FIN415 Class Web Page, Spring '24

Jacksonville University

Instructor: Maggie Foley

The Syllabus Overall Grade

Term Project Part I (due with final)
Term project part II (excel questions) (due with final)

 

Weekly SCHEDULE, LINKS, FILES and Questions

Week

Coverage, HW, Supplements

-        Required

Supplemental Reaching Materials

Week

1

Marketwatch Stock Trading Game (Pass code: havefun)

Use the information and directions below to join the game.

1.     URL for your game: 
https://www.marketwatch.com/game/fin415-24spring    

2.     Password for this private game: havefun.

3.     Click on the 'Join Now' button to get started.

4.     If you are an existing MarketWatch member, login. If you are a new user, follow the link for a Free account - it's easy!

5.     Follow the instructions and start trading!

6. Game will be over on 4/17/2019

 

 

How to Use Finviz Stock Screener  (youtube, FYI)

 

How To Win The MarketWatch Stock Market Game (youtube, FYI)

 

How Short Selling Works (Short Selling for Beginners) (youtube, FYI)

 

-

 

PRESS RELEASE OCTOBER 4, 2023

World Banks Fall 2023 Regional Economic Updates

https://www.worldbank.org/en/news/press-release/2023/10/04/world-bank-fall-2023-regional-economic-updates

East Asia and the Pacific: Growth in developing East Asia and Pacific is projected to remain strong at 5% in 2023 but will ease in the second half of 2023 and is forecast to be 4.5% during 2024, the World Bank said on Sunday in its semi-annual economic outlook for the region.

Europe and Central Asia: Economic growth for the emerging market and developing economies (EMDEs) of the Europe and Central Asia region has been revised up to 2.4% for 2023, says the World Banks Economic Update for the region, released today.

Latin America and the Caribbean: Latin America and the Caribbean (LAC) made progress in macroeconomic resiliency over previous decades and navigated the multiple post-pandemic crises with relative success. Yet, according to a new World Bank report, growth remains inadequate to reduce poverty and create jobs, while fiscal constraints limit necessary investments. 

Middle East and North Africa: Growth of the economies in the Middle East and North Africa (MENA) is expected to fall sharply this year. The regions gross domestic product (GDP) is forecast to plummet to 1.9% in 2023 from 6% in 2022, due to oil production cuts amidst subdued oil prices, tight global financial conditions, and high inflation, according to the latest issue of the World Bank MENA Economic Update (MEU).

South Asia: South Asia is expected to grow by 5.8% this yearhigher than any other developing country region in the world, but slower than its pre-pandemic pace and not fast enough to meet its development goals, says the World Bank in its twice-a-year regional outlook.

Sub-Saharan Africa: Sub-Saharan Africas economic outlook remains bleak amid an elusive growth recovery. According to the latest World Bank Africas Pulse report, rising instability, weak growth in the regions largest economies, and lingering uncertainty in the global economy are dragging down growth prospects in the region.

 

In class exercise:

1.     In 2023, which region is projected to have the highest economic growth?

A) East Asia and the Pacific

B) Europe and Central Asia

C) South Asia

Answer: A the Pacific

Explanation: According to the World Bank, East Asia and the Pacific are projected to have the highest growth at 5% in 2023.

 

2.     Why is economic growth in the Middle East and North Africa (MENA) expected to fall sharply in 2023?

A) Increased oil production

B) Subdued oil prices

C) Improved global financial conditions

Answer: B

Explanation: The decline in economic growth in MENA is attributed to oil production cuts amidst subdued oil prices, among other factors.

 

3.     Which region's economic growth has been revised up for 2023?

A) Latin America and the Caribbean

B) Sub-Saharan Africa

C) Europe and Central Asia

Answer: C

Explanation: The World Bank's Economic Update for the Europe and Central Asia region revised the growth for 2023 up to 2.4%.

 

4.     What is the projected growth rate for South Asia in 2023?

A) 3.5%

B) 5.8%

C) 7.2%

Answer: B

Explanation: South Asia is expected to grow by 5.8% in 2023 according to the World Bank.

 

5.     Why does Latin America and the Caribbean face challenges despite progress in macroeconomic resiliency?

A) Insufficient job creation

B) Lack of poverty reduction

C) Fiscal constraints limiting investments

Answer: C

Explanation: The World Bank report mentions that fiscal constraints limit necessary investments despite progress in macroeconomic resiliency.

 

6.     What is the primary reason for the projected decline in economic growth in the Middle East and North Africa in 2023?

A) Oil production cuts

B) Inflation

C) Global financial stability

Answer: A

Explanation: The World Bank MENA Economic Update attributes the decline in economic growth to oil production cuts, among other factors.

 

 

7.     How does South Asia's expected growth in 2023 compare to its pre-pandemic pace?

A) Higher

B) Lower

C) Same

Answer: B

Explanation: The World Bank mentions that South Asia's expected growth in 2023 is slower than its pre-pandemic pace.

 

8. Which region is forecasted to have the slowest growth in 2024?

A) Latin America and the Caribbean

B) East Asia and the Pacific

C) Middle East and North Africa

Answer: A

Explanation: According to the World Bank, growth in Latin America and the Caribbean is forecasted to be 4.5% in 2024.

Published on Let's Talk Development

The Global Economic Outlook, June 2023

https://blogs.worldbank.org/developmenttalk/global-economic-outlook-five-charts-1

 

The global economy is set to slow substantially in 2023. The lagged and current effects of monetary tightening, as well as more restrictive credit conditions, are expected to weigh on activity in the second half of the year, with weakness persisting into 2024. Excluding China, growth in emerging market and developing economies (EMDEs) is set to decline markedly, with the outlook weakest in countries with elevated fiscal and financial vulnerabilities. The resurgence of recent banking sector turmoil represents a serious risk. Widespread financial stress could have especially severe economic consequences. 

1. Global growth is slowing

The global economy is forecast to slow substantially this year, with a pronounced deceleration in advanced economies. Monetary tightening is expected to have its peak impact this year for many major economies. Global growth is forecast to decline to 2.1 percent in 2023, a full percentage point less than in 2022, before a tepid recovery to 2.4 percent in 2024. In emerging market and developing economies (EMDEs) excluding China, growth is projected to fall to 2.9 percent in 2023, from 4.1 percent in 2022, as tight global financial conditions and subdued external demand weigh on activity. Global growth could weaken more than anticipated in the event of further financial sector stress, or if persistent inflation prompts tighter-than-expected monetary policy.

Contributions to global growth

 

In class exercise

 

1. What is the forecasted global growth rate for 2023?

A) 3.1%

B) 2.1%

C) 4.4%

Answer: B

Explanation: The global economy is forecasted to slow substantially in 2023, with a projected growth rate of 2.1%.

 

2. What is the primary factor expected to contribute to the global economic slowdown in 2023?

A) Monetary tightening

B) Increased government spending

C) Expansionary credit conditions

Answer: A

Explanation: The lagged and current effects of monetary tightening are anticipated to substantially slow the global economy in 2023.

 

3. How much is global growth forecasted to recover in 2024?

A) 1.4%

B) 3.4%

C) 2.4%

Answer: C

Explanation: After the projected decline in 2023, global growth is expected to experience a recovery to 2.4% in 2024.

 

4. In emerging market and developing economies (EMDEs) excluding China, what is the projected growth rate for 2023?

A) 3.9%

B) 2.9%

C) 4.8%

Answer: B

Explanation: Growth in EMDEs, excluding China, is projected to fall to 2.9% in 2023 due to tight global financial conditions and subdued external demand.

 

5. What could lead to a more severe weakening of global growth according to the information?

A) Further financial sector stress

B) Government stimulus packages

C) Decreased inflation

Answer: A

Explanation: Further financial sector stress could lead to a more severe weakening of global growth.

 

6. Which sector poses a serious risk to the global economy?

A) Technology

B) Healthcare

C) Banking

Answer: C

Explanation: The resurgence of recent banking sector turmoil represents a serious risk to the global economy.

 

7.     What is the expected impact of monetary tightening on advanced economies in 2023?

A) Acceleration of growth

B) Pronounced deceleration

C) Stable economic conditions

Answer: B

Explanation: Monetary tightening is expected to have a pronounced decelerating impact on advanced economies in 2023.

 

8.     What is the primary reason for the projected decline in growth in emerging market and developing economies (EMDEs) excluding China?

A) Subdued external demand

B) Increased government investment

C) Expansive credit conditions

Answer: A

Explanation: The decline in growth is attributed to tight global financial conditions and subdued external demand.

 

9.     How much is global growth expected to decline in 2023 compared to 2022?

A) 0.5%

B) 1.0%

C) 1.5%

Answer: B

Explanation: Global growth is forecasted to decline by a full percentage point, from 3.1% in 2022 to 2.1% in 2023.

 

 

 

 

Part II In class exercise practice of converting currencies

 

1.     If the dollar is pegged to gold at US $1800 = 1 ounce of gold and the British pound is pegged to gold at 1200 = 1 ounce of gold. What should be the exchange rate between US$ and British ? How much can you make without any risk if the exchange rate is 1 = 2$? Assume that your initial investment is $1800. What about the exchange rate set at  1 = 1.2$? What about your initial investment is 1200?

