America’s Best Trading Partners

April 24, 2014

Earlier this month, we examined the list of America’s twenty worst trading partners – those with whom the U.S. has the largest trade deficits in manufactured goods on a per capita basis.  We saw that the list was dominated by nations with very high population densities.  Eighteen of the twenty were more densely populated than the U.S.  The average population density of the group was five times that of the U.S.  And they were wealthy nations, with an average purchasing power parity of $35,000 per person, debunking the myth that trade deficits are due to low wages.

What about the other end of the scale?  Who are America’s best trading partners – those with whom the U.S. has the largest trade surpluses in manufactured goods on a per capita basis?  Here’s the list:  Top 20 Surpluses, 2012.  This list looks very different.  Thirteen of these twenty nations are less densely populated than the U.S.  Of the remaining seven who are more densely populated, there is a very simple explanation why four of them – United Arab Emirates, Qatar, Kuwait and Brunei – are big buyers of American manufactured exports:  they are tiny nations literally afloat on large seas of oil.  They are flush with American petro-dollars which, ultimately, can only be used for purchase of American goods, services and investments.

Of the remaining three that are more densely populated than the U.S. – Panama, the Netherlands and Belgium – Panama is only a bit more densely populated than the U.S.  But Belgium and the Netherlands are each more than ten times as densely populated, seeming to defy the population density theory for trade deficits.  But both are very small nations, and both are the only nations on the European continent with deep water ports on the Atlantic coast.  Perhaps they are merely distributors of American products to other European countries.  If rolled into the Euro zone, the U.S. still has a large trade deficit with the Euro zone.

In contrast to the list of our twenty worst trade partners, whose average population density was almost 500 people per square mile, the average population density of America’s twenty best trade partners is only 188 per square mile.  But that’s a figure that’s skewed by a few very tiny but very densely populated nations.  If we divide the total population of these twenty nations by their total land area, the population density is only 19 people per square mile.  (This figure is 344 people per square mile for our twenty worst trade partners.)

It’s also interesting to note that the average purchasing power parity (a good measure of the wages paid in those nations) for our twenty best trading partners is almost exactly the same as our twenty worst trading partners – about $35,000 per person.  Clearly, wages have absolutely no role in determining trade imbalances.

The data is clear.  This is absolute, undeniable proof that population density plays a dominant role in determining whether free trade with any given nation will yield a trade deficit or surplus.  It’s irresponsible to apply free trade in a manner that’s blind to this reality.  When trading with badly overpopulated nations, tariffs must be employed to maintain a balance of trade, to offset those nations’ inability to provide us with access to a market that’s equivalent to ours in terms of its citizens’ ability to utilize products.



Unemployment Rises in February

March 10, 2014

As announced by the Bureau of Labor Statistics on Friday (link to the report provided above), unemployment rose by 0.1% to 6.7%, reflecting a gain in the employment level (household survey) of only 42,000 while the labor force grew by 264,000.  This leaves per capita employment essentially unchanged in February at 45.7%.  That figure is almost 3% lower than in 2007, meaning that nearly 10 million workers remain unemployed.

Per Capita Employment

Unemployed Americans

Wall Street drew some comfort from the fact that the number of jobs created – 175,000 (according to the establishment survey) – exceeded expectations reduced by the bad weather in February, but the numbers are weak nonetheless.  Other indications of a weak job market included:

  • the number of long-term unemployed increased by 203,000 in February to 3.8 million,
  • the employment-to-population ratio hasn’t improved in the past year,
  • the number of people working part-time because they can’t find full-time employment remains at 7.2 million workers,
  • manufacturing added no new jobs in February,
  • the average work week dropped by 0.1 hours, and
  • factory overtime also declined by 0.1 hours while the average factory work week remained unchanged.

It’s yet another corroboration of the “new normal,” chronically-high unemployment economy that dumb trade policy and a growing population have given us.

Rice for Vehicles

February 21, 2014

This epitomizes what’s wrong with American trade policy and the American economy as a whole.  As reported in the above-linked Reuters article, President Obama is running around the world selling meat and produce and is willing to surrender manufacturing jobs as payment.  In the case of Japan, he wants them to lower their tariffs on American farm products and, in return, is considering giving up our small tariffs on their cars and our big tariffs on imported trucks.  (By the way, in case you wonder whether tariffs work, take a look around at how few imported trucks are on the road compared to cars.)

