The Dilemma in Japan: Growth or Protection?

There has long been a controversy in Japan about joining the Asia-Pacific free trade pact. To end this controversy, Japan Premier Naoto Kan will make a decision this June about whether Japan will enter this 

free trade pact or not.

However, it is expected that getting consent for the trade pact in Japan could be tough due to its many opponents from the service and manufacturing industry, especially from the agricultural industry, which is a powerful opinion group when it comes to voting. For this reason, opening markets in Japan has been procrastinated for a long time. According to Alan Wheatley, even though Japanese farmers’ outputs are 1% of its GDP, Japan has protected its farmers by imposing tariffs on its import goods, 778% and 252% on rice and wheat respectively.

It is anticipated that should Japan agree to join the trans-Pacific pact, it would take a long time and lots of effort to harmonize the opinions of the old trade pact participants with its new participant Japan, because the trans-Pacific pact asks its participant countries to remove all kinds of trade barriers within ten years. However, Japan might want to join the trade pact passively to minimize the loss of vested interest groups by maintaining appropriate protection for its domestic industries.

The U.S. is also very interested in having more free trading partners in the future such as Japan, Australia, Chile, Singapore and New Zealand in the anticipation that it would increase its exports to those countries. However, many business authorities in U.S. might not allow Japan’s participation in the Pacific trade pact if Japan would want to keep its protection on the agriculture, service, and manufacturing industries.

It seems like there’s no choice for Japan in June. For its own sake, and others, Japan should join the Pacific-trade-pact.  Although it would raise backlash against the government at first, Japan has to make a concession to enter the Pacific Free Trade Group by lowering tariffs in its agriculture and manufacturing industries. Japan, as an aging society, needs to find new resources from outside to keep growing; otherwise it would be highly difficult for Japan to escape from its sluggish economy and its enormous amount of national debts. In the short run, protectionism might provide more benefits to Japanese producers, but in the long run, it would cost a lot for its customers and increase inefficiency among all the other protected domestic industries in Japan. Now, it is time for Japan to use a win-win strategy to grow further. 

Do you agree with many proponents in Japan that the protectionism is necessary? Is eliminating all trade barriers dangerous to domestic industry? Or, is this making firms more efficient and competitive?

Reference: Wheatley, Allan. “Japan Premier’s Balancing Act on Joining Pacific Free Trade Group.” The New York Times 14 Feb. 2011. http://www.nytimes.com/2011/02/15/business/global/15inside.html?_r=1&ref=global

(post by Jaewon Shin)

Youth in Revolt: Where are Our Jobs? UK Edition

The UK has faced unemployment problems over the past few years.  Well, who hasn’t?  But as countries are beginning to climb out of disastrous times, a huge problem remains in the UK: young adults are unable to find jobs.

Financial Times reports that almost 1 million able bodies between the ages of 16-24 are unemployed in the UK.  20.5% of the age group is unemployed, a record high in the UK.  However, this is a common trend throughout the EU, which averages a 21% unemployment rate for the said demographic. 

While the UR has not changed from the past month for the UK as a whole (7.9%), FT reports that the fragile job market is still making it hard for many to get employed, and the youth are the ones who are taking the hit.

The Recruitment and Employment Confederation have been thinking of ways that could help solve this unemployment problem.  The Adam Smith Institute has considered a strategy that could fix the problem: waive the minimum wage standard for people under 25.  This would make it optional for private sector companies to pay minimum wage to people under the age of 25.  Naturally, this could be a lucrative deal for employers. 

While this might work in proving as an incentive for many companies, the fact that these people will be working for next to nothing could potentially affect their work ethic.  Many corporations prefer paying above the minimum wage to create a higher demand for the certain position.  While this may solve a short term problem of younger people being unemployed, undercutting the minimum wage could create animosity between employees in the work space.  People who are currently working at a business would not accept a pay decrease and while people will the same jobs (and possibly more experience or skill), they may be paid far less than their peers.

