The Top Line

• A second month of numbers above expectations in the job market and elsewhere indicates momentum for recovery building.

• U.S. reaction to repression in Hong Kong and Xinjiang has led China to lash out abroad while stifling dissent at home.

• The United States-Canada-Mexico Agreement on trade enters into force, bringing greater certainty for markets and businesses and strengthening cross-border trade.

• Beating COVID-19 with a Band-Aid.

Jobs Report, Other Indicators Showing Continued Rebound

For the second month in a row, the jobs market has beat analyst expectations (see above). The unemployment rate, expected by forecasters to fall to 12.5% from the month before, actually fell to 11.1%. Jobs gains of 4.8 million beat analyst expectations of 2.9 million. The U-6 rate, a broader measure of unemployment that includes underemployed workers who would take more hours if available and workers seeking employment in the last year, dropped from 21.2% to 18%.

• Other indicators showed similar improvements. The consumer confidence index rose to 98.1 points in June from 85.9 in May. This beat analyst expectations of a rise to only 91.
• The Institute of Supply Management’s Purchasing Managers’ Index (PMI) rose to 52.6 in June from 43.1 in May. Sub-indexes for new orders and production both rose more than 20 points while the sub-index for employment rose by 10 points.

China Lashing Out at Home and Abroad

On June 30, China’s legislature passed its controversial national security law for Hong Kong, bypassing the once-autonomous territory’s own legislative council. The new law gives China the ability to intervene in Hong Kong’s policing and courts, while also laying the foundation for Beijing to set up a security and surveillance apparatus in Hong Kong.

• The chilling effect the national security law extends to business as well with neighboring Singapore leading the region this year with 63 new investment funds versus Hong Kong’s eight. In April, a record amount of money flowed into Singapore’s banks from abroad amidst geopolitical and economic uncertainty.
• In response to U.S. visa and other sanctions on Chinese officials over abuse of the rights of Hong Kong citizens and suppression of Muslims in China’s western territory of Xinjiang, Beijing has promised tit-for-tat retribution, limiting the allowance of visas for U.S. officials.
• China has also said that it could renege on the Phase One trade deal if the U.S. continues to raise objections on Hong Kong, Xinjiang, and any other subjects Beijing deems off limits.
• Already, China is far behind the pace necessary to meet its purchase commitments under the Phase One deal with research showing purchases at less than half of their target.

Myth vs. Fact

MYTH: Commentators on both ends of the political spectrum say that free trade is bad for the U.S. economy and its workers, suggesting that protectionism and barriers to trade are the best way to create and maintain jobs and promote prosperity.

FACT: The attempt to defend jobs from trade is unlikely to have significant effects given that losses in manufacturing jobs are more than 80% attributable to technological innovation that means factories can produce more with fewer workers. The economic gains from protectionism for certain groups or industries would be far outweighed by their costs for other industries and consumers. This is a fact agreed to by both conservative and liberal economists.

Trading Notes

On July 1, the United States-Canada-Mexico Agreement (USMCA) trade agreement entered into force, providing greater market certainty for U.S. farmers, manufacturers, and businesses while strengthening cross-border trade with our second and third largest trading partners (see above).

• The U.S. International Trade Commission estimates that USMCA will raise U.S. real GDP by $68.2 billion, increase U.S. employment by 176,000 jobs, and increase our exports to Canada by $19.1 billion and Mexico by $14.2 billion.
• USMCA places higher North American content requirements on vehicles to qualify for tariff-free entry. To qualify, vehicles produced in the member countries must have 75% of their content sourced from member countries and 40% of their content produced by workers making at least $16 per hour.
• Elsewhere, enthusiasm in the U.S. to negotiate a trade deal with the UK has been tempered by the other side due to some reluctance among UK farmers and disagreements about the best path forward among UK government ministries.

Disruption of the Week

Source: Advanced Drug Delivery Reviews

Cheaper than a shot, and essentially pain-free, microneedle patches for vaccine delivery do more with less.

• Last week, we highlighted the unique challenges and potential solutions surrounding the supply chain that would lead from a COVID-19 vaccine producer to end user.
• In focusing on developing a new type of vaccine delivery system called microneedle patches, we could immediately make our supply chain more efficient by ending our reliance on dangerous needles and fragile drug vials.
• Microneedle patches have already been used to help beat back measles, have proven effective when used with other medicines, and could even serve as an on-patient vaccination record.
• Furthermore, in cost comparison and effectiveness studies, microneedle patch vaccination was estimated to cost $1.66 per measles case averted compared to an estimated cost of $2.64 per case averted using a standard needle shot.
• While microneedle patches are just one option in the range of future vaccine delivery systems currently under study; given early successes, this new form of disease prevention has the potential to deliver for decades to come.

Further Reading

• Key to the functioning of economic and other institutions is the credibility of commitments and clarity of norms. The editorial staff of the Wall Street Journal points out why China’s national security law for Hong Kong undermines both for foreigners and Hong Kong citizens alike. WSJ

• Every Econ 101 course covers price floors and price ceilings with some derivation of the phrase “ceilings cause shortages, floors cause surpluses.” This week, John Stanford writes how politicians’ proposals for price ceilings on life-saving drug treatments will lead to a shortage of investment, innovation, and ultimately, the life-saving drugs themselves.