78 percent of U.S. imports from developing countries are duty-free.
January 14, 2015
THE NUMBERS: U.S. merchandise imports from developing countries, 2014* -
|Permanently Duty-Free||$550 billion|
|Duty-Free Via FTAs & Preferences||$245 billion|
* Estimate based on the 11 months of data now available.
WHAT THEY MEAN:
Anticipating Congressional debate on the Trans-Pacific Partnership, Sen. Bernie Sanders (an independent Socialist from Vermont) took a dire view last New Year’s Eve:
“The TPP will make the race to the bottom worse because it forces American workers to compete with desperate workers in Vietnam where the minimum wage is just 56 cents an hour.”
This argument has a long history in American trade debates, as the rhetorical staple of a century-long line of economic nationalists from Whig Party eminences Clay and Webster, who loved to warn of the “cheap pauper labor,” and “unpaid and half-fed labor” of Britain and continental Europe in the 1830s and 1840s, through Gilded Age pols James Blaine and William McKinley, down to Jazz Age isolationists Harding, Coolidge, and Herbert Hoover, whose 1928 platform argued for tariff hikes to support “industries which cannot now successfully compete with foreign producers because of lower foreign wages and a lower standard of living abroad.”
Is reviving their fears a useful guide for modern Americans? By way of background, the “TPP” (full name Trans-Pacific Partnership) is a 12-country trade agreement now in the late stages of negotiation, which if successful would join the U.S. with Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Brunei, Malaysia, Vietnam, and Japan. It is a complex agreement with features covering Internet and data flow, enforcement of rules banning trade in endangered species and limiting fishery subsidies, customs and port rules, tariff rates, new-technology approvals, automobile trade, market-opening for American products, and lots more. But as far as competition with Vietnam (and by extension lower-wage countries in general) here are the basics:
(1) U.S and Vietnam: The modern U.S. trade relationship with Vietnam dates to the Bilateral Commercial Agreement in 2000, which ended the post-1975 trade embargo. Last year, Hanoi and Mekong Delta farms, factories, and fishing fleets shipped $30.6 billion worth of goods to the United States. This is about 1.0 percent of America’s $3.2 trillion in total imports, 3.4 percent of the $815 billion in imports from the TPP countries, and the equivalent of 30 days’ worth of U.S. imports from Canada, which are about $350 billion. Vietnam’s relatively small share of U.S. trade suggests that even a big jump in Vietnamese imports will have only minor effects on overall U.S. imports, and therefore would have only minor ‘competitive’ effects.
(2) Do U.S. trade barriers block poor-country goods? Sen. Sanders’ implicit argument, though, seems to be against competition with developing-country workers in general, rather with Vietnamese workers per se. Setting aside the merits of this view as economics, its relevance to policy rests on a premise: the U.S. now has an effective existing set of barriers blocking poor-country goods, which TPP or other agreements will breach.
But in fact U.S. trade barriers are generally low, mostly nonexistent, and usually ineffective where they do exist. About 78 percent of last year’s goods imports from developing countries arrived with no tariffs, quota limits, or other barriers. (Apart of course from consumer safety rules, anti-counterfeiting laws, and other limits imposed for public-good reasons.) About 5 percent did come in with high tariffs, but these often applied to goods not made in the United States. Vietnam’s trade patterns illustrate, with the $30.6 billion in imports dividing roughly into two groups:
(a) Zero-tariff goods: For about 40 percent of Vietnamese goods, the U.S. abolished all tariffs long ago and has no other form of trade barrier apart from product-safety and food-safety rules. These include $3.5 billion worth of cell phones and personal computers, for which tariffs vanished in 1997; $500 million in coffee, which hasn’t had any tariffs since the 1920s; $3 billion in furniture, where tariffs were abolished in 1994; $1.7 billion in shrimp, catfish, and other seafood; $600 million in cashew nuts; $200 million in toys, and so on. In these categories of products, as there are no barriers to remove, TPP isn’t likely to have a competitive effect.
