地缘贸易博客This blog considers how ideas and events framed by geography and trade shape our world, while sharing observations and analysis on discovery, transport, industry and much more.






Showing posts with label free trade. Show all posts
Showing posts with label free trade. Show all posts

Saturday, 1 March 2014

México and the US

Source: The Economist


In early February 1848, following a short and one-sided war, México agreed to cede more than half its territory to the United States. An area covering most of present-day Arizona, California, Nevada, New Mexico and Utah, plus parts of several other states, was handed over to the US. 

The rebellious state of Tejas, which had declared its independence from México in 1836, was recognised as American soil too. 

But a century and a half later, communities have proved more durable than borders. The counties with the highest concentration of Mexicans (as defined by ethnicity, rather than citizenship) overlap closely with the area that belonged to México before the great US land-grab of 1848. Some are recent arrivals; others trace their roots to long before the map was redrawn. They didn’t jump the border—it jumped them.

Friday, 21 February 2014

The Alianza del Pacífico signs a historic agreement

Alianza del Pacífico countries in blue and observer states in brown


The Alianza del Pacífico agreement signed on 10  February 2014 aims to eliminate most trade and non-trade barriers between Perú, Chile, Colombia and México and also improve the mobility of capital and people. It will also reduce members’ export dependence on single goods (in the cases of Peru, Chile and Colombia) or single markets (as in the case of Mexico), and will create economies of scale that will make it easier to compete with Asian markets.


The Landmark agreement
The landmark framework agreement covers a wide range of topics, ranging from the elimination of trade and non-trade barriers on 92pc of the goods traded within the bloc to the adoption of measures to improve the mobility of capital and people. The countries making up the trade bloc have a combined population of over 210m people, a total GDP of US$2trn (and a per-head GDP in excess of US$10,000) and account for around 40pc of all foreign trade and inward foreign investment flows to the Américas (not including the US). The Alianza del Pacífico is due to increase shortly with Costa Rica just been accepted to begin the formal membership process.In addition, the Alianza del Pacífico’s goal of strengthening ties with the Asia-Pacific region means that a broader trade bloc in the Américas will join ongoing talks to create the Trans-Pacific Partnership (a free-trade area comprising Australia, Brunei, Chile, Canada, Japan, Malaysia, México, New Zealand, Perú, Singapore, the US and Vietnam). 


A massive opportunity

The recent agreement has been welcomed in the countries of the Alianza del Pacífico, where it as seen as a massive opportunity for achieving complementarities among its members. México is set to strengthen its intra-bloc exports of value-added manufactures, such as automobiles and metal-mechanics goods. Colombia is expected to benefit from increased exports of basic manufactures, such as processed foods, clothing and leather. And Chile and Perú are likely to boost their cross-border sales of agro-industrial goods. 

Furthermore, the Alianza del Pacífico constitutes an opportunity to build strong intra-bloc competitive advantages to penetrate Asian markets. This would be achieved through the creation of productive chains that generate economies of scale. According to a study by the Inter-American Development Bank (IDB), these chains could include the production of fibres and carpets by Perú and Chile; phosphates and detergents between Mexico and Perú; wood, paper and cardboard between Chile and Colombia; and chemicals and plastics between Colombia and México. 


But there will be challenges ahead


The Alianza del Pacífco’s success also hinges on its capacity to put in place accords in other, non-trade related areas. Progress has been made on the elimination of visas, the establishment of joint embassies in many Asian countries, and the subscription of agreements to promote education, tourism, small and medium enterprises and infrastructure investment. 

However, advances have been limited in more complex areas, such as the harmonisation of customs procedures, rules of origin and tax and financial sector regulation. The lack of progress in the latter two areas, for example, is delaying the implementation of the Mercado Integrado Latinoamericano (MILA, which aims to create a single stock market between Chile, Colombia and Perú and México).

Finally, although it is clear that the Alianza del Pacífico does not have political motivations, Mercosur comprised of Argentina, Brazil, Paraguay, Uruguay and Venezuela and the Alianza Bolivariana para los Pueblos de Nuestra America (ALBA) which includes Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, St Vincent and the Grenadines and Venezuela are likely to see the recent advances as a threat to their political ideology and existence.

