Anti-border tax coalition

April 20, 2017

http://www.reuters.com/article/us-usa-tax-lobbying-idUSKBN17C2HQ

I’ve been predisposed for a week or so and it’s now time to get caught up on some things.  There’s been a lot in the news lately regarding Trump administration policies on immigration and trade.  I’m extremely pleased with what’s happening on immigration, less so with what I hear about Trump waffling on the idea of a “border tax” (another name for tariffs).

But I’ll start with the above-linked story that came out last week because this is a perfect example of the divergence of interests that takes place when a nation becomes “economically over-populated” or takes on the characteristics of such an economy through free trade with a badly overpopulated nation.  For the benefit of those unfamiliar with this concept, this divergence of interests is one of the consequences of the inverse relationship between population density and per capita consumption.  As a society becomes more densely populated, the need to crowd together and economize space begins to erode per capita consumption.  As per capita consumption declines, so too does per capita employment.  The result is rising unemployment and poverty.   It’s in individuals’ best interest – in the best interest of the common good – that this situation be avoided.  (To better understand this concept, I encourage you to read Five ShortBlasts.)

However, while per capita consumption may begin to decline as a population density reaches a certain level, total consumption continues to rise with a growing population.  Who benefits from that?  Anyone in the business of selling products.  Not only do they benefit from the increase in sales volume, but they benefit further as the labor force grows faster than demand, putting downward pressure on wages.  Thus, it’s in corporations’ best interest to see population growth continue forever, and to pursue more markets through free trade.

So it’s in the best interest of the common good that we avoid meshing our economy through free trade with nations whose markets are emaciated by overcrowding and who come to the trading table with nothing but bloated labor forces hungry for work.  But it’s in corporations’ best interests to grow the overall customer base through free trade with those same nations.  So it comes as no surprise that a big-business coalition is eager to steer lawmakers away from any tax plan that would include a “border tax” (a tariff) that might shut them out of their foreign markets.

They call themselves “Americans for Affordable Products,” making it sound as though it is individual Americans who make up this coalition and not global corporations.  They want us to believe that products will become less affordable.  While prices for imports may rise, they want you to forget that those increases would be more than offset by rising incomes and falling tax rates.  They don’t care if the border tax benefits you.  All they care about is that it may not necessarily benefit them.

So which of these competing interests will lawmakers heed – their wealthy corporate benefactors or the angry Americans who swept the Trump administration into power on his promise to enact a border tax and bring our manufacturing jobs back home?  Money talks and I fear that groups like this coalition are having an effect.  Trump and Republicans would be wise to ignore them.  Democrats paid the price for ignoring the plight of middle-class Americans when Obama betrayed his promise of “hope and change.”  Those same middle-class Americans will pull the trigger on Trump too if he doesn’t come through.

 


February Trade Report: New Administration, Same Old Deficit

April 4, 2017

OK, I know it’s not reasonable to expect anything different.  After all, Trump hasn’t yet had a chance to implement new trade policies that would have any meaningful impact on our trade results.   What he has done is meet with some leaders of nations who are among the worst offenders in terms of their trade surplus with the U.S.:  Mexico, Japan and Germany, most notably.  He meets with Chinese president Xi Jinping in a couple of days.  Reportedly, he hasn’t pulled any punches so far in expressing his displeasure with the trade deficit and has vowed to take tough action (like a “border tax”) to change the situation.  So, one thing we can say about the early evidence provided by the February trade results is that tough talk has absolutely no effect on trade results.  (As if the trade results of past administrations aren’t sufficient evidence.)

In February, the deficit dipped slightly.  Here’s a chart of the deficit in manufactured goods:  Manf’d Goods Balance of Trade.  As you can see, though the deficit dipped slightly from January, it remains stuck in the $55-62 billion range it’s been in for two years.

