December 11, 2018

Economic View: Trump’s Tariffs Haven’t Really Transformed Trade. Yet.

In March, the White House added a 25 percent tariff to about $31 billion worth of imported steel, and a 10 percent tariff to $17 billion of imported aluminum. (This does not apply to imports from Argentina, Australia and Brazil.) In July and August, Mr. Trump kicked off a trade war with China by imposing an extra 25 percent tariff on $50 billion worth of imports from the country. China retaliated, so Mr. Trump punched back, imposing an additional 10 percent tariff on $200 billion in Chinese goods.

I asked Chad Bown, a trade policy expert at the Peterson Institute for International Economics, a Washington think tank where I also serve as a nonresident senior fellow, for a back-of-the-envelope calculation of how consequential these changes would be.

He found that Mr. Trump’s actions would increase America’s annual tariff revenue by about $42 billion. That sounds like a big number and it has garnered major headlines. But if you consider the scale of international trade, the figure starts to seem more modest: Last year, Americans spent roughly $2.3 trillion on imports.

These numbers suggest the average tariff rate in 2018 will rise by about 1.8 percentage points, to about 3.2 percent. This means that Mr. Trump has already rolled tariffs back to roughly their level at the beginning of President Bill Clinton’s administration. Even so, average tariffs remain lower — by quite a large margin — than they have been through most of United States history.

It’s worth putting this in a global context. Even after these recent tariff increases, the United States will charge lower tariffs on average than most countries, although it has become notably more protectionist than major trading partners like Canada and the European Union.

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Markets Are Revealing the Sum of All Risks

Take the tightening of corporate credit that is underway, with interest rates for riskier companies soaring. It has echoes of the not-too-distant past. In the mid-2000s, American automakers were overleveraged and facing a difficult environment. General Motors and Ford bonds were cut to junk status in 2005.

Bondholders and credit ratings agencies lost confidence in those industrial icons’ corporate debt, causing plenty of pain for the automakers’ employees and stock prices. But the overall economy kept humming along. (It was a recession rooted in other sectors, three years later, that dragged American automakers toward bankruptcy.)

Similarly, it’s easy to look at the slowdown in home sales and building activity, for example, and fear that it could lead to a repeat of the 2008 recession.

But in that episode, housing starts peaked in January 2006. For nearly two years, the economy largely held up; as housing contracted, other sectors grew. It was only after the housing downturn triggered a financial crisis that a recession began in December 2007.

In terms of a slowing global economy, in 1998 an emerging markets crisis seemed to endanger a booming American economy enough that the Federal Reserve cut interest rates late that year to try to guard against damage. As it turned out, 1999 was a boom year.

What these episodes all show is that adjustments — whether in the credit markets, the housing market or emerging markets — tend to cause huge economic disruption only if there are compounding factors, or inadequate policy responses.

Already in the last couple of weeks, top Federal Reserve officials have softened their tone about how high they will eventually push interest rates.

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The Biggest, Richest Cities Won Amazon, and Everything Else. What Now for the Rest?

The authors are similarly skeptical of large-scale infrastructure projects, arguing that such efforts in Europe, called “cohesion policy,” have tended to create nice roads and bridges in remote, poorer areas, while doing little to help incomes and employment rise in those areas over time.

“What’s increasingly clear after the 2016 election is that the forces that have been really good for the economy in the aggregate, like globalization and technological change, create local shocks that are extremely powerful,” Ms. Hendrickson said.

Their work is only the latest in efforts to wrestle with potential policy answers.

In one of a series of papers published by the Hamilton Project, David Neumark of the University of California, Irvine, described a plan in which the federal government could subsidize the wages of newly hired workers in extremely poor areas. The subsidies would be 100 percent at first before tapering off — in hope of pulling more people into the labor force so they can develop skills that will allow them to earn a nonsubsidized wage.

In another, Tracy Gordon of the Urban-Brookings Tax Policy Center argued for rejiggering the formulas to set federal grants related to Medicaid, highway funding and other infrastructure spending so as to better reflect the economic conditions in different places.

