Tuesday 21 Aug 2018 | 14:42 | 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: 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

Intellectual property: the big risk in US–China ties

It may be chaotic and confused, but the Trump administration is not entirely nuts. Expected to slam China with heavy penalties for appropriating the intellectual property of US businesses, the administration instead appears to be stopping short of a fundamental injury to the world’s biggest

The sky is not falling on Asia’s central banks

The nature of financial-markets commentary is that every tiny blip and ephemeral piece of news is presented as a narrative of impending doom: who wants to read a story about how everything is jogging along normally? Headlines such as “Asian central banks face white-knuckle steering as Fed

Australia, Asia, and the “Wealth of Nations”

How does Australia’s economy align with those of our Asian neighbours? What are the development challenges facing nearby South East Asian countries? And just how large is China’s economy? These questions are of particular interest this week as the ASEAN-Australia Special Summit is held in Sydney

CPTPP wobbles over foreign investor rights

With the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) now signed and awaiting ratification by the member states, the issue of investor-state dispute settlement (ISDS) is again being debated. The high-profile opinion-catalysing group GetUp is encouraging 

Trump’s tariff antics as the TPP-11 is signed

The symbolism of last Thursday for the future of the global trading system was hard to miss. In Washington, Donald Trump authorised new tariffs on steel and aluminium imports of 25% and 10% respectively in one of the clearest signs yet that he plans on following through on his protectionist agenda.

No urgency in cutting Australian corporate tax

Prime Minister Malcolm Turnbull returned from Washington last month even more convinced of the need for deep cuts in Australia’s 30% corporate tax rate, which is well above that in the US. Given the numbers in the Australian Senate, however, it is unlikely the proposed tax cut will pass. How

Multilateral trade versus self-interest

How should countries respond to President Donald Trump’s tariffs on steel and aluminium? One response would be to retaliate. Another would be to emphasise the damage done to the global multilateral trade framework. Yet another would be to negotiate a side deal to avoid, and perhaps even benefit

Company tax cuts: America versus Australia

The expert panel on the ABC’s Q&A program earlier this month was hopelessly confused in comparing Donald Trump’s cut in US company tax with the proposed company tax cuts in Australia. Although it’s often useful to compare domestic economic policy initiatives with those

Central banks changing of the guard

Breaking tradition, President Donald Trump has not reappointed Janet Yellen to another term as chair of the US Federal Reserve. Elsewhere, central bank leadership is also in transition. What does this mean for central bank independence? In America, where political appointments of senior

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