Marc Levinson

Tag: Trade

  • A Different Forecast

    Those who follow international trade pay close attention to forecasts of economic growth, consumer spending, and business investment. No surprises there: it seems obvious that if consumers are spending freely, imports will be in greater demand, while if a country’s economy is headed downward, its appetite for foreign goods will wane.

    A new report from the United Nations Conference on Trade and Development, released in early December, requires a rethinking of the forces driving trade in goods. Since the global financial crisis struck in 2008, UNCTAD finds, the volume of trade has generally moved in tandem with the global financial cycle, except during the COVID-19 pandemic.

    UNCTAD’s findings draw a measure of the global financial cycle developed by economists Silvia Miranda-Agrippino and Hélène Rey. Their measure incorporates hundreds of time series covering things like interest rates, cross-border capital flows, and leverage of major banks. UNCTAD finds it to be highly correlated with the volume of trade, showing that “Global financial conditions and world trade are heavily interlinked.” It adds, “many economic textbooks do not consider this dimension when they discuss the determinants of trade flows.”

    This work yields some surprises. It shows, contrary to conventional wisdom, that when the U.S. dollar strengthens against other currencies, the impact on U.S. imports is negative, not positive. It also finds that a rise in the VIX index of U.S. share-price volatility triggers an immediate global decline in trade as firms hunker down in the face of unstable economic policies. While trade in commodities and energy products doesn’t move with the financial cycle, trade in containerized freight and motor vehicles is highly correlated — suggesting a relationship between financial markets and freight rates that trade watchers might want to examine more closely.

  • Cross-purposes

    President Trump, as he has made clear, wants to shrink the U.S. trade deficit. For that reason alone, it’s mystifying that his administration is attacking a sector of the economy in which the United States enjoys a substantial trade surplus.

    I’m talking about education. The administration has decided to crack down on foreign students in the United States by making it harder to get student visas, scouring social media to identify scholars it thinks should be excluded, and revoking thousands of visas of students who’ve been in the country for years. “A visa is not a right. It is a privilege,” Secretary of State Rubio pronounced on May 20.

    Of course no student has a right to a visa. But in addition to other undesirable effects, such as driving away talented scholars who could contribute to U.S. prosperity, clamping down on foreign students directly conflicts with another Trump priority: reducing the U.S. trade deficit. In 2023, the United States ran a $41 billion surplus in education-related trade, most of it due to foreign students’ living expenses and tuition payments at U.S. universities. If fewer foreign students come, either because they can’t get visas or because they choose friendlier destinations, U.S. educational exports will shrink, eliminating jobs in the process.

    As I argue in Outside the Box, the next phase of globalization will have more to do with trading ideas and services than with transporting goods in container ships. By discouraging trade in educational services, the U.S. risks missing the boat.