Peterson Institute Update

US Anti-Dumping Duties on Chinese Solar Cells: A Costly Step

On May 17, 2012, the Commerce Department announced that imports of Chinese photovoltaic cells (solar cells) will be subject to preliminary anti-dumping duties (ADDs) of 31 percent. This penalty tariff will be applied, along with new countervailing duties (CVDs) ranging from 2.9 to 4.7 percent, to all imports of Chinese crystalline silicon photovoltaic cells, even when assembled into panels outside the People’s Republic. While the announcement of ADDs comes as no surprise, the size of the penalty is alarming and may spark more trade friction between the two largest economies in the world.

RealTime post by Gary Clyde Hufbauer and Martin Vieiro

Creating the New Healthcare Marketplace

Mark T. Bertolini, chairman and CEO of Aetna, addressed the topic of "Creating the New Healthcare Marketplace" at the Peterson Institute on May 24, 2012. His remarks covered the implementation of the Affordable Care Act, health entitlement costs, the changing needs of consumers and their employers, and the struggle for answers to these questions by political leaders.

A Foreign Exchange Reserve Mystery: Which Major Advanced Economy Is Not Reporting the Currency Composition of Its Reserves?

The International Monetary Fund (IMF) collects and publishes quarterly data on the currency composition of official foreign exchange reserves, known as COFER. The data are published for three groups: the world, the advanced economies, and the emerging and developing economies. For each group, allocated reserves are broken down into the traditional reserve currencies (US dollar, euro, sterling, yen, Swiss franc) and “other” currencies. When a country does not report its currency composition, or does so incompletely, the reserves are listed as “unallocated.”

RealTime post by Allie E. Bagnall.

Policy Brief 12-13: Right Idea, Wrong Direction: Obama's Corporate Tax Reform Proposals [pdf]

The need for US corporate tax reform is blindingly obvious. Conservatives contend that the top corporate tax rate—whether measured in statutory or effective terms—is the second highest in the Organization for Economic Cooperation and Development (OECD). Liberals argue that the US corporate tax system is riddled with complex "loopholes," enabling many firms—whether or not incorporated—to pay less than their fair share.

Responding to these criticisms, Obama's White House and Treasury Department released a joint report entitled "The President's Framework for Business Tax Reform." Unfortunately, the report omits the detail needed to fully assess its proposals. But if the devil ever lives in the details, it is in the details of the tax code. Instead of details, the Framework report focuses on five elements of reform: the nominal and effective corporate tax rate, incentives for domestic manufacturing, taxation of international income, the tax code for small business, and the fiscal impact of proposed reforms. The report greatly exaggerates the revenue loss entailed by cutting the statutory corporate tax rate, and it proposes damaging new taxes on international business that would undermine US exports. Overall, the report unduly concentrates on manufacturing activity, while neglecting America's strength in services, the most prominent future driver of jobs, investment, and growth. Projected revenue gains are not large enough to help curb the rising debt-to-GDP ratio, but the report ducks any discussion of a national consumption tax.

Policy Brief by Gary Clyde Hufbauer and Martin Vieiro.

Congressional Testimony: Assessing the Strategic and Economic Dialogue [pdf]

I have proposed since 2004 that the United States and China create an informal G-2 to help steer the world economy. The reason is simple: Progress is impossible on most important global economic issues without agreement by these two global economic superpowers. Examples including exchange rates and the international monetary system, the world trade regime and climate change. (The one notable exception is financial regulatory reform, where China is not yet an important player so most decisions remain with a subset of the membership of the Financial Stability Board.)

There are now three global economic superpowers, the European Union along with China and the United States. But Europe, or even the more integrated euro area, speaks with a single voice on very few issues. Moreover, its current economic weakness limits its influence on most topics. So a G-2 is the only practical possibility for achieving effective global economic leadership.

Congressional Testimony from C. Fred Bergsten.

Interview: Are World Currencies Becoming More Aligned?

John Williamson says the world is groping toward more realistically aligned currency values, but the US-China and Northern vs. Southern Europe current account imbalances remain worrisome.

Latvia Shows the Way, Proving Some Famous Merchants of Doom Wrong

Today, the Latvian government can claim victory. In the first quarter of this year, Latvia’s annualized GDP grew by 6.8 percent, the highest growth rate in Europe, and last year Latvia recorded a growth rate of 5.5 percent, the third highest in Europe. Four years ago, GDP plummeted by a total of 24 percent because of the sudden stop of international financing in September 2008. But that decline lasted only two years. Unemployment has fallen from 21 percent in early 2010 to 16 percent two years later.

RealTime post by Anders Åslund.

Interview: Stimulus vs. Austerity in Europe

Anders Åslund says it is more important for ailing European countries to cut their budgets, reduce their debts, and win market confidence than to embark on economic stimulus right now.

What Is India's Real Growth Potential?

In 2004, before India’s growth surge toward Chinese levels became evident, Dani Rodrik of Harvard University and I wrote in the Economic and Political Weekly that India’s potential growth was “at least 7 percent.” The outcome over the next few years was a pleasant surprise but also a mild rebuke of our analysis. Not only did actual growth surpass our projection, it was achieved much sooner than our “medium-term” horizon—which was evasive econospeak for “not immediately but sometime in the future.”

Op-ed by Arvind Subramanian.

Interview: Russia's New Cabinet Could Bring Economic Reform

Anders Åslund says President Putin will continue a hard line on foreign policy, but his team of technocrats is notable for the absence of KGB operatives and others with a reputation for corruption.

Implementing Basel III in the European Union: A Deeply Flawed Compromise

By all accounts, EU member countries have for months been debating how to implement the minimum bank capital standards agreed under Basel III. Their arguments have unfolded as the EU works to complete its fourth Capital Requirements Directive (CRD4) and its Capital Requirements Regulation (CRR); (see Veron 2012). Three issues have been contentious: (i) whether member countries should be permitted to enact minimum capital ratios considerably tougher (higher) than those specified under Basel III without approval of the EU: (ii) whether the restrictions on what can be counted as high-quality capital under Basel III should be scrupulously adhered to in EU legislation; and (iii) whether the Basel III deadlines for introducing an unweighted leverage requirement for bank capital and two new quantitative liquidity standards (the liquidity coverage ratio and the net stable funding ratio) should be mirrored in EU legislation.

RealTime post by Morris Goldstein.

Endgame in Greece: Don't Look for an Imminent "Grexit"

As the countdown toward a new Greek election heads toward June 17, most analysts predict an imminent Greek exit from the euro area. Almost anything can happen, but a few possibilities are worth considering. Any newly elected Greek government will have trouble implementing the current austerity program called for by euro leaders and the International Monetary Fund (IMF). A loss of funding at least from the IMF in 2012 appears likely. On the other hand, it is also likely that Greece will remain a member of the euro in the short run, through 2012. Prospects for an outright Greek Exit—a Grexit—are no more than 5 percent.

RealTime post by Jacob Funk Kirkegaard.

Increasing Market Access for US Financial Firms in China [pdf]

The US-China Strategic and Economic Dialogue (S&ED) and its predecessor, the US-China Strategic Economic Dialogue, have made some progress in addressing economic issues in the bilateral relationship. China has agreed in principal to rebalance the sources of its economic growth away from exports and investment and toward domestic consumption demand and has made small but concrete commitments on more specific issues, for example, increased access by US firms to China’s financial services market.

Congressional Testimony from Nicholas R. Lardy.