http://www.reuters.com/article/politicsNews/idUSTRE5A50QN20091106

The above-linked Reuters article reports on actions by the U.S. International Trade Commission to open investigations into unfair trade practices by China and Taiwan. 

The total value of the imports in question is about $260 million.  By comparison, the total trade deficit with China and Taiwan combined in 2008 was about $280 billion.  These investigations typically take a couple of years.  If this is the Obama administration’s plan for attacking the trade imbalance with these countries, at this rate it will take over two thousand years to restore a balance of trade, and that’s assuming that China and Taiwan don’t increase exports of other products in the meantime. 

It’s just more of the same pointless dithering on trade that we’ve seen for decades, certainly not the “change we can believe in” that we were promised.  Just another example of trade policy shaped by half-assed 18th century trade theories formulated by “economists” who were clueless about the role of population density disparities in driving global trade imbalances.

http://www.reuters.com/article/politicsNews/idUSTRE5A55F520091106

As reported in the above-linked Reuters article, President Obama will challenge Asian nations to “do their part” in rebalancing global trade during his trip to Asia this month, and will be especially critical of China for refusing to allow market forces to determine the value of their currency.

U.S. President Barack Obama will seek to reinforce the U.S. desire for more balanced global growth during his trip to Asia this month, administration officials said on Friday…. The value of China’s currency, the yuan, is also expected to come up during Obama’s visit on November 15-19.

The yuan has consistently been a focus in U.S.-China trade disputes as U.S. critics say China intentionally keeps its currency undervalued to gain advantages. China says its stable exchange rate helps its exporters and promotes stability in the global economy.

“It is an integral part of U.S. policy that China should be moving toward a market-based value for its currency,” Bader said.

Steinberg is one of the key architects of the Obama administration’s China policy. In an indication that Obama plans to raise the issue of currencies with Chinese President Hu Jintao, he said the administration wants to see China address some of the policies “that artificially promote exports” and “their overall approach to macroeconomic policy.”

This is the same worn out approach to trade that the U.S. has taken for decades, with absolutely zero results.  There are no results because currency valuations have virtually nothing to do with global trade imbalances.  The influence of currency valuations is dwarfed by the role of population disparities in driving such imbalances. 

Consider the evidence.  Since the early ’70s, the dollar has fallen by over 300% vs. the Japanese yen.  Yet, contrary to economic theory that says such a devaluation makes American exports cheaper and Japanese imports more expensive, our trade deficit with Japan actually exploded to record levels in 2006 before the global recession hit.  And a couple of years ago, the Chinese yuan rose by 20% when the Chinese unpegged it from the dollar briefly.  The result?  Our trade deficit with China continued to worsen. 

In the past year, the dollar has fallen dramatically vs. both the yen and the euro.  But has anyone heard of Japanese or European automakers raising their prices to offset the decline of the dollar?  On the contrary, the Japanese have actually been cutting prices to maintain their market share. 

The fact is that every nation will do whatever is necessary to maintain the economic status quo.  Just as the U.S. will resort to government stimulus and deficit spending to prop up the economy, overpopulated nations who are desperately dependent on exports to the U.S. to sustain their economies will do anything and everything to keep those exports going.  Currency valuations be damned.  They’ll just keep cutting costs to maintain market share. 

Einstein said that doing the same thing over and over again while expecting different results is the very definition of insanity.  That’s exactly what the U.S. has been doing in trade negotiations for decades, and now the Obama administration is carrying on the tradition.  That’s not ”change we can believe in.”  It’s status quo – the same trade policy side show we’ve watched being played out over and over and over again – a token gesture to give the appearance of doing something while, in fact, doing absolutely nothing.    The whole thing is a big joke and it makes me sick.  Once again, when the Americans leave, Asian leaders will be rolling in the aisles with laughter and more Americans will be lining up for unemployment.

http://www.bls.gov/news.release/empsit.nr0.htm

The Bureau of Labor Statistics (BLS) announced this morning that its official unemployment rate jumped from 9.8% in September to 10.2% in October.  (U6 – the broader measure of unemployment, jumped to 17.5%.)  But they continue to rely upon an unexplainable phenomena that I call the “mysteriously vanishing U.S. labor force” to hold down the numbers.  In spite of the fact that the U.S. population grew by 263,000  last month, the BLS says that the labor force shrank by 31,000.  It seems that, the deeper a recession gets, the more people are suddenly able to thrive without a source of income. 