At the same time that he’s marketing the U.S. as some rural, agrarian society – something we haven’t been for a century, he’s desperate to liberalize immigration policy to turn us into even more of an urban jungle than we’ve already become. 

Is the condition of our economy any wonder, when our president considers rice for vehicles an even exchange?  Does he not understand the difference in the labor involved in producing these products?  Can’t he acknowledge what a disaster the same trade deal with South Korea has been for American jobs? 

God help us.  Obama won’t.

Trade Deficit in Manufactured Goods Hits Record in December

February 6, 2014

As announced by the Bureau of Economic Analysis this morning (link to the report provided above), the U.S. trade deficit rose slighly in December to $38.7 billion – a fairly benign figure that continues a declining trend.  But slight improvements in the balance of trade for services, food and petroleum products mask a big $4.9 billion drop in manufactured exports that resulted in a record deficit in manufactured goods of $46.5billion.

Manufactured exports fell to $106.5 billion, the lowest level in 27 months.  To keep pace with with Obama’s goal to double exports within five years (a goal he set in January, 2010), exports needed to rise by $39.5 billion per month.  Manufactured exports now lag the president’s goal by a record $41.3 billion. 

Imports of manufactured goods in December were $153 billion, only $0.4 billion shy of the record set only 3 months earlier.  Clearly, if the president’s goal is to generate manufacturing jobs by reducing the trade deficit, his focus is misplaced.  He has no ability to influence exports which are determined solely by foreign demand.  But he has total control over imports, control that a change in trade policy toward a greater use of tariffs would give him.  But he lacks the fortitude for that approach. 

Here’s a chart of manufactured exports and imports:  Manf’d exports vs. goal

And here’s a chart of the manufactured goods trade deficit:  Manf’d Goods Balance of Trade

This kind of debunks the whole notion of the mythical “manuacturing renaissance,” doesn’t it?

The Dumbest Idea Yet for Revitalizing Detroit

January 25, 2014

The above-linked article details what may be the most hare-brained scheme ever devised for resuscitating Detroit’s economy, or the economy of any city, for that matter.  The plan is the brain-child of Michigan Governor Rick Snyder who, before being elected governor, served for a few months as interim CEO of ailing Gateway Computers until a more competent chief executive could be found. 

Detroit’s woes are no mystery.  Its economy was built on the auto industry which, until about the 1960s had a virtual lock on the domestic auto market.  Thanks to a change in U.S. trade policy in the late 40s, which opened the doors to our market without gaining access to equivalent markets, the share of the auto industry held by domestic manufacturers has shrunk to barely 50%.  The demise of the auto industry, together with escalating racial tensions, led to a mass exodus from Detroit.  Since 1960, Detroit has lost nearly two thirds of its population.  Last year, the state of Michigan experienced a net loss of 9,000 new college graduates.

In his state-of-the-city address, newly-elected Mayor Mike Duggan proclaimed that his tenure should be judged by one criteria – that within four years the population of the city of Detroit would be growing again.  Fair enough. 

But there’s a right way and a wrong way to go about it.  The right way is to improve city services, reduce crime, eliminate the blight, clean up the city, and attract businesses back into the city.  That’s the mayor’s job.  If he does it well, then Detroit will once again be judged a desireable place to live, and its population will grow.  And Mike Duggan will be seen as a successful mayor. 

Then there’s the other way – the lazy way – the wrong way – Governor Rick Snyder’s way.  Let’s just bring in 50,000 immigrants, says Rick.  Immigrants with advanced skills who can start businesses, says Rick.  (The insulting implication is that Detroit’s current residents are too dumb to start businesses.) 

But this begs a question for anyone who is familiar with Detroit.  Detroit already has one of the largest immigrant populations in the nation.  If immigrants arrive on our shores with this magic elixir for curing the economy, as politicians, corporations and the Chamber of Commerce would have us believe, then Detroit’s economy should be flourishing instead of floundering.  What happened?  Did we let in the wrong immigrants – the dumb ones?  Will the new batch of 50,000 immigrants be better-screened to identify their possession of the magic economic elixir?

The fact is that immigrants possess no such powers for curing the economy.  They are just people, no different than the rest of us.  They’re no smarter about how to establish businesses and grow the economy.  Nor are they dumber, thus being inclined to become a net drain on social safety net resources, as some anti-immigration groups claim.  In the final analysis, the only effect of immigration is to grow the population. 

