Barry Ritholtz: BBRG: The U.S. Labor Market Isn’t all That Healthy [feedly]

BBRG: The U.S. Labor Market Isn't all That Healthy
https://ritholtz.com/2019/07/bbrg-the-u-s-labor-market-isnt-all-that-healthy/

By most measures, the U.S. is at or very close to full employment. The unemployment rate today is 3.6%, the lowest since 1969.

And yet, there is a sense that something is amiss.

Consider the following data points. In a typical full employment economy, this is what you would expect to see:

-- Robust wage growth;

-- Rising consumer confidence; 

-- Record employment-to-population;

-- Longer workweeks and more overtime;

-- The chief financial officer survey showing confidence about the future;

-- Rising quit rates as employees aggressively change jobs;

-- Low and falling levels of people marginally attached to labor force;

-- High and rising consumer spending;

-- More household formations;

-- Housing sales (for new and existing homes) are strong;

In many case, these measures are not where you might expect them to be in the 10th year of what is now the longest economic expansion in postwar history. This isn't to suggest that these are portents of a tired economy beginning to run out of fuel, but rather, indicators of something more insidious -- larger, structural failures within the U.S. economy.

Don't be too quick to dismiss this as the result of the unholy trinity of labor woes: globalization, automation and decline of labor unions. These are well-known factors that have been keeping real wages in check for three decades.

Nor should we just blame the Great Recession and financial crisis for this state of affairs. We know that this is not the usual economic cycle, and that recoveries from financial crises take longer. No, something more fundamental seems to be in flux.

Yet there might be a much simpler explanation: The U.S. is nowhere near full employment.

There is a host of other data points that point to the underlying malaise of the labor market. Although not all of these are strictly economic measures, they include:

-- Long-term unemployment remains elevated;

-- A lot of people working part-time want full-time work;

-- Disability filings have increased dramatically;

-- The number of people marginally attached to the labor force is high;

-- Major increase in rates of depression and social withdrawal;  

-- Rising suicides;

-- Increase in early retirements;

-- Americans are angrier than they were a generation ago.

One labor economist who has studied this closely is Dartmouth professor David Blanchflower. The former member of the Bank of England's Monetary Policy Committee is the author of a new book, "Not Working: Where Have All the Good Jobs Gone?"

I spoke last month with Blanchflower about his work for a Masters in Business podcast. His conclusion is the U.S. economy is nowhere near full employment. According to him, unemployment can fall by a third from its present levels, closer to 2.5 percent, before we reach full employment. It is an outlier position, but one he backs up with a wealth of data.

In his telling, the underemployed today include those who might be working fewer hours than they would like. Then there are those with multiple part-time jobs and working as many as 80 hours a week, but because they are not with a single employer, they receive no retirement plan or health-care benefits. The gig economy was supposed to create lots of well-paying, independent jobs; these Uber expectations have been dashed by the reality of long hours, mediocre pay and no benefits.

The shift to lower wage jobs for entire groups of workers is similarly problematic. Working full time while earning much less than in the past has profound ramifications. Entire industries have been disrupted, and often employees find taking a new job in a different sectors leads to near-entry-level pay -- equivalent to a 30, 40, even 50% salary cut. These folks may be working full time but they clearly are underemployed relative to their experience, skills and past work. This is not captured in economic data.

Blanchflower explains how underemployment manifests itself in a variety of data points outside traditional economic measures. He notes that the plight of the underemployed is contributing to widespread despair, a worsening drug epidemic, and increased suicide rates. These were memorably highlighted in the research of Nobel winning economist Angus Deaton and his wife, Anne Case, who documented the rise of "death of despair" among working class whites. Blanchflower even ties the phenomenon of underemployment to the rise of far-right populism, both in the U.S. and Europe.

Blanchflower also studies happiness and points out that being poor in America often leads to stress, insecurity and hopelessness. In "Unhappiness and Pain in Modern America," he and his co-author, Andrew J. Oswald of the University of Warwick, probe the disquieting idea that not only are Americans in greater pain than citizens of other countries, but that self-reported levels of happiness are falling.

