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.


Who’s afraid of Biden? Certainly not China.

April 20, 2021

At least that what the trade data for February, Biden’s first full month as president, suggests.

In January of 2020, China signed a new trade deal with the U.S. – the “Phase 1” deal – committing to specific and significant increases in its imports of American goods in exchange for the U.S. delaying its application of 25% tariffs to the remaining half of Chinese goods. (The U.S. had already levied a 25% tariff on half of all Chinese imports.)

In 2020, China fell woefully short of its commitment – 31% less than the required imports of American manufactured products and 27% below its commitment for agricultural products. In February of this year, China not only failed to meet its commitments under the Phase 1 deal, it didn’t even meet the 2017 baseline in a single category – not in manufactured goods, nor agricultural goods, nor energy products, nor total goods. Already lagging its commitments in January, Its imports collapsed in February, falling by 27%. So far, year-to-date for 2021, China is now 46% behind its commitments.

Why should China live up to its trade commitments? So far, Biden hasn’t acknowledged that the trade deal even exists, never mentioning it. But he’s talked of getting tough with China in general. This is a golden opportunity to show that he means business – that he’s willing to stand up for American workers and farmers. How can any world leader take him seriously when he won’t even enforce a signed-and-sealed trade deal that has clear commitments and clear consequences for failure to meet them?

Recently, Biden called the level of gun violence in the U.S. a “national embarrassment.” You know what’s really a national embarrassment? A president who doesn’t have the courage to stand up for American workers and enforce commitments that other nations have made! (And make no mistake, Biden’s not the first such president.) To use a couple of Biden’s own favorite expressions, “C’mon, man! Do something, for God’s sake!”


Just Use Tariffs

April 16, 2021

https://www.fidelity.com/news/article/top-news/202104130705RTRSNEWSCOMBINED_KBN2C01AL-OUSBS_1

The above-linked article is an interesting case study of the challenges involved in bringing manufacturing back to the U.S. The product in question is a semiconductor – a “chip” – that is in such short supply that it has forced the shutdown of some auto production in the U.S. The Biden administration is looking at ways to break our dependence on imported semiconductors.

Oddly, the article begins with what seems to be an American manufacturer – On Semiconductor – supplying chips to to Hyundai in South Korea, perhaps because the Reuters author, Hyunjoo Jin, is herself Korean. You’d think that Reuters could find some American to write about the actual subject of the article – the challenges Biden faces in bringing chip manufacturing back to the states – but apparently they couldn’t. Maybe we first need to begin by bringing news reporting back to the U.S.? But I digress.

Never mind all that. The point of the article is the complex supply chain engaged in delivering a semiconductor chip to an auto manufacturer that could just as easily be General Motors in Detroit as Hyundai in South Korea. The author chronicles the myriad of steps that begins in Italy and makes its way through Taiwan, Singapore and China, just to name a few. So it’s not just a matter of building a chip factory here. It would require a daisy-chain of factories to turn silicon wafers into the actual semiconductor chips. So the Biden administration is faced with subsidizing a whole array of industries to entice them to move manufacturing to the U.S. It’s enough to make your head spin. The article concludes with “Simply throwing money at this does not solve the problem. It is a more complex problem.”

Moving that supply chain back to the U.S. is certainly a very complex problem. Negotiating subsidies with a dozen or more companies to entice them to make such a move would be difficult enough, not to mention expensive for American taxpayers, if that’s the approach that the government is considering. But there’s another much simpler solution – one so simple that it would require little more than the stroke of Biden’s pen. All he has to do is sign an executive order to levy tariffs on all manufactured products from the countries responsible for our twenty largest trade deficits. Each of the countries mentioned in this article as being involved in this supply chain – China, Taiwan, Singapore (a small city-state located in Malaysia) and Italy – are on that list, responsible for our largest, ninth largest, tenth largest and eleventh largest trade deficits respectively.

Here’s what would happen. Eager to mitigate the tariff, GM (for example) would soon move the final step in that process, the manufacturing of the chip, to a new plant in the U.S., perhaps as a subsidiary. Other potential suppliers like Japan, Vietnam, Mexico or others wouldn’t be viable options since they too are on the tariff list.