And with that stated, what could potentially keep a company from doing a “fire sale” on their minimum wage employees?  This incentive could create a price discrimination that would result in unequal unemployment if not regulated properly.  I can’t see this minimum wage law bending, and while youth unemployment is a concern, companies may have to recognize it on their own that hiring youth has incentives in itself.

Is making the minimum wage optional for people under the age of 25 a good strategy to solve the youth UR?  What other ways do you think could fix this problem?

References: Youth unemployment hits record high. Financial Times. 16 Feb 2011.

(Post by Evan Amano)

It’s Official: China is the World’s Second Largest Economy

On Monday Japan released their nominal GDP figures for the 2010 year, and with that dropped to the third largest nominal GDP country in the world.  China moved into the second slot after posting an economic value of $5.88 trillion dollars, compared to $5.47 trillion, CNN Money reports.

As stated in the report, Japan still managed to grow 3.9% over the past year; however, China estimated a growth at a blistering 10%.  Japan predicts that it will be less than 20 years before China surpasses the United States as the top GDP country in the world.

While it may seem concerning that China’s growth rate is so high, there are numbers that should be noted in both China and Japan.  Japan’s GDP per capita still remains close to 9 times higher than China ($40,000 to $4,500).  With this stated, and the combination of the structure of the political system in China, Japan can be looked at as having both a higher standard of living and level of well-being. 

As we continue to watch China grow at an exponential rate, it brings wonders into when the Chinese economy may show signs of slowing down.  With the recent rising wages in China, perhaps it may take a hit on for what they can offer to other nations. 

What do you think of the recent swap of the 2^nd and 3^rd largest economies in the world?  What effects might cause a road block, or even a bump, in the rising Chinese economy? 

References: “China Overtakes Japan as World’s Second-Largest Economy”.  CNN Money.

Post By Evan Amano

Russia Makes Deal with BP for Oil

Kremlin-controlled oil company Rosneft has recently signed a deal with BP to search for new deposits of oil and gasoline in the Arctic waters off Russia's Northeastern coast, according to a recent WSJ article. The deal gives BP a 9% share in Rosneft. Revenues from oil sales currently account for roughly half of the country's budget, but their old fields are declining.

In terms of modernization, Russia trails behind, but they require revenue to catch the country up, revenue that will hopefully be provided by projects such as the one planned for the Arctic ocean. But what will BP get out of this venture? Hopefully a growth in credibility.

BP has recently come under criticism from the Western front for their Eastern European deal, but have defended themselves by arguing that the deal will allow them to "take advantage of a changing business landscape," according to this Guardian article from January. Western critics worry that this is a sign that BP is turning their back on interests in the United States, but Chief Executive Bob Dudley assures that the company remain committed to the US.

But what will this mean for the current Russian economy, which has experienced a downturn lately due to the drying up of oil fields in Siberia? This deal, in conjunction with a $3.8 billion venture with Pepsi, will hopefully bolster confidence in the Eastern European country's economy and bring about long term investments from outside investors. Foreign investors can bring about more efficient management, increase technology and spur growth. These two deals could bring about the kickstart Russia needs for modernisation, ideally improving Russia's rather poor track record in foreign direct investment (Russia and India Report).

Posted by Elizabeth Hope

Gold Prices Begin to Fall in 2011

After a huge rise in value in 2010, the price of gold has dropped 6 % a month into the New Year (CNN Money).  People around the world have been looking for different ways to invest and save their money while the global market has been at unease.  

(Courtesy of CNN Money)

Gold is one of the safest believed commodities that can always be exchanged at solid rate.  By the end of 2010, gold had been valued at $1,421.40 per once, over 300 dollars more than the price a year earlier.  But as the global markets appear to be improving (not fixed, as clearly stated in the article), investors’ faith is starting to rise and more people are beginning to invest in bonds and stocks once again.

