Tuesday, August 13, 2019

Trade Wars and Game Theory: Who Wins, Who Loses?

Next week I will be in Colombia, and I am honored and delighted to be giving the opening keynote talk at the VI Congreso Internacional Industria, Organizaciones y Logıstica in Cartagena. The full program of this conference can be downloaded here.  The title of my keynote is: Tariffs and Quotas in Global Trade: What Networks, Game Theory, and Variational Inequalities Reveal.

 
And the day before my conference opening keynote, I will deliver a guest lecture at the Escuela Naval de Cadetes “Almirante Padilla.” The title of that lecture is: Networks to Save the World:
Operations Research in Action
. Having worked in technical consulting in Newport, Rhode Island, for the naval sector, I am very much looking forward to speaking at the naval academy as well!

I have been quite busy preparing both of these talks. This is my second trip to Colombia - I gave a keynote talk at this conference, back in 2015, which was in Bogota. The experience was truly magical, so I quickly accepted the invitation to speak in Colombia again. Plus, I have had several fabulous students from Colombia and we still stay in touch.

This blogpost is on what I believe is an extremely timely topic, continuing to dominate the news - that of trade wars, but with a game theory twist. Plus, tariffs and quotas are the theme of my keynote, and a topic that we have been researching very intensely. The latest research of ours has been conducted with one of my Isenberg School PhD students, Deniz Besik, and two alumnae (who were also my PhD students): Professor June Dong of SUNY Oswego and Professor Dong "Michelle" Li of Babson College, as well as the "other" Professor Nagurney - Ladimer S. Nagurney of the University of Hartford. In 2019, Deniz and I, with co-authors, published 3 papers on tariffs, quotas, and tariff-rate quotas, which are two-tiered tariffs and quite challenging to model.

Some Background


When it comes to war between nations, the weaponry is apparent - from flying missiles and bombs to stealth cyber weapons. The weapons of trade wars are, in contrast, economic, imposed by countries on products produced by other countries. Powerful trade war weapons used by governments include tariffs, quotas or combination thereof, known as tariff rate quotas. They impact not only the prices that you and I pay for our favorite foods such as avocados and cheeses, but even their quality!

Global Supply Chains

Global supply chains are the networks that enable fresh produce year round, smart phones at our fingertips, the latest fashions on demand, household appliances that we have come to depend on, and raw materials for crucial manufacturing processes. The resulting trade flows from origins to consumption are essential to the prosperity of nations and to the well-being of their citizenry.

Nevertheless, given today's economic climate and surrounding uncertainty, the International Monetary Fund expects the global GDP growth to slow from 3.6% in 2018 to 3.3% in 2019, before returning to 3.6% in 2020. Trade wars, notably, the ones between China and the US, are, in part, fueling the uncertainty.

Game Theory to the Rescue

Game theory allows us to quantify the effects of decisions of one adversary (or competitor) on others and has a long history of being applied by the military during war games; used by businesses to determine strategy, and now central to the understanding of  the effects of trade wars. Proper use of game theory can quantify a priori what the impacts of trade barriers will be on producers (both domestic and foreign), on consumers, and on governments. In addition, using game theory, embedded with algorithms, different scenarios and responses of governments, such as the tightening or loosening up of trade barriers, can be simulated. The need for such a framework is extremely relevant given the prevalence of tariffs and quotas in the news, with the coupled uncertainty. For example, the United States has imposed tariffs on steel, while the European Union has responded with quotas. Numerous tariffs were imposed by the US on products from China in 2018 including: food, toilet paper, hats, backpacks, beauty care products, sporting goods, home improvement items, and pet products, valued at $200 billion in Chinese imports. China then retaliated with their government imposing tariffs of 5% to 10% on $60 billion worth of US products. The combined tariffs apply to an amazing 5,207 items!

