The World Trade is in Turmoil

World Trade Economics are yet again at cross road historically. Students of economics have exciting learning curve at this juncture.

Also, the world trade and globalization are changing its operations models.

The New President of USA, Donald Trump’s policies especially the trade policies are causing greater impacts on most countries which do exports and import of goods and services.

Eminent Trade Economist Dr Arvind Panagariya has expressed his views, though his views give basic ideas how the USA intend to play given their economy vis.a.vis other economy like China, India, etc.

Below are links to Prof Arvind Panagariya interviews:

Arvind Panagariya: US deal will be a big positive for India

With Trump’s new tariff order, Arvind Panagariya highlights key trade risks for India

Arvind Panagariya on Trump and International Trade

Trade, Naoroji and Poodbill

"...free trade areas should all be seen as building blocks of a liberal international order that could include and embrace China. China would obviously then have a right to shape that order, alongside Western powers, but its participation would also eventually help to move China domestically towards more openness, pluralism and rule of law, as desired by a growing number of its own people." More here.

"Naoroji, five-thousand miles away in London, only learned of his son’s death through a series of telegrams dispatched from Mandvi and Bombay. One can imagine the sense of shock, loneliness, and utter helplessness he felt after receiving these brief messages, knowing full well how impossible it was to avail of family support and solace in this time of grief. A telegram reading ‘console Dad’ provided the only fragile link with family members back home in Bombay." More here.

Illusion that was called pBill. "Putting aside for a moment the wide-ranging fiscal implications of the Bill, which are clearly negative, it needs to be evaluated under many non-financial criteria. There is a clear distinction between having needs and being needy. It is nobody’s case that the needy should not be protected. But is it fair to artificially pander to well above the majority of the population?"

Some links

Last two days, I participated in the first Regional Conference on "Reforms for Citizen Centric Governance" held in Hyderabad. There are many new innovations taking place at State level in terms of improving the services delivery. 

Interesting readings:

Fasten your seatbelts by Nitin Pai

Countdown to the greatest of all time by Aakar Patel

What Reform, Mr PM? by S Gurumurthy

BBC Masters of Money: F A Hayek

Quotas in education meaningless by P V Indiresan

New from the Takshashila

1. September Issue of Pragati "Gandhi won't Return" (pdf)
2. Demystifying India-China Trade Possibilities Should India sign a free-trade agreement with China? by V Anantha Nageswaran & Ritwick Ghosh, Policy Brief September 2011 (PDF)

Lamy’s Order

“Governing this globalized world can be messy and frustrating” writes World Trade Organization Director-General Pascal Lamy “but the fiction that there is an alternative is naïve and dangerous. Naïve because it ignores that we are becoming more — not less — dependent on one another. Dangerous because it risks plunging us back to our divided past — with all of its conflicts and tragedies.”

O for Obama vs O for ostrich

Freed from real pressure to adhere to universal values, any powerful autocracy will be less willing to play by the rules on trade, resource, security, currency and other issues. If anything, this opens up space for it to subtly help shape new international rules in the years ahead.

Rediscovering the mercantilism

Arvind Subramanian writes:

• A second lesson stems from one crucial difference between the two episodes of Chinese mercantilism. Back in the early 1800s, China was mercantilist and closed. The paradox is that today China is mercantilist but highly open. China’s surplus in the earlier episode was a consequence of unquenchable foreign demand for China’s tea combined with a closed-door policy that virtually extinguished Chinese demand for foreign products. Put simply, China exported a fair amount and imported very little. Today, China exports a lot, exports a lot more than it imports, but it also imports a lot. 

• Taking account of China’s size and the regularity that large countries tend to trade less than small countries, China is an exceptionally big importer and trader. My calculations suggest that the degree of China’s openness, measured in terms of trade outcomes, is far greater than anything achieved by the United States in the post-war period and resembles the levels of openness achieved by the United Kingdom at the height of empire. 

• So, one reading, perhaps overly optimistic and naive, is that a China that moves away from mercantilism will be a China that is an exceptionally large and fair trader with strong stakes in maintaining an open trading and financial system. Post-World War II, the United States fashioned such a system out of enlightened self-interest. In contrast, China’s stake in openness might be less enlightened but more direct and important because its rise to prosperity, on which is predicated the legitimacy of its government, will depend upon an open system.

No wonder, “market” remains a word without much appeal for the poor

Why do we deny cotton farmers access to free markets?

A lack of education and infrastructure continues to hold down the capability of the poor to benefit from market opportunities.

It also enables politicians to use a clever vocabulary that makes them appear “pro-poor” while tacitly defending anti-poor protectionist lobbies.

