Services Agreement

Gary Clyde Hufbauer, J. Bradford Jensen, and Sherry Stephenson
Assisted by Julia Muir and Martin Vieiro
  Gary Clyde Hufbauer Services trade continues to be the most dynamic part of world trade, and service sectors have long been the largest destination of foreign direct investment flows. Countries can reap huge potential gains through greater liberalization of services trade and investment, including increased job creation, greater economic efficiency, more variety, and lower costs of doing business. Despite these positive attributes, liberalization of services at the multilateral level has been stuck in the ill-fated Doha Development Round for over ten years now. Failure in the World Trade Organization (WTO) can cause long-term damage to the multilateral trading system because action on services liberalization will then inevitably become the exclusive province of regional trade agreements. The way forward within the WTO framework is through an International Services Agreement (ISA) in which self-selected WTO members voluntarily agree to new rules and market access commitments, but the agreement itself is open to all WTO members who are willing to accept its disciplines and commitments.

The authors consider the important questions of who will participate in an ISA and what the agreement itself might contain. It would be important to attract the largest and most successful emerging countries (Brazil, Russia, India, China, and South Africa), which account for a sizeable share of world services trade, but this will probably not happen at the outset, because the BRICS have so far opposed services liberalization. The authors attempt to quantify the gains participating countries would reap from varying degrees of liberalization. They suggest a large range of possible export gains to the United States. At the lower end, using a standard partial equilibrium model, an ISA might facilitate a jump in US service exports by $14 billion annually. At the upper end, extrapolating from the scale of business services trade within US territory, the United States might realize export gains of $300 billion annually.

>> Read full policy brief [pdf]

  Policy Brief 12-9
US Tire Tariffs: Saving Few Jobs at High Cost

Gary Clyde Hufbauer and Sean Lowry
  In his 2012 State of the Union address, President Obama claimed that "over a thousand Americans are working today because we stopped a surge in Chinese tires." The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to "play by the rules" and serves as a plank in his larger platform of insourcing jobs to America. However, analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs. Analysis also shows that American buyers of car and truck tires pay a hefty price for this exercise of trade protection. According to the authors' calculations, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job saved (a maximum of 1,200 jobs by the authors' calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home. The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,570 jobs, when losses in the retail sector are offset against gains in tire manufacturing.

>> Read full policy brief [pdf]

  Working Paper 12-7
Lessons from Reforms in Central and Eastern Europe in the Wake of the Global Financial Crisis

Anders Åslund
  Anders Aslund The response of the ten new eastern members of the European Union to the global financial crisis has valuable lessons of crisis resolution for the euro area. These countries were severely hit by the crisis in the fall of 2008 and responded with extensive reforms. Crisis made the unthinkable possible. Åslund outlines the main reform measures that the ten Central and East European (CEE) countries carried out, the most radical of which were substantial public expenditure and wage cuts. He then quantifies to what extent the CEE countries resolved the macroeconomic crisis and explores the effects of the reforms on future growth prospects. The fourth and major section discusses how the political economy of the crisis resolution actually worked. Finally, he examines what lessons euro area countries, in particular the South Europeans, can learn from the crisis resolution in the CEE countries. The apparent big structural problems for Italy, for example, are too much state bureaucracy, too much corruption, over-regulated markets, and overly high taxes and public expenditures. All these problems are possible to sort out, affirms Åslund; many of the newest members of the European Union have done so.

>> Read full working paper [pdf]

Putin's New Economic Liberalism

Anders Åslund
  Although much remains uncertain following the December protests in Russia, the country is likely to pursue a much better economic policy than in the last eight years. The reason is that the protests are exposing the regime to more checks and balances. President-elect Vladimir Putin is more likely to make concessions on economic policy, which is closer to his past policy and less damaging to his political power. Judging by his words, Putin has returned to his liberal economic positions of 2000–2002, and words do mean something in politics. Russia's dominant problem remains high-level corruption, and the big question is whether Putin finally will feel forced to rein in his friends and supporters. Putin promised a package of laws on deregulation of red tape and pledged to raise Russia from No. 120 to No. 20 on the World Bank's index for ease of doing business. Putin's big anti-corruption promise—open public tenders—is supposed to include foreign companies to make tenders more competitive. Skeptics point out that Putin has said all these things before, but that was in 2000–2002. Now he is making these commitments under pressure from an active protest movement.

