NDN Blog

Beyond the Sabre Rattling, Will Russia or the West Bail Out Ukraine?

The crisis over Ukraine is quickly becoming a geostrategic conflict. As Vladimir Putin maneuvers to restore Russia’s right to behave with a superpower’s impunity, particularly in its own backyard, the West pushes back. But economic forces also have shaped this confrontation, especially Ukraine’s record as the world’s worst-performing industrial economy over the last twenty years. It was popular discontent with this disastrous performance that drove the recent dissent, which in turn triggered such a bloody response from Viktor Yanukovych — and that response consolidated the opposition and cost Yanukovych his job. Beyond this week’s political and military maneuvers, the outstanding question is, who will bail out the Ukrainian economy — Russia, or the EU and the United States — as the price of drawing the country into its trading system?

Stated simply, Ukraine is the economic equivalent of a failed state. After gaining independence in 1991, the country moved briefly to liberalize its economy along the same lines as most of Eastern and Central Europe. But Ukraine soon jettisoned its reforms in favor of the state-oligarch model also evolving in Russia. Some twenty years later, Ukraine’s GDP has shrunk 30 percent.  Even Russia’s sorry economy is 20 percent bigger than it was in 1991 — and Poland’s economy, which looked much like Ukraine’s in 1991, grew 130 percent over the same period. Ukraine’s economic performance has been so terrible, for so long, that its sovereign debts are now considered the equivalent of junk bonds. Even before the crisis, Ukraine’s credit rating was worse than Greece’s — no small feat — and no better than that of Argentina, a global financial pariah for its mismanaged debt defaults and summary expropriations of foreign-owned companies.
Ukraine’s debts soon come due, with some $15 billion in sovereign bonds maturing this year and another $15 billion in 2015. With a current account deficit equal to 8 percent of its GDP, Ukraine cannot pay off and refinance those debts without large-scale aid — some $20 billion to $25 billion — and affiliating itself with a larger trading system. An economic and trade alliance with Russia would deliver the bailout, but with little prospects of improving the underlying economy. The EU and the United States (through the IMF) also are prepared to provide the bailout, if the Ukrainian government will accept far-reaching economic reforms. The EU-US/IMF reforms should lead to better economic times down the road. But they also would mean more short-term hardships for ordinary Ukrainians. That’s why Yanukovych sided with Putin: He feared that he could lose his grip on power if times got even worse — and yet, of course, he lost power anyway.
With a new, pro-Western government in charge in Kiev, Ukraine’s fate may well lie in the hands of Europe and the United States. Their choice is simple to state, if difficult to execute — namely, do they put sufficient economic and diplomatic pressure on Putin, to convince him to pocket his own bailout and let the West pick up the pieces.
This post was originally published on Dr. Shapiro's blog

Event Re-cap: Forum on US-Mexico w/ Shannon O'Neil and Eric Farnsworth

On February 27th, NDN and the New Policy Institute hosted a public forum to reflect on a significant month of US-Mexico engagement, the developments of the last 2 decades, and a vision for the relationship going forward.  Nelson Cunningham of McLarty Associates will moderated a fascinating discussion with leading experts on Mexico, Shannon O’Neil, Senior Fellow for Latin America Studies at the Council on Foreign Relations, and Eric Farnsworth, Vice President of the Council of the Americas and Americas Society.

In case you missed it, the video of the event is available here.

For more information on the deepening and modernizing US-Mexico relationship, see the following materials from NDN/NPI:


Invite: Fri, 4/4 - "Raising Our Game" - A Presentation About the US Economy in the 21st Century

For the past 4 years, I’ve been fortunate to make presentations on the US economy to important policy makers here in Washington.   Every time I’ve been asked to present, I’ve always come back to a power point presentation I first presented at a meeting at the House Democratic Caucus in the fall of 2009 called “Raising Our Game.”  It is a big sweeping look at what has happened to the American economy over the past generation, and it offers some ideas on how policy makers can best address what has been far too tough a time for every day Americans.   At the core of the presentation is an effort to create a rallying cry, a narrative which can guide us in the years ahead: “The rest of the world is raising its game; it is time for us to raise ours.”  

This work draws heavily on the economic work Dr. Rob Shapiro has been doing here at NDN and other venues for years.   To get a better sense of where we are going with this, please review this backgrounder which showcases the Time Magazine piece which talked about the influence of this deck and it’s analysis on politics in the US and the UK. Be sure to also read my most recent essay which connects the President’s current effort to expand exports and liberalize trade to the work of FDR and Truman in building the current global economic system, one which has done so much good for so many.
We will offer this presentation on Friday, April 4th, from noon to 1:15 p.m. here at NDN, 729 15th St, 1st floor. Please reserve your spot here.  And feel free to invite colleagues or staffers to come along as well.