 

Solution: 

 

1 = 2$ (note that the exchange rate is set at 1 = 1.5$ since $1800 = 1500=1 ounce of gold  $1.5=1).

 With $1800, you can buy 1 ounce of gold at US $1800 = 1 ounce of gold. With one ounce of gold, you can sell it in UK at 1200 = 1 ounce of gold, so you can get back 1200  convert to $ at $2=1 as given get back 1200 * 2$/ = $2400 > $1800, initial investment  you could make a profit of $600 ($2400 - $1800=$600)  Yes.

 

1 = 1.2$ (note that the exchange rate is set at 1 = 1.5$ since $1800 = 1500=1 ounce of gold  $1.5=1).

       With $1800, you can buy either 1 ounce of gold at US $1800 = 1 ounce of gold.  With one ounce of gold, you can sell it in UK at 1200 = 1 ounce of gold, so you can get back 1200  convert to $ at $1.2=1 as givenget back 1200 * 1.2$/ = $1440 < $1800  you will lose $360 ($1440 - $1800=$-360)  No.

      So should convert to first and then buy gold in UK  With $1800, you can convert to 1500 ($1800 / (1.2$/ = 1500 ).  buy gold in UK at 1200 = 1 ounce of gold, so you can get back 1500/1200 = 1.25 ounce of gold  Sell gold in US at  US $1800 = 1 ounce of gold  So get back 1.25 ounce of gold * $1800 = $2250 > $1800  you will make a profit of $450 ($2250 - $1800=$450)  Yes.

 

2.     If the Euro (EUR) to US Dollar (USD) exchange rate is 1.18, and the US Dollar to Japanese Yen (JPY) exchange rate is 110, what is the implied exchange rate between Euro and Japanese Yen?

Answer: The implied exchange rate between Euro and Japanese Yen is approximately 129.80 (110 * 1.18).

Explanation:

       1 EUR = 1.18 USD; 1 USD = 110 JPY. So 1.18 USD/EUR * 110 JPY/USD = 1.18 * 110 = 129.80 JPY/EUR (one EUR = 129.80 JPY)

       Or, 1 EUR = 1.18 USD 1 USD = (1/1.18) EUR; 1USD = 110 JPY, so (1/1.18)EUR = 110 JPY 1 EUR = 110/(1/1.18) = 129.80 JPY

 

3.     If the Euro to the British Pound (GBP) exchange rate is 0.85, and the Swiss Franc (CHF) to Euro exchange rate is 1.10, what is the implied exchange rate between British Pound and Swiss Franc?

Answer: The implied exchange rate between British Pound and Swiss Franc is approximately (1/0.85)/1.1 = 1.07 CHF/GBP one GBP is worth 1.07 CHF

Explanation:

       1 EUR = 0.85 GBP 1 GBP = (1/0.85) EUR, 1 CHF = 1.10 EUR, so (1/0.85) EUR/ GBP / 1.1 EUR/CHF = (1/0.85)/1.1 CHF/EUR = 1.07 CHF/GBP

       Or 1 EUR = 0.85 GBP, 1 CHF=1.1 EUR 1 EUR = (1/1.1) CHF, so 1 EUR = 0.85 GBP = (1/1.1) CHF 1 GBP = (1/1.1)/0.85 = 1.07 CHF

 

4.     If the Australian Dollar (AUD) to US Dollar exchange rate is 0.75, and the Canadian Dollar (CAD) to US Dollar exchange rate is 1.25, what is the implied exchange rate between Australian Dollar and Canadian Dollar?

Answer: The implied exchange rate between Australian Dollar and Canadian Dollar is 0.60 (0.75 / 1.25).

Explanation:

       1 AUD = 0.75 USD, 1 CAD = 1.25 USD, So 1 AUD can get 0.75 USD, and since 1 USD can get (1/1.25=0.8) 0.8 CAD, so 1 AUD = 0.75 *(1/1.25) = 0.6 CAD. So one AUD is worth 0.6 CAD.

       Or, 0.75USD/AUD * (1/1.25) CAD/USD = 0.75 * 0.8 CAD/AUD = 0.6 CAD/AUD

 

 

Homework chapter1-1 (due with first midterm exam)

 

1.     If the dollar is pegged to gold at US $1800 = 1 ounce of gold and the British pound is pegged to gold at 1500 = 1 ounce of gold. What should be the exchange rate between US$ and Euro ? How much can you make without any risk if the exchange rate is 1 = 1.5$? (hint: $1800 get gold sell gold for euro convert euro back to $) How much can you make without any risk if the exchange rate is 1 = 0.8$? (hint: $1800 get euro buy gold using euro sell gold for $) Assume that your initial investment is $1800.   (answer: $1.2/euro, $450, $900)

2.     If USD to the Chinese Yuan (CNY) exchange rate is 7.35, and USD to the Indian Rupee (INR) exchange rate is 94.20, what is the implied exchange rate between Chinese Yuan and Indian Rupee, eg 1 CNY = ? INR? (answer: 1 CNY = 12.816 INR)

3.     If the New Zealand Dollar (NZD) to Australian Dollar (AUD) exchange rate is 1.05, and the Singapore Dollar (SGD) to New Zealand Dollar exchange rate is 0.94, what is the implied exchange rate between Singapore Dollar and Australian Dollar? (answer: 1 AUD = 1.013 SGD, or 1 SGD = 0.987 AUD)

 

4.     What is your opinion on arbitrage across borders? Do you think that arbitrage crypto will work? (Optional homework question)

Crypto arbitrage:Cryptocurrency arbitrage is a strategy in which investors buy a cryptocurrency on one exchange, and then quickly sell it on another exchange for a higher price. Cryptocurrencies trade on hundreds of different exchanges, and often the price of a coin or token may differ on one exchange versus another.

https://www.sofi.com/learn/content/crypto-arbitrage/#:~:text=Cryptocurrency%20arbitrage%20is%20a%20strategy,on%20one%20exchange%20versus%20another.

 

How I Became A Crypto Billionaire In 5 Years (CNBC)

 

The FTX Collapse, Explained | What Went Wrong | WSJ (youtube)

 

 

Sam Bankman Fried Explains His Arbitrage Techniques

Nicholas Pongratz, April 9, 20213 min read

https://www.yahoo.com/video/sam-bankman-fried-explains-arbitrage-132901181.html

 

A former ETF trader at Jane Street, Sam Bankman-Fried developed a net worth of $9 billion from trading crypto in three and a half years. He explained his success comes from lucrative arbitrage opportunities in crypto.

 

Bankman-Fried launched a crypto-trading firm called Alameda Research in 2017. The company now manages over $100 million in digital assets. The firms large-scale trades made Bankman-Fried a self-made billionaire by the age of 29. He is also the CEO and founder of the FTX Exchange, a cryptocurrency derivatives trading exchange.

 

Upon entering the crypto markets, he discovered that Bitcoin was growing very rapidly in trading volumes. This meant there would also be large price discrepancies, making it ideal for arbitrage, taking advantage of the price differences.

 

The Kimchi Premium

One opportunity he exploited was what is known as the kimchi premium. While Bitcoin was pricing at around $10,000 in the US, it traded for $15,000 on Korean exchanges. This was because of a huge demand for Bitcoin in Korea, Bankman-Fried said.

 

Around its peak, there was a vast spread of around 50%, he said. However, because the Korean won is a regulated currency, it was difficult to scale this arbitrage. Bankman-Fried said:

 

Many found a way to do it for small size. Very, very hard to do it for big size, even though there are billions of dollars a day volume trading in it because you couldnt offload the Korean won easily for non-crypto.

 

Although nowhere near as significant, the premium still exists today. According to CryptoQuant, the premium is listed at 18%.

 

10% Daily Returns in Japan

Bankman-Fried then sought a similar opportunity in other markets, which he found in Japan. He said:

 

It wasnt trading quite the same premium. But it was trading at a 15% premium or so at the peak, instead of 50%.

 

After buying Bitcoin for $10,000 in the US, investors could send it to a Japanese exchange. There they could sell it for $11,500 worth of Japanese yen. At that point, they could convert the amount back to dollars.

 

Because of the trades global nature and the wire transfers involved, it would take up to a day to perform. But it was doable, and you could scale it, making literally 10% per weekday, which is just absolutely insane, Bankman-Fried said.

 

Bankman-Fried was successful where others were not because he managed to facilitate all the different components involved in the trade. For example, finding the right platform to buy Bitcoin at scale, then getting approval to use Japanese exchanges and accounts. There was also the difficulty of even getting millions of dollars out of Japan and into the US every day.

 

You do have to put together this incredibly sophisticated global corporate framework in order to be able to actually do this trade, Bankman-Fried said. Thats the real task, the real hard part.

 

High Edge, Low Risk

The decentralized aspect of the crypto ecosystem enables these large arbitrage premiums to exist. With other financial markets, there is a cross merging between exchanges and central clearing firms or brokers, Bankman-Fried explained. So its really capital-intensive, and also you have to worry about counterparty risk, he added.

 

But once investors and traders come to understand the crypto space intimately, they can figure out where the counterparty risk is close to zero, but the edge is still high.

 

According to Bankman-Fried:

 

Theres a lot of money to be made, if you can really figure out and pinpoint when there is and isnt a ton of edge and when there is and isnt a ton of actual counterparty risk.

