Decreasing growth of Global Trade

On September 27th, the World Trade Organization forecasted the growth of trade to be 2.8%, a major decrease from 2016’s 1.7%. GDP has been growing at a slow pace and this year trade may be even slower. In the past global trade flourished, however, many factors contribute to the rate at which trade grows such as protectionism and changes in demand. Trade is an important factor in the global economy because it allows countries to spread ideas. It allows countries to interact with each other and in turn expose themselves to new ways to thinking and new products. Furthermore it is important for the economy because it promotes competition in the marketplace.


In the past, trade was given steam by the explosion of growth of China’s economy. This was in part due to large investments and led to high imports and exports as well as the use of huge quantities of resources. China’s growth has since stabilized and has been growing at a slower rate. This has in turn affected trade around the world, about one sixth of the slowing exports in Asia from 2014-2015.


Another factor is Brexit which has impacted Britain and Europe negatively thus far. America is also facing some changes with its upcoming political election. In response to what has been deemed “unfair” trade advantages, trade laws have been put into place. China has been cited for dumping and having extremely cheap labor costs which drove down their prices. This has caused millions of American jobs, such as at the steel mills in Ohio and Pennsylvania, which used to be steady and secure job source to be obsolete. It has also caused American to have a trade deficit with China. Donald Trump says that he will renegotiate trade deals and stop NAFTA and the Trans-Pacific Partnership. These impending changes have caused uncertainty and will definitely have a ripple effect on global trade.

Declines in Piracy Come at High Cost to Global Shipping Industry

Pirates. When we think about them, most of us think of a bygone era when Jack Sparrow-esque characters sailed around the oceans under the skull and cross bones.

Maritime piracy does, however, exist to this day. Since 2011, piracy has become less prevalent yet, its presence continue to have ramifications for global trade and the international economy.

Since 2010, incidents of maritime piracy have dropped off rapidly.

The Gulf of Aden, a narrow section of water where the Red Sea meets the Indian Ocean between Yemen and Somalia, has become a hot spot for pirates to take over ships and hold them for ransom. This stretch of water, only 920 miles long and 300 miles wide, carries 95% of the European Union’s sea trade and up to 20% of global trade. It was also the location of 53% of all incidents of maritime piracy in 2009.

This map depicts areas under threat of piracy from 2005 to 2010 and notes where “anti-shipping messages” were received.

Most of these attacks are classified as kidnapping as opposed to hijacking because crew members are held hostage for a ransom. In 2010, Somalian pirates are estimated to have made $238 million in ransom payments.

While this is no small sum, it pales in comparison to the cost a hijacking inflicts on global markets. Oceans Beyond Piracy estimated the total cost of maritime piracy in 2010 to be between $7 and $12 billion dollars. These figures take into account increased spending on security, sky rocketing insurance premiums, and rerouting ships to avoid the horn of Africa altogether. One World Bank report labelled these costs as a tax on global shipping as costs seep beyond just those who choose to send ships through the Gulf to all shipping companies and routes world wide.

In order to reduce the frequency of pirate attacks on ships, the European Union has partnered with private shipping companies to create The Maritime Security Centre – Horn of Africa. In place to monitor and track each ship that passes through the Gulf, this organization will operate on a budget of 6.3 million Euros in 2016.

A shipping vessel is accompanied by war ships to ensure safe passage through the Gulf of Aden. These services are expensive to provide and can act like an extra tax on shipping costs.

The Maritime Security Center also established the Internationally Recommended Trade Corridor, boundaries of the safest way to travel through the Gulf of Aden and outlined a convoy schedule by which ships can decrease their likelihood of being attacked by sailing together. A collection of war ships from a group of participating nations patrol the Gulf along with air support to minimize risk.

Significant investment in the region’s safety has paid off. From 197 attacks on ships by Somalian pirates in 2011 to 0 attacks in 2015, government and private measures have successfully diminished and maybe even eradicated the threat of piracy in the Gulf of Aden.

Even though attempted and successful attacks have dropped to zero, the cost of maintaining safe passageways around the Horn of Africa will continue to put economic pressure on shipping companies. Costly security improvements on board ships, demands for increased pay among crew members, and rises in insurance premiums have added to the cost of maritime shipping. Such increases have likely led to more expensive products for consumers as well.

How a Tiny Region in Belgium Tried to Kill a Major Trade Deal

Where in the world is Wallonia? That’s a serious question. Do you know the answer? I’ll admit I didn’t. Not until I read about how a tiny agricultural region in Belgium that threw the brakes on a major European Union trade agreement with Canada. So how did a small region from a very small country disrupt a major economic policy agreement?

