The Trump Trade War Recession?
By John Mauldin
Hoover, Smoot & Hawley
Multiplayer Game Theory
Trade Sandpile
Victim List
Lopsided Polls
The Seven-Body Problem
John Mauldin
Chairman, Mauldin Economics |
The Trump Trade War Recession?
By John Mauldin
John Mauldin
Chairman, Mauldin Economics |
Europe Redefined
The European Parliament elections are a benchmark for a continent in flux.
By George Friedman
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Law and ordnance
Guns from the United States are flooding Latin America
A US-made gun is more likely to murder a Mexican than an American
LIKE A CRIMINAL and his fingerprints, every gun leaves its mark on the ammunition it uses. Such traces are what Sergio Sandoval de la Peña pores over daily in Mexico City’s ballistics lab. A series of dark-green circles, like the sub-woofer of a speaker, appear on his computer screen. It is a digitised three-dimensional model of a cartridge, found at the scene of a robbery this year and placed under a microscope. Checking the marks against hundreds of thousands of potential matches, Mr de la Peña concludes that the gun that ejected it was also used in a murder last year.
The ballistics technology employed to work such wonders comes courtesy of the United States. Alas, so does the gun, according to Mr de la Peña’s database. A study of weapons found at crime scenes suggests that 70% of gun crimes in Mexico involve American-bought weapons. The share of homicides in Mexico involving a firearm grew from 16% in 1997 to 66% in 2017. That suggests around half of Mexico’s 33,000 murder victims last year were killed by a gun manufactured in the United States, which had 14,542 gun homicides in 2017. An American-made gun is more likely to be used in a murder in Mexico than at home.
Mexico is far from alone. Across Latin America, the share of murders involving guns is creeping upwards. Many countries already beset by organised crime and weak states have their troubles compounded by their proximity to America, the country with the rich world’s most permissive gun laws. Changes signed by President Donald Trump may only worsen the situation.
Guns and doses
Most guns enter Mexico after being legally bought in the United States. Criminal groups typically use associates to buy them, smuggling guns in the opposite direction to drugs. Beyond Mexico, American guns often arrive through ports from Florida, hidden among other imported goods. In Honduras, where half of all unregistered weapons come from America, smugglers have been known to wrap guns in foil and submerge them in paint to avoid detection from X-ray machines. Less creative, bigger groups simply pay off customs officers.
Does the availability of American guns boost murder rates? The expiration in 2004 of an assault-weapons ban in the United States provided a real-world experiment. A study found that in Mexican municipalities bordering Arizona, New Mexico and Texas, where the guns were put back on sale, the murder rate shot up soon after. Murder rates adjacent to California, which maintained a ban, stayed flat.
But even in the unlikely event that the United States were to repeal the second amendment, Latin America’s gun problem would not abate. Many national armies and police forces have a habit of losing their weapons. In Guerrero, a state in Mexico, one weapon in five belonging to the state police ends up “lost or stolen”. Central American police forces are notorious for selling seized weapons they should destroy, says Mark Ungar of Brooklyn College.
In Honduras the profits from gun sales to private individuals, over which the army has a monopoly, are the second-biggest contributor to soldiers’ pensions. Many American weapons used in crime in Brazil are trafficked through Paraguay, which has loose gun controls. Between 2013 and mid-2018 Paraguayan companies legally imported 648,000 guns and 331m rounds of ammunition, a large share from the United States. Last year America briefly banned commercial arms sales to Paraguay to reduce the smuggling, prompting the country to impose its own controls.
Jair Bolsonaro, Brazil’s president, has signed two decrees this year making it easier for Brazilians to own and carry guns. Shares of Brazil’s large gun firms have soared. Mr Bolsonaro has said he will legalise imports of American guns too. Legal weapons can become illegal ones with ease through theft or corruption, observes An Vranckx of Catalystas, a consultancy. Brazil’s murder rate dipped after 2003 when new rules made it harder to buy a gun.
One place American guns are turning up less is Venezuela, largely because there is a ban on their export there. A ready supply of weapons from elsewhere has helped push the country’s murder rate to the world’s highest. Lately the economic crisis may have stemmed the flow: the import of weapons, like all other imports, has probably dropped. A decline in productivity at the state-owned factories which make bullets may explain why the murder rate has slipped back of late.
What can be done to stop the flow of weapons? One idea floated in Mexico was to ban American steel firms and other businesses that supply gun manufacturers from Mexican government contracts, and to make workers from any firms that sell guns apply for visas if they want to visit Mexico. But that idea lost steam when Mr Trump became president. Indeed since his election things have got worse. In January Mr Trump said responsibility for approving arms exports would shift from the State Department to the Department of Commerce, which applies looser rules.
So Latin American countries will have to do more themselves. National, interlinked databases of registered weapons can help police keep hold of their guns. Purging the dirtiest cops, as Colombia has done, helps to keep weapons out of criminal hands. Rather than waiting for the United States, Latin America will have to place its own institutions under the microscope.
