The Hypocrisy of the “Swap Your Ride” Commercial for Ford Fusion

May 29, 2012

Ford makes great products and, in general, I really like their series of “Swap Your Ride” commercials for their line-up of vehicles that feature Mike Rowe.  You’ve probably all seen this one for Ford’s Fusion:   http://www.youtube.com/watch?v=6xzo14Qil2U.  Near the end of this commercial, the young lady driving the car quips:

After driving the Ford Fusion I have no idea why I’ve always driven an import.

I think it’s time someone pointed out the hypocrisy of this commercial, given the fact that the Ford Fusion is an import itself!  It’s imported from Mexico. 

When my wife and I were shopping for a new car last year, we test-drove the Fusion.  It was a nice car.  But, when I asked the salesman where it was built (already knowing the answer), he confirmed that it was built in Mexico.  I told him, “I love the car, but you need to tell Mr. Mulally (Ford’s CEO) that if he wants to sell me a Fusion, he needs to build it in the U.S.”  I then returned to the Chevy dealer and purchased a Malibu, built in Kansas City.  (By the way, the Malibu is now 1-1/2 years old and has 23,000 miles, and has never been back to the dealer for a single repair.)

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2011 Trade Data Disproves Claim that the U.S. Trade Deficit is Caused by Low Wages in Other Countries

May 26, 2012

America’s enormous trade deficit in manufactured goods – $423.4 billion in 2011 – is often blamed on low wages in foreign countries.  China is the most frequently cited example. 

However, this claim isn’t supported by the facts.  I recently completed an analysis of U.S. trade with 165 nations, divided into groups by “purchasing power parity,” or “PPP.”  PPP (which is pretty close to the gross domestic product of a nation expressed in per capita terms) is an approximate measure of the wealth of each nation and a good measure of relative wages paid there.  Here’s what I found:

  •  With the bottom half of nations in terms of PPP – those with PPP below $7,800 per person per year – the poorest, lowest wage nations – the U.S. had a trade deficit in manufactured goods in 2011 of $22.9 billion. 
  • With the upper half of nations in terms of PPP, the U.S. had a trade deficit in manufactured goods in 2011 of $400.6 billion.  Same number of nations, but a trade deficit 17 times worse than with the lowest-wage nations.

Now, admittedly, even the median PPP is pretty low.  So, instead of dividing these 165 nations in half, let’s divide them into five equal-sized groups, with the same number of nations in each group.  This means that 33 nations are included in each “quintile” of PPP.  The following is the breakdown of PPP of each 20% of nations:

  • The top 20% includes nations with PPP ranging from $102,700 (Qatar) to $25,900 (Czech Republic). 
  • The 2nd 20% includes nations with PPP ranging from $24,000 (Saudi Arabia) to $11,200 (Montenegro).
  • The 3rd 20% includes nations with PPP ranging from $11,000 (South Africa) to $5,100 (Morocco), and includes China ($8,400).  Speaking of China, only a few years ago they were among the 4th quintile of nations, not the 3rd.  Since then, their wealth and wages have soared.  Instead of declining as a result of their rising wages, our trade deficit with China has exploded. 
  • The 4th 20% includes nations with PPP ranging from $5,100 (Syria) to $1,900 (Chad).
  • The lowest 20% includes nations with PPP ranging from $1,800 (North Korea) to $300 (Congo, Kinshasa). 

Here’s a chart of how our trade deficit in manufactured goods in 2011 breaks down along these five groups of nations:  Trade by Quintile of PPP.

Here are the key take-aways from that chart:

  • Contrary to the claim that low wages cause trade deficits, the U.S. actually has a small surplus of trade in manufactured goods with the 33 poorest nations. 
  • With the 33 next poorest nations, the U.S. has only a very small trade deficit in manufactured goods – $28.7 billion.
  • The U.S.’s largest trade deficit in manufactured goods – $289.4 billion – is with the middle 33 nations.  However, that group includes China.  Take away China, and the U.S. actually has a small surplus of trade ($13.0 billion) with the remaining 32 nations in that group as well. 
  • The U.S. also has a small surplus of $17.6 billion with the second richest group of 33 nations.
  • Aside from China (mentioned above), the U.S.’s worst trade deficit – $124.1 billion, is actually with the wealthiest 20% of nations.  This list of nations includes Germany, Japan, South Korea and Israel, among others.  Of the 33 richest nations, 23 are more densely populated than the U.S. 

