Archive for the ‘Trade’ Category

In a new IMF working paper, Assessing Systemic Trade Interconnectedness – An Empirical Approach, authors Luca Errico and Alexander Massara focus on systemically important jurisdictions in the global trade network, complementing recent IMF work on systemically important financial sectors. Using the IMF’s Direction of Trade Statistics (DOTS) database and network analysis, the paper develops a framework for ranking jurisdictions based on trade size and trade interconnectedness indicators using data for 2000 and 2010. The results show a near perfect overlap between the top 25 systemically important trade and financial jurisdictions, “suggesting that these ought to be the focus of risk-based surveillance on cross-border spillovers and contagion. In addition, a number of extensions to the approach are developed that can provide a better understanding of trade dynamics at the bilateral, regional, and global levels.”

Conclusions

The paper has laid out our approach for assessing systemic trade interconnectedness using network analysis and the IMF’s DOTS database. Our results uncover several stylized facts offering additional insights into the changing patterns of global trade over the decade 2000-2010.  We also have shown possible applications of our approach to gain a better understanding of trade dynamics across world regions and the overlapping of trade and financial sectors of systemic importance in the top 25 jurisdictions. Our approach lends itself easily to a wide range of analytical exercises addressing specific global trade issues, as well as global (trade and financial) interconnectedness issues.

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Joe Saddi, Karim Sabbagh, and Richard Shediac (see authors’ profiles) wrote an article about how the the Gulf economies of the Middle East are forming partnerships with other emerging markets, redefining the ancient trade routes that once linked East and West.

Excerpts:

When King Abdullah bin Saud, the current ruler of Saudi Arabia, came to power in August 2005, he wasted little time in demonstrating his vision for the country’s future. His first official overseas visit, in January 2006, was not to U.S. president George W. Bush, U.K. prime minister Tony Blair, or German chancellor Angela Merkel — but to Chinese president Hu Jintao.

The meeting reflected both countries’ desire to forge closer economic ties. Before King Abdullah went on to other emerging markets, including India, Malaysia, and Pakistan, he and President Hu signed an agreement of cooperation in oil, natural gas, and minerals. This agreement built on existing relationships between the countries’ national energy companies, Saudi Aramco and Sinopec, which had formed a partnership in 2005 to construct a US$5 billion oil refinery in eastern China’s Fujian province. In 2011, they signed a memorandum of understanding to build a refinery in Yanbu, on the west coast of Saudi Arabia. Sinopec is also engaged in a joint venture with Saudi Arabia’s petrochemicals giant SABIC; in 2010, they began producing various petrochemical products in a $3 billion complex in the city of Tianjin in northeast China, and have recently announced that they will build a $1 billion–plus facility there to produce plastics.

[...]

But a closer look reveals a separate trend that could shift the economic focus away from the West. Emerging markets are building deep, well-traveled networks among themselves in a way that harks back to the original “silk road,” the network of trade routes between East Asia, the Middle East, and southern Europe, some dating to prehistoric times and others to the reign of Alexander the Great. Most of these routes were central to world commerce until about 1400 AD, when European ships began to dominate international trade.

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Excerpts from the World Bank new publication on MENA:

There are historic opportunities for greater openness and citizen participation in economies across the Middle East and North Africa (MENA) that, if strongly managed over the transitions ahead, could see a significant boost to economic growth and living standards in the medium term.
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The National Post‘s “Fair-trade coffee fix,” penned by Lawrence Solomon, founder of a roastery and coffee shop in Toronto (which supports a foundation he manages), should serve as a reminder to consumers to not blindly trust labels — and it should be a wake up call for the entire concept of “fair trade.” Solomon, who says he’s had contact with third-world coffee  producers over the past seven years, has evidence that fair trade hurts the same farmers it intends to help (especially in Africa). High certification fees serve as a barrier to entry protecting larger producers, and they also appear to enrich the certification associations, which reportedly have lax compliance and monitoring. A win, mostly, for the larger players; a win for the middlemen; a win for the retailers able to mark-up “fair-trade” brands; but a major loss for the smaller farmers. Solomon makes the poignant point that small farmers are in fact truly organic since they lack even the money to purchase fertilizer and pesticides. Ironically, for the larger, certified producers, it turns out that actions taken by fair-trade associations to artificially limit supply (to keep prices high) results in coffee that should be certified “fair-trade” being sold as regular coffee, which impacts the revenue of the producer. To be fair, Solomon reports of coffee producers gaming the system, too.

Allow TradeFlow21 to say that this arrangement stinks! It reeks of exploitation – of “unfair” trade. The fair-trade associations need to be investigated for their illegal price-fixing. Consumers should not tolerate this. While willing to pay a premium for a supposed better coffee and to support farmers, there is absolutely no reason for consumers to perpetuate a rotten system. With advancements in wireless communications and social media, TradeFlow21 is hopeful that technology and software can be leveraged to level the playing field.

Excerpts of a WSJ article:

Bank of China Ltd., one of the country’s four major state-owned banks, has opened trading in the Chinese currency to customers in the U.S., representing a symbolic endorsement by Beijing of foreign trading in the yuan.

Until the middle of last year, the buying and selling of yuan, had largely been confined within China’s borders by the country’s strict capital controls. Trading in the yuan has ballooned in Hong Kong since Beijing first opened it up to offshore trading this past July.

