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This edition was written by Tristan Loa, Chase Parry, Andrew Rosin, and Louise Sheiner.
Using data from 30 countries across North America and Europe over more than five decades, Marshall Burke of Stanford University and co-authors find that ambient temperature ranks among the largest threats to human health, causing between 5%-12% of all deaths. Moderately hot or cold days account for a larger share of deaths than extreme temperatures, and cold kills up to five times more people than heat, with cold-related mortality risk rising with age. Adaptation matters: mortality in warmer locales is less sensitive to extreme heat but more sensitive to cold, while the opposite is true in colder places. Despite this, policy interventions often focus on extreme heat days, even though there is only limited evidence that these interventions are effective. By contrast, programs not specifically designed to address temperature—like improved access to affordable healthcare, subsidized healthcare, and income support programs—have stronger causal evidence of reducing temperature-related mortality, likely by boosting overall health.
Pablo Anaya Longaric of the European Central Bank and co-authors use the spread between the credit default swap premia of Euro area periphery (Italy and Spain) and core (Germany and France) sovereign debt issuers as a proxy for a shock to financial-market beliefs about the probability of a euro disaster, such as a sovereign default. When the proxy increases by one standard deviation, the average investment fund reduces its Asian sovereign debt holdings by approximately 1.4% within the month of the shock, rising to 1.6% over the following month. The main reason is the funds’ need to generate liquidity to meet investor demand for redemptions, rather than any attempt to rebalance their portfolios, the authors say. The sell-off is more pronounced in larger, more liquid Asian bond markets where investment fund participation is higher. Funds also tend to sell local-currency-denominated debt rather than U.S.-dollar-denominated Asian securities.
While income taxes have been the cornerstone of U.S. federal tax policy since the early 20th century, the Trump administration is shifting tax burdens away from income taxes and toward import taxes. Kimberly A. Clausing of the University of California, Los Angeles, and Maurice Obstfeld of the Peterson Institute estimate that a U.S. effective tariff rate of 20% would generate roughly $300 billion in revenue per year, which amounts to less than one-sixth of the revenue raised annually by personal income taxes. Tariffs also generate considerable deadweight losses—expanding import-competing sectors and shrinking export and non-traded goods sectors—that will amount to approximately $113 billion per year, or more than one-third of the revenue raised by the tariffs. The authors further note that tariffs (which resemble a consumption tax) are regressive, as individuals at the lower end of the income distribution save less and consume more than higher-income individuals. On a macroeconomic level, the authors emphasize that tariffs—especially those on input goods—and trade policy uncertainty will reduce investment, compress real income and consumption, and create upward price pressure, all of which will reduce overall economic activity.
"How do we explain this resilience? I would point to four reasons: One, improved policy fundamentals; Two, private sector adaptability; Three, less severe tariff outcomes than initially feared—for now; and Four, supportive financial conditions—for as long as they hold....
Tariffs, where the shock has not been as large as initially announced... The U.S. trade-weighted tariff rate has fallen from 23% in April to 17.5% now—still much higher than before. The U.S. effective rate is now far above the rest of the world’s, which has held relatively steady this year, with very few cases of retaliation. In short, the world has avoided a tit-for-tat slide into trade war—so far. But openness has nonetheless taken a big hit.
And the story is not over—U.S. tariff rates keep moving. Trade deals with the UK, the EU, Japan, and soon Korea have nudged some rates down while disputes with Brazil and India have pushed others up. Other countries’ rates are also likely to move.”
