Issue 9 | Oct. 21, 2011

Congress Passes Free Trade Agreements with South Korea, Colombia and Panama
Free Trade Agreements with South Korea, Colombia and Panama were approved by an overwhelming majority in Congress, despite opposition from labor unions and several Democrats who voted against the measures. “The landmark trade agreements and assistance for American workers that passed tonight are a major win for American workers and businesses,” said President Obama in a White House press release. The agreements, which had been on hold for five years, were rushed through the chambers ahead of South Korean President Lee Myung-Bak’s official state visit. The agreements are expected to create generate $13 billion in exports and 70,000, with the biggest beneficiaries in the agricultural sector. President Obama is scheduled to sign the agreements on Oct. 21.

Standard & Poor’s Downgrades 24 Italian Banks and Financial Institutions
Standard & Poor’s cut the ratings of three major Italian banks and 21 other smaller regional banks. “Funding costs for Italian banks and corporates will remain  higher unless the Italian government implements workable growth enhancing measures and achieves a faster reduction in the public sector debt burden,” it said. The cuts come as part of a broader sector review in light of September’s downgrade of Italy’s sovereign debt rating. Concerns over Europe’s ability to handle its debt crisis have caused downgrades throughout the European banking sector.

Currency Bill Passes Senate as U.S.-China Trade Deficit Reaches New High
The Senate voted 63-35 in favor of the Currency Exchange Rate Oversight Act, a bill that would place tariffs on imports from states that are found to be currency manipulators. The bill is widely seen as targeting China at a time when the trade deficit between the United States and China has reached an all-time high at $29 billion in China’s favor. Although the Yuan has appreciated steadily, it has done so at a rate slower than expected based on its growth rate and trade surplus numbers. This has led to charges of currency manipulation by the Chinese government to keep the Yuan at an artificially low rate to boost exports. The bill has been criticized by the American Chamber of Commerce in China and the U.S.-China Business Council as counterproductive to the bilateral relationship, and is not expected to pass the House.

Despite Drop in Growth Rate, China’s Domestic Consumption Rises
China’s third-quarter GDP was up 9.1 percent from last year, a slight drop from the 9.5 percent growth rate in the second quarter. The solid growth rate continues though, even as China’s trade surplus shrank for the second consecutive month in September to $14.5 billion. China’s dependency on exports harmed the economy during the 2009 recession, and since then policy makers have pushed to promote domestic consumption in an effort to rebalance the economy away from exports. The efforts appear to be paying off, as retail sales in September rose 17.7 percent from the previous year. Potential signs of weakness, however, include concerns over the access to credit for small and medium-sized businesses.

Traditional Holiday Peak in Shipping Volumes Fails to Materialize
The Port of Los Angeles and the Port of Long Beach reported that the rise in shipments that typically begins in July and lasts through the early fall did not occur this year. Instead, shipping has declined for two consecutive months, unprecedented for this time of year before the 2009 recession. The choice by retailers to forgo possible sales rather than be stuck with unsold goods reflects a general lack of consumer confidence. Air shipping is expected to increase closer to the holiday season, however, as retailers rush to replenish inventory on hot sellers that would not make it in time by boat.

Panama Canal Sets Historic Tonnage Record
As the Panama Canal’s fiscal year closed on Sept. 30, canal officials announced a 7.1 percent increase in tonnage for the year to 322.1 million tons, a record high in the canal’s 97 year history. The announcement comes as the canal continues its $5.25 billion expansion project, which is expected to double shipping capacity by 2014. The project is intended to capitalize on increasing trade between the U.S. East Coast and Asia.