Japan, S Korea agree to boost economic cooperation
Japan Today, Monday 12th January, 06:31 AM JST
SEOUL — The leaders of South Korea and Japan agreed Sunday they must boost bilateral cooperation to weather the ongoing global financial storm, as the neighbors try to move beyond their bitter shared history.
Prime Minister Taro Aso, who arrived in Seoul early Sunday, is expected to discuss economic cooperation and international efforts to end the North Korean nuclear standoff at a summit with President Lee Myung-bak on Monday.
Since taking office 11 months ago, Lee has been pushing for improved ties with Japan and has held five summits with Japanese leaders. He has also resumed top-level visits, which were suspended in 2005 to protest then-Prime Minister Junichiro Koizumi’s repeated trips to a controversial Tokyo shrine that honors war dead, including convicted war criminals.
Lee has also said he will not demand a new apology from Tokyo for its 1910-45 invasion and rule of the Korean peninsula. Japanese leaders have repeatedly issued apologies about their country’s colonial past, but many South Koreans say the apologies are insincere.
Addressing a meeting of Korean and Japanese business leaders at his presidential mansion Sunday, Lee called for the two countries to increase their “substantial cooperation” to cope with difficulties arising from the international financial meltdown and jointly tackle other global issues.
Aso told the meeting he felt ties between the traditional rivals had “greatly” improved since Lee came to power.
He earlier told a business forum that Japan and South Korea should cooperate to surmount the financial crisis.
South Korea and Japan are key trade partners with two-way trade reaching $82.6 billion in 2007.
The two countries have taken steps toward restarting stalled free trade talks—which ground to a halt in late 2004 over disagreements on how much to lower trade barriers on agricultural goods. The sides held working-level meetings twice last year to prepare for reopening negotiations.
Aso said both Japanese and South Korean governments have been receiving requests from businessmen to reach the deal.
Bilateral trade has favored Japan with South Korea recording a nearly $30 billion trade deficit with Japan in 2007.
Yasuhisa Kawamura, deputy press secretary at Japan’s Ministry of Foreign Affairs, told reporters in Seoul that South Korea’s trade deficit is “definitely one of the issues, challenges” that free trade talks have to address.
Lee’s diplomatic overtures toward Japan took a hit in July when Tokyo announced it would recommend that a government teaching manual include Japan’s claim to uninhabited islets claimed by both countries.
South Korea temporarily recalled its ambassador in Tokyo and heightened security near the islets. Activists staged near-daily protests in front of the Japanese Embassy and many scholars and newspaper editorials demanded Lee toughen policy on Japan.
Showing posts with label trade. Show all posts
Showing posts with label trade. Show all posts
Sunday, January 11, 2009
Monday, January 5, 2009
Common perception that trade is, at best, a mixed blessing
Imports as Inputs. By Doug Karmin
Progressive Policy Institute, January 5, 2009
Introduction
With the U.S. economy in crisis, and the dollar weakening against most major currencies, trade has become the only bright spot in an otherwise bleak economic landscape. Indeed, exports have grown over 10 percent in 2008, while a decline in Americans' disposable incomes has caused imports to shrink for the first time in years -- bringing our trade deficit down with it.1
Yet while the net impact of trade on the U.S. economy is now at its most positive, helping prevent the current crisis from becoming even worse, there is still a common perception that trade is, at best, a mixed blessing.
After all, we like having expanded markets to sell our products and services, but we don't always like to accept that other countries will want to sell theirs to us. When it comes to trade, we just hope that the good somehow outweighs the bad.
This assumption that all imports are bad because they compete against U.S.-based companies is flawed, and needs to be examined. Normally, the best anyone can say for imports is that they allow consumers to buy things for less and therefore improve our standard of living. What is largely overlooked is that imported inputs -- the components used by U.S.-based companies to produce their finished goods -- are essential for our economy to remain competitive.
Imports in the Aggregate
It's surprising how little is mentioned about the linkage between foreign inputs and our competitiveness given how dependent U.S. producers have become on global supply chains.2 Census Bureau data for 2007 show that 47 percent of imports came from related-party companies, or cases when the U.S. importer was a subsidiary or parent company of the foreign exporter.3
In other words, almost half of all imported goods are not the traditional case of a foreign company selling directly to U.S. consumers, but rather are part of an intra-company global supply chain. Furthermore, almost 30 percent of all goods imported by U.S. affiliates of foreign companies were destined for further manufacturing within the United States.4 In cases such as these, where the importing company is using foreign inputs to build finished goods, restricting imports would directly affect U.S. production and employment.