But, ironically, they are made even as cotton growers are being unfairly denied higher international prices, by imposing restrictions on export

All that is needed is that the government does not come in the way of farmers who want to take advantage of the opportunities that trade presents. It is a cruel joke on farmers when the agriculture minister talks of the need to step up exports before the arrival of American cotton lowers the world market prices — because, if exports had been free, Indian farmers would have already seized the opportunity.

It is bad to do nothing about poor irrigation, as well as the ineffective extension of services; but it is worse to control or ban exports that directly affect farmers’ incomes. However, nobody has come forward to resist such policies. Civil society groups by and large are sceptical of markets and do not find the issue appealing enough

We should encourage them by providing the infrastructure they require. Instead, we continue to subject them to unfair taxation. Would we tolerate such a policy for, say, software exports? There is no dearth of experts who wax eloquent on the benefits of free trade. But they rarely make the case for cotton growers.

From Lobbying against farmers by Milind Murugkar

After reading this article it rings me heavily thinking about back to my village where I did all cultivation related works for years. Briefly I was engaged in buy/sale business of paddy.

Blink-tipping-outliers

Malcolm Gladwell mantra: "I am pro-choice……... I believe in God. ………. I am a big believer in free trade. I think smoking is a terrible problem and that cigarette manufacturers ought to be subjected to every possible social and political sanction. But I think that filing product liability lawsuits against cigarette manufacturers is absurd. I am opposed to the death penalty. I hate SUVs. I think many CEOs are overpaid…" 

Professor Jagdish Bhagwati musings

G Srinivasan writes with notes from Prof Bhagwati lecture:

• The proposed creation of a national database of identity details of Indian citizens under Mr Nandan Nilekani, he said, should take “the political corruption out of the public distribution system and in the employment guarantee scheme, besides reducing bureaucratic corruption by bypassing the low-level bureaucrats who refuse to give you what you need unless you grease their palms”.
• He said science and technology should be increasingly harnessed in the growth process to help the poor.
• In his remarks, the Vice-President, Mr Hamid Ansari, described Prof Bhagwati as an ardent advocate of free trade and democratic values as being important to ensure sustained growth and social justice.
• The Prime Minister, Dr Manmohan Singh, recalled his 50-year-old association with Prof Bhagwati from his Cambridge years and said that he was the architect of the World Trade Organisation.
• He said Prof Baghawati questioned the licence-permit raj which his government dismantled in the 1990s, when India introduced economic and trade policy reforms.
• He said thanks to the reforms India ushered in, there was now a reverse flow of investment, production and expertise and the so-called brain-drain had been happily converted into ‘brain gain' for India.

Without restraints, move n

Classical economic theories, validated by long-term experiences from across the world, teach us that unrestricted capital and labour mobility are fundamental for efficient allocation of scarce resources. Such unhindered labour migration, in search of the most suitable economic opportunities, enables frictionless matching of supply and demand, and ensures efficient labour market outcomes.

M K Gandhi on Free Trade!!

When I get time to read long essays, other than the daily reading of newspaper, magazine, blogs etc I dwell on Universities/institutions working papers on development economics and Indian economics.

The recent one which I read is “Indian Planning and Development Economics” by Lawrence H. White published on August 31, 2010. This is a Working Paper (No. 10-53) and is Chapter 10 from The Clash of Economic Ideas his 2008 book.

No doubt this paper would add some value addition to the subject but there are some serious and dangerously wrong interpretation and misunderstanding in this paper. Let me say the following two of course the second is a little minor one! But the former is really a big misunderstanding!

Mr.White writes:

• “In sharp contrast to Adam Smith, who had recommended ending such transfers by instituting free trade between former British colonies and Britain, Gandhi called for ending trade. He favored a form of national selfsufficiency for India bordering on autarky.” (p.320)

• “Jairam Ramesh, India‘s finance minister 1996–98, notes that western advisors strongly supported Nehru‘s planning efforts”: (p.327)

Let me take the second one first. India’s Finance Minister during 1996-98 was P.Chidambaram not “Jairam Ramesh”. For more see 1 2.

On the point of “......Gandhi called for ending trade.............” In absolute sense Gandhi was not against of free trade per say! He in fact said the following:

• “To reject foreign manufactures merely because they are foreign and to go on wasting national time and money to promote manufactures in one’s country for which it is not suited, would be criminal folly and a negation of the Swadeshi spirit. A true votary of Swadeshi will never harbour ill-will towards the foreigner; he will not be moved by antagonism towards anybody on earth. Swadeshism is not a cult of hatred. It is a doctrine of self-less service that has its roots in the purest ahimsa, that is, love” (1931) (From Yeravaa Mandir, 1957, p. 66).

M.K Gandhi also wrote in Young India:

• Q. What is your opinion about the importation of foreign goods other than cloth into India? Are there any foreign commodities which you would like to see immediately under prohibition? What do you think should be the nature of India's foreign trade in the future?

