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Taxing capital inflows is a far better way to balance trade than imposing tariffs. This would address the root causes of trade imbalances, improve the productive investment process, and shift most of the adjustment costs onto banks and speculators.
Today’s U.S. trade deficits are driven mainly by capital flow imbalances. Tariffs are less efficient and only work by distorting the real economy and rearranging bilateral imbalances.
Facebook seems to think its new digital currency Libra will be used mainly for purchasing goods and services and for current account transactions. But it will probably be used mainly for capital account transactions. Do we really want to eliminate frictional costs on the capital account?
The new round of tariffs has put U.S.-China trade negotiations on hold. Just a month ago, a deal to end the trade war was deemed likely. So why did this process unravel so quickly and what is the way going forward?
Washington and Beijing are not in a new cold war yet, but there is definitely a cold-war mentality at work that may diminish both sides’ capacity to manage crises effectively.
A number of recent articles suggest that Chinese officials may reduce their purchases of U.S. government bonds. It is very unlikely that China can do so in any meaningful way because doing so would almost certainly be costly for Beijing. And even if China took this step, it would have either no impact or a positive impact on the U.S. economy.
Italy was the first big European economy to join China’s enormous infrastructure project, the Belt and Road Initiative (BRI). Why did Rome sign up, and what are the risks?
Europe has started re-evaluating its policies with respect to the China challenge.
The U.S.-China “trade war” may give way to a “tech war” as regulators and firms battle over emerging technologies, standards, and whether America or China will dominate future industries. Outside Washington, the relationship between Chinese and American business is complex and changing fast.
What is the likely outcome of the Trump administration’s escalating pressure campaign against Iran? How will Tehran react, and what lessons can be drawn from the last four decades of U.S.-Iran history?
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