INR 4011 Final Exam Study Guide

Why do we misunderstand President Trump's trade policy?

While it is true that Democrats have been, on average, more protectionist than Republicans since the 1950s, there have always been supporters of free trade among Democrats and opponents of trade among Republicans. To see the former, we only need look at Democratic presidents over that time span, each of whom championed the expansion of trade such as Bill Clinton signing NAFTA and Barack Obama negotiating the TPP. While the left wing of the Democrats often opposed trade, moderates tended to be more supportive. Most Republicans have been free traders over this same period, but notable exceptions, usually on the far right, have existed even before Trump such as Pat Buchanan. That left-wing Democrats and right-wing Republicans have both often been the most opposed to trade should have been a clue that trade policy is not simply a single ideological dimension from right to left. In fact, it's not a single dimension at all. Rather, opinions on trade are arrayed along the political spectrum. Other dimensions also exist, such as a security dimension and on a fair trade dimension. At one end of the fair trade dimension are people who support limits on trade for ethical reasons, namely that they worry about the effects of trade on labor rights and the environment abroad. While we normally think of labels on coffee when we think of this type of fair trade, the concept also includes such policies as bans on imports made with child labor or opposition to free trade agreements (FTAs) with countries with poor standards. Policymakers and the public can exist anywhere on each of these dimensions and their placement on one dimension does not determine their placement on the other. If we assume that people either support or oppose each dimension, this leads us to four policy orientations. Free traders oppose all limits to trade, whether for protectionist or fair trade reasons. Fair traders support limits only to protect labor rights and the environment abroad. Pure protectionists support limits only to protect jobs and/or the domestic economy. Anti-traders support all limits to trade. Free traders tend to be wealthier, more educated, and more conservative while anti-traders tend to be poorer, less educated, and more liberal. This makes sense, as wealthier individuals with more job skills tend to benefit from trade, while poorer individuals with fewer skills tend to be hurt by it. Pure protectionists are also poorer and less educated but tend to be conservative, as they are not concerned by environmental and labor conditions. Fair traders, on the other hand, tend to be richer and more educated, thus oftentimes personally benefiting from trade, but also tend to be liberal and, thus, more likely to be interested in environmental and labor rights issues. This helps us to understand Trump's trade policy. Although much of Trump's political support came from wealthier individuals who traditionally support Republicans (and free trade), an important constituency, especially in the primaries, were white working class voters, who often opposed trade for reasons of economic nationalism as well as self-interested concerns about their jobs. Trump appealed to these constituents in ways his primary competitors within the Republican Party did not because he himself holds these economic nationalist positions as illustrated by his campaign slogans "Make America Great Again" and "America First." This nationalist perspective distinguishes Trump from left wing critics of trade, like Sanders. Both expressed concerns about jobs in the US, but while Trump's exclusive focus was on the domestic effects of trade, Sanders also expressed concern about conditions abroad. Despite the superficial similarities between their positions, the multidimensional approach helps us realize the major differences between them. The multidimensional approach also helps us to distinguish the Democratic presidents who supported FTAs—but who fought to include labor and environmental side agreements in them—from Republican leaders who usually opposed these side agreements while supporting the underlying FTA. By looking at trade from a multidimensional perspective, we can better understand why President Trump has taken the trade positions he has and where those policies fit on the ideological spectrum. It also makes clear that trade policy is more complicated politically than often imagined, since we can't just talk about free traders vs. protectionists, but must also consider fair traders—who are neither—and different types of protectionists.

Basel Accord

a 1988 international agreement that required that banks hold as capital at least 8% of their risk-weighted assets

Quantitative Easing

also known as large-scale asset purchases, is a monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to inject money directly into the economy.

Capital Adequacy Standard

(also known as regulatory capital or capital adequacy) is the amount of capital a bank or other financial institution has to hold as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity that must be held as a percentage of risk-weighted assets. These requirements are put into place to ensure that these institutions do not take on excess leverage and become insolvent. Capital requirements govern the ratio of equity to debt, recorded on the liabilities and equity side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in particular, the proportion of its assets it must hold in cash or highly-liquid assets.

Will I need a visa to travel to the EU? (no deal)

If the UK leaves without a deal, British citizens who travel to the EU for up to 90 days will not have to apply for a visa - as long as the UK grants reciprocal visa-free travel for all EU citizens in return. The law confirming this arrangement has been adopted by the European Parliament, and now awaits the final sign-off from EU countries. It would come into force whenever the UK leaves the EU, regardless of whether a withdrawal agreement is reached. In the longer term, the EU is planning to launch an electronic application form, called ETIAS (European Travel Information and Authorisation System), for many non-EU countries, including the UK. It would involve paying a fee of €7 (£6.30) every three years

Will I need a visa to travel to the EU? (deal)

No. Under the Brexit deal, EU citizens and UK nationals will continue to be able to travel freely with a passport or identity card until the end of the transition period in December 2020. After this period ends, the European Commission has offered visa-free travel for UK nationals coming to the EU for a short stay, as long as the UK offers the same in return. British citizens will, however, have to pay €7 (£6.30) every three years to travel to EU countries, because of a new security system for countries in the passport-free Schengen zone.

Stimulus

refers to attempts to use monetary or fiscal policy (or stabilization policy in general) to stimulate the economy. Stimulus can also refer to monetary policies like lowering interest rates and quantitative easing.

Providential Regulations

regulations intended to prevent not only the collapse of individual banks but also the collapse of the entire global banking and financial system.

Long term solutions to the Eurozone crisis

European Fiscal Union "Hard Keynsianism" Eurobonds "Orderly default" Grexit Blow up the whole thing

Hard Keynesianism

John Maynard Keynes argued that surpluses should be accumulated during good years so that they could be spent to stimulate demand during bad ones.

How will EU citizens apply for the new status? (deal)

The UK government is launching an online system to allow EU citizens to apply for settled status on 30 March. The government had originally planned to charge people £65 to use it but that fee has now been dropped and it is free. Anyone who had already paid, when the scheme was being tested, will be reimbursed.

EU's four freedoms

the free movement of goods, services, capital and people.

TRADE BATTLE #2: STEEL AND ALUMINUM AS NATIONAL SECURITY THREATS

1. Trump announces 25% tariff on steel and 10% on aluminum on all imports. 2. The European Union announces its planned retaliatory response if it were to be hit with tariffs. This includes filing a formal World Trade Organization (WTO) dispute, safeguard restrictions of its own, and a "rebalancing" of trade with the United States through almost immediate imposition of its own 25 percent tariff on $3.4 billion of US exports such as cranberries, Harley Davidson motorcycles, blue jeans, and bourbon. 3. Steel and Aluminum NAFTA Tariff Exemptions 4. Trump issues revised formal steel and aluminum tariff proclamations, further exempting the European Union, South Korea, Brazil, Argentina, and Australia—in addition to Canada and Mexico as previously announced—but only through May 1, 2018. This means another third of the originally covered imports on March 1 are temporarily exempt. 5. Trump's steel and aluminum tariffs go into effect with exemptions for selected countries. His 25 percent steel tariff applies to countries that exported $10.2 billion of steel products to the United States in 2017, and his 10 percent aluminum tariff applies to 4 countries that exported $7.7 billion. There is no timeline or explicit criterion for the removal of the restrictions. 6. Korea Receives Permanent Exemption for Steel, But Faces Quotas 7. China imposes retaliatory tariffs on aluminum waste and scrap, pork, fruits and nuts, and other US products, worth $2.4 billion in export value in 2017. This compares to the US steel and aluminum tariffs covering Chinese exports worth $2.8 billion in 2017. 8. US Extends Tariff Exemptions 9. US Ends Tariff Exemptions for EU, Canada, and Mexico 10. EU Retaliates on Iconic American Goods 11. Canada Strikes Back 12. Trump Administration Files WTO Challenges 13. Subsidies for American Farmers After Export Fallout 14. Higher Rates for Turkey 15. Turkey Retaliates 16. Steel Tariffs Have Hit Poor Countries the Hardest 17. A PIIE study finds that Trump's steel tariffs have raised the price of steel products by almost 9 percent, creating 8,700 jobs in the US steel industry. However, steel users pay an extra $650,000 for each job created.

TRADE BATTLE #1: SOLAR PANEL AND WASHING MACHINE IMPORTS INJURE US INDUSTRIES

1. Trump imposes safeguard tariffs to protect domestic industries in rare use of presidential authority. 2. China imposes preliminary tariffs on US sorghum, as an antidumping measure. 3. S. Korea files dispute on US safeguard tariffs, claiming they violated WTO rules. 4. China ends sorghum tariffs, prior to negotiations. 5. China files WTO dispute, claiming safeguard tariffs violate rules.

Liquidity swap

A swap network is a worldwide network of central banks that establish a reciprocal credit line relationship to temporarily swap currencies. The purpose of the swap line is to give each bank the ability to simultaneously exchange a fixed amount of one another's currencies to both stabilize its own currency and improve liquidity conditions. While many repayment periods on swap lines are typically three months, debt holders can roll over their outstanding loans to extend the repayment terms.