To begin, the treaty is entitled Ceta which stands for Comprehensive Economic and Trade Agreement, and it aims to do what trade deals always do: lift restrictions on economic activity between Canada and the EU. The European commission claims that, “It will lift 99% of custom duties and many other obstacles for business.” The commission also mentions specifically that this deal will, “fully uphold Euorpe’s standards in areas such as food safety and worker’s rights.” An important point for Wallonia.


Ceta has been in the works for nearly seven years. A long negotiation to be sure, but why was it so difficult? When dealing with the EU one would think that you are negotiating with one major political entity, but in this instance it was more like trying to negotiate with all 28 member states at one time. That’s because in this deal the EU granted veto power to every single member state. So if you couldn’t convince everyone to agree on this deal, then you might as well have convinced no one.

Enter the French speaking Belgian parliamentary region of Wallonia. A place that represents the voices of a mere 3.6 million people, which is a tiny number when compared to the number of people whose lives would be affected by the passage of Ceta. It has influence because Belgium has a system that prohibits a singular central government from signing these treaties for itself. The government is comprised of six separate parliaments that each represent different geographic or linguistic division within the country, and each gets a veto on any trade deal signed by the Belgians. So the Flemish parliament gets a vote, the Brussels-centered Parliament gets a say and one vote says the Wallonians can stop the whole deal.

So in this instance, the Canadians aren’t just dealing with the EU, they’re dealing with Belgium, because Belgium can torpedo the whole deal, and to convince Belgium they have to work with, you guessed it, Wallonia led by Minister-President Paul Magnette. But why did Wallonia want to stop a major trade deal? Because their major industry is agriculture, and their socialist political leadership wanted to put up a fight to protect their constituents from facing cheaper agricultural goods coming in from Canada. The classic protectionist political story that we’ve seen since the British Corn Laws. The Wallonia parliament also strove for stronger safeguards on labor, environmental and consumer standards.

So what did this all amount to? A four-page addendum to a 1,600-page trade agreement. Kind of a let down. The Walloons celebrated the concession they grabbed as a major victory. Basically, what they got was special court system to determine if investor-state tribunals are compatible with EU Law and a guarantee that the Belgian government can assess the socio-economic impact of Ceta. What the Walloon government really won was political influence. They used anti-globalization sentiment around Europe, and leveraged it in order to say they were protecting the workers.

Source: Wall Street Journal

Source: Wall Street Journal

However, the deal still went through, and it is the first major trade agreement signed by the EU with an industrialized nation. The EU leadership and Canadian Prime Minister signed the deal into provisional action earlier this week, and now it must go up for full ratification with the more than 30 national and regional parliaments that make up the EU. So Wallonia didn’t manage to stop global trade, but it does show worrying signs for those trying to consecrate trade agreements with the EU. Countries like the US and post-Brexit Britain will certainly take note.

Japan’s Yen and its Impact on Global Trade

The Great Sendai Earthquake happened on March 11, 2011. It was an earthquake of a 9.0 magnitude that caused large tsunami waves as well. The damage from this natural disaster was severe. There were nuclear accidents, thousands of buildings destroyed and damaged, ports were shut down, there were power outages and damaged infrastructure. The estimated cost of rebuilding was $200 billion.

The value of the yen was greatly affected following the disaster. The yen hit a high at 76.25 against the U.S. dollar after the earthquake. The yen was previously at 83.8 on February 15, 2011 before the disaster. This happened because of repatriation of capital- Japanese corporations were exchanging their money they have in other countries for yen to pay for handling the aftermath. The large demand for yen was created so its value went up. What Japan did in an effort to lower the yen was had their central bank was sell yen to weaken its value, but it wasn’t enough to bring it down.the-year-of-2011-jpy-usd-exchange-rates-history-graph

When the value of the yen is higher than foreign currencies, it makes it too expensive for the rest of the world to be able to buy Japan’s exports and makes it less desirable. So, if the yen is high this is very bad for Japan because 14% of their economy is based on exports. For example, every one yen move versus the U.S. dollar will cost Toyota $380 million a year. Also, the natural disaster’s immediate damage hurt their trade because it caused supply chain disruption. This is because Japan plays a large role in the global supply chains because they not only export parts of products but finished products as well. Japan’s large companies that have exports such as Toyota, Nissan, Sony and other tech and auto industry companies had to halt production because of damages.


