What is the Definition of Fair Trade?

Fair trade is one of the most burning issues dragging economic integration in the world. Achieving fair trade requires that nation agree and enforce what is taking too long to incorporate into the current WTO framework.

· Regional trade blocs like MERCOSUR , ASEAN, OATUU and others need to embrace international standards. UNCATAD is the international agency leading the way for collecting trade data on imposed tariff measures that cover most countries and can be freely disseminated.

· A burning issue in the markets today, is the lack of transparency on trade regulations by country. “Drawer” regulations that are made on the fly at border crossings impose a hidden cost on trade specially, in underdeveloped countries.

· In Africa, many exporters lose sometimes half of their potential export earnings because European Union regulations are different from the international standards set by the International Organization for Standardization. By adopting international standards of global best practices in trade should result in the promotion of sustainable development while decreasing negative impact on the environment.

· Adopting standard rules avoids the burden of red tape imposed by each country’s regulatory regime. The rules and guidelines are already available on the issue and embedded in WTO and OECD rules but the overall application of these set principles is in many cases missing.

· Procedural requirements at border crossing need to have technical assistance and training of law enforcers so that countries join together and accepted the rules of trade in order to streamline each country’s regulatory regimes and thus, reduce procedural obstacles.

Trust issues

Public health and environmental protection, has been the backlash against globalization and a growing influence of elites protecting their own turf to the detriment of everyone else. Moreover, just by simply reducing barriers or reducing restrictions to trade does not have linear correlation specially, when the mix includes influential politicians or well-connected elites. At the end of the day countries must evaluate if non-tariff measures to trade like subsidies are legitimate or be used as trade offs to bring about trade fairness and efficiency. Only then adopting these complementary policies, can individuals and the markets have credibility and fairness and become the vibrant drivers of jobs and incomes.

“The World Economic Forum’s E15 Initiative has emphasized the importance of efficient global trade in fostering economic growth. The scale and complexity of the modern, globalized, system is made clear by visualizations such as these, of global shipping.”

TTIP is a trade agreement currently being negotiated by the US and EU that would bring tariffs and regulatory barriers to minimum levels to transatlantic trade and investment. The goal is that each side of the Atlantic seaboard will give access to their companies to each other markets with standardized regulations and procedures.

It has been reported that the US and EU countries together represent $1 trillion in trade every year. This agreement would cover 45% of global GDP, making the TTIP the world’s largest trade agreement which would include pharmaceuticals, automotive, energy, finance, chemicals, clothing and food and drink among others.

The Internet is taking trade to a new dimension into what is now becoming push button trade in a fast pace environment which requires factories close to the markets and new distribution cyber platforms. The trend is provoking changes in the market and corporations are adapting by using multi-layer global platforms and supply chains. The age of digital transactions is here to stay in a fast economy that in the past tended to centralize for better management and quality control. But cloud computing is changing all that generating new level of cooperation between producers the supply chain and the ultimate consumer.

Big data management is surging not only as a new field in science but in commerce as well as giants like Alibaba, eBay, Amazon and the such apply this new technology not only as a point of sale but also to determine consumer preferences and tastes as new “learning” algorithms enter the market like autonomous driving cars.

This expanding global markets has been aided by the lowering cost of shipping transportation for long distance given new markets access to otherwise unreachable opportunity for smaller manufacturers and cottage industries providing consumers with more choices and prices.

Adapting and retooling is the new rule of global markets, re-engineering the supply chain, big data analysis and Internet cloud platforms are bringing new realities to trade beyond Bretton Woods and WTO. As a result, uninformed politicians like Trump should smell the coffee and bring the US to the new dawn of reality as international trade evolves without the intervention of hard headed and ignorant politicians.

When do you think the US economy will tank?

The US economy will tank when the false perception of a great economy catches up with the reality of mathematics. Trump predicted economic growth of 4 percent due to his business acumen, success in the real estate market and a “great brain.” However, recent revelations by the New York Times contradicts this assertion by saying that Trump inherited over $400 million dollars using fraudulent schemes to avoid paying taxes and then squandered most of that wealth in bad business decisions only to be rescued by Russian “credit lines” that will become due during his time in office.

Economic forecast for gross domestic product, is that it will rise to 2.4 percent in 2019 according to the Federal Reserve which is 1.6 percent Trump’s wishful prediction. Moreover, the U.S. debt exceeded $21 trillion in 2018 although it had remained stable after sequestration was activated requiring a mandatory 10 percent federal budget cut through 2021. Moreover, Trump might repeal it as tax collections fall below projections from his tax largess for wealthy Americans. Never mind that he promised to reduce the debt as his policies may increase it by $5.6 trillion.

The U.S. debt-to-GDP ratio is forecast to hit 108 percent by the end of 2018, a level that is not a sustainable and well above the 77 percent benchmark that the International Monetary Fund recommends for a healthy economy.

The appointment of Lawrence Kudlow as head of the National Economic Council indicates how firmly Trump and supply-side economics control the republican view of wealth distribution and the how it should take place. However, lowering taxes can create a budget hole that can only be filled by printing new money which many economic researches agree on the notion that new printed money becomes proportional to inflation. These supply-side view ignores that it doesn't work when the maximum tax rate is below 50 percent, according to the Laffer Curve which Kudlow argues as his basis for the economic policy!

On another front China is the world's second-largest economy, behind the U.S. since 2014. Notwithstanding, China's economic growth is slowing from double digits to 7 percent annually but proportionally to its size it will continue to affect the U.S. economy with a higher influence than in the past. One reason is of course the U.S. debt to China which still is larger than to any other country while China continues to accumulate US treasuries for its international trade needs.

