Peterson Institute Update for April 28, 2010


PIIE Update Newsletter April 28, 2010 "Top Think Tank in the World" in 2008 as determined by the first comprehensive global survey of over 5,000 such institutions.

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FEATURED

	Testimony China's Exchange Rate Policy and Trade Imbalances Nicholas R. Lardy

	China has made progress over the last few years in its global rebalancing efforts, however, much of that progress was brought about by factors that are transitory or have already been reversed. In addition to allowing its currency to appreciate, Nicholas R. Lardy recommends that China adopt other policy reforms to achieve a sustained reduction in its current account surplus. Such reforms should include allowing supply and demand in the market to determine interest rates instead of imposing a broad range of rates and introducing realistic environmental taxes and fees. >> *Read full testimony* >> See also Policy Brief 10-7: The Sustainability of China's Recovery from the Global Recession

	Policy Brief Protection by Stealth: Using the Tax Law to Discriminate against Foreign Insurance Companies [pdf] Gary Clyde Hufbauer

	The severe economic damage done by the global crisis of 2007–09 has reenergized calls to protect domestic products and producers in the United States. One example is a proposal to discriminate against foreign-owned insurance companies using the tax code. The Neal bill (HR 3424), named after Congressman Richard Neal (D-MA), proposes to tax foreign-owned insurance companies doing business in the United States more heavily than US-owned insurance companies doing exactly the same business in the United States. If this bill or something like it is enacted, cautions Hufbauer, European countries are almost certain to bring a case against the United States in the World Trade Organization (WTO) and seek redress under US income tax treaties. Some European countries might consider tit-for-tat retaliatory legislation that would hurt US-owned insurance companies. While legal and retaliatory battles are waged, some foreign-owned insurance companies might reconsider their presence in the US insurance market—a role that has greatly benefited the US households and firms that suffered catastrophic losses in the wake of 9/11 and Hurricane Katrina. Equally important, it is a bad idea to deny US nonfinancial companies the benefit of competition between US-owned and foreign-owned firms in an industry that collects hundreds of billions of dollars of premiums annually. Tax abuse in the insurance market, if it exists, can be addressed without discriminating against foreign-owned companies. >> *Read full policy brief* [pdf] >> See also US Taxation of Foreign Income

Peterson Perspectives Interviews

A Global Financial Tax?
Morris Goldstein assesses the prospects for a global tax on banks to pay for resolving bank failures—and the prospects in Congress for such a tax.

A New Global Balance In the Offing?
Arvind Subramanian argues that a potential wave of capital flows to China and other developing countries could add pressure on them to consider capital controls and appreciate their currency.

PIIE Noted in the News and on the Web

Senate Hearing
China's Exchange Rate Policy and Trade Imbalance
Nicholas R. Lardy testifies that China's progress in its global rebalancing efforts has been via factors that are either transitory or have reversed and that US policy should therefore continue to focus on China's contribution to global economic imbalances.

APM Marketplace
How Greek Debt Woes May Affect United States
NPR's Kai Ryssdal speaks with Jacob Funk Kirkegaard about the implications for the United States of new numbers showing that the Greek budget deficit is worse than expected.

In This Issue
	China's Exchange Rate Policy and Trade Imbalances
	Protection by Stealth: Using the Tax Law to Discriminate against Foreign Insurance Companies
	Peterson Perspectives Interviews
	Event: India's Economic Prospects and Macroeconomic Management
	Featured: > Debating China's Exchange Rate Policy > US Taxation of Foreign Income
	RealTime Economic Issues Watch: Global Financial Crisis
	PIIE Noted in the News and on the Web
	Stay Connected

Event
India's Economic Prospects and Macroeconomic Management Reserve Bank of India Governor Subbarao spoke at PIIE on the challenges of monetary and exchange rate management in an emerging economy.
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Featured Books
Debating China's Exchange Rate Policy Morris Goldstein Nicholas Lardy eds.

US Taxation of Foreign Income Gary Hufbauer Ariel Assa
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RealTime Economic Issues Watch Global Financial Crisis
	The Biggest Losers: Who Gets Hurt from a Greek Default or Restructuring
	How Italy, France, and Germany Diverged in 2004
	Greece—The Gun Was Loaded with Blanks
	Greece—Next Stop "Barroso (or maybe Juncker?) Bonds"
	What Should the President Say?
	The Challenge of Europe's Effort at Financial Redesign

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