Non-farm payrolls shrank by 190,000 jobs – the headline number in this morning’s report.  But the fact is that total jobs fell by 589,000.  Once again, manufacturing took the biggest hit. 

My calculation of unemployment is based upon the labor force consisting of a steady percentage of the population, which actually correllated very well with the BLS data until the recession yet, at which point the BLS became motivated to sugar-coat the data.  Using that method, U3 unemployment has jumped to 11.7% while U6 has soared to 20.9%.  Here’s my calculation:

Unemployment Calculation PDF

Taken together with GDP data (see “3rd Quarter GDP Up, Erosion in Underlying Economy Continues“), the evidence is clear that the government stimulus program, while propping up the economy, is failing to stimulate the real underlying economy.  Take that stimulus away and we’ll be in a world of hurt unless, of course, the administration decides to do something meaningful to address our failed trade policy.  But I don’t see that happening in the foreseeable future. 

So, suck it up, Americans!  The Great Recession (Great Depression II, sans government stimulus) marches on.  The change we believed in hasn’t happened yet and those who had the audacity to hope, it seems, were simply being audacious.

I should have known it was too good to be true.  Upon checking my data against the U.S. Census Bureau monthly estimates, I found some inconsistency in the point in time at which I was “grabbing” the current population data.  The fact is that there has been no change in the quarterly growth rate of the U.S. population since Obama took office.  The growth rate continues to follow the quarterly pattern to a tee.  The following is a corrected chart of the quarterly growth rate of the U.S. population:

Quarterly U.S. Population Growth Rate

The quarterly rate deviated from the quarterly pattern only in 2002, following the 9/11 attack. 

Sorry for the error.  I’ll try to be more careful and less enthusiastic when I see what seems to be an encouraging sign.

http://www.reuters.com/article/newsOne/idUSTRE59U0N220091102

With joblessness continuing to escalate, Obama challenged his economic team on Monday to come up with a new economic growth model and turned his attention to trade and exports.  Give him credit.  Instead of swallowing the line that our trade deficit is an inevitable consequence of low wages in foreign countries and eschewing the usual pissing and moaning about exchange rates, he asked an incisive question:

U.S. PresidentBarack Obama warned on Monday that more U.S. job losses lay ahead despite a turnaround in the economy, and he called for a new “post bubble growth model” with greater focus on U.S. exports.

“If Germany, a wealthy, highly unionized industrial nation, can generate 40 percent of its economy as export-based, then it seems to me that there is something we’re missing that they are doing right, and we have got to figure that out,” he told a meeting of his Economic Recovery Advisory Board.

Indeed.  Why can Germany generate so much of its gross domestic product (GDP) through manufacturing for export?  The same question could be asked about Japan, Ireland, Denmark, Switzerland, Korea and a whole host of other nations, none of whom have significantly lower labor costs or better productivity than the U.S.  Nevertheless, the U.S. has a huge trade deficit in manufactured products with all of them.

The answer is that all have two things in common.  First of all, all of these nations are more densely populated than the U.S.  Most are badly overpopulated, making them incapable of per capita consumption at a rate that enables them to absorb the productive capacity of their own labor forces, much less able to consume imports from a nation like the U.S.

The second thing that all have in common is a huge market where per capita consumption is high and where the government is too dumb to implement trade policy designed to assure a balance of trade – the United States.

The question that Obama should be asking is not “What is Germany doing right?”  Rather, he should be asking “What are we doing wrong?”  The answer lies in trade policy that fails to account for the effect of extreme population densities on per capita consumption and global trade imbalances.

Obama went on to question why we can’t have the kind of economy we once enjoyed, with strong manufacturing and exports, and emphasized that big trade deficits can no longer be sustained:

“Are there mechanisms that we can start putting in place where we see the kind of growth that used to characterize the U.S. economy — export-driven growth, manufacturing growth,” he demanded of the panel, which included business leaders as well as former Federal Reserve Chairman Paul Volcker.

He said past U.S. growth had been “debt-driven” and that was no longer feasible. With the United States running record budget deficits as it spends furiously to try to stimulate the economy, Obama said it is going to be vital to find innovative new ways to finance growth, and the old approach would not do.

“The kinds of current account deficits, trade deficits we were developing were not ones that would serve as a model for long-term economic prosperity,” Obama said.

