Trade Deficit “Unexpectedly”(?) Narrows

June 8, 2019

https://www.fidelity.com/news/article/top-news/201906061158RTRSNEWSCOMBINED_KCN1T71LA-OUSBS_1

As reported in the above-linked Reuters article, America’s trade deficit fell slightly to $50.8 billion in April.  More importantly, the deficit in manufactured goods fell to $68 billion, it’s lowest level since June of last year.  The decline was due to a drop of $5.9 billion in imports, partially offset by a $5.2 billion drop in exports.

The reporting in the article seems to be intentionally misleading to promote a pro-free trade, pro-globalism agenda.  First of all, the article reports that the deficit “unexpectedly narrowed.”  Why “unexpectedly?”  I, and anyone who understands how tariffs work to restore a balance of trade, have been expecting it for months.

Then there’s this:

“U.S. trade with the world is slowing dramatically and the odds are rising that the economy is going to take a big hit,” said Chris Rupkey, chief economist at MUFG in New York.

“Globalization and expanded trade between nations benefited everyone and now the reductions in trade volumes between nations are going to subtract those benefits worldwide from everyone.”

The facts are that the economy is actually doing very well, especially in the U.S.  Globalization didn’t benefit everyone.  America’s manufacturing sector was devastated, turning a nation that was an industrial powerhouse into a skid row bum, economically speaking.

And this:

The politically sensitive goods trade deficit with China surged 29.7% to $26.9 billion. The gap with Mexico fell 14.1% to $8.2 billion in April.

Well, yeah, the deficit with China rose in April from March, but March was the lowest deficit with China in five years.  The Reuters article failed to mention that the 3-month trailing average deficit with China, which factors out month-to-month volatility, fell to its lowest level since April of 2014.  The data about Mexico is also misleading.  While the gap fell with Mexico in April from March, the 3-month trailing average rose to its highest level ever as manufacturers flee China for Mexico to avoid tariffs and to reduce their high shipping costs.

The tariffs on China are working, a fact more accurately covered in this article:  https://www.reuters.com/article/us-usa-trade-mexico-manufacturers/under-tariff-threat-mexico-less-attractive-to-companies-avoiding-china-trade-war-idUSKCN1T82HB.

Take the recent experience of outsourcing firm Tecma Group, which saw a surge in interest from companies mulling a move to Mexico as Trump raised tariffs to 25% on $200 billion of Chinese goods.

Tecma, which manages some 75 factories in Mexico, had been approached “every week” by companies selling items from furniture to ink pens seeking a pathway out of China and into Mexico, according to Alan Russell, its chief executive and chairman.

…  data showing Mexico emerging as the top U.S. trading partner as China exports less to the United States, combined with anecdotal evidence, suggest a significant trend.

… “Whatever we are doing in Mexico is for our company’s long-term strategic growth … If we produce in Mexico we’ll a save a lot on freight and it will reduce the time for delivery. It’s a huge advantage,” said (Fuling Global Inc.) CFO Gilbert Lee.

… Similarly, camera maker GoPro Inc decided in early May to move most of its U.S.-bound production to Mexico from China to “insulate us against possible tariffs,” Chief Financial Officer Brian McGee told investors at the time.

… In fact, Mexico overtook both China and Canada in the first quarter of 2019 to become the U.S.’s top trading partner in goods, according to U.S. Census Bureau data.

This is proof positive that the tariffs on China are working, forcing manufacturers to flee in search of a better deal.  The fact that, for now, they’re finding a better deal in Mexico instead of returning immediately to domestic manufacturing in the U.S. isn’t all bad news.  Mexico is a nation with only one tenth of the population of China, and with a GDP (gross domestic product) per capita that’s approximately 25% higher than China’s.  That means that Mexico doesn’t have enough slack labor force to take on all of the manufacturing currently done in China.  The demand for labor will quickly drive wages that are already higher in Mexico than in China even higher, to the point where manufacturing in Mexico has no advantage over the U.S.

The data shows that the tariffs are really beginning to work.

 

 

 


GM’s Request for Chinese-Built Buick Envision Tariff Relief Denied by U.S.

June 7, 2019

https://www.fidelity.com/news/article/top-news/201906042147RTRSNEWSCOMBINED_KCN1T530U-OUSBS_1

This is rich.  GM actually had the nerve to ask the U.S. government for relief on the 25% tariff it now faces on the Chinese-built Buick Envision.  (See above-linked article.)  After repeatedly angering the Trump administration with plant closures in the U.S. and moving production to Mexico, did GM really expect its request to be granted?

GM, the largest U.S. automaker, argued in its request that Envision sales in China and the United States would generate funds “to invest in our U.S. manufacturing facilities and to develop the next generation of automotive technology in the United States.”

Someone at GM must have thought, “let’s anger the administration even more with a really stupid explanation.”

As mentioned in the article, the government also denied Volvo’s tariff relief request for the Chinese-built model XC60 SUV – its best seller in the U.S.

