Trade Deficit in Manufactured Goods Shatters Record

May 7, 2015

The trade deficit in manufactured goods soared to $62.9 billion in March, obliterating the previous record of $52.1 billion set only two months earlier.  Here’s the chart:  Manf’d Goods Balance of Trade.  The overall trade deficit also hovered near its record level.  The deficit is far worse than expected and will almost surely result in a revision to 1st quarter GDP that will put the economy in contraction.

The port slowdown on the West Coast that was resolved in mid-March is surely to blame for some of the sudden jump, but not that much.  To blame the port slowdown on a sudden, big jump in imports also suggests that it should have made up for a slow-down in previous months.  Look again at the chart.  There’s absolutely no evidence of any slowdown.  The trade deficit had continued to worsen at a steady pace in the months leading up to March.

Normally, such a big jump in the deficit could be explained by a robust economy that was gathering steam, driving a demand for imported products.  But that’s not what’s happening.  The economy slowed in a big way in the 4th quarter of last year and then either completely stalled in the 1st quarter of this year or actually contracted.

Some may blame the strong dollar, claiming that it hurts exports and makes imports more affordable to American consumers.  However, exports in March were at the same level that they’ve been at for over three years.  (So much for the President’s promise of doubling exports.)  And an exchange rate-fueled shift toward imported products vs. domestically manufactured products only makes sense if the price for imported goods has actually been cut.  Can anyone cite any examples of such price cuts?  (Remember, oil is not a manufactured product.)  Also, a big demand for imports would also be corroborated by a jump in consumer spending data.  There’s been no such jump.

What’s actually happening is that the pace at which manufacturing is shifting overseas is accelerating, which is exactly what should be expected when free trade policy continues to be applied to badly overpopulated nations.

Though it rarely does, the stock market reacted to the trade data with a big drop over concerns about the decline in GDP that would result.  I find it puzzling that an economy and political system so focused on growth continues to tolerate a huge trade deficit knowing that it’s a major drag on growth.  Why is it that economists and political leaders and the Federal Reserve, who are willing to try every trick in the book to fuel economic growth, turn a blind eye to the one thing – fixing our idiotic trade policy – that’s assured to do more than all other remedies combined to make our economy grow?


Is U.S. Manufacturing Renaissance Underway?

February 12, 2011

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

The headlines about the December trade deficit, released yesterday by the Foreign Trade division of the Census Bureau (link provided above), sound like bad news, emphasizing a larger-than-expected rise in the trade deficit.  Exports were up, but imports were up more.  Here’s the charts:

Balance of Trade          Obamas Goal to Double Exports, 1st year

But dig deeper and you’ll find some good news beginning to take shape in the data.  Most of that increase can be blamed on a boost in oil imports (with price to blame for much of it) and a corresponding decrease in petroleum exports.

The good news emerges when you strip away trade in petroleum and foods, feeds and beverages – in other words, natural resources – leaving only trade in manufactured goods.  (Yes, there are other categories of natural resources – minerals, metals and lumber, to name a few – but trade in these resources is essentially balanced.)  I’m adding a new feature to my monthly report on our progress toward Obama’s goal of doubling exports in five years.  The real goal is to double exports of manufactured products.  So I’ll begin presenting a new chart that gives a broader picture of what’s happening in the trade of petroleum products; food, feed and beverages (identified in the chart as simply “food”); and, most importantly, manufactured products. 

Manf’d Goods Balance

Imports of manufactured products have leveled off since June, while exports of manufactured goods have risen almost steadily since the beginning of 2010 at a pace sufficient to nearly meet Obama’s goal of doubling exports in five years.  The trade deficit in manufactured goods has now fallen four months in a row to its lowest level since May. 

The time has come to consider the possibility that this isn’t merely a short-term blip, but that something is actually driving a real change in trade.  There are a couple of possibilities:

  1. The slowdown in imports and rise in exports may be nothing more than the result of an economic rebound taking hold in the rest of the world, increasing demand for U.S. products, while a stagnant economy in the U.S. has kept a lid on imports.  This doesn’t seem to be a scenario likely to persist for long (if it’s even real), since so much of the world is dependent on U.S. demand. 
  2. The Obama administration’s trade talks with the rest of the world, aimed at rebalancing the global economy and boosting American exports, may have  had more teeth than I gave them credit for.  Is it possible that other nations are (at least so far) living up to commitments to boost their imports of American products?  If so, what is the source of this new demand?  Or are American products simply being stockpiled somewhere?  More likely, these new American imports are eating into domestic production in foreign countries.  How long will such under-the-table trade deals stand up to political pressure when they start eating into manufacturing employment in those countries?

I remain a skeptic, but the data speaks for itself, and we can no longer ignore the possibility that some under-the-table trade deals have sparked the beginning of a renaissance in American manufacturing.  Other economic data have suggested the same thing.  For example, the manufacturing sector of the economy added 49,000 jobs in January, more than the total number of jobs created within the entire U.S. economy. 

A few months of data, especially at a time when the economy is balanced at the edge of a double-dip precipice, isn’t proof of anything and certainly doesn’t undo three-plus decades of enormous trade deficits and the gutting of the manufacturing sector, but it’s possible that we’ve taken a step in that direction.