Has immigration come down since the UK voted to leave the EU?

According to the latest figures from the Office of National Statistics, net migration to the UK from non-EU countries was 261,000 in the twelve months to September 2018 - the highest since 2004. By contrast, net migration from EU countries was 57,000 - a level last seen in 2009. In other words, the result of the referendum appears to have already had an impact before Brexit has actually happened.

What happens to EU citizens living in the UK and UK citizens in the EU? (deal)

An agreement between the UK and the EU provides what Theresa May says is certainty to the 3.2 million EU citizens in the UK - as well as citizens of Iceland, Liechtenstein, Norway and Switzerland that they will be able to carry on living and working in the UK as they have done with their rights enshrined in UK law and enforced by British courts. UK citizens in the EU will also retain their current rights with what the EU's Jean-Claude Juncker called a cheap and simple administration procedure. The proposal provides a cut-off date of Brexit day - 29 March 2019 - for those to be covered by the rules. Babies born after that date to people who have qualified under these rules will be included in the agreement. Under the plan EU citizens legally resident in the UK and UK citizens in the EU will be able to leave for up to five years before losing the rights they will have as part of the proposed Brexit deal.

BATTLE #4: AUTOS AS NATIONAL SECURITY THREAT

Another National Security Investigation May 23, 2018 The Commerce Department initiates the third national security investigation under Trump into imported autos and parts, following the steel and aluminum cases. Public hearings are scheduled for July 19-20, 2018. Trump is reportedly considering raising tariffs to 25 percent on these products, which a PIIE analysis finds could cost 195,000 American jobs, assuming no exemptions. That number could more than triple if other countries retaliate in-kind. The tariffs would affect $208 billion of imports, not counting auto parts, nearly all from key US allies. "Side Letter" on Autos Reportedly in New US-Mexico Trade Deal to Replace NAFTA August 27, 2018 President Trump and President Enrique Peña Nieto of Mexico announce a preliminary US-Mexico trade agreement that would potentially replace the North American Free Trade Agreement (NAFTA). News sources report that a side deal accompanies the trade agreement to give Mexico "insurance" against future potential US national security tariffs on autos. Mexico would still have duty-free access for cars that comply with new rules of origin by voluntarily limiting its auto exports to the United States. During the Oval Office announcement, Trump also threatens to impose tariffs on Canada's cars. USMCA Is Signed with Side Letters November 30, 2019 All three countries sign the US-Mexico-Canada Agreement (USMCA) to replace NAFTA. Canada and Mexico sign side letters aimed at preventing threatened auto tariffs. The deal still needs to be ratified by legislators to take effect. Commerce Department Submits National Security Report to White House February 17, 2019 President Trump has 90 days (until May 18, 2019) to agree or disagree with the findings. He has 15 days after accepting findings of a threat to restrict imports, or he may pursue negotiations and defer new trade actions for up to 180 days while talks proceed. Auto tariffs would mainly target allies such as Japan, Germany, and South Korea.

What about EU nationals who want to work in the UK? (deal)

Any EU citizen already living and working in the UK will be able to carry on working and living in the UK after Brexit. The current plan is that even after Brexit, people from the EU will be able to move to work in the UK during a "transition" phase of about two years. There is also some debate over whether they will have the same rights as those who came before, with possible restrictions on access to benefits or to vote in local elections. The EU wants them to have the same rights as now - the UK doesn't. What exactly happens after the transition period has yet to be decided, but the proposal is for a work permit system along the lines of that for non-EU nationals

Article 50

Article 50 of the Treaty on European Union (TEU) states that "Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements". Once triggered, a country has 2 years to formally withdraw unless granted an extension. It was ratified with the Treaty of Lisbon in 2009.

Will the UK be able to rejoin the EU in the future?

BBC Europe editor Katya Adler says the UK would have to start from scratch with no rebate, and enter accession talks with the EU. Every member state would have to agree to the UK re-joining. But she says with elections looming elsewhere in Europe, other leaders might not be generous towards any UK demands. New members are required to adopt the euro as their currency, once they meet the relevant criteria, although the UK could try to negotiate an opt-out.

What banking regulations can be implemented and why? What effect did banking regulations have on the economic crisis?

Banks are regulated in one of two ways... consumer protection and providential regulation. Examples of consumer protection include regulations that require transparency and disclosure, as well as limits on fees and interest charged. Providential regulations are regulations that are designed to prevent banks from collapsing. The very nature of modern banking necessitates some regulation. The first providential regulation is deposit insurance. 60% of countries have deposit insurance. Another type of providential regulation is a capital adequacy standards which mandate the required reserve ratio. The Basel Accords was an international agreement that implemented capital adequacy standards so that it would not undermine domestic competitiveness. Other types of providential regulations include bans on non-loan investments, providing insurance, purchasing real estate, and running/buying nonfinancial firms. These are known as activity restrictions. Some have argued activity restrictions increase risk by eliminating the potential for diversification.

What regulations do banks like?

Banks lobby for capital adequacy standards to ensure that one unsafe bank does not spoil all the safe banks. Furthermore, most banks tend to like small deposit insurance, funded through government revenue. They oppose strong deposit insurance, funded by a levy on banks. Banks oppose most other regulations, such as activity restrictions.

How was China affected by the Great Recession and why? What is the likely future for China's economic standing in the world? What has been the relationship between the US and China recently?

China was hit hard by the great recession. They began to rapidly increase their debt which has problems for the future. Furthermore, they began the "New Normal" which meant GDP growth of 6, 7, and 8 percent rather than double-digit growth. In regard to China, the administration has complained about China's violation of the TRIPS agreement (IP) and their policy on technology transfer. Therefore, America was able to retaliate within WTO rules and apply a round of tariffs. China responded with tariffs also. This has brewed a potential trade war. Talks are currently stalled. The effects have been increased prices and instability with broader US, China relations. The Trump administration began subsidizing agriculture that was hurt by Chinese tariffs.

Why does the DUP oppose the backstop?

Crucially, the Democratic Unionist Party (DUP) also opposes the withdrawal agreement, on account of the "backstop" condition that it proposes for maintaining an open border with the Republic of Ireland. The proposal is that Northern Ireland will remain in a customs union with the Republic of Ireland, and therefore with the EU. This arrangement would not (necessarily) apply to any other part of the UK, only Northern Ireland, and would continue to apply if the rest of the UK does not later establish the sort of relationship with the EU that would allow the border to remain open. This proposed regulatory difference between Northern Ireland and the rest of the UK is unacceptable to the DUP, which is strongly protective of Northern Ireland's union with Great Britain. The DUP fears that the "backstop" arrangement loosens Northern Ireland's ties with the rest of the UK, and strengthens the claims of Irish Republicans to sovereignty over Northern Ireland. And because May still needs the support of the DUP's ten MPs to sustain her minority government, it has been impossible for her to ignore their opposition.

Eurobonds

European bonds are proposed government bonds issued in euros jointly by the 19 eurozone nations. The idea was first raised by the European Commission in 2011. Eurobonds would be debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to the eurozone bloc altogether, which then forwards the money to individual governments. Eurobonds have been suggested as a way to tackle the European sovereign debt crisis as the indebted states could borrow new funds at better conditions as they are supported by the rating of the non-crisis states. Because Eurobonds would allow already highly indebted states access to cheaper credit thanks to the strength of other eurozone economies, they are controversial, and may suffer from the free rider problem. According to the European Commission proposal the introduction of eurobonds would create new means through which governments finance their debt, by offering safe and liquid investment opportunities. This "could potentially quickly alleviate the current sovereign debt crisis, as the high-yield Member States could benefit from the stronger creditworthiness of the low-yield Member States." The effect would be immediate even if the introduction of eurobonds takes some time, since changed market expectations adapt instantly, resulting in lower average and marginal funding costs, particularly to those EU member states most hit by the financial crisis. The Commission also believes that eurobonds could make the eurozone financial system more resilient to future adverse shocks and reinforce financial stability. Furthermore, they could reduce the vulnerability of banks in the eurozone to deteriorating credit ratings of individual member states by providing them with a source of more robust collateral.[4] Setting a euro-area wide integrated bond market would offer a safe and liquid investment opportunity for savers and financial institutions that matches its US$ counterpart in terms of size and liquidity, which would also strengthen the position of the euro as an international reserve currency and foster a more balanced global financial system.[4] On the other hand, the governments of those states that most people would like to take over those debt risks do not think that this is a good idea and see other effects. They do not understand why it should help a group of states that have excessively borrowed and circumvented the EU contracts for many years should now be helped by making it even easier for them to borrow even more via Eurobonds. Germany is one of those sceptical states,[8][9] together with Austria,[10] Finland and the Netherlands.[11]

