Trump and Ross played for fools by China

In 2016, the U.S. trade deficit with China was $347 billion.  The deficit in manufactured goods was $372 billion.  China accounts for over half of the total U.S. trade deficit.  The deficit with China is responsible for the loss of five million manufacturing jobs in the U.S.  and for the downward spiral in Americans’ standard of living.

Throughout the campaign, Trump promised to impose tariffs of up to 45% on Chinese goods to restore a balance of trade.  It’s one of the key reasons he was elected.  In his inaugural address, Trump declared:

“These are just and reasonable demands of righteous people and a righteous public. But for too many of our citizens, a different reality exists. Mothers and children trapped in poverty in our inner cities, rusted out factories scattered like tombstones across the landscape of our nation, an education system flush with cash but which leaves our young and beautiful students deprived of all knowledge. And the crime, and the gangs, and the drugs that have stolen too many lives and robbed our country of so much unrealized potential. This American carnage stops right here and stops right now.

“Right here and right now.”  Yet, four months into his administration, details of his plans for trade with China are beginning to emerge, as reported in this Reuters article.

The United States and China have agreed to take action by mid-July to increase access for U.S. financial firms and expand trade in beef and chicken among other steps as part of Washington’s drive to cut its trade deficit with Beijing.

That’s it?!?!?!?  Beef and chicken!?!?!?!?  So instead of “right here and right now,” what we get instead is that, six months into his administration, we might be able to sell China a few more hamburgers?  And what do we get in return?  Chicken imports.  Who in their right minds would eat chicken imported from China?  We can’t even feed our pets dog food from China for fear that it’ll kill them, which has actually happened.  And we supposedly got some cooperation from China in reining in North Korea.  Doesn’t Trump realize that China and North Korea work together to blunt any action on trade?  Maybe that’s what we need – some puppet state to develop nuclear weapons to threaten China.  Then we can agree to pull in on their reins if China will just agree to some heavy tariffs.

What will the next 100 days of negotiations yield?  A side order of fries?

As has always happened following trade negotiations with the U.S., Chinese President Xi must have been rolling in the aisle with laughter on his plane ride home from Mar-a-Lago.  Trump and Commerce Secretary Wilbur Ross were played for total fools.  This is beyond pathetic.  It’s an insult to Trump’s supporters and all American workers.

“This will help us to bring down the deficit for sure,” U.S. Commerce Secretary Wilbur Ross said at media briefing in Washington. “You watch and you’ll see.”

Oh, we’re watching, Wilbur, and I already know what we’ll see.  Nothing.  The trade deficit with China will, if anything, get worse.  America’s been suckered yet again.

Economic Data Still Stuck in “New Normal” of Globalization

Three major economic reports were released in the past week, each of which I usually write about separately.  But there was nothing particularly noteworthy about any of them.  Taken together, however, they paint a picture of a U.S. economy that’s still stuck in the “new normal” that characterizes globalization (trading freely with all nations, regardless of whether it makes any sense) – stagnation, an imbalance in the supply vs. demand for labor that puts downward pressure on wages, and a host-parasite relationship between the U.S. and the overpopulated nations of the world.

First quarter GDP was announced last Friday, and it came in at a measly 0.7%.  Expressed in per capita terms, it rose only 0.09%.  Over the past ten years, per capita GDP has risen at an annual rate of only 0.6%.  That’s very close to no growth at all and explains a lot about Americans’ sense that the country is headed in the wrong direction.  Population growth and free trade with much more densely populated nations has become a significant drag on the economy.

Speaking of trade, that data was released Thursday.  Here’s a chart showing the monthly balance of trade in manufactured goods:  Manf’d Goods Balance of Trade.  The deficit in manufactured goods continues to hover near its record worst level.  In fact, it was the second worst quarterly figure ever, down by only $1 billion from the record level of $177.1 billion set in the previous quarter.

