Tag Archives: Manufacturing

On the US-German Trade “Imbalance”

Paul Krugman argues that the bilateral trade position is irrelevant.

And he summarizes potential explanations:

… one theory of imbalances is macroeconomic: countries that save more than they invest will run surpluses, countries that invest more than they save will run deficits. …

But … [t]he bilateral imbalance is a lot bigger … The other story … is about “triangular trade.” Here’s my version: think of a world containing three countries, Spendthriftia, Austeria, and Petrostan. The first two mainly sell manufactured goods, which are differentiated products so there’s a lot of two-way trade. The third sells raw materials, which it trades for manufactures. However, Spendthriftia also produces a lot of raw materials, e.g. by fracking, which makes it relatively less reliant on imports. What we would expect to see here, even if each country’s overall trade was balanced, would be a pattern of bilateral imbalances: Austeria running a deficit with Petrostan, Spendthriftia a surplus with Petrostan, but Austeria running a surplus with Spendthriftia. …

… [Moreover] I suspect that part of the US-Germany bilateral imbalance is an optical illusion, brought on by transshipment. … we do an awful lot of trade with the Netherlands, and we run a huge surplus in that trade … Surely this represents US exports unloaded at Rotterdam or Antwerp and then shipped on to other EU destinations, including Germany. I’m not sure why German exports to the US don’t go the same route …

Who Voted for Brexit?

In a CEPR Discussion Paper, Sascha Becker, Thiemo Fetzer, and Dennis Novy argue that education and income mainly explain voting outcomes. In the abstract of their paper, the authors write:

We find that exposure to the EU in terms of immigration and trade provides relatively little explanatory power for the referendum vote. Instead, … fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their education profiles, their historical dependence on manufacturing employment as well as low income and high unemployment. … within cities, we find that areas with deprivation in terms of education, income and employment were more likely to vote Leave.