Brownstein: "Why What’s Good for Mexico Is Good for Us"

Esteemed political journalist Ronald Brownstein published the article "Why What’s Good for Mexico Is Good for Us" in today's copy of the National Journal.  It begins: 

"Follow their roots and two of Washington's most polarizing debates twist back into the same contested ground: the complex U.S. relationship with Mexico. Both the congressional stalemate over immigration reform and the rapidly hardening impasse over trade policy are grounded in exaggerated concerns about this country's interaction with its neighbor to the south.

That's how Simon Rosenberg, founder of NDN, a centrist Democratic group that tracks border issues, perceptively sees things. On overhauling the nation's immigration laws, conservatives are peddling fear; on trade, it's liberals raising alarms. But in each instance, the case against Mexico is "more theological than fact-based," as Rosenberg says. Unless these inflated fears are dispelled, the United States will fail to seize the opportunities for further economic integration that President Obama, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Stephen Harper touted during their brief summit in Mexico this week."

Read the complete article here.

Under Obama, Trade Deficits Way Down

In 2013, our trade deficit was $472b, down from $535b in 2012.   The total trade deficit represents 2.8% of US GDP, a number far lower that what saw a decade ago.  These new number speaks to an important trend – that under President Obama the trade deficit has come way down (see the chart below).  

For comparison, the average trade deficit under President Bush was $592b, or 4.5% of GDP.  Under Obama the trade deficit has averaged $489b, or 3.1% of GDP.  And it is dropping.

Source: You can find this data at the US Department of Commerce, Bureau of Economic Analysis. 

The US and Mexico: 2 Events, 4 Backgrounders

This month, President Obama travels to Mexico for the North American Leaders’ Summit on February 19th, and Secretary of Commerce Pritzker led her first trade mission there in Mexico February 3rd-7th.  Mexico continues to play a vital role in current US policy debates including immigration reform and trade.  In response to this growing bilateral engagement, NDN and the New Policy Institute have prepared the following events and informational backgrounders on our vital and modernizing US-Mexico partnership.

Please join us for two events at NDN and NPI:

For more information on how Mexico and the US-Mexico relationship are growing, deepening, and modernizing, see the following materials from NDN and NPI:

We hope you find these materials helpful, and we look forward to discussing more in the upcoming weeks.

Invite: Thurs, Feb 27th- A Forum on US-Mexico w/ Shannon O’Neil and Eric Farnsworth

Updated February 27, 2014

On February 27th, we invite you to a public forum reflecting on a very significant month of US-Mexico engagement. Leading experts on Mexico, Shannon O’Neil, Senior Fellow for Latin America Studies at the Council on Foreign Relations, and Eric Farnsworth, Vice President of the Council of the Americas and Americas Society, will offer their assessment of President Obama’s trip to Mexico, as well as the status and future of the US-Mexico bilateral partnership.  Nelson Cunningham of McLarty Associates will moderate the discussion, leaving time for audience questions.  Please join us!

"A Forum on US-Mexico w/ Shannon O’Neil and Eric Farnsworth"
Thurs, Feb 27th, 12pm-1:15pm
Lunch served at 12 noon, Presentation will begin at 12:15pm
NDN Event Space: 729 15th St NW, 1st Floor, Washington, DC 20005
RSVP here

Mexico is one of our most important bilateral relationships and plays a vital role in current US policy debates, including immigration reform and trade.  President Obama traveled to Mexico yesterday for the North American Leaders’ Summit, and Secretary of Commerce Pritzker’s first trade mission took place there February 3rd-7th. The key deliverables from yesterday’s summit focus on our shared prosperity through travel and trade, increasing joint innovation and education, as well as issues of energy, climate, security, and regional engagement. Before landing in Mexico, President Obama signed a new executive order on “Streamlining the Export/Import Process for America’s Businesses,” which will strengthen our bilateral trade and travel.  This followed the February 18th DHS and GSA announcement of $61.6 million to expand and modernize the Laredo border crossing.

For more information prior to the event see these backgrounders and recent piece from NDN/NPI:

Also see Shannon O’Neils’s widely-acclaimed book on US-Mexico and recent article:

And Eric Farnsworth’s recent congressional testimony and article:

We hope you find these materials helpful, and we look forward to discussing more on the 27th.

Note: For those who cannot attend the event in person, it will be livestreamed here, and the video recording will be posted later.