As time goes on, I grow more nervous that Trump will cop out on the trade issue just as Obama did, as more and more meetings with world leaders and business leaders try to convince him of the intangible, unquantifiable benefits of free trade.  It worked on Obama.  Hopefully, they’ll find Trump a tougher nut to crack.  Time will tell.  If there is no border tax in Trump’s tax overhaul plan, we’ll know that he caved to the pressure.  We’re watching, President Trump.  You can kiss your supporters goodbye if you don’t come through on this campaign promise.


Trump to Confront China’s Xi This Week

April 3, 2017

http://www.reuters.com/article/us-global-markets-idUSKBN175025

In the wake of the Obama administration, it still makes me nervous any time the president sits down for talks with a foreign leader.  For Obama, there were no concessions too big for him to make.  Foreign leaders played him like a fiddle.  Americans came out the losers every time.  I say this as one who had big hopes for Obama and voted for him in 2008.

As reported in the above-linked Reuters article, Chinese President Xi Jinping travels to Florida this week to meet President Trump at his Mar-a-Lago resort.  The media will be focused on dealings aimed at reining in North Korea’s nuclear ambitions.  But the real story will be their talks on trade.  America’s failed trade policy is far and away the biggest contributor to our economic decline.  All of our economic problems and virtually every other problem that is impacted by monetary resources allocated to deal with it can be blamed on our trade deficit.  The budget deficit, nearly all of our national debt, our crumbling infrastructure, our health care crisis, homelessness, poverty …. you name it, they’re all directly linked to the drain of our financial resources wrought by the trade deficit.  And no country is more responsible for that drain than China, who accounts for nearly one half of the entire deficit.

On Friday, the U.S. president sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clamp down on import duty evasion.

If the President is truly interested in the cause of U.S. trade deficits, he need look no further than this blog and can learn all he needs to know by reading Five Short Blasts.   Nations who come to the trading table with nothing to offer but bloated labor forces and markets emaciated by gross overcrowding are the cause of trade deficits.  By this criteria, China is the worst of the worst.  Only tariffs (or a “border tax,” if that term is less onerous) can maintain a balance of trade when dealing with such countries.  Negotiations are pointless since the only possible outcome is to trust the other side to take actions to rein in their appetite for our market.  Decades of experience since the beginning of the failed experiment with “free” trade has proven that they won’t.

So far, President Trump has proven that, for the most part, he can be trusted to follow through on his campaign promises.  No promise was bigger than getting tough with China on trade.  It seems that Germany’s Angela Merkel found him to be a very different president from Obama in her recent meeting with Trump.  Hopefully, he’ll be just as tough on Xi.  It seems that Trump’s “border tax” idea is now becoming more accepted as a crucial element of his upcoming tax reform plan.  Let’s hope he doesn’t negotiate away any of it this week.


Closing the Book on Obama’s Trade Policy

March 8, 2017

The U.S. trade deficit for the month of January was posted yesterday by the Bureau of Economic Analysis.  It was horrible.  President Trump took office on January 20th, but he can hardly be held responsible for any of the January results.  This is all on former President Obama.

How bad was it?  The overall trade deficit rose to its worst level in nearly five years – $48.5 billion.  At $62.1 billion, the deficit in manufactured goods just missed its all-time worst reading of $62.5 billion set in March of 2015.  As you can see from this chart, if the trend in manufactured goods continues, we’ll have a new record very soon and, without the change in trade policy promised by President Trump, it will likely get worse from there:  Manf’d Goods Balance of Trade.

Then there’s the export numbers.  In January of 2010, lacking the courage to take on the problem with imports, President Obama vowed to double exports in five years in an effort to turn the U.S. into more of an export-driven, Germany-like economy.  It never happened and never even came close.  In January of 2017 – seven years after Obama made that promise – total exports, at $192 billion – remained below the October, 2013 level.  Worse yet, exports of manufactured goods were below the level reached in September, 2011 – up only 26% from when Obama made that promise.  And that increase was due entirely to global economic recovery from the 2009 recession and had nothing to do with any real improvement in America’s export position.