It’s refreshing to hear a president who recognizes the role of trade in the demise of American manufacturing and the economy as a whole.  He understands that it can’t go on but, predictably, his approach of chiding other nations to start buying more American products has yielded zero results.  He’s frustrated and clueless, and his economic team is of no help since, to a man, they’re free trade cheerleaders.  So he thinks it’s a matter of competing harder:

“Part of what we want is an aggressive trade policy that says we can compete, we’re not afraid of competing, we want to make sure we are competing in a fair way, and that other countries are not seeing the U.S. markets as simply the engine for their growth, without any reciprocity,” he said.

It’s not a question of being competitive.  No nation on earth has more aggressively cut labor costs and improved productivity than the U.S., all to no effect.  Any effort to identify some magical ingredient in Germany’s manufacturing or to mimic them is doomed to failure.  Unlike Germany, we have no other country like the U.S. to serve as our patsy customer, as we do for Germany.  Boosting exports is now something that’s within our control.  The only way that exports can rise is if other nations start buying more American-made products.  It’s not going to happen.

President Obama, here’s an idea:  instead of trying concoct a global economy where Germany, China, Japan and Korea manufacture everything we use, while we manufacture everything for someone else, how about an economy where we all just manufacture our own stuff?  Imagine the oil burned in transoceanic shipping that could be saved!  Trade imbalances are eliminated and Americans are put back to work in high-paying manufacturing jobs.  Problem solved!  What will Chinese, German and Japanese labor forces do?  That’s their problem.  Put tariffs back in our trade policy tool bag and make it happen.  Start being a president for Americans and do what’s right for American workers.

Thursday the government reported that GDP rose at an annual rate of 3.5% in the third quarter, rising from an annual rate of $12.901.5 trillion in the 2nd quarter to $13.014 trillion in the 3rd quarter.  (Expressed in 2005 dollars.)  The government would have us believe that this is great cause for cheer – evidence of a rebounding economy and the end of recession.

But how much of this is real growth versus the illusion of growth created by government stimulus spending?  In March the government passed the American Recovery and Reinvestment Act, authorizing the spending of $787 billion to boost the economy.  Proof that it’s actually stimulating the economy would be an increase in GDP if the stimulus spending is removed.

The fact is that the underlying economy continues to deteriorate.  As I reported in Stimulus Spending Masks Huge Decline in 2nd Qtr. GDP, the underlying economy contracted at an annual rate of 8.2% in the 2nd quarter.  In the 3rd quarter, stimulus spending increased to $113 billion, for an annual rate of $452 billion.  If this spending is removed from 3rd quarter GDP, we find that the underlying economy has continued deteriorating, albeit at a slower pace, at an annual rate of 3.5%.  Without the stimulus spending, 3rd quarter GDP would be 7.5% below the peak GDP reached in the 2nd quarter of 2008.  (It should be noted that that figure was also “stimulus-aided,” the result of the Bush administration $150 billion tax rebates.)

Making matters worse, real per capita GDP (sans stimulus spending) fell to its lowest level since 3rd quarter 2003, with the addition of another 300,000 people to the U.S. population contributing to the decline.

This is why some political leaders, economists and financial pundits are raising alarm over the possibility of  backsliding into recession once the government stimulus is removed – because the underlying economy continues to deteriorate, and not at a slow pace.  It’s likely that the government will enact new stimulus measures to sustain the illusion of economic growth, but at the risk of record deficits alarming the financial community in a way that will send interest rates soaring, countering any stimulus measure.  It would be amusing to watch such idiotic economic policy play out were it not for the devastating effects on the vast majority of Americans.

http://www.reuters.com/article/ousivMolt/idUSTRE59Q0HN20091027

Just in case anyone was deluded into thinking that China was genuinely interested in restoring balance to global trade, along comes this blunt refusal by a Chinese trade official to consider anything that will slow the growth of Chinese exports:

Speaking at a separate forum in Beijing, Jiang Jianjun, a deputy director with the Ministry of Commerce’s Department of Foreign Trade, cited China’s rising share of global output and its swelling foreign exchange reserves as pressures on the yuan to strengthen.

“However, according to our projections, until there’s a noticeable improvement in exports, the exchange rate will not see a major adjustment,” Jiang said.

He said it would take two or three years for China’s combined exports and imports to regain pre-crisis levels.