Invite: Tues, Feb 18th- “US-Mexico: A Vital Modern Partnership”

*Changed from originally scheduled date*

February marks a big month in US-Mexico Relations. Last week, February 3rd-7th, Secretary of Commerce Penny Pritzker led a delegation of 17 US businesses on her first trade mission to Mexico City and Monterrey, Mexico. Next week, February 19th, President Obama will join his North American counterparts Canadian Prime Minister Harper and Mexican President Peña Nieto in Toluca, Mexico for their annual North American Leaders’ Summit.

In one public address during her trip, Secretary Pritzker remarked on the advance in US-Mexico relations:

“We both believe in the power of democracy and a vibrant middle class. We both believe that our growing bilateral trade, investment, and supply chains have made us stronger. And we both believe that entrepreneurship and innovation are crucial to our global competitiveness in the 21st century. The mere fact that we are gathered here today shows how the ties between our countries have dramatically deepened. Our commercial and economic relationship has become one of the most fruitful in the world – defined by openness, cooperation, and collaboration.”

While there is more to do, Mexico has made tremendous strides toward becoming a modern, democratic, economically developed country over the last generation.  As it has modernized and opened its economy, trade between the US and Mexico has skyrocketed from $80 billion to over $500 billion per year, and supports six million US jobs.  Its ambitious constitutional reform agenda has gained it international credibility and even more financial strength in just the last year.

As we progress in debates on important policy issues including immigration reform and the Trans-Pacific Partnership, it is crucial that we employ a broader understanding of our relationship with our neighbor to the south.  The US-Mexico relationship is one of mutual and essential opportunity for our future as a country and a region.  

Please join us Tuesday for a lunchtime discussion of “US-Mexico: A Vital Modern Partnership.” We will present and release to the public an updated version of a presentation on Mexico, the US-Mexico Border, and Immigration Reform, followed by an interactive discussion.

Lunchtime Discussion: “US-Mexico: A Vital Modern Partnership”
RSVP here
Tuesday, February 18th, 12-1:15pm
Lunch served at 12 noon, Presentation will begin at 12:15pm
NDN Event Space: 729 15th St NW, 1st Floor, Washington, DC 20005

For more information see our recent backgrounders on the US-Mexico Partnership and the Border.

On Trust and “Enforcing the Laws” in the Immigration Reform Debate - A Response to Speaker Boehner

Today, Speaker Boehner once again repeated the new Republican excuse for inaction on immigration reform – the President has failed to enforce immigration laws, and cannot be trusted to see through commitments on border security and other enforcement objectives.  