 

For discussion:

       Any issues with SBFs trading strategy?

Hint:

       Market Volatility: Cryptocurrency markets are known for their volatility. Sudden and unpredictable price movements can affect arbitrage opportunities, leading to unexpected gains or losses.

       Regulatory Challenges: Dealing with different regulations in various countries poses a challenge, as mentioned in the case of the Kimchi Premium in Korea. Regulatory changes or uncertainties can impact the feasibility and scalability of the strategy.

       Execution Risk: Coordinating large-scale trades across different exchanges and regions involves execution risks, such as delays in wire transfers and potential slippage in prices during the execution of trades.

       Liquidity Concerns: In less liquid markets or during times of high demand, executing large trades without significantly impacting the market price can be challenging.

       Other issues??? Changes in investors preferences? Market competition?

 

 

 

In class exercise

 

1.     What contributed significantly to Sam Bankman-Fried's net worth growth in the crypto market?

A) Launching a cybersecurity firm

B) Exploring lucrative arbitrage opportunities

C) Founding a traditional stock brokerage

Answer: B

Explanation: Sam Bankman-Fried attributes his success to identifying and capitalizing on lucrative arbitrage opportunities in the crypto market.

 

2.     In which year did Sam Bankman-Fried launch the crypto-trading firm Alameda Research?

A) 2015

B) 2017

C) 2019

Answer: B

Explanation: Alameda Research, Sam Bankman-Fried's crypto-trading firm, was launched in 2017.

 

3.     What is the primary reason behind the kimchi premium in the crypto market?

A) High demand for Bitcoin in Korea

B) Regulatory restrictions on Bitcoin trading

C) A decline in global Bitcoin trading volumes

Answer: A

Explanation: The kimchi premium occurs due to the significant demand for Bitcoin in Korea, leading to price discrepancies.

 

4.     How did Bankman-Fried exploit the kimchi premium?

A) By manipulating exchange rates

B) By taking advantage of large price discrepancies

C) By offloading Korean won for non-crypto

Answer: C

Explanation: Bankman-Fried found it challenging to scale the arbitrage due to difficulties in offloading Korean won for non-crypto.

 

5.     In the Japanese market, what premium did Bitcoin trade at its peak?

A) 5%

B) 15%

C) 30%

Answer: B

Explanation: Bitcoin traded at a 15% premium in the Japanese market at its peak, according to Sam Bankman-Fried.

 

6.     What was the approximate daily return Sam Bankman-Fried mentions for the Japan-related arbitrage opportunity?

 

A) 5%

B) 15%

C) 10%

Answer: C

Explanation: Bankman-Fried mentioned making approximately 10% per weekday with the Japan-related arbitrage opportunity.

 

7.     Why does Bankman-Fried emphasize the importance of a sophisticated global corporate framework for successful trades?

A) To manage counterparty risk

B) To avoid taxes

C) To manipulate market prices

Answer: A

Explanation: A sophisticated global corporate framework is necessary to manage counterparty risk and execute complex trades successfully.

 

 

8.     According to Bankman-Fried, what makes the crypto space different from traditional financial markets in terms of arbitrage?

A) Higher counterparty risk

B) Lower edge

C) Decentralized nature and low counterparty risk

Answer: C

Explanation: The decentralized nature of the crypto space reduces counterparty risk, making it more favorable for arbitrage compared to traditional markets.

 

9.     What does Bankman-Fried highlight as the key to successful arbitrage in the crypto space?

A) High capital investment

B) Extensive market knowledge

C) Diversified portfolio

Answer: B

Explanation: According to Bankman-Fried, understanding the crypto space intimately is crucial for identifying when there is a high edge and low counterparty risk in arbitrage opportunities.

 

 

 

Part III: Multilateral Trade vs. Bilateral Trade

 

 

Trade agreement (video)

 

Summary:

The video mentions several forms of trade barriers, including:

       Tariffs or Taxes on Goods: These are mentioned as taxes imposed on imported goods to make them more expensive in the domestic market.

       Quotas or Limits on Quantity: The video discusses limits set on the quantity or value of goods that can be imported during a specific period, restricting the volume of foreign products.

       Standards: Regulations and requirements, such as safety standards or non-genetically modified organism (GMO) ingredients, are highlighted as factors influencing trade.

       Administrative Delays: The video refers to inspections, paperwork, and bureaucratic procedures causing delays in the importation of goods.

       Countertrade Requirements: Mandates for the trade partner to purchase something from the country are mentioned as a form of reciprocal obligation in trade agreements.

       Embargoes: Complete trade restrictions with specific countries, mentioned in the context of political actions or disagreements.

 

In class exercise:

Question 1: What is a tariff in international trade?

a) A limit on the quantity of imported goods

b) A tax imposed on exported goods

c) A tax imposed on imported goods

Answer: C

Explanation: Tariffs are taxes imposed on imported goods to make them more expensive in the domestic market.

 

Question 2: What is the purpose of quotas in international trade?

a) To encourage free trade

b) To limit the quantity of imported goods

c) To set safety standards for imported goods

Answer: B

Explanation: Quotas are restrictions on the quantity or value of imported goods during a specific period.

 

Question 3: How do administrative delays impact international trade?

a) They create delays through inspections and paperwork

b) They expedite the importation process

c) They reduce taxes on imported goods

Answer: A

Explanation: Administrative delays involve inspections and paperwork, causing delays in the importation process.

 

Question 4: What is the purpose of countertrade requirements in trade agreements?

a) To eliminate trade restrictions

b) To create reciprocal obligations for trade partners

c) To set safety standards for exported goods

Answer: B

Explanation: Countertrade requirements mandate that the trade partner must purchase something from the country, creating reciprocal obligations.

 

Question 5: What does an embargo in international trade involve?

a) A tax imposed on imported goods

b) Limits on the quantity of exported goods

c) Complete trade restrictions with specific

Answer: C

Explanation: Embargoes involve complete trade restrictions with specific countries.

 

Question 6: What is the primary purpose of tariffs?

a) To encourage imports

b) To discourage exports

c) To make imported goods more expensive

Answer: C

Explanation: Tariffs are taxes imposed on imported goods to make them less competitive in the domestic market.

 

Question 7: How do quotas impact the availability of foreign goods?

a) They increase the quantity of imported goods

b) They restrict the quantity of imported goods

c) They have no impact on imported goods

Answer: B

Explanation: Quotas limit the quantity or value of imported goods, restricting their availability.

 

Question 8: What role do standards play in international trade?

a) They set tax rates on exported goods

b) They regulate safety and product specifications

c) They encourage free trade

Answer: B

Explanation: Standards involve regulations specifying safety requirements or certain product specifications.

 

Question 9: How do embargoes differ from tariffs?

a) Embargoes involve complete trade restrictions with specific countries

b) Tariffs are taxes on exported goods

c) Embargoes encourage free trade

Answer: A

Explanation: Embargoes involve complete trade restrictions with specific countries, while tariffs are taxes on imported goods.

 

 

Multilateralism Explained | Model Diplomacy (youtube)

 

In class exercise

 

Question 1: What is the primary focus of multilateralism?

a) Cooperation between two countries

b) Cooperation between three or more countries

c) Cooperation within a single country

Answer: B

Explanation: Multilateralism involves cooperation amongst three or more countries to find cooperative solutions to common problems.

 

Question 2: Which issue is mentioned as an example of a global problem that requires multilateral cooperation?

a) Climate change

b) National security

c) Economic inequality

Answer: A

Explanation: Climate change is cited as a problem that doesn't respect national boundaries and requires global cooperation.

 

Question 3: What is the challenge posed by global epidemics?

a) Limited impact on international travel

b) Isolation within a single country

c) Ease of spread between countries

Answer: C

Explanation: Global epidemics can spread easily from one country to another, especially with international travel.

 

Question 4: What are traditional examples of universal membership organizations for multilateral cooperation?

a) Regional alliances

b) The United Nations, the International Monetary Fund, the World Bank

c) Bilateral agreements

Answer: B

Explanation: Traditional examples include global organizations like the United Nations, the International Monetary Fund, and the World Bank.

 

Question 5: Which multilateral institution is highlighted as an example beyond treaty-based bodies?

a) United Nations

b) Group of 20 (G20)

c) World Health Organization

Answer B

Explanation: The G20, composed of major economies, is mentioned as a broader multilateral institution.

 

Question 6: What does the G20 symbolize?

a) Exclusivity of Western countries

b) Isolation from emerging nations

c) Expansion of the table to include new global actors

Answer C

Explanation: The G20 symbolizes the need to include new actors transforming the world in global decision-making.

 

Question 7: Which nations are mentioned as part of the BRIC nations?

a) Brazil, Russia, India, China

b) Belgium, Romania, Indonesia, Canada

c) Bahrain, Rwanda, Iran, Colombia

Answer: A

Explanation: BRIC stands for Brazil, Russia, India, and China.

 

Question 8: What is mentioned as a challenge to multilateral cooperation in terms of established powers?

a) Consistent alignment of priorities

b) Difficulty in compromise and sacrifice

c) Homogeneity of values

Answer: B

Explanation: Cooperation in multilateral settings requires compromise and sacrifice, which may be challenging for established powers.