Of course, exchange rates have nothing to do with trade imbalances, but that’s irrelevant.  Both the U.S. and China think that they do, and China’s refusal to allow any further strengthening of the yuan is proof positive that they have no interest whatsoever in re-balancing trade.  Give China credit.  They understand how to make trade work to their advantage.  It helps their cause that the people across the trade table from them are complete fools.

http://www.reuters.com/article/worldNews/idUSTRE59N0HW20091025

The above-linked Reuters article was too good to let pass without comment.  It seems that Asian leaders have gotten together to discuss how to go about reducing their dependence on exports to the U.S. in order to correct global trade imbalances.

Asia-Pacific leaders called on Sunday for regional-wide free trade and other measures to reduce dependence on the United States and big Western markets as Asia leads the way out of the global economic downturn.

… Thai Prime Minister Abhisit Vejjajiva, host of the meetings, said Asia clearly needed a new growth model leaning less on big Western trading partners and more on Asia-wide trade pacts. The global financial crisis, he said, bore this out.

“The old growth model, where simply put we have to rely on consumption in the West for goods and services produced here, we feel will no longer serve us as we move to the future,” Abhisit told a news conference.

There’s no doubt that leaders now understand that persistent trade imbalances can’t be sustained – that they ultimately lead to economic collapse.  They believe that through a regional Asian trade bloc, they can boost their economies and stimulate domestic consumption to such an extent that they will have no capacity for supplying America’s need for products.  Apparently, they see a day when a customer at a Toyota dealer is simply turned away with the explanation “Sorry.  We don’t have any more cars available to sell.”  That must be what they envision because, unless they stop selling to the American market, the trade imbalance will persist.

The very idea that they are genuinely anxious to abandon their dependence on exports to the U.S. is laughable.  If anything, they would like nothing better than for the U.S. to boost its imports.  Imagine if the U.S. took steps to re-balance trade and break its dependency on imports from Asia.  They’d be howling bloody murder, calling us protectionists and complaining to the World Trade Organization.

Hey, Asia!  Want to cut your dependency on the U.S. and re-balance trade?  It’s easy!  Just start closing your Toyota, Nissan, Honda, Suzuki, Hyundai and Kia dealerships in the U.S.  When WalMart places orders for container ships-full of Chinese products to stock their shelves, politely reject the orders and suggest that we make the products ourselves.  Problem solved!  Or here’s another idea:  start buying as much from us as we buy from you.

We all know it’d never, ever, ever happen.  It’s all just another ploy to buy more time to sustain the trade imbalance they’ve enjoyed for decades at Americans’ expense.  Talk, talk, talk.  For decades we’ve listened to them talk about lowering trade barriers, ending currency manipulation and protecting intellectual property.  Now it’s talk about stimulating their domestic economies.  That should be good for another decade or so of more talk, and we all know that talk is the most we can expect from America’s cowardly leadership.

The only way that global trade imbalances, especially America’s huge trade deficit in manufactured goods, will ever be corrected is through tariffs imposed by the U.S., not just on Asian nations but on all over-populated nations, forcing the needed correction and bringing millions and millions of high-paying manufacturing jobs back to the U.S.

]]> http://petemurphy.wordpress.com/2009/10/27/hey-asia-want-to-reduce-your-dependency-on-exports-to-the-u-s/feed/ 2 petemurphy http://petemurphy.wordpress.com/2009/10/15/manufacturing-poised-for-rebound-or-more-decline/ http://petemurphy.wordpress.com/2009/10/15/manufacturing-poised-for-rebound-or-more-decline/#comments Thu, 15 Oct 2009 18:48:57 +0000 Pete Murphy http://petemurphy.wordpress.com/?p=2252 ]]>

http://www.reuters.com/article/ousivMolt/idUSTRE59E4WJ20091015

The above-linked Reuters article reports on statements by the Manufacturers Alliance regarding its latest release of its monthly manufacturing index.  The index jumped nicely in September to a reading of 38, from its low of 24 in June.  So manufacturing is rebounding, right?  That’s what the Manufacturers Alliance and the Reuters article would lead you to believe. 

