No One’s at the Wheel

May 13, 2021

As reported last week by the Commerce Department, the United States’ trade deficit in goods soared to a new monthly record in March of $91.6 billion – an annualized deficit of $1.1 trillion – led by a near-record deficit of $88.7 billion in manufactured goods. Here’s a chart of that deficit in manufactured goods dating back to 2010 when the monthly deficit was only $37 billion, an increase of 140 % in eleven years.

In 2010, the goods deficit with China accounted for half of our total goods deficit. In March of this year, that was down to 30%. Since October of 2018, the goods deficit with China has fallen by 36%. During that same time frame, the goods deficit with the rest of the world has skyrocketed by 580%. Think about that. A 580% increase with the rest of the world vs. a 36% decline in the goods deficit with China! That’s absolutely astounding!

That disparity in trade results in only 2-1/2 years demonstrates the power of tariffs in shaping global trade. The 25% tariff that Trump slapped on half of all Chinese imports in 2018 was a shot to the head – a bullet right between the eyes – for China’s ambitions to dominate global trade. Say what you will about Trump, but he was the first president since World War II to defy the free trade advocates and the World Trade Organization to enact such a bold tariff program. His only mistake was not extending the tariffs to a number of other overpopulated nations that feed on America’s economy to support their bloated labor forces.

But at least he left Biden with a powerful tool to slash the goods deficit with China even further – a proven tool that could be extended to other countries to finally restore a balance of trade. I’m talking about the “Phase 1” trade deal that Trump struck with China – a deal that would have forced them to dramatically step up their imports of American goods, or face the consequence of having that 25% tariff extended to all Chinese imports. The results were predictable. (In fact, I predicted China’s failure from the moment the deal was signed). They ended 2020 by falling short of their mututally-agreed goal by $62 billion, a full one third short of their goal. Through the first quarter of 2021, they’re on track to fall short of their 2021 goal by $127 billion.

So what has Biden done? Nothing. While expressing a desire to help American manufacturing, he’s been dead silent on the subject of our trade deficit and has never even mentioned the trade deal with China which they continue to blatantly ignore. The dashboard of America’s economy has a huge, glowing red gauge right in the middle that monitors our trade performance. The problem is that, like that Tesla in Texas that sheered in half against a tree as it rounded a curve, there’s no one at the wheel. Biden’s asleep in the passenger seat, oblivious to what’s happening in global trade and the devastation to our manufacturing economy. We’re approaching that curve and all we hear is snoring.

Driven by population density disparities, U.S. trade picture darkens again in 2020

May 6, 2021

In recent posts, we’ve examined America’s trade results in 2020 and found that, at least at the opposite ends of the spectrum, our worst trade deficits and our best trade surpluses were overwhelmingly driven by one factor alone – the population density of our trade partners. Now let’s look at the whole picture – our trade results with the entire world. If population density is such a huge factor, let’s divide the world’s nations in half and see how we did with the nations whose population densities were above and below the global median which, by the way, is 196 people per square mile. Here’s a chart that shows those results and has tracked them for the past sixteen years:

With the more densely populated nations of the world, the U.S. suffered a trade deficit in manufactured goods of $894 billion in 2020, blowing away the record of $842 billion set only one year earlier. With the other half of nations, the deficit was only $17 billion. That’s a huge difference. The deficit with the more densely populated nations was more than 52 times larger than the deficit with the less densely populated nations.

But wait. The theory is that disparities in population density drive our trade imbalance. So the U.S. is likely to have a deficit with any nation more densely populated than our own, and our own density is 93 people per square mile, less than half of the global median. So let’s divide the world’s nations at that level. If we do, the deficit with more densely populated nations grows to $999 billion in 2020, while our trade balance with less densely populated nations was actually a surplus of $88 billion.

Economists and free trade advocates in general claim that it’s actually low wages that drive trade imbalances. Does that claim hold water? In 2020, with the half of nations who are the poorest, the U.S. had a trade deficit of only $120 billion. With the wealthier half of nations, we had a deficit of $791 billion – almost seven times larger! Not only is the low wage theory invalid, the data shows that the relationship between wages and trade imbalance is exactly the opposite. It makes sense when you think about it. Countries who manufacture for export and maintain large trade surpluses with the U.S. grow richer. If they are sparsely populated, the trade imbalance soon equalizes when they run out of labor capacity. But if they are very densely populated, their trade surplus will persist.

It absolutely baffles me that no one else is able to make the connection between population density and trade imbalances. I’ve been tracking this data for sixteen years and, with each passing year, the effect distorts our trade imbalance even more. The manufacturing sector of our economy is being destroyed and is doing real damage to the economy as a whole. As I write this, our auto industry has been driven to its knees by its inability to provide itself with computer chips. Our dependence on imports has become an existential threat. Yet our leaders turn a blind eye. They see the enormous trade deficit and put no effort whatsoever into even understanding it, much less actually doing something about it. Our trade policy amounts to nothing more than a global welfare program, providing the world with manufacturing jobs at the expense of our own workers. It makes me sick.

Oh, it gets worse. Next we’ll look at the latest trade data released this week for the month of March.