And the economists E. Jason Baron, Shawn Kantor and Alexander Whalley argued for expansion of a program meant to ensure that innovations developed at universities are spread to nearby employers.

Steve Case, whose venture capital firm Revolution has worked to advance entrepreneurship outside the big coastal tech hubs, said, “With the Amazon second headquarters, if the result isn’t what people may have wanted, it could still help jump-start a discussion around regional innovation that could lead to better results down the road.

“I’m just eager for it to move into action so there’s less of a feeling of being left behind and more optimism about the future.”

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Why the Housing Market Is Slumping Despite a Booming Economy

In contrast with the stock market, where relatively unemotional traders are buying and selling shares every day and the market stays liquid, home purchase and sales decisions can take months and are deeply emotional for the participants.

What seems to be happening is that sellers are trying to cling to the spring 2018 prices that their neighbors received, while there aren’t enough buyers in late 2018 willing or able to pay those prices.

In a Fannie Mae survey of home purchase sentiment, the proportion of people who think it is a good time to buy a home has decreased significantly since the spring, to a net 21 percent from 29 percent. But so has the proportion who think it is a good time to sell, which has dropped to 35 percent from 45 percent.

You would expect, in a zero-sum transaction like a home sale, for those numbers to move in opposite directions. Instead, it seems that sellers are unhappily realizing that they aren’t going to get what they thought their house was worth six months ago, and buyers still think homes are too expensive.

That helps explain why transaction volume, especially for new houses, has fallen substantially while prices haven’t (at least yet). It’s a standoff. And the outcome of the standoff will, in the aggregate, play a role in shaping the future of the economy.

There is precedent for this, and it isn’t a happy one. In the last housing boom, new home sales peaked in July 2005, and home prices didn’t start declining until May 2006. It didn’t start to hurt the overall economy until December 2007, when the damage had spread through an overleveraged global financial system.

But that doesn’t mean this episode has to end in tears. Home prices are not nearly as out of line with incomes as they were then; speculative activity hasn’t been nearly as frothy; and consumer debt levels are considerably more measured.

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Tech Fix: What’s Hot (and What’s Not) This Black Friday

Google, for one, plans to offer its miniature smart speaker, Google Home Mini, for $25, down from $49, and its Nest smart thermostat will drop to $179 from $249. Similarly, Target plans to sell Amazon’s compact smart speaker, Echo Dot, for $24, down from about $50.

Black Friday also tends to be the best time to buy smart kitchen appliances, like sous vide wands or the internet-famous Instant Pot pressure cooker.

Wirecutter also anticipates that audio gear like headphones will drop to their lowest prices all year. During Black Friday last year, Bose’s premium noise-canceling headphones, QuietComfort 25, were priced at $180, down from $280.

Mr. Burakowski said he expected similar deals for high-quality headphones next week. Be on the lookout for deals on Apple’s AirPods, which retail for about $160, and Bose’s QuietComfort 35, which normally cost about $350.

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Amazon’s New York Home Qualifies as ‘Distressed’ Under Federal Tax Law

State governors selected the zones from a list of eligible census tracts, based on a formula used to calculate eligibility for another federal effort to aid struggling areas, the longstanding New Markets Tax Credit. Governors were allowed to designate one-quarter of eligible areas as opportunity zones. Their designations were approved by the Treasury Department.

Most of the zones are in areas that have fallen behind economically, despite robust growth across the American economy. Ms. Gelfond and Mr. Looney calculated that the average poverty rate in a designated zone was 29 percent in 2016, nearly twice the national average. The zones are more heavily disadvantaged than the eligible areas that governors did not select, they found, and generally target areas where economic mobility is low. In other words, states did largely select areas that were truly in need of investment and economic help.

But the relatively broad criteria allowed governors to choose some low-poverty, higher-income, rapidly developing areas adjacent to low-income zones. They constitute about 200 of the nearly 8,800 zones that Treasury approved, including the waterfront area that Amazon has chosen in Long Island City.

