William Pesek writes:  The Trans-Pacific Partnership trade deal, which has stalled because Japan has been unwilling to open up its auto and agricultural setors, now has a chance to be passed. Devaluation of the yen will probably not be welcomed by the Republic Congress.

Going easy on agriculture will not please Republicans.  This will put Abe in the hot seat with certain constituencies and make his life difficult as he tries to loosen labor markets, get more women in the workforce and strengthen Japan’s corporate governance.

Will the Prime Minister’s own party which is financed by agriculture go along wtih a comprehensive trade pact?

The Repulicans will control both houses of Congress in the US.  This may be good news for the global economy.

Daniel Altman writes:  Both houses of Congress will fall into Republican hands for the first time since 2005. The global economy will be watching to see if the two parties can finally work together — and perhaps, in some ways, they can.

With Republicans at the helm in both houses, simply boasting of stopping President Barack Obama’s agenda probably won’t impress voters too much in 2016, either. And no one wants to go down in history as the party bigwig who merely watched while nothing got done (right, Mitch McConnell?). So Republicans may want to advance some legislation that the president would sign.

This is where the global economy comes in. The United States has been the lead horse pulling the wagon for several years now, and that doesn’t look like changing in the next two. The European Union is still hamstrung by austerity, unemployment, and weak monetary policy.   China is in the midst of a slowdown.  And Japan, though showing some hopeful signs, is operating far from capacity.

In other words, the ball is in Washington’s court. And there are three important areas where Republicans can set an agenda that might even bring Obama along, offering him a chance to strengthen his as-yet-shaky legacy, and give Congress something to crow about.

The first is taxes, and the corporate income tax is front and center. The United States has one of the highest rates in the world, which has resulted in vast pools of cash owned by American corporations sitting unused overseas.   Cutting the rate would make federal tax revenue less volatile, but it would also give Americans who pay taxes as companies a chance to shelter vast amounts of income. To preserve the reduction in volatility while maintaining the tax base, legislation might also get rid of some of the dozens of loopholes. 

If American companies took advantage of a friendlier tax rate to bring their earnings back stateside and invested them in their businesses, global growth could get an enormous boost. U.S. companies may hold on the order of $5 trillion in cash abroad; investing even $1 trillion at return of 5 percent would raise annual output in the United States by $50 billion, or about 0.3 percent per year, with likely spillovers abroad. Of course, the rest of the world might also suffer a dent in its liquidity, but the net effect of putting those dollars to work would almost certainly be positi

Another area ripe for reform is immigration. The United States has an immigration policy that’s largely motivated by politics and cultural considerations rather than economics.

Even against the backdrop of an immigration policy that lacks economic underpinnings, research suggests that migration to and from the United States responds to supply and demand.  Taking the brakes off immigration would allow more businesses to operate efficiently, bringing in workers as they would raw materials or physical capital. And when immigrants work in the United States, they frequently earn much more than they would have at home — and they send a portion of their incomes back to spur growth there as well. It’s hard to believe that Obama would reject a pro-business immigration reform that also allowed Republicans — not to mention the president — to accentuate their toughness on border security.

The last area where Republicans and the president might find common ground is trade. Obama is more in favor of free trade than the Democratic caucus, which has put a damper on his administration’s efforts to sign historic pacts with the EU and neighbors across the Pacific.  There’s a chance that immigration and trade deals could be pushed through

That’s the economics. But from a political perspective, do any of these three areas show actual potential for progress?

Establishment Republicans, as opposed to the insurgent Tea Partiers and their ilk, have always boasted of a pro-business agenda. And John Boehner, the speaker of the House of Representatives, and Mitch McConnell, the presumptive Senate majority leader-in-waiting, are about as establishment as they come. By a stroke of luck, it’s also fashionable for Democrats to be pro-business these days.  For Obama, especially as a lame duck, there’d be little benefit to vetoing economically driven proposals on any of the issues above; instead, he could use pro-business credentials to become an asset on the campaign trail again. 

No, the big question is whether the pragmatism of establishment Republicans can win over the more ideological wings of their party. Immigration, trade, and even taxes are all emotional issues, especially for Americans fed up with job searches and stagnating incomes. But as long as payrolls in the United States keep growing, there may just be room under the covers for some rather unusual bedfellows. If they can finally get it together, the global economy may be in for a blissful couple of years.

Look at productivity in China, not growth. to see where China is really headed.

With iron ore prices already sitting at five year lows, a further slowdown in Chinese growth is not the sort of news that Australian policy-makers need. What is of greater concern is whether we are seeing the beginning of something more permanent. Will China have a similar trajectory to Japan since the early 1990s? This would impact the rise of China’s middle class.

In the long run economic growth is delivered when productivity climbs. That means finding better ways of doing things. The only other way to produce more output is to use more inputs. However, the problem is diminishing returns. Building a rail link that connects an inland city with a port brings enormous benefits but once built, there is little need for another..

Productivity struggles to attract the attention of commentators because it is hard to calculate. Professor Chris O’Donnell and James Laurenceson found evidence of rapid productivity growth across most provinces. This is good news but also no surprise – China had access to easy sources of productivity gains such as borrowing technology from overseas.

The key question is whether productivity can continue to improve as the economy matures?  The government has spent much on human capital and the results are significant. China’s universities are now second only to the US in terms of their total research output.

But for truly rich productivity gains to be unlocked, reforms are needed that shift the economy away from its dependence upon investment. For consumers to take the lead they need more income. Getting state-owned banks to pay the household sector market rates of return on their savings deposits is one example of the type of policy that is sorely needed.

Facing a downturn in economic activity, the first instinct of China’s leaders is to pull policy levers that pump up aggregate demand. But temporary measures to boost growth such as expanding the supply of credit have largely run their course and are no longer sustainable.

When pushed they have also shown themselves to be nothing if not pragmatic. President Xi Jinping’s aggressive tackling of official corruption in response to public anger is a case in point. If stalled living standards are to be avoided, committing to a productivity-enhancing reform agenda is really the only option that China has left.

Focus  on what the data says about the trajectory of productivity. Through the first half of 2014 consumption contributed 54% of GDP growth, while investment chimed in with 49% (net exports were responsible for -3%).

The overall growth rate may be disappointing but if there is a widening of the gap in favour of consumption then this is exactly the sort of news that China and Australia needs.