But, as former British Prime Minister Benjamin Disraeli famously said, there are three kinds of lies:  “lies, damnable lies and statistics.”  Statistics can be twisted so support any position.  In this case, yes, the manufacturing index improved.  But there’s just one problem:  any reading below 50 indicates contraction.  So, although the index improved from 24 to 38, what it really means is that conditions in the manufacturing sector continue to get worse, not better, but at a slower rate.  Does that sound like a rebound to you?  Of course not. 

The only part of the index that improved above 50 was the “expectations” part of the index – what the survey respondents expect to happen next year.  It seems they expect conditions to improve.  But there’s no evidence of improvement to support it.  It’s just pure hope and optimism – all part of a grand plan to boost consumer confidence by hyping “green shoots” in the economy while ignoring reality. 

Eventually, manufacturing will rebound from the level it’s at today, but not to the level it was at before the recession began.  The decades-long decline in manufacturing has been driven by idiotic trade policy that traded away our market without gaining access to equivalent foreign markets, and that decline will continue for lack of courage on the part of our leadership to make the changes necessary to restore a balance of trade.

http://www.reuters.com/article/GCA-GreenBusiness/idUSTRE59B2OX20091012?sp=true

As reported in the above-linked Reuters article, at least one low-level government official recognizes that projected U.S. population growth will make America’s goals for reducing carbon emissions much more difficult.  Brian O’Neill, a scientist at the U.S. National Center for Atmospheric Research, who also works at the International Institute for Applied Systems Analysis in Austria, has correctly observed that projected population growth makes carbon emissions reductions more difficult for the U.S. compared to some other developed countries where their populations are stable or declining. 

The leaders of the G8 nations have agreed to cut carbon emissions by 2050 by 80% from their 1990 levels.  Some of these developed nations are expected to decline in population by 2050, but not the U.S., whose population is projected to be 60% higher in 2050 (at 400 million people), vs. its 1990 population of 250 million.  So an 80% reduction in those emissions by 2050 would translate into a per capita reduction of 87.5% for the U.S.  For nations whose populations are projected to decline, their per capita reductions would be less than 80%.  This will translate into a lower standard of living for Americans than for other developed countries. 

Why is O’Neill talking to Reuters correspondents about this?  Is he a rogue low-level official speaking for himself?  Or is he parroting thinking that he’s heard at higher levels in his organization?  Or is it possible that this is an intentional move by the Obama administration to inject the subject of population growth into the carbon emissions debate? 

If the latter is the case, then to what end is the administration broaching this subject?  Two possibilities come to mind.  Since virtually all of our population growth is due to immigration, could it be that the administration is setting the stage for a dramatic change to immigration policy?  The second possibility seems more likely to me – that the administration is trying to shift the focus of carbon emissions reductions to a per capita basis instead of total emissions.  If so, they may think that the U.S. can get some relief on its own emissions goals vis-a-vis other G8 nations, but there’s a danger that such an approach could back-fire.  If total carbon emissions reductions are translated into a per capita basis, then it would be logical to apply the per capita figure evenly to all people of the world.  In such a scenario, U.S. emissions would have to be cut much further, since vast numbers of people already exist at far lower levels of per capita emissions, and population growth projections for many third world countries is even worse than the projections for the U.S.  In other words, if everyone gets to emit their fair share, then U.S. emissions will have to be cut much more drastically than 80%, a level that many already believe is simply unattainable. 

My interest in all of this is, of course, not so much reductions in carbon emissions, but the pressure that this subject brings to bear on the need to reduce our population.  Since economists don’t understand that reductions in our population would actually have huge economic benefits, we’ll all be better off in the end whether the impetus for population reductions is economic or some environmental concern.  The good news here is that, as much as environmentalists would like to keep the population factor below the radar, it’s beginning to be openly discussed.

Finally, the article ends with a quote so egregious that I can’t let it pass without comment:

David Satterthwaite, of the International Institute for Environment and Development (IIED), said … “It’s consumption that drives dangerous climate change, not population.” … “There is at most a weak link between population growth and rising emissions of greenhouse gases.”

Anyone who would make such a statement is being disingenuous, to put it mildly.  The rise in greenhouse gas emissions is directly related to the growth in population over the past couple of centuries.  Even a fifth-grader can understand that total emissions is a function of population times the average per capita emissions.  Only a fool would focus solely on per capita emissions while discounting the role of population growth.  Stabilizing and reducing our population is critical to achieving our goals for greenhouse gas emissions reductions.  If reduced enough, it could also have the side effect of providing a huge boost to the standard of living for everyone.