Next, that new GM chip-making subsidiary, eager to avoid tariffs on its supplies from Taiwan, would soon implement plans to develop a supplier in the U.S. Once established, that company in turn would soon make plans to source its silicon wafers from a new plant in the U.S. instead of from Italy.

The Biden administration, and whatever administrations succeed it, would barely have to lift a finger to make it happen and it wouldn’t cost American taxpayers one penny in higher taxes. Would it raise the price of semiconductors and, consequently, the price of new cars? Sure, but not much. A few bucks at the most. But, in terms of your purchasing power, they’d actually be cheaper when you factor in the upward pressure on wages – your wages – as the result of the demand for labor from this whole new U.S.-based semiconductor supply chain.

There are two elements of a tariff plan that would be critical to making it effective. First of all, by targeting those twenty nations that are responsible for our biggest trade deficits, the tariffs would eliminate from consideration all those grossly overpopulated nations with bloated labor forces who prey on the American economy. When Trump enacted tariffs on Chinese products, suppliers simply moved their operations to some other such country like Vietnam or Mexico. Those wouldn’t be viable options if moving there failed to eliminate the tariffs.

Secondly, the tariffs must be applied to all manufactured products from those countries. Why? Because otherwise, making our autos more expensive would put them at a disadvantage to autos imported from those countries, but not if those imported autos are subject to the same tariffs. For example, suppose that the tariff is 50%. That tariff might raise the price of an American car by 25%, let’s say. But you’d still opt for the American car if cars from Mexico, Japan, Korea, China, Italy, etc. are priced 50% higher. Now we’re not talking about just cars, but every single manufactured product you can imagine. The manufacturing of every one of them would come back to the U.S. since American-made products would then be the cheaper option for American buyers.

By the way, there’s another factor to consider here. If you’re a globalist, you may be turned off by a proposal that seems “protectionist.” But if you are a globalist, you’re probably also a person who’s concerned about the environment. In all of the talk about fossil fuels and CO2 emissions, you never, ever hear mention of the role of the global supply chain in “fueling” the problem. Did you know that the ships that transport manufactured goods back and forth across oceans and around the globe, goods that could just as easily be made locally, burn five billion barrels of oil per year? Think about that. If the Biden administration really wants to have an impact on climate change, implementing this tariff plan is probably the best place to start.


In a test of Biden’s backbone, China reneges on trade deal.

March 10, 2021

Under a threat by the U.S. to expand its 25% tariffs to all Chinese imports, In January of 2020, China signed the “Phase 1” trade deal with the U.S. They agreed to boost their imports of American goods significantly in 2020, followed by an equally large increase in 2021. Very specific goals were set for boosting its imports of manufactured goods, energy products, agriculture products and overall goods. And the consequences for failing to meet those goals were also very specific – extending the 25% tariffs that already were applied to half of all Chinese imports to include the other half.

When it comes to trade, tariffs are the only thing China understands. Those tariffs were devastating for China. Their surplus of trade with the U.S. shrank by roughly 25% as companies abruptly abandoned China and took their manufacturing elsewhere. China was desperate to avoid any more tariffs.

However, based upon America’s long track record of failure to follow through on virtually every trade deal it’s ever negotiated when the terms of the deal weren’t met, China figured the same would happen again. So far, they’re right. Their imports fell far short of the 2020 milestones. Actually, they didn’t just fall short of the 2020 goals. They barely exceeded the 2017 baseline in all four categories of goods. The U.S. didn’t utter a peep of protest.

Now the results for January are in. Their imports of total goods from the U.S. fell 37% short of the goal. Their imports of manufactured goods were 42% short, and their imports of energy products were 71% below the goal. Only their imports of agriculture products were close to the goal, falling only 5% short.

Biden has vowed to continue Trump’s tough stance against China. He has to act. The whole world is watching. This wasn’t some Trump executive order that he can choose to ignore. It’s a signed agreement between the United States and China. If he allows them to thumb their nose at this trade deal, we’ll have zero credibility with the rest of the world regarding trade and beyond. We’ll be seen as a patsy. The U.S. is being economically crushed by our trade deficit, not just with China but with many other nations that prey on the U.S. market to support their bloated labor forces at the expense of American workers. If Biden won’t show some backbone on this critical issue, then no one can take him seriously on anything.


Biden “inherits” record trade deficit. Will he do anything about it?

