U.S. Chamber of Commerce Betrays Its Membership

 

http://www.reuters.com/article/domesticNews/idUSTRE58E4MH20090915?sp=true

President Obama finally makes one small foreign trade policy move in support of American business and workers, imposing tariffs on Chinese tires in an attempt to prevent the complete collapse of the American tire industry, and the U.S. Chamber of Commerce is all over him.  As reported in the above-linked Reuters article,the Chamber takes Obama to task not just for the tire tariffs, but for keeping Mexican trucks off our roads and for not rubber-stamping free trade deals with Colombia, Panama and South Korea. 

In every case, the Chamber has sided with foreign countries eager for access to the American market, all in the belief that we are missing out on huge increases in American exports.  This, in spite of the fact that our trade results for the past three decades have proven that free trade with overpopulated nations only erodes business for American companies by surrendering our domestic market in greater measure than is ever recovered with exports.  It boggles my mind that, when it comes to trade, American economists, business leaders and organizations see no value to our domestic market, eager to give it away, while every other nation on earth salivates at the opportunity to sell their products here.

“A major surge in exports is our best path out of a recession, out of double-digit unemployment and the exploding deficits we’re now experiencing,” Donohue (Chamber President) said.

The emphasis is always on exports, never accounting for imports.  The Chamber would have us believe that only exports create sales opportunities for American businesses, and that no business is lost to imports.  Such inability to perform the most simple math stretches credulity, and one can’t help but believe there’s something more sinister going on here – that perhaps the U.S. Chamber of Commerce has become a puppet of foreign countries eager to prey on the American market.  There’s simply no other explanation. 

In fact, the article offers some confirmation that that is exactly what’s going on here, with the Chamber’s position formulated by an international trade consulting firm :

Trade Partnership Worldwide, an economic consulting firm that specializes in estimating the impact of trade policies, prepared the report for the business group.

Throughout the article, the Chamber wrings its hands over the potential for others to cut off imports from America in response to any move by the U.S. to preserve domestic market for our own manufacturers.  Never does it consider that we too could retaliate out of proportion and cut off even more of their imports.  Do they not understand that, in this game of tit-for-tat, the nation with the huge trade deficit – the U.S. – holds all the cards? 

A trade war in manufactured goods is nothing to fear.  We can just as easily manufacture any and every product here as anywhere else.  And, while a trade war in natural resources certainly would be something for the U.S. to fear, it’s no coincidence that we don’t rely on the same nations who prey upon our markets for manufacturing jobs as a source for our natural resources. 

The exclusive use of unfettered free trade is stupid trade policy, as proven by thirty-three years of consecutive trade deficits.  The backing of such policy by a powerful and prestigious organization like the U.S. Chamber of Commerce doesn’t confer legitimacy upon it.  Rather, it only makes the Chamber look stupid as well.  The hard-earned money spent by member companies for the purported benefits of this organization would be far better spent with other organizations who understand the value of balance  in trade deals and who demand that others buy as much from us as we buy from them.

Back from the North Woods

I just returned from almost two weeks in the north woods of Wisconsin, where internet access is virtually nil.  So I have a lot of catching up to do.  Thanks to all for all of the very thoughtful comments, which I will reply to in the next couple of days.  Also, I found a couple of comments that were “pending.”  Please be aware that if you provide more than a couple of links in your comment, it gets bounced into a “pending” category, which prevents it from actually appearing until I’ve had a chance to review it.  It’s a spam-prevention feature.  (I do get plenty of spam.)

There’s lots to catch up on, including the ridiculous July unemployment report, the latest release of trade figures from this past week, and the retail and consumer sentiment data that gave all of those celebrating the end of the recession a little dose of reality. 

Stay tuned.

Public Enemies

No, this isn’t a post about U.S. Trade Representatives, past and present, although this would be a great title for such a post.  Instead, I thought I’d have a little fun and go completely off-topic. 

My wife and I took in the “Public Enemies” movie today (starring Johnny Depp).  It’s a movie we’ve looked forward to for a year, since we learned of its filming.  You see, my grandfather, a cop in South Bend in the 1930s, engaged in a gun battle with the Dillinger gang, including Baby Face Nelson and Howard Van Meter, when they came to town to rob the bank.  The other source of our interest in the movie is that, during our visits to our cabin in the north woods of Wisconsin, we occasionally have dinner at the Little Bohemia lodge in Manitowish where a key sequence of the movie, the FBI raid on the Dillinger gang at Little Bohemia, was filmed.  (It was there that we learned of the movie a year ago.) 