Answer

 

Take away:

 

       Multilateral trade agreements strengthen the global economy by making developing countries competitive. 

       They standardize import and export procedures giving economic benefits to all member nations. 

       Their complexity helps those that can take advantage of globalization, while those who cannot often face hardships.

         

For class discussion: Do you agree with the above points? Why or why not?

 

Multilateral Trade Agreements With Their Pros, Cons and Examples

5 Pros and 4 Cons to the World's Largest Trade Agreements 

https://www.thebalance.com/multilateral-trade-agreements-pros-cons-and-examples-3305949

BY KIMBERLY AMADEO REVIEWED BY ERIC ESTEVEZ Updated October 28, 2020

 

Multilateral trade agreements are commerce treaties among three or more nations. The agreements reduce tariffs and make it easier for businesses to import and export. Since they are among many countries, they are difficult to negotiate

That same broad scope makes them more robust than other types of trade agreements once all parties sign. 

 

Bilateral agreements are easier to negotiate but these are only between two countries. They don't have as big an impact on economic growth as does a multilateral agreement.

 

5 Advantages of multilateral agreements

         Multilateral agreements make all signatories treat each other equally. No country can give better trade deals to one country than it does to another. That levels the playing field. It's especially critical for emerging market countries. Many of them are smaller in size, making them less competitive. The Most Favored Nation Status confers the best trading terms a nation can get from a trading partner. Developing countries benefit the most from this trading status.

         The second benefit is that it increases trade for every participant. Their companies enjoy low tariffs. That makes their exports cheaper.

         The third benefit is it standardizes commerce regulations for all the trade partners. Companies save legal costs since they follow the same rules for each country.

         The fourth benefit is that countries can negotiate trade deals with more than one country at a time. Trade agreements undergo a detailed approval process. Most countries would prefer to get one agreement ratified covering many countries at once. 

         The fifth benefit applies to emerging markets. Bilateral trade agreements tend to favor the country with the best economy. That puts the weaker nation at a disadvantage. But making emerging markets stronger helps the developed economy over time.

As those emerging markets become developed, their middle class population increases. That creates new affluent customers for everyone.

 

4 Disadvantages of multilateral trading

         The biggest disadvantage of multilateral agreements is that they are complex. That makes them difficult and time consuming to negotiate. Sometimes the length of negotiation means it won't take place at all. 

         Second, the details of the negotiations are particular to trade and business practices. The public often misunderstands them. As a result, they receive lots of press, controversy, and protests

         The third disadvantage is common to any trade agreement. Some companies and regions of the country suffer when trade borders disappear.

         The fourth disadvantage falls on a country's small businesses. A multilateral agreement gives a competitive advantage to giant multi-nationals. They are already familiar with operating in a global environment. As a result, the small firms can't compete. They lay off workers to cut costs. Others move their factories to countries with a lower standard of living. If a region depended on that industry, it would experience high unemployment rates. That makes multilateral agreements unpopular.

Pros

  • Treats all member nations equally.
  • Makes international trading easier.
  • Trade regulations are the same for everyone.
  • Helps emerging markets.
  • Multiple nations are covered by one treaty.

Cons

  • Negotiations can be lengthy, risk breaking down.
  • Easily misunderstood by the public
  • Removing trade borders affects businesses.
  • Benefits large corporations, but not small businesses.

 

Examples

Some regional trade agreements are multilateral. The largest had been the North American Free Trade Agreement (NAFTA), which was ratified on January 1, 1994. NAFTA quadrupled trade between the United States, Canada, and Mexico from its 1993 level to 2018. On July 1, 2020, the U.S.-Mexico-Canada Agreement (USMCA) went into effect. The USMCA was a new trade agreement between the three countries that was negotiated under President Donald Trump.

The Central American-Dominican Republic Free Trade Agreement was signed on August 5, 2004. CAFTA-DR eliminated tariffs on more than 80% of U.S. exports to six countries: Costa Rica, the Dominican Republic, Guatemala, Honduras, Nicaragua, and El Salvador. As of November 2019, it had increased trade by 104%, from $2.44 billion in January 2005 to $4.97 billion.

The Trans-Pacific Partnership would have been bigger than NAFTA. Negotiations concluded on October 4, 2015. After becoming president, Donald Trump withdrew from the agreement. He promised to replace it with bilateral agreements. The TPP was between the United States and 11 other countries bordering the Pacific Ocean. It would have removed tariffs and standardized business practices.

All global trade agreements are multilateral. The most successful one is the General Agreement on Trade and Tariffs. Twenty-three countries signed GATT in 1947. Its goal was to reduce tariffs and other trade barriers.

In September 1986, the Uruguay Round began in Punta del Este, Uruguay. It centered on extending trade agreements to several new areas. These included services and intellectual property. It also improved trade in agriculture and textiles. The Uruguay Round led to the creation of the World Trade OrganizationOn April 15, 1994, the 123 participating governments signed the agreement creating the WTO in Marrakesh, Morocco. The WTO assumed management of future global multilateral negotiations.

The WTO's first project was the Doha round of trade agreements in 2001. That was a multilateral trade agreement among all WTO members. Developing countries would allow imports of financial services, particularly banking. In so doing, they would have to modernize their markets. In return, the developed countries would reduce farm subsidies. That would boost the growth of developing countries that were good at producing food.

Farm lobbies in the United States and the European Union doomed Doha negotiations. They refused to agree to lower subsidies or accept increased foreign competition. The WTO abandoned the Doha round in July 2008.

On December 7, 2013, WTO representatives agreed to the so-called Bali package. All countries agreed to streamline customs standards and reduce red tape to expedite trade flows. Food security is an issue. India wants to subsidize food so it could stockpile it to distribute in case of famine. Other countries worry that India may dump the cheap food in the global market to gain market share. 

 

In class exercise

Question 1: What is the primary focus of multilateral trade agreements?

a) Commerce treaties among three or more nations

b) Commerce treaties between two nations

c) Bilateral agreements for economic growth

Answer: A

Explanation: Multilateral trade agreements involve commerce treaties among three or more nations to reduce tariffs and ease import-export processes.

 

Question 2: Why are multilateral agreements considered more robust than bilateral agreements?

a) They are easier to negotiate

b) They involve many countries and are difficult to negotiate

c) They have a smaller impact on economic growth

Answer: B

Explanation: The broad scope of multilateral agreements involving many countries makes them more robust.

 

Question 3: What advantage do multilateral agreements provide for emerging market countries?

a) Exclusivity in trade deals

b) Most Favored Nation Status and equal treatment

c) Preferential treatment for smaller economies

Answer: B

Explanation: Multilateral agreements ensure equal treatment among signatories, benefiting emerging market countries.

 

Question 4: How do multilateral agreements impact trade for participants?

a) They decrease trade for participants

b) They have no impact on trade dynamics

c) They increase trade by providing low tariffs

Answer: C

Explanation: Participants in multilateral agreements enjoy low tariffs, making their exports cheaper and increasing trade.

 

Question 5: Why do countries prefer negotiating trade deals with more than one country at a time?

a) Faster approval process

b) Detailed approval process for one agreement covering many countries at once

c) Avoidance of trade negotiations

Answer: B

Explanation: Negotiating one agreement covering many countries at once is preferred due to the detailed approval process.

 

Question 6: What is the significance of emerging markets becoming stronger in the context of multilateral agreements?

a) Creates new affluent customers and benefits the developed economy over time

b) No impact on developed economies

c) Weakens the developed economy

Answer: A

Explanation: Strengthening emerging markets creates new affluent customers, benefiting the developed economy over time.

 

Question 7: What is the biggest disadvantage of multilateral agreements mentioned in the video?

a) They are easily understood by the public

b) They are complex and time-consuming to negotiate

c) They have a minimal impact on businesses

Answer: B

Explanation: The complexity of multilateral agreements makes them difficult and time-consuming to negotiate.

 

Question 8: Why do negotiations of multilateral agreements often receive press, controversy, and protests?

a) Lack of public interest

b) Smooth negotiation process

c) Public misunderstanding due to particular trade details

Answer: C

Explanation: Public misunderstanding of trade details leads to press, controversy, and protests.

 

Question 9: What is a common consequence when trade borders disappear?

a) No impact on businesses

b) Some companies and regions suffer

c) Enhanced business opportunities

Answer: B

Explanation: When trade borders disappear, some companies and regions may suffer due to increased competition.

 

Question 10: Which entities benefit the most from multilateral agreements, creating a competitive advantage?

a) Giant multi-nationals

b) Small businesses

c) Medium-sized enterprises

Answer: A

Explanation: Multilateral agreements give a competitive advantage to giant multi-nationals, which are familiar with global operations.

 

Question 11: What does the video suggest about the impact of multilateral agreements on small businesses?

a) They gain a competitive advantage

b) They experience high unemployment rates

c) They become globally competitive

Answer: B

Explanation: Small businesses may face challenges and lay off workers due to the competitive advantage given to larger corporations.

 

Question 12: What is the primary benefit of the Most Favored Nation Status in multilateral agreements?

a) Exclusive trade deals for a single country

b) Tariff reductions for developed economies

c) Best trading terms a nation can get from a trading partner

Answer: C

Explanation: Most Favored Nation Status confers the best trading terms a nation can get from a trading partner.