The U.S. will hold a presidential election in 2020. We should be hearing a lot more about underemployment and its harmful consequences in the coming campaign. If we don't, that points to something even more problematic about the state of America.

 -- via my feedly newsfeed

Review: A Brief History of Doom [feedly]

Review: A Brief History of Doom
http://dollarsandsense.org/blog/2019/06/review-a-brief-history-of-doom.html

By Polly Cleveland

Review of A Brief History of Doom: Two Hundred Years of Financial Crises,
by Richard Vague

A Brief History of Doom is the most important economics publication to come along in years. This short, well-documented, and engrossing book wasn't written by an economist, but by a banker.

Richard Vague made a fortune as a conservative Texas banker. On retiring, he decided to investigate the cause of boom and bust cycles. His results shocked him. As he told us at a recent Institute for New Economic Thinkingpresentation, he had always assumed markets were perfectly efficient and that government incompetence or malfeasance caused the problem. Instead, here's what he found:

A necessary and sufficient explanation [his italics] for a boom and bust cycle is an episode over several years of excessive private sector lending, typically triggered by an exciting innovation. That lending inflates values of land or stocks, and sets off a vicious circle of increasingly reckless and often egregiously fraudulent behavior, with lending driving rising values and rising values justifying more lending. When the bubble eventually bursts, the damage has already been done. The only difference from one bubble to the next is the size, and the degree of competence with which the government contains the aftereffects.

Vague and his research team collected massive amounts of data on financial crises from 1819 to the present, in the US and elsewhere. He begins with the Roaring Twenties and the ensuing Great Depression. Contrary to the assertions of former Federal Reserve Chair Ben Bernanke, not to mention conventional Keynesian wisdom, the boom and bust was not a monetary phenomenon. Rather, as I have written, when the new horseless carriage appeared to open up vast tracts of suburban land to housing, banks engaged in a frenzy of reckless lending to sketchy real estate developments, such as underwater lots in Florida. Two or three years before the stock market crash of 1929, the developments began to fail, stopping interest payments, and sticking banks with worthless collateral. The banks in turn had no money to lend to legitimate businesses, causing these to fail, setting off a downward cascade of failures. Following the market crash, panicky customers began runs on all banks, crooked and sound. The brand-new inexperienced Federal Reserve dithered, allowing the damage to accumulate.

Vague continues by examining the "Decade of Greed" in the 1980s, with the exploits and crash of the Savings and Loan banks, as well as of Michael Milken, the junk bond king. Again—a story well told by Bill Black in The Best Way to Rob a Bank is to Own One—the S&L's engaged blatant self-dealing and fraudulent real estate investments at the expense of their customers. After the inevitable collapse, the US rescued the customers at the cost of some $480 billion dollars and sent over a thousand bankers to jail

From here, Vague moves to the mind-boggling Japanese real estate bubble of the 1990s, whose collapse together with Japanese mismanagement has left Japan with close to zero economic growth since then. The Chinese have handled their bubbles more effectively, though Vague wonders how long they can continue. Then he backtracks to famous historical bubbles. In the US, these include the canal boom of the 1830's and the later railroad booms of the 1840s, 1870s and 1890s, which also affected British investors in US railroad companies. Finally, he tackles the giant mortgage boom, crash in 2008, and subsequent Great Recession that we all recently lived through. In this case he retells a story of reckless lending and fraud in the mortgage industry, a story already familiar from such books as Michael Lewis's The Big Short.

Vague says it's vital and feasible to identify budding bubbles: When the private loan volume in a particular sector rises faster than GDP, there's usually a bubble. Inexplicably, the federal government does not separate data on loan volume by economic sector. Yet one has to be blind—or blinded by conventional economic theory—to miss big real estate bubbles. Without knowing anything about the crazy lending behind the last bubble, I personally saw it coming by 2005 in the exploding Case-Shiller home price index. There's an unmistakable boomlet going on right now in the flipping of single-family houses for rental.