Bank of China’s move is the first by a state-owned institution into yuan trading in the U.S. The move could also alleviate some worries that China may quickly reverse its decision to open up trading.

Bank of China, which is 70%-owned by the government, now allows companies and individuals to buy and sell the Chinese currency through accounts with its U.S. branches. Read the rest of this entry »

TradeFlow21 managing partner Steven Towns recently reviewed Trade Myths: Globalization has left trade balances behind, a profound book weighing in at all of 75 pages with an additional ten pages of charts that bust the same myths already exposed in prose. The author, Dr. Enzio von Pfeil, is a Hong Kong-based investment adviser and fund manager. A regular in the financial media in Asia, he is a former chief regional economist at leading London-based investment banks in Hong Kong. Enzio has long studied matters related to trade, and fortunately for those looking for perspective not readily found in the mainstream media, particularly in the U.S., he has penned Trade Myths. Of the five trade myths he discusses, in each instance, Enzio explains how misguided and anachronistic beliefs about trade could lead to an impaired U.S. economy with a simultaneous jump in interest rates having widespread repercussions. The book review begins below followed by Q&A. Read the rest of this entry »

Earlier this week, Treasury Secretary Tim Geithner traveled to Saudi Arabia to “reassure Gulf nations on their holdings of Treasury bills.” In an ‘Alice-in-Wonderland’ moment of reversed roles and expectations, Mr. Geithner said the U.S. will defend the dollar and, by extension, the integrity of investors who are helping underwrite U.S. debt, which now totals a whopping $11 trillion. His stop in Jeddah underscores the ever-expanding influence of the greater Middle East market as both a U.S. creditor and consumer of goods and services. Mr. Geithner reaffirmed America’s commitment in “keeping its economy open to foreign investment” while expanding international trade in the region. Clearly, this is encouraging news for Connecticut companies seeking entry into the greater Middle East market of over 500 million consumers. (See full article in Financial Times)

Ambassador Shaun Donnelly, who currently serves as Sr. Director of International Business Policy at the National Association of Manufacturers (NAM), told TradeFlow21 – Middle East Trade Summit participants (April 24) that he acknowledges there are challenges for businesses amidst the current economic backdrop, but he said he believes there are “even more opportunities.” Heed the Ambassador’s word since NAM’s membership exceeds 13,000. Furthermore, he stated, “It’s hard to have a strategy if you don’t have an export strategy,” citing the fact that approximately 95% of the world’s consumers reside outside the U.S. TradeFlow21 is cognizant of this, and thus is presently focused exclusively on the Middle East given the region’s many attractive growth characteristics, in addition to the prospect of realizing security through commercial prosperity. So without further ado, let’s review the “12 Rules for Exporting to the Middle East.” Read the rest of this entry »

In a commentary posted on the TradeFlow21 website in advance of President Obama’s speech, we wrote that necessity:

1)      demands the cessation of hostilities between Israel and its neighbors, including the creation of a sovereign Palestinian state as the only viable means of resolving the Palestinian question

2)      requires a U.S. policy that summarily rejects those in all quarters who use division and discord as a means of maintaining their “competitive advantage” in the region

3)      dictates that economic development, through investment and trade, be embraced as the preferred path to establishing a more stable, secure world for all

In his long-awaited speech on American-Muslim relations today in Cairo, President Obama responded, arguing that

1)      “America will not turn our backs on the legitimate Palestinian aspiration for dignity, opportunity and a state of their own”

2)      “as long as our relationship is defined by our differences, we will empower those who sow hatred rather than peace…conflict rather than cooperation…this cycle of suspicion and discord must end”

3)      “on economic development, we will create a new corps of business volunteers to partner with counterparts in Muslim-majority countries…I will host a summit on entrepreneurship this year to identify how we can deepen ties between business leaders, foundations and social entrepreneurs in the United States and Muslim communities around the world”

Thank you, Mr. President.  The partners of TradeFlow21 will join you in the cause to build a prosperous, secure Middle East through commerce and trade.  Let us now begin our work.

When President Barack Obama delivers his address tomorrow in Cairo to the wider Muslim world, he will do so at great political risk to himself and his administration.  But it is a risk that demonstrates the political courage of a first-term president who acts out of necessity, and not expediency.

Necessity demands the cessation of hostilities between Israel and its neighbors, including the creation of a sovereign Palestinian state as the only viable means of resolving the Palestinian question.

Necessity now requires a U.S. policy that summarily rejects those in all quarters who use division and discord as a means of maintaining their “competitive advantage” in the region.

Necessity dictates that economic development, through investment and trade, be embraced as the preferred path to establishing a more stable, secure world for all.

For over 60 years, the Middle East, which is comprised of over 20 nations spanning Northern Africa in the west to Southern Asia in the east, has been defined by conflict and oil. This is a new era. Real GDP non-oil growth in the region, which is projected to expand by more than 3.5 percent this year, suggests that Middle Eastern nations are actively pursuing commercial diversification as they seek to become full partners and competitors in the global economy. It also presents tremendous export opportunities for companies who want access to an emerging market of 500 million consumers.

The world is waiting for President Obama to signal a new turn in U.S. – Middle East relations where strategic alliances are built principally on commerce and trade. The partners of TradeFlow21 welcome such a change as both vital and necessary.