(b) High-tariff goods: Vietnam is also a large supplier of high-tariff goods, mainly $14 billion worth of mass-market clothes, running shoes, handbags and luggage. These have tariffs, mostly unchanged since the 1950s, which average about 15 percent and peak at 48 percent for cheap sneakers. In many cases, however, these tariffs are entirely ineffectual. For example, about 99 percent of shoes, and all cheap sneakers, sold in the U.S. are imported anyway. In these cases, tariffs operate only as a way to tax shoppers. Overall, American employment in these high-tariff industries makes up about 1 percent of the U.S.’ 12.2 million factory workers, and 0.1 percent of the 140 million employed American workers. Vietnam’s stake in eliminating tariffs of this sort is mainly for competition with other suppliers – China in particular, but also neighboring Southeast Asian countries outside the TPP, and other suppliers with duty-free status via FTAs and preference programs.
(3) Labor standards: Finally, an area where TPP is doing genuinely new and innovative things is in labor standards, where it will likely be the most elaborate, enforceable, and ‘liberal’ agreement the U.S. has ever concluded. Assuming U.S. negotiators are reasonably successful, this will cover laws, implementation of laws, and capacity-building programs in labor rights, child labor prevention, minimum wage policies, and workplace health and safety policies. In this sense, for those worried about the ‘desperation’ of Vietnamese workers, TPP looks more like a progressive solution than a cause to worry.
TPP background & perspectives –
The U.S. Trade Representative Office explains the TPP and the Obama administration’s hopes: http://www.ustr.gov/tpp
Vietnamese academics Truong-Minh Vu and Nguyen Nhat-Anh look to TPP as a way for Vietnam to compete with China: http://thediplomat.com/2014/09/the-potential-of-the-tpp-for-vietnam/
And Sen. Sanders brings the New Year’s Eve gloom: http://www.commondreams.org/views/2014/12/31/ten-reasons-why-tpp-must-be-defeated
Some systematic analysis –
Are Vietnamese workers ‘desperate’? The ILO’s Global Wage Report 2014/2015 (released last month) is quite optimistic, finding Vietnamese wage rates rising quickly, in part because of a shift of clothing and electronics manufacturing out of southern China, and in part due to three consecutive 10 percent increases in the national minimum wage in 2013, 2014, and 2015: http://www.ilo.org/asia/whatwedo/publications/WCMS_325219/lang–en/index.htm
And how ‘effective’ are U.S. trade barriers? Every two years the U.S. International Trade Commission does a check, with computer-model analysis of the effects of U.S. tariffs and other import limits. The most recent version of the report, Economic Effects of Significant U.S. Import Restraints, came out in December 2013. It found that simply abolishing all of them (i.e. without any negotiations or reciprocal market-opening) would raise U.S. imports by about 0.2 percent above trend. In practical terms this would be an additional $5 billion or so, matched with an 0.3 percent increase in U.S. exports. In practice, then – and again setting aside the question of whether import barriers are good economics – with a few idiosyncratic exceptions, the tariff system is mostly a form of taxation, not a meaningful deterrent to imports or an effective way to block foreign competition. The study:
And long-ago trade-policy talking points, from conservatives, liberals, and radicals -
Sen. Sanders’ fear of low-wage competition would have been familiar a century ago, but as an argument associated with business-minded conservatives in the Webster/McKinley/Harding/Hoover tradition, rather than with liberals or radicals.
Their proto-liberal Democratic rivals worked from a 19th-century faith in low tariffs, consumer benefit, and growth led by farm exports (Jackson and Polk before the Civil War, Cleveland and Bryan in the 1880s and 1890s), augmented by Woodrow Wilson and Louis Brandeis to encourage international agreements and address low-wage competition fears in a constructive way by inventing the International Labor Organization in 1919. TPP is a recognizable descendent of this program. (The final piece of it, the Trade Adjustment Assistance program for dislocated American workers, came 40 years later during the Kennedy administration.)
Radicals of the era, through the Populist Party of the late 1880s and early 1890s and the Socialist Party of the late 1890s to the 1920s, took a third approach, insisting that the R’s and D’s were both wrong (or more likely both liars). They maintained trade debates were frauds meant to distract the public from the real issues, and in the Socialist case that workers should unite across borders rather than seeing one another as rivals. A blistering sample from Eugene Debs’ 1912 Presidential campaign:
“So long as the present system of capitalism prevails and the few are allowed to own the nation’s industries, the toiling masses will be struggling in the hell of poverty as they are today. To tell them that juggling with the tariff will change this beastly and disgraceful condition is to insult their intelligence. The professional politicians who have been harping upon this string since infant industries have become giant monopolies know better. Their stock in trade is the credulity of the masses. The exploited wage-slaves of free trade England and of the highly protected United States are the victims of the same capitalism; in England the politicians tell them they are suffering because they have no protective tariff and in the United States they tell them that the tariff is the cause of their poverty. And this is the kind of a confidence game the professional politicians have been playing with the workers of all nations all these years.”