The April employment report was released yesterday.  The headline numbers were that the economy added 211,000 jobs and unemployment fell to 4.4%.  No one noted that the employment level rose by a more modest 156,000 and unemployment fell because, once again, the growth in the labor force was understated at only 12,000 (while the U.S. population grew by 171,000).  Each month, as the unemployment rate ticks downward, economists proclaim the economy to be at “full employment.”  And each succeeding month, the economy adds more jobs and the unemployment rate drops more.  How can that be?  Here’s a chart of the “labor force backlog,” the cumulative amount that the government has under-reported growth in the labor force in order to make unemployment look better than it really is:  Labor Backlog.  (It’s the yellow line on the chart.)  Note that the “backlog” remains near its highest level at about 5-1/2 million workers.  Were it not for this “backlog,” an honest reading on unemployment would have the figure at 7.2% – a far cry from “full employment.”  It’s no wonder that, in spite of all of this supposed strength in labor market, there’s been no corresponding upward pressure on wages.

What does it mean when you put all of this together?  It means that the approach taken by President Trump to date – jawboning foreign leaders on trade and CEOs about manufacturing in the U.S., and making idle threats about tearing up trade deals and implementing “border taxes” – has done absolutely nothing to improve the economy.  No surprise.  These are exactly the same results that the same tactics employed by past presidents for decades has produced, which are no results at all.

Trump has seemed to be backing away from his promises on trade.  He’d better not, or he’ll find himself dealing with a recession before his first term is up.  His voters tolerate his less appealing aspects on the hope that he’ll follow through on his promise to “Make America Great Again” by fixing our trade mess.  Failure to do so won’t be tolerated.

Apple’s “Advanced Manufacturing Fund” a PR Gimmick

http://www.reuters.com/article/us-apple-fund-idUSKBN17Z2PI

Today Apple’s CEO, Tim Cook, announced plans to set up a $1 billion “advanced manufacturing” fund, making it sound as though it’s going to create manufacturing jobs in the U.S.  (See the above-linked article.)  It’s actually nothing more than a clever public relations ploy – a gimmick designed to polish Apple’s tarnished image.

Ever since Trump’s message about bringing back manufacturing jobs began to resonate with voters, free trade advocates like Cook have begun waging a campaign on two fronts designed to blunt any efforts aimed at reversing globalization.  On the one hand, there has suddenly emerged a lot of talk about how most manufacturing jobs have actually been lost to automation and not trade policy which is, of course, a lie.  If the plant you worked in has just closed, you merely need to ask yourself where that product is now being made.  Is it being made by robots in a new factory, or is it now being made in a sweat shop in China or Mexico?  The answer is obvious.

The other tactic is to make themselves appear to be gung-ho for American manufacturing, lest they risk alienating the growing majority of Americans who now see free trade as a drag on the American economy.  As part of this effort, they’ve advanced the notion of “advanced manufacturing” – something that will somehow create jobs by developing factories so automated that human workers aren’t required.  Sounds like double-talk?  Of course it is.  But they believe you’re too dumb to see through it.

Apple is a perfect case in point.  Their products are considered the epitome of “high tech.”   Such a “high tech” company must be on the cutting edge of “advanced manufacturing,” right?  Nothing could be further from the truth.  The manufacture of Apple’s electronic gizmos is about as low-tech as you can get.  Contracted out to companies like China’s Foxconn, Apple’s products are pieced together by hand, utilizing thousands of workers in sweat shop conditions to insert tiny components into circuit boards.  Truth be told, the manufacture of cars in Detroit assembly plants which utilize robots for hundreds of assembly tasks is far more advanced than anything that Apple does.  The manufacturing jobs in those assembly plants are well-paid, high-skilled jobs.  Interfacing with all of that automation is no job for dummies.

Apple could move their manufacturing back to the U.S. today, but they resist for two reasons.  One is the investment that would be required to build proper manufacturing facilities that comply with environmental and labor laws.  More importantly, however, they resist because they need to maintain their manufacturing presence in China in order to have access to the Chinese market.  China’s leaders are smart enough to insist that products sold in China be made in China.

Cook wants you to think of Apple as a good corporate citizen of the United States, interested in creating jobs for Americans.  Give me a break.  They want to sell you an iPhone.  They want you to pay as much as possible (regardless of whether or not you can actually afford it) for something that’s made as cheaply as it can be, and they want you to pay for it with money earned anywhere except at Apple.

Gimmicks like these won’t bring manufacturing jobs back.  Only tariffs (or “border taxes” or whatever you want to call them) will force companies like Apple to manufacture in the U.S. and actually create real jobs for American workers.