Vague is skeptical of remedies. Should the Fed "take away the punch bowl just as the party gets going" by raising interest rates? By the time the bubble is obvious, the damage is done and the frenzied fraudsters will ignore the signal, as they did in the months before October 29, 1929. Should Congress pass more laws like Dodd-Frank to rein in egregious bank misconduct? Trouble is, when the punch bowl starts to bubble, regulators come under enormous pressure to look the other way and politicians often have accepted huge campaign contributions from malefactors. Remember the "Keating Five" –the five Senators, including John McCain, who had received favors from the notorious S&L king, Charles Keating? Moreover, innovative banksters will find ways around the rules. The mortgage lenders, like Angelo Mozila's Countrywide Financial, formed part of a "shadow banking" system not subject to bank regulation. Influential bank lobbyists prevented efforts to regulate the "securitization" innovation that powered the bubble leading to the 2008 crash.

I have one quibble with Vague: He says bubbles do their damage by creating "overcapacity." Well, not exactly. A housing bubble does create a moonscape of vacant lots and even half-built houses, mostly in locations that weren't suitable to begin with, which is how the developers got the land cheaply. That's just waste. There's a more insidious form of waste: the productive investment that didn't happen, such as the older buildings that weren't maintained while their owners waited to make a killing in a rising land market. Bubbles are man-made disasters, equivalent to the 2010 BP oil spill in the Gulf of Mexico. They call for the same remedy: first contain the damage then aid the victims and punish the corporate malefactors.

From that angle, the US response in 2008 was a travesty. Yes, bailouts of $700 billion and still counting prevented the collapse of the banking system. But the bankers responsible for the calamity proved "too big to jail," and the tens of millions of homebuyer victims were not allowed to write down their inflated mortgages to the post-bubble value of their homes. Vague says that such debt restructuring, like the Biblical debt-forgiveness "jubilee," would indeed have stimulated a rapid economic recovery.

Finally, what about preventing bubbles? I asked Vague about his native Texas, which suffered relatively little in 2008. That was possibly due, I suggested, to relatively high property taxes that kept down land values, and a well-enforced loan to value limit of 80% of equity. Yes, laughed Vague, and Texas also has a constitutional prohibition on second mortgages—we bankers lobbied furiously to get that undone, to no avail. I trust that as he and his team will further pursue the prevention possibilities of combining high property taxes with stiff regulation.

 

 -- via my feedly newsfeed

Trump and Xi Agree to Restart Trade Talks, Avoiding Escalation in Tariff War [feedly]

Trump and Xi Agree to Restart Trade Talks, Avoiding Escalation in Tariff War
https://www.nytimes.com/2019/06/29/world/asia/g20-trump-xi-trade-talks.html

 -- via my feedly newsfeed

The Public Service Freedom to Negotiate Act provides public sector workers the right to join in union and collectively bargain [feedly]

The Public Service Freedom to Negotiate Act provides public sector workers the right to join in union and collectively bargain
https://www.epi.org/blog/the-public-service-freedom-to-negotiate-act-provides-public-sector-workers-the-right-to-join-in-union-and-collectively-bargain/

In February 2018, teachers went on a statewide strike in West Virginia to demand just wages and better teaching and learning conditions. For nine days, schools across the state were closed as teachers, students, and community supporters protested at the state capital against the state government's chronic underfunding of public education and the impact on the teachers and students. After a week and a half of striking, the West Virginia teachers received a pay increase, but more importantly, they sparked a movement that prompted public school teachers across the nation to strike in support for fairer pay and better working conditions.

The teachers in West Virginia and across the nation relied on the solidarity and support from their communities to win these fights, because in many states public sector workers do not have the right to collectively bargain. Under current federal law, public service workers do not have the freedom to join in union and collectively bargaining for fair pay, hours, or working conditions. There are more than two dozen states with laws that protect public services workers' right to join unions, but dozens more have lack any rights. Last year, the Supreme Court's 5-4 decision in Janus v. AFSCME Council 31 overturned 40 years of precedent by barring unions from requiring workers who benefit from union representation to pay their fair share of that representation. And states continue to perpetrate the assault on public service employees by either denying or undermining workers' ability to act collectively in addressing workplace issues.