These are good examples of key points I made in my previous post.  First of all, as mentioned in the article, GM is “eating” the tariff and not passing along the extra cost to buyers.  Secondly, the article points out that the Envision, starting at about $35,000, is a mid-size SUV that competes with other such vehicles like the Jeep Grand Cherokee.  Not mentioned is that the Jeep Grand Cherokee starts at $32,000.  So much for the claim that imports provide American consumers with lower prices.

It’s nice to see that our trade policy isn’t being run by the kind of fools we’ve had in past administrations.  And it’s nice to see that sales of the Buick Envision are tanking.  Apparently, consumers who usually pay no attention to where something is made and just assume that a Buick is an American car are waking up to the fact that they come from China.  Will anyone feel sorry for laid-off Chinese auto workers when GM cuts a shift at the Chinese plant?


American consumers, rise up against American workers!

June 5, 2019

First Trump raised tariffs on Chinese imports and, as the media proclaims, American consumers are the ones who’ll get hurt, paying higher prices for nearly everything.  Now Trump has threatened across-the-board tariffs on all Mexican imports.  Again, American consumers will pay the price, with everything from cherry tomatoes and avocados to cars and trucks rising in price.  Who’s responsible for this?  Trump!  And who’s responsible for Trump getting elected?  American workers, fed up with no raises and losing their jobs to outsourcing!  How selfish of them!

Enough is enough!  It’s time for American consumers to rise up against these greedy American workers!  Do you know one?  Boycott their products!  Demonstrate in front of their businesses!  Write your congressmen!  March on Washington!

What’s that you say?  You know an American worker?  Your spouse is one?  Your mom or dad?  You’re actually one yourself!?!?  Shame on you!  If your spouse or your parents are American workers, maybe you can sit them down and explain to them how greedy they are.  Perhaps they should quit fighting for their jobs – may even just quit altogether.  If we can import everything a little cheaper, then we’ll all be better off.  Won’t we?

Obviously, I’m being facetious.  But this is exactly what the media would have you believe.  Every single story on the subject focuses on the higher costs for American consumers.  They never, ever want you to hear that the real long-term effect of tariffs is to provide motivation for companies to manufacture products domestically, which will benefit every American worker as the demand for labor drives wages higher, benefitting every single American – even those who aren’t in the labor force, but are dependent on someone who is.  Why?  Because corporations see the developing world – places like China and Mexico and many others – as the source of future profit growth.  America is fully developed, with little potential for profit growth.  They’re bored with America.  To them, America is yesterday’s news and Americans are irrelevant to the future.  Their strategy is to milk America’s wealth to fund development in the rest of the world, and to scare the hell out of them if they even think about standing up for themselves.

Since every American is a consumer, while just under half are workers, the free-trader globalists see focusing on consumer prices as a winning strategy in their fight against tariffs.  They’re counting on the majority of Americans who are not in the labor force to forget that they are dependent on someone who is.

Ask yourself this:  which is a better situation – to be unemployed while prices are slightly lower, or to have a good-paying job while having to pay slightly higher prices?  The answer is obvious.  Without a source of income, you can afford nothing.  Many people have committed suicide after losing their jobs and all hope of a secure retirement.  None that I’m aware of have committed suicide because the price of something rose a little.

Besides, the whole notion that we are paying lower prices for these imports is a myth.  When did the price of anything actually go down when it was outsourced to China or Mexico?  When did the Consumer Price Index actually drop?  Did the price of cars drop when they moved the factory to Mexico?  Did the price of iPhones drop when they moved production to China?  Of course not.  The narrative that says prices will soar if we have to manufacture domestically is nothing more than a scare tactic.  They hope you’re not bright enough to realize that the higher wages they’d be paying American workers will offset any small price increases.

Do you really think that all of this outsourcing – all of the enormous expenditures involved in rebuilding factories and infrastructure overseas and moving their sources as far from their customer base as they possibly could – that all of it was done in the interest of saving you a few bucks?  Don’t be ridiculous.  It was all done in pursuit of those markets.  It’s not saving you a thing.  So there’s nothing to fear from moving manufacturing back to the U.S.

It’s been said that these tariffs on Mexico will jeopardize passage of the new trade deal that the Trump administration worked for over a year to get signed with Mexico.  Why would he risk that?  I believe it’s because he’s actually quite unhappy with that deal.  Those negotiations began early on in his presidency when he was heavily influenced by the team of advisers he had assembled – a team he thought represented the best people he could find – people who ultimately proved to be free trade globalists interested not in “making America great again,” but in token moves that would leave the status quo firmly entrenched while creating the appearance of doing something.

Trump hates that deal.  He’s since learned the power and effectiveness of tariffs and wishes he’d slapped them on Mexico from the beginning.  Most of the people involved in that deal have left the administration, replaced by people who actually support his trade agenda.  And he also knows that the odds of that deal being passed by a do-nothing Congress are slim to none, leaving the horrible, existing NAFTA deal in place.

Mexico might retaliate with tariffs of their own on American exports?  I hope they do.  It’d be the dumbest move they could make, only stiffening Trump’s resolve to raise our tariffs further and make them stick.

Finally, a note of thanks to investors who buy into the baloney that these tariffs are going to hurt the economy and sell their stocks in a panic.  I’m the guy who buys them at the big discount you’ve created!