So that closes the book on Obama’s trade policy, which was a total failure.  Actually, if President Trump follows through on his promise of tariffs (or border tax, or whatever you want to call it), this closes the book on a seven-decade-long experiment with free trade and globalization, begun in 1947 with the signing of the Global Agreement on Tariffs and Trade that, by any measure of its effect on the American economy, has been a complete disaster.

  • America’s trade surplus dwindled until we ran our last trade surplus in 1976.
  • 41 consecutive years of trade deficits has yielded a cumulative deficit of $14.4 trillion.  During that time, the national debt, which is closely linked to the trade deficit, grew by $19.4 trillion.  In 1976, the national debt was only $0.5 trillion.  Virtually all of our national debt is due to the cumulative trade deficit since 1976.
  • During this period, family incomes and net worth have declined, our infrastructure has crumbled, and our nation has been bankrupted.  The manufacturing sector of the economy has been gutted.  More than ten million manufacturing jobs have been lost.  The United States, once the world’s preeminent industrial power, has been reduced to a skid-row bum, begging the rest of the world to loan us money to keep us afloat.

This is all on you now, President Trump.  You own it.  You’ve promised to straighten out this mess.  America is watching and waiting.


Week 1 Done

January 28, 2017

The world is slowly awakening to a new reality.  It has profoundly changed.  And that may be an understatement.

Throughout the campaign, Trump’s “populist” rhetoric was dismissed by many – especially by those who stood to lose the most if globalization were dismantled – as exactly that, a play for votes or posturing designed to win concessions in the highly unlikely event that he would actually be elected president.  After all, this is the author of The Art of the Deal, a book about his tactics for winning in the business world.  He’s just  staking out his opening position.  Right?

During the transition, however, he doubled down on his rhetoric and stacked the cabinet mostly with people aligned with his positions.  The world grew a little more nervous.

Then came inauguration day and, I have to admit, that even I was taken aback by his speech.  It was as though he picked up a rhetorical two-by-four and began swinging at everyone who’d had a role in America’s trade mess and economic decline, and any who doubted his intentions or who stood in his way.

Now his first week in office is history, and what a week it was.  TPP (the Trans Pacific Partnership trade deal) is dead.  NAFTA (the North American Free Trade Deal) is as good as dead.  The wall on the southern border will be built.  Tariffs on Mexican imports will pay for it.  Immigration from many Middle Eastern countries has been brought to a halt.  And, in stark contrast to Obama’s visit to Mexico in the early days of presidency to discuss renegotiating NAFTA, a humiliating experience that yielded only more Mexican tariffs on American goods, Trump has put Mexico on notice.  If you can’t accept the new reality of American tariffs on Mexican imports and an all-out effort to halt illegal immigration from your country, then too bad – we have nothing to talk about.

Some seem to get it.  Some American companies have begun hedging their bets with announcements of plans to invest in American manufacturing.  Still, the world is largely in a state of denial.  Markets around the world continue to rally on optimism over the aspects of the Trump agenda that it likes – corporate tax breaks and infrastructure spending – while shrugging off the possibility that Trump means business about imposing tariffs on imports.

The world is made up of only two economies, really.  One is the economy of the more sparsely populated countries, able to gainfully employ their workers, which is dominated by the United States.  The other is the rest of the world, badly overpopulated and heavily dependent on manufacturing for export to the aforementioned countries – again, most notably, the United States.  Tariffs on imports into the U.S. will  totally alter the host-parasite relationship that exists between the two.  Those who continue to blindly invest in the economies of the latter may be making a serious mistake.

Americans have finally gotten fed up with playing the role of enabler to ever-worsening overpopulation, using immigration as a relief valve and trade to prop it up.  Trump has hastened the day when the rest of the world must face the consequences on their own.


Davos: A Monday Morning Staff Meeting …

January 17, 2017

…at a company that went bankrupt on Friday.  Other analogies come to mind:  an emergency meeting of the damage-control committee on the Titanic.  A meeting of parasites as the sick animal host walks away following a dose of antibiotics.

The participants at Davos stare across the table at each other, carrying out their agenda in robot-like fashion, but knowing full well the reality of the situation they now face.  They’re irrelevant – vestiges of a failed experiment staggering along in a zombie-like state.