Because Japan’s production and trade was halted following the earthquake because of damages and increase of the yen, Japan’s GDP growth halted as well. Their national savings went down because they were spending it on repairs and their debt increased as well. At the time, Japan’s economy was the third largest in the world that accounted for 8.7% of the world’s GDP. But, this natural disaster moved Japan from this spot. Here is a brief look at how their GDP staggered from the disaster: in 2010 it was 42935.3, in 2011 it was 42824.7 and in 2012 it was 43658.2. The fall from 2010 to 2011 is bad because usually just a small amount of growth is bad; no growth to where it is negative is very bad (and this is what happened). But, Japan’s economy was able to get back in the steady direction it was going by 2012. Since the disaster, Japan’s growth has fell behind other large economies so it has not contributed to the growth of the global GDP.

screen-shot-2016-11-03-at-7-39-20-amscreen-shot-2016-11-03-at-7-44-50-amJapan was able to recover and able to maintain its economy because of the G7 Intervention that took place following the disaster and the sharp increase in the value of the yen. The G7 is made up of some the nation’s wealthiest countries, this includes the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. This group meets annually to discuss global economics, international security, and energy policies. They met on March 18, 2011 in regards to Japan’s economy after the earthquake and agreed to start selling the yen to makes the value of the yen go back down. The group wanted to decrease value of the yen so Japan could recover and they could continue trading with them. If Japan’s yen stayed at that very high level it would have affected the world’s trade in horrible way. Following the G7, the yen weakened and went back to 80.94 against the US dollar. Because of this, Japan’s economy was able to start recovering because they could resume exporting their goods (a large driving factor of their economy). Other countries were able to buy

fx-2their exports because the value of the yen leveled-out to where the exports were affordable to other countries again. Without this intervention we most likely would have seen a rippling effect from Japan to the rest of the world causing other economies to weaken because of the disruption of trade. The global GDP was still able to grow in the year of 2011 following the earthquake, but it did not continue to grow at the same rate as it was from 2010 to 2011; this could be partly due to the disruption of trade in 2011 because of the halt of Japan’s production and exports that impacts the rest of the world. 

Global GDP Growth

Global GDP Growth


The Declining Cost of Food

If you’ve walked into a grocery store in the past six months, you might notice that your usual purchase seems pretty inexpensive.

According to the US Bureau of Labor Statistics, this current period is the longest period of falling food prices since the 1960s.

Experts believe that the price of food will continue to decline into early 2017 as well.

So, why are the prices on staples like milk and eggs so low? food-prices

Many believe that this is due to the lowering cost of oil and the health of the American economy.

Because the agricultural industry is so reliant on oil for operating machinery and transporting the food, the cost of global oil can directly affect the price of food in our local grocery stores.

However, some people might not feel a different in their weekly grocery runs, as it is estimated that prices have declined 2.2% from September 2015 to September 2016.  While this seems like a relatively small amount, some commodities have changed in price dramatically.

Some major grocery companies, like Kroger, have even reduced their annual earnings predictions due to the deflation of food prices.

For example, milk prices are very low.  In early 2016, milk producers threw out 43 million gallons of milk because there was a lack of demand for the product.  Also, producers overestimated the trade potential of milk to deliver to China and Russia, as demand was high last year but has decreased dramatically.

There is a direct correlation between oil prices and agricultural product prices.  When the price of the cost of oil declines, so does the price of food products.screen-shot-2016-11-03-at-8-27-15-am

According to ED&F Man, an agricultural commodities firm, more than 20% of the cost of food is determined from the price of oil.

In 2014, the price of oil began to decline.  This is due to the increased production of US oil, lessening the reliance on foreign oil.

By 2015, the United States had begun to produce 9.2 million barrels of oil per day, reaching a high in production levels since 1970.

Even though the US began to increase production, OPEC countries like Saudi Arabia refused to cut production to maintain market share, increasing the global supply of oil.

By producing more oil in the US and not engaging in as much trade with OPEC countries as previously done, the reliance on other countries has declined and the supply of oil has increased, making global oil prices much cheaper than in the past few years.

Although oil prices are expected to remain low into the beginning of next year, it is estimated that they will gradually rise, as Saudi Arabia and other OPEC begin to lower production, therefore lessening the supply of oil in our world.

Kroger Blames Low Food Prices for Decrease in Sales


NAFTA – Not as Bad as Everyone Says?


Since it took effect in 1994, the North American Free Trade Agreement and its impacts have been discussed by everyone from laborers to political leaders. By establishing a free-trade zone in North America, it lifted tariffs on the majority of goods produced in Canada, the United States, and Mexico. This increased the fluidity of products among the three countries, and lately, there has been a focus on how detrimental this is to the US economy.

Take a look at the textile industry. Before NAFTA, the denim industry employed 500,000 American workers, but today, there are only 130,000 left. At a quick glance, NAFTA could be blamed for this because it is the reason why so many companies moved to Mexico in search of cheaper labor and lower overall costs. Free trade allowed American manufacturers to turn to other countries in order to better compete with domestic and international companies. In terms of the laborers left without jobs, older workers especially were forced to turn to lesser paying jobs like working at Wal-Mart or other low-wage, hourly positions. All of this makes NAFTA look rather bleak, but it is important to look at the gains NAFTA has also produced.

