The Intracies of International Trade Policy

Sometimes international trade policy is not just about international trade policy. Take the Trans-Pacific Partnership (TPP) being negotiated between the U.S. and 11 other nations, for example. While the deal may increase U.S. exports, the economic benefits to the U.S. will be fairly small. However, the deal’s true importance lies in its geostrategic effects.

China has been flexing its muscles in the region, both economically and militarily. For example, China has initiated unprecedented island reclamation projects, declaring sovereignty over those and other islands that have been contested by nations such as Japan, Vietnam and the Philippines. China has also extended its reach in international waters, declaring a wider swath of the sea belongs within its territorial boundaries. This too has alarmed its neighbors.

On the economic front, China successfully founded the Asian Infrastructure Investment Bank, much to the chagrin of the United States, which furiously lobbied its allies not to join. Unfortunately most joined anyway. The U.S. is concerned that this new bank will help China exert undue influence in the region due to its economic heft.

U.S. policymakers fear they are losing sway in the region. As a result, they hope a successful TPP will solidify American influence in the region by reasserting its economic leadership and extending its security umbrella to more nations. Sometimes a trade deal is more than a trade deal.

July 9, 2015 Asia, Economic, Geostrategic, Political, South America No Comments on The Intracies of International Trade Policy

Debt Crisis Playbook

Believe it or not, today’s Greek financial crisis is hardly unique, as sovereign debt crises are fairly common. As a result, the policy prescriptions are fairly straightforward and well known. The bottom line? The crisis will persist unless the debt is partially forgiven. Any other method, such as extending the debt repayment schedule or lowering the interest rate, will merely prolong the nation’s economic misery. Of course, the most effective debt crisis resolutions include strict conditions for debt forgiveness; structural economic reforms such as product and labor market reforms are needed too. But until policy makers implement this tried and true formula for resolving sovereign debt crises, Greece’s economic malaise will continue.

July 8, 2015 Currency, Economic, Europe, Sovereign No Comments on Debt Crisis Playbook

A Shrewd Move

Prime Minister Alexis Tsipras of Greece was quite shrewd when he asked voters to approve or disapprove the bailout terms offered by its international creditors. A unique aspect of Greek political life tilted the odds in favor of the ‘no’ campaign.

The Greek word for ‘no’ is ‘oxi.’ The Greeks celebrate “Oxi” day to celebrate the 1940 decision by their prime minister to resist Mussolini’s efforts to align Greece with the Axis powers. According to Stathis Kalyvas, a Yale political scientist, “The ‘no’ is often identified with patriotism and defiance and national pride.” This tailwind likely pushed the ‘no’ vote to victory.

Tsipras gambled and the resounding success of the ‘no’ vote shows he won this round.

July 7, 2015 Currency, Economic, Europe, Political, Sovereign No Comments on A Shrewd Move
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