Holding gold can benefit the individual in times of savings, giving them a sense of security when a certain currency is at unease; however, when more and more people begin investing in gold rather than in stocks and bonds; this could limit economic growth within a country.  This idea limited investing can be seen as a whole over the past few years during the recession.

Is it good that gold is losing value for the global economy?  Should more people invest in stocks and bonds or test their luck with the price of gold? 

References: CNN Money.  “Why Gold is Losing its Luster”.  http://money.cnn.com/2011/01/27/markets/gold_price_decline/

(Post by Evan Amano)

Higher Wages in China = Huge Opportunities for Mexico

It seems the workers in China aren’t the only ones benefiting from the rise in wages; Mexico has received more offers from US companies to build factories in Mexico over the past year, Reuters states.

Mexico’s wages are now only 14% higher than those in China, a number which was once 17 times bigger in 2002.  Along with the closing wage rates, the price of oil has been going up over the last two years; with these two factors in mind, US companies have looked at Mexico to build their foreign factories.  80% of Mexico’s exports already are sent to the US.

For the US, this would be a good opportunity to continue building a relationship with Mexico.  Not only are the costs beginning to even out with China, but as stated in my most recent post, having close trade proximity is ideal for both countries.  Not only that, but Mexico also imports twice as many US goods than China.  Therefore, helping stimulate Mexico’s economy by providing labor opportunities should only benefit American exports too.

Though there may be concerns with the political and social stability of Mexico, the opportunities to improve the environment surrounding these horrible times is evident.  Look for Mexico to be on the rise in 2011 as they the people are able to gain more employment prospects.

What do you think of building more factories with our neighbors of the south?  Should we still stick with China because their costs remain lower?

For more statistics on Mexico vs China, follow the link below

References: www.reuters.com/article/idustre70p70l20110126

(Post by Evan Amano)

North and South Korea: Is Cooperation Economical?

This past weekend, CNN reported that North Korea has been making attempts to bring peace amongst South Korea.  North Korea is asking the South Korean’s to “open their hearts”, and try to ease the tension that has been going on for decades.

But what I was curious about was to look at this from a different viewpoint than merely political standards.  These talks could be stepping stones to opening up North Korea to the global economy as a whole.  North Korea, a communist nation, has been hit with low economic growth dating back to the 1970’s due to limited trade with the outside world.  South Korea, however, has become one of the fastest growing developed countries in the world, ranking 15^th in GDP.  South Korea also managed to avoid the global financial crisis in 2008-present.

From a geographic standpoint, it would seem logical for South Korea to improve its ties with North Korea.  Even now there is the Kaesong Industrial Region, which has brought numerous jobs to North Koreans due to cooperation with South Korea.  If North Korea were to have more joint expenditures with South Korea, perhaps the success reached upon South Korea over the past decades could rub off on the neighboring country. 

On the other hand, North Korea continues to stand as a threat for not only South Korea (recently in 2010, two South Korean marines were killed by North Korean troops), but for many countries around the world.  Trading with a country that does not stand by the rest of the WTO or other trade organizations could cause backlash towards South Korea.

I personally believe that South Korea should consider trading more with North Korea.  As long as it has the approval from their current trade organizations, developing increased trade with geographically close countries seems to be a smart move.  Not only that, but as it can be seen in international trade, South Korea may hold an absolute advantage on whatever they produce for North Korea, but there will be some products or services that North Korea can offer towards South Korea (comparative advantage).  Though I doubt any improved economic decisions will be made anytime soon, it would be interesting to keep an eye on the political talks that are planned to occur more this year.

On what degree do you believe North and South Korea should get along?  Is it beneficial for both parties to cooperate economically?

References: CNN World. http://articles.cnn.com/2011-01-07/world/north.korea.proposal_1_pyongyang-and-seoul-mount-kumgang-dprk?_s=PM:WORLD

(Post by Evan Amano)