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Term Spreads as of Noon Today
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World Economic Outlook Update: On Trade Policy Risks
From Maury Obstfeld, IMF, Chief Economist, today:
…the risk that current trade tensions escalate further—with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth. Global current account imbalances are set to widen owing to the United States’ relatively high demand growth, possibly exacerbating frictions. The United States has initiated trade actions affecting a broad group of countries, and faces retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others. Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020. As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.
Trumpist Economic Discourse…and the Provision of a “Cliff’s Notes” Version
On reading my admonition to consult my paper with Oli Coibion, reader Ed Hanson writes:
Do you really have a problem explaining to those who can not follow your paper? I hope you do not teach undergraduate beginning economic courses. Unless. of course, your intention is to decrease economic understanding in the world. But then again, I suspect that exactly what you want, because only the economic illiterate and the power elite could support socialism.
Interpreting Evidence on Forecasting Capabilities of Futures Relative to Other Methods
Despite provision of numerous references, reader CoRev writes:
… it’s a big IF that soybeans futures are LONG TERM predictors at all.
I find skepticism of forecasting capabilities usually justified. However, when that skepticism is not supported by any citations, I consider such skepticism self-serving. Hence, I am going to go step-by-step for those who are not familiar with econometric methods and assessment metrics, in the hopes of educating people about the challenges of systematic prediction. Here I use as an example soybeans.
The Last Post on July 2018 Soybean Futures
Because they expire today! And at this time, barring transport costs, etc., the futures and spot prices should converge. At 814, they are down 22.4% from levels recorded in late May.
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“The (Import) Taxes of August”
(With apologies to Barbara Tuchman.)
From Bloomberg, “U.S.-China Trade Talks Grind to a Halt”, in the wake of the announcement of $200 billion additional in taxable imports:
High-level trade talks between the U.S. and China have ground to a halt as the Trump administration threatens to escalate a trade war that shows little sign of abating, according to five people familiar with the matter.
Under what conditions does “Trade Is war but by another means” make sense?
That’s a comment made by an Econbrowser reader. Initially, I thought this was the stupidest thing that had been written since Don Luskin decried recession doomsayers in September of 2008. Upon reflection, I still think it’s pretty stupid, but the statement could be better re-written as “Trade can be war by other means.”
The Administration Proposes Another $200 bn Taxable Imports of Chinese Goods
The announcement of proposed items is here. From the announcement:
USTR and the interagency Section 301 Committee carefully reviewed the public comments and the testimony from the public hearing. USTR and the Section 301 Committee also carefully reviewed the extent to which the tariff subheadings in the April 6, 2018 notice include products containing industrially significant technology, including technologies and products related to China’s “Made in China 2025” industrial policy program.
Steel Prices Pre- and Post-Section 232 Tariffs
Reader Bruce Hall writes:
Just noticed that steel prices have generally fallen over the past 6 months. https://www.marketwatch.com/investing/index/steel?countrycode=xx . …
Mr. Hall seemingly links to a stock price index, rather than the price of steel. No matter; here are two relevant series, as compiled by the St. Louis Fed.
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Notes from the Ag Trade War: Soybean Futures
Soybean futures prices for July have been falling since early March, ever since Mr. Trump announced imminent Section 232 sanctions on steel and aluminum imports. Is the drop coincidental, weather/harvest condition driven, or trade policy driven?
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