Tuesday, 27 August 2013

The New Global Middle Class

The new global middle class in the 21st century

The New Global Middle Class

Since the beginning of the 21st century there has been a massive expansion of the new global middle class. This has not occurred in a vacuum. The BRICS and second tier countries such as Brazil and Turkey have made the headlines for their rise in income and high annual GDP growth but this is only part of the story, with increasing wealth has also come a massive rise in development. According to the OECD, Brazil's middle class has risen from 29pc of the population in the 1980s to 52pc in 2009 almost doubling. In Turkey's case, income per capita nearly tripled between 2002 and 2011 bringing more and more people into a growing middle class and increasinging the ranks of the global middle class.

According to the Brookings Institution, there are now 700 million more people with $US10-100 per day to spend than there were in 2003. Moreover, what they call the global middle class is expected to grow by another 1.3 billion over the next ten years. This new phase of creating a global middle class brings major benefits for the global economy. Instead of the somewhat one-sided trade pattern of the last two decades, it means greater well-being for households in “developing countries” and opportunities for more producers in the advanced economies.There has also been a massive re-alignment of world trade between what has been tradionally called South-South countries. Trade between South-South countries currently stands at around 30pc.

As a result there have been tectonic shifts in the rebalancing of the world in development terms. It is no longer clear which countries are “developed” and which are still “developing”. This re-alignment has in turn brought a massive expansion of human capabilities and provided choices to people entering the new global middle class that they clearly did not have in the 20th century. This point is well illustrated in the 2013 UN Human Development Report 2013. The Report highlights the fact that progress on human development has accelerated in the last decade and all of the 40 countries analysed in the Report are doing better than expected.

Why have some countries done better than others?

Interestingly several factors have influenced the overall outcomes of accerlating people's accession into the global middle class when comparing the different experiences of countries on a global level.

In countries where the State has taken a long term perspective on development, people have been accelerated in to the middle class. In some countries the state has actively promoted job creation, this has also helped to sustain the creation of the middle class. Where the state has enhanced investment in health and education – these policies have greatly helped to assist people to move into middle class. In Turkey, for example, the Government decided to provide healthcare for all and target the poor. In Brazil, the Government managed to expand education by matching the funds available across regions and municipalities. In México, the state provided cash transfers for social policy interventions.

Some countries have also taken an active role in nurturing the industrial capacities and by actively investing in people which has allowed them to make the most of trade opportunities in global markets.

What is the flipside?

Interestingly a new global middle class made up of educated, inter-connected youth will increasingly demand far greater accountability. This point has already been illustrated by large-scale demonstrations in Brazil and Turkey which are a direct result of the creation of an enhanced middle class and both countries' economic success over the last decade.

Growing middle classes are far less tolerant when it comes to governments performing inadequately. Delivery of services, such as education and health, is poor in both Brazil and Turkey. In its last scorecard on educational attainment referred to as the Program for International Student Assessment (PISA), the OECD found that Turkey and Brazil ranked especially poorly in maths and science. In maths, Turkey ranked 41st out of 62 countries, while Brazil was in 55th place. In science, Turkey was 40th and Brazil 50th. In the UNDP's 2013 Human Development Index, Brazil ranked 85th and Turkey 90th out of 186 countries. It is not clear what the implications of the current protests will be for these two countries.

Much will depend on how the democratically elected leaders of Turkey, Prime Minister Erdogan and the President of Brazil, Dilma Rousseff react to these challenges. The aspirations of the middle class are colliding with the current capacity of these countries to deliver.

Conclusion

In order for the new global middle class to be sustainable it has been shown that countries with less inequality do better and improve far more as more people are added to the middle class. Furthermore educating women to adulthood has been shown to be key to reducing fertility rates. Another key point is that in order to reap the benefits of youth bulge that exists in so many emerging economies, job creation for the young is also key.

Finally participation and inclusion is essential to stability and social cohesion – this in itself is what will ultimately sustain the new global middle class.