It was a great movie, though it does take some liberties with actual history.  In the movie, only Dillinger escapes the raid at Little Bohemia, with Baby Face Nelson killed and Howard Van Meter mortally wounded.  The fact is that Dillinger’s entire gang escaped the raid scot-free, fleeing out the back and along the lake shore while the Feds continued to riddle the front of the building with bullets.  (The movie accurately depicts Nelson then flagging down a G-man’s car on the highway and shooting the agent.  But Nelson then escaped in the car instead of being killed by other agents.)  The bungling of this raid, with the loss of innocent civilian lives, almost cost J. Edgar Hoover his job. 

It was after the raid on Little Bohemia that the bank job in South Bend took place, with the whole Dillinger gang taking part.  My grandfather had the drop on the gang as they exited the bank but discovered only then that his partner had handed him a sawed-off shotgun instead of the rifle he’d asked for.  With bystanders in the background, he couldn’t risk the shot, but blasted away at the car during the getaway.  (The car was later found, peppered with buckshot.)  My mother’s cousin, also a cop, was shot dead by Van Meter as they exited the bank.  In fact, the bank robbery scene in the movie that takes place just before the Little Bohemia raid in actuality may very well have depicted the South Bend robbery, out-of-sequence with actual events.

As depicted in the movie, Dillinger relished his image as a sort of Robin Hood hero figure.  (Remember, this was during the Great Depression and banks weren’t exactly admired institutions in those days.  Sounds familiar, huh?)  In the beginning, the bank robberies rarely involved the firing of a shot.  However, as time wore on and the gangster ranks were depleted, Dillinger was forced to accept Baby Face Nelson into his gang.  Nelson was truly a psychopath who loved shooting and killing, so dangerous that Al Capone had only recently expelled him from his gang.  It was then that the Dillinger gang bank holdups began to turn extremely violent. 

The Little Bohemia lodge remains much as it did in the 1930s.  In fact, the north wing of the building still has the windows, riddled with bullets from the actual gun battle, preserved between sheets of plexiglass.  One wall of the restaurant that separates two dining rooms is still riddled with bullet holes.  There is a small display of Dillinger gang artifacts, left behind when they fled the FBI raid. 

The armory of the ship I served aboard in the Navy (the armory was my division’s responsibility) included in its arsenal a .45 cal. Thompson machine gun with a 100-round drum magazine, just like the “Tommy guns” used by Dillinger’s gang.  Seems like I could have been more creative and come up with some reason for needing to test fire it.  I always regret that I never did.

Anyway, it was a good flick and it was fun for me to see these stories I’d heard since I was a kid come to life.  See it if you get the chance.

Amerika.org Interview

http://www.amerika.org/2009/organization/interview-pete-murphy-author-of-five-short-blasts/

I was recently interviewed by Brett Stevens of the Amerika.org blog, and it was just published yesterday.  Click the link provided for a full transcript of the interview.  Brett had some incisive questions for me.  I hope you find it interesting.

Obama Approach to Economy Faltering

With the first 100 days of the Obama administration in the rear-view mirror, the effects of his approach to the economy – especially his approach to the trade deficit – are beginning to come into focus.  And it’s not the picture they hoped for.  Yesterday, the Obama administration increased its project for this year’s federal budget deficit by $89 billion, an admission that the economy is not recovering at the rate they had planned.  

And just minutes ago this morning, it was announced that the March trade deficit rose from $26.0 billion in February to $27.6 billion in March, ending a dramatic, several-month decline.  The rise wasn’t unexpected, but the reason was.  In spite of the fact that oil prices rose as expected, that rise was offset by falling imports.  But what was an unpleasant surprise was that exports also fell a sharp 2.4%.  Exports held up surprisingly well in February, perhaps the result of the rest of the world trying to hold up their end of the bargain struck at the G20 summit in London, when they promised to boost their own economies and start buying more American products, in exchange for Obama’s promise to disavow any moves toward protectionism.  I predicted that approach was doomed to failure, and so it is.  It lasted about a month.  

Some of the stimulus measures taken by the Obama administration are having some minimal effect in slowing our economic decline.  How could they not?  Pour trillions of dollars into the economy, through economic stimulus and through various measures to lower interest rates and boost spending, and it has to have an effect.  But the results are disappointing.  While job losses have moderated slightly, they’re still at a level that would elicit bugged eyes and dropped jaws from economists during any other period.  And home purchases have ticked upward ever-so-slightly, like the twitch of a limb of some poor animal that has come to a violent end.  