Producers Gain Under Protectionism and the Government May as Well


My research group has been researching trade policies and global trade for many years using game theory with applications to the dairy industry; see here and here; to fresh produce such as the very fashionable and nutritious avocados, as well as to a fundamental agricultural product - soybeans. Our studies have established that governments, by imposing a tariff or quota, may help firms in their own country garner enhanced profits. Moreover, although an appropriately calculated tariff can have the identical effect on the volume of trade flows and product prices as a quota, governments tend to favor tariffs since they then obtain additional revenue.

Our most recent study, published  in the journal, Transportation Research E,  has shown that producers, facing trade war weapons,  should expand the geographic dispersion of their production sites (which leads to new supply chain network structures) to avoid harmful tariffs and quotas. In addition, producers should actively expand and grow their demand markets in countries not under the trade policy restrictions, which can help them to achieve higher profits.


But Consumer Welfare Takes a Big Hit

Although producers in countries not under trade barriers generally benefit, that is not the case for consumers. Hence, governments imposing tariffs and quotas should beware.

Importantly, not only can trade barriers result in lower volumes of product imports, but also the quality of the product available to consumers may be negatively affected. Supply chain networks and product quality was the topic of one of our books.
And, in this book, we also analyzed a plethora of supply chain network topologies and even created a measure identifying the importance of different suppliers, components, to firms and their supply chain networks as well as to the supply chain network economy.



In our Transportation Research E study,  we constructed a measure of consumer welfare. This measure allows us to quantify the impact on consumers of trade barriers used in trade wars and includes the quality of the product being traded. We also conducted a case study, focusing on soybeans, assuming the trade war between China and the United States escalates, and the Chinese government, in retaliation, imposes a quota or equivalent tariff on the soybeans exported from the United States. Soybeans were discovered and domesticated in China over 3000 years ago; however, the United States is a leader in producing, consuming, and exporting soybeans globally.  In 2018, soybean production in the US reached 5.11 billion bushels with 40% of it exported. China, in turn, is the largest importer of soybeans due to its rapidly increasing population size. The consumption of soybeans in China, in 2017, was reported to be 112.18 million tons, but the domestic production volume was only about a tenth of that amount. Due to this huge gap, China has to rely heavily on soybeans imported from foreign countries, including the US, Brazil, and Argentina.

From the consumer's perspective, our results consistently and unanimously show that consumer welfare declines for consumers when their country imposes a strict quota or tariff on an imported product. This is the case regardless whether  China or the US imposes the trade barrier.

Governments must recognize that the imposition of tariffs or quotas always adversely affects consumers and, thus, they are not just instruments to protect producers. In war, as in peace, strategy matters and game theory is key to identifying winners and losers.

Thursday, August 8, 2019

An Ode to My Chevy

Good-bye, Chevy, my car of almost 20 years! They (the local public radio station) are coming to pick you up tomorrow to take you away. The photos have been taken, you have been cleaned, and the mourning has begun.
Growing up in Yonkers, New York, I thought that I could always be like Barbara Walters or Robert Moses and get away without getting a driver's license. I loved the busses, the subways, walking everywhere of interest and, later, flying when I was invited to give talks as an academic. And, I almost succeeded without getting a driver's license but life interfered. Nevertheless, stubbornly, I did everything in reverse: first, becoming a Full Professor at the Isenberg School of Management in bucolic Amherst, Massachusetts. (Ironically, my expertise and specialty are transportation and logistics but I figured I could be more objective by not knowing how to drive.) Then, after having a child, and, after 3 drivers' road tests with the last one with a female state police officer straight out of the academy and in a uniform, to boot, success! This "talent" seems to run in my family - it took my father 13 attempts to get his license and my mother never learned how to drive. I survived unofficial driver's ed lessons on Sundays with my daughter napping and with one of my Finance colleagues giving me instructions, complete with a cushion for the car seat (I am short) in a mall parking lot, and he on the ready with his blue exam books to grade my driving in. The reward for him was breakfast at the local Burger King - my treat, of course.