Saturday, 1 June 2013

The Américas and China – Alianza del Pacífico

Map of Alianza del Pacífico

La Alianza del Pacífico (Pacific Alliance)

The four countries of the Alianza del Pacífico formally established in June 2011 - México, Colombia, Chile and Perú - together account for 35pc of GDP in América Latina, 50pc of exports from the continent and together their population exceeds 200 million people which gives them a similar magnitude of scale to Brazil (located on the Atlantic side). It also means a new model of regional integration focusing on strengthening institutions to create a regionally integrated trade area, oriented towards the free movement of goods, capital, services and people towards the key markets in ASEAN countries and China. México, by far the largest of the four countries sees an opportunity to diversify its exports from the US to Asia. Currently México sends around 77pc of its exports to the US. But there are considerable opportunities for México's Agricultural-food, footwear and textile sectors to export to Asia. Costa Rica attends the Alianza del Pacífico as an observer, and it is highly possible that it will seek to become a full member in the foreseeable future. Panamá too has expressed interest in joining. In the last 15 years or so in América Latina, several trading blocs have been established from MERCOSUR to ALBA, but the Alianza del Pacífico is different, it is the first to see itself as a truely regional integration project.

Xi Jin Ping's习近平 First Visit to the Américas

On his way back from a trip to the Américas, the new Chinese President Xi Jin ping 习近平 will meet US President Barack Obama, in California on 7-8 June 2013. But first President Xi Jin Ping 习近平will spend a week from 31 May to 6 June visiting México and Costa Rica. It is no coincidence that the Alianza del Pacífico decision to seek further regional integration was formally agreed ahead of Xi Jin Ping's 习近平visit. This visit will provide México's President with the possibility to begin to re-balance the trade relationship with China. Interestingly Xi Jin Ping 习近平will also visit Costa Rica (another potential member of the Alianza del Pacífico) as well as Trinidad and Tobago. The visit to Trinidad and Tobago is significant as it will be the first visit of a President of China to the English-speaking Caribbean. Costa Rica is China 's second largest trading partner in Central America while China is the second largest trading partner of Costa Rica. In recent years, bilateral trade between the two countries has grown rapidly. In June 2007, China and Costa Rica established diplomatic relations. In November 2008, Chinese President Hu Jintao visited Costa Rica and announced the launch of China-Costa Rica free trade negotiations. The China-Costa Rica free trade agreement (FTA) came into force on 1 August 2011. 

Finally, when Xi Jin Ping 习近平 meets the US President, the meeting will not take place in Washington or on the Atlantic coast, instead the symbolism of the meeting taking place in California could not be clearer, it highlights the increasing importance of the Pacific over the Atlantic.

Nicaragua's proposed new canal between the Atlantic and the Pacific

The Nicaraguan government has recently stated publicly that it would like to construct a new canal with links between the Atlantic (Caribbean coast) and the Pacific Ocean. It has already started working with a Chinese company on a canal construction project. 

Map of the Proposed Nicaragua Canal Route
The idea is that the Nicaraguan canal would not be in competition with the Panamá canal, which is currently undergoing full expansion, instead, the Nicaraguan project would be focussed on receiving vessels up to 250,000 metric tons, the locks would be 460 meters big with a capacity to take boats with a depth greater than 20 meters. 

Detailed Map of possible routes for the Nicaragua Canal


The exact route of the Nicaragua canal is still to be determined but some experts believe that the project could be developed using the recommended routes of a multidisciplinary study presented in 2006 by the then President Enrique Bolaños. This study recommended the canal be built on the Caribbean coast of Nicaragua, near Bluefields Bay City, and then go along rivers within Nicaraguan territory and then through the Great Lake of Nicaragua, over a distance of 280km.

This is a mammoth project that will require considerable investment not only to build the Canal, but also in construction of port infrastructure, railway infrastructure and potentially airport runways too. The Nicaraguan government sees the canal as a pipeline for oil crossing from the Caribbean Sea to the Pacific across to the markets in Asia but it will be used for all trade.The Geo-Trade Blog will continue to follow closely developments on the new canal. 