Obama has said repeatedly that a recovery in the manufacturing sector is crucial to revival of our economy, especially as the finance sector fades into oblivion.  But falling exports bode ill for any such recovery.  This is exactly the scenario I predicted in my 2009 Predictions.  Obama has relied upon the same approach to our trade problems that decades of experience has proven to be a failure – trying to talk our way out of the deficit instead of taking meaningful measures.  Perhaps he thought that he could make it succeed by simply trying harder, bringing his charisma to bear and shaming other world leaders into pulling their weight.  This will go on for some time as the administration clings to hope that their approach will begin to take hold.  

But it won’t. It can’t.  It ignores the economic realities associated with trading freely with overpopulated nations and ignores our own growing problem of overpopulation, and the consequences of these for unemployment.  The question becomes what “plan B” might be.  He will have only two choices:  stick with “plan A,” relying on even more stimulus or begin moving away from the extreme free trade end of the spectrum of trade policy, which means beginning to adopt some forms of protectionism, whether it’s import quotas or tariffs.  Sticking with Plan A for too long will leave too little time for Plan B to work and will assure a place in history as a one-term president and a failure.

Japan Pays Foreign Workers to Leave

http://www.nytimes.com/2009/04/23/business/global/23immigrant.html?_r=2

Give the Japanese credit.  They stick together.  Their corporations are fiercely loyal to their workers, guaranteeing lifetime employment.  And, as demonstrated in this linked article, their government is just as loyal and proactive in trying to maintain extremely low unemployment.  With only 4.4% unemployment (a figure sure to rise, though, as huge drops in exports begin to bite), the Japanese government has implemented a program that pays foreign workers to leave the country, in return for a promise to never seek work in Japan again.  Here are key excerpts from the article:

Rita Yamaoka, a mother of three who immigrated from Brazil, recently lost her factory job here. Now, Japan has made her an offer she might not be able to refuse.

The government will pay thousands of dollars to fly Mrs. Yamaoka; her husband, who is a Brazilian citizen of Japanese descent; and their family back to Brazil. But in exchange, Mrs. Yamaoka and her husband must agree never to seek to work in Japan again.

“I feel immense stress. I’ve been crying very often,” Mrs. Yamaoka, 38, said after a meeting where local officials detailed the offer in this industrial town in central Japan.

“I tell my husband that we should take the money and go back,” she said, her eyes teary. “We can’t afford to stay here much longer.”

Japan’s offer, extended to hundreds of thousands of blue-collar Latin American immigrants, is part of a new drive to encourage them to leave this recession-racked country. So far, at least 100 workers and their families have agreed to leave, Japanese officials said.

The program is limited to the country’s Latin American guest workers, whose Japanese parents and grandparents emigrated to Brazil and neighboring countries a century ago to work on coffee plantations.

In 1990, Japan — facing a growing industrial labor shortage — started issuing thousands of special work visas to descendants of these emigrants. An estimated 366,000 Brazilians and Peruvians now live in Japan.

Mr. Kawasaki led the ruling party task force that devised the repatriation plan, part of a wider emergency strategy to combat rising unemployment.

Compare this action to the U.S. where, in spite of 8.6% unemployment (which is certain to rise above 10% this year), the government still imports foreign workers at a furious pace, yielding to corporate lobbies eager to hold down labor costs by flooding the labor market and exacerbating unemployment.

2009 Predictions Updated Through 1st Quarter

Just want to let my readers know that I’ve just finished including the 1st quarter update in my 2009 Predictions.  Just bear in mind that these predictions were made on November 8th, only days after Obama was elected, because they’re proving to be so accurate that you’d think I was writing them as events unfolded. 

The predicted lack of action on the trade deficit by Obama, though predicted, is a major disappointment.  I was hoping to be pleasantly surprised, but that’s not been the case.

And just in case anyone thinks things are starting to improve, the monthly ADP Employment Report this morning forecast that March job losses soared to just shy of 750,000 jobs! 

The G20 meeting is shaping up to be a slug-fest.  The world is dividing into two camps – the nations with trade surpluses and those with the trade deficits.  In other words, the parasites and the hosts.  The parasitic economies of the world desperately want to keep the blood flowing, while the host economies are reaching for the fly swatter.  It’s going to be great fun watching how this plays out.

Bold Action on Trade Needed to Complement Stimulus Plans

As the Obama administration and the Federal Reserve have announced trillion dollar stimulus or bail-out plans one after another, I haven’t had much to say specifically about each.  But this may be a good time to stop and consider these actions as a whole.