Indeed, it's difficult to find any large U.S. manufacturer that doesn't depend on some foreign inputs. To name just a few examples:
Unintended Consequences of So-Called Safeguards
Perhaps the clearest way to illustrate how much our economy has become dependent on high-quality, low-cost inputs from abroad is to look at what happens when that supply is temporarily disrupted.
A very high-profile example of this occurred in 2002, when President Bush invoked a "safeguard" to protect U.S. steel producers. Tariffs ranging from 8 percent to 30 percent were increased on foreign steel in March 2002, with an original plan of holding them in place until 2005 so that U.S. steel companies could adjust to a surge in competition from low-cost imports.8
While U.S. steel companies undoubtedly benefited from this reduction in competition, what hadn't been fully anticipated was the negative impact on U.S.-based steel users. Manufacturers of steel-dependent goods like machine tools or auto parts suddenly saw their costs spike overnight.
Several studies have shown that more U.S. jobs were lost as a result of the tariffs than were saved, and even Bush allies like Sen. Lamar Alexander (R-Tenn.) concluded the tariffs had "shifted more steel-consuming jobs overseas than exist in the steel-producing industry in the United States."9
Eventually, the Bush administration caved in to pressure from steel users, as well as the threat of retaliation from the impacted foreign nations, and lifted the safeguard in December 2003, more than a year earlier than originally planned. The lesson was clear: the interdependence of U.S. producers with foreign suppliers has made it too complicated to easily protect one domestic industry without harming many others.
Conclusion
None of this is to say that imports don't affect U.S. jobs. We must recognize that some imports do replace domestic production -- and that, by doing so, they cost some Americans their livelihoods. For these reasons, it's critical that public policy be designed to both prepare workers for the demands of 21st century competition through efforts to improve worker productivity (including through training and education, as well as better infrastructure). We also need policies that will help cushion the blow for those who do lose their jobs. This should include effective unemployment and wage insurance, as well as universal and portable health coverage.
But the idea that jobs can be saved simply by raising barriers to imports is misguided, especially when those imports are inputs used for domestic production. As the steel example shows, even the best intentions to protect one set of U.S. companies will have costs and competitive effects on others, even ignoring the foreign retaliation that often hits unrelated U.S. industries.
Especially in this era of heightened globalization, in which technology can enable companies to move production and employment virtually anywhere in the world, it's imperative that U.S. companies and workers be as competitive as possible. One way of achieving this is to ensure that U.S.-based employers have access to the inputs they need, including those that arrive from overseas. Otherwise, we risk watching jobs cross the water -- in the opposite direction.
Endnotes
1. See Bureau of Economic Analysis, U.S. Department of Commerce, news release from September 26, 2008 for most current data on export and import growth.http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htmFor a discussion on the inverse relationship between import growth and unemployment, see "The Facts on Trade Deficits and Jobs," by Doug Karmin. Progressive Policy Institute, October 3, 2007.
2. For a less serious look at the impact of restricting inputs on competitiveness, see "GATT confusing? Canadian football provides some answers" by Doug Karmin in The Hill (November 30, 1994). It describes how the Canadian football league tilted the competitive balance against its own teams by restricting the number of foreign players allowed on Canadian teams while allowing U.S. teams to hire the best available talent.
3. Census Bureau, U.S. Department of Commerce, "U.S. Goods Trade: Imports & Exports by Related Parties 2007." May 9, 2008.
4. Bureau of Economic Analysis, U.S. Department of Commerce, Operations of Multinational Companies, Product Guide for Foreign Direct Investment in the U.S., 2002 Benchmark Survey, "U.S. Imports of Goods Shipped to Affiliates and Intended Use." Most recent data is for 2002, and it shows that U.S. affiliates imported $95 billion in goods destined for further manufacturing out of a total of $335 billion in imports (28.3%). Intended use of imports only exists for U.S. affiliates.