I waited as long as I could to buy a car and when my daughter was about to embark to kindergarten I got my Chevy Venture. Why a Chevy, you may ask?! It had to be a General Motors car since I had recently been appointed the John F. Smith Memorial Professor, a chaired professorship endowed by the then CEO and Chairman of the Board of General Motors, and named after his father, also an alum of my university. The vehicle gave me "lift," a terrific view driving to and from my daughter's school and provided me with some respite, when I tried to catch up on The New York Times while waiting for her through elementary school, and, afterwards, most of her high school, until she got her license. My Chevy  served as a neighborhood fort for children, a place that kids, including my own, would chatter in the back, fortified with snacks that I provided. Through its windows we saw the seasons, listened to music, car pooled for sports and other activities, and even had a few vacation drives.

For the past few years, you aging grand dame, my Chevy, have had no heat or air conditioning - sometimes my wet hair would freeze even on the short commute to teach my 8:30AM classes in the winter. You rarely did not start, though, and when I received an award from UMass with the coveted UMass park "any time, anywhere" parking pass, I would leave you in my favorite parking lot for days and nights on end, when I commuted on a weekly basis by bus and then subway to Harvard (the Radcliffe Institute for Advanced Study) where I was on sabbatical as a Science Fellow. Even this past spring, when you, my dear Chevy, developed an oil leak, I, gently, nursed you along, with help from our neighborly mechanic.

Tomorrow, as you get towed away, Chevy, and a new vehicle takes your place in the garage, the glow from your headlights will linger; whatever parts you ultimately get disassembled into, remember, it was you that kept us company on the journey that is life. As you await disassembly and your final fate, remember the giggling girls that you ferried over time and space, who are now studying for their PhDs! It is the beginning of a new era - thank you for being you!

As much as I had hoped that my Chevy would have lasted 2 more years, it was not to be. But the memories will always be with us.

Saturday, July 13, 2019

World Congress on Global Optimization in France and a Special Surprise

I returned last evening from Europe, having spent the past three weeks at conferences and transit points between. During this period I had the pleasure of being in 8 different countries. I delivered 2 conference presentations (in Dublin and in Kalamata, Greece), 1 tutorial (in Dublin), spoke on 2 panels (also in Dublin), presented at IBM Dublin, and also gave a plenary talk at the World Congress on Global Optimization (WCGO) in Metz, France. I blogged about the EURO 2019 Conference in Dublin and also about the Dynamics of Disasters conference that I had co-organized in Kalamata (yes, like the olives).

I thoroughly enjoyed all these conferences from the large, with over 2,000 delegates, EURO Dublin conference to the smaller Dynamics of Disasters conference and the mid-sized WCGO.
WCGO began with an opening remarks. The timetable for the conference can be downloaded here.
The plenary talk that I gave at  the WCGO was in the Constantin Caratheodory Prize session. This year I was tremendously honored and humbled and surprised to be the recipient of the 2019 Constantin Caratheodory Prize, along with Professor Anatoly Zhigljavsky of Cardiff University in Wales. More information about the prize and the previous recipients of this prize can be found on the International Society of Global Optimization website. As I said in my acceptance speech, I am standing on the shoulders of giants. I am very grateful to the Chair of the Prize Committee, Distinguished University Professor Panos M. Pardalos of the University of Florida (and former recipient of this and many other prizes), and to all the committee members for this truly distinctive honor. In the photo below, I am standing with, from l-r: Professor Yaroslav Sergeyev, a member of the prize committee, Professor Zhigljavsky, and Professor Panos M. Pardalos. Professor Sergeyev is also President of the International Society of Global Optimization.

A nice article on the prize was published by UMass Amherst - thank you! I very much appreciate the congratulatory messages that I have been receiving from faculty and staff  at my university and many other faculty and even former students from around the globe!