The stimulus plan itself – the one that included spending on infrastructure and renewable energy, was probably a good thing.   Jobs will be created, though the number remains a question, as does whether or not it will be enough to actually stem the slide in the economy.  Halting that slide is crucial, since it will be impossible to make any progress on reducing our national debt while in recession. 

That leaves two other announed plans, I think, although it’s getting hard to keep track – the Fed’s plan to buy Treasuries using printed money and the government’s plan to buy up “toxic assets,” supposedly in partnership with private investors.  But nearly all of the money will be ponied up by the government – in other words, the taxpayers.

The strategy is clear:  re-start the debt machine, piling more debt onto consumers, and do it with government programs that pile more national debt onto future taxpayers.  But this time, regulate it so that it’s good debt instead of the bad debt that collapsed the economy in the first place.  There’s only one way to do all of this, and that’s to stimulate a demand for labor that’s so vigorous that it sends incomes soaring again. 

Such a strategy has only one chance of success (albeit a slim one), and that requires that the trade deficit be completely eliminated, bringing six million manufacturing jobs home again.  Ideally, we might even return to a trade surplus, enabling us to start paying down our debts.  Otherwise, a continuing trade deficit demands that deficit spending be maintained to avoid lapsing into recession once again. 

The problem is that the administration has done absolutely nothing to address the trade deficit so far that has any chance at all of being effective.  It has talked of the need to reduce the trade deficit, talked of the need to renegotiate NAFTA (the North American Free Trade Agreement), talked of labeling China a currency manipulator and, I believe, has quietly put the rest of the world on notice that a trade deficit will not be tolerated much longer. 

But all of this talk is a complete waste of time, as proven by over three decades of trying to talk down the trade deficit.  The fact is that the nations with whom we have the largest trade deficits in manufactured goods – China, Japan, Germany, South Korea and a host of others – are all overpopulated and completely dependent on sustaining their trade surplus with the U.S. to avoid economic collapse.  Even if they are sincere in their promises to stimulate domestic consumption and eliminate their dependence on exports, they’ll find it impossible to do so.  In addition, regarding the trade deficit in oil, the administration’s moves to boost the production of renewable energy are quickly being overwhelmed by population growth.  With each passing day, we grow more dependent on imported oil, not less. 

The fact that the administration has taken this approach is not surprising and, in fact, is what I predicted.  But time is marching on and we’re now two months into Obama’s administration.  How long will they be patient when the monthly data shows the trade deficit resuming its upward trend, as it surely will?  If they don’t act quickly (no later than the end of this year) to begin imposing tariffs, the only measure that has any chance of restoring a balance of trade, then his economic plan will fail and he will be a one-termer, to be replaced by someone completely devoted to free trade, regardless of the consequences. 

This president who, if he can be believed, seems to understand the consequences of a trade deficit, may be our only chance to rescue the sickened, fallen corpse of the American economy from the global hordes of parasitic economies that are feeding on it.  But to be successful, time is needed to demonstrate the benefits of a judiciously-applied dose of protectionism and the restoration of a balance of trade.  Unless those benefits are realized by 2012, he’s a goner and, so too, will be any hope of salvaging America’s future.

U.S. Trade with Germany: Worse Than China

Continuing the series in which we examine the results of trade between the U.S. and its major trading partners, we now turn our attention to Germany.  Here’s a graphical presentation of our balance of trade with Germany, broken into major categories, from 2001 through 2008:

trade-with-germany

sources:  http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c4280.html

http://www.census.gov/foreign-trade/statistics/product/enduse/exports/c4280.html

If you read my earlier analysis of our results with China, this graph looks quite similar.  The trade relationship is completely dominated by trade in manufactured goods.  And, not surprisingly, since Germany is seven times as densely populated as the U.S. and 67% more densely populated than China, our trade results with Germany are actually much worse than China’s. 

What I’m speaking of here is our per capita trade deficit in manufactured goods.  At $496 per capita, the deficit is nearly 2-1/2 times worse than the per capita deficit with China (which is about $206 per person).  Yes, our deficit in manufactured goods with Germany is slightly less than $41 billion, compared to $275 billion for China but, if Germany was the same size as China, our trade deficit with Germany would be $659 billion, equal to the size of our total current trade deficit with the rest of the world. 