5. "Lack of Hybrids-Parts Suppliers Could Hurt U.S. Auto Makers," by Norihiko Shirouzu. The Wall Street Journal, August 16, 2004. The need for importing batteries for hybrid cars has continued since Ford's initial launch of their hybrid SUV. See "Hybrid Cars' Foreign Dependence," by Jim Ostroff. The Kiplinger Letter, September 9, 2008.
6. "Boeing, too, uses foreign parts," by Joelle Tessler. The Associated Press, March 7, 2008. It was also reported in September 2007 in China's "People's Daily Online" that Boeing's Vice President of China Operations stated that China had become one of Boeing's largest foreign suppliers with $2.5 billion in active contracts.
7. "Living in Dell Time," by Bill Breen. Fast Company.com, November 2004.
8. Remarks by Robert B. Zoellick, United States Trade Representative, on the decision by the president to terminate steel safeguards, December 4, 2003.
9. "Steel Tariffs Appear to Have Backfired on Bush," by Mike Allen and Jonathan Weisman. The Washington Post, September 19, 2003.
Progressive Policy Institute, January 5, 2009
Introduction
With the U.S. economy in crisis, and the dollar weakening against most major currencies, trade has become the only bright spot in an otherwise bleak economic landscape. Indeed, exports have grown over 10 percent in 2008, while a decline in Americans' disposable incomes has caused imports to shrink for the first time in years -- bringing our trade deficit down with it.1
Yet while the net impact of trade on the U.S. economy is now at its most positive, helping prevent the current crisis from becoming even worse, there is still a common perception that trade is, at best, a mixed blessing.
After all, we like having expanded markets to sell our products and services, but we don't always like to accept that other countries will want to sell theirs to us. When it comes to trade, we just hope that the good somehow outweighs the bad.
This assumption that all imports are bad because they compete against U.S.-based companies is flawed, and needs to be examined. Normally, the best anyone can say for imports is that they allow consumers to buy things for less and therefore improve our standard of living. What is largely overlooked is that imported inputs -- the components used by U.S.-based companies to produce their finished goods -- are essential for our economy to remain competitive.
Imports in the Aggregate
It's surprising how little is mentioned about the linkage between foreign inputs and our competitiveness given how dependent U.S. producers have become on global supply chains.2 Census Bureau data for 2007 show that 47 percent of imports came from related-party companies, or cases when the U.S. importer was a subsidiary or parent company of the foreign exporter.3
In other words, almost half of all imported goods are not the traditional case of a foreign company selling directly to U.S. consumers, but rather are part of an intra-company global supply chain. Furthermore, almost 30 percent of all goods imported by U.S. affiliates of foreign companies were destined for further manufacturing within the United States.4 In cases such as these, where the importing company is using foreign inputs to build finished goods, restricting imports would directly affect U.S. production and employment.
Indeed, it's difficult to find any large U.S. manufacturer that doesn't depend on some foreign inputs. To name just a few examples:
- When Ford originally set out to build a hybrid SUV in the United States, it found that key components like the battery pack had to be sourced from Japan and Europe because U.S. suppliers lacked the leading-edge capabilities. Ford's ability to compete effectively against Toyota and others in the nascent hybrid market was therefore dependent on its access to high-quality imports.5
- Boeing is in the middle of a fierce battle with an Airbus joint venture to compete for a $35 billion Pentagon contract to build aerial refueling tankers. National allegiances have played a role in the competition, and while Boeing's bid would reportedly use more U.S. content than the Airbus bid, Boeing's own estimates say that about 15 percent of the tankers (including such high-value components as the fuselage and tail) would have to be imported to meet the Air Force's needs.6
- Dell is one of the last companies that still assembles computers in the United States, and is famous for its custom-configuration sales model. What is less known is how dependent Dell's U.S.-based manufacturing sites are on foreign suppliers, to the point where Dell had to charter a dozen and a half 747s to move necessary components from Asia to keep its U.S. plants from shutting down when a dock strike closed 29 ports along the West Coast in 2002.7
Unintended Consequences of So-Called Safeguards
Perhaps the clearest way to illustrate how much our economy has become dependent on high-quality, low-cost inputs from abroad is to look at what happens when that supply is temporarily disrupted.
A very high-profile example of this occurred in 2002, when President Bush invoked a "safeguard" to protect U.S. steel producers. Tariffs ranging from 8 percent to 30 percent were increased on foreign steel in March 2002, with an original plan of holding them in place until 2005 so that U.S. steel companies could adjust to a surge in competition from low-cost imports.8
While U.S. steel companies undoubtedly benefited from this reduction in competition, what hadn't been fully anticipated was the negative impact on U.S.-based steel users. Manufacturers of steel-dependent goods like machine tools or auto parts suddenly saw their costs spike overnight.