Yesterday, Representative Matt Cartwright (D-Penn.) and Senator Maize Hirono (D–Hawaii) introduced the Public Service Freedom to Negotiate Act of 2019, which would require states to provide public service workers the freedom to join in union and collectively bargain. The bill would also address the issue of fair share fees in the Janus decision by authorizing the voluntary deduction of fees to support the union. Ultimately, the bill would provide 17.3 million public employees a national standard of bargaining rights. This includes the teachers, police officers, and sanitation workers that provide critical services to our communities every day.

Unions enable working people to come together and ensure that workers are paid fairly and treated with dignity on the job. As a result, unions improve wages and benefits for all workers, not just union members. In order to create an economy that works for all of us, not just the wealth few, it is important that workers have the freedom to join a union. The Public Service Freedom to Negotiate Act would provide that right to public sector employees nationally.

VISIT WEBSITE
 -- via my feedly newsfeed

An Overview of Social Science Research on Terrorism [feedly]

I very much like Tim Taylor's (and Dan Little's in sociology) approach of summarizing the scientific lit in a field  of study BEFORE/WHILE evaluating various speculations on the meaning of accumulated data. So, I feel armed to ask a speculative question:

Terrorism attacks the stability of existing institutions and social contracts no matter its politics (or religion -- politics by another name). Or is the situation the inverse? Failing institutions and social contracts invite destruction, whether "creative", or not. Modern states, especially ones  with large armies, AND complex market economies, and which fall into a cycle of failure and collapse, do so very unevenly, and chaotically. Reactions become extreme and existential in locales long before an entire nation falls apart. Is terrorism an inevitable feature of a modern state in collapse?

An Overview of Social Science Research on Terrorism
http://conversableeconomist.blogspot.com/2019/06/an-overview-of-social-science-research.html

Since the terrorist attacks of 9/11, a number of economists and other social scientists have been studying terrorism. Khusrav Gaibulloev and Todd Sandler summarize the findings in a review article written for the Journal of Economic Literature (June 2019, pp. 275-328, not freely available online, but many readers should have access via subscriptions through their library).  Here, I'll hit some high spots of their five main themes, and I'll skip the citations, but the paper itself has vastly more detail.

"First, terrorism has altered in form after the rising dominance of religious fundamentalist terrorism in the 1990s and the augmented security measures in the West after 9/11. These considerations have changed the lethality, location, and nature of terrorism over time ..."

Examples include a shift in the nature of groups most likely to engaged in terrorist activities, along with a decline in transnational and a rise in domestic terrorism.

"Prior to the 1990s, most terrorist groups were left wing or nationalist/separatist. The rapid rise of religious fundamentalist terrorist groups started in the 1990s with al-Qaida and its Islamic extremist affiliated groups. Unlike the leftists who generally wanted to limit casualties and collateral damage, the religious fundamentalists wanted to maximize carnage, as 9/11 and the March 11, 2004 Madrid commuter bombings demonstrate. During the 1990s, the religious fundamentalists assumed a dominant influence among terrorist groups. ... [T]he number of transnational terrorist incidents have fallen by about
40 percent since the start of the 1990s; however, each incident was much more likely
to involve casualties since then."

"Second, terrorist groups respond rationally to their environment to ensure their survivability and visibility. In so doing, they adopt novel institutional forms and adjust their attack portfolios in response to counterterrorism actions."

The theme of this research is that groups considering terrorist activity often have a range of other possible actions to pursue: peaceful protest, violent protest, guerrilla attacks, even an attempt to take over territory and in effect engage in civil war. If terrorism is the choice, will it take the form of kidnapping, hostage-taking, bombing, or mass shooting? In addition, groups considering terrorism will take context into account. Strong state or weak state? Are there other terrorist groups already in action, which can make it easier for new terrorist groups to begin and less likely that new groups will be caught? Do the terrorists have a reasonably safe refuge, perhaps in another country, to which they can retreat between attacks? 