 

 

 

Bilateral Trade

By JULIA KAGAN Updated December 21, 2020, Reviewed by TOBY WALTERS, Fact checked by ARIEL COURAGE

https://www.investopedia.com/terms/b/bilateral-trade.asp

 

 

What are bilateral and unilateral contracts? (youtube)

 

In class exercise

Question 1: What characterizes a bilateral contract?

A) One promise from the offeror

B) Two promises exchanged between parties

C) Performance as acceptance

Answer: B

Explanation: In a bilateral contract, there are at least two promises exchanged between the parties.

 

Question 2. What is typical of a unilateral contract?

A) Performance as acceptance

B) Two promises exchanged

C) Money exchange

Answer: A

Explanation: In a unilateral contract, performance serves as acceptance of the offer.

What Is Bilateral Trade?

Bilateral trade is the exchange of goods between two nations promoting trade and investment. The two countries will reduce or eliminate tariffs, import quotas, export restraints, and other trade barriers to encourage trade and investment.

 

In the United States, the Office of Bilateral Trade Affairs minimizes trade deficits through negotiating free trade agreements with new countries, supporting and improving existing trade agreements, promoting economic development abroad, and other actions.

 

KEY TAKEAWAYS

       Bilateral trade agreements are agreements between countries to promote trade and commerce.

       They eliminate trade barriers such as tariffs, import quotas, and export restraints in order to encourage trade and investment.

       The main advantage of bilateral trade agreements is an expansion of the market for a country's goods through concerted negotiation between two countries.

       Bilateral trade agreements can also result in the closing down of smaller companies unable to compete with large multinational corporations.

 

Understanding Bilateral Trade

The goals of bilateral trade agreements are to expand access between two countries markets and increase their economic growth. Standardized business operations in five general areas prevent one country from stealing anothers innovative products, dumping goods at a small cost, or using unfair subsidies. Bilateral trade agreements standardize regulations, labor standards, and environmental protections.

 

The United States has signed bilateral trade agreements with 20 countries, some of which include Israel, Jordan, Australia, Chile, Singapore, Bahrain, Morocco, Oman, Peru, Panama, and Colombia.

 

Advantages and Disadvantages of Bilateral Trade

Compared to multilateral trade agreements, bilateral trade agreements are negotiated more easily, because only two nations are party to the agreement. Bilateral trade agreements initiate and reap trade benefits faster than multilateral agreements.

 

Examples of Bilateral Trade

https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/united-states_en

 

The European Union and the United States have the largest bilateral trade and investment relationship and enjoy the most integrated economic relationship in the world. Although overtaken by China in 2020 as the largest trading partner specifically for goods, when services and investment are taken into account, the US remains the EUs largest trading partner by far.

 

The transatlantic relationship is a key artery of the world economy. Either the EU or the US is the largest trade and investment partner of almost every other country in the global economy. Taken together, the economies of both territories account for one third of global trade in goods and services and close to one third of world GDP in terms of purchasing power.

 

Trade picture

       Bilateral trade and investment support millions of jobs in the EU and the US. Around 9.4 million people are directly employed. Indirectly, as many as 16 million jobs on both sides of the Atlantic are supported.

       The EU-US trade and investment relationship remains strong despite the economic challenges related to the Covid-19 pandemic.

       Transatlantic trade reached an all-time high of 1.2 trillion euro in 2021, surpassing pre-pandemic levels by more than 10%.

       The United States remains the EUs number one trading partner in services. Bilateral trade in services reached a record in 2021 and accounted for more than 500 billion euro.

       The size of trade in services and goods between the EU and the US is matched by their mutual investments, which are the biggest in the world and which are a substantial driver of the transatlantic relationship.

       Total US investment in the EU is four times higher than in the Asia-Pacific region. EU foreign direct investment in the US is around 10 times the amount of EU investment in India and China together.

       Total investment includes foreign direct investment, where the EU and the US are each others biggest sources. In 2020, the EU registered 2.1 trillion in outward stock, and 2.3 trillion in inward stock.

       The transatlantic relationship is a key feature of the overall global economy and trade flows. For most countries, either the EU or the US is the largest trade and investment partner.

 

https://ec.europa.eu/eurostat/statistics-explained/index.php?title=USA-EU_-_international_trade_in_goods_statistics

 

In class exercise

 

Question 1: What is bilateral trade?

A) The exchange of goods between two nations

B) The exchange of goods within a single nation

C) The exchange of goods in a multilateral setting

Answer: A

Explanation: Bilateral trade involves the exchange of goods between two nations.

 

Question 2: What do bilateral trade agreements aim to achieve?

A) Increase trade barriers

B) Standardize business operations

C) Encourage competition

Answer: B

Explanation: Bilateral trade agreements aim to standardize business operations and eliminate trade barriers.

 

Question 3: What is a key advantage of bilateral trade agreements?

A) Slower negotiation process

B) Faster initiation and benefits

C) Increased competition

Answer: B

Explanation: Bilateral trade agreements initiate and reap trade benefits more quickly compared to multilateral agreements.

 

Question 4: How do bilateral trade agreements affect smaller companies?

A) Promote their growth

B) Have no impact

C) May lead to closure due to competition

Answer: C

Explanation: Bilateral trade agreements can result in the closing down of smaller companies unable to compete with large multinational corporations.

 

Question 5: Which areas do bilateral trade agreements standardize?

A) Regulatory standards, labor standards, and environmental protections

B) Marketing strategies and pricing

C) Technology and innovation

Answer: A

Explanation: Bilateral trade agreements standardize regulations, labor standards, and environmental protections.

 

Question 6: Which country has signed bilateral trade agreements with 20 nations, including Israel and Jordan?

A) China

B) United States

C) European Union

Answer: B

Explanation: The United States has signed bilateral trade agreements with various countries, including Israel and Jordan.

 

Question 7: How do bilateral trade and investment support jobs in the EU and the US?

A) 9.4 million jobs directly employed

B) No significant impact on employment

C) Decrease in job opportunities

Answer: A

Explanation: Bilateral trade and investment support around 9.4 million jobs directly employed in the EU and the US.

Question 8: What is a key feature of the transatlantic relationship in terms of trade and investment flows?

A) Least influential in the global economy

B) Mutual investments being the smallest in the world

C) Either the EU or the US is the largest trade and investment partner for most countries

Answer: C

Explanation: Either the EU or the US is the largest trade and investment partner for most countries, making it a key feature of the transatlantic relationship.

 

Homework chapter1-2 (due with first midterm exam)

1)     What is bilateralism? What is Multilateralism?

2)     Do you advocate for bilateralism or multilateralism as being more suitable for the U.S. economy? Why

Aspect

Bilateral Agreements

Multilateral Agreements

Definition

Involves two parties or countries

Involves more than two parties or countries

Participants

Two parties

Multiple parties

Purpose

Address issues between two specific entities

Address common issues among multiple entities

Complexity

Generally simpler in structure

Often more complex due to involvement of multiple parties

Flexibility

More flexibility in negotiation and terms

Less flexibility as it requires consensus among multiple parties

Speed of Negotiation

Faster negotiation process

Slower negotiation process

Examples

Bilateral trade agreements, diplomatic treaties

United Nations, World Trade Organization (WTO)

3)     Watch Hear Trump hint at what to expect in his second term (CNN).

       What are your thoughts on the proposed policies outlined in Trump's second-term agenda, particularly focusing on trade, energy, regulation, education, and environmental issues?

       How do you think these policies might impact the United States and its global relations, and what aspects do you find most noteworthy or concerning?

 

 

Rust Belt   https://www.investopedia.com/terms/r/rust-belt.asp (FYI)

By JAMES CHEN

Updated Aug 25, 2020

 

What happened to the Rust Belt? (youtube)

 

In class exercise

Question 1: What term was coined in the 1980s to describe the former industrial heartland of America?

A) Steel Belt

B) Rust Belt

C) Manufacturing Zone

Answer: B

Explanation: The term "Rust Belt" came into use in the 1980s to describe the declining industrial region.

 

Question 2: What event largely attributed to the upset in the Rust Belt during the 2016 election?

A) Hillary Clinton's extensive campaigning

B) Donald Trump's refusal to visit the region

C) Hillary Clinton's reluctance to campaign in the Rust Belt

Answer: C

Explanation: The upset in the Rust Belt during the 2016 election is largely attributed to Hillary Clinton's refusal to campaign there.

 

Question 3: What region was once referred to as the industrial heartland of America?

A) West Coast

B) Midwest

C) Northeast

Answer: B

Explanation: The Midwest was once referred to as the industrial heartland of America.

 

Question 4: What contributed to the decline of American manufacturing in the Midwest?

A) Labor costs and increased competition

B) Increased demand for American goods

C) Decreased foreign trade ties

Answer: A

Explanation: The decline in the Midwest was fueled by labor costs and increased competition.

 

Question 5: What fueled the post-war boom for the U.S.?

A) European economic decline

B) Increased domestic manufacturing

C) The Marshall Plan

Answer: C

Explanation: The Marshall Plan fueled a post-war economic boom for the U.S. by aiding European reconstruction.

 

Question 6: Which region faced competition from East Asia during the Cold War?