Also, it’s worth noting that almost 40% of our trade deficit in manufactured goods with Germany is autos.  It makes absolutely no sense to provide free access to our auto market to a nation that consumes autos at a rate 28% less than Americans.  The result is an automatic trade deficit.  And it can’t be blamed on low labor costs or a lack of workers’ rights or environmental standards.  Nor can it be blamed on a quality differential when German brands have lower quality ratings than comparable American brands.  The only difference is the huge disparity in population density and its role in crowding out Germans’ ability to consume cars. 

Once again, this is exactly what would be predicted by the theory I’ve presented in Five Short Blasts.  And, at this point, it’s worth noting that this theory is now five for five in correctly forecasting the trade balance in manufactured goods for the five major U.S. trading partners we’ve examined so far.  Since the U.S. is more densely populated than Australia and Canada, it correctly predicted that the U.S. would have a trade surplus.  In the case of Brazil, with a population density almost the same as the U.S., there was a nearly perfect balance of trade.  For China, a nation four times as densely populated, it correctly predicts a large trade deficit and, in the case of Germany, a nation seven times as densely populated, it has correctly forecast a per capita deficit in manufactured goods that is even worse.  It never ceases to amaze me how strong a factor population density is in driving global trade. 

I’ll close once again by observing that it makes absolutely no sense to focus all of our trade efforts on China, blaming China for our huge trade deficit, when our trade results with China are no different than our trade results with virtually any overpopulated nation.  A trade policy that puts blind faith in unfettered free trade is even more harmful than a blind application of protectionism.  Any trade policy which fails to account and correct for the role of population density is doomed to failure.

U.S. Trade With Canada: Thank God for Canada!

Continuing my series of examining the results of trade between the U.S. and our major trading partners, we now turn to Canada.  Here’s a graphical presentation of the balance of trade with Canada from 2001 through 2008, broken down into major categories of resources and manufactured goods. 

trade-with-canada

Sources: http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c1220.html

http://www.census.gov/foreign-trade/statistics/product/enduse/exports/c1220.html

As you can see, we have a large trade deficit with Canada – approximately $75 billion in 2008, a figure that’s held relatively steady since 2005.  Since then, there’s been a dramatic growth in exports of American manufactured goods, rising to approximately $42 billion in 2008.  That trade surplus in manufactured goods accounts for nearly 600,000 high-paying manufacturing jobs in America, a nice little bonus for Americans but an enormous loss for Canada’s manufacturing sector, where their labor force is one tenth the size of America’s. 

But those exports of American manufactured products is more than offset by our enormous imports of oil from Canada, which have grown rapidly since 2002 to $94 billion in 2008.  Canada is by far our largest supplier of oil.  People are often surprised to learn that it isn’t Saudi Arabia or OPEC. 

NAFTA (the North American Free Trade Agreement), which governs our trade with Canada and Mexico, is often lambasted by critics of American trade policy for destroying American jobs.  When it comes to Canada, nothing could be further from the truth.  It’s no wonder that President Obama, soon after taking office, made it a point to visit Canada, whose exports to the U.S. ($335 billion in 2008) account for over 20% of their GDP,  to assuage their fears about the “buy American” provision in the stimulus package.  Trade with Canada has been enormously beneficial for the American economy – providing us with oil and jobs. 

Canada is a nation one tenth as densely populated as the U.S., although their “effective” population density is actually higher, since their location in the upper latitudes concentrates their population along their southern border.  The economic theory I presented in Five Short Blasts would predict a trade suplus in manufactured goods for the U.S. in such a situation and, once again, that’s exactly what we find.  So, if both nations understood and accepted this theory, Canada would impose tariffs on American manufactured goods in order to restore balance, and the U.S. would not retaliate.  Yes, this would tend to make America’s trade deficit even worse, making it that much more important to restore a balance of trade with nations that are much more densely populated than our own (like Japan, Korea, China, Germany and others).  The proper response by America would be the implementation of a population policy designed to very slowly reduce our population, which would relieve our unsustainable pressure on the world’s resources, like oil from Canada, while slowly reducing the theoretical Canadian tariffs on American products. 

The only real benefit that Canadians derive from trade with America is our petro-dollars, a huge boost to their overall balance of trade with the rest of the world.  But one could hardly fault the Canadians if they began to have second thoughts about selling off so much of their precious, dwindling oil reserves to American consumers.  If our situations were reversed, I wonder if Americans would be so generous with their oil. 

As we say our prayers each night before bed, every American should thank God for Canada, the best friend we have on the planet.

In the next article we’ll complete the analysis of NAFTA by taking a look at Mexico.