The fact that terrorist groups evolve an dmake these kinds of choices has consequences. For example, there is some evidence to support the hypothesis that as governments have made greater efforts to  protect official installation and people from terrorist attacks, one result has been a rise in terrorist attacks aimed at civilian targets. There is also evidence to support an argument that terrorist groups sometimes try attract more supporters by outbidding" each other to engage in more prominent acts of violence. 

Another finding in this literature is that the older-style political terrorist groups were more likely to break up in internal disagreements and easier to infiltrate. The newer religious-based terrorist groups 
"rely on kinship, long-term friendships, and worship for recruiting purposes. Such ties are very tight and make it extremely difficult for the authorities to infiltrate these groups. Additionally, these ties provide a aense of camaraderie among members that facilitates volunteers for dangerous and even
deadly operations ..."

"Third, counterterrorism policies have had mixed success. Targeted governments often work at cross-purposes, relying too much on attack-deflecting defensive measures and too little on proactive offensive measures, especially when the same terrorist group targets multiple countries. Frequently, well-intentioned counterterrorism policies may have unintended consequences as terrorists or governments strategically react to one another's actions. More thought needs to be given to countermeasures that offset terrorists' actions, such as service provision, that win them a constituency."

"After 9/11, the sustained War on Terror is seen to have apparently little long-term effect on global terrorism. ... Furthermore, enhanced border security since 9/11 caused transference of attacks from North America and Europe to the Middle East, Africa, and Asia, consistent with the earlier defensive game theory model." 

What are some possible steps that could be taken in addition to defensive measures? In situations where a terrorist group is providing services to a local population, opponents of the terrorists could seek to establish alternative sources of those services. On the other hand, a policy that involves sending more aid to areas that originate terrorism will send send some mixed messages! Cooperating to limit flows of money and materiel to terrorists can be helpful. "The literature also shows that
directed proactive measures—e.g., assassination of militant leaders or house demolitions—are effective ..."

"Fourth, terrorism has myriad causes. The alleged relationships between terrorism and globalization, terrorism and poverty, and terrorism and regime type are much more nuanced than believed after 9/11." 

It's difficult for most of us to get a grip on what leads a person to commit terrorist activity, and so it can be easy to make up reasons that seem at least a little plausible--and then just to assert for some people, these reasons are sufficient to drive some people to terrorism. The evidence hasn't been kind to such assertions.

For example, consider the argument that poverty leads to terrorism. One of the first research papers on this subject was published in the Fall 2003 issue of the Journal of Economic Perspectives, where I work as Managing Editor: Krueger, Alan, B., and Jitka Malečková.  "Education, Poverty and Terrorism: Is There a Causal Connection?"(17:4, 119-144). Looking at the Palestinian population and terrorism, they found that those with high levels of education (and thus presumably higher incomes) were quite likely to support terrorism, and that a sample of members of Hezbollah's military wing had higher education levels than the population average.  More broadly, the evidence suggests that very poor countries don't typically have a lot of terrorism, because physical survival is a bigger concern, and high-income countries have relatively less terrorism. The countries with higher levels of terrorism are in a middle range.

Or consider the possible connections between terrorism and regime change. One might argue that democracies are more vulnerable to terrorism, or that democracies offer other outlets for dissent. One might argue that autocracies have less room for dissent other than terrorism, or that autocracies are more likely to clamp down ferociously on terrorism. There are lots of hypotheses, and the evidence is weak for any of them "the relationship between regime type and transnational terrorism is an empirical question. Findings in the empirical literature on this relationship are mixed and generally
unconvincing." But some studies suggest that when a country is moving away from autocracy and toward a nascent democracy, the risk of terrorism may rise.

Yet another argument is that globalization may be connected to terrorism, because it allows money, people, supplies, and most of all grievances to spill across national borders. But the research doesn't show any connection that countries with more global ties are more likely to face issues with transnational terrorism.