The Fed’s Inflation Problem
Even if low inflation persists, it might not count as a reason for the central bank to cut rates.
By Justin Lahart
Federal Reserve Chairman Jerome Powell Photo: Mark Wilson/Getty Images
The Federal Reserve is worried that even as the economy continues to do well, inflation is running cold. So what, if anything, should the central bank be doing about its dilemma?
For now, the Fed is sitting on its hands. Its policy-setting committee left interest rates unchanged at the end of its two-day meeting Wednesday, and it reiterated its pledge “to be patient” on adjusting rates in the future—a signal it will likely stay on hold when it next convenes in June.
But the Fed did note that inflation slipped in the first quarter. This is a concern. By the Fed’s preferred measure, consumer prices excluding food and energy—the so-called core—were up 1.6% from a year earlier in March. That compares with a year-over-year gain of 2% in December.
The World’s Next Big Growth Challenge
The economic performance of lower-income developing countries will be crucial to reducing poverty further. Although these economies face significant headwinds, they could also seize important new growth opportunities – especially with the help of digital platforms.
Michael Spence
MILAN – The global economy is undergoing very large structural shifts, driven by three megatrends. One is the digital transformation of the foundations on which economies are built and run. Another is the growing purchasing power and economic strength of emerging economies, and China in particular. Lastly, there are broad-based political-economy trends, which include rising nationalism, various forms of populism, political and social polarization, and a possible breakdown of the multilateral framework within which the global economy has functioned since World War II.
The media devote most of their attention to the economic, social, and regulatory challenges arising from these megatrends, and to the trade, investment, and technology tensions between China and the United States. Yet a significant share of the world’s population lives in poor countries, or in poorer parts of developing countries. Furthermore, the rapid reduction in global poverty over the past three decades is primarily the result of sustained growth in developing economies.
The future growth prospects of today’s early-stage (that is, lower income – some growing and others not) developing countries will be of huge importance in reducing poverty further. Although these countries face significant headwinds, they could also seize important new growth opportunities – especially with the help of digital platforms.
The headwinds are certainly considerable. For starters, advances in digital technologies – robotics, machine learning, sensors, and vision – directly threaten the labor-intensive manufacturing and assembly upon which lower-income, non-resource-rich economies have traditionally relied.
Moreover, climate change has had its greatest economic impact in the tropical and subtropical regions where most lower-income countries are located. The effects of global warming are highly disruptive in fragile economies, and, taken together, constitute a major new obstacle to growth.1
Fertility rates, meanwhile, remain astonishingly high in some countries, especially in Sub-Saharan Africa. In a few of the poorest – Niger, Mali, and the Democratic Republic of Congo – the rate is 6-7 children per female. The resulting flood of new entrants to the labor market is far outstripping the number of jobs available.
No known growth model can accommodate or keep up with this kind of demographic surge. Even sustained economic growth of around 7% per year won’t be enough. And although fertility tends to decline as incomes rise, that does not happen immediately. Empowering women, therefore, may be the most effective way of starting to address the challenge.
Conflict also disrupts growth. Although many conflicts appear to have a religious or ethnic basis, some scholars believe that their root cause may be economic, with ethnic divisions serving as a way to exclude other groups from access to scarce resources and opportunities. Whatever its source, inequality of opportunity has a highly disruptive effect on governance and hence growth.
But these obstacles are not insurmountable. For one thing, developing countries now have huge potential export markets in middle-income countries, and no longer depend entirely on advanced economies for access to global markets.
There is also a renewed awareness of the importance of infrastructure in enabling growth. In addition to roads, railways, and ports, electricity and digital connectivity are crucial. In this regard, the rapid expansion of cellular wireless technology, combined with the installation of high-capacity undersea broadband pipes around Africa, represents major progress. Meanwhile, China’s “Belt and Road Initiative” – though criticized by much of the West, and the United States in particular – could bring dramatic improvements in physical and digital connectivity to Central Asia and parts of Africa.
Further advances in critical infrastructure will create important growth opportunities for developing countries via e-commerce, mobile payments, and related financial services. The experience of China strongly suggests that these digital platforms, and the ecosystems that develop around them, are powerful engines for incremental, highly inclusive growth.
China, of course, is a very large, homogenous market. If smaller, lower-income developing countries are to benefit from equally rapid inclusive growth, the digital platforms will have to be regional and international in scope.
Some are starting to emerge. Jumia, a Nigeria-based e-commerce platform covering 14 African countries, recently went public on the New York Stock Exchange, amid considerable excitement. True, the company faces similar obstacles to those that Asian and Latin American platforms previously had to overcome, including a lack of reliable payment systems, low trust between buyers and sellers, and logistics and delivery bottlenecks. But the experience of other regions shows that these shortcomings can be addressed over time.
The bigger risk to these platforms stems from the inevitable and necessary increase in regulation of the Internet around the world. In particular, diverse national regulatory regimes may inadvertently or deliberately disrupt or block the international development of e-commerce ecosystems, hurting lower-income countries in the process. Avoiding the creation of such unintended obstacles should therefore be a high priority for the international community.
