GED Under the Radar – May Edition

Every month there are some economic stories that fall through the cracks. In this segment,  the GED Team will present to you those economic stories, which we found most interesting each month but felt received less popular media attention than they actually deserved. These stories can come from all over the world. They can be relevant and important for the global economic system as a whole or just affect a select group of few, they can be serious or they can be humorous. In any case they will be interesting. This is “GED Under the Radar”!

May’s Radar Stories in Short:

• Could TTIP Make a Comeback?
  
• The Historic Growth Streak of the U.S. Job Market
  
• Japan’s Trade Policy and its Lingering Potato Chip Crisis
  

Is the TTIP Ready for a Comeback?

Donald Trump isn’t exactly known for his consistency on policy matters and even though the general tone of his administration regarding trade is one of protectionism, one can never be exactly sure what the President’s stance on a topic will be the next week. Only recently Trump abandoned one of his most central campaign promises by stating the US would in fact not abandon the North American Free Trade Agreement (NAFTA) but would instead work on improving the existing deal. But could the Trump administration even go as far as to revive talks on a trade deal long thought dead by both negotiation sides?  The talk of course is of the Transatlantic Trade and Investment Pact – or TTIP for short – and indeed a revival of the talks for the mega trade deal could be just around the corner according to US secretary of commerce Wilbur Ross.

Negotiations of the deal that would largely harmonize US – EU trade broke down after Trump’s election in November 2016. Initially aiming to cut all ties with mega deals such as TPP, NAFTA and the TTIP, Trump’s plan was to focus on individual bilateral agreements with key trading partners instead. The overall aim of those deals should be to reduce the US’ immense trade deficit. At least as far as Europe is concerned, however, this is not an actual option as states within the European Union do not have the legislative power to negotiate individual trade deals. Still, if the US truly wants to combat its overall trade deficit it can hardly go around the EU as the US-EU deficit is the currently second largest deficit for the US, second only to that with China. In 2016 the trade deficit with the EU amounted to a total of $146.3 billion for the United States of America.

Brokering a deal with China could prove highly complicated and even more time consuming though and so a revival of the TTIP could be the best remaining option for Trump’s administration. Just this week on May 31^st Ross told a CNBC broadcaster that “it makes sense to continue TTIP negotiations and to work towards a solution that increases overall trade while reducing our trade deficit”. However, while the US certainly seems to show renewed interest in the deal, this by no means guarantees a future for the agreement. Taking up TTIP talks again would almost certainly only have second priority for the US right now as the renegotiation of NAFTA poses a much more prominent political goal for the administration and even when talks continue, TTIP still faces heavy criticism from the populous both in the US and especially in Europe.

America’s Historic Job Growth Streak

In October 2010 the US unemployment rate stood at 9.4 percent, a figure that would have been even higher if the government had counted the millions of Americans who had at that point given up looking for work in the aftermath of the 2008/09 financial meltdown. Today the rate of unemployment is as low as 4.4 percent and economists begin to question how much lower unemployment can actually still go. In between October 2010 and now lie 79 straight months of continued job growth; by far the longest such streak on record.

Monthly Net Change of Jobs in the US in Thousands

As this graph by the American Bureau of Labor Statistics shows, job growth in the US has been remarkably steady over those last near 7 years. Even with some months’ numbers dropping close to contraction, the job market has continuously bounced back as can be nicely illustrated by the previous two months. While hiring in March slowed down considerably to just 79,000 new jobs, US employers went on to add a whole 211,000 new jobs in April.

How much longer this streak can eventually last however, is unclear and there are in fact signs that the recovery by now is already reaching into the remotest corners of the job market. The recent drop in the unemployment rate seems to have been especially concentrated among less educated workers, indicating that now that fewer Americans remain looking for a job, employers are hiring those people they might otherwise have overlooked. For now though job growth remains strong in the US and economists keep counting how many more months can be added to this already historic streak.

Japan’s Lingering Potato Chip Crisis Pushes the Nation’s Trade Policy into Focus

Japan’s snack markets remain in crisis mode, as a continuing potato shortage forces producers to take more and more popular brands off shelf while spiking the prices of those brands left for sale. Calbee’s chips – one of Japan’s biggest snack brands – that used to sell for just under 200 Yen (1.80 USD) pre crisis, are now going for 1250 Yen and more. That’s 12 dollars for a bag of chips. But while the crisis was primarily caused through forces outside the control of Japanese markets, it also says something about Japan’s current trade policies.

How did Japan get to this point? Let us first take a closer look at the history of this crisis. About 80 percent of Japan’s potatoes are grown on Japan’s northern island of Hokkaido. The region experienced some unusually bad luck last year as an unprecedented number of four typhoons hit the island during August. The results were severe agricultural damages and a historically low potato harvest causing a drop in 10 percent of annual production to about 1.72 million tons in 2016. The diminished potato reserves finally began to show in early April this year, as snack producers across the board were forced to limit chip production and increase their prices. News of the shortage and pictures of near empty shelves on Twitter encouraged panic buying and over the past two months this trend of rising prices and decreasing stock has only worsened. While many were still hoping that the crisis could be overcome by the end of May with the arrival of spring harvest potatoes, it now looks like an end to the shortage is not in immediate sight. As Hokkaido’s farmers have still not fully recovered, Japan’s farm ministry expects the chip shortage to last until the fall when the Island’s next harvests get underway in September.

It’s not the first time in recent years Japan was victim to such an agricultural crisis. In 2014 and 2015, a shortage of butter, also originating in Hokkaido, sparked outrage and frustration among consumers. Both then and now, Japan’s trade policies have come under the spotlight in national debate. While Tokyo has frequently voiced their concerns about protectionist tendencies propagated by US President Trump, at least in the sector of agriculture Japan itself isn’t exactly a role model of open trade. Japan heavily protects its local farmers and a very high concern for health regulations further complicate the exchange of foreign agricultural products in Japan. To prevent the spread of parasites and diseases, Japan currently only allows potato imports from the United States – after decades of pushing from the US – and even the US imports are subject to heavy regulation making especially the import of fresh potatoes highly difficult and bothersome for Japanese snack makers. While, admittedly, a national shortage of potato chips is unlikely to revert Tokyo’s stance on their import regulations, it seems that this crisis for now is not going anywhere and even when it does, who knows when the next crisis will strike and what precious good might be in short supply then?