• A. I am more or less indifferent with regard to trade in foreign goods other than cloth. I have never been an advocate of prohibition of all things foreign because they are foreign. My economic creed is a complete taboo in respect of all foreign commodities , whose importation is likely to prove harmful to our indigenous interests .This means that we may not in any circumstance import a commodity that can be adequately supplied from our own country . For instance I would regard it a sin to import Australian wheat on the score of it's better quality but I would not have the slightest hesitation in importing oatmeal from Scotland, if an absolute neccesity for it is made out, because we do not grow oats in India. In other words I would not countenance the boycott of a single foreign article out of ill will or a feeling of hatred. Or to take up a reverse case , India produces sufficient quantity of leather , it is my duty therefore to wear shoes made out of Indian leather only , even if it is comparatively dearer and of an inferior quality in preference to cheaper and superior quality of foreign leather shoes . Similarly I would condemn the introduction of foreign molasses or sugar if enough of it is produced in India for our needs. It will be thus clear from the above that it is hardly possible for me to give an exhaustive catalogue of foreign articles whose importation in India ought to be prohibited. I have simply indicated the general principle by which we can be guided in all such cases. And this principle will hold good in future too as long as the conditions of production in our country remain as they are to-day (Young India, 15-11-28. p.381).

Global Millennium Free Trade (GMFT)

Shashi Tharoor writes in todays HT that one thing important for achieving MDG 8 is to unleashing the trade.

• Trade is the other key area. In contrast to aid, greater access to the markets of the developed world creates incentives and fosters institutions in the developing world that are self-sustaining, collectively-policed and inevitably with greater consequences for human welfare. In other words, the average tariff levels in the developed world would mean more over the long run than generous aid packages alone. Many countries wish to trade their way out of poverty, but are prevented from doing so by high tariff barriers, domestic subsidies and other protections enjoyed by their competitors in the rich countries. Such practices have to change.

The State failure harm more than anything else

Dsylexic asked me to comment on the issues raised in the piece on “A Recipe for Famine” by Girish Shahane in the Yahoo! Column published on September 20, 2010. At the outset I would like to confess that it is very easy to rubbish Girish’s article. But what he has understood and what he has not is the different views expressed by mainstream economists and others (like Prof.S Ambirajan). The comparative picture of both the sides needs to be considered first and understood.

It is not surprising to me that when Girish quotes or take references persons like Amartya Sen, Ajit Kumar Ghose, Jayati Ghosh etc. All these people are socialists without doubt. In the hurry to write his piece he has completely misunderstood what the free market system is and the history of famine in pre-independent India and it further seems to be that he has paid no attention to what other side of the coin was and how that had been described.

I have no doubt as I have read the marvelous book (Classical Political Economy and British Policy in India) more eloquently written by Professor S. Ambirajan. I am sure by all means that if Mr Girish reads only the Chapter Two of this book I would come to know how foolish it is to conclude that “The free market solution, however, would be considerably more damaging than even the Supreme Court's order.”

In fact I don’t think Girish understood anything from the Prof. Basu’s recent paper on The Economics of Foodgrain Management in India (pdf).

If I wanted to quote from Prof. Ambirajan’s book it would be the whole portion of Chapter Two and it is extremely interesting to read the chapter and ponder over it how the famine polices were debated, understood and practiced with regard to free trade, intervention, free market system etc. Even more interesting is the unfolding of famine polices in different Presidencies. There was no 'one size fits all' policy for the country as a whole as Girish understood one size actually fits all over the country.

Also read:

1. Famines in India and free market

Faire trade or free trade

The Destructive Fair Trade Movement By Adam Shaw

Distance dream of free trade with our lost neighbour

There is no doubt that it is much easier for a communist-party controlled government like China’s to sign FTAs than it is for a democratic government like India’s. The Indian government, almost by definition, has to be more sensitive to public opinion and negotiate its way carefully taking into account special domestic interests, that may be opposed to FTAs. The reason why India took a longer time to conclude its FTA with ASEAN was because of the Indian farm sector’s protest over products such as fish, rubber and palm oil. India may never be able to catch up with China but it can at least start moving in the direction of significantly improving its ties with its neighbours.

The forgotten American ice trade with India

There is a very interesting article in the present issue of Pragati The Indian National Interest Review by Jayakrishnan Nair:

Some excerpts (highly recommend reading full article):

• He was even jailed a few times for being in debt.

• On May 12, 1833, under the captaincy of Littlefield, the Tuscany set sail for Calcutta. Tudor did not go on the ship, but instead had William Rogers as his agent. During this long journey, the crew bathed in sea water, ate dinner of pea soup, goose and cranberry sauce and plum pudding. For meat they carried pigs, goat, geese and chickens which was supplemented with shark caught from the sea. When a ship passed by, they sent messages to family members.