Conclusion:

There is absolutely no correlation between low wages and trade deficits evident in the U.S. trade data.  In fact, it is among the wealthiest nations (and with China, where wages are rising fast), that the U.S. has the worst trade deficits in manufactured goods.  If you think about it, it makes sense.  High wages in those nations are the result of their large trade surplus with the U.S. and the rest of the world.  How can a nation remain poor when American dollars are flooding its economy?  It can’t.  It’s impossible to have a large trade deficit with a poor, low wage country, at least for any length of time. 

The next time you hear that low wages in foreign countries drain manufacturing jobs away from the U.S., tell the person making that claim to check the facts.


U.S. Foreign Trade: A Tale of Two Worlds

May 12, 2012

When I wrote Five Short Blasts, one of the key pieces of evidence I presented in support of my claim that the U.S. balance of trade in manufactured products is heavily influenced by the disparity in population density between the U.S. and its trading partners was Figure 7-4 on page 125.  This was a chart that compared America’s balance of trade in manufactured goods for those nations above the median population density to those nations below the median population density.  The difference in results was truly striking.

I’ve now updated that chart to include the results for 2011:  Deficits Above & Below Median Pop Density.

As you can see, it seems that, with each passing year that the U.S. adheres to the blind application of free trade policy, the effect of population density is intensifying.  With the half of nations with population densities below the world’s median population density, the U.S. has a surplus of trade in manufactured products of $153 billion.  However, with those nations more densely populated – same number of nations – it had a trade deficit of $577 billion.  Both figures are the highest since I began tracking this data. 

And here’s a piece of data that may be even more striking.  If we sort the nations of the world by population density and begin totaling the U.S. balance of trade in manufactured goods, starting with the least densely populated nations, and simultaneously begin totaling the land surface area of these nations, the U.S. has a trade surplus in manufactured goods with 86% of the land surface area of the earth (excluding the U.S. itself and Antarctica).  (We didn’t have a surplus with all of these nations, but the total remains on the surplus side of the tally sheet.)  At that point, the U.S. has a trade surplus in manufactured goods of $82 billion, and a trade deficit with the remaining 14% of the earth’s land surface area of $505 billion! 

Only when we reach China does the balance of trade turn negative.  Our trade deficit with China accounts for $302 billion of that deficit.  Now, China occupies 8% of the worlds land mass (again, excluding the U.S. and Antarctica).  That means that with the last 6% of the world’s land mass, the U.S. still has a trade deficit of $203 billion.  Included in that 6% of land mass are Japan, Germany, South Korea, Taiwan and India – some of the most densely populated nations on earth. 

America’s trade results are truly a tale of two worlds – the positive experience we have with the vast majority of the world (in terms of land mass) – vs. the horribly negative and destructive results we experience with the 14% of the world that is so badly overpopulated.  Yet, as we have for the last 65 years – since the signing of the Global Agreement on Tariffs and Trade in 1947 – we stubbornly and stupidly contine in our efforts to apply the same free trade policy to both worlds, hoping that, some day, free trade with overpopulated nations will yield different results.  Einstein once famously said that the very definition of insanity is doing the same thing over and over and expecting different results.  The application of free trade theory to overcrowded nations is truly insane.


Manufacturing Trade Deficit Jumps to Worst Reading of Obama’s Administration

May 10, 2012

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

In January of 2010, President Obama set a goal of rebalancing trade by doubling exports over the next five years.  Since then, America’s trade deficit has steadily worsened.  This morning, the BEA (Bureau of Economic Analysis) announced that America’s trade deficit in March jumped to $51.83 billion, only a whisker shy of the worst level of the Obama administration – $52.52 billion – set only two months earlier.  Here’s a chart of the U.S. balance of trade beginning when the president set that goal:  Balance of Trade.  By the way, most of the increase in the trade deficit came at the hands of the European Union.  The trade deficit with the EU rose by $3.9 billion in March. 