>> Read full op-ed

A Report Card for India's Social Sector

Arvind Subramanian
  Arvind Subramanian India's social achievements—based on looking at selective indicators in an international context—are not unambiguously deficient. India is average in some areas (life expectancy), terrible in others (child malnutrition), and not so bad in yet others (inequality). And the growth years after 1991 do not seem to have been especially damaging or uplifting for India's social achievements. Neither doom-mongering nor triumphalism seems warranted.

>> Read full op-ed

Peterson Perspectives Interviews

audio  A Move to the Left for France?
Nicolas Véron says that no matter who wins the runoff for president of France, neither Sarkozy nor Holland will have a mandate for reform.

audio  How Imminent is the US Budget and Debt Crisis?
Simon Johnson discusses the reaction to his call for a 20-year program of fiscal consolidation outlined in his book White House Burning.

Recent Blog Posts

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The Challenges of Renminbi Internationalization
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British Poetry from World War I

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Glimpses: Eric Laffourge's North Korea

Lee Sigal on the Current State of Play

PIIE Noted in the News and on the Web

The Atlantic
How Much Is a Good Central Banker Worth?
"If the United States spent $10 billion assembling a central banking fantasy lineup of Lars Svensson, Stanley Fischer, Adam Posen, and Christina Romer, it would probably be a phenomenal investment. It'd pay for itself many, many times over."

Simon Johnson on European Crisis, IMF Funding
Simon Johnson discusses the European sovereign debt crisis and the International Monetary Fund's lending resources on Bloomberg's "In the Loop."

New York Times
The Day After
The New York Times notes that Marcus Noland has been right about North Korea where others have not in the past. Where conventional wisdom predicted the fall of the Soviet Union would lead to the demise of North Korea, he correctly predicted that Pyongyang would in fact survive, so Noland is "worth listening to" when he says that "he suspects the regime is as fragile as it has ever been." Noland is coauthor of Witness to Transformation: Refugee Insights into North Korea.

NPR | KUOW Seattle
North Korea 101
Marcus Noland and Sung-Yoon Lee, Fletcher School at Tufts University, join NPR affiliate KUOW in Seattle to discuss why North Korea is still planning to do a nuclear test.

Foreign Affairs
Sustaining China's Economic Growth After the Global Financial Crisis
Richard N. Cooper reviews Nicholas R. Lardy's latest book in Foreign Affairs.

Center for Economic Policy Research
Latvia's Recession and Recovery: Are There Lessons for the Eurozone?
Anders Åslund, PIIE, and Mark Weisbrot, Center for Economic and Policy Research, present two opposing views on whether Latvia was successful or not in its approach to the global financial crisis. Åslund is coauthor of How Latvia Came through the Financial Crisis and author of The Last Shall Be the First: The East European Financial Crisis.

Preview of Our Next Issue

Policy Brief
Does Monetary Cooperation or Confrontation Lead to Successful Fiscal Consolidation?
Tomas Hellebrandt, Adam S. Posen, and Marilyne Tolle

Policy Brief
Will the World Trade Organization Enjoy a Bright Future?
Gary Clyde Hufbauer and Jeffrey J. Schott

In This Issue

Pranab Mukherjee India and the World: Short and Medium-Term Prospects

Pranab Mukherjee, Finance Minister of India, speaks at the Peterson Institute.
Swedish Finance Minister Borg Lessons from Sweden on the Global Financial Crisis

Swedish Finance Minister Borg describes Sweden's dramatic success story in handling the global financial crisis.
Michael Mussa Memorial Service for Michael Mussa

Colleagues remember Michael Mussa.

Featured Book
Who Needs to Open the Capital Account? Who Needs to Open the Capital Account?

Olivier Jeanne
Arvind Subramanian
John Williamson

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