Some incendiary stuff from Debs (scroll to the “Capitalism and Socialism” speech from August 1912, or just search for ‘tariff’): http://www.gutenberg.org/files/34012/34012-h/34012-h.htm
Herbert Hoover warns against low-wage competitors, 1928: http://www.presidency.ucsb.edu/ws/index.php?pid=22067&st=tariff&st1=hoover
And Woodrow Wilson’s Fourteen Points (see #2 and #3 for trade): http://avalon.law.yale.edu/20th_century/wilson14.asp
The U.S. embargo on Cuba has been in place for half of Cuba's independent history.
January 7, 2015
THE NUMBERS: American goods imports in 1955, from world and top 9 sources–
WHAT THEY MEAN:
Launched with the Eisenhower administration’s cancellation of Cuban sugar quotas in the summer of 1960, the U.S. embargo on Cuba has been ratcheted up over five decades to include nearly full bans on trade,investment, travel, and small financial transfers. Having lasted for 54 of the 112 years since Cuba’s independence in 1902, the embargo policy is now older than 9 million of Cuba’s 11.3 million people.
The Obama administration’s December shift in course involves some scaling back of sanctions – credit card and financial links, telecom business, travel – and, on the grounds that “American businesses should not be put at a disadvantage, and increased commerce is good for Americans and for Cubans,” a call for Congress to consider “an honest and serious debate about lifting the embargo.”
What would this mean? The consequences for politics within Cuba, family relationships, and so forth are of course unknowable. But in the limited world of trade flows, here are three non-scientific measuring sticks for the potential scale:
(1) Top estimate, from comparisons with the pre-Castro era: In 1955, the $455 million worth of goods Cubans bought from the United States – including some cars still running today – accounted for 3 percent of America’s $15.5 billion total exports. This placed Cuba 8th as an American export market, below Canada, the U.K., Mexico, Japan, Germany, Venezuela, and the Netherlands, but above France, Italy, Brazil, and Korea.
Cubans, meanwhile, sold $422 million in goods to the U.S, out of $11.4 billion in total imports. (Mostly sweets – Cuba supplied about 2.9 million tons a year in the 1950s, a third of all the sugar Americans were using at the time – plus some cigars and metal ores.) Cuba ranked 7th in the world as an exporter to the U.S., outdoing Germany’s $366 million and Mexico’s $397 million, and just barely below Japan’s $432 million.
Conclusion: Given some noticeable changes in the trading world since the 1950s – end of the embargo on China, creation of the European Union, etc. – Cuba probably isn’t likely to regain its 1950s-era share of U.S. commerce at roughly 3 percent of U.S. imports and exports. If it did, though, with the annual U.S. merchandise trade levels now about $3 trillion, two-way goods trade would be $100 billion or so, probably with some U.S. surplus. This would place Cuba in the neighborhood of the United Kingdom and Korea, and a bit above Saudi Arabia and Brazil.
(2) Low estimate, from current levels of Cuban trade and analogies with other Caribbean islands: Cuban imports in 2013 were about $15.8 billion, and exports $5.8 billion. The $21.6 billion total is standard for the larger Caribbean islands: the Dominican Republic is at $27 billion, Trinidad $25 billion, Jamaica $8 billion, and Haiti $4.6 billion. The U.S. supplies about 28 percent of Trinidadian imports, 35 percent for Haiti, and 40 percent for Jamaica, Haiti, and the Dominican Republic.
Conclusion: At current levels of Cuban trade, and assuming the U.S. share might be similar to the shares for Jamaica, Trinidad, Haiti, and the D.R., U.S. exports to Cuba might be $6 billion or so, and imports $4 billion.