And that’s just what those who benefit from a growing population – corporations who want to see growth in total sales volume – want.  Those 50,000 immigrants will set up households and consume the products necessary to do that.  And that will “create” jobs.  There’s a lot of work involved in meeting the needs of a growing population.

But no debate of immigration policy is complete without giving equal consideration to the other economic consequences.  The inverse relationship between population density and per capita consumption dictates that, once a critical population density has been breeched (a population density that liberal immigration policy helped us reach decades ago), the now-larger population will, on an average per capita basis, consume just a little less as they are forced into more crowded conditions.  Out of the 50,000 people added to the population, they’ll add to the labor force just slightly more than are absorbed by the new job opportunities created.  The end result will be declining wages and rising poverty.  Detroit will have a bigger economy, but it will merely be a bigger version of what it has now.

Manufactured Exports Lag Obama’s Goal by Record Margin in November

January 7, 2014

Once again, at first blush, the November trade deficit, announced this morning by the Bureau of Economic Analysis, seems to be great news.  The deficit fell a steep $5.0 billion to $34.3 billion, the lowest reading since 2009 when global trade was still in a big slump. 

However, almost all of the improvement can be attributed to a $4.3 billion improvement in the trade in oil.  The trade deficit in manufactured goods improved by only $0.4 billion.  Manufactured exports rose by $0.9 billion, but they needed to rise by $1.7 billion in order to keep pace with Obama’s goal of doubling exports by January, 2015.  As a result, manufactured exports lagged the president’s goal in November by $34.4 billion, beating the previous shortfall, set only 2 months earlier, by $0.5 billion.  And, it should be noted that this shortfall exceeds the total trade deficit by $0.1 billion.  In other words, November’s trade deficit is due entirely to Obama’s failure to follow through on his promise – something we should all be used to by now – his broken promises on trade policy. 

Manufactured exports have risen by only $0.3 billion since March, 2012.  (To keep pace with Obama’s goal, they needed to rise by $30.1 billion during that period.)  Here’s a chart of trade in manufactured goods, followed by a chart of the balance of trade in that category:  Manf’d exports vs. goal ,     Manf’d Goods Balance of Trade.

None of this is surprising since. like presidents before him for the past six decades, Obama has done nothing to stop the mindless application of free trade policy to situations where it makes absolutely no sense – trade with badly overpopulated nations incapable of providing us access to equivalent markets.

Trade Deficit with EU Soars in October; Exports Lag Obama’s Goal by $49 Billion

December 4, 2013

As announced by the Bureau of Economic Analysis (BEA) this morning (see above link), the U.S. October trade deficit moderated slightly to $40.6 billion from $43 billion in September.  The overall trade deficit continued its moderating trend that began in February of last year, thanks primarily to an improving balance of trade in oil.  During that time frame, oil imports have fallen by $7.0 billion while oil exports have risen by $3.2 billion – a swing of $10.2 billion in the balance of trade in oil.  That’s great news.  Here’s the chart for the overall balance of trade:  Balance of Trade.

The bad news lies in the details.  Our balance of trade in manufactured goods, though it improved by $1.6 billion in October, continues on an overall downward trend.  Here’s the chart:  Manf’d Goods Balance of Trade.

Exports of manufactured goods lagged the president’s goal of doubling them in five years for the 27th consecutive month and by a record margin – $33.9 billion.  They haven’t risen at all in the past year.  Overall exports lagged the president’s goal for the 25th consecutive month, and by nearly $49 billion.  In other words, the U.S. would now be enjoying a surplus of trade if the the president had met his goal.  But that was never possible since the U.S. has absolutely no control over exports.  Here’s the chart:  Manf’d exports vs. goal.

But the most disturbing news in the report is what’s happening to our balance of trade with Europe.  In October, the trade deficit with the EU hit a new monthly record of $14.3 billion.  And it’s on pace to shatter the annual record, set only last year, by 15%.  This is led by a record deficit with Germany of $6.9 billion in October.  Our trade deficit with Germany is on pace to shatter last year’s annual record by 22%.  And we also had a record deficit with Ireland in October  of $3.2 billion –  also on pace to beat last year’s annual record. 

President Obama’s approval rating has been sinking.  Nowhere is his failure greater than his failure to follow through with his campaign promise to fix America’s broken trade policy.


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