Wednesday, December 18, 2013
U.S. Trade Deficit and the Impact of Changing Oil Prices - RS22204
James K. Jackson
Specialist in International Trade and Finance
Imported petroleum prices hovered around $95 per barrel of crude oil between January 2013 and July 2013, before reaching about $100 per barrel of crude oil in August 2013. Although this is still below the $140 per barrel price reached in 2008, the rising cost of energy is one among a number of factors that restrained the rate of growth in the economy during the first half of 2013. The average price of an imported barrel of crude oil in the January-August 2013 period fell 6% below the comparable period in 2012, the volume of oil imports, or the amount of oil imported, decreased by nearly 11% from the comparable period in 2012. As a result, the value of imported crude oil in the January-August period in 2013 fell nearly 16% from the comparable period in 2012.
In general, market demand for oil remains highly resistant to changes in oil prices and reflects the unique nature of the demand for energy-related imports. Turmoil in the Middle East was an important factor that caused petroleum prices to rise sharply in early 2011 and in 2012. Although prices for imported crude oil fluctuated somewhat throughout 2011, they averaged 30% higher than in 2010 and added about $100 billion to the total U.S. trade deficit in 2011. On average, energy import prices in 2012 were slightly higher than they were in 2011, pushing up the price of energy to consumers. During the same period, the total amount of petroleum products imported by the United States in 2012 fell below that imported in 2011, reducing the overall cost of imported energy to the economy and the overall trade deficit. Oil futures markets in November 2013 indicated that oil traders expect crude oil prices to trend around $94-$95 per barrel through late spring 2014. During periods when oil prices have spiked above $100 per barrel, some elements of the public pressured Congress to provide relief to households that are struggling to meet their current expenses. This report provides an estimate of the initial impact of the changing oil prices on the nation’s merchandise trade balance.
Date of Report: November 22, 2013
Number of Pages: 13
Order Number: RS22204
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Wednesday, December 11, 2013
Current Debates over Exchange Rates: Overview and Issues for Congress - R43242
Rebecca M. Nelson
Analyst in International Trade and Finance
Exchange rates are important in the international economy, because they affect the price of every country’s imports and exports, as well as the value of every overseas investment. Following the global financial crisis of 2008-2009 and ensuing economic recession, disagreements among countries over exchange rates have become more widespread. Some policy leaders and analysts contend that there is a “currency war” now underway among certain countries.
At the heart of current disagreements is whether or not countries are using exchange rate policies to undermine free markets and intentionally push down the value of their currency in order to gain a trade advantage at the expense of other countries. A weak currency makes exports cheaper to foreigners, which can lead to higher exports and job creation in the export sector. However, if one country weakens its currency, there can be implications for other countries. In general, exporters and firms producing import-sensitive goods may find it harder to compete against countries with weak currencies. However, consumers and businesses that rely on inputs from abroad may benefit when other countries have weak currencies, because imports may become cheaper.
The United States has found itself on both sides of the current debates over exchange rates. On one hand, some Members of Congress and U.S. policy experts argue that U.S. exports and U.S. jobs have been adversely affected by the exchange rate policies adopted by China, Japan, and a number of other countries. On the other hand, some emerging markets, including Brazil and Russia, have argued that expansionary monetary policies in the United States and other developed countries caused the currencies of developed countries to depreciate, hurting the competitiveness of emerging markets. More recently, however, emerging-market currencies have started to depreciate, and now there are concerns about emerging-market currencies becoming too weak relative to the currencies of some developed economies.
Through the International Monetary Fund (IMF), countries have committed to avoid “currency manipulation.” There are also provisions in U.S. law to address “currency manipulation” by other countries. In the context of recent disagreements, neither the IMF nor the U.S. Treasury Department has determined any country to be manipulating its exchange rate. There are differing views on why. Some argue that countries have not engaged in policies that violate international commitments on exchange rates or triggered provisions in U.S. law relating to currency manipulation. Others argue that currency manipulation has occurred, but that estimating a currency’s “true” or “fundamental” value is complicated, and that the current international financial architecture is not effective at responding to exchange rate disputes.
Date of Report: November 12, 2013
Number of Pages: 32
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Thursday, December 5, 2013
U.S. Textile Manufacturing and the Trans-Pacific Partnership Negotiations - R42772
Michaela D. Platzer
Specialist in Industrial Organization and Business
Textiles are a contentious and unresolved issue in the ongoing Trans-Pacific Partnership (TPP) negotiations to establish a free-trade zone across the Pacific. Because the negotiating parties include Vietnam, a major apparel producer that now mainly sources yarns and fabrics from China and other Asian nations, the agreement has the potential to shift global trading patterns for textiles and demand for U.S. textile exports. Canada and Mexico, both significant regional textile markets for the United States, and Japan, a major manufacturer of high-end textiles and industrial fabrics, are also participants in the negotiations.
U.S. textile manufacturers produce yarn, thread, and fabric for apparel, home furnishings, and various industrial applications. In 2012, the U.S. textile industry generated $54 billion in shipments and directly employed about 233,000 Americans, accounting for 3% of all U.S. factory jobs. About one-third of U.S. textile production is exported, with the bulk of the exports going to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA) or the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR). Both free trade agreements provide that certain exports from member countries may enter the U.S. market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings, and other products. Exports to the NAFTA and CAFTA-DR countries contributed to a U.S. trade surplus of $2.1 billion in yarns and fabrics in 2012.
The TPP has the potential to affect U.S. textile exporters in at least two ways. First, it could enable Asian apparel producers, principally Vietnam, to export clothing to the United States dutyfree. This would eliminate much of the advantage now enjoyed by Western Hemisphere apparel producers in the U.S. market and, because Vietnamese manufacturers make little use of U.S.- made textiles, could reduce demand for U.S. textile exports. Second, if the TPP were to allow Western Hemisphere apparel manufacturers to use yarn and fabric made anywhere in the TPP region and still enjoy preferential access to the U.S. market, an enlarged Vietnamese textile industry could, at some future time, compete with U.S. exporters in Mexico and Central America.
Textile industry trade groups have urged the United States to insist on a strict “yarn forward” rule that allows a garment to enter the United States duty-free only if yarn production, fabric production, and cutting and sewing of the finished garment all occur within the TPP region. U.S. negotiators have also proposed that certain textile inputs “not commercially available” in TPPmember countries could be sourced from outside the region, including China. On the other side, retailers and apparel companies with extensive global supply chains want maximum flexibility for sourcing and are less concerned about whether textiles manufactured in the United States are used; they urge textiles and apparel to be treated like other products in any TPP agreement, and want any apparel cut and sewn within the TPP area regardless of where the fabric originates to be eligible for duty-free entry. Members of Congress have voiced their support for both sides.
The TPP seems likely to have less impact on those segments of the U.S. textile industry that do not supply apparel manufacturing. U.S. manufacturers of household and technical textiles appear to be internationally competitive, and it is not evident that lower-wage countries would have comparative advantage in these highly capital-intensive sectors.
Date of Report: November 20, 2013
Number of Pages: 26
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