(3) Medium estimate, using recent evidence from agricultural trade: In 2001, Congress poked a small hole in the embargo by legalizing sales of food and medicine. Farm exports to Cuba rose from minimal figures to a $685 million peak in 2007 (setting, for whatever it’s worth, a nominal-dollar record for total U.S. exports to Cuba.) The Bush administration however did not welcome the idea, and tried with some success to frustrate it by (a) refusing to permit financing of exports and (b) barring ships carrying goods to Cuba from leaving port without payment in advance. This cut exports to $350 million a year after 2008, about the same as farm sales to Jamaica and Haiti, and a bit above the sales to Nicaragua. The U.S. International Trade Commission, looking at these numbers in 2090, guessed at a likely potential U.S. farm export total of $1.2 billion.
Conclusion: Agriculture is about 8 percent of all U.S. exports. If this ratio held for Cuba, with farm goods at $1.2 billion, total goods exports would be around $15 billion, comparable with Chile, Israel, and Italy.
* Note: The U.K. would rank much higher, about $180 billion, with services trade counted in. We haven’t included services in this fact, not out of laziness but because no services-trade-by-country figures, for Cuba or otherwise, are available for the 1950s.
Then and now -
Pres. Eisenhower announces the revocation of Cuban sugar quotas, July 1960: http://www.presidency.ucsb.edu/ws/?pid=11866
And Pres. Obama outlines scaling back of sanctions, & calls for “an honest and serious debate about lifting the embargo,” December 2014: http://www.whitehouse.gov/the-press-office/2014/12/17/statement-president-cuba-policy-changes
Secretary of State Kerry on reopening diplomatic relations: http://www.state.gov/secretary/remarks/2014/12/235352.htm
The Treasury Department’s Office of Foreign Asset Control explains the state of the embargo: http://www.treasury.gov/resource-center/sanctions/Programs/pages/cuba.aspx
And the Vatican comments on its role in renewal: http://en.radiovaticana.va/news/2014/12/18/cardinal_parolin_on_holy_see%E2%80%99s_role_in_us_cuba_agreement/1115269
The U.S. Interest Section/Havana explains policy to Cuba’s hard-pressed Internet users: http://havana.usint.gov/
And the BBC reports from Havana on Internet access, cost, censorship, and the occasional open wi-fi network: http://www.bbc.com/news/magazine-27033208
…. And meanwhile, the Cuban Interest Section in Washington apparently hasn’t updated its page since November: http://www.cubadiplomatica.cu/sicw/EN/Mission/InterestsSection.aspx
Reporting on U.S.-Cuba normalization from –
Jamaica’s The Gleaner: http://jamaica-gleaner.com/gleaner/20141219/lead/lead2.html
Colombia’s El Tiempo: http://www.portafolio.co/internacional/estados-unidos-cuba-una-nueva-era-opinion
El Pais (Madrid), from Miami: http://elpais.com/elpais/2014/12/29/inenglish/1419863556_530205.html
The China Daily: http://usa.chinadaily.com.cn/world/2014-12/23/content_19143505.htm
And last -
A National Public Radio photo-essay on Cuban cars: http://www.npr.org/2014/06/28/325602703/we-said-no-car-pictures
Google News no longer serves Spain.
December 17, 2014
THE NUMBERS: Gigabytes of Internet Protocol traffic generated per Internet user each month,* projected for 2018 –
|Western Europe average||38.3|
* Projections from Cisco, Visual Networking Index 2014
WHAT THEY MEAN:
Is Europe creating an information drought for itself? An introduction to the question, via wire services from Madrid last Friday:
“Google said it plans to close its news-linking service in Spain in response to legislation under which publishers will soon be able to force Internet sites to pay for re-publishing headlines or snippets of news. In a statement, the search giant said the new law makes the Google News service unsustainable and that it will remove Spanish publishers from Google News sites worldwide and shut down this service in Spain on 16 December. The move also means readers in Latin America and around the globe will no longer find links to articles from any Spanish news publishers on Google News.”
The legislation in question was passed in October and given the very generic official name Ley de Propriedade Intelectual (“intellectual property law”), but is more frequently referred to as “Tasa Google.” It requires online services like news aggregators to pay fees to newspapers in order to publish the snippets and links readers can click to get the full story from El Pais, La Vanguardia Catalunya, &c. By way of analogy, a similar law for physical papers and ink-based reading would require owners of newspaper kiosks and coffee-shops to pay the publisher when a passer-by reads a headline. Failure to pay means a 600,000-euro fine.
