Tag Archives: trade

The Rise and Fall of Cap-and-Trade

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Markets can fail.  But market mechanisms are often the best way for governments to address such failures.  This has been demonstrated in areas from air pollution to traffic congestion to spectrum allocation to cigarette consumption.    Markets for emission allowances – in which those firms that can cheaply cut pollution trade with those that cannot – achieve desired environmental goals at relatively low economic costs.   As of a decade ago, that long-standing economic proposition had become widely recognized and put into action. Yet the political tide on both sides of the Atlantic has been against “cap and trade” over the last five years. read more

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Protectionist Clouds Darken Sunny Forecast for Solar Power

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On July 27 negotiators reached a compromise settlement in the world’s largest anti-dumping dispute, regarding Chinese exports of solar panels to the European Union.   China agreed to constrain its exports to a minimum price and a maximum quantity.   The solution is restrictive relative to the six-year trend of rapidly rising Chinese market share (which had reached 80% in Europe), and plummeting prices.  But it is less severe than what had been the imminent alternative:  EU tariffs on Chinese solar panels had been set to rise sharply on August 6, to 47.6%, as the result of a “finding” by the EU Trade Commissioner that China had been “dumping.”   The threat of likely retaliation by China helped persuade the Europeans to back off from their determination to impose such high protective walls around their own solar panel industry.  read more

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McKinnon’s Claim that RMB-$ Appreciation Would Not Reduce Trade Imbalances

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The International Economy magazine (Winter 2013) asks 16 authorities, “Can Changes in Exchange Rate Valuations Affect Trade Imbalances?”   It is referring to the claim in a recent book by Stanford economist Ron McKinnon that pressure on China to let the renminbi appreciate against the dollar is fundamentally misconceived because such a movement in the exchange rate would not reduce China’s trade surplus nor American’s trade deficit.  This is part of an old debate that pre-dates the rise of the China trade problem.  Ron has long claimed that exchange rates don’t determine trade balances because they are “instead” determined by national saving versus investment.   I thought Paul Krugman demolished the argument pretty effectively 25 years ago, with a textbook graph of internal balance versus external balance.   But evidently many still fall for the argument (including some of the experts in the TIE symposium).   So I try again: read more

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