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Greg Ip of the WSJ looks at the result of changes in supply chains away from China, and the new trading relationship with China to 2028. He says the shift to a new global supply chain that diversifies it away from concentration in China is taking place. Would taking the tariffs from 30% to 60% under a new Trump administration be a good idea? Greg Ip thinks it is a bad idea as the change is gradual and is actually taking place. It may have the unintended effect of worsening US China relations essential for global stability when it is coupled with erratic or retaliatory rhetoric. Rhetoric that appears to China that it is being singled out in world trade beyond what are changes that have taken place with Japan in the past in trade. The Biden administration is for good reasons working to restore a balanced yet stable relationship with China. Apple is shifting production of 25% of iPhones to India. Samsung is investing more in Vietnam. The trade deficit with Mexico has reached $151 billion twice as large as in 2017. And $100 billion with Vietnam three times as large as 2017. The US trade deficit with China has dropped from $381 billion to $281 billion in the last 12 months, the Commerce Department reports show. And from $1.1 trillion with the whole world from $1.2 trillion for the last 12 months, 4% of US GDP. Overall the Trump era tariffs of 30% have not reduced the US  trade deficit substantially but has shifted American and European foreign investment to India, Vietnam, Mexico and other countries as well as to the home country. Over time the supply chain would become truly diversified as India makes great strides to become the third largest economy with new infrastructure by 2030. The head emeritus of the European Union Chamber of Commerce in China, Joerg Wuttke, says the pressure to export will be high for China as its economy shifts more to manufacturing from construction. Most Chinese companies are producing more than internal demand in China, and most companies in solar are losing money, in wind turbines and solar all are losing money, Wuttke says. This means China will double down and increase its investments in Mexico, Vietnam, Morocco and other countries so that it can send its products to the US through third countries that do the final export. One expert even says removing a few screws here and some there, find a different supplier, and shipping to a third party for final export that makes it not 100% Chinese content, the pressure for that is high. ...

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Riots in Riga, Latvia's capital as economic conditions worsen. The President Zatlers says he may dissolve Parliament and call for areferendum if the government does not take the necessary steps to improve economic conditions and restore confidence.

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Germany went through a period of stagnant growth and persistently high unemployment leading to reforms of the welfare system and entitlements under the Schroeder administration. The reforms led to lower unemployment benefits and an effort to get the unemployed take up jobs. Instead of unemployment benefits that amounted to half the salary indefinitely, unemployment benefits ended in 12 months under the reforms, and workers were forced to take up jobs or dig into their savings. The cuts to benefits led to more of the unemployed taking jobs that were not their first choice with lower incomes. Unions agreed to defer wage demands and wages remained relatively flat for a long period. The "kurzarbeit" system of government subsidizing employers to retain workers during economic downturns, helped cushion the workforce from ups and downs in the economy. Unemployment which was in double digits a decade ago, is now 6.1%. The system still preserved some other aspects of generous benefits- parental leave of 14 months at two-thirds salary, vacation time and publicly sponsored health insurance. Recent changes include raising the retirement age to 67 from 65. The Organization of Economc Cooperation and Development estimates that the 200,000 jobs saved in Germany during the recession of 2008-2009 cost the government $7 billion. Government funds helped companies retain workers by paying a portion of worker salaries and averting layoffs.This comes to $35,000 per job. Compare this with the $38.9 billion allocated to a loan program at the Energy Department under the U.S. stimulus. 8050 jobs were created under this program according to the Washington Post- for the money spent so far in Sept 2011- 2 years into the loan program, of $19.3 billion. This comes to $2.4 million in government guaranteed loans per job. The Energy Department says that 33,000 jobs were saved under the $5.9 billion that was given to the auto industry under this program for investments in manufacturing to improve fuel efficiency. This comes to $178,000 per job. The Energy Department and Congress estimated a 5%-10% loss on the $38.6 billion loan program for loans that go sour, such as the Solyndra solar company $535 million loan. This comes to $1.9 billion at 5% loss and $3.8 billion for a 10% loss. The purpose of these figures is to show the cost of programs when the programs fail to achieve job goals or produce too little for the investment. The $3.8 billion loss under the program is over half the $7 billon Germany invested for the 200,000 jobs saved as estimated by the OECD. That ranks as a far superior investment than the Energy Department program. For the U.S. there are aspects of German reforms such as "kurzarbeit" that bear emulation, with serious questions about the effective use of the U.S. stimulus funds. For the rest of Europe the stingier unemployment benefits, raising the retirement age to 67, and other reforms send a different message. From the average German the message is: we made the tough changes, the rest of Europe cannot expect Germans to pay higher taxes while they put off similiar changes. Italy needs to change its retirement age, just as the Germans have done. As Chancellor Merkel puts it: "People in countries like Greece, Spain, Portugal shouldn't be able to retire earlier than in Germany. It's important for everybody to put in effort to make it roughly equal. Germany will only help when others really make an effort." Which is why Greece, Spain, Italy, even France are faced with making serious changes. This isn't stalling when it comes to euro bonds, from the German perspective. And it isn't about the lack of committment to the idea of a European Union, as all major political parties in Germany, the CDP, the SDP and the Greens, all strongly support the idea of a European Union. ...