Close to 6 million jobs in America depend on trade with Mexico, and nearly 40% of US imports from Mexico are derived from US sources. Compared to only 5% previous to NAFTA, this increase signals some of the agreement’s successes. Going back to textiles, shipments in this industry have actually gone up since 1994 due to the fact that it became much cheaper. In reality, the job losses and trade deficit that is often blamed on NAFTA have other pertinent causes.

University of Pennsylvania Wharton professor Mauro Guillen believes that many of the jobs lost from 1994 through now would have been lost regardless of NAFTA to countries with cheaper labor such as China. NAFTA simply accelerated the process and redirected the manufacturing capacity to Mexico rather than Asia. In 2013, the trade deficit with Mexico was $54 billion, but the deficit with China was $318 billion. America’s deficit with China is five times its deficit with Mexico, which means that jobs were going to be lost to foreign countries either way. If anything, NAFTA allowed North America to create a cheaper and more seamless supply chain that benefitted American companies.


New technology improvements such as automation and robotics have also reduced the necessary number of workers, so even if jobs had not moved across borders, there would have been a downsizing in employees regardless. Many of the products made in foreign countries are also designed in the US, which opens up another set of American job opportunities.


Finally, it is important to look at the positive effects NAFTA had on Mexico’s economy. Free trade allowed Mexican workers job opportunities, and while Mexicans had previously been the largest source of immigrants to America since 1940s, immigration patterns are now reversing. More Mexicans are leaving America than coming in, and some of this can be accredited to the fact that Mexico is performing so well. It is easy to blame other countries for our own problems, but maybe Americans need to take a closer look at the true culprit.

China’s Next Big Export: Creativity and Culture

“Have you seen Zootopia?” That’s one of the most frequent questions I was asked by my friends from home and abroad in March this year. With more than 1 billion box office globally including 0.2 billion from China’s market, Zootopia has successfully stampeded across the world including China. Moreover, Kung Fu Panda 3 which was supposed to be perfectly calibrated to Chinese tastes, keeps adding Hollywood grosses



In just the first 3 months of 2016, two Hollywood animated movies —Zootopia and Kung Fu Panda 3 by themselves combined to break 2014’s record of $286 million in box office grosses for American animated features in China. It won’t surprise that only animated movie exported to China from the United States will gross over $500 million in China’s market.


Other Hollywood hits in 2014 such as Dreamworks Animation’s How To Train Your Dragon 2 ($65 million in Chinese theatrical revenue), Universal/Illumination’s Despicable Me 2 ($53 million), Disney’s Frozen ($48 million) and Dreamworks/20th Century Fox ’s Penguins of Madagascar ($40 million) shows how blatant American culture export is and how lucrative China’s market is. Undoubtedly, Hollywood is the most competitive export to China compared to tons of made-in-China products imported to the States each year.

Some people argue that Hollywood is synonymous with America. To some extent, it might be true because American entertainment industry is highly visible in the world, that bear the sign of American culture pervasively. The movies made in Hollywood have shaped many Chinese youngsters’ fashion and attitudes for generations. The American films are entertaining, thrilling, and full of heroism. Now, even children from China can quote lines from American films.

Here is an ideal picture for Uncle Sam: America assembles movies and ships them to China, and China assembles merchandise promoting those movies and ships it back to America. Repeat.

However, don’t forget China has its sanction system. Films cannot play in China unless it is approved by the State Administration of Press, Publication, Radio, Film and Television. American studios with the hope of film distribution in China either submit to Beijing’s censors or become adept at self-censorship. China tightly controls U.S. investment in films in China. Although in 2012, China raised the number of foreign films that can be imported on a revenue-sharing basis to 34 from 20 per year to cater to the rules of WTO, the policy is set to expire and remain unknown yet.

Moreover, China’s footprint in Hollywood is growing. This year, Dalian Wanda Group, the Chinese real estate and entertainment giant, bought a controlling stake in Legendary Pictures, a major Hollywood studio that financed films like “Jurassic World.” Moreover, Wanda is now owning AMC theaters, the second-largest U.S. cinema chain.


(Picture of Wang Jianlin, at the announcement)

At the announcement, Wang Jianlin, the company’s chairman and China’s richest man, said the acquisition will allow greater distribution of Chinese films to international audiences. It marked a milestone that China is entering Hollywood, combating the long entertainment trade deficit and dominant market position of America.

According to Wang Jianlin, Chinese-made films does not generate enough interest in the American market. His move will promote Chinese movies to entertain American audiences.

China is ambitious to launch his next big export of creativity and culture. “Confucius Institute” has left its footprints globally. But entertainment export would hugely impact US-China cultural exchange.

Sanction system might not be a problem. If China has a strict sanction on American films to protect its domestic market. Why not America?

Nonetheless, Wanda’s move makes it seems hard to stop China’s steps into Hollywood.

Will the China’s entertainment trade deficit change ultimately? Who knows?