Month: June 2016

North Korean Ballistic Missile Test

Recently, the North Koreans tested two ballistic missiles. Not much information is known about these weapons. However, it is known that the test of the first ballistic missile failed while the test of the second missile is still being evaluated for success. It is believed that the weapons have a range of 3,000 km or 1800 miles. This range is enough to hit South Korea, Japan, and Guam. More information about North Korea and their nuclear weapons program can be found at BBC.

Image: ASDFGHJ (talk) File:South Korea (orthographic projection).svg: User:Ksiom File:South Korea (orthographic projection).svg Created: 10 July 2009

How will Russia Respond to NATO Troops?

Although news about the Ukraine war has disappeared from American news headlines, the war still rages on. According to USA Today, around 2,400 service men and women have died in the Ukrainian War. The Russian government still denies that they are supporting separatist troops in Ukraine despite evidence that shows the contrary.

As a result of Russia’s increased aggressiveness, several states, including Poland, have requested more support from NATO. NATO has responded by announcing that more troops will be deployed near the Russian border, particularly throughout Lithuania, Latvia, Estonia, and Poland. According to NATO defense ministers, the increase in troops are meant to deter Russia from engaging in further conflict with its neighbors.

It will be interesting to see how Russia’s president, Vladimir Putin, will respond to the increase in NATO troops. Will he use this to fuel anti-American propaganda? Will he simply send more troops to the Russian border? Or, will he do both? Probably both.

Sending more NATO troops to the Russian border may deter Russia, but it may also heighten tensions with Russia. It seems like President Putin has been trying to show the strength of Russia by intervening in Ukraine and annexing Crimea. Sending more troops to the Russian border would allow Vladimir Putin to once again demonstrate Russia’s strength by showing that Russia can stand up to the US.

Putin may also send more troops to the Russian border to gain political points. If the citizens in Russia believe the Russian propaganda about NATO and the US, then they are likely to be fearful of an increase in NATO troops at the Russian borders. Vladimir Putin could keep high approval ratings by capitalizing on this fear. For example, if he sends more troops to the Russian border then he could tell Russians that he is protecting them from the US.

Putin could also use the increase in NATO troops to spread propaganda about how the US is threatening and bullying the Russian people. Overall, the increase in NATO troops at the Russian border is an interesting strategy that should have interesting consequences.

Oil Prices and the Global Economy

The European Central Bank provided some interesting information about today’s oil prices and the global economy. The report basically explains that low oil prices may not be positively effecting the global economy because oil prices have been driven lower due to a decrease in demand rather than a decrease in supply.

During the beginning of 2015, oil prices were decreasing due to decreases in supply. It was predicted that a supply driven decrease in oil prices would positively effect the global economy. However, in late 2015 oil prices fell due to decreased demand. Simulations have suggested that demand driven decreases in oil prices negatively effect the global economy. For example, it is estimated that a 10% supply driven fall in oil prices increase world GDP by 0.1% to 0.2%. On the other hand, a 10% demand driven fall in oil prices decrease world GDP by more than 0.2%. Simulations also suggest that the impact of both of these forces in one year would cancel each other out and result in nearly a zero percentage effect on GDP.

While world GDP may not be positively effected by demand driven decreases in oil prices, these lower oil prices do benefit oil importing states, such as the US. However, the benefit has been small and has not outweighed the negatives that are brought onto the world economy. These negatives include oil exporting states experiencing significant declines in GDP growth and currency depreciation. These problems faced by oil exporting states cause spill over effects that impact trading partners and global economic activity [1].

When viewed from a macro perspective, the current decrease in the price of oil is not good. A demand driven decrease in oil prices means that the economies of oil producing states are not growing as quickly. As a result, the world economy suffers. The following charts provide further information about oil exporting states, GDP growth, and oil prices.

ECB_Pic

Read the European Central Bank’s report: ECB_Economic_Bulletin

The Danger in Trump’s Trade Proposals

Are Donald Trump’s international trade proposals really that bad? Yes, yes they are. Let’s take a look at a few of Donald Trump’s international trade proposals.

  1. 20% tax on imports
  2. 15% tax for outsourcing jobs
  3. Donald Trump appointing himself as the United States Trade Representative

20% tax on imports
A 20% tax on imports is a tariff. Tariffs may sound like they would protect American jobs and industries, but tariffs are actually harmful. High tariffs decrease foreign competition and protect inefficient industries which leads to industries becoming even more inefficient. This means that tariffs basically bail out inefficient industries. This bail out is paid by Americans through the increased costs of goods and services. The increased costs of goods and services could lead to a decrease in the demand of goods which could cause people to lose their jobs.

15% tax for outsourcing jobs
A 15% tax on companies that outsource jobs may sound like a good idea. After all, it would help to ensure that people don’t lose their jobs to outsourcing. However, this tax would have effects similar to a tariff. It would promote inefficiency and keep prices high.

Donald Trump appointing himself as the United States Trade Representative
If Donald Trump became president, it would be a terrible idea for him to appoint himself as America’s trade representative. Besides him not having enough time to be the United States Trade Representative due to various presidential duties, Donald Trump does not have the expertise to be the United States Trade Representative. The current United States Trade Representative, Michael Froman, has extensive experience in international economics and public policy. Donald Trump on the other hand is a business man, he does not have much experience in international economics or public policy.

Image: Mr Donald Trump New Hampshire Town Hall on August 19th, 2015 at Pinkerton Academy in Derry, NH by Michael Vadon https://www.flickr.com/photos/80038275@N00/20724485306

The Trans-Pacific Partnership Agreement

The Trans-Pacific Partnership (TPP) Agreement has been at the center of much political disagreements. Some people claim that the TPP is harmful to the US while others disagree. The United States International Trade Commission (USITC) has prepared a report on the TPP. The report provides information about the TPP’s potential impact on the US’ economy and specific industries.

Overall, the USITC found that the TPP would positively effect the US economy and specific industries. However, this impact would be somewhat small. The USITC estimates that real annual American income would be .23% ($57.3 billion) higher due to the TPP. Real GDP would be higher by .15% ($42.7 billion) and employment would be .07% (128,000 full time jobs) higher. Several US industries will also experience positive gains. For example, the US poultry industry would experience an increase in the price competitiveness of exports. Also, the US dairy industry would experience slightly higher output (by 1.3%) if the TPP were to be adopted.

The USITC’s report can be found here.

 

Image: https://usitc.gov/

A Look At The Global Economy (June 2016)

The global economy is expected to grow at a moderate pace for the next few years. The Conference Board predicts that world total GDP growth rates will hover around 2 and 3 percent over the next ten years. Throughout the rest of the year, it is expected that the output of mature economies will slow down while output is expected to marginally improve in emerging markets, such as Russia and Brazil. [1] The data tables provide a look at world total GDP, GDP by state and region, projected GDP, and labor productivity growth.

View Data Tables


Sources
[1] The Conference Board. “Global Economic Outlook 2016” bbc.com/news/business-15198789

[Image Source: What does weak US wage growth mean for the global economy and US rates? CMC Markets 3rd July https://www.youtube.com/watch?v=5-kIzITgerk]