A) South America

B) Middle East

C) Midwest

Answer: C

Explanation: The Midwest faced competition from East Asia, including Japan, during the Cold War.

 

Question 7: What technological advancement contributed to job loss in the Midwest?

A) Increased manual labor

B) Automation

C) Traditional manufacturing methods

Answer: B

Explanation: Increased use of automation reduced the number of laborers in manufacturing.

 

Question 8: What term describes the region challenged by Japan in the auto and electronics industries?

A) Silicon Valley

B) Manufacturing Hub

C) Rust Belt

Answer: C

Explanation: Japan challenged the Rust Belt in the auto and electronics industries.

 

What Is the Rust Belt?

The Rust Belt is a colloquial term used to describe the geographic region stretching from New York through the Midwest that was once dominated by the coal industry, steel production, and manufacturing. The Rust Belt became an industrial hub due to its proximity to the Great Lakes, canals, and rivers, which allowed companies to access raw materials and ship out finished products.

The region received the name Rust Belt in the late 1970s, after a sharp decline in industrial work left many factories abandoned and desolate, causing increased rust from exposure to the elements. It is also referred to as the Manufacturing Belt and the Factory Belt.

 

KEY TAKEAWAYS

  • The Rust Belt refers to the geographic region from New York through the Midwest that was once dominated by manufacturing.
  • The Rust Belt is synonymous with regions facing industrial decline and abandoned factories rusted from exposure to the elements.
  • The Rust Belt was home to thousands of blue-collar jobs in coal plants, steel and automotive production, and the weapons industry.

 

Understanding the Rust Belt

The term Rust Belt is often used in a derogatory sense to describe parts of the country that have seen an economic declinetypically very drastic. The rust belt region represents the deindustrialization of an area, which is often accompanied by fewer high-paying jobs and high poverty rates. The result has been a change in the urban landscape as the local population has moved to other areas of the country in search of work.

Although there is no definitive boundary, the states that are considered in the Rust Beltat least partlyinclude the following:

  • Indiana
  • Illinois
  • Michigan
  • Missouri
  • New York; Upstate and western regions
  • Ohio
  • Pennsylvania
  • West Virginia
  • Wisconsin

There are other states in the U.S. that have also experienced declines in manufacturing, such as states in the deep south, but they are not usually considered part of the Rust Belt. The region was home to some of America's most prominent industries, such as steel production and automobile manufacturing. Once recognized as the industrial heartland, the region has experienced a sharp downturn in industrial activity from the increased cost of domestic labor, competition from overseas, technology advancements replacing workers, and the capital intensive nature of manufacturing.

 

Poverty in the Rust Belt

Blue-collar jobs have increasingly moved overseas, forcing local governments to rethink the type of manufacturing businesses that can succeed in the area. While some cities managed to adopt new technologies, others still struggle with rising poverty levels and declining populations.

Below are the poverty rates from the U.S. Census Bureau as of 2018 for each of the Rust Belt states listed above.

Poverty Rates in the Rust Belt. 

There are other U.S. states that have high poverty rates, such as Kentucky (16.9%), Louisiana (18.6%), and Alabama (16.8%). However, the rust belt states haveat a minimuma double-digit percentage of their population in poverty.

 

History of the Rust Belt

Before being known as the Rust Belt, the area was generally known as the country's Factory, Steel, or Manufacturing Belt. This area, once a booming hub of economic activity, represented a great portion of U.S. industrial growth and development.

The natural resources that were found in the area led to its prosperitynamely coal and iron orealong with labor and ready access to transport by available waterways. This led to the rise in coal and steel plants, which later spawned the weapons, automotive, and auto parts industries. People seeking employment began moving to the area, which was dominated by both the coal and steel industries, changing the overall landscape of the region.

But that began to change between the 1950s and 1970s. Many manufacturers were still using expensive and outdated equipment and machinery and were saddled with the high costs of domestic labor and materials. To compensate, a good portion of them began looking elsewhere for cheaper steel and labornamely from foreign sourceswhich would ultimately lead to the collapse of the region.

 

There is no definitive boundary for the Rust Belt, but it generally includes the area from New York through the Midwest.

Decline of the Rust Belt

Most research suggests the Rust Belt started to falter in the late 1970s, but the decline may have started earlier, notably in the 1950s, when the region's dominant industries faced minimal competition. Powerful labor unions in the automotive and steel manufacturing sectors ensured labor competition stayed to a minimum. As a result, many of the established companies had very little incentive to innovate or expand productivity. This came back to haunt the region when the United States opened trade overseas and shifted manufacturing production to the south.

By the 1980s, the Rust Belt faced competitive pressuredomestically and overseasand had to ratchet down wages and prices. Operating in a monopolistic fashion for an extended period of time played an instrumental role in the downfall of the Rust Belt. This shows that competitive pressure in productivity and labor markets are important to incentivize firms to innovate. However, when those incentives are weak, it can drive resources to more prosperous regions of the country.

The region's population also showed a rapid decline. What was once a hub for immigrants from the rest of the country and abroad, led to an exodus of people out of the area. Thousands of well-paying blue-collar jobs were eliminated, forcing people to move away in search of employment and better living conditions.

Politics and the Rust Belt

The term Rust Belt is generally attributed to Walter Mondale, who referred to this part of the country when he was the Democratic presidential candidate in 1984. Attacking President Ronald Reagan, Mondale claimed his opponent's policies were ruining what he called the Rust Bowl. He was misquoted by the media as saying the rust belt, and the term stuck. Since then, the term has consistently been used to describe the area's economic decline.

From a policy perspective, addressing the specific needs of the Rust Belt states was a political imperative for both parties during the 2016 election. Many believe the national government can find a solution to help this failing region succeed again.

 

 

 

Trump's second-term agenda: revenge, trade wars, mass deportations

Reuters

December 27, 202311:22 AM EST Updated 19 days ago

https://www.reuters.com/world/us/payback-time-trump-plans-mass-firings-deportations-second-term-2023-11-14/

 

WASHINGTON, Dec 27 (Reuters) - Republican Donald Trump is planning to punish his political enemies, deport millions of migrants and reshape global trade with pricey tariffs if he wins a second White House term in the November 2024 presidential election, according to his campaign and media reports.

 

Here is a look at some of the policies Trump has pledged to institute:

 

TRADE

Trump has floated the idea of a 10% tariff on all goods imported into the United States, a move he says would eliminate the trade deficit but one critics say would lead to higher prices for American consumers and global economic instability.

 

He has also said he should have the authority to set higher tariffs on countries that have established tariffs on American imports.

 

Trump, in particular, has targeted China. He proposes phasing out Chinese imports of goods such as electronics, steel and pharmaceuticals over four years. He seeks to prohibit Chinese companies from owning U.S. infrastructure in the energy and tech sectors.

 

FEDERAL BUREAUCRACY

Trump would seek to decimate what he terms the deep state career federal employees he says are clandestinely pursuing their own agendas through an executive order that would reclassify thousands of workers to enable them to be fired. That would likely be challenged in court. He has vowed to fire what he terms "corrupt" actors in national security positions and "root out" his political opponents.

Trump would require every federal employee to pass a new civil service test of his own creation. His team is also vetting scores of potential hires who could be counted on to implement his policies or perhaps investigate Trumps political enemies.

 

He would crack down on federal whistleblowers who are typically shielded by law and would institute an independent body to "monitor" U.S. intelligence agencies.

 

Trump also would seek to bring independent regulatory agencies such as the Federal Communications Commission and the Federal Trade Commission under presidential control.

 

ENERGY

Trump has vowed to increase U.S. production of fossil fuels by easing the permitting process for drilling on federal land and would encourage new natural gas pipelines.

 

He has said he will pull the United States out of the Paris Climate Accords, a framework for reducing global greenhouse gas emissions and would support increased nuclear energy production. He would also roll back the Biden White Houses electric-vehicle mandates and other policies aimed at reducing auto emissions.

 

ECONOMY

Along with his trade and energy agendas, Trump has promised to slash federal regulations he argues limit job creation. He and his economic team have discussed a further round of individual and corporate tax cuts beyond those enacted in his first term. He said as president he would pressure the Federal Reserve to lower interest rates.

 

Trump is proposing the government establish so-called "freedom cities" on federal land that he says would spur job growth and technological innovation.

 

IMMIGRATION

Trump has vowed to reinstate first-term policies targeting illegal border crossings, roll back Biden's pro-immigrant measures and forge ahead with sweeping new restrictions.

 

Trump has pledged to limit access to asylum at the U.S.-Mexico border and embark on the biggest deportation effort in American history, which would likely trigger legal challenges and opposition from Democrats in Congress.

 

Trump has said he would seek to end automatic citizenship for children born to immigrants, a move that would run against the long-running interpretation of the U.S. Constitution.

 

ABORTION

Trump appointed three justices to the U.S. Supreme Court who were part of the majority that did away with constitutional protection for abortion. He likely would continue to appoint federal judges who would uphold abortion limits.

 

At the same time, he has said a federal abortion ban is unnecessary, and that the issue should be resolved on a state-by-state basis. He has argued a six-week ban favored by some Republicans is overly harsh and that any legislation should include exceptions for rape, incest and the health of the mother.

