Benn Steil

Geo-Graphics

A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Showing posts for "Trade"

RMB Globalization, Once “Unstoppable,” Heads Into Reverse

by Benn Steil and Emma Smith

“The globalisation of the [Chinese RMB] seems remorseless and unstoppable,” the Economist pronounced in April 2014.  A year later, a research-grant foundation asked me (Benn) to review a proposal to investigate three scenarios for RMB globalization: more, much more, and way more.  I suggested the authors needed to add a fourth one: de-globalization.  I suspect they thought I was nuts. Read more »

Mini Mac Trumps the Big Mac

by Benn Steil and Emma Smith

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  But how well does it actually hold internationally? The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to measure the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Read more »

Is the Emerging Market Currency Plunge Really About Trade?

by Benn Steil and Emma Smith

Emerging market (EM) assets have taken a beating since Donald Trump’s surprise election victory on November 8.  EM bond prices are down 4.4 percent, equities 4.6 percent, and currencies 4.1 percent.  But is this really, as the Financial Times proclaimed, about “fears of trade protectionism”? Read more »

History Shows Trump’s Trade Policy Is a Recipe for Recession

by Benn Steil and Emma Smith

The central theme of Donald Trump’s economic policy is trade.  He promises to slash America’s trade deficit by tearing up international agreements and imposing massive new tariffs on imports from China (45%) and Mexico (35%).  By cutting the trade deficit from $500 billion to zero, according to his senior economic advisers, $1.74 trillion in new tax revenue will accrue to the Treasury over the next decade.  Trump will use this massive windfall to fund two-thirds of his proposed tax cuts.  If true, this will indeed go some way toward Making America Great Again. Read more »

Our Mini Mac Index Flame-Broils The Economist—Yet Again

by Benn Steil and Emma Smith

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  But to what extent does it actually hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Read more »

Psychology and the Oil Market

by Benn Steil and Dinah Walker

In his recent book, Market Madness: A Century of Oil Panics, Crises, and Crashes, our colleague Blake Clayton explains the role of market psychology in contributing to the wild price swings that have characterized the oil market over the past hundred years.   Using data from Google Books NGrams, he shows that whenever oil prices climb for an extended period comments about “running out of oil” and “running out of gasoline” proliferate. These beliefs have repeatedly proven unfounded. Read more »

The New Geo-Graphics iPad Mini Index Should Calm Talk of Currency Wars

by Benn Steil and Dinah Walker

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  To what extent does it hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonalds’ burgers around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued.  The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose.  Yet it travels badly – cross-border flows of burgers won’t align their prices internationally. Read more »

It’s (Almost) All Good on U.S. Trade Imbalances – China Remains Exception

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The yearly U.S. trade deficit peaked at 6.4% of GDP in August 2006. It improved significantly after the financial crisis, bottoming out at 3.6% in January 2010. This swing provided a boost to GDP and nudged the U.S. external balance toward a more sustainable level. The deficit then resumed an upward march, reaching 4.3% by November. A closer look at America’s bilateral trading relationships since the deficit high-point in 2006 reveals a significant improvement with many countries, and only a small deterioration with a few others. China – with which the U.S. has its largest deficit – is the conspicuous exception, as the figure shows. 2011 looks set to be a year of yet further-rising trade tensions between the two countries. Read more »

Tilting Turkish Trade

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Turkey’s exports to the Middle East have grown substantially over the last three years, particularly to Iraq, Egypt, Libya, and Iran. In tandem, its share of exports directed to the European Union has declined. This shift is being driven primarily by the faster growth of Turkey’s Middle Eastern trading partners, but also by a conscious Turkish political decision to cultivate such ties. Prime Minister Erdogan recently said he expected a proposed preferential trade agreement with Iran to lead to a tripling of bilateral trade within five years. While the EU remains a major Turkish trade partner, its declining relative economic importance to Turkey can be expected to weaken its political influence over the country. Read more »

U.S. Goes Low-Tech On China Exports

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Over the past decade, trade between the United States and China has grown dramatically while also becoming significantly more imbalanced. The United States ran a bilateral trade deficit with China of over $225 billion in 2009, compared with a $69 billion deficit in 1999. One factor contributing to this imbalance is U.S. export controls on certain high-tech products deemed important for national security. As illustrated in the chart above, the United States now exports to China relatively less machinery and relatively more crude materials, such as scrap metal, than it did a decade ago. China’s president Hu Jintao has urged the United States to relax technology export controls for years. The Obama administration is starting to push to do just that, in line with its goal of doubling exports in five years. U.S. Secretary of Defense Robert Gates has bluntly observed that “America’s decades-old, bureaucratically labyrinthine [export control] system does not serve our 21st-century security needs or our economic interest.” Read more »