I have posted my plenary talk because it is on a very timely topic and on research conducted with one of my doctoral students, Deniz Besik, and other collaborators.
The WCGO was an intellectual (and social) feast with plenary talks given by renowned researchers, beginning on the first day with a breathtaking plenary by Pardalos on networks and brain research with applications to epilepsy and Parkinson's,  to a very dynamic, fascinating last day plenary by Professor Sergiy Butenko of Texas A&M University. Butenko, who is the Editor of the Journal of Global Optimization, spoke on his unifying framework for network analysis and cliques with applications ranging from social networks to material science! To have the opportunity to listen to these and such plenary speakers as Professor Ben-Tal of Israel, Professor Immmanuel Bomze of Austria (who is also the President of EURO and I had had the pleasure of seeing him at EURO Dublin), Professor Fukushima of Japan, and Professor Zhigljavsky of the UK, was simply fabulous!

Below I have posted a few photos from the talks of several of the plenary speakers.
Thanks to the organizers for taking the group photo of all the delegates below - a very happy group, I must say!

It was wonderful to have joint coffee breaks, delicious lunches served us, and a truly exceptional banquet, at which I had so much fun, I woke up twice the night afterwards laughing because of the stories and jokes exchanged.
I met researchers from so many different countries at WCGO, including: Botswana, Benin, Algeria, Israel, Morocco, Iran, Italy, Germany, Ireland, the UK, USA, Greece, Ukraine, Russia, Poland, India, Japan, among others, and even Kazakhstan! I had to take the group photo at the banquet with researchers from that country and a friend - so many women, which was great and even a rector of a university there!
It was also a delight to see Professor Christine Shoemaker, formerly of Cornell University, and a member of the National Academy of Engineering, who is now a faculty member in Singapore, at WCGO.
This was truly a World Congress on Global Optimization and I thank the organizers for an outstanding experience with new friendships made, and new research ideas generated. As a colleague from Germany said to me: this was a conference that we enjoyed not only great scientific exchanges but we also met wonderful new colleagues!

And, at the onset of the conference in France, the US women's soccer team won the World Cup - simply perfect!

Thursday, July 4, 2019

The Dynamics of Disasters Conference in Greece and Multidisciplinary Perspectives

After the fabulous EURO Conference in Dublin, Ireland, which I wrote about in my previous blogpost, I journeyed to Kalamata, Greece with a stopover in London and then Vienna.

Along with my outstanding colleagues, Professors Panos M. Pardalos of the University of Florida and Ilias S. Kotsireas of Wilfrid Laurier University in Canada, I had organized another Dynamics of Disasters conference in Kalamata, Greece, July 1-5, 2019.  I'd like to also take this opportunity to congratulate Professor Pardalos on his receipt of the Humboldt Research Award. He was recently recognized in a ceremony with other Humboldt recipients in Berlin by Angela Merkel and the President of Germany!

The importance of multidisciplinary perspectives in all phases of disaster management from preparedness and mitigation to response was vividly illustrated at this conference by speakers from many different countries.
Kalamata is located on the Mediterranean sea and it is not an easy location to get to, but the beauty of the venue, as well as the fascinating scientific exchanges and discussions on a theme of great importance, made the travel worthwhile for everyone. The conference took place at the Elite Resort hotel in Kalamata. Below are some photos taken at the conference site and the immediately surrounding area. The local organizer was Sofia Papadaki, to whom thanks are extended!

The two previous such conferences that I also co-organized with Pardalos and Kotsireas resulted in two edited volumes published by Springer. Many of the chapters are enjoying multiple downloads and I have used several in the course: Humanitarian Logistics and Healthcare that I teach at the Isenberg School of Management at UMass Amherst.
The delegates at this Dynamics of Disasters conference came from the USA, Canada, Greece, Italy, Poland, Germany, Korea, Japan, Russia, and Nepal, resulting in a very international experience and also an intense one since there is only a single track of talks. Below is a group photo taken at the conference venue of the delegates.