Most interestingly, this mega project adds more evidence that world focus is increasingly moving away from the Atlantic and the focus in the 21st Century is on building the infrastructure and diplomatic ties with the Pacific.



Friday, 12 April 2013

Trade in the 21st century

Global Trade patterns in the 21st Century are changing

The trade bargains to be had



In an ideal world a big trade deal would be global. This is because gains such as dismantling trade barriers for all is much better than lowering them on a regional basis. But since the Doha round of multilateral trade talks collapsed in 2008, in its place have sprung up three possible regional deals to be done. The first two are of great significance for the future of global trade. The third is of lesser significance.



The Tran-Pacific Partnership (TPP) was launched in June 2005 between 11 Pacific countries, it includes the US, México, Canada, Chile, Perú, Singapore, Malaysia, Brunei, New Zealand and Australia. It is currently into its 16th round of negotiations and the approximate value of trade is around $US1.492bn. Japan and South Korea are not involved in these negotiations as yet but if they were to join the TPP countries would account for around 30pc of global trade in goods and services. Interestingly, the TPP has aspirations to do much more than cut tariffs. Its goal is to develop a far bigger joint rule book, from regulation to competition policy. One study estimated that a deal could raise the region's GDP by more than 1pc.



To compete with the TPP is another regional trade agreement the Regional Comprehensive Economic Partnership (RCEC) that has just been launched in 2012, it includes the 10 ASEAN countries plus China, Japan, India, South Korea, New Zealand and Australia. This deal represents an approximate value of trade around $US1,412bn even without the US' involvement. Hence there are two competing Pacific regional deals to be done: One with China plus Pacific countries and one between Américas countries (US + Canada, México etc) and Asian countries. The risk here is that both these deals could split the world into competing regional blocks where each country would need to decide who the more important business partner is: China or the US. But this could be avoided by making sure that both deals are easily knitted together and easily opened to others by basing the deal on a similar template, avoiding unnecessarily restrictive prescriptions and by creating a set of rules that both China and the US can embrace.



Finally, there is a third smaller agreement on the horizon that is being pushed hard by Europe, called the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU. It was announced in February 2013 but it has not been formally launched. It's estimated value of trade would be less than half of the other two Pacific deals estimated at around $US618bn. It is not entirely clear what the purpose of this deal would be as the US is already engaged in the TPP negotiations. It would appear that Europe is slightly displaced in the 21st Century and is seeking to counter the Pacific regional deals with an Atlantic deal but this sounds rather like wanting to turn the clock back to the 20th century rather than looking forward to the realities of the 21st century.



Why free trade is good



Since the failure of the Doha Round in 2008 the WTO has struggled to rebuild interest in trade liberalisation. But, interestingly, global trade has grown faster than world output since 2010. One of the biggest problems is that decades of talks and treaties in the 20th century have exhausted many of the easy targets of trade liberalisation with the consequence that no new grand achievements are possible without resolution of some of the stickiest of trade issues. Furthermore, protectionism that has been largely held at bay, so far, throughout the economic crisis is beginning to become apparent in some places in the US and Europe. The video below offers a 1951 view of global trade and illustrates why we need free trade agreements: 
 



China and the other BRICS



But the fundamental strain on the multilateral system is the shifting economic balance of power. Emerging markets came into their own early in the Doha round that started in 2001, by rejecting the unappealing offers from the US and Europe. In fact the BRICS have become much more active over the last decade so much so that China's new President Xi Jin Ping习近平 announced that as part of his first foreign trips abroad he would be attending the fifth BRICS Summit on March 26-27 in Durban, South Africa after visiting Russia, Tanzania, and the Republic of Congo. This re-enforced the importance that China is attributing to its relationship with fellow BRIC countries, placing it on on a similar par to its strategic relationships with Russia and Africa.

The main outcome of the BRICS' Leader's Summit was to endorse plans to create a joint foreign exchange reserves pool. This proposal underscores frustrations among the emerging market economies at having to rely on the World Bank and the International Monetary Fund which are seen as reflecting the interests of the US and Europe. The UN Development Programme Report 2013 highlights this point and suggests that emerging economies need their own institutions to support their growth. The Report goes so far as to say that 20th century institutions do not meet the teutonic changes taking place in the so called "South" in the 21st century.