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Response to question whether this $100 a barrel oil is possible is yes, if something big happens in the oil flows from middle east or if there is a Katrina style hurricane. Reason being that oil demand has not slackened up either from Asia or from the U.S. automobiles. How would this impact the USA, Europe, Asia? The impact on Japan and Europe would be less because of the high efficiency in use energy use. This could slowdown the U.S. economy considerably as gasoline approaches $5 a barrel. India would be hurt with a drop in GDP growth from 8% to 6% according to an estimate by Crisil, Mumbai. It would affect Chinese growth also but the main impact would be indirect through a decline in the U.S. market for Chinese made products. Russia would gain and economic growth there could accelerate further from 6% to 9% according to estimate by MDM Bank, Moscow.

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The U.S. Federal Reserve announced on Dec. 13, 2016, that it would increase its benchmark short term interest rate by 0.25 percentage point, to between 0.50% and 0.75%. The increase will also be reflected in business and household borrowing costs. The Fed also announced its intention to make 0.75% percentage point increase in 2017, possibly in 3 quarter percentage point moves. The Fed's forecast is for the fed-funds rate to reach 2.1% at the end of 2018, and 2.9% at the end of 2019. The Fed's policy is based on a sense of strong labor market with unemployment falling, and says it is based on discussion at a 2 day meeting, and "in view of realized and expected labor-market conditions and inflation." This reflects a view that there is now not that much slack in the labor market, that further improvements could trigger higher inflation. Fed forecasts for inflation are for it to increase from 1.5% in 2016 to 1.9% in 2017 and to the target of 2% in 2018. The unemployment rate of 4.6% in 2016 is forecast to go to 4.5% in 2017 and remain at that level till 2019. Economic growth is forecast at a median annual rate of 1.9% in 2016, 2.1% in 2017, only a slight improvement from last forecast in Sept. 2016. Support for chairwoman Yellen's policy decision was unanimous. See the link on views of NYT's Binyamin Applebaum and Neil Irwin on how Fed rate policy and economic growth under the Trump administration is likely to play out, and Ian Talley's report on impact on exports with a stronger dollar in WSJ. These views also are in line with the Fed's forecasts and policy decision as they reflect the concerns of the Fed about inflation, and also reflect the Fed's view that growth will be close to 2% in 2017-2019, and not the 3-4% stated by Trump and Treasury Secretary Mnuchin. Fed rate policies to keep inflation at about 2% tend to counter stimulus spending by the Trump administration and effect of tax cuts. The size of the stimulus and the tax cuts are also likely to be much smaller than stated because of Republican concerns about the deficit in the U.S. Congress, according to these views. The stronger dollar also has the paradoxical effect of making trade gains more difficult while increasing trade friction in tougher bargaining supported by Trump, making the higher growth targets harder to reach.   ...

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G7 finance ministers meeting leads to setting up joint principles such as ensuring customer deposits are safe, buying bank equity stakes with capital injection, and doing nothing that would harm the interests of other countries in the global economy, but policy actions were left to the individual countries to decide based on the unique circumstances in their country.

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Constraints to future Argentine growth would be from the lack of access to credit from the banking sector for private sector businesses. Bank lending to the private sector is only 13% of GDp compared to 36% in Brazil. It is a result of the deep financial crisis Argentina suffered in 2003.

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Japan's prime minister Abe calls a snap election for Dec. 2014.

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An assessment of Brazil compared to the other leading emergig market countries Russia, China and India, shows that Brazil has a lot going for it. Compared to Russia and China, Brazil has a stable multiparty democracy. And the differences between the countryside and the urban areas is not quite as large as it is in China and India. Surprising as it may appear about 83% of Brazilians now live in cities. And the process of urbanization that is taking place in China and India took place much earlier in Brazil. Between 1940 to 1980 industrialization and a growth rate that averaged 7% for most of that period brough large numbers of people from rural to urban areas. And the problem of inflation which wracked the economy from 1986 to 1994 before being brought under control is now well under control at about 4.7%. Debt problems from the Asian crisis contagion effects are now behind it as Brazil is a big exporter of commodities from coffee, soyabeans, orange juice to iron ore, with the real strengthening from 68 as measured in the currencies of its trading partners in 2001 to 100 today. Brazil's growth rate has reached 5.4%. and has been at an average of 4.5% since 2004. Between 1980 and 2000 Brazil's growth was in a slump so this has been a period of great changes in Brazil. Brazil is importing more plant and equipment with a stronger currency and booming exports. Brazil invests 19% of GDP according to Vale of MB Associados and that number should reach 25% of GDP at which point it would be easier to maintain a growth rate of 5% a year. With consumer credit growing at 25% each year for the last 2 years consumption is growing. And Brazilian companies were the second largest source of foreign direct investment in developing countries after China, according to the Fundacao Dom Cabral, a business school, and Columbia University, with the stronger real helping the balance sheets of Brazilian companies. The big change is that under the Lula government Brazil has done much better for the working classes and the rural poor. The Bolsa Familias is a program of cash transfers to poor people under the poverty line but which has strings attached so that they are required to send their children to school and have them vaccinated. It reaches 11 million families and is considered a major success in reducing poverty and in helping to see that poverty is not passed on from generation to generation. A program that may be copied in India. Acccording to the Observador Brasil/ Ipsos survey 23 million Brazilians have left social classes D and E and joined class C which means that they can have a rented apartment, a car and some gadgets. This give more confidence in Brazilian democracy and capitalism as more of society's diverse groups have a stake in the future....