• The slush was available for six weeks at a rate of 4 pence per pound and now pure Boston ice—so pure that it astonished scientists like Michael Faraday—was available all year around for three pence a pound. Tudor also had a subscription model which helped him sell ice faster: if you bought one ton every day, the price was halved.

• After falling out with his partners—Austin and Rogers—Tudor sent another ship with 150 tons of ice, 359 barrels of apples, a new agent and a letter to William Bentinck asking for a monopoly in the Calcutta trade. The ship reached Calcutta after 163 days with just two tons of ice and 359 barrels of rotten apples. It seemed as if the end was near, but what saved him was the letter to Bentinck and the enthusiasm of the British community in Calcutta.

• During those times the quantity each person could buy was reduced and if he needed more, he had to get a doctor’s certificate.

• The ice houses at Calcutta and Bombay no longer exist but the one in Madras, built in 1841, still does as a testimony to a forgotten trade.

More readings

1, 2

Learning to Love Insider Trading

Donald J. Boudreaux single handily defends Raj Rajaratnam’s insider trading.

Invisible Pirates and Indian Trade

While reviewing Peter T. Leeson new book “The Invisible Hook” Caleb Crain writes in the New Yorker:

• In May, 1694, a group of English sailors in a Spanish port grew tired of waiting for overdue wages. They cut their ship’s anchor, and the ringleader, Henry Every, slipped into the captain’s cabin. “I’ll let you into a Secret,” Every said. “I am Captain of this Ship now.” After sending ashore the captain and others unwilling to turn pirate, Every warned the world by letter that “my Men are hungry, Stout, and resolute,” and then sailed for the Indian Ocean. There his crew took two rich prizes—a ship belonging to a wealthy Muslim merchant and another belonging to Aurangzeb, the Grand Moghul of India. The loot amounted to a thousand pounds per pirate, “the equivalent of twenty years’ wages aboard a merchant ship,” Colin Woodard explains in his book “The Republic of Pirates.” The Indians, furious, held England’s East India Company responsible, and imprisoned its officers for almost a year. The success inspired imitators, including William Kidd, whose seizure, in 1698, of a cargo belonging to the Moghul’s secretary of state exasperated the Indians even further; they threatened to flay an English administrator alive. Though England turned a blind eye to the pirates’ activities for a while, it couldn’t afford to imperil trade with India, and so, at the end of the seventeenth century, it sent men-of-war to suppress the Indian Ocean pirates. Still, the dynamics of geography and trade that attracted men like Every to the Horn of Africa remain, and the opening of the Suez Canal has probably made the pickings even richer. Somali pirates prowl the same waters today.

The concluding para:

• Are pirates socialists or capitalists? Lately, it’s become hard to tell the categories apart. Toward the end of his book, Leeson suggests that pirate self-governance proves that companies can regulate themselves better than governments can, as if he sees the pirate ship as a prototype of the modern corporation, sailing through treacherously liberal waters. Such arguments haven’t aged well over the past year, but even in piracy’s golden age people were aware that an unregulated marketplace invites predators. During the South Sea Bubble of 1720, speculators claiming to be able to make wealth out of debt fleeced British investors and ruined many banks. Pirates who spent that year killing and plundering, Nathaniel Mist grumpily wrote, could salve their guilty consciences, if they had any: “Whatever Robberies they had committed, they might be pretty sure they were not the greatest Villains then living in the World.”

Can Dr Singh do a Robert Peel?

T C A on Import:

• It will, instead, try to trap domestic supplies at home by banning exports. Indeed, this is why the UPA-I pumped in Rs 87,000 crore into farmers’ pockets last year through the increase in minimum support prices. It won the election as a result.
• But if the politicians continue to see it in this way, and do nothing about rising food prices, we could have food riots soon. The time has come to stop worrying only — note, only — about the producer and start worrying about the consumer also. About 70 per cent of net buyers of food are abjectly poor and live in the rural areas, so there is a moral dimension as well.
• The Government thinks food subsidies are an answer. In a limited way, they are. But the final answer lies in increasing supply now, and not waiting for productivity to increase at some distant date. And there is only one way to do this: Import.
• In a way, therefore, the Prime Minister has to do what a British Prime Minister, Robert Peel, did exactly 150 years ago — he repealed that infamous corn laws that had been enacted in 1815 to protect British corn prices against cheap imports from America.
• This import ban had caused millions to become poorer even as their incomes rose because of industrialisation.
• In the years after the repeal of the corn laws, that is between 1850 and 1900, food prices in Britain fell continuously, as did the land under corn. Import dependence went from only 2 per cent in 1830 to 75 per cent by the end of the century. That had other adverse consequences, mainly for India and China, but food in Britain became cheap.