LEVELING THE PLAYING FIELD

Even though the case against protectionism remains strong, that does not mean that activist trade policies have no role to play. One thing the Reagan administration did that the Trump administration could usefully emulate was to undertake strong trade-enforcement measures. Ronald Reagan always insisted that free trade required enforcing the rules. As he put it, "When governments assist their exporters in ways that violate international laws, then the playing field is no longer level, and there is no longer free trade." That's why his administration pursued trade agreements: to establish rules to constrain unfair policies. And yet to reach such agreements, it is sometimes necessary to threaten higher trade barriers. Supporters of free trade often object to such tactics, but even Adam Smith argued that it might be worthwhile for a country to threaten to close its market if the move brought about a change in foreign behavior. Although the Obama administration filed many new cases involving specific products and specific countries with the wto, such a piecemeal approach falls short of addressing a real and growing problem: whether international competition between private domestic firms and foreign state-owned or state-supported firms can ever truly be fair. The problem is most acute when it comes to China. China's state banks routinely engage in generous and unprofitable lending that leads to excess capacity in various industries, such as steel. China produces half of the world's steel, and as its economy has slowed, massive excess capacity has built up in that sector. In a market system, unneeded plants would shut down. But in China, the visible hand of the state is at work, as government-owned banks prop up uneconomic production capacity with cheap credit. China then dumps its surplus steel on other countries, where calls for protectionism grow. Free-trade supporters are of two minds about foreign subsidies. On the one hand, these subsidies reduce the price paid by U.S. consumers, who should send a thank-you note to foreign taxpayers for their generosity. On the other hand, foreign subsidies distort markets in a way that is costly not only to the subsidizing country but also to other countries. In the countries importing the subsidized goods, plants are idled and workers are laid off-adjustment costs that the subsidizing country avoids. A political backlash can result: when foreign subsidies harm an important domestic industry, free trade gets a bad name and becomes a harder sell at home. As a result, the United States has tended to err on the side of opposing foreign subsidies. It has, for example, attacked Europe's agricultural subsidies as detrimental to American farmers and its subsidies to Airbus as a threat to Boeing, and it has sought agreements to rein in both. So how should the United States respond to, for example, Chinese steel subsidies? Imposing antidumping duties is not the answer, since they would fail to solve the underlying problem of excess capacity and would punish steel-consuming industries in the United States. Paradoxically, however, threatening reprisals of some sort may be the answer; politely asking China to cut back its steel subsidies would accomplish nothing. Confronting unfair trade practices with the threat of retaliation is not protectionism in the usual sense. Instead, it represents an attempt to free world markets from distortions. In order to return trade to a market basis, Washington may have to threaten trade sanctions, some of which might have to be carried out for the threats to gain credibility. This process will no doubt be disruptive and controversial, but if handled skillfully, the end result could make it worthwhile. Once again, the 1980s offers useful lessons. In 1985, Reagan used the power granted to him under a provision of U.S. trade law known as Section 301 to attack unfair foreign trade practices, such as the barring of U.S. products from certain markets. Although the U.S. action prompted bitter foreign protests, Arthur Dunkel, the Swiss director general of the General Agreement on Tariffs and Trade (the predecessor to the wto), later admitted that it was one of the best things the United States had ever done for the multilateral trading system: it helped unite the world behind an effort to strengthen the rules-based system in the 1986-94 Uruguay Round of international trade negotiations. The wto's dispute-settlement system has proved remarkably successful and should be supported, but it may not be capable of handling every type of trade disagreement. A border adjustment tax is another policy currently under consideration that is sometimes labeled as protectionist but need not be. Republicans in the House of Representatives are pushing a major tax reform package that would change the way corporations are taxed. Instead of being based on where goods are produced, the tax would be applied on the basis of where goods end up. The tax would also involve a border adjustment, meaning that it would not be imposed on U.S. exports (which are taxed in other countries) but it would apply to all imports. In essence, the tax burden would shift from goods produced in the United States to goods consumed in the United States. Such measures are standard practice for countries that have valueadded taxes and wish to equalize the tax treatment between domestic and foreign goods, and they are consistent with wto rules. Whether the particular border adjustment tax that Congress is considering now conforms to WTO rules remains an open question. Still, the principle remains: a border adjustment tax is not protectionist if it does not discriminate in favor of U.S. producers and instead simply ensures that the same tax is imposed on all sellers in the U.S. market, regardless of where their goods are produced.

ERM

Exchange rate mechanism

GDP vs. GDP per capita

GDP is gross domestic product, the total economic output of a country, i.e., the amount of money a country makes. GDP per capita is the total output divided by the number of people in the population, so you can get a figure of the average output of each person, i.e., the average amount of money each person makes.

Could the transition period be extended?

If no trade deal is in prospect by July 2020, the two sides could agree to extend the transition period instead. This would avoid the need for the backstop at that time, and keep trade with the EU flowing as it does now. They could do this only once. The transition could not go on being extended indefinitely. But there is no agreement on how long any extension would be. Some have suggested the end of 2022, but the government position has been for it all to be sorted before the next election, which is due in Spring 2022. Either way, this could keep the UK under EU rules for at least three years after March's official Brexit date, something Brexiteers are also unhappy about.

Troika

IMF, European Commission, ECB

Brexit and the backstop

If no long-term trade deal has been agreed by the end of 2020 that avoids a hard border between Northern Ireland and the Republic of Ireland, and if there is no extension to the transition period, then a backstop consisting of "a single customs territory between the (European) Union and the United Kingdom" will be triggered. Northern Ireland will be in a deeper customs relationship with the EU than the rest of the UK; it will also be more closely aligned with the rules and regulations of the EU single market. As long as the backstop is in operation, the UK will be subject to "level playing field conditions", to ensure it cannot gain a competitive advantage while remaining in the same customs territory. The UK cannot leave the backstop independently, it needs to be decided together with the EU. Chris Morris's analysis: The single customs territory is basically another name for a temporary customs union and, if it were needed, it would ensure that completely frictionless trade could continue across the Irish border. But it would also prevent the UK implementing any trade deals with other countries around the world that involve removing tariffs on goods. That upsets supporters of Brexit, especially as there is no guaranteed route out of this backstop unless the EU gives its consent. The Protocol on Ireland/Northern Ireland was the toughest part of the draft agreement to negotiate and, now it has been published, it has triggered a series of government resignations.

THE TRADE DEFICIT FALLACY

Import barriers are often proposed as a way to shrink the trade deficit, a particular bugbear of Trump's. Yet it is far from clear that reducing the trade deficit should be a policy priority. Unlike in the 1980s, when the current account deficit was growing rapidly, today, it has remained stable for nearly a decade, at about two to three percent of gdf. Imports are not flooding into the United States; in fact, in 2016, the value of U.S. imports from China fell by four percent from the previous year. Even if one believes that closing the trade gap would boost employment-and the consensus among economists is that it would not-past experience suggests that restricting imports alone would fail to narrow the deficit. The United States had a trade surplus when it imposed the Smoot-Hawley Tariff, but exports fell in step with imports and the trade balance did not budge. In the 1980s, the trade deficit continued to grow in spite of the Reagan administration's protectionist measures. The trade deficit is impervious to import restrictions, particularly in an era of floating exchange rates, because it is determined not by trade policies but by net capital flows into the United States. As economists have long emphasized, unless domestic savings rise (a good thing) or national investment falls (a bad thing), the United States will be a recipient of capital from abroad. Because the dollar is the world's reserve currency, the closest thing to a safe asset in the global financial system, foreign demand for dollar-denominated assets will remain strong. The continued demand for safe assets means that other countries will use some of their dollar earnings to buy U.S. assets instead of U.S. goods. This, in turn, means that the United States will continue to buy more from other countries than they do from it. Ironically, even though Trump has said that he wants to reduce the trade deficit, the mix of macroeconomic policies he has promised will likely enlarge, rather than shrink, it. Just as the Reagan administration discovered, the combination of an expansionary fiscal policy (Trump has promised lower taxes and greater infrastructure spending) and a tighter monetary policy (the Federal Reserve's ongoing response to falling unemployment) will cause the dollar to appreciate against other currencies. In the 1980s, these policies dealt a painful blow to U.S. companies that exported goods or competed against imports. The result was a growing trade deficit and louder calls for protectionist measures. Over the past three years, the dollar has already risen by more than 25 percent compared with other currencies. If the Federal Reserve continues to tighten monetary policy and the fiscal deficit continues to grow, the trade deficit will likely grow, too, despite Trump's trade policies.

Dual exchange rate

In a dual exchange rate system, there are both fixed and floating exchange rates in the market. The fixed rate is only applied to certain segments of the market, such as "essential" imports and exports and/or current account transactions. In the meantime, the price of capital account transactions is determined by a market driven exchange rate (so as not to hinder transactions in this market, which are crucial to providing foreign reserves for a country).

Why can't trade protection be used to revitalize basic industries that have suffered?