As reported in this Reuters article, their agenda has taken on a new theme.  They’re suddenly, but disingenuously, interested in the fate of American workers who’ve been left behind by their globalization regime:

The titles of the discussion panels at the WEF, which runs from Jan. 17-20, evoke the unsettling new landscape. Among them are “Squeezed and Angry: How to Fix the Middle Class Crisis”, “Politics of Fear or Rebellion of the Forgotten?”, “Tolerance at the Tipping Point?” and “The Post-EU Era”.

This morning, the meeting opened with an address by Chinese president Xi Jinping, in which he declared that “no one will emerge as a winner in a trade war.”  It’s ironic that the biggest winner in today’s trade war (and make no mistake, that’s exactly what we’ve been in for decades) would lecture the biggest loser – the U.S.  It’s no different than if Japan’s Emperor Hirohito had lectured America about standing up for itself in the wake of Pearl Harbor.

He went on to denounce “protectionism,” conveniently ignoring the vast network of protectionist measures employed by his own country.  Like all participants at the Davos forum, Xi likes to forget that the enforced flow of jobs from America to China and other nations unable to grapple with their bloated labor forces, denying America the ability to engage in trade deals that are mutually beneficial – is a rigged system that it has dubbed as “free trade.”  And it decries the freedom to operate our economy as we see fit as “protectionism.”

The winners in the World Trade Organization-enforced regime, China being the biggest winner, frequently declare that trade deficits don’t matter.  If that’s true, then they shouldn’t mind taking their turn at it.  Your turn, China.  It’s time for you to relinquish your trade surplus with the U.S. and suffer a deficit for a while.  Then let’s see how you feel.

 


American Millenials Far Worse Off Than Their Parents at the Same Stage in Life

January 16, 2017

http://www.usatoday.com/story/money/2017/01/13/millennials-falling-behind-boomer-parents/96530338/

An analysis of Federal Reserve data by the advocacy group “Young Invincibles,” released on Friday, finds that the millenial generation – especially white millenials – are far worse off economically than their baby-boomer parents were at the same stage in life – in 1989.  (See the above linked article.)

  • The median net worth of millenials is 56% lower.
  • Median income has fallen 21% in spite of the fact that a larger percentage of millenials (approximately 50% more) have a college education compared to baby boomers.
  • Home ownership is down by 3%.
  • Millenials are saddled with “drastically higher” student debt.

The article observes that “the analysis fits into a broader pattern of diminished opportunity.”

Looking beyond the Federal Reserve data, millenials are clearly much worse off than their parents in many other ways:

  • While most employers offered pensions in 1989, few do today.
  • The cost of health care is orders-of-magnitude higher than it was in 1989.
  • Good jobs were still fairly plentiful in 1989.  Not today.  The example cited in the article of a college-educated lady earning minimum wage making pizza isn’t a one-off.  It’s pretty typical.
  • The millenial generation is famous for depending on their parents for housing and additional support beyond that.  It’s not a matter of immaturity among millenials.  They do it out of necessity.  In 1989, no self-respecting baby boomer would be caught dead living with his/her parents.  There was no need.

None of this should come as any surprise to those who understand the consequences of the inverse relationship between population density and per capita consumption.  It’s precisely what I predicted in Five Short Blasts, which I began writing in 1993.  Since 1989, the U.S. population has grown by approximately 25%.  But, worse than that, our effective population density has exploded by 200% since 1989 by economically erasing our borders and attempting to trade freely with badly overpopulated nations who prey on our market and bring nothing in return to the trading table but bloated labor forces, hungry to take jobs from Americans.  Diminished opportunity and worsening poverty is inescapable in those circumstances.

Sadly, most millenials are oblivious to what’s been done to them through globalization, which has been slickly packaged and sold to them as some sort of utopian state where we all live in perfect harmony together, masking the underlying truth – that their economic civil rights have been trampled by the greed of global corporations who feed on population growth to stoke their bottom lines.