Professor Stephan Pickl of Germany, who is Chair of Operations Research at the Universität der Bundeswehr München, delivered an excellent lecture on a Smart Optimization Framework SARA, emphasizing the hyperconnectivity of critical infrastructure networks and stochastic elements. He is a renowned disaster management expert and involved in policy making as well in Germany.
Dr. Matsuno of Japan presented an excellent talk on the use of gaming on smart phones to inform and educate about disasters in Tokyo, including floods. There was also an excellent presentation on a course on emergency management developed by Dr. Assael, a chemical engineer from Greece, with input from students, and presentations on elegant network models for evacuation by Dr. Urmila Pyakurel of Nepal and colleagues and by her student Hari Nandan Nath. The use of DEA in regions for Russia for coping with disasters was presented by Sergiy Demin on work done with Dr. Fouad Aleskerov, and a description of the Global Resilience Institute at Northeastern University in Massachusetts was described by Dr. Steven Flynn. A talk on disaster management at mass gatherings with a focus on the Athens Marathon was delivered by Dr. Angeliki Bistariki.

Professor Theodore Trafalis of the University of Oklahoma delivered an outstanding tutorial on machine learning for imbalanced data with applications to severe weather predication, including tornadoes.
It was a pleasure to listen to the very innovative and important research being conducted by colleagues in Italy, including that of Dr. Ugo Fiore and Salvatore Scognamiglio and colleagues, on the prevention of geological disasters, with even the use of a large-scale dataset on China.
The audience was very engaged and new friendships made and networks established.
It was fabulous to meet Dr. Steven Flynn, the founding director of the Global Resilience Institute at Northeastern University in Massachusetts.
Another wonderful, unexpected delight was to hear Dr. Angeliki Bistariki speak. She is a nurse and a PhD and, in her presentation on mass gatherings and the Athens Marathon, she had a video from our local news station in western Massachusetts - WWLP, moderated by Barry Krieger on how MEMA prepares for the Boston Marathon!
I mentioned in our discussions that I had hosted a MEMA official in my Humanitarian Logistics and Healthcare class last semester, Ms. Sara Zalieckas, who was responsible for safety at the 2019 Boston Marathon. My blogpost on her brilliant guest lecture can be viewed here.

It was also terrific to hear the talk by Dr. Georgios Tsaples and colleagues on system dynamics modeling of the consequences of extreme weather conditions on traffic in the city of Thessaloniki, Greece. There were even insights as to modal choice and use (or not) of public transportation following.
Stamatis Papangelou reported on his research on land property data logging on a blockchain ledger, which is very innovative and enables the assessment of land property for the risk of natural disasters.
Below are photos taken with Professor Pardalos and his son, Akis (whom we have had the pleasure of seeing at numerous conferences around the globe), and with Professor Ilias Kotsireas and the "other" Professor Nagurney - my husband, along with conference assistants.
The structure of the conference included time for coffee breaks, nice meals, some touring, and a banquet with a view of the Mediterranean Sea.
This was our third time in Kalamata, Greece, and we were quite impressed by how much the surrounding area seems to have improved economically with new shops, restaurants, and many happy families strolling in the evening when the ocean breezes from the Mediterranean cooled off the area. Nice to even see bicycle lanes downtown.
I would be remiss not to mention the quality of the food in Kalamata - the fruits and vegetables are some of the most delicious ones I have ever eaten!
I have made my talk on game theory and disaster relief, co-authored with my doctoral student Mojtaba Salarpour and Professor Patrizia Daniele of the University of Catania, available for download to further discussions.

And, today, we took another group photo of those who were still able to be with us.
Special thanks to Professors Pardalos and Kotsireas as well as to Sofia Papadaki, and to all the delegates to our Dynamics of Disasters conference, for making it such a success. Best of luck with your continuing research!