In the 1980s the Reagan administration imposed many import barriers, which seemed to help domestic industries cope with increased foreign competition. Confronted with a large and growing trade deficit, the United States pressured Japan to agree to reduce its automobile exports, forced foreign suppliers to limit their steel exports, and negotiated a new arrangement that restricted imports of textiles and apparel. Because the economy recovered and employment grew, Robert Lighthizer, a trade negotiator in the Reagan administration whom Trump has tapped to be the U.S. trade representative, has asserted that Reagan-era import restrictions "worked." But that judgment runs counter to the evidence. In a 1982 report, the U.S. International Trade Commission found that most industries receiving trade relief were undergoing long-term declines that import restrictions could not reverse. Such measures did little to help companies, it stated, "either because so much of the firm's injury was caused by non-import-related factors, or because the decline of imports following relief was small." Four years later, when the Congressional Budget Office studied the question, it concluded, "Trade restraints have failed to achieve their primary objective of increasing the international competitiveness of the relevant industries." Just as it is today, trade then was wrongly blamed for the problems facing U.S. producers. What really afflicted them were factors beyond the reach of trade policy. The first was a cyclical problem: the severe recession in 1981-82 that resulted from the tight monetary policy the U.S. Federal Reserve l{ had adopted to reduce inflation. That policy contributed to a 40 percent real appreciation of the dollar against other currencies between 1981 and 1985, making U.S.-made goods far less competitive at home and abroad. Then there were various structural problems: Big Steel lost market share to low-cost domestic mini-mills that could recycle scrap metal, and the Big Three automakers were slow to improve quality and shift to the smaller, more fuel-efficient cars that consumers were demanding. Eventually, U.S. producers did regain their competitiveness, but they did not do so thanks to protectionist policies. Credit goes instead to the economic recovery that started in 1983 and the weakening of the dollar that started in 1985. One should look back at the Reagan-era protectionism not with nostalgia but with regret, because it proved to be a costly failure. The restrictions on automobile imports raised the average price of a Japanese car by 16 percent in the early 1980s, socking it to consumers and handing billions of dollars to Japanese exporters. The limitations on steel imports punished steel-using industries, and those on textile and apparel imports raised prices for low-income consumers. When it comes to using protection to help revitalize domestic industries, the United States has been there, done that. It didn't work.

Why did the Brexit vote occur? Who supported and who opposed it? How has the Brexit process proceeded since the vote and why?

It's a common perception that this movement grew during the debt crisis, and campaigns have described the EU as a "sinking ship." Moreover, there was an identity aspect that feared immigration relating to the single-market. Older, rural, conservative, uneducated voters supported Brexit while younger, urban, liberal, and educated voters opposed Brexit. Scotland, London, and N. Ireland voted remain, while wales narrowly voted leave. The process of Brexit has been slow and unpredictable. Cameron resigns (June 2016), May becomes PM (June 2016), Article 50 triggered (March 2017), Snap-election leads to Conservative minority government (June 2017), Draft withdrawal agreement (November 2018), First votes on deal (March 2019), Extension agreed to (March to April 2019), 'Transition period' ends (December 2020). The issues are: Access to Single Market with or w/out Freedom of Movement Free trade Right for non-citizens in UK and EUD.'Divorce Bill' ECJ and rule of law The Impossible Trinity of Brexit i. Leave Single Market (or certain parts of it). ii. No border between N. Ireland and rest of UK iii. No border between N. Ireland and Republic of Ireland

What is the Labour Party's position on Brexit?

Labour says it accepts the referendum result and that Brexit is going to happen. But it opposes Theresa May's Brexit plan, and wants to stop it and force a general election. In February, it said it was prepared to back another EU referendum, to prevent a "damaging Tory Brexit", having failed to win a vote of no-confidence against the government. Leader Jeremy Corbyn says he would negotiate a permanent customs union with the EU after Brexit, which would be very similar to the one it has now. This is the only way to keep trade flowing freely and protect jobs, he says, as well as ensuring there is no return to a "hard border" in Northern Ireland. He has ruled out staying a member of the single market, as some of his pro-EU MPs want, so he can carry out his plans to nationalise key industries without being hampered by EU competition rules. He says the UK should have a very close relationship with the single market. Labour accepts that some form of free movement of people might have to continue.

Will EU nationals have to leave the UK? (no deal)

Mrs May has said EU citizens in the UK will be able to stay even if there is no deal done on Brexit. It's worth saying that even if no Brexit deal was done, EU nationals with a right to permanent residence, which is granted after they have lived in the UK for five years, should not see their rights affected after Brexit.

"New Normal"

New Normal is a term in business and economics that refers to financial conditions following the financial crisis of 2007-2008 and the aftermath of the 2008-2012 global recession. The term has since been used in a variety of other contexts to imply that something which was previously abnormal has become commonplace. Since 2012, China's economy has shown a marked slowdown, with growth rates declining from double digit levels (before the 2007-2009 financial crisis) to around 7% in 2014. In 2014, a statement by Xi Jinping - General Secretary of the Communist Party of China - indicated that China was entering a 'new normal'. This term was subsequently popularized by the press and came to refer to expectations of 7% growth rates in China for the foreseeable future. It was indicative of the Chinese government's anticipation of moderate but perhaps more stable economic growth in the medium-to-long term.

How were banking regulations connected to the 2008 financial crisis?

New instruments, such as CDOs and credit swaps, were unregulated and therefore not immune to information asymmetries. Moreover, some would argue that the 1999 repeal of Glass-Steagall allowed banks to engage in risky behavior. Furthermore, some would argue that capital adequacy standards were not adequate.

What explains the variation in banking regulations?

The more access points there are.... More capital adequacy standards less likely to have deposit insurance the weaker activity restrictions are to be the fewer powers will be granted to regulators. PR systems (centrifugal) tend to have weaker regulations because they have to cater to banking interests for votes.

Is free trade really to blame for the loss of manufacturing jobs?

Not really, the reality is that factors other than foreign trade are to blame for the country's current economic woes. The share of Americans who work in manufacturing has fallen steadily since the early 1950s, mainly due to automation and productivity growth. The labor-force participation rate among working-age males has been declining since 1960. The stagnation in real earnings of men also dates back to the early 1960s. These trends started well before the era of deregulation and free trade in the 1980s and 1990s, let alone the "China shock" of the first decade of this century. Complaints about the plight of middleclass workers resonate so much today, however, because the U.S. labor market has experienced more than a decade of lackluster performance, owing to the slow recovery from the 2008 financial crisis. Since then, trade has not significantly disrupted the U.S. labor market because imports have not been surging into the country. The problem with wrongly blaming trade for these recent difficulties is that it makes it all too easy to propose protectionism as the quick fix. After all, if imports are seen as the problem, then reducing them- by reversing existing trade policies, tearing up nafta, or slapping high duties on Chinese goods-would seem to be the solution. Yet simply rolling back trade will not repair the damage that has been done. Those who want to curtail trade claim that such actions will revitalize basic manufacturing industries, create new manufacturing jobs, and reduce the trade deficit. In fact, higher trade barriers would fail to achieve any of these objectives.

Why did the EU adopt a single currency? What role has it had in the global economic crisis? How has the EU attempted to address issues with their currency?

One of the motivating factors was to compete with America as a superpower in global trade. Moreover, the end of the Bretton Woods agreement and the end of the Cold War played a role. With the Euro and the global economic crisis, the sovereign debt crisis unfolded, which was a period when several European countries experienced the collapse of financial institutions, high government debt, and rapidly rising bond yield spreads in government securities. The EU has attempted to solve this crisis by implementing austerity programs.

Will immigration be cut? (deal)

Prime Minister Theresa May said one of the main messages she took from the Leave vote was that the British people wanted to see a reduction in immigration. She has insisted the UK government remains committed to reducing annual net migration - the difference between the number of people entering and leaving - to below 100,000. Home Secretary Sajid Javid has declined to commit to this, however. Instead, he has said it will be brought down to "sustainable" levels. Mr Javid published the government's long-awaited post-Brexit immigration plans in December. Free movement of people from the EU will effectively continue until the end of the transition period in December 2020. After that, people from the EU will need visas to work in the UK, with priority given to skilled workers - the same system that currently applies to migrants from outside the EU. A consultation is being held on a minimum salary requirement of £30,000 for skilled migrants seeking five-year visas. However, tens of thousands of low-skilled migrants could come to the UK to work for up to a year to protect parts of the economy that rely on overseas labour. That measure would last until 2025. Visitors from the EU will not need visas.

What is countercyclical and Keynesian policy? How might it be and how has it been used to address the economic crisis? Are there alternatives to countercyclical policy?

Reducing spending and raising taxes during a boom period, and increasing spending and cutting taxes during a recession. An economic or financial policy is called countercyclical if it works against the cyclical tendencies in the economy. That is, countercyclical policies are ones that cool down the economy when it is in an upswing, and stimulate the economy when it is in a downturn. Keynesian economics advocates the use of automatic and discretionary countercyclical policies to lessen the impact of the business cycle. One example of an automatically countercyclical fiscal policy is progressive taxation. By taxing a larger proportion of income when the economy expands, a progressive tax tends to decrease demand when the economy is booming, thus reining in the boom.

What does this mean for Scotland?