Today’s lower-income countries already face a tough task in trying to emulate the impressive growth of developing economies before them. An underperforming global economy, and rising national and international tensions, will make that task even harder. If the world is serious about reducing poverty further, it must pay far more attention to their progress.
Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, Advisory Board Co-Chair of the Asia Global Institute in Hong Kong, and Chair of the World Economic Forum Global Agenda Council on New Growth Models. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of The Next Convergence – The Future of Economic Growth in a Multispeed World.
Japanese Currency: A No-Go in US Trade Talks
Tokyo may be willing to compromise on a variety of issues, but not on its monetary policy.
By Xander Snyder
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The Coming Technological Cold War
The conflict between the United States and China over trade and technology is an increasingly high-stakes zero-sum affair. And it is not just about amassing data and talent to achieve economic and geostrategic primacy; like the original Cold War, it is also about the future of liberal democracy.
Manuel Muñiz
MADRID – Lurking behind the Trump administration’s trade conflict with China lies an abiding fear that the United States could be losing its advantage in the global technology race. And it’s not just Trump. In US policymaking circles more broadly, China’s “Made in China 2025” policy – intended to ensure Chinese dominance in cyber capabilities, artificial intelligence (AI), aeronautics, and other frontier sectors – is viewed not just as an economic challenge, but as a geopolitical threat. Everything from US telecommunications infrastructure and intellectual property to America’s military position in East Asia are considered to be at risk.
The fact that technology is driving geopolitical tensions runs against the predictions of many scholars and policymakers. As recently as the mid-2000s, some suspected that geography would no longer play a meaningful role in the functioning of global markets. Globalization and technology would lead to a “flat” world with perfect competition, where talent would automatically spread evenly across regions and frontiers; skilled workers would connect to productive processes remotely and only when needed.
In fact, talent in the twenty-first century is more unevenly distributed than ever before. A few key hubs – Cambridge, Massachusetts; Silicon Valley; Shenzhen, China – are now host to a significant share of the world’s high-skilled digital and tech workers. It isn’t entirely clear why this is happening. But some scholars have begun to attribute the concentration of digital talent to the role of “tacit knowledge”: insider know-how such as the industry practices and procedures, or technical expertise that is valuable only under very specific conditions.
As knowledge has become increasingly clustered, so, too, has technological research and the commercial development of new innovations. This trend can be measured by the number of unicorns – startup firms with a valuation of at least $1 billion – appearing in particular regions of the world. By that metric, China and the US alone account for almost all of the world’s technological entrepreneurship. In the field of innovation, we are quickly moving toward a G2 world.
Moreover, there is growing evidence that productivity growth is becoming concentrated within companies that have leveraged digital technologies to scale. Over the past decade, a narrow cohort of what the OECD calls “frontier firms” have accounted for almost all productivity growth globally, while “laggard companies” – that is, all other firms – have made essentially no productivity gains at all. This imbalance has created the illusion of an aggregate slowdown in productivity growth, when the real issue is the increasingly acute segregation by firm type.
A world in which technological know-how, innovation, and productivity growth are heavily clustered is more zero-sum – and thus more prone to geopolitical competition. The regions that attract talent effectively cut everyone else out of the technology transfer process, thereby producing a few big winners that are able to achieve rapid productivity growth and competitive dominance. Under these conditions, Sino-American competition for talent and frontier firms is increasingly inevitable.
Further compounding the problem is the fact that China is not a democracy. The government is using cutting-edge technology not only to repress dissent and monitor the population, but also to respond to citizens’ needs and improve public services. By helping officials manage increasingly complex social, political, and economic systems with near-complete information, these technologies nullify the forces that brought an end to earlier authoritarian systems, not least the Soviet Union. It might well be that AI and big data are boons to authoritarian regimes.
We should brace ourselves for the coming conflict. Like the original Cold War, the contest between the US and China for technological dominance will produce ripple effects worldwide, potentially leading to a sharper backlash against globalization – one that adds national-security concerns to distributive grievances. The temptation will be to break up global markets, and retreat to islands of proprietary data and technologies.
Indeed, America and Europe’s longstanding support for open markets and their belief in strict competition policy will be put to the test. Will European and US markets remain open to Chinese firms? Will Western antitrust authorities break up their countries’ tech giants at the risk of ceding the global market to Chinese national champions? Much will depend on China’s willingness to level the playing field at home, which would mean pursuing economic liberalization and curtailing politically motivated state intervention in the economy. As matters stand, China appears to be heading in the opposite direction.
If an authoritarian regime excels in the technological race, and if emerging technologies enable it to deliver better governance without the need for more political openness, governments around the world will take note. That is why the looming technological cold war will not just be about amassing data and talent to achieve economic and geostrategic primacy; like the original Cold War, it will also be about the future of liberal democracy.
Manuel Muñiz is Dean of the IE School of Global and Public Affairs in Madrid and Senior Associate at the Belfer Center for Science and International Affairs at the Harvard Kennedy School of Government.