 

FOREIGN AFFAIRS

Trump has been critical of the U.S.'s support for Ukraine in its war with Russia and has said he could end the war in 24 hours if elected. He has argued that Europe should reimburse the U.S. for ammunition used in the conflict. Trump has also said that under his presidency, America would fundamentally rethink "NATO's purpose and NATO's mission."

 

He has supported Israel in its fight against Hamas despite initially criticizing its leaders after the October attacks. On the campaign trail, he has also floated sending armed forces into Mexico to battle drug cartels and slapping expansive tariffs on friends and foes alike.

 

EDUCATION

Trump has pledged to require Americas colleges and universities to defend American tradition and Western civilization and purge them of diversity programs. He said he would direct the Justice Department to pursue civil rights cases against schools that engage in racial discrimination.

 

On the K-12 level, Trump would support programs allowing parents to use public funds for private or religious instruction.

 

CRIME

Trump has pledged to appoint U.S. attorneys who would launch probes into liberal prosecutors and district attorneys he says are failing to contain crime in America's cities.

 

He has said he would institute the death penalty for human traffickers and drug dealers. He also has suggested that looters of retail stores could be "shot" while on site.

 

HOMELESSNESS

Trump has vowed to ban so-called urban camps from Americas cities and require homeless people to accept drug treatment or face arrest.

 

He said he would then "open large parcels of inexpensive land" where tent cities would be relocated and staffed with doctors, drug counselors and mental health experts.

 

Reporting by James Oliphant; Additional reporting by Ted Hesson; Editing by Ross Colvin and Jonathan Oatis

 

In class exercise

Question 1. Trade Policies - What is the proposed tariff percentage on all goods imported into the United States?

A) 5%

B) 10%

C) 15%

Answer: B

Explanation: Trump suggests a 10% tariff to eliminate the trade deficit.

 

Question 2. Federal Bureaucracy - What executive order does Trump plan to use to target career federal employees?

A) Executive Order on National Security

B) Executive Order on Tariffs

C) Executive Order on Civil Service

Answer: C

Explanation: Trump aims to reclassify workers to enable their dismissal.

 

Question 3. Energy Policies - What does Trump propose to do with U.S. participation in the Paris Climate Accords?

A) Increase commitment

B) Maintain current commitment

C) Withdraw

Answer: C

Explanation: Trump plans to pull the U.S. out of the Paris Climate Accords.

 

Question 4. Economic Measures - In addition to tax cuts, what does Trump propose to pressure the Federal Reserve to do?

A) Raise interest rates

B) Maintain interest rates

C) Lower interest rates

Answer: C

Explanation: Trump wants the Federal Reserve to lower interest rates.

 

Question 5. Foreign Affairs - How does Trump view the U.S.'s support for Ukraine in its war with Russia?

A) Supportive

B) Critical

C) Neutral

Answer: B

Explanation: Trump has been critical of U.S. support for Ukraine.

 

Question 6. Education Policies - What does Trump want colleges and universities to defend and purge?

A) American tradition and Western civilization

B) Cultural diversity

C) Scientific innovation

Answer: A

Explanation: Trump aims to defend these values and purge diversity programs.

 

Question 7. Trade with China - Which of the following goods does Trump propose to phase out in Chinese imports over four years?

A) Textiles

B) Electronics, steel, and pharmaceuticals

C) Agricultural products

Answer: B

Explanation: Trump aims to phase out these specific Chinese imports.

 

Question 8. Regulatory Agencies - Which agencies does Trump aim to bring under presidential control?

A) Environmental Protection Agency (EPA)

B) Federal Communications Commission (FCC) and Federal Trade Commission (FTC)

C) Department of Education

Answer: B

Explanation: Trump wants these independent regulatory agencies under presidential control.

 

 

 

Chapter 2 

 

 Chapter 2 (PPT)

 

Lets watch this video together.

 

Imports, Exports, and Exchange Rates: Crash Course Economics #15 (youtube)

 

In class exercise

 

1.     Who is the world's largest importer?

A. China

B. Canada

C. United States

Answer: C.

 

2.     Which country is the largest trading partner of the United States?

A. China

B. Mexico

C. Canada

Answer: C.

Explanation: Despite the common perception of China, the episode reveals that Canada is the largest trading partner of the United States.

 

3.     What is the annual difference between a country's exports and imports called?

A. Net exports

B. Trade surplus

C. Trade deficit

Answer: A.

Explanation: Net exports represent the annual difference between a country's exports and imports.

4.     What is the role of exchange rates in international trade?

A. Influencing trade balances

B. Determining political stability

C. Regulating labor costs

Answer: A.

Explanation: Exchange rates impact the affordability of imports and exports, influencing trade balances.

 

5.     Which organization is mentioned as working to eradicate protectionism in international trade?

A. United Nations

B. World Trade Organization (WTO)

C. International Monetary Fund (IMF)

Answer: B.

Explanation: The WTO is mentioned as an organization working to eradicate protectionism in international trade.

 

6.     What is the main purpose of the financial account in the balance of payments?

A. Recording the sale and purchase of goods

B. Tracking financial assets' transactions

C. Documenting foreign aid and donations

Answer: B.

Explanation: The financial account records transactions related to financial assets, such as stocks and bonds.

 

7.     Why did some critics argue against NAFTA (North American Free Trade Agreement)?

A. It increased trade deficits

B. It created manufacturing jobs

C. It favored rich countries

Answer: A.

Explanation: Critics argued that NAFTA significantly increased US trade deficits.

 

8.     Why do some countries choose to peg their currency to another currency?

A. To increase exchange rates

B. To maintain stability in exchange rates

C. To encourage imports

Answer: B.

Explanation: Some countries peg their currency to another to keep the exchange rate in a certain range and maintain stability.

 

9.     What does the episode emphasize as the overall impact of international trade on the global standard of living?

A. It has no impact on the global standard of living

B. It always improves the global standard of living

C. It improves the global standard of living, despite individual challenges

Answer: C.

Explanation: The episode concludes that, in the aggregate, international trade improves the global standard of living, even though there may be individual challenges.

 

10. What does the episode suggest about protectionist policies like high tariffs on imports?

A. They always benefit the economy

B. They have no impact on the economy

C. They usually hurt the economy

Answer: C.

Explanation: Protectionist policies, like high tariffs, are mentioned as usually hurting the economy more than helping.

 

 

 Topic 1- What is BOP?

The balance of payment of a country contains two accounts: current and capital. The current account records exports and imports of goods and services as well as unilateral transfers, whereas the capital account records purchase and sale transactions of foreign assets and liabilities during a particular year.

 

Summary:

Current Account:

       Definition: The current account represents the country's transactions in goods, services, income, and current transfers with the rest of the world.

       Components:

A.    Trade Balance: The difference between exports and imports of goods.

B.    Services: Transactions related to services (e.g., tourism, transportation).

C.    Income: Receipts and payments of interest, dividends, and wages.

D.    Current Transfers: Gifts, aids, and remittances.

Capital Account:

       Definition: The capital account tracks capital transfers and the acquisition or disposal of non-financial assets. Now includes financial account.

       Components:

A.    Capital Transfers: Non-financial transfers (e.g., debt forgiveness) and financial transfers.

B.    Acquisition/Disposal of Non-Financial Assets: Sale or purchase of non-financial assets, such as patents, goodwill, copy rights, etc, and financial assets, such as FDI, changes in reserves, portfolio investment, and financial derivative.

Balance of Payments (BoP):

       Definition: The BoP is a comprehensive record of a country's economic transactions with the rest of the world over a specific period.

       Equation: BoP = Current Account + Capital Account

       Significance: It indicates whether a country has a surplus or deficit in its transactions with the rest of the world.

Summary:

       Current Account: Records day-to-day transactions, including trade, services, income, and transfers.

       Capital Account: Deals with transfers of non-financial and financial assets and capital transfers.

       Balance of Payments: The overall record combining the Current and Capital Accounts, reflecting a country's economic relationship with the world.

 

Part I -  What is the current account?

 

 

From khan academy:

image014.jpg

 

Current vs. Capital Accounts: What's the Difference?

By THE INVESTOPEDIA TEAM, Updated June 29, 2021, Reviewed by ROBERT C. KELLY

https://www.investopedia.com/ask/answers/031615/whats-difference-between-current-account-and-capital-account.asp

 

Current vs. Capital Accounts: An Overview

The current and capital accounts represent two halves of a nation's balance of payments. The current account represents a country's net income over a period of time, while the capital account records the net change of assets and liabilities during a particular year.

 

In economic terms, the current account deals with the receipt and payment in cash as well as non-capital items, while the capital account reflects sources and utilization of capital. The sum of the current account and capital account reflected in the balance of payments will always be zero. Any surplus or deficit in the current account is matched and canceled out by an equal surplus or deficit in the capital account.

 

KEY TAKEAWAYS

       The current and capital accounts are two components of a nation's balance of payments.

       The current account is the difference between a country's savings and investments.

       A country's capital account records the net change of assets and liabilities during a certain period of time.

 

Current Account

The current account deals with a country's short-term transactions or the difference between its savings and investments. These are also referred to as actual transactions (as they have a real impact on income), output and employment levels through the movement of goods and services in the economy.