Exports jumped by over $5 billion in March, but that was swamped by an $11.6 billion jump in imports.  The jump in exports still left the U.S. shy of Obama’s goal by $7 billion – the 6th consecutive month that exports have been below goal.  In the more critical category of exports of manufactured goods – they rose by about $4 billion.  But that was swamped by a $10 billion rise in manufactured imports.  The monthly trade deficit in manufactured goods rose to $24.5 billion – the worst level of the Obama administration.  Here’s the chart of trade in manufactured products:  Manf’d Goods Balance.  Exports of manufactured goods fell short of the president’s goal for the 11th consecutive month. 

And here’s the chart tracking the progress toward the president’s goal of doubling exports:  Obamas Goal to Double Exports.  As you can see, we’re losing ground with import growth outstripping our growth in exports.  The net result is more lost manufacturing jobs. 

The president is failing in his goal to rebalance trade and reverse the trend in lost manufacturing jobs.  He failed to keep his campaign pledge to re-write NAFTA.  He failed in his campaign pledge to reverse the trend in trade.  Now he has failed in his goal to rebalance trade by focusing on exports.  It’s time to call the president on the carpet.  Of course, that’s exactly what will happen in November – not a moment too soon.  Not that Romney will necessarily do any better.  But a failing grade by this president demands that we try something new.  Romney is the only option.


1st Quarter Per Capita GDP Rises 1.3%

May 10, 2012

I’m still getting caught up on things from my 2-week hiatus, so this news is a bit stale.  But it’s worth visiting again since the Bureau of Economic Analysis (BEA) only reports on GDP without expressing it in per capita terms.  What matters is not the size of the pie, but the size of your slice of the pie. 

On April 27th, the BEA released its advance estimate of 1st quarter GDP.  It rose at an annual rate of 2.2%.  That’s a bit of a slowdown from the 3.0% rate in the fourth quarter of last year.  Of that 2.2%, a boost in motor vehicle output accounted for half – 1.1%.  Rising inventories accounted for 0.6%. 

However, expressed in per capita terms, real GDP rose by only 1.29%, thanks to the U.S. population growing in the first quarter at an annual rate of 0.9%.  As you can see from the following chart, real per capita GDP remains approximately $1,000 per person below the level reached before the recession.  It’s at approximately the same level as in the 1st quarter of 2006.  Here’s the chart:  Real Per Capita GDP

This anemic growth is in spite of nearly $3 trillion in stimulus poured into the economy by the federal government and the Federal Reserve over the past three years.

This 1st quarter growth in per capita GDP bucks my prediction that it would “decline throughout the year.”  But not by much.  The economy was slowing noticeably by the end of the first quarter, so a slowdown in the 2nd quarter should surprise no one.


Economy Sheds 169,000 Jobs in April

May 8, 2012

The Bureau of Labor Statistics reported on Friday that the economy added 115,000 jobs in April and that the unemployment rate fell 0.1% to 8.1% – thanks once again to over 340,000 job-seekers mysteriously vanishing from the labor force. 

While the jobs figure was a big disappointment to economists, who had been expecting job gains of 165,000, the really bad news was buried in the household survey data.  The “employment level” – the number of people working – actually fell by 169,000 – adding to the loss of 31,000 in March.  Had the labor force actually grown in proportion to growth in the population (which it actually does, of course), unemployment would have risen by 0.2% to 10.9%.  Here’s the spreadsheet that calculates unemployment and a more realistic figure that grows the labor force as the population grows:  Unemployment Calculation

And here’s a chart of the unemployment rates.  Note the widening gap between the BLS figures and the more realistic figures that grow the labor force with population growth:  Unemployment Chart

Per capita employment (a figure analagous to the BLS’s “labor force participation rate”) fell for the second month in a row:  Per Capita Employment.  And the number of unemployed Americans rose for the second month to its highest level in four months:  Unemployed Americans.

No doubt, the unemployment rate will continue to fall in the coming months as the November election approaches, regardless of how few jobs are added or how many jobs are actually lost. 

* * * * *

The jobs added in April (according to the establishment survey) break down as follows:

  • Professional & business services:  + 62,000
  • Retail trade:  + 29,000
  • Health care:  + 19,000
  • Leisure & hospitality:  + 20,000
  • Manufacturing:  + 16,000
  • Mining:  unchanged
  • Construction:  unchanged
  • Wholesale trade:  unchanged
  • Financial:  unchanged
  • Information:  unchanged
  • Government:  unchanged
  • Transportation & warehousing:  – 17,000

Here’s the BLS report:  http://www.bls.gov/news.release/empsit.nr0.htm