The Census Bureau announced this morning that the trade deficit made its first significant decline in years in November, falling 28.7% from $56.7 billion in October to $40.4 billion in November, its lowest level since November of 2003. The November deficit in goods fell by a record amount, from $69.0 billion in October to $52.4 billion in November, driven by a decline in the oil deficit from $32.3 billion in October to $19.4 billion in November. The non-oil goods deficit, primarily the deficit in manufactured goods, which accounts for most of the job losses due to the trade deficit, declined by a more modest amount, from $35.3 billion to $31.4 billion.
There are some important points to be made here:
- Any such decline in the trade deficit is very good news, but the reason for the decline is not. Wiping out household net worth and destroying Americans’ purchasing power is no way to restore a balance of trade.
- While the deficit in manufactured goods has declined, it’s still enormous. Even if the November deficit were sustained at this level, it’s still an annual deficit of $377 billion. Assuming that the cost of labor is about 2/3 of that cost, this accounts for over five million manufacturing jobs paying $50,000 per year that have been lost.
- Disingenuous economists and historians are fond of blaming the Great Depression on U.S. tariff policy, citing the small decline in the trade balance of $0.67 billion from 1929 to 1933. So where are the economists blaming this recession/depression on protectionist American trade policies? No one would dare suggest such a thing. America is the most open market in the world. So you have to wonder – if this recession is producing a dramatic decline in global trade, isn’t it possible – perhaps even likely – that the drop-off in trade in the 1930s was caused by the Depression and not vice versa? If anything, one could make the case that it is the protectionist trade policies of the Word Trade Organization, enforced in favor of developing countries (in fact, in favor of two thirds of the WTO member states) that is to blame for this depression. One could make that argument, but I prefer another explanation. It is the global community’s failure to recognize the role of population density in creating huge trade imbalances that is to blame. Protectionist WTO policies have only exacerbated the problem.
Don’t expect this decline in the trade deficit to be the start of a trend. Already, foreign companies are slashing jobs and costs in order to restore their U.S. sales. And with each piece of news like this, the dollar soars and other currencies decline.
Nothing has fundamentally changed in the trade equation. Nothing has been done by the U.S. to extract compensation from foreign nations for their inability to provide us access to equivalent markets. What we’re witnessing is an intensification in the global battle for employment. Layoffs in the rest of the world are accelerating, which will cut U.S. exports and drive the trade deficit higher. The cut in exports will drive unemployment in the U.S. higher. Because of gross overpopulation throughout the world, labor is in a terrible state of over-supply, a fact now laid bare by the deepening global recession. The debt-driven gravy train of the American market has ground to a halt. The nations with the most bloated labor forces – Korea, Japan, Germany and China, among others – are going to take the brunt of this depression, but we’ll share in the pain. The economic collision I warned of with Five Short Blasts is gathering momentum.