World Economic Outlook Update: On Trade Policy Risks

From Maury Obstfeld, IMF, Chief Economist, today:

…the risk that current trade tensions escalate further—with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth. Global current account imbalances are set to widen owing to the United States’ relatively high demand growth, possibly exacerbating frictions. The United States has initiated trade actions affecting a broad group of countries, and faces retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others. Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020. As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.

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Trumpist Economic Discourse…and the Provision of a “Cliff’s Notes” Version

On reading my admonition to consult my paper with Oli Coibion, reader Ed Hanson writes:

Do you really have a problem explaining to those who can not follow your paper? I hope you do not teach undergraduate beginning economic courses. Unless. of course, your intention is to decrease economic understanding in the world. But then again, I suspect that exactly what you want, because only the economic illiterate and the power elite could support socialism.

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Interpreting Evidence on Forecasting Capabilities of Futures Relative to Other Methods

Despite provision of numerous references, reader CoRev writes:

… it’s a big IF that soybeans futures are LONG TERM predictors at all.

I find skepticism of forecasting capabilities usually justified. However, when that skepticism is not supported by any citations, I consider such skepticism self-serving. Hence, I am going to go step-by-step for those who are not familiar with econometric methods and assessment metrics, in the hopes of educating people about the challenges of systematic prediction. Here I use as an example soybeans.

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“The (Import) Taxes of August”

(With apologies to Barbara Tuchman.)

From Bloomberg, “U.S.-China Trade Talks Grind to a Halt”, in the wake of the announcement of $200 billion additional in taxable imports:

High-level trade talks between the U.S. and China have ground to a halt as the Trump administration threatens to escalate a trade war that shows little sign of abating, according to five people familiar with the matter.

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The Administration Proposes Another $200 bn Taxable Imports of Chinese Goods

The announcement of proposed items is here. From the announcement:

USTR and the interagency Section 301 Committee carefully reviewed the public comments and the testimony from the public hearing. USTR and the Section 301 Committee also carefully reviewed the extent to which the tariff subheadings in the April 6, 2018 notice include products containing industrially significant technology, including technologies and products related to China’s “Made in China 2025” industrial policy program.

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VoxEU: “The new Fama Puzzle”

That’s a new article at the outstanding web portal VoxEU, coauthored by Matthieu Bussière, Menzie Chinn, Laurent Ferrara, and Jonas Heipertz, and based on this paper:

The ‘Fama puzzle’ is the finding that ex post depreciation and interest differentials are negatively correlated, contrary to what theory suggests. This column re-examines the puzzle for eight advanced country exchange rates against the US dollar, over the period up to February 2016. The rejection of the joint hypothesis of uncovered interest parity and rational expectations still occurs, but with much less frequency. In contrast to earlier findings, the Fama regression coefficient is positive and large in the period after the Global Crisis, but survey-based measures of exchange rate expectations reveal greater evidence in favour of uncovered interest parity.

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