Scotland's First Minister Nicola Sturgeon said in the wake of the Leave result that it was "democratically unacceptable" that Scotland faced being taken out of the EU when it voted to Remain. She has called for an extension of the 21-month transition period to give the UK government more time to negotiate a compromise with opposition parties - and has officially asked for another referendum to be held, on the final Brexit deal. The SNP leader wants to stay in the customs union and single market after Brexit, describing it as the "least damaging" option for the UK economy as a whole - and has thrown her weight behind the campaign for another EU referendum.

Divorce Bill

The 39 billion euros the UK will pay the EU if a Brexit deal is reached. The draft agreement sets out the calculations for the financial settlement (or "divorce bill") that the UK will need to pay to the EU to settle all of its obligations. While no figure appears in the document, it is expected to be at least £39bn and it will be paid over a number of years. Part of that money will be the financial contribution that the UK has to make during the transition period. In 2018/19 the UK's contribution to the EU budget is forecast to be a net £10.8bn. If the transition is extended, there will have to be additional UK payments to the EU budget, which will be agreed separately.

What about the European Court of Justice?

The Court of Justice of the European Union - to give it its full name - is the EU's highest legal authority. It is based in Luxembourg. It is an entirely different thing to the European Court of Human Rights (ECHR). It is the European Court of Human Rights, not the ECJ that has often upset British politicians by making it harder, for example, to deport terrorist suspects. The ECJ interprets and enforces the rules of the single market, settling disputes between member countries over issues like free movement and trade. It is at the centre of pretty much everything the EU does and it having the power over UK actions has been a key issue for those arguing for the UK to leave to the EU to regain full sovereignty. Prime Minister Theresa May has vowed that Britain will not be under the "direct" jurisdiction of the ECJ after Brexit. But she has suggested that elements of relations could - where the UK signs up to specific EU agencies - still be covered by the ECJ after Brexit After that, there will need to be a new mechanism for settling disputes between the UK and the EU but what form that take has yet to be decided. There has been talk of an ombudsman, or some other third party, being appointed to settle disagreements. The version of the Brexit deal, published on 8 December 2017, do also give limited powers to the ECJ in terms of EU citizens living in the UK for up to eight years. The political declaration document makes clear that ECJ will continue to have a role on interpreting EU law after Brexit.

Will leaving the EU mean the UK doesn't have to abide by the European Court of Human Rights?

The European Court of Human Rights (ECHR) in Strasbourg is not a European Union institution. It was set up by the Council of Europe, which has 47 members including Russia and Ukraine. So quitting the EU will not exempt the UK from its decisions. The Conservatives are committed to sticking with the Human Rights Act which requires UK courts to treat the ECHR as setting legal precedents for the UK during the Brexit process.

Why did the Global Economic Crisis occur? How did it spread and why?

The Global economic crisis occurred due to the housing market bubble, subprime and exotic mortgages, and the failure of the Lehman Brothers bank. It spread because of globalization and the interconnectedness of financial institutions. Foreign banks inflated the bubble because they bought mortgage securities which caused them trouble when the bubble popped. Furthermore, Americans bought less which hurt exporters in other countries and so on.

TARP

The Troubled Asset Relief Program (TARP) created and run by the U.S. Treasury following the 2008 financial crisis, consisted of efforts to stabilize the financial system by having the government buy mortgage-backed securities and bank stocks. Running from 2008 to 2010, TARP ended up investing $426.4 billion in firms and recouped $441.7 billion in return. TARP was controversial at the time, and its effectiveness continues to be debated: Advocates say it saved the U.S. financial system and shortened the crisis, while critics charge just gave Wall Street an unnecessary, no-strings boost.

What policies related to globalization has the Trump administration taken or discussed taking and why? What are the likely effects of these policies?

The Trump administration is focused on trade policy regarding globalization. More specifically, they are focused on "fair trade". The administration views trade deficits as bad and as such is heavily focused on the trade deficit with China. Moreover, the administration views the loss of manufacturing jobs a preventable issue. Therefore, they have implemented steel and aluminum tariffs on European goods. They have implemented tariffs on washer machines and solar panels so that industry in America has a chance to become competitive with imports.

What would happen if the UK left without a deal?

The UK would sever all ties with the EU with immediate effect, with no transition period and no guarantees on citizens' rights of residence. The government fears this would cause significant disruption to businesses in the short-term, with lengthy tailbacks of lorries at the channel ports, as drivers face new checks on their cargos. Food retailers have warned of shortages of fresh produce and the NHS is stockpiling medicines, in case supplies from EU countries are interrupted. Government ministers and multinational companies with factories in the UK have also warned about the long-term impact on the British economy. Brexit-supporting MPs claim it would not be as bad as they say and the UK would save on the £39bn divorce bill, as well as being free to strike its own beneficial trade deals around the world.

Would trade with the EU continue? (no deal)

The World Trade Organization sets rules for countries that don't have free trade deals with each other, including tariffs - the taxes charged on the import of goods. Without an agreement on trade, the UK would trade with the EU under World Trade Organization rules.

Brexit and fishing

The agreement says that a separate agreement will need to be reached on access to EU fishing in UK waters. The document says: "The Union and the United Kingdom shall use their best endeavours to conclude and ratify 'an agreement' on access to waters and fishing opportunities." Chris Morris's analysis: Fishing is always a hot button issue, even though in most countries the fishing sector forms a tiny part of the economy. Fishing has been left out of plans for a single customs territory because several countries objected to the idea that UK fish produce would be allowed unimpeded access to EU markets, without any corresponding guarantee that EU boats would be granted access to UK fishing waters. It's an example of how negotiations on a temporary customs union were bound to throw up a host of complications - and a reminder of how tough negotiations on a future trade agreement are likely to be.

What's the difference between the single market and the customs union?

The customs union ensures EU member states all charge the same import duties to countries outside the EU. It allows member states to trade freely with each other, without burdensome customs checks at borders, but it limits their freedom to strike their own trade deals. It is different from a free trade area. In a free trade area no tariffs, taxes or quotas are charged on goods and services moving within the area but members are free to strike their own external trade deals. The government says the UK is leaving the customs union after the transition period but ministers have yet to decide on what will replace it.

What is the single market?

The single market is seen by its advocates as the EU's biggest achievement and one of the main reasons it was set up in the first place. Britain was a member of a free trade area in Europe before it joined what was then known as the common market. In a free trade area countries can trade with each other without paying tariffs - but it is not a single market because the member states do not have to merge their economies together. The European Union single market, which was completed in 1992, allows the free movement of goods, services, money and people within the European Union, as if it was a single country. It is possible to set up a business or take a job anywhere within it. The idea was to boost trade, create jobs and lower prices. But it requires common law-making to ensure products are made to the same technical standards and imposes other rules to ensure a "level playing field". Critics say it generates too many petty regulations and robs members of control over their own affairs. Mass migration from poorer to richer countries has also raised questions about the free movement rule.

What about Brits living in EU countries? (no deal)

There is uncertainty about what no deal would mean for Britons living in France, Spain, Germany and elsewhere. The priority for most will be to register as residents, but the rules - including deadlines for paperwork - vary from country to country.

How did the snap 2017 election change things?

Theresa May surprised almost everyone after the 2017 Easter Bank Holiday by calling an election for 8 June (it had not been due until 2020). She said she wanted to strengthen her hand in Brexit negotiations with European leaders. She said Labour, the SNP and other opposition parties - and members of the House of Lords - would try to block and frustrate her strategy. However Mrs May did not increase her party's seats in the Commons and she ended up weakened, having to rely on support from the 10 MPs from Northern Ireland's Democratic Unionist Party.

Is Theresa May's Brexit deal now dead?

Theresa May's deal cannot come into effect until it has been passed by Parliament. It has now been heavily defeated in two "meaningful" votes, and a third vote just on the withdrawal agreement itself, governing the terms of the UK's departure, not the "future relationship", a non-binding bit of the deal which maps out aspirations for long-term trade, economic and security cooperation and more. She has told EU leaders that her cross-party talks with Labour are "based on acceptance of the withdrawal agreement without reopening it" - with the aim of getting it - and a "shared vision for the future relationship", which could be subject to some change, approved by the Commons. So she has not ruled out having another go at getting it ratified - and hopes that reaching out to Labour can help break the deadlock. There is a separate sticking point about whether Speaker John Bercow will allow her to bring the deal back again for another vote.

What do 'soft' and 'hard' Brexit mean?

These terms are used during debate on the terms of the UK's departure from the EU. There is no strict definition of either, but they are used to refer to the closeness of the UK's relationship with the EU post-Brexit. So at one extreme, "hard" Brexit could involve the UK refusing to compromise on issues like the free movement of people even if it meant leaving the single market or having to give up hopes of aspects of free trade arrangements. At the other end of the scale, a "soft" Brexit might follow a similar path to Norway, which is a member of the single market and has to accept the free movement of people as a result of that.