Faced with paying recipients in order to help them raise their web traffic, Google glumly closed its news service for Spain on Friday. According to Reuters, the papers get 8 to 21 percent of their on-line traffic via Google News, meaning that the law’s consequence is (a) to reduce traffic and perhaps advertising revenue for the papers, plus (b) faded ability for outsiders to catch up on Catalonia’s independence drive, Real Madrid scores, and other useful news from the peninsula.
The traffic-reducing Ley follows a similar German effort, which broke down in a week. More generally it looks like part of a trend: nervousness about the success of American internet firms, combined with the absence to date of European counterparts, appears to be launching a variety of national laws and EU-wide antitrust fulminations whose hope may be to narrow a perceived gap, but whose likely principal effects – as with the Ley – look to be (a) complications for European Internet users, and then (b) lower European information use.
What then for Europe’s information future (and by extension, that of others looking to tax, firewall, etc.)? Cisco’s annual Visual Networking Index projections suggest that at least for parts of the continent, an information drought may indeed lie ahead.
Each year, the VNI gives a five-year projection of Internet usership, data traffic, device use, and so on for the world and 23 individual countries. Its most recent one, peeking four years ahead to 2018, has high-info Sweden and Britain as unusual outliers; continental Europe (at least east of the Channel, south of the Kiel Canal, and west of the Oder) begins to fall behind.
By the VNI estimates, European Internet users in 2013 were creating about 18 gigabytes of data per month, Japanese 23, and Americans 29; by 2018 the respective figures will be 38, 57, and 70 gigabytes per month. Spain in particular, now more or less tied with France and Italy in the European rankings, will be producing the least information per user among the 7 EU member countries in the table, and will also have fallen behind Mexico, Argentina, and Chile. An expanded table of VNI rankings looks like this, again in gigabytes of Internet Protocol traffic per month:
|PLACE||2013 ESTIMATE||2018 PROJECTION|
|Western Europe avg.||18.0||38.3|
Users & information -
Cisco’s VNI Forecast Highlights Tool estimates information flows by for the world, 6 regions, 23 individual countries, and individual users, 2013-2018: http://www.cisco.com/web/solutions/sp/vni/vni_forecast_highlights/index.html
Spain vs. Internet -
El Pais’s 5-point summary explains the “Tasa Google”: http://cultura.elpais.com/cultura/2014/02/14/actualidad/1392399393_388548.html
Spain’s Association of Newspaper Publishers (AEDE): http://www.aede.es/publica/home.asp
Google announces its departure: http://googlepolicyeurope.blogspot.com/2014/12/an-update-on-google-news-in-spain.html
Spain’s Ministry of Culture, Education, & Sports has a laconic comment: http://www.mecd.gob.es/prensa-mecd/en/actualidad/2014/12/20141211-tasa.html
Trade-and-Internet analysts at DC-based “Project Disco” look at the Ley de P.I. and potential conflict with World Intellectual Property Organization and WTO copyright agreements: http://www.project-disco.org/intellectual-property/121214-trade-implications-of-google-news-exiting-spain-over-ancillary-right/
Irate commentary from ComputerWorld: http://www.computerworld.com/article/2859176/why-google-should-leave-europe.html
And La Vanguardia Catalunya suggests some re-thinking: http://www.lavanguardia.com/vida/20141215/54421447820/fape-aboga-por-acuerdo-entre-google-y-aede-para-evitar-cierre-de-google-news.html
U.S. & Europe -
The U.S. Mission to the EU on science, innovation, and consumers: http://useu.usmission.gov/science_innovation.html
The European Commission’s Internet policy page: https://ec.europa.eu/digital-agenda/en/communities/internet-policy
And also on the state of the Internet -
Akamai’s most recent State of the Internet (September 2014) tracks access, speed, security and other topics, around the world and across U.S. states (Korea is fastest at 24.6 megabytes per second, with Hong Kong second at 15.7 and the U.S. at 11.4; Delaware and Virginia have the U.S.’ fastest average connections at 16.2 and 14.6 mbps): http://www.akamai.com/html/about/press/releases/2014/press-093014.html
Trade and Inequality: Cause? Cure? Diversion?
December 11, 2014
Federal Reserve Chairwoman Janet Yellen, in a speech delivered last October, makes an observation and poses a question:
“The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span, and probably higher than for much of American history before then. … I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”
The phenomenon Dr. Yellen describes is well-known. For two generations, Americans have been growing apart. In response, she proposes four domestic-policy “building blocks,” meant to raise lifetime earning potential at middle- and lower-income levels: high-quality education in primary schools and high schools, improved access to college, small business formation to create wealth for lower-income families, and inheritances at middle-income levels.
