Matthew Yglesias chart of U.S. trading partners.

Chart by Matthew Yglesias

By Laura Conaway

Matthew Yglesias made the chart above for a post about the notion of a carbon tariff. Yglesias notes that as part of any climate change bill, the Senate may want to slap a tariff on trading partners that don't try to curb greenhouse gases. The idea is to prevent a cap-and-trade program from putting American manufacturers at a disadvantage -- with the primary bogeyman being China.

Which is compelling enough on its own. But I like Yglesias' chart for the urgency it gives to the latest pricing news from European Union countries. America's largest trading partner is reporting little or negative inflation. As a whole the European Union is experiencing average inflation of a mere 0.6 percent. For the 16 countries that use the euro, it's -0.3 percent. Those are scary numbers. Economists like to see a certain amount of gentle inflation -- something about 3 percent -- and they're not seeing it. "We are seeing another round of substantial contraction of the already depressed economy," writes Carl Weinberg of High Frequency Economics.

Weinberg says the situation amounts to falling output -- in the Eurozone, it's barely ticking upward and still down by double digits from last year -- followed by falling prices, failing businesses and the laying off of workers.

If you like the positive-ish view, try this from Bloomberg:

"Manufacturing surveys continue to paint a rosy picture of the near-term outlook," said Carsten Brzeski, an economist at ING Groep NV in Brussels. "The industrial recovery will continue but, of course, no recovery follows a straight upward line. New setbacks are likely."

The Bureau of Labor Statistics reports that its price index for imports in September 2009 was down 12 percent from the same month last year. From August 2009 to last month, the index eked out a climb of 0.1 percent.

Marc Chandler, of the Brown Brothers Harriman currency desk, says the relatively weak U.S. dollar should lead to more expensive imports. Chandler notes that in the latest report, imports from Canada and the Pacific Rim -- including China and Japan -- were up 0.1%. Goods from the European Union went up by 0.5 percent from August to September but are down 4.6% from 2008.

He argues that if imports cost more, then domestic manufacturers can keep their prices higher, too -- and perhaps help avoid a cycle of deflation. "That means that a greater rise in import prices would, in the current environment, be more desirable," he writes.

categories: Europe's Financial Crisis

11:56 - October 14, 2009

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