Conclusion



Freer trade and open markets is how the world has always grown and become richer and more developed from ancient times, therefore in the 21st century with the lions' share of growth of middle classes in the emerging world, it is a no brainer for the US and Europe to break down barriers to enhance trade with the emerging economies of the world. In fact the tables have turned and the US and Europe, for the first time in a while, now need the emerging economies as much as the emerging economies once depended on the US and Europe.

Sunday, 27 January 2013

Geography and Demography are Destiny

Geographical view of the Américas

Geography is the backdrop of human history. The position of a country on a map is the first element that truely defines it, so much more than its government is able to. Geographical distortions can be as revealing of the long-range intentions of governments, for example, the melting of the Arctic, allows a glimpse of the possible future shipping routes between Asia and Europe and the geo-trade options that this could bring about.



Demography is destiny



The US is in the midst of a new demographic, cultural and political moment. Interestingly the extension of the US border southwards in the early 19th Century to incorporate newly won land from México into the US is now facing a seismic demographic change in the 21st century - in coming decades hispanos from the wider Américas will become more than a quarter of the US electorate. 

Hispanos currently represent 17pc of the US population, and hispanic population growth is set to turn the US into a country where fewer than half the population will be non-Hispanic whites within 20 years. This shift will create a new demographic reality in the US. This point was heavily illustrated in the messages of Obama's recent presidential inauguration speech. A Cuban-American became the first hispano to recite the official inaugural poem. Rev Luis León delivered an inaugural benediction with phrases spoken in Spanish. And Justice Sonia Sotomayor, the first hispanic on the Supreme Court, administered the oath of office to Vice President Joe Biden.

Geography and Economic Growth



The notion that Mexico offers only cheap labour no longer rings true in the 21st Century. México produces around 115,000 engineering students every year, almost three times as many as the US on an annual basis. Hence machine specialists are usually easier to find in Tijuana than in many big US cities. As are, accountants experienced in production economics and other highly skilled workers.



Today, in the 21st century, Tijuana is becoming to San Diego what Shenzhen is to Hong Kong. Travel between San Diego and Tijuana is around 20 minutes, with no passport required. Although a passport is needed to come back, but there are fast-track lanes for business people. Many employees commute across the border each day, good doctors are cheaper and easier to find in Tijuana, as are private schools. In some ways, the border feels more like the  borders between the members of the EU than a divide between two countries.



And it’s not just Tijuana. To the east, in Juárez, Dell computers are built by Foxconn, the company that manufactures more than 40pc of the world’s electronics (including Apple’s iPhone and iPad). To the south, in Querétaro, a factory builds the transmissions that General Motors installs in its Corvettes. The design of General Electric’s GEnx turbine jet engine and the production of interior elements of Boeing’s 787 Dreamliner also happen in México. In fact, manufactured goods are the country’s chief export, with private investment in this sector among the highest in the world.



Once again geography is destiny too, the shorter and more nimble a supply chain is, the better. Hence México is benefiting from its proximity to the US to feed the demand for just-in-time manufacturing. And the demographics of producing the right mix of highly-skilled workers have combined with it to create growth and prosperity in the 21st Century. 






Sunday, 16 December 2012

Values in the 21st Century - Europe, US and China

围棋 based on encircling your opponent on the Board provides an insight into Chinese values

Max Weber and Karl Marx, the founders of modern sociology, underestimated the importance of the way people in power think, behave and persuade others of the supremacy of their values. 


The Soldier, the Merchant and the Sage

Throughout most of history three groups, the soldier, the merchant and the sage, have struggled to gain predominance over a fourth group, the greater populous. When one of these groups achieves unchallenged control over the others the result has culminated in an imbalance of values leading to war, economic disaster or revolution.


Interestingly, most societies are based on an informal alliance between two of these three groups. For example, early agrarian societies were often led by aristocrats with warrior and landowner values (soldiers) in close alliance with priests (sages), who provided a spiritual justification for their rule. The merchant was usually tolerated for bringing wealth through trade, but was also resented for being cleverer and often richer than traditional elites.