Meanwhile, the Obama administration is negotiating two large new trade agreements, the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership, or “TPP” and “T-TIP” for short. The administration’s hope is to tap foreign demand and export more, helping to accelerate the return to normal growth in the aftermath of the 2008 financial crisis; to address global-economy problems such as trade in endangered species and child labor; to encourage the growth and unity of the Internet; and to strengthen political and policy ties to the long-time allies and new partners joined in these agreements.
Can these goals go together? Some fear that trade with other countries is a cause of inequality within the United States, and that trade agreements will make it worse. If so, we have a problem: how do we address a long-term challenge to equality of opportunity, and simultaneously take advantage of the growth and policy reform trade policy could bring? This essay is an examination of the question with three basic theses:
1. Trade growth is not a major cause of inequality. The leading modern study of wealth and income inequality, Thomas Piketty’s 2013 book Capital in the 21st Century (termed by Paul Krugman “the most important economics book of the year – and maybe of the decade,” and by Larry Summers a Nobel Prize-worthy” research accomplishment) suggests a basic cause of rising inequality in divergence between national growth rates and returns on investment. This phenomenon is unrelated to trade and unaffected by trade policy. As Piketty’s book observes, trade restriction will not reverse it. Most earlier analyses, meanwhile, make trade at most a minor factor in inequality, and one whose effects are complex and multidirectional, rather than simply accelerating or slowing the growth of inequality.
2. Trade policy is not the major solution to inequality, but can provide useful support for a response rooted in domestic policy. Higher growth through exports, if Piketty’s hypothesis is correct, will help slow the growth of inequality though likely not reversing the trend. TPP and T-TIP are an important part of this. Creative use of some existing agreements and policies, along with creatively negotiated TPP and T-TIP agreements, can help promote growth and affluence at middle- and lower-income communities by (a) offering more support to lower-income exporters and intellectual-property holders, consistent with Dr. Yellen’s domestic policy building blocks, and (b) reducing or eliminating discriminatory taxation of lower-income families through the tariff system, and (c) more generally helping to provide the American public as a whole with lower-priced goods.
3. Lowering U.S. trade barriers is more likely to ease than exacerbate inequality. Because U.S. tariffs are concentrated in taxation of cheap clothes, shoes, and other home goods rarely made in the United States, they are mostly ineffective as import limits and regressive as taxation. The main effect of reducing these tariffs through trade agreements would be to raise living standards for lower-income households and thus ease inequality. Future import growth does remains likely to create new competition and stresses, but mostly through the improvement of infrastructure, logistics, and Internet access, and through rising competitiveness in foreign countries. It needs to be met through a stronger national safety net, including a well-funded Trade Adjustment Assistance program, broader lifelong learning and adjustment programs for all dislocated workers, and national competitiveness programs in infrastructure, science, and other areas.
The full paper is available in PDF format at:
And in 2-page summary version at:
Remittances from immigrant blue-collar workers are three times as large as all foreign aid combined.
December 10, 2014
THE NUMBERS: Remittances as share of GDP* -
|West Bank & Gaza||20.1%|
* World Bank estimates for 2013 when available, otherwise 2012.
WHAT THEY MEAN:
These are the year’s busiest days for small banks and wire services in Salvadoran-American communities – Maryland’s Wheaton and Langley Park, LA’s Pico Union, Houston’s Gulfton, New Jersey’s Elizabeth – as Christmas money pours into the north end of the wire and begins to flow south. According to the World Bank, Salvadoran-Americans will send about $4.3 billion in “remittances” to families and relatives this year (a record total, averaging $2,200 per person, from a population whose median income is $20,000), with about a sixth of the money arriving in the weeks before Christmas.
