Tag Archives: trade

illegal oil trade

This article from Yale says there is a large illegal trade in oil. My first thought was that if countries or companies are producing oil, don’t they have the right to sell it to whoever they want? It turns out, oil is being stolen and sold by groups or even individuals who are not the actual producers in some cases, and in other cases it is being smuggled or laundered by producers who are under international sanctions.

In some cases, subnational actors openly export oil despite official prohibition by central governments. The Kurdistan Regional Government in Iraq maintains it is their region’s constitutional right to export oil independently, in defiance of the central government. With Baghdad withholding the region’s 17 percent of budget share, the regional government sought economic independence through hydrocarbons and found a degree of international sympathy, given its role in combatting ISIS and hosting 1.9 million refugees and internally displaced people. The unrefined product was sent via pipeline through Turkey’s Ceyhan port, loaded by various Greek shipping companies on tankers, then stored in Malta or Israel until buyers were found. Shifting routes of Kurdish oil tankers can be observed on sites like tankertrackers.com…

With 90 percent of the world’s goods, 30 percent of which are total hydrocarbons, traded by sea, much of the illegal fuel trade is conducted on water. Two thirds of global daily oil exports are transported by sea, reports the UN Conference on Trade and Development, and a staggering 64 percent of international waters are areas beyond any national jurisdiction. Non-state actors offshore West Africa, Bangladesh or Indonesia take advantage of loopholes created by international law and the law of the sea. Transfer of illegal fuel is often done ship to ship on neutral waters – with one ship commercially legal, recognized as carrying legitimate imports at the final port of destination. Thus, illegal crude from countries such as Libya or Syria finds its way to EU markets.  Recently Russian ships have been found involved in smuggling oil products to North Korea through ship to ship transfers.

Armed theft and piracy also occurs. Hijackings off the coast of Somalia resumed in 2017, the first since 2012, after the international community reduced enforcement. Beyond jurisdictional issues, many governments are overwhelmed by other maritime security threats and cannot prioritize the illegal trade. In fact, fuel traders have reported that the problem is so pervasive that many companies calculate in advance for losses up to 0.4 percent of any ordered cargo volumes.

 

WTO withdrawal could spark recession…or not

Axios quotes economists who think a U.S. withdrawal from the World Trade Organization could spark a recession…and economists who do not.

Thus far, Trump has mostly damaged U.S. prestige with his anti-globalization actions, including withdrawing from the Trans-Pacific Partnership and the Paris climate agreement, as well as threatening to pull out of NAFTA. He’s also caused global stock markets to gyrate by imposing tariffs on Canada, Europe, and China; and oil prices to rise by pulling out of the Iran nuclear deal. But “the financial shock would be very, very large” should he withdraw from the WTO, said Gary Hufbauer of the Peterson Institute for International Economics…

“Business confidence in the system would be severely shaken,” Hufbauer told Axios, and there would be “quite a hit” to long-term investment in plants and equipment. “You don’t need much of a slowdown in these areas, and you have recession…”

The White House seems to be showing little understanding of the WTO’s history, originating in 1947 along with the World Bank and the International Monetary Fund as vehicles to prevent any future global war by buoying the economies of the world.

Not everybody likes the WTO, but it seems to be the best of many imperfect options for resolving trade disputes, and for not letting trade disputes escalate to be about more than trade.

U.S. recyclables sent to China

I had no idea this was going on, but it turns out a lot of what I put in my curbside recycling bin has been sent to China. According to Bloomberg it works something like this: Because of the large trade imbalance between the U.S. and China, container ships that bring manufactured goods from China to the U.S. would end up going back to China empty. Rather than doing that, they are willing to take recyclable trash back to China to next to nothing. And Chinese factories are very happy to have it as raw materials to manufacture more things to send to us. An interesting implication, to me, is that the volume of trade between the two countries must be roughly equal, but the weight and dollar amount must be very unequal.