Brookings estimated that 11 percent of the final opportunity zones have lower poverty rates than the national average. A third of the zones in Washington, D.C., for instance, are already gentrifying quickly, according to estimates by the Urban Institute. Among the states, New York has the highest share of gentrifying areas, with 13 percent of its zones in areas that are beginning to prosper.

Areas like Long Island City “are already getting a lot of capital,” said Brett Theodos, a principal research associate in the Metropolitan Housing and Communities Policy Center at the Urban Institute. “This use case was allowed from the beginning. Whether that’s a good use of public subsidies is another question.”

After Mr. Trump’s tax cut passed, Mr. Theodos developed a ranking system of sorts to help states steer their designations toward areas that most needed the help. The system assigns each eligible tract in every state an “investment score,” which measures commercial, small-business and housing lending activity on a scale of 1 to 10 based on the need for investment. It also attaches “socioeconomic change flags” to areas that appear to be gentrifying, based on recent upswings in median income, housing costs and the share of residents who have college degrees or are white.

The riverfront tract in Long Island City scored a 9 on that investment scale, and was flagged for gentrification.

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Before a Deal, Amazon Had to Know: Could Cuomo and De Blasio Get Along?

By January, Amazon narrowed the list to 20 locations, including New York. Amazon visited in April, July and September, said a person familiar with the meetings. The executives narrowed their search to sites on the West Side of Manhattan and in Long Island City before finally settling on the Queens neighborhood.

Mr. Carney said Mr. Bezos did not tour any of the sites. The process was run by Holly Sullivan, who leads the company’s worldwide economic development. John Schoettler, the executive who oversees Amazon’s real estate, negotiated with the private developers.

During one visit, the Amazon executives visited the Cornell Tech campus, a new high-tech school on Roosevelt Island, and took the ferry from there to Long Island City. They rode Citi Bikes as city officials and local Queens representatives showed off the area. On another occasion, they took the ferry at sunset.

It wasn’t until the past few weeks that things really took off.

Gov. Cuomo met Amazon executives, including Jeff Wilke, who runs the company’s retail business, in his offices on Third Avenue. From the window, he said, they could see the site along the waterfront Amazon would eventually select.

“I showed them the pictures of the progress of LaGuardia, of J.F.K., Penn Station, Kosciuszko Bridge — I explained what doubling the span means,” he said, referring to building projects. He said Amazon executives were interested in having a pipeline of educated employees, not just from the top universities, but from other places such as Queens College and the nearby LaGuardia Community College in Long Island City.

Amazon expressed concern about the city’s planning process, which is slow and allows for local officials and the City Council to veto projects. The company’s lawyers appeared to know about those pitfalls and wanted to avoid them. So Mr. de Blasio and Mr. Cuomo agreed to let the state control the approval, meaning there could be local input but no local veto. Mr. Cuomo said it was a “friendly condemnation” of the city-controlled land by the state, not a source of tension.

Though the mayor and governor met separately with Amazon, they were in close contact, comparing notes and strategizing over the phone, according to a person briefed on the talks.

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A $2 Billion Question: Did New York and Virginia Overpay for Amazon?

New York City did not offer any special tax breaks to Amazon as part of the deal. But the company will be able to take advantage of existing city tax credits, including a program designed to encourage companies to create jobs outside the busiest parts of Manhattan. The program, open to all companies, could be worth as much as $900 million to Amazon over 12 years, on top of the state incentives.

Ms. Doulis, of the Citizens Budget Commission, said that credit and similar ones might have outlived their usefulness. In the 1980s and ’90s, she said, companies were taking a risk by expanding in Queens or Brooklyn, and tax breaks provided an important inducement. But today, Long Island City is a rapidly developing neighborhood full of hip bars and luxury apartment complexes.

“That neighborhood was very different 25 years ago,” she said. “We’re in a very different world now.”

Still, Ms. Doulis said Amazon’s arrival was a major coup for the city, which has been trying to establish itself as a tech hub to rival Boston, Seattle and even Silicon Valley. Mr. Cuomo and Mayor Bill de Blasio on Tuesday said Amazon’s decision was a vindication of that strategy, which the mayor said would benefit all New Yorkers.