Brexit and citizen's rights

This is broadly unchanged from the initial draft of the withdrawal agreement which came out in March. UK citizens in the EU, and EU citizens in the UK, will retain their residency and social security rights after Brexit. Citizens who take up residency in another EU country during the transition period (including the UK of course) will be allowed to stay in that country after the transition. Anyone that stays in the same EU country for five years will be allowed to apply for permanent residence. Chris Morris's analysis: The European Parliament has promised to make citizens' rights its top priority. But while politicians on all sides are telling citizens that they want them to stay, the Brexit process has caused an enormous amount of anxiety and uncertainty. British citizens in other EU countries, for example, still don't know whether they will be able to work across borders after the transition period, because their right to reside only applies to the specific country where they live. Recognition of professional qualifications, and access to university education on the same terms they have now are also unresolved issues.

What is the transition period?

This is part of the withdrawal agreement, which so far, has not been approved by MPs. It refers to a period of time after Brexit until 31 December, 2020 (or possibly later), to get everything in place and allow businesses and others to prepare for the moment when the new post-Brexit rules between the UK and the EU begin. It would also allow more time for the details of the new relationship to be fully hammered out. Free movement would continue during the transition period, as the EU wanted. The UK would be able to strike its own trade deals - although they wouldn't be able to come into force until 1 January 2021. But it all rests on the withdrawal deal being ratified. The transition period (which the UK government calls "implementation period") is due to last for 21 months. The UK will need to abide by all EU rules, but will lose membership of its institutions. The draft withdrawal agreement says the transition can be extended, but only for a period of one or two years. Both the UK and EU must agree to any extension.

How is the prospect of using protectionism to help domestic industries in comparison to the prospect in the 1980s?

Today, the prospect that import restrictions can help domestic producers is even dimmer than it was in the 1980s. That's because firms engaged in international trade now form part of intricate global supply chains. About half of all U.S. imports consist of intermediate goods, such as factory equipment, parts and components, and raw materials. Many U.S. companies depend on imported intermediate goods in their production process or sell their outputs to other firms around the world that use them as inputs. As a result, protectionist measures today would prove much more disruptive than they did in the 1980s. The implications for trade policy are enormous. Any import restriction that helps some upstream producers by raising the prices of the goods they sell will hurt downstream industries that use those goods in production. If a tariff raises the price of steel to help U.S. Steel, it will hurt steel consumers such as John Deere and Caterpillar by raising their costs relative to those of foreign competitors. If a quota keeps out imported sugar to boost domestic prices, it will raise costs for the domestic confectionery industry. (Indeed, in 2002, Kraft moved the production of Life Savers candy to Canada in response to the high cost of sugar in the United States.) Typically, there are far more workers in the downstream industries whose jobs will be jeopardized by trade restrictions than workers in the upstream industries whose jobs might be saved by them. In an effort to help the 147,000 Americans employed in the steel industry, for example, Washington may harm the 6.5 million Americans employed in steelusing industries. Even if trade protection can succeed in helping some domestic producers at the expense of others, it is an illusion to think that it will create many new manufacturing jobs, particularly for lowskilled workers. In the United States, manufacturing has become technologically sophisticated and involves many more engineers and technicians than blue-collar workers on the assembly lines. The clock cannot be turned back. Consider the steel industry: in 1980, it took ten man-hours to produce a ton of steel; today it takes just two. So boosting steel output will not create nearly as many jobs as it would have in the past. Even if a particular trade measure succeeds in terms of protecting jobs in a specific sector, it will cost consumers dearly. When the Obama administration imposed special duties on tires imported from China in 2009, the measure saved at most about 1,200 jobs-at a cost to consumers, in the form of higher tire prices, of $900,000 per job. And by pushing U.S. production toward the types of lower-quality tires that the United States had been importing and away from the high-quality tires that U.S. producers specialized in making, the tariff froze American workers in low-end jobs at the expense of high-end ones. No country can protect the jobs of the past without losing the jobs of the future. Another reason trade protection today makes even less sense than it did three decades ago is that other countries are sure to retaliate in a way that they did not before. Back then, the United States demanded that other countries restrict their exports to the United States. Because foreign suppliers reduced their exports themselves to avoid U.S. punishment, they were able to charge much more for these suddenly scarce goods and earn exceptionally high profits. Although countries such as Japan did not always like restricting their exports, they did not strike back because the United States was not imposing tariffs on them. Today, such export restrictions would violate WTO rules. If the United States nonetheless arbitrarily imposed steep tariffs or other trade restrictions on imports, other countries would inevitably retaliate against U.S. exports. That would directly threaten U.S. farm and factory workers. In a report released last year, the Department of Commerce estimated that 11.5 million U.S. jobs were supported by exports. Those jobs-which tend to pay above-average wages for manufacturing-would be jeopardized if the United States started slapping taxes on imports. Protectionism is a game that more than one country can play. Foreign retaliation could even occur if the measures were permissible under WTo rules. In the past, whenever the United States slapped duties on Chinese imports under antidumping provisions allowed by the WTO, China's regulators would suddenly find that U.S. poultry or pork was contaminated and had to be banned, its airlines would start buying from Airbus instead of Boeing, or its food companies would purchase Argentine soybeans and Australian wheat rather than the American equivalents. Finally, protectionism damages the U.S. economy even when no one retaliates. Trade restrictions increase the price of imported goods- not just for businesses that employ workers but for households, too. The higher prices that these consumers pay for goods affected by import restrictions reduce the amount of money they can spend on other goods. To make matters worse, tariffs on imports also act as a kind of regressive tax. Because poorer households tend to spend proportionately more of their income on tradable goods such as food, clothing, and footwear, they bear a disproportionate burden of import restrictions. You wouldn't know it from listening to most politicians, but low- and middle-income households benefit substantially more from trade than do high-income households.

THE FUTURE OF FREE TRADE

Trump's "America first" trade rhetoric has sparked fears in foreign capitals of a coming trade war. Economists of all political stripes remain deeply skeptical that the protectionist measures the president discussed during the campaign will spur a renaissance of manufacturing production or do much to boost employment. Yet Trump's pronouncements on trade are not just economically problematic; they also raise troubling questions about the United States' place in the world. A turn inward would mean abandoning global leadership, threatening the country's economic and political interests. Already, the abrupt termination of the tff has stoked fears of a U.S. retreat from Asia. Trump's saber rattling with Mexico has led to a growing anti-American backlash there. Just consider what happened in Canada after the United States imposed the Smoot-Hawley Tariff. The pro-American, pro-free-trade Liberal government lost power to the protectionist Conservative Party, which promptly retaliated against U.S. exports. In Mexico, the last thing the United States needs is to inadvertently give rise to an anti-American president who returns to economic nationalism and seeks common cause with leftist governments in Cuba and Venezuela. There is a charitable view of Trump's threats to impose trade barriers, however: that they represent a negotiating tactic to seek new agreements that would scale back other countries' distorting policies. In a January interview with The New York Times, Trump called himself "a free trader" but added, "It's got to be reasonably fair." Likewise, the administration has announced that it wants to replace the tff with a series of bilateral agreements, although it's not clear why a dozen bilateral agreements would prove superior to one regional agreement. Unfortunately, most of what Trump has said to date suggests that he is interested in protectionism for protectionism's sake. He seems to view international trade as a zero-sum game, in which one country wins and another loses, with the trade balance being the scorecard. "We will follow two simple rules: Buy American and hire American," he said in his inaugural address. But if every country adopted a similar pledge, international trade would shrivel up. Lessons from the past, such as the trade disaster of the 1930s, suggest that protectionism begets protectionism. Indeed, a poll released in February found that 58 percent of Canadians want their government to fight a trade war if the United States imposes tariffs on Canadian goods. History also reveals that trade barriers are easy to impose and hard to remove. And it can take decades to repair the damage.

TRADE BATTLE #3: UNFAIR TRADE PRACTICES FOR TECHNOLOGY, INTELLECTUAL PROPERTY (IP)