Several studies have shown that more U.S. jobs were lost as a result of the tariffs than were saved, and even Bush allies like Sen. Lamar Alexander (R-Tenn.) concluded the tariffs had "shifted more steel-consuming jobs overseas than exist in the steel-producing industry in the United States."9
Eventually, the Bush administration caved in to pressure from steel users, as well as the threat of retaliation from the impacted foreign nations, and lifted the safeguard in December 2003, more than a year earlier than originally planned. The lesson was clear: the interdependence of U.S. producers with foreign suppliers has made it too complicated to easily protect one domestic industry without harming many others.
Conclusion
None of this is to say that imports don't affect U.S. jobs. We must recognize that some imports do replace domestic production -- and that, by doing so, they cost some Americans their livelihoods. For these reasons, it's critical that public policy be designed to both prepare workers for the demands of 21st century competition through efforts to improve worker productivity (including through training and education, as well as better infrastructure). We also need policies that will help cushion the blow for those who do lose their jobs. This should include effective unemployment and wage insurance, as well as universal and portable health coverage.
But the idea that jobs can be saved simply by raising barriers to imports is misguided, especially when those imports are inputs used for domestic production. As the steel example shows, even the best intentions to protect one set of U.S. companies will have costs and competitive effects on others, even ignoring the foreign retaliation that often hits unrelated U.S. industries.
Especially in this era of heightened globalization, in which technology can enable companies to move production and employment virtually anywhere in the world, it's imperative that U.S. companies and workers be as competitive as possible. One way of achieving this is to ensure that U.S.-based employers have access to the inputs they need, including those that arrive from overseas. Otherwise, we risk watching jobs cross the water -- in the opposite direction.
Endnotes
1. See Bureau of Economic Analysis, U.S. Department of Commerce, news release from September 26, 2008 for most current data on export and import growth.http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htmFor a discussion on the inverse relationship between import growth and unemployment, see "The Facts on Trade Deficits and Jobs," by Doug Karmin. Progressive Policy Institute, October 3, 2007.
2. For a less serious look at the impact of restricting inputs on competitiveness, see "GATT confusing? Canadian football provides some answers" by Doug Karmin in The Hill (November 30, 1994). It describes how the Canadian football league tilted the competitive balance against its own teams by restricting the number of foreign players allowed on Canadian teams while allowing U.S. teams to hire the best available talent.
3. Census Bureau, U.S. Department of Commerce, "U.S. Goods Trade: Imports & Exports by Related Parties 2007." May 9, 2008.
4. Bureau of Economic Analysis, U.S. Department of Commerce, Operations of Multinational Companies, Product Guide for Foreign Direct Investment in the U.S., 2002 Benchmark Survey, "U.S. Imports of Goods Shipped to Affiliates and Intended Use." Most recent data is for 2002, and it shows that U.S. affiliates imported $95 billion in goods destined for further manufacturing out of a total of $335 billion in imports (28.3%). Intended use of imports only exists for U.S. affiliates.
5. "Lack of Hybrids-Parts Suppliers Could Hurt U.S. Auto Makers," by Norihiko Shirouzu. The Wall Street Journal, August 16, 2004. The need for importing batteries for hybrid cars has continued since Ford's initial launch of their hybrid SUV. See "Hybrid Cars' Foreign Dependence," by Jim Ostroff. The Kiplinger Letter, September 9, 2008.
6. "Boeing, too, uses foreign parts," by Joelle Tessler. The Associated Press, March 7, 2008. It was also reported in September 2007 in China's "People's Daily Online" that Boeing's Vice President of China Operations stated that China had become one of Boeing's largest foreign suppliers with $2.5 billion in active contracts.
7. "Living in Dell Time," by Bill Breen. Fast Company.com, November 2004.
8. Remarks by Robert B. Zoellick, United States Trade Representative, on the decision by the president to terminate steel safeguards, December 4, 2003.
9. "Steel Tariffs Appear to Have Backfired on Bush," by Mike Allen and Jonathan Weisman. The Washington Post, September 19, 2003.
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