During the 17th century, the merchant's power increased and decreased always dependent on protection from the soldier group. But it was not until the late 17th century that merchants first began to emerge as the dominant group in Europe. 
 

During the 19th century the rise of “soft" merchant values really took off. The British used their growing empire as a force for promoting free trade and globalisation in the so called interests of all. Nevertheless their competitors regarded these imperial projects as less benign. By the mid-19th century, the world of merchants was becoming one of competing business cartels, increasingly backed by the might of Nation States. But no country adopted the values of the “warrior-hard merchant” with more vigour than Bismarckian Germany, where repression at home and brutal zero-sum commercial competition with other rising industrial powers became the order of the day. The first world war was largely a consequence of the limits of allowing  merchant values to become the dominant group of values.


After the first world war, the US emerged as the wealthiest nation and dominant exporter of capital. This led to the spread of a new form of merchant power across much of the developed world in the form of debt-fuelled consumer capitalism. Yet the massive financial and trade imbalances that resulted again brought the dominance of merchant values to an end with the  Depression in the early 1930s.


The second world war ultimately inspired a new alliance of “sagely technocrats” and “soft merchants”. They were determined to learn the lessons of the past, this partnership worked to create a new world order of prosperity and social harmony. The early fruit of the combination of these values was the Bretton Woods monetary system, which established the rules governing commercial relations between the developed industrial nations.
 

Interestingly, the collapse of the Bretton Woods System in 1971, heralded a new renaissance of the dominance of hard merchant values. This period was led by the Anglosphere and was characterised by the so-called Washington consensus and "Davos Man". It launched a renewed age of the dominance of merchant values without the sagely values to reign it in. This age still continues today. To understand the banking and sovereign-debt crisis that has taken hold since 2007/08, the Geo-Trade Blog believes the US and Europe are paying the price for succumbing to the values of merchants, who believe in the justice of the market, and prize the pursuit of short-term profit fuelled by credit and risk. 
 

But perhaps there is a much broader problem. Modern democratic governments in the US and Europe play a much larger role in the economy than any governments in the ancient Greek democracies could ever have imagined, therefore, this in turn makes political leaders a huge source of patronage, in the form of business contracts, social benefits, jobs and tax breaks.

What are China's中国 values ?

Perhaps a more interesting question in the 21st century is, which of these three groups, the soldier, the merchant and the sage will gain dominance in a China led world? China owes its re-emergence to its embrace of the contemporary US and European model of modernisation – to a large extent driven by hard merchant values that put the country on its current path more than three decades ago. But the question of values remains unanswered.

It is interesting to note that Chinese traditional values are being replaced by what researchers have identified as an emphasis on material values - making money has become a major concern for most Chinese people. The new material values are expressed by a desire to buy apartments, cars and fashionable clothes. Showing external signs of wealth has become a basic social requirement.

The Chinese do not play chess, a game with a rather adversarial objective to eliminate your opponent from the board. Instead the Chinese invented 围棋 where the object of the game is to encircle your opponent and gain control of a larger total area of the board (see above picture). To some extent, this provides an insight into the different ways of thinking in Europe and the US compared with China 中国. 


In traditional Chinese culture, righteousness, or justice are perceived to be an important value. If democracy can protect an individual's political rights, it would seem the Chinese are sceptical as to whether it can ensure that people use their power to do the right thing. In Chinese culture, the legality and morality of procedure as well as the result are both just as important. Here in lies the eternal challenge that all democracies are forced to grapple with - what if the laws and democratic processes do produce “immoral” results, for example, an extreme-right wing party is able to win power in democratic elections or what of wars fought by a country that are not supported by its citizens.

In conclusion, it would seem that there is some commonality of horizon but the ways of thinking and framing problems remain different. It is still too soon to tell what combination of the Soldier, Sage and Merchant values will emerge in China 中国 as dominant but the Geo-Trade blog will continue to follow closely the new thinking on values emanating from China 中国 in the 21st Century.