"Fifth, as a general rule, terrorism has had little direct negative impact on the economic growth or GDP of targeted industrial countries, despite some large-scale attacks. Any impact is felt by a few terrorism-fragile sectors, and this impact is transitory and small relative to the economy. Larger macroeconomic effects may plague small terrorism-ridden countries."

Of course, this statement doesn't in any way diminish the costs of terrorism; it merely points out that in high-income countries, terrorism doesn't affect growth of GDP,

(Full disclosure, the Journal of Economic Literature is published by the American Economic Association, just like the Journal of Economic Perspectives where I labor in the fields as Managing Editor.)

 -- via my feedly newsfeed

Russia-India-China will be the big G20 hit [feedly]

Yet more fallout from the trade wars: apparent acceleration, not retreat, of Eurasian economic consolidation

Russia-India-China will be the big G20 hit

https://www.asiatimes.com/2019/06/article/russia-india-china-will-be-the-big-g20-hit/

It all started with the Putin-Xi Jinping summit in Moscow on June 5. Far from a mere bilateral, this meeting upgraded the Eurasian integration process to another level. Putin and Xi discussed everything from the progressive interconnection of the New Silk Roads with the Eurasia Economic Union, especially in and around Central Asia, to their concerted strategy for the Korean peninsula.

A particular theme stood out: They discussed how the connecting role of Persia in the Ancient Silk Road is about to be replicated by Iran in the New Silk Roads, or Belt and Road Initiative. And that is non-negotiable. Especially after the Russia-China strategic partnership, less than a month before the Moscow summit, offered explicit support for Tehran signaling that regime change simply won't be accepted, diplomatic sources say.

Putin and Xi solidified the road map at the St Petersburg Economic Forum. And the Greater Eurasia interconnection continued to be woven immediately after at the Shanghai Cooperation Organization (SCO) summit in Bishkek, with two essential interlocutors: India, a fellow BRICS (Brazil, Russia, India, China, South Africa) and SCO member, and SCO observer Iran.

At the SCO summit we had Putin, Xi, Modi, Imran Khan and Iran's Rouhani sitting at the same table. Hanging over the proceedings, like concentric Damocles swords, were the US-China trade war, sanctions on Russia and the explosive situation in the Persian Gulf.

Rouhani was forceful – and played his cards masterfully – as he described the mechanism and effects of the US economic blockade on Iran, which led Modi and leaders of the Central Asian "stans" to pay closer attention to Russia-China's Eurasia road map. This occurred as Xi made clear that Chinese investments across Central Asia on myriad BRI projects will be significantly increased.

Russia-China diplomatically interpreted what happened in Bishkek as "vital for the reshaping of the world order." Crucially, RIC – Russia-India-China – not only held a trilateral but also scheduled a replay at the upcoming G20 in Osaka. Diplomats swear the personal chemistry of Putin, Xi and Modi worked wonders.

The RIC format goes back to old strategic Orientalist fox Yevgeny Primakov in the late 1990s. It should be interpreted as the foundation stone of 21st century multipolarity, and there's no question how it will be interpreted in Washington.

India, an essential cog in the Indo-Pacific strategy, has been getting cozy with "existential threats" Russia-China, that "peer competitor" – dreaded since geopolitics/geostrategy founding father Halford Mackinder published his "Geographical Pivot of History" in 1904 –  finally emerging in Eurasia.

RIC was also the basis on which the BRICS were set up. Moscow and Beijing are diplomatically refraining from pronouncing that. But with Brazil's Jair Bolsonaro seen as a mere Trump administration tool, it's no wonder that Brazil has been excluded from the RIC summit in Osaka. There will be a perfunctory BRICS meeting right before the start of the G20 on Friday, but the real deal is RIC.

Pay attention to the go-between

The internal triangulation of RIC is extremely complex. For instance, at the SCO summit Modi said that India could only support connectivity projects based on "respect of sovereignty" and "regional integrity." That was code for snubbing the Belt and Roads Initiative – especially because of the flagship China-Pakistan Economic Corridor, which New Delhi insists illegally crosses Kashmir. Yet India did not block the final Bishkek declaration. 