USTR Self-Initiates Investigation of China August 18, 2017 US Trade Representative Robert E. Lighthizer self-initiates an investigation of China under Section 301 of the Trade Act of 1974, after President Trump's memorandum of August 14, 2017, instructing him to consider whether to investigate any of China's laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development. Unfair Trade Practices Investigation Results March 22, 2018 The Trump administration releases its report finding China is conducting unfair trade practices related to technology transfer, intellectual property, and innovation under Section 301 of the Trade Act of 1974. Trump indicates forthcoming remedies of tariffs on up to $60 billion of Chinese products, a World Trade Organization (WTO) dispute, and new rules on investment. US Threatens Tariffs April 3, 2018 The Trump administration releases its $50 billion list of 1,333 Chinese products under consideration for 25 percent tariffs, which covers $46.2 billion of US imports. The top sectors hit are machinery, mechanical appliances, and electrical equipment. Roughly 85 7 percent of the imports targeted by the tariffs are in intermediate inputs and capital goods, which would raise costs within American companies' supply chains. China Threatens Retaliation on Autos, Aircraft, and Agriculture April 4, 2018 China publishes its list of 106 products subject to forthcoming 25 percent tariffs as retaliation for Trump's Section 301 tariffs, covering $50 billion of China's imports from the United States. They mostly affect US transportation (vehicles, aircraft, and vessels) and vegetable products (largely soybeans). US Considers Additional Tariffs on $100 Billion April 5, 2018 Trump instructs trade officials to consider whether an additional $100 billion of US imports from China should be subject to new tariffs. White House Plans Tariffs After Brief "Hold" May 29, 2018 After Treasury Secretary Steven Mnuchin said the tariffs were "on hold" on May 20, the White House releases a statement that it would impose tariffs on $50 billion of goods from China shortly after announcing the final list of covered imports on June 15, 2018. US Revises $50 Billion Tariff List June 15, 2018 The US Trade Representative releases a revised list of products on which it plans to impose 25 percent tariffs, in two phases starting July 6, 2018. Compared with the original list proposed on April 3, 2018, the new $50 billion list targets even more intermediate inputs—95 percent of the products hit are now intermediate inputs or capital equipment used largely by American-based companies dependent on imports from China. The updated list still mostly misses imports from Chinese companies, based on 2017 data. China's Revised Retaliation List June 15, 2018 China issues an updated $50 billion retaliation list of 25 percent tariffs. It targets roughly $45 billion of US exports to China in 2017, including a lot of agricultural and food products. China also plans a two-phase approach for this list, covering $34 billion of US goods starting July 6, 2018, including soybeans and vehicles. The remaining $16 billion of products would be covered later, likely pending the Trump administration's proposed second phase of tariffs released June 15. Compared with China's April 4 list, the country adds mineral fuels, some consumption goods, and medical equipment. Aircraft are taken off the list. 8 Trump Asks for More Tariffs June 18, 2018 In response to China's retaliatory tariffs announced June 15, 2018, President Trump directs the US Trade Representative to identify an additional $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. This is on top of the $50 billion list of June 15. He also threatens another $200 billion of tariffs if China retaliates again. US and China Impose First Phase of June 15 Tariff Lists July 6, 2018 US tariffs on $34 billion of Chinese imports go into effect, the first phase of its June 15 $50 billion list. In parallel with President Trump's tariffs, China's tariffs on the first $34 billion of its $50 billion list of US imports also go into effect. USTR Announces $200 Billion Tariffs on China July 10, 2018 Following up on the June 18 request, the US Trade Representative releases a list of $200 billion of imports from China to be subjected to new 10 percent tariffs after public hearings in August. Intermediate goods, like computer and auto parts, make up 47 percent of the list. Consumer goods are more heavily targeted than in the previous June 15 list—including telephones, computers, furniture, lamps, and luggage. This list combined with the $50 billion list of June 15 would cover $250 billion of the roughly $504 billion of goods imported from China in 2017. Trump Threatens Tariffs on All Imports from China July 20, 2018 In an interview, Trump says he is ready to impose tariffs on all US imports from China, which totaled $504 billion in 2017. The threat covers the remaining $262 billion of imports not already under previous tariffs or being investigated as previously announced under the Section 301 investigation. Capital goods and consumer products would be the primary targets, since intermediate inputs were already previously targeted, and include mobile phones, laptops, and clothing. Subsidies for American Farmers After Export Fallout July 24, 2018 The US administration announces it will subsidize American farmers for up to $12 billion for their lost export sales resulting from all of the president's tariffs (including steel and aluminum) using a law that supported farmers during the Great Depression. A total of $27 billion of US agriculture exports are being affected, like soybeans, corn, nuts, fruit, and beef. 9 Trump Wants 25 Percent Tariffs, Not 10 Percent August 1, 2018 Following Trump's direction, the US Trade Representative considers a 25 percent tariff rate rather than the 10 percent rate on the list of $200 billion of imports released July 10. China Threatens $60 Billion Tariffs August 3, 2018 China warns it could add duties of 5 to 25 percent on $60 billion of US goods following Trump's threat to raise proposed tariff rates on $200 billion of Chinese goods from 10 to 25 percent as well as potentially cover all $500 billion of imports from China with tariffs. The list targets mostly intermediate inputs, followed by capital goods and consumption goods. Combining this new list with the June 15 list leaves only $53 billion of Chinese imports from the United States that are not yet subject to Chinese retaliatory tariff lists. USTR Finalizes Second Tranche of Tariffs August 7, 2018 The Trump administration releases a revision to the second phase of its $50 billion list, announcing that $16 billion of imports from China will be subject to a higher 25 percent tariff rate, going into effect on August 23. After public hearings, the US Trade Representative removed only 5 of the 284 products subject to the list published on June 15. Those products include alginic acid, splitting machines, containers, floating docks, and microtomes—imports worth $400 million in 2017. China Revises Its $50 Billion Tariff List, Removing Crude Oil August 8, 2018 China revises the second tranche of its June 15 list of $50 billion of imports from the United States with which it planned to impose 25 percent tariffs. Crude oil was removed and replaced with a number of other products. The tariffs on the revised list, covering $16 billion of imports from the United States, are expected to go into effect as soon as the Trump administration's second tranche of its June 15 tariff list is imposed on August 23. US Passes Law on Trade and National Security August 13, 2018 Trump signs the John S. McCain National Defense Authorization Act For Fiscal Year 2019 into law, which contains two key provisions on monitoring some foreign investments in the United States (FIRRMA) and outbound transfers of technology (ECRA). 10 US and China Impose Second Phase of $50 Billion Tariffs August 23, 2018 The Trump administration followed through with imposing tariffs on $16 billion of imports from China, the second phase of the revised $50 billion list released June 15. China immediately responded with its own revised tariffs on $16 billion of US exports, also announced on June 15. These actions complete each country's first $50 billion of tariffs originally announced in April. Trump Finalizes $200 Billion Tariff List September 17, 2018 President Trump finalizes the list of products on $200 billion of imports from China that will be subject to a 10 percent tariff that goes into effect on September 24. Trump also announced the rate will increase to 25 percent on January 1, 2019. Of the newly targeted imports, 50 percent are intermediate goods, like computer and auto parts, but 24 percent are consumer goods, up from the 1 percent of consumer goods targeted in the previous tariff phase. Products dropped from the original July 10 proposed list include bedsheets and gloves, along with, reportedly, smartwatches. China Finalizes Tariffs on $60 Billion of US Goods September 18, 2018 China announced its plan to place tariffs on $60 billion of US exports if Trump goes ahead with his recently finalized tariffs on $200 billion of Chinese exports. These tariffs are mainly on intermediate inputs and capital equipment, and range from 5 to 10 percent, down from the 5 to 25 percent originally announced. Next Phase of Tariffs Goes into Effect September 24, 2018 US tariffs on $200 billion of Chinese imports announced on September 17 take effect, along with retaliatory tariffs by China on $60 billion of US imports announced on September 18. The United States now has tariffs on 12 percent of its total imports during 2018, while the combined trading partner retaliation covers of total US exports. US-China Tariff Truce December 1, 2018 After the G-20 meeting in Buenos Aires, Presidents Trump and Xi announce a deal to halt the escalation of tariffs that were expected in January while they negotiate over trade concerns. However, because there is no joint statement, and some disagreement between the statements of the White House and Chinese state media, details remain murky. The US statement says that if no agreement is reached by March 1, 2019, the 10 percent tariffs will be raised to 25 percent. 11 Almost 15 Percent of US Imports Are Now Protected February 15, 2019 In 2018, Trump's actions combined with already existing tariffs have resulted in 14.9 percent of US goods imports covered by some form of trade protection, based on 2017 import data. Trump's actions alone covered $303.7 billion, or 12.6 percent. Some products are being hit by multiple tariffs. China, Canada, the European Union, South Korea, and Mexico are the biggest targets. Tariff Increase Delayed February 24, 2019 President Trump announces via Twitter that he will delay the tariff increase on $200 billion of imports from China that had been scheduled to go into effect on March 1, 2019. The 10 percent tariffs would have been raised to 25 percent.

What is in Theresa May's deal with the EU?

What is in Theresa May's deal with the EU? After months of negotiation, the UK and EU agreed a Brexit deal. It comes in two parts. A 585-page withdrawal agreement. This is a legally-binding text that sets the terms of the UK's divorce from the EU. It covers how much money the UK owes the EU - an estimated £39bn - and what happens to UK citizens living elsewhere in the EU and EU citizens living in the UK. It also proposes a method of avoiding the return of a physical Northern Ireland border. A 26-page statement on future relations. This is not legally-binding and sketches out the kind of long-term relationship the UK and EU want to have in a range of areas, including trade, defence and security.

