Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
May 6, 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
 
  Speech
World Trade and the American Economy
C. Fred Bergsten
  
  C. Fred Bergsten The United States should seek to double the share of exports in the economy from 10 percent in 2009–10 to 20 percent in 2020—"from 10 in 10 to 20 in 20." Any effective strategy to do so needs to have three parts, advises C. Fred Bergsten at the 84th annual World Trade Week in Los Angeles.

First, equilibrium must be restored to the exchange rate of the US dollar, especially through substantial currency action by China, in order to eliminate the competitive disadvantages of overvaluation. The Institute's latest calculations suggest that the dollar is now overvalued by about 10 percent even after the orderly decline of about 25 percent that has taken place since 2002, reducing exports by $200 billion to $250 billion and displacing 1 million to 1.5 million American workers. Second, meaningful steps must be taken to liberalize export controls. Third, the three outstanding free trade agreements (with Colombia, Korea, and Panama) must be brought to Congress; the United States should make new proposals to revitalize the Doha Round; and most important of all the trade agreements, we should set a goal to negotiate a successful Trans-Pacific Partnership by the APEC summit that President Obama will chair in Hawaii in late 2011.

>> Read full speech

  Op-ed
The End of China's Property Boom—A Bang or a Blip?
Daniel H. Rosen
  
  name Following the release of first quarter economic data, China has enacted strong measures to correct property speculation. There will be some dumping of speculative property, but in terms of overall economic growth, China is looking at a softish landing at worst. A major reason is that the structure of China's growth is not fragile or prone to a spreading, broader correction. The economic data for March did not show a strong spike, just the same growth that has been on track all along. There is still plenty of credit fueling investment activity in China: new credit is increasing, not contracting. Consumption is now contributing more to growth than in any annual performance since 1993. A housing correction will not take the wind out of retail sales. And on the trade side, if the United States and European Union grow at 4.5 percent and 2 percent respectively this year, then China will move back to a growing trade balance for 2010. The bottom line is that a correction in residential property is starting, but China is not looking at a pullback in GDP growth to below 8.5 percent this year.

>> Read full op-ed
>> See also China's Other Achilles' Heel

  Op-ed
China Is the Key to Unwinding Global Imbalances
Arvind Subramanian
  
  Arvind Subramanian While the current account deficit imbalance between China and the United States is declining, a new imbalance is surfacing. With emerging markets currently more attractive than advanced economies, capital flows are rushing into emerging markets. This imbalance in capital flows is likely to surpass precrisis levels. But the only two real corrective options—capital controls and currency appreciation—present beggar-thy-neighbor possibilities: If some countries restrict capital, there is the risk that capital gets diverted to others, and as long as their main trade competitor, China, has a fixed exchange rate, emerging markets will continue to prefer competitive nonappreciation. The clear policy lesson is that there needs to be coordination among emerging economies on managing capital flows and exchange rates. Key to facilitating this is China's exchange rate policy.

>> Read full op-ed

  Op-ed
The G-20, Power, and Ideas
Arvind Subramanian
  
  The monopoly on power and influence wielded by the United States and other advanced economies is waning. Key decisions will emanate less from conversations amongst a few and more from a wider group. This dispersion of global economic power augurs well for the role of ideas in policymaking: Good ideas have a better chance of getting a hearing and bad ones face a greater threat of being flushed out. The fate of two bad ideas—that IMF leadership selection must be based on merit without regard to nationality and that the Doha Round must be completed as designed rather than more fruitfully buried or repackaged—could serve as a testing ground for this proposition that the G-20 might be better for the marketplace of ideas than the G-7.

>> Read full op-ed


Peterson Perspectives Interviews

audio  Taxing Firms That Ship Jobs Overseas: Will It Backfire?
Gary Clyde Hufbauer argues that Obama's proposal to punish firms that ship jobs overseas would hurt the very firms that export products made in America.

audio  More Turmoil in Greece and Europe
Jacob Funk Kirkegaard notes that the latest estimates of Greece's increasingly large financing needs may compound its difficulties in getting help.


PIIE Noted in the News and on the Web

Investment Advisor
Will Greece Default, and What's Next for the Euro?
Jacob Kirkegaard breaks down the Greek debt crisis in an interview with Investment Advisor.

Diane Rehm Show
Europe's Expanding Debt Crisis
Simon Johnson joins Eswar Prasad, Brookings Institution, and Uri Dadush, Carnegie Endowment for International Peace, on the Diane Rehm show to discuss what the debt burdens in Greece, Portugal, and other European countries could mean for economies worldwide.

Bloomberg
Kirkegaard Says French Banks Face Large Greece Exposure
Jacob Funk Kirkegaard talks with Bloomberg's Pimm Fox about the prospects of a Greek debt default. Kirkegaard says French banks face up to an $80 billion exposure to Greece.

New York Times
As Greek Drama Plays Out, Where Is Europe?
NYT columnist Steven Erlanger draws on Jacob Funk Kirkegaard's analysis of the failure of EU leadership to deal with the crisis in Greece, leaving the IMF to craft a resolution.

NPR
Europe's Debt Crisis Could Be Long Term
NPR's Erin Killian interviews Jacob Funk Kirkegaard, PIIE, and Domenico Lombardi, Brookings Institute, on what sparked the debt crisis in Europe, the larger long-term problem, and whether the United States can play a role.

US House Committee on Small Business
Evaluating the Impact of Small Business Trade Policy on Job Creation and Economic Growth
Trade expert Gary Clyde Hufbauer testifies on the problems small businesses face in the export market and makes policy recommendations on how to assist more small businesses with exporting.


Preview of Our Next Issue

Working Paper
Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach
Olivier Jeanne and Anton Korinek

Working Paper
Toward a Sunny Future? Global Integration in the Solar PV Industry
Jacob Funk Kirkegaard, Thilo Hanemann, Lutz Weischer, and Matt Miller

 
 
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