Another economic pressure comes from energy price inflation. The International Energy Forum projected, in 2007, that by 2030, oil prices will be $95 a barrel in nominal dollars. “The EIA's Annual Energy Outlook predicts that U.S. shale oil production will level off after that. As a result, oil prices will rise to $114 a barrel by 2050.”

One of the most important functions of the Fed is managing public expectations of inflation for once the public expects inflation, “it becomes a self-fulfilling prophecy.” Confidence in the current economy is Trumpian and the Feds must walk a high rope balancing act managing Trumpian politics with economic reality in order to moderate public behavior. But as the Fed continues to raise interest rates even though at a slow pace, it knows that mortgage rates will rise, and housing prices will drop to offset the higher cost to home buyers. The public on the other hand, thinks the real estate market will crash in the next few years as housing prices rise, combined with raises in interest rates by the Fed. To many observers, it looks simply as an asset bubble that will be followed by a collapse.

How can one monitor the price swing of commodities and the factors that influence price volatility?

Commodity pricing has many sticky components but in general, the instability of prices and the randomness that comes with it increases the cost of doing business for producers and traders.

Cocoa futures for example have plummeted 12 percent in less than a minute and then recovered in from the “flash crash” but left everyone perplexed. Also, cotton futures can swing wildly tripping market circuit-breakers on many occasions over a trading year. Sugar is another commodity were futures can fall 20 percent in a couple days and then recover.

Just like commodities, food manufacturers and fuel suppliers, need market futures to help them set prices and predict point of delivery costs that can vary from corn flakes to cakes. As a result, farmers use the same information to decide which crops to plant. This interdependent process keeps industries running smoothly and act as insurance policies to hedge the risks inherent in buying and selling raw commodities.

But when prices move unpredictably, it increases the cost of buying the futures and options that protect companies against such changes. The added costs find their way to the grocery store and to the shopping mall for shopping consumers.

A good example of the benefit of the futures market is heating oil. Typically a distributor buys oil only as he needs to supply it, he uses heating oil futures and options as a form of insurance to protect himself against unexpected jumps in prices. However, seven or eight years ago, such protection added only 2 to 6 cents to each gallon of heating oil the distributor bought. But volatile oil prices mean it can costs him 37 cents a gallon for such hedging which is an extra cost to add to customers’ heating oil bill for a given year that can also swing wildly the following year.

Nonetheless, volatility can drive prices down as quickly as it pushes them up. A wide range of commodities can plunge, with the broad CRB commodities index closing up or down 5 percent. Moreover, the situation is more confusing for businesses as commodities have become more volatile for reasons that no one fully understands.

Much such fluctuation is caused by economic supply and demand, especially, when stocks of commodities like cotton, corn and coffee are driven to low levels, setting markets on a hair trigger. As demand for many commodities rises in developing countries like China and India that are becoming wealthier buying ever more food and oil that increases demand and puts pressure of existing stocks.

It follows that other factors are purely financial, like concerns with a weak dollar, oil disruptions on the supply side and a changing perception of the global economy, can also have influence on rapidly changing prices.

Hedge funds and commodity traders have become a massive force in the commodities futures market, in part by a switching to computerized trading. Critics say the technological switch is altering the dynamics of the commodities markets, just as it has in the stock market, which has suffered several “flash crashes” as well.

Traditional players like grain elevators or cotton merchants are being outshined by a new class of financial speculators, including high-frequency traders, who use automated programs to buy and sell repeatedly at high speeds.

“The exchanges, which profit from the increased trading levels, say high-frequency trading now makes up 10 to 20 percent of the futures trading in many agricultural commodities, nearly a quarter of the trading in metals and 30 percent in energy futures markets.”

One important issue to consider is that commodity trading is the purest form of investing. Unlike the stock market there’s no derivation, no abstraction, no three or more levels of separation from the underlying asset. There is a tangible utility like a grain a foodstuff, a fuel in a huge market with numerous players. Commodity pricing is as close as the real world gets to the classical economic concept of a good’s supply and demand curves intersecting at a particular price and quantity.

Changes in supply, not demand, is what dictates most price movements with regard to a particular commodity. But supply is contingent to various ecological factors, consumption patterns and finances that go beyond the control of the people who raise a commodity for a living.

Cocoa for instance is produced far from the world’s financial and trading centers, primarily in the Ivory Coast, Ghana and Latin America, in lots of small-scale family farmers. The effect of having many suppliers offering a uniform product means that each individual supplier has little influence on the market price. In contrast another commodity like gold with an annual production averaging 2,500 tons has a small variation in a comparable period unless great uncertainty sets in the world markets including kinetic war or a trade war making world currencies become volatile.

Karl Marx thought that the amount of labor involved in creating a good determined its value, however, cocoa farmers don’t work five times harder when their product is sold for $4,000 a ton than when it is sold for $800 per ton. An investor knows this, and by extension knows that the only way to earn money in the commodities market is to anticipate price movements. Which is easy to say but very difficult to do and that explains why conservative investors put their money in mutual funds and exchange-traded funds (ETFs).

The Chicago Board of Trade (CBOT) where CME Group is the world’s leading and most diverse derivatives marketplace, made up of four exchanges, CME, CBOT, NYMEX and COMEX. These exchanges are very good reference for monitoring price swings on daily trades as well as futures market.