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The Nikkei Stock Average reaches 20868 on June 24, 2015, the highest level since December 5, 1996. The Japanese yen is at 123.83, a level which boosts the prospects of exporters. Since October the Nikkei has received support from buying by the large government pension fund, a weak Japanese yen, and buying by foreign investors.

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Another useful piece giving insights to the way China has approached the economic development tasks and what this means for the future. China's development is very capital intensive because the cost of capital is really low. Inputs like land and energy costs are also kept low by the government. Cost of labor is low and this has resulted in the share of wages as a percentage of GDP to drop from 53% in 1998 to 41% in 2005 and it is dropping further. In America wages to GDP is 56% and includes investment income which in China is lessthan 2% but much larger in the USA. The pool of surplus labor in China does work to depress wages. The percentage of consumption to GDP in China has fallen from 47% in early 1990's to 36% in 2006, the lowest of the large economies. But this does not reflect a higher savings rate. In fact the household savings rate also has fallen as a percentage of GDP. According to World Bank's Beijing office this has fallen from 21% in mid 1990's to 15% in 2006, relative to personal disposable income it has fallen from 30% to 25%. This is lower than India's household savings rate. So what is going on. The Economist points to the lower share of wages as a percentage of GDP because the large pool of surplus labor has depressed wages from where they might otherwise be so that consumption is not where it could or should be for China to move away from manufacturing led export driven economy to one that depends on the domestic market for growth. Higher consumption and a bigger domestic market would make it easier to sustain strengthening of its currency, a key demand of western countries. This would also provide a fair deal to millions of migrant workers and reduce labor unrest. It would also reduce pollution as the economy would not be focussed on production at all costs. It appears that the existing model has worked well for China in bringing millions of people from the villages into cities and growing manufacturing industries, and in urbanizing China. But China is so large that there are millions another 200 million who would migrate from villages and rural areas into cities as migrant labor to 2020 according to what the Government envisions ( see article in this issue of the Economist "Barefoot Doctors"). But this model needs fixing or changing as the pollution costs are already severe and can prove catastrophic if continued, and the western countries are demanding strengthening of the yuan to correct imbalances in the trade deficits as a result of this model of development focussed on manufacturing and export industries and short on consumption in the domestic market enough to drive the economy. ...

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Rauhala cites an email from Apple CEO, Tim Cook, saying updates he gets about performance in China every morning show strong growth for Apple's business for July and August. China's retail sales are up 10.4% for the first 7 months of 2015, according to the National Bureau of Statistics. The services sector as a whole showed growth of 8.4% in the first half of 2015, and it now makes up 49.5% of GDP, according to government statistics. Overall economic growth is about 4-5%, as the 7% official figure is considered overstated. Zhao Longkai, the executive director of the Beijing Univerisity Guanghua School of Management, says the retail sector should not be affected that much because losses are largely limited to a small number of wealthy investors, though some ordinary retail investors are affected, with overall stock market participation quite low compared to the U.S. and Europe. This and other expert opinion points to a situation of slower growth and debt overhang from the last stimulus, but not a strong connection between the stock market and the economy. The government's credibilty is affected by the failed intervention in July and this time during the sharp declines on August 24-25 the government is letting the market finds its own level, believing it will be better for markets and let them stabilize. ...

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Public opinion in Germany now senses that politicians including Angela Merkel are reluctant to tell Germans that debt reduction has to be part of the solution for Greece, that some of the billions are lost and never coming back. They sense that Merkel and the Christian Democrats are waiting till after the elections in 2013 to bring this up directly. Even people on the street in Berlin know that Greece can never get back on its feet on the basis of spending cuts without debt reduction. The loan instalment approved in Nov. 2012 reflects the new approach of debt reduction but the German government is reluctant to talk about it. Opposition parliamentary leader Frank-Walter Steinmeier of the Social Democrats told ZDF German television: "The debt cut has not been avoided, it has been postponed to a time after the parliamentary elections. We are realistic and try to tell the people honestly and sincerely whats going on. Schauble and the present government try once more to finagle their way around the truth." Greece's debt has already reached 170% of GDP and can only go up as the economy shrinks further in year after year of recession. Norbert Barthle, a senior Christian Democrat, says if the debt reduction takes place today it sends the wrong signal to all the program countries, reducing the pressure for reforms and changes....