What matters is that the Xi-Modi bilateral at the SCO was so auspicious that Foreign Secretary Vijay Gokhale was led to describe it as "the beginning of a process, after the formation of government in India, to now deal with India-China relations from both sides in a larger context of the 21st century and of our role in the Asia-Pacific region." There will be an informal Xi-Modi summit in India in October. And they meet again at the BRICS summit in Brazil in November.

Putin has excelled as a go-between. He invited Modi to be the guest of honor at the Eastern Economic Forum in Vladivostok in early September. The thrust of the relationship is to show to Modi the benefits for India to actively join the larger Eurasia integration process instead of playing a supporting role in a Made in USA production. 

That may even include a trilateral partnership to develop the Polar Silk Road in the Arctic, which represents, in a nutshell, the meeting of the Belt and Road Initiative with Russia's Northern Sea Route. China Ocean Shipping (Cosco) is already a partner of the Russian company PAO Sovcomflot, shipping natural gas both east and west from Siberia.

Xi is also beginning to get Modi's attention on the restarting possibilities for the Bangladesh-China-India-Myanmar (BCMI) corridor, another major Belt and Roads project, as well as improving connectivity from Tibet to Nepal and India. 

Impediments, of course, remain plentiful, from disputed Himalayan borders to, for instance, the slow-moving Regional Comprehensive Economic Partnership (RCEP) – the 16-nation theoretical successor of the defunct Trans-Pacific Partnership. Beijing is adamant the RCEP must go into overdrive, and is even prepared to leave New Delhi behind.

One of Modi's key decisions ahead is on whether to keep importing Iranian oil – considering there are no more US sanctions waivers. Russia is ready to helpIran and weary Asian customers such as India if the EU-3 continue to drag the implementation of their special payment vehicle.

India is a top Iran energy customer. Iran's port of Chabahar is absolutely essential if India's mini-Silk Road is to reach Central Asia via Afghanistan. With the Trump administration sanctioning New Delhi over its drive to buy the Russian S-400 air defense system and the loss of preferred trade status with the US, getting closer to Bridge and Road – featuring energy supplier Iran as a key vector – becomes a not-to-be-missed economic opportunity.

With the road map ahead for the Russia-China strategic partnership fully solidified after the summits in Moscow, St. Petersburg and Bishkek, the emphasis now for RC is to bring India on board a full-fledged RIC. Russia-India is already blossoming as a strategic partnership. And Xi-Modi seemed to be in synch. Osaka may be the geopolitical turning point consolidating RIC for good. 

 -- via my feedly newsfeed

Bloomberg: Pain From Trump's China Tariffs Spreads, Reshaping Global Trade [feedly]

Pain From Trump's China Tariffs Spreads, Reshaping Global Trade
https://www.bloomberg.com/news/articles/2019-06-25/pain-from-trump-s-china-tariffs-spreads-reshaping-global-trade

resident Donald Trump often cites China's massive exports to the U.S. as a grave injustice hanging over the world economy. But lately it pays to look at Chinese imports for the pain that his tariff wars are inflicting on global growth.

The world's biggest trading nation last month saw imports from Japan, South Korea and the U.S. fall sharply from a year earlier, according to official data. The 27% fall from the U.S. is perhaps not surprising given a year of tit-for-tat tariffs, but a drop of 16% from Japan and 18% from South Korea is reason to consider the broader effects of Trump's trade battles.

Such data illustrate why trade is at the top of the agenda for this week's Group of 20 meeting of leaders who preside over more than three-quarters of the global economy. While much of the focus will be on Trump and Chinese President Xi Jinping's ability to resume talks, the other leaders in attendance have their own stakes to worry about.

Global commerce is "being hit by new trade restrictions on a historically high level," World Trade Organization Director-General Roberto Azevedo said in a report Monday that pointed to an increase in protectionist measures by G20 countries. "This will have consequences in increased uncertainty, lower investment and weaker trade growth."

