Wednesday 17 Oct 2018 | 20:34 | SYDNEY
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Global Economy

The ebbs and flows of global economic conditions, trade and capital flows, thus have substantial implications for the Australian economy, and Australia’s major regional trading partners. Understanding the broad trends, and identifying emerging challenges and opportunities within the global economy, is central to the work of the International Economy Program at the Lowy Institute.

The highly integrated nature of the modern global economy became especially evident during the 2008 global financial crisis. What began as a localised problem within the residential asset-backed securities market in the United States, eventually brought down major financial firms across the Western world, and ultimately pushed the United States and Europe into a deep and prolonged recession. Although global economic growth has recovered somewhat since 2008, it is still much lower than pre-2008 trends, and the hangover from the crisis has manifested itself in the form of high unemployment levels throughout much of the developed and developing world, as well as an increasing level of inequality both within and between countries.

Understanding the economic rise of Asia, and particularly of the growing middle class within Asia, is also crucial to the broader work of the Lowy Institute. Political economy analysis on major players in the region, chiefly China, India and Indonesia, features heavily in the work of the East Asia Program and the International Security Program.  

Economic diplomacy: Australia abroad, China’s cash

Outward bound Australian businesses are confident about foreign markets despite the threat of a global trade war and doing it without the need for new digital commerce channels to find customers. These are the two striking findings from the latest Australian International Business Survey&

A balancing act for IMF’s new Chief Economist

Gita Gopinath has been appointed as Chief Economist at the International Monetary Fund, to take over from Maurice Obstfeld at the end of the year. She is academically well-qualified. The job, however, is not just about academic economics. The IMF is like a priestly order, with established

Will geopolitics trump trade?

Geopolitics may be rapidly moving to the forefront in deciding how the US-China trade war will play out. If so, the odds of a rapprochement are dwindling fast. The trade conflict has always been about many things, clouding how different analysts understood it. Initially, it seemed best understood

Out of balance: Pakistan’s economic crisis

National debt in Pakistan has soared past US$92 billion and its servicing costs are projected to reach 30% of the federal budget. The current economic crisis in Pakistan poses political trade-offs between supporting economic growth, protecting domestic consumers, and meeting external obligations.

NAFTA to USMCA – what’s in a name?

What’s in a name? According to US President Donald Trump, it is the difference between the “worst trade deal ever made” – as he called the North American Free Trade Agreement (NAFTA) – and a “wonderful new trade deal” – his reference to the United States-Mexico-Canada Agreement (

Economic diplomacy: Indonesia, climate and Abe

First mover advantage Indonesia says Australian education and training institutions will still have an advantage in setting up there even though the recent bilateral trade deal negotiations have actually opened the country to education exporters from all around the world. Indonesian investment

Sliding rupiah causes Jakarta jitters

Capital has been flowing out of emerging economies around the world, causing currencies and financial markets to fall. While tightening global liquidity was the initial catalyst, the threat from Donald Trump’s trade war and fear that "contagion" might spread from Turkey and Argentina have added

Spilt milk: protecting exports during drought

Drought is an unavoidable hazard of farming in Australia. As the economic pressure mounts from the current drought in northern New South Wales and Queensland, there is increasing stress on farmers in the region, including in the dairy industry. The federal government has stepped in with

Economic diplomacy: Japan, Indonesia and the TPP

Food for thought In 2009 Japanese businessman Masaki Harada used a Lowy Institute appearance to outline some frank and ambitious plans for his company Kirin in Australia, in what was quickly interpreted as more than a usual business plan. It was an exciting time for the Australia-Japan bilateral

Trump and rules-based order for global trade

Trade has been ground-zero for US President Donald Trump’s brand of geoeconomics, so it’s a good place to start evaluating his impact. Intrinsically, getting agreement on international rules is hard work: even where participants benefit from the clarity and certainty of rules, they have

China’s tech bubble

In the four decades that have followed China’s initial stage of post-Mao “Reform and Opening Up”, the world has learned to expect great things from the Middle Kingdom’s centrally-planned economy. It has established itself as the low-end “factory of the world” and orchestrated an

What did the 2008 crisis cost America?

Next month marks the tenth anniversary of the failure of Lehman Brothers – the nadir of the 2008 global financial crisis. Not only was there a substantial fall in GDP in most countries (although not in Australia), but the recovery since then has been slow. GDP just about everywhere is

Geoeconomics isn’t back – it never went away

Like countries, academic fashions rise and fall. The current interest in geoeconomics – using economic power and leverage to pursue geopolitical goals – is classic example of this possibility. It is no coincidence that the rise of geoeconomics mirrors the rise of China. Rather revealingly, no

Economic diplomacy: foreign cash at home & abroad

US still rules It might not fit with the increasingly nationalist public debate, but detailed new numbers on the size of foreign-owned businesses in Australia suggest they have not changed dramatically since the turn of the century. This is the first time in 15 years the ABS has

Indo-Pacific: where is the money coming from?

Such is the excitement about China’s role in Asia that the mere whiff of anything to do with the Belt and Road Initiative (BRI) is enough to cause a media flurry in Canberra. It happened again a few days ago. Two pieces of news triggered headlines about the BRI in the Australia media. 

Can the Fed resist Trump’s pressure?