Tom Stringer, who advises companies on site-selection decisions for the consulting firm BDO, said high-cost places like New York and Virginia needed to offer incentives to compete with cheaper areas. And he said the deals would pay off in the long run in jobs and tax revenues.

“Incentives are not subsidies,” Mr. Stringer said. “They are investments.”

But it isn’t clear they are good investments, said Jay Shambaugh, director of the Hamilton Project at the Brookings Institution. In offering incentives to Amazon, he said, New York and Virginia are effectively subsidizing a big, incumbent company at the expense of local businesses and start-ups. That is especially concerning, he added, when entrepreneurship rates are falling and cities are struggling to nurture homegrown businesses.

That could be a particularly bitter pill for local retailers, many already struggling to compete with Amazon, said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, an advocacy group long critical of Amazon.

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The Economy Didn’t Save Republicans After All

Democrats dominated prosperous districts, winning at least 57 of 87, by an average of nearly 25 points.

When Republicans passed a $1.5 trillion tax cut late last year, they envisioned it as a centerpiece of their sales pitch for the midterms. But they may have miscalculated how potent an electoral weapon the tax law would become — against them.

Despite giving at least a modest tax cut to most households, the tax law has struggled to win majority support from voters. Several of its biggest champions lost their seats on Tuesday. They included four members of the House Ways and Means Committee, which wrote the law, most notably Peter Roskam of Illinois, the chairman of the tax policy subcommittee, and Erik Paulsen of Minnesota, the chairman of the Joint Economic Committee.

On average, Republican candidates did no better in districts where residents got larger tax cuts, as measured by estimates from the Tax Foundation, a conservative research group.

The law appears to have hurt Republicans in some high-income, high-tax districts, where many residents were angry about the law’s $10,000 cap on the deduction for state and local taxes. In Virginia’s 10th Congressional District — where the largest share of residents took the so-called SALT deduction in 2016, according to an analysis of Internal Revenue Service data — the Republican incumbent, Barbara Comstock, lost her seat. Her Democratic challenger, Jennifer Wexton, called the law the “Comstock-Trump tax scam.”

More broadly, Republican incumbents fared modestly worse than expected, relative to past elections, in districts where a large share of residents take that deduction.

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Devah Pager, Who Documented Race Bias in Job Market, Dies at 46

“By her mid-30s, she had established herself as a historic figure in the scientific study of racial discrimination,” Mitchell Duneier, chairman of the sociology department at Princeton, said in a telephone interview.

Her work was so well regarded that she had been on track to be elected to the prestigious National Academy of Sciences — a rare achievement in any case but even rarer for someone in sociology, for a woman and for one so young. Upon her death, her name was removed from the ballot because membership cannot be given posthumously.

“Had she not died, she was a sure bet to be elected,” Robert M. Hauser, who was one of Dr. Pager’s advisers on her dissertation at Wisconsin, said in a telephone interview.

Devah Iwalani Pager was born on March 1, 1972, in Honolulu. Her father, David Pager, is professor emeritus of computer sciences at the University of Hawaii. Her mother, Sylvia (Topor) Pager, who died in 2015, was a pediatrician.

In addition to her husband and her father, she is survived by her son, Atticus, who is 5, and two brothers, Chet and Sean. She and Mr. Shohl were married in 2016, after Dr. Pager’s diagnosis.

She grew up in Hawaii, where she attended the private Punahou School. She earned a bachelor’s degree in psychology from the University of California, Los Angeles, in 1993; a master’s in sociology from the University of Cape Town in 1996; a second master’s from Stanford in 1997; and a doctorate in sociology from Wisconsin in 2002, before becoming a Fulbright scholar in Paris.

Dr. Pager became attuned to racial issues when she left Hawaii, which has a high rate of interracial marriage, for Los Angeles, which she found more segregated. “When you grow up with that being normal,” she told The New York Times in 2004, “everything else seems strange — and wrong.”

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