Connect with us

Economy

Another Nail In The Coffin Of The Russian Economy

Published

 on

The U.S. Department of Commerce decided today that Russia should be reclassified as a “nonmarket economy.” This is yet another nail in the coffin for the Russian economy.

The Biden Administration is signaling that President Putin’s kleptocracy no longer bears any resemblance to a market economy, and Russia will be subject to much higher import duties in U.S. trade remedy cases, namely antidumping duty cases. The antidumping duties on Russia to date have been concentrated in sectors that represent a big chunk of their (non-energy) shipments to the United States — metals and minerals, iron and steel, and chemicals.

In an antidumping case, Commerce determines the dumping margin, or the extent to which the product is being sold at less than fair value. To determine this, it uses prices in the exporting country as a benchmark, if that country has a market economy. But if prices in that exporting country are not set by market forces, then Commerce has free reign to use prices from another country. This usually results in a very high dumping margin, and very high duty.

For instance, if widgets sell for $10 in Russia, but Russian exporters sell or “dump” those widgets for $5 in the United States, the Commerce Department uses that information to estimate the dumping margin. But if Russia were considered a nonmarket economy, then Commerce could use the prices from, say Germany or France, where those widgets are sold for $20. As a result, U.S. widget imports from Russia would be subject to a 400% duty instead of 100%. (For more detail: “Understanding Antidumping & Countervailing Duty Investigations” by the USITC; Gary Horlick and Shannon Shuman’s article on measuring fair value.)

In March, President Biden called for revoking Russia’s Most Favored Nation status, which Congress promptly passed overwhelmingly. Under WTO rules, imports from a country with MFN status must be treated the same as every other MFN country’s goods (with an exception for the preferential treatment of free trade agreement partners). MFN is a key principle of world trading rules. Stripping Russia of MFN made imports from Russia subject to higher tariffs and trade barriers.

Sanctions imposed by a united front of most of the world’s wealthy nations in response to the invasion of Ukraine have slowly strangled the Russian economy. Energy is the big exception as Russia is pulling in more than $300 billion this year from oil and gas exports. That figure is likely to dampen over time, with Europe trying to cut back purchases from Russia. But high energy prices have been a boon to Moscow. Russia’s energy export earnings are reportedly up 38% this year, at least part of which continues to bankroll war in Ukraine.

Further nails could be coming. Last month, when ministers and central bank governors descended on Washington for annual International Monetary Fund-World Bank meetings, Canadian Deputy Prime Minister Chrystia Freeland called for Russia to be kicked out of the IMF and Group of 20 (G20): “Arsonists have no place in meetings of firefighters.”

Apparently in an effort to avoid confrontation with the United States and its allies, Russia recently announced that Putin will not attend the upcoming G20 summit in Bali (a “high-level official” will attend in his stead).

More and more of the Russian economy’s resources — labor, capital, talent, even government and policy efforts — are going toward the war. That leaves the Russian economy fewer resources to use and invest in productively. What is left over for commercial purposes is becoming increasingly isolated from the global economy.

The brain drain of Russians fleeing the country represents a decrease in human capital, and 300,000 newly mobilized working-age males have been pulled from the labor force into war efforts. Those 300,000 draftees are only a small share of the economy’s 75 million workers, but Russia’s workforce has already been shrinking for years.

The IMF expects Russia’s GDP to fall 7.6% this year. The economic reach of the war is global, and the OECD estimates the war will cost the global economy $2.8 trillion.

Additional economic sanctions by the United States over the Kremlin’s illegal annexation of four regions of Ukraine, and by the UK over Moscow’s “sham” referendums in those four occupied regions show that the West is not planning to back down anytime soon.

The new nonmarket economy status for Russia announced today is one more move by a major power that further isolates Russian firms and workers from the world economy.

Source link

Continue Reading

Economy

Alicia Planincic: It’s not just you. The Canadian economy isn’t doing as well as it looks. – The Hub

Published

 on


[unable to retrieve full-text content]

Alicia Planincic: It’s not just you. The Canadian economy isn’t doing as well as it looks.  The Hub

728x90x4

Source link

Continue Reading

Economy

Removing domestic trade barriers could boost productivity, add $200 billion to economy annually: CFIB – Financial Post

Published

 on


[unable to retrieve full-text content]

Removing domestic trade barriers could boost productivity, add $200 billion to economy annually: CFIB  Financial Post

728x90x4

Source link

Continue Reading

Economy

Here is Trump economy: Slower growth, higher prices and a bigger national debt

Published

 on

If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

728x90x4

Source link

Continue Reading

Trending