Central bank independence is now a well-established element of best-practice monetary policy just about everywhere. Except, perhaps, in America. Elsewhere, most politicians accept that it is in their interests to refrain from pressuring the central bank. It would be out of character, however, for US

Economic diplomacy brief: infrastructure and trade

Three amigos If infrastructure building is the new Great Game in the Indo-Pacific, the question is whether this week’s developments represent a warm-up for the main match or the creation of a junior league. Some sort of cooperation between the US, Japan, and Australia to provide an

The future of work

The future of work was on the agenda for the G20 economic ministers’ meeting in Argentina last weekend, but was overshadowed by the high-profile issues of tariff wars, currency manipulation, and the state of the current economy. The topic was sidelined because it is longer-term, hard to

Trade: the US should be isolated, not accommodated

Prior to leaving for the latest G20 Finance Ministers Meeting, held at the weekend in Buenos Aires, Australian Treasurer Scott Morrison said “the trade war cannot be ignored”. He has never said truer words. Unfortunately, it seems that the G20 ministers largely ignored the trade war. While the

Economic diplomacy brief: India ties, Labor on BRI

Passage to India Two statistics in the new report to the Australian Government on the future economic relationship with India underline how this is going to be a battle of perceptions even before anyone gets to the policy ideas. The first is a crony capitalism index, which estimates

Short-term capital flows to emerging economies

Emerging markets are under pressure from events in the global economy, including the normalisation of American monetary policy, the strengthening of the US dollar, and President Donald Trump’s trade war. Heightened risk perception is causing substantial outflows of foreign capital from the

Tit-for-tat-for-tit-for-tat

The US is moving quickly to follow through on Trump’s threats to further escalate his trade war with China (now is as good a time as any to say that the trade war has officially started). Last week the US imposed tariffs on US$34 billion worth of Chinese imports, with another US$16 billion to be

Trade is not just about tariffs

Amid the clamour of the current shouting-match about tariffs, two sometimes-forgotten facts in international trade should be noted. First, tariffs are not the only distortion. Second, none of the countries involved in the current battles is without sin when it comes to trade restrictions.

Answering Bitcoin hype

When I wrote about Bitcoin in December (The Bitcoin bubble), I likened it to intrinsically worthless pre-1949 Chinese bonds and Weimar Reichsbanknote marks. Bitcoin was then trading at around $US10,000. Within a fortnight, the price had doubled. Since then it has fallen, but is still trading at

US-China trade: joke’s over

Once entertaining, the Trump administration is becoming unfunny. In less than a week the trade dispute between China and the US has escalated to cover what will quite likely be the entirety of US goods exports to China, and the greater part, if not the whole, of Chinese goods exports to the US

The China puzzle in Asia

China is rising! This remarkable event, which is hardly surprising because the process has been underway for at least forty years, is causing great excitement in Australia and elsewhere. In some circles, China’s strong economic growth and international activities have 

Global profit shifting

Australia’s proposed corporate tax cuts aim to attract footloose global capital by offering an internationally competitive tax rate. Much of the global tax debate, however, focuses on increasing rather than reducing company tax. Specifically, the aim is to discourage companies from shifting

G7: the most honest summit – ever!

US President Donald Trump’s performance last week at the G7 summit at La Malbaie, Canada, may have thrown the G7 into disarray and left US–Canada relations in tatters, but he may have done the world of international summitry a service when he withdrew US endorsement of the summit

Tariffs: the US rebuffed

The terse statement from the G7 finance ministers meeting about the US decision to impose steel and aluminium tariffs on the EU, Canada, and Mexico has shocked many observers used to such summits ending with droll communiques filled with platitudes about global collaboration and cooperation.

When is monetary policy neutral?

Interest rates are on the way up in America, with financial markets in “risk-off” mode, nervously wondering just how much rates will rise. John Williams, recently appointed to head the New York Federal Reserve Bank (giving him a key role in the rate-setting Federal Open Market Committee in

China’s looming financial crisis

Governor of the Reserve Bank of Australia Philip Lowe’s speech last week highlighting the risks to the Chinese financial system from shadow banks – non-bank financial institutions often operating in more lightly regulated wholesale markets – has once again drawn attention to the

Keeping track of trade distortions

A tentative ceasefire has been declared in the US–China trade war, giving China time to make adjustments which might placate America. With the emphasis on the US–China bilateral trade balance, there is a good chance the main losers will be third countries: collateral damage in the conflict.

All’s not fair in US–China trade stoush

As tense trade talks between the US and China continue, a growing chorus of US commentators seem to have concluded that, whatever their misgivings about President Donald Trump, he’s right in taking on China for its unfair trade and being an economic cheat (for instance, see here and 

The high price of fashion

The 1990s saw the birth of an anti-sweatshop movement demanding that multinational corporations improve working and environmental conditions along every step of the global value chain. By the end of the decade, then UN secretary general Kofi Annan used his address to the World Economic

Trump and “currency manipulation”

The central tenet of US President Donald Trump’s economic world view is that bilateral trade imbalances are bad for the deficit country. In this mindset, imbalances are believed to come about because the surplus country is cheating on its exchange rate to promote exports and restrict imports.

Less is more? Employment rates and economic growth

Labour market participation, the proportion of a country’s population that is either working or actively looking for a job, seems like a boring statistical constant. In advanced economies it has hardly changed in recent decades. But the latest IMF World Economic Outlook devotes a

Is Trump ready to bear the cost of a trade war?

Agree or disagree with his conclusions, we owe Hugh White thanks for forcing us to grapple with “the China challenge”. White’s writings have stripped away much of the easy, high-sounding rhetoric about dealing with Beijing and honed in on the central feature of US–China relations in the

Global monetary policy returning to “normality”

Former US Federal Reserve chair Janet Yellen promised that unwinding quantitative easing would be “the policy equivalent of watching paint dry”. Not everyone agrees. Jamie Dimon, head of JP Morgan, the most successful of the big American banks in the past decade, has voiced his concerns about

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