Credit Default Swap (CDS)

an insurance policy on the default risk of a corporate bond or loan. Through a CDS, the buyer can avoid the consequences of a borrower's default by shifting some or all that risk onto an insurance company or other CDS seller in exchange for a fee. In this way, the buyer of a credit default swap receives credit protection, while the seller of the swap guarantees the creditworthiness of the debt security. For example, the buyer of a credit default swap will be entitled to the par value of the contract by the seller of the swap, along with any unpaid interest, should the issuer default on payments. It is important to note that the credit risk isn't eliminated - it has been shifted to the CDS seller. The risk is that the CDS seller defaults at the same time the borrower defaults. This was one of the primary causes of the 2008 credit crisis: CDS sellers like Lehman Brothers, Bear Stearns and AIG defaulted on their CDS obligations. While credit risk hasn't been eliminated through a CDS, risk has been reduced. For example, if Lender A has made a loan to Borrower B with a mid-range credit rating, Lender A can increase the quality of the loan by buying a CDS from a seller with a better credit rating and financial backing than Borrower B. The risk hasn't gone away, but it has been reduced through the CDS. If the debt issuer does not default and if all goes well, the CDS buyer will end up losing money through the payments on the CDS, but the buyer stands to lose a much greater proportion of its investment if the issuer defaults and if it had not bought a CDS. As such, the more the holder of a security thinks its issuer is likely to default, the more desirable a CDS is and the more it will cost.

Capital Control

are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measures may be economy-wide, sector-specific, or industry specific.

Convergence Criteria

are the criteria which European Union member states are required to meet to enter the third stage of the Economic and Monetary Union (EMU) and adopt the euro as their currency. 1. Inflation no higher than 1.5% higher than best 3 performers 2. Interest rates no higher than 2% higher than best 3 performers 3.Currency within ERM bands for 2 years 4. Maximum 3% budget deficit 5.Maximum 60% debt The process of joining for new countries 1. Meet convergence criteria 2. Stay in ERM for two years 3. Introduce Euro

Structured Investment Vehicle (SIV)

company created by a bank as a means of holding assets off its balance sheet, thus allowing it to circumvent capital requirements. What Is a Structured Investment Vehicle? A structured investment vehicle (SIV) is a pool of investment assets that attempts to profit from credit spreads between short-term debt and long-term structured finance products such as asset-backed securities (ABS). Structured investment vehicles are also known as conduits. Understanding Structured Investment Vehicle (SIV) A structured investment vehicle (SIV) is a type of special purpose fund that borrows for the short-term by issuing commercial paper in order to invest in long-term assets with credit ratings of between AAA and BBB. Long term assets frequently include structured finance products such as Mortgage-Backed Securities (MBS), Asset-Backed Securities (ABS), and the less risky tranches of Collateralized Debt Obligations (CDOs). Funding for SIVs comes from the issuance of commercial paper that is continuously renewed or rolled over; the proceeds are then invested in longer maturity assets that have less liquidity but pay higher yields. The SIV earns profits on the spread between incoming cash flows (principal and interest payments on ABS) and the high-rated commercial paper that it issues. For example, an SIV that borrows money from the money market at 1.8% and invests in a structured finance product with a 2.9% return will earn a profit of 2.9% - 1.8% = 1.1%. The difference in interest rates represents the profit that the SIV pays to its investors, part of which is shared with the investment manager. In effect, the commercial paper issued matured sometime within 2 to 270 days, at which point, the issuers simply issue more debt to repay maturing debt. Thus, one can see how structured investment vehicles often employ great amounts of leverage to generate returns. These financial vehicles are typically established as offshore companies specifically to avoid regulations that banks and other financial institutions are subject to. In essence, SIVs allow their managing financial institutions to employ leverage in a way that the parent company would be unable to do due to capital requirement regulations set by the government. However, the high leverage employed is used to magnify returns which when coupled with short-term borrowings exposes the fund to liquidity in the money market. Structured investment vehicles are less regulated than other investment pools and are typically held off the balance sheet by large financial institutions such as commercial banks and investment houses. This means that its activities do not have an impact on the assets and liabilities of the bank that creates it. SIVs gained much attention during the housing and subprime fallout of 2007; tens of billions in the value of off-balance sheet SIVs was written down or placed into receivership as investors fled from subprime mortgage related assets. Many investors were caught off guard by the losses since little was publicly known about the specifics of SIVs, including such basics as what assets are held and what regulations determine their actions. Toward the end of 2008, no SIVS remained in operation.

Brexit and laws

he UK will remain under European Court of Justice (ECJ) jurisdiction during the transition. A joint UK-EU committee will be set up to try to resolve any disputes on the interpretation of the withdrawal agreement. If the backstop is triggered and the UK forms a single customs territory with the EU, the ECJ will not be able to resolve disputes between the UK and EU directly. Instead, the whole dispute resolution procedure will be backed up by an arbitration panel. However, if any dispute rests on the interpretation of EU law, the arbitration panel refers the case to the ECJ for a binding decision. Chris Morris's analysis: Most of this draft agreement deals with matters of EU law, so the European Court of Justice casts a long shadow. The arbitration system for resolving disputes creates a semblance of independence and ECJ rulings will no longer have direct effect in the UK once transition is over. That is an important point of principle for the UK government, but the European Court will continue to have indirect influence over the UK for many years to come.

Fiscal Union

involves individual countries sharing the same common budget. It means spending and tax levels would be taken by a central fiscal authority. Fiscal union also means debt would be financed by a common bond rather than individual countries. Fiscal union is proposed as a step for further European integration.

Consumer Protection

is a group of laws and organizations designed to ensure the rights of consumers as well as fair trade, competition and accurate information in the marketplace. The laws are designed to prevent the businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors. They may also provide additional protection for those most vulnerable in society. Consumer protection laws are a form of government regulation that aim to protect the rights of consumers. For example, a government may require businesses to disclose detailed information about products—particularly in areas where safety or public health is an issue, such as food.

Deposit Insurance

is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems are one component of a financial system safety net that promotes financial stability.

Austerity

is a political-economic term referring to policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. Austerity measures are used by governments that find it difficult to pay their debts. A good example of this occurred in Greece by the mandate of Germany.

Backstop

is a position of last resort, to maintain an open border on the island of Ireland in the event that the UK leaves the EU without securing an all-encompassing deal. The backstop would also involve a temporary single customs territory, effectively keeping the whole of the UK in the EU customs union. If future trade talks broke down without a deal, the backstop would apply indefinitely. The arrangement would end only with the agreement of both the UK and the EU. Why are so many MPs against it? The backstop was a key sticking point for many MPs who voted down the deal. They feared it could leave Britain tied to the EU indefinitely with no say over its rules and no ability to strike trade deals with other countries.

CDO

is a structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors. A collateralized debt obligation is named for the pooled assets... such as mortgages, bonds and loans...that are essentially debt obligations that serve as collateral for the CDO. The tranches in a CDO vary substantially in their risk profiles. The senior tranches are generally safer because they have first priority on payback from the collateral in the event of default. As a result, the senior tranches of a CDO generally have a higher credit rating and offer lower coupon rates than the junior tranches, which offer higher coupon rates to compensate for their higher default risk.

Second order election

is a term that appeared for the first time in Karlheinz Reif and Hermann Schmitt's "Nine second-order national elections - A conceptual framework for the analysis of European election results" article for the [European Journal of Political Research, in 1980][1]. It was used to analyze the first European Parliament elections, held in 1979 in the, then, nine member states of the European Economic Community. According to the "second-order elections" approach, European Parliament elections were "second-order" in that they were viewed as less important by voters, parties and the media than first-order elections.

Subprime Mortgage

is a type of loan granted to individuals with poor credit scores (640 or less, and often below 600), who, as a result of their deficient credit histories, would not be able to qualify for conventional mortgages. Because subprime borrowers present a higher risk for lenders, subprime mortgages usually charge interest rates above the prime lending rate.

Customs union

is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff. Customs unions are established through trade pacts where the participant countries set up common external trade policy.

ECB

is the central bank for the euro and administers monetary policy within the Eurozone, which comprises 19 member states of the European Union and is one of the largest monetary areas in the world. Established by the Treaty of Amsterdam, the ECB is one of the world's most important central banks and serves as one of seven institutions of the European Union, being enshrined in the Treaty on European Union (TEU). The bank's capital stock is owned by all 28 central banks of each EU member state.[2] The current President of the ECB is Mario Draghi. Headquartered in Frankfurt, Germany, the bank formerly occupied the Eurotower prior to the construction of its new seat. The primary objective of the ECB, mandated in Article 2 of the Statute of the ECB,[3] is to maintain price stability within the Eurozone. Its basic tasks, set out in Article 3 of the Statute,[3] are to set and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and operation of the financial market infrastructure under the TARGET2 payments system and the technical platform (currently being developed) for settlement of securities in Europe (TARGET2 Securities). The ECB has, under Article 16 of its Statute,[3] the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins, but the amount must be authorized by the ECB beforehand.

Systemic Risk

is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy. Systemic risk was a major contributor to the financial crisis of 2008. Companies considered to be a systemic risk are called "too big to fail." These institutions are large relative to their respective industries or make up a significant part of the overall economy. A company highly interconnected with others is also a source of systemic risk. Systemic risk should not be confused with systematic risk; systematic risk relates to the entire financial system. System risk in banking means the collapse of one bank could lead to the collapse of all banks.

Securitization

is the procedure whereby an issuer designs a financial instrumentby merging various financial assets and then markets tiers of the repackaged instruments to investors. This process can encompass any type of financial asset and promotes liquidity in the marketplace.

Bubble

sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value.