Let’s take a quick look at both these claims.  
On the issue of border security, a new pragmatism has begun to break out in many quarters in what has long been a contentious issue.   In its introductory paragraph, the Senate Gang of 8 framework included these words:
 “And while border security has improved significantly over the last two Administrations…”
The Senate Judiciary Committee added more customs agents to the border to help facilitate our exploding trade relationship with Mexico, and no additional border guards.  The recent 2014 budget resolution made smart investments in border infrastructure, added more customs agents, and did not add more border patrol.  
The reason that as a nation we’ve begun to move beyond the “enforcement only” approach to the border is that after a decade of significant investment, better strategies and much greater cooperation with Mexico, the border is far safer than it was, net migration of unauthorized immigrants has dropped to zero all while trade with Mexico has more than doubled.  A reasonable look at the data would lead one to conclude that the border is on track to be safe and largely under control, with the main effort now modernizing a trade and tourism infrastructure designed for a trade relationship at levels hundreds of billions of dollars less than it is today.    
The Obama Administration deserves far more credit for managing the tough realities and politics of the border than they have gotten.  Our border is 2,000 miles long, it extends across four states, and the threat of cartel violence on the Mexican side is very real.  It is one of the busiest borders in the world, with billions of dollars of trade and millions of people crossing each week.  That the two largest border cities on the US side of the border, El Paso and San Diego, are the two safest large cities in America today is simply an extraordinary accomplishment.  4 of the 5 high traffic migration corridors are at or close to the widely accepted goal of a 90% effectiveness rate, spillover violence is rare, and just in the past few months Mexico has announced unprecedented efforts on their northern and southern borders which should do much to improve the situation in the years ahead.   More, of course, can be done, and the Senate bill invests in the things most border experts think is most needed now – better technology and more customs agents.  
Coming out of their retreat last week, the House leadership has adopted a very hard line on “securing the border,” and has repeatedly said the Obama Administration cannot be trusted on the issue.  Given its new centrality to their reform approach, the House leadership simply must put a real plan and budget for “securing” the border on the table immediately.  Their rhetorical rejection of the very real progress made on the border in recent years is a worrying sign about their lack of seriousness; and if they insist border security is a trigger even for legal status, no negotiations with the House should begin until they come to the table with an actual plan.  Trust works both ways.  The House leadership cannot expect the Senate to accept triggers on legal status/citizenship if the metrics and funding levels are not spelled out in great detail.   
The mischaracterization of the progress made by the Obama Administration impacts the interior enforcement portions of the “Standards” document as well.  At the root of the GOP’s concern is the Administration’s decision to prioritize criminal migrants for deportation, known as “prosecutorial discretion.”  In what is a tortured ideological position, the House GOP opposes this practice, preferring that law enforcement just round up everyone, and remarkably, NOT prioritize criminals.  The President used this rationale to authorize DACA, the 2012 executive order which gave DREAM-eligible youth relief from deportation.  The simple idea is that if the President can prioritize the front of the deportation line, he can also prioritize the back of it – determining that there is a class of unauthorized migrant who should not be deported.   
Thus by using DHS’s limited resources to get rid of the most dangerous of the unauthorized population, the Administration is, by this GOP logic, not enforcing immigration law.  Yes, this is a little hard to believe.  
One would not know from the “Standards” that President Obama has deported migrants at a higher rate than any other modern President, and has, in recent years, deported criminal migrants at double or triple the rate of previous Presidents.  It will be interesting to see how the House GOP can improve upon that record without providing billions in new resources, or rolling over local elected officials and law enforcement who will strenuously oppose the appropriation of local resources to enforce what is a federal responsibility.  
Given this track record, why exactly are the House Republicans walking from immigration reform?  The border is safer today, net migration is zero, deportations of criminal migrants are at all time highs while trade with Mexico has exploded, creating millions of jobs on both sides of the border.  There is a strong argument to be made that no President in American history has been more committed to enforcing our immigration laws and improving border security than President Obama.  If they are going to walk away from immigration reform for the 3rd time in the last decade, the House leadership are going to have find a far better set of excuses.  
For more information see the following backgrounders:
The Administration's Border Strategy Has Yielded Very Strong Results
NDN/NPI Background on Mexico Prior to Feb Visits by Pres Obama, Sec Pritzker

U.S. Workers Could Be Big Winners in the Current Trade Talks

President Obama’s drive to complete new open trade agreements with the European Union and 11 Pacific Rim nations are the most critical economic initiatives of his second term.  Their importance reflects the basic patterns of economic growth across the world.  After a decade of unusually weak growth, job creation and income gains, America’s prospects for rising wages and employment are increasingly linked to how successfully American businesses can tap into foreign demand.  Beyond the big demand issues, the two agreements also should subtly affect the tradeoffs that American multinationals face between exporting goods and services produced here, versus expanding their European and Asian operations.  And those more subtle effects could produce large long-term benefits for American workers. 

The Transatlantic Trade and Investment Partnership (TTIP) talks would end most tariffs and reduce countless other barriers to open trade between the United States and the 27 countries of the European Union, with their combined GDP of some $17 trillion.  Not only would the agreement give American businesses and investors nearly as much access to European consumers and businesses as Germany or France, including the fast-growing emerging economies of Central and Eastern Europe.  Equally important, such an agreement would recalibrate the choices that U.S. companies face today between exporting to Europe and increasing their foreign direct investments there.  For the first time, America’s multinationals could enjoy nearly unfettered access to the European market without setting up more operations there. 
The second proposed agreement, the Trans-Pacific Partnership (TPP), also would reduce tariffs and other barriers between and among ourselves and Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  Not counting ourselves and our NAFTA partners Mexico and Canada, where we already enjoy open trade, the other TPP countries represent nearly $9 trillion of potential demand for our goods and services.  And much like the proposed EU-US partnership, the Pacific agreement would, at once, lower barriers to U.S. exports to those countries and change the calculus of foreign direct investment (FDI) versus exports in ways that would tilt more towards exports.  If 10 percent of our current FDI flows to countries involved in the two agreements shifts to domestic investments or simply higher profits, it could boost U.S. employment by as much as 450,000 jobs.

These initiatives present a singular opportunity to open up markets that represent nearly half of all non-U.S. global GDP.  As the world’s most comprehensive and productive economy, the United States will be well positioned to use this enhanced access to increase our global market shares in countless advanced goods and services.  And by reducing the costs of exporting into foreign markets, as compared to setting up more new factories and offices inside those markets, these agreements could be the first new trade pacts for a global economy that genuinely favor U.S. workers.

This post was originally published on Dr. Shapiro's blog.

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