Another interesting factoid is the top export categories (from the U.S. to China) by dollar amount:

The U.S last year exported more than 37 million metric tons of scrap commodities valued at $16.5 billion to 155 countries, said Adler of the Institute for Scrap Recycling Industries. China accounted for almost one-third of that total—about $5.2 billion.

By comparison, the top two export categories to China in 2016 were miscellaneous grain, seeds, and soybeans ($15 billion) and aircraft ($15 billion).

The focus of the article is actually that China is changing its rules to require cleaner materials before it will accept them, and that could disrupt this market. How dare they! I also heard on the fake news that giant killer hurricanes are actually a hoax created by the Chinese government.

Brexit

Well, I suppose I have to write a Brexit post. The main argument seems to be that the combined UK-EU economy, with free trade and movement of people and money, was larger than either the UK or EU will be separately, and that is going to hurt both while also emboldening Russia. It seems to me that they could just negotiate some treaties to keep most of that in place, at least free movement of trade and capital if not people, but it sounds like politics may get in the way of that because some in the EU will think if they do that, it will embolden others to leave. But there is at least an argument that it could strengthen the EU in the long term.

In the immediate future, the EU will face a serious dilemma. If it allows Great Britain to withdraw from common structures only to a limited extent, it would signal to all Euroskeptics that they can do as they please. But if EU leaders impose high costs on the UK – namely, by restricting its access to the single market – Europe could end up cutting off its nose to spite its face.

The tragedy of today’s situation is that the EU could still save itself and come to its senses. It could compensate for the losses caused by Brexit by transforming the current crisis into an opportunity for true integration – something that up until now had been blocked by the UK. Such an exercise in renewal would demand that EU institutions be granted real authority to create common fiscal, defense, and energy policies, while at the same time pursuing democratization (along the lines of “one citizen, one vote”).

Under this scenario, Europe could finally emerge as a strong actor in international affairs. It could be the world’s third-largest country, with English, ironically, as its administrative language – the United States of Europe. But, sadly, the political will to achieve such an outcome is unlikely to emerge – if it ever does – until conditions in Europe become considerably worse than they are now.

free trade

I just thought I would counter yesterday’s discussion of “blowback economics” with a typical pro-trade argument from a mainstream economist, in this case Kenneth Rogoff at Harvard:

The rise of anti-trade populism in the 2016 US election campaign portends a dangerous retreat from the United States’ role in world affairs. In the name of reducing US inequality, presidential candidates in both parties would stymie the aspirations of hundreds of millions of desperately poor people in the developing world to join the middle class. If the political appeal of anti-trade policies proves durable, it will mark a historic turning point in global economic affairs, one that bodes ill for the future of American leadership…

The right remedy to reduce inequality within the US is not to walk away from free trade, but to introduce a better tax system, one that is simpler and more progressive. Ideally, there would be a shift from income taxation to a progressive consumption tax (the simplest example being a flat tax with a very high exemption). The US also desperately needs deep structural reform of its education system, clearing obstacles to introducing technology and competition.

Indeed, new technologies offer the prospect of making it far easier to retrain and retool workers of all ages. Those who advocate redistribution by running larger government budget deficits are being short sighted. Given adverse demographics in the advanced world, slowing productivity, and rising pension obligations, it is very hard to know what the endgame of soaring debt would be.

Like I said, I am still thinking these things through. I find the mainstream economic arguments very elegant and appealing, but clearly they haven’t led to the promised gains for everyone in either the developed or developing countries. I am suspicious of the trickle down claims, although I have spent time in so-called “middle income” countries in Asia and I can’t deny that even the relatively poor have made huge gains in areas in health, nutrition, and life span, even if monetary incomes are lagging. The fact that things are better than they used to be doesn’t mean they are as good as they could be. I would like to hear more details about these training technologies and education reforms that are going to make everyone competitive in the global economy – when are they going to be rolled out, how and by whom? Or if there is not a plan yet, who exactly is working on one?