Almost every day brings fresh data on the economic impact.

An analysis released on Monday by Bloomberg Economics of the more than 10,000 Chinese product categories hit by tariffs already found they had led to a 26% fall in the value of their exports to the U.S. in the first quarter of 2019.

That was before the recent breakdown of U.S.-China talks and an increase May 10 from 10% to 25% of tariffs on products worth some $200 billion in annual trade before the conflict, the largest tranche of $250 billion in imports affected. Trump has also threatened to hit a further $300 billion in imports from China.

U.S. Plays Down Expectations for Trump-Xi Meeting With Hard Line

Monthly trade data are volatile. But in numbers like China's May import data, WTO chief economist Robert Koopman sees evidence of the Trump trade wars rippling through supply chains and dragging on the world economy.

Big economies such as the European Union, China and the U.S. are slowing for reasons ranging from Brexit to faltering manufacturing in China to the disappearing fiscal stimulus from tax cuts in the U.S.

Adding to the malaise is rising uncertainty over the direction of the global economy and trade that is dampening investment, Koopman says. Then there's the direct cost of tariffs and counter-tariffs for businesses. Each feeds into the other and a global economy changing in response, he says.

Trade Balance

Trump and his aides insist his push to take on China and go beyond that by threatening allies such as the EU and Japan with auto tariffs among other things is aimed at rebalancing America's economic relationships.

Those actions have nothing to do with the slowdown underway in the world economy, they argue, though institutions like the International Monetary Fund have called escalating trade tensions the largest risk out there.

"I don't believe for a second that what we're doing is having a largely negative effect on economic growth," Robert Lighthizer, Trump's chief trade negotiator, told a congressional committee this month, pointing to a U.S. economy growing faster than G-7 peers. "The economy in a lot of other countries is slowing down and it doesn't have anything to do, in my judgment, with what we're doing."

What Our Economists Say

"The U.S. economy is already suffering as China's tariffs hit sales of agricultural products. Inability -- in the short term -- to fill the gap left by Chinese products means a second blow as U.S. manufacturing firms miss crucial inputs into the production process. As the economic iron curtain falls, it's not just those on the Chinese side that are suffering."
-- Tom Orlik and Maeva Cousin
Click here for the full note on the tariffs

Robin Brooks, chief economist at the Institute of International Finance, says it is too early in the trade wars to blame them for any broad economic trends. Nations such as Germany, which has been hit by Brexit and a slowdown in Turkey, have faced idiosyncratic forces, he argues. Data like those showing a slowdown in exports from Japan or South Korea to China represent "just the normal ups and downs of global manufacturing.''

While economists such as Koopman say it's hard to say how much Trump's actions are to blame for a slowdown there's no doubt they are changing trade flows. Put another way: Trump is causing globalization to adapt rather than go into reverse as he intended.

Production is shifting to other countries rather than coming home. Bloomberg's new analysis found that in the first quarter of 2019, Taiwan saw sales to the U.S. of products hit by Trump's China tariffs rise about 30% from a year earlier, while South Korea's jumped 17%. Vietnam saw sales of China-tariffed products to the U.S. increase 27%.

The World Economy in the Second Half - What You Need to Know: Economics

"Globalization going into reverse would mean a lot of the production coming back to the domestic market,'' Koopman says. "That's not what we are seeing.''

China also hasn't let Trump's penalties go unanswered. Peterson Institute analysts point out that even as it has retaliated and raised import taxes on U.S. products, China has lowered duties on goods from the rest of the world. Still, China's data last month showed it's not clear that strategy has resulted in a broad surge in non-U.S. trade just yet.

So whatever the outcome of the Trump-Xi talks at G-20 later this week, the early disruptions may leave lasting scars. "Even if we get some agreement at the G-20 meeting, we may underestimate the damage already done to capex planning and corporate sentiment by the trade war," Torsten Slok, Deutsche Bank's chief economist, said in a note to clients on Sunday.

— With assistance by Malcolm Scott

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