February 8, 2021

The trade data released by the Commerce Department last week marked another sad milestone in America’s economic decline. The December balance of trade in manufactured goods set another new record -$87.3 billion – beating the previous record set only one month earlier. That’s an annualized deficit of $1.05 trillion and represents a loss of approximately fourteen million high-paying manufacturing jobs.

2020, the final year of Trump’s presidency, was by far the worst on record in terms of the trade deficit. In the title of this post, the word “inherits” is in quotation marks because while he now takes over that deficit from Trump, the truth is that Biden has played a key role in creating and exacerbating the deficit his entire adult life as a champion of globalist policies. He joined the U.S. senate in 1973. In 1975, America sadly experienced its final trade surplus, and has run an ever-growing deficit for the past forty-four years. He didn’t just “inherit” this problem. He played a key role in creating it, and it’s impossible to over-estimate the devastation done to our economy and to working Americans.

What will he do about it? Not a damn thing. His corporate benefactors, seeing more potential for profit growth in overseas markets than in the mature U.S. economy, have been paying him for decades to facilitate the transfer of America’s wealth and the export of American manufacturing jobs. He pays lip service to revitalizing American manufacturing, but that’s all it is.

Impeach Trump for inciting the Capitol building riot? Perhaps Biden should be impeached for his lifetime of work fomenting the unrest in this country that created the fertile ground for Trump’s rhetoric to take root.


Biden vows to continue Trump’s tough stance on China. Here’s his chance to prove it.

February 7, 2021

During the course of Trump’s administration, there was a massive shift in America’s, and indeed the entire world’s perception of China. In 2016, China was admired for its embrace of capitalism and its rapid pace of economic development. Chairman Xi Jinping was admired for slowly and in subtle ways guiding his country away from communism and, so the world hoped, shifting gradually toward democracy. Even Trump was charmed by his cow-eyed, benevolent smile and was taken in by his promise to be America’s economic partner.

Soon, however, all that began to change. China engaged in a massive military buildup, laid claim to a vast swathe of the South China Sea, bullied its neighbors there, engaged in ethnic cleansing of its Uighur muslim population and unleashed a horrible pandemic on the world’s population while covering up its role. Chairman Xi was named chairman of China for life. He quickly reneged on every promise he made on trade.

By his third year in office, Trump could see the truth – that Xi was a dictator bent on subjugating the U.S. and on world domination. They couldn’t be trusted. He imposed 25% tariffs on half of all their exports. With Trump on the verge of extending those tariffs across the board, China agreed to a deal – the “Phase 1” deal it signed in January of last year. In exchange for holding off on the additional tariffs (and likely counting on America’s traditional lack of enforcement of trade deals), China agreed to specific benchmarks for dramatically increasing its imports of American goods in 2020 and 2021.

By the end of Trump’s administration, the whole western world agreed with its assessment of China – that it represents an existential threat that must be confronted. Upon winning the election, and eager to demonstrate that he would not be the kind of weak leader that many feared, Biden vowed to continue the tough stance on China.

Now, with the Commerce Department’s release of the final trade data for 2020 last week, comes Biden’s first and biggest chance to prove what he meant. True to form, China completely ignored the requirements of the Phase 1 trade deal. Not only did it not meet the 2020 goal, it barely exceeded the 2017 baseline that was the basis for those goals. Here’s the Phase 1 trade deal data.

China missed its goal for total goods imports by $62 billion. In fact, it barely beat the 2017 baseline, rising by only $1.9 billion from 2017. In the all-important category of manufactured goods where the most jobs are created, China not ony fell short of the goal for 2020 by $37.5 billion, it actually fell short of the 2017 baseline by $4.7 billion. In terms of energy products, it barely beat the 2017 baseline while falling short of the 2020 goal by $17.7 billion. It also fell short of the goal for agricultural imports, the category key to support by America’s farmers, by $9.9 billion. This failure cost Trump critical support in the heartland and his failure to enforce this deal cost him support all across the country.

The results are in and they’re horrible. Predictably, China has once again reneged on this critical trade benchmark. So what’ll it be, president Biden? This is your big chance to prove that you meant what you said about being tough with China. Declare China in breach of the deal and extend the tariffs across the board on all Chinese imports. Failure to act – and giving China yet another chance would constitute such a failure – will prove that your rhetoric was just bluster and that you are the kind of weak leader that many feared.