 

The current account consists of visible trade (export and import of goods), invisible trade (export and import of services), unilateral transfers, and investment income (income from factors such as land or foreign shares). The credit and debit of foreign exchange from these transactions are also recorded in the balance of the current account. The resulting balance of the current account is approximated as the sum total of the balance of trade.

 

Current Account vs. Capital Account

Transactions are recorded in the current account in the following ways:

 

Exports are noted as credits in the balance of payments

Imports are recorded as debits in the balance of payments

 

The current account gives economists and other analysts an idea of how the country is faring economically. The difference between exports and imports, or the trade balance, will determine whether a country's current balance is positive or negative. When it is positive, the current account has a surplus, making the country a "net lender" to the rest of the world. A deficit means the current account balance is negative. In this case, that country is considered a net borrower.

 

If imports decline and exports increase to stronger economies during a recession, the country's current account deficit drops. But if exports stagnate as imports grow when the economy grows, the current account deficit grows.

 

Capital Account

The capital account is a record of the inflows and outflows of capital that directly affect a nations foreign assets and liabilities. It is concerned with all international trade transactions between citizens of one country and those in other countries.

 

The components of the capital account include foreign investment and loans, banking, and other forms of capital, as well as monetary movements or changes in the foreign exchange reserve. The capital account flow reflects factors such as commercial borrowings, banking, investments, loans, and capital.

 

A surplus in the capital account means there is an inflow of money into the country, while a deficit indicates money moving out of the country. In this case, the country may be increasing its foreign holdings.

 

In other words, the capital account is concerned with payments of debts and claims, regardless of the time period. The balance of the capital account also includes all items reflecting changes in stocks.

 

The International Monetary Fund divides capital account into two categories: The financial account and the capital account.

The term capital account is also used in accounting. It is a general ledger account used to record the contributed capital of corporate owners as well as their retained earnings. These balances are reported in a balance sheet's shareholder's equity section.

 

Balance of payments: Current account (video, Khan academy)

 

In class exercise

1.     What is the focus of the current account in the balance of payments?

A) Imports and exports

B) Changes in ownership of assets

C) Net transfers

Answer: A

Explanation: The current account focuses on trade, including imports and exports.

2.     What is the result if the current account calculation shows a positive number?

A) Current account surplus

B) Trade deficit

C) Net transfers deficit

Answer: A

Explanation: A positive current account indicates a surplus.

 

3.     What is the primary reason for the U.S. running a current account deficit in this scenario?

A) High net transfers

B) Excessive exports

C) Trade deficit and income payments to foreign-owned assets

Answer: C

Explanation: The U.S. runs a deficit due to a trade deficit and payments on foreign-owned assets.

 

4.     Which factor indicates an outflow of currency from the U.S.?

A) Exports

B) Income on U.S. assets abroad

C) Net transfers deficit

Answer: C

Explanation: Net transfers deficit represents an outflow of currency.

 

5.     What is the primary focus of the current account in a nation's balance of payments?

A) Changes in foreign assets and liabilities

B) Net change of assets and liabilities

C) Net income over a period of time

Answer: C

Explanation: The current account represents a country's net income over a period of time.

 

6.     How is the balance of the current account and capital account related in the balance of payments?

A) They are independent and unrelated

B) Their sum is always zero

C) Capital account surplus cancels out current account deficit

Answer: B

Explanation: The sum of the current account and capital account in the balance of payments is always zero.

 

7.     What are components of the current account?

A) Visible trade, invisible trade, unilateral transfers, and investment income

B) Foreign investments and loans

C) Monetary movements and changes in foreign exchange reserves

Answer: A

Explanation: Components of the current account include visible trade, invisible trade, unilateral transfers, and investment income.

 

8.     How are exports and imports recorded in the balance of payments under the current account?

A) Both are recorded as debits

B) Exports are credits, and imports are debits

C) Both are recorded as credits

Answer: B

Explanation: Exports are noted as credits, and imports are recorded as debits in the balance of payments.

 

9.     What does a positive trade balance in the current account indicate?

A) Current account deficit

B) Net borrower status

C) Current account surplus

Answer: C

Explanation: A positive trade balance indicates a current account surplus.

 

10.  What does a surplus in the capital account represent?

A) Inflow of money into the country

B) Net borrower status

C) Outflow of money from the country

Answer: A

Explanation: A surplus in the capital account indicates an inflow of money into the country.

 

11.  What does a deficit in the capital account signify?

A) Inflow of money into the country

B) Outflow of money from the country

C) Balanced capital account

Answer: B

Explanation: A deficit in the capital account signifies an outflow of money from the country.

 

12.  How does the capital account differ from the current account in terms of the time period considered?

A) Capital account focuses on short-term transactions

B) Both accounts consider the same time period

C) Capital account is concerned with long-term changes

Answer: C

Explanation: The capital account is concerned with long-term changes in assets and liabilities.

 

13. What components does the capital account include?

A) Foreign investments and loans

B) Changes in stocks

C) Monetary movements and changes in reserves

Answer: A

Explanation: Components of the capital account include foreign investments and loans.

 

14. How is the balance of the capital account related to surplus and deficit?

A) Surplus indicates a deficit in the capital account

B) Surplus indicates an inflow of money into the country

C) Deficit indicates a current account surplus

Answer: B

Explanation: Surplus indicates an inflow of money into the country.

 

15. How are deficits and surpluses balanced in the balance of payments?

A) Surplus in the current account balances deficit in the capital account

B) Equal surpluses in both accounts

C) Equal deficits in both accounts

Answer: A

Explanation: Surplus in the current account balances deficit in the capital account.

 

16. What does a current account deficit imply about a country's economic status?

A) Net lender status

B) Economic recession

C) Net borrower status

Answer: C

Explanation: A current account deficit implies that the country is a net borrower.

 

17. What is the relationship between the balance of trade and the current account?

A) They are independent

B) Balance of trade is a subset of the current account

C) Current account is a subset of the balance of trade

Answer: B

Explanation: The resulting balance of the current account is approximated as the sum total of the balance of trade.

 

18. How are income receipts from factors like land or foreign shares accounted for in the current account?

A) As credits

B) As debits

C) As net transfers

Answer: A

Explanation: Income receipts from factors like land or foreign shares are accounted for as credits in the current account.

 

19. What determines whether a country is a net lender or net borrower based on the current account?

A) Net income over a short period

B) Difference between exports and imports

C) Balance of trade

Answer: B

Explanation: The difference between exports and imports determines whether a country is a net lender or net borrower based on the current account.

 

20. How is a deficit in the current account balanced in the balance of payments?

A) With a surplus in the capital account

B) By increasing net transfers

C) By increasing exports

Answer: A

Explanation: A deficit in the current account is matched and canceled out by a surplus in the capital account.

 

21. What does a capital account deficit indicate?

A) Inflow of money into the country

B) Outflow of money from the country

C) Balanced capital account

Answer: B

Explanation: A capital account deficit indicates an outflow of money from the country.

 

 

 

https://www.bea.gov/data/intl-trade-investment/international-transactions

 

Q3 2023

-$200.3 B

Q2 2023

-$216.8 B

The U.S. current-account deficit narrowed by $16.5 billion, or 7.6 percent, to $200.3 billion in the third quarter of 2023, according to statistics released today by the U.S. Bureau of Economic Analysis. The revised second-quarter deficit was $216.8 billion. The third-quarter deficit was 2.9 percent of current-dollar gross domestic product, down from 3.2 percent in the second quarter.

https://www.bea.gov/sites/default/files/2023-12/trans323.pdf

 

https://www.bea.gov/system/files/trans323-chart-01.png

 

 

 

https://www.bea.gov/system/files/trans323-chart-02.png

 

       Exports of goods increased $19.1 billion to $516.4 billion, and imports of goods increased $4.6 billion to $777.4 billion. The increases in both exports and imports reflected increases in most major categories. The increase in exports was led by industrial supplies and materials, primarily petroleum and products. The increase in imports was led by automotive vehicles, parts, and engines, primarily passenger cars and other parts and accessories. Partly offsetting this increase was a decrease in imports of nonmonetary gold.

Trade in services

       Exports of services increased $2.7 billion to $252.2 billion, reflecting an increase in travel, mainly other personal travel, that was partly offset by a decrease in technical, trade-related, and other business services, a subcategory of the broader other business services category as presented in table 3. Imports of services decreased $1.9 billion to $176.0 billion, reflecting a decrease in transport, mostly sea freight transport.

Primary income

       Receipts of primary income increased $11.8 billion to $362.1 billion, and payments of primary income increased $14.0 billion to $332.1 billion. The increases in both receipts and payments reflected increases in most major categories. The increase in receipts was led by direct investment income, mainly earnings. The increase in payments was led by other investment income, mostly interest on loans and deposits.

Secondary income

Receipts of secondary income decreased $0.7 billion to $45.1 billion, reflecting a decrease in general government transfers, mostly fines and penalties. Payments of secondary income decreased $0.3 billion to $90.7 billion, reflecting a decrease in general government transfers, mainly international cooperation, that was mostly offset by an increase in private transfers, led by fines and penalties.

Capital-Account Transactions

       Capital-transfer receipts increased $10 million to $18 million. Capital-transfer payments decreased $0.6 billion to $2.1 billion, reflecting a decrease in infrastructure grants.