The Salvadoran wires offer a miniature picture of the remittance world. Remittances are small, usually counted in tens or hundreds of dollars rather than millions or billions. But when combined they are very large – again according to the World Bank, the world’s 213 million immigrants will send $582 billion in remittances home in 2014, including $435 billion to low- and middle-income countries. This is about 0.5 percent of global income, or alternatively $200 per immigrant per month. Though the largest amounts of money flow to big countries – $71 billion to India, $64 billion to China, $28 billion to the Philippines, $24 billion to Mexico –the countries most reliant on remittances are (a) places with geographic challenges, in particular small island states and land-locked countries such as Samoa, Jamaica, Nepal, and Lesotho; and (b) countries in regions troubled by violence, such as Central America, the Middle East, and eastern Europe. Comparing remittances with foreign aid and business investment provides a wider-lens perspective on their significance in the global economy:
1. Governments and Foreign Aid: The OECD’s annual tally of foreign aid finds its 31 members sending $138 billion in development aid, emergency relief, technical assistance and other aid programs in 2013. As the OECD observes, this aid total is “the highest level ever recorded, despite continued pressures on budgets in OECD countries since the global economic crisis.” Aid programs outside the OECD add more: $5 billion for the UAE, $3.2 billion for Turkey, $1 billion for Taiwan, uncertain totals for China and Saudi Arabia, smaller levels for ASEAN members. Overall, then, remittance flows are likely about three times the value of all foreign aid programs combined.
2. Businesses and Foreign Direct Investment: UNCTAD’s annual count of private direct investment flows finds the world’s multinational businesses investing $778 billion to acquire companies, set up sales offices, build plants and labs, etc., in developing countries. This figure is actually too high, since UNCTAD’s definition of “developing country” quirkily includes Hong Kong, Singapore, Taiwan, Korea, Saudi Arabia, and the Caribbean tax havens. Taking these high-income places out, FDI flows to middle- and lower-income countries come to $560 billion, with the highest figures going to Brazil, China, and a few other big countries near the top of the scale. This makes remittances roughly equal to business direct investment.
Nationwide, at the south end of the wire, remittances account for a sixth of Salvadoran GDP; home by home, rural Salvadoran families who receive $100 per month or more in remittances are twice likely as other families to keep their children in school. Other countries differ in detail, but not in the basic effects.
Which raises a question: Who changes the world? Governments, intellectuals, entrepreneurs, NGOs and charities, scientists, and other influential types doubtless do their part. But the populist force of tens of millions of blue-collar and services workers – expatriate Filipina nurses, Indonesian maids in Hong Kong, Haitian restaurant-workers in Miami, West African taxi drivers in Paris, Thai cooks and Lebanese accountants, DC’s Salvadoran construction-workers – appears to be their match.
The World Bank’s remittances page has figures by region and country for 2014: http://www.worldbank.org/en/news/press-release/2014/10/06/remittances-developing-countries-five-percent-conflict-related-migration-all-time-high-wb-report
Countries & regions -
The Salvadoran Embassy: http://www.elsalvador.org/
And the Silver Spring Gazette (2010) on immigrant life, remittance flows during the financial crisis, and cross-country links and stresses in suburban Maryland: http://ww2.gazette.net/fracturedpipeline/
A look at remittance flows to the Pacific Islands: http://www.cgap.org/blog/what-next-remittances-and-money-transfers-pacific
For comparison -
The OECD’s Development Assistance Council page details $138 billion in aid for 2013: http://www.oecd.org/newsroom/aid-to-developing-countries-rebounds-in-2013-to-reach-an-all-time-high.htm
The U.S. Agency for International Development’s data-book has figures by country, project, and topic: http://gbk.eads.usaidallnet.gov/
And UNCTAD’s 2014 World Investment Report: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=937
And a bit of data on cost –
A separate World Bank data-base offers a quick look into the financial-services world of blue-collar immigrants. As a point of reference: American money-management firms charge fees roughly of 0.5 percent to 1.5 percent for managing a $200,000 retirement account. This noted:
1. Most costly: The world’s most expensive remittance services are intra-African wires: according to the World Bank’s figures for the autumn of 2014, a Malawi miner sending $200 home will lose 20.5% of his money, or $41, to banking and wire fees.
2. Most efficient: The cheapest remittances are wires from Singapore. A Thai cook at a hotel will lose only 1.06% of her $200, or $2.12 – roughly speaking, treatment comparable to American money-management firm fees for middle-class clients.
3. United States: America’s average remittance fees are about 6.4 percent; rates for El Salvador are lower, at about 4.4 percent, meaning that this week’s $200 Christmas wires will cost about $8.29. Not bad by world standards; still much more costly than high-dollar investment management. The database: http://remittanceprices.worldbank.org/