Population Density vs. Balance of Trade

March 18, 2009

Now that we’ve examined the results of trade between the U.S. and our eight largest trading partners, I thought it’d be interesting to plot population density vs. the per capita trade balance in manufactured goods.  This is something that I didn’t include in Five Short Blasts but, in retrospect, should have and most certainly will in future editions.  Here’s the chart:

pop-density-vs-pc-deficit-chart

As you can see, there is an almost perfect logarithmic correlation between these two variables.  And I didn’t “cherry pick” the data to fit my theory.  These are our largest trading partners in manufactured goods and they represent a significant percentage of the world’s population and land mass. 

It’s interesting to note that, just as it’s a bad deal for the U.S. to attempt to trade freely in manufactured goods with nations much more densely populated than us (the U.S. has a population density of about 85), it’s just as bad a deal for nations much less densely populated to trade freely with the U.S. – like Australia and Canada.  Both of those countries have large trade deficits in manufactured goods with the U.S., a nation ten times as densely populated as their own. 

If you’re new to this blog and don’t understand why population density is such a significant factor in trade, I encourage you to check “the theory explained” link on the right or, for a more thorough explanation, purchase a copy of Five Short Blasts.


July Goods Trade Deficit Sets All-Time Record

September 12, 2008

http://www.reuters.com/article/ousivMolt/idUSN1139320120080911

Remember last month, when the decline of the trade deficit to $56.8 billion was ballyhooed as evidence that the falling dollar was beginning to reverse the deficit?  Well, barely mentioned in the release of the July deficit is that the June deficit was understated by $2 billion.  Oops!  This is typical game-playing by the government – releasing phony data that gets headlines and lots of attention, and then quietly revising it the following month when no one even notices. 

This linked Reuters article reports on the July trade deficit, which widened to $62.2 billion, a 16-month high.  All of the emphasis in the article is on the deficit in oil and on gains in exports.  Nowhere is it mentioned in the article that the overall deficit in goods hit an all-time record in July of $74.9 billion.  Nowhere in the article is it mentioned that imports of goods hit an all-time record, more than off-setting the rise in exports.  (Imports of goods rose $8.1 billion from June, while exports rose only $4.5 billion.)  You’d have to go to the Census Bureau web site to find these hi-lites.  Here’s the link:

http://www.census.gov/foreign-trade/statistics/highlights/monthly.html

Yes, the non-oil goods deficit declined to about $30 billion in July, a significant decrease from the $38.5 billion rate it had been running in 2006.  But the decrease is not due to a rebound in domestic production.  Domestic manufacturing activity continues to decline.  Rather, the drop in the non-oil goods deficit is due to the overall slow-down (recession, actually) in the economy.  Relying on recession to improve the trade balance is not the right way to go about it! 

But none of this detail is included in the news reports.  Instead, what the globalization cheerleaders feed us is a lot of happy talk about rising exports, hoping you’ll forget that exports are meaningless if you don’t also consider imports.  It’s the overall balance that matters.  Look at your bank statement.  Do you just look at deposits and get all warm and fuzzy?  Of course not!  You go right to the bottom line.  If it’s gone down, then you start reviewing debits to see where your money went.  The trade deficit is the same thing.  Exports are deposits.  Imports are debits.  It’s the bottom line that matters. 

At least at the end of the Reuters article, there’s a quote by one U.S. senator that “gets it.” 

“That just can’t continue. It weakens our economy, reflects the movement of U.S. jobs to China and creates mounting debt that must be paid,” Sen. Bryon Dorgan, a North Dakota Democrat, said in a statement.

Let’s hope this sentiment begins spreading across Capitol Hill.  It’d better, because he’s exactly right.  This nation has been completely bankrupted by our trade deficit, and it can’t go on much longer.


Parasites to the host: We demand more blood!

May 16, 2008

http://www.reuters.com/article/ousiv/idUSL1613258420080516?sp=true

I must admit, I’ve been struck speechless by the outrageousness of this article.  I’ve literally been sitting here with my fingers frozen to the keyboard, unable to move as rants and foul language swirl in my head!  I am so frustrated at this moment by my inability to reach through this monitor, grab the WTO (World “Trade” Organization) by its scruffy neck and choke the life out of it!  This may be one of the most unbelievable things I’ve ever read. 

The WTO, this tapeworm that feeds in the belly of America’s economy, this two-faced referee for the world’s parasites that talks about free trade on the one hand and then uses protectionism to help 2/3 of its member states suck the life blood from America’s economy, has the unmitigated gall to tell us to lower our trade barriers (what very, very few we have left, unlike the rest of the world) and then thinks that we’re dumb enough to believe that somehow this will increase our exports!?!?!?!!  The WTO is chiding us to increase our exports!  What are we supposed to do, load up ships and send them off-shore and sink them?  Where is the WTO’s indignity with Japan, Korea, Germany, China and so many others for not buying more American products?  How are we supposed to raise exports if no one is willing to import from us? 

The United States should cut barriers to its markets to help it tackle economic turmoil, and boost exports to deal with its current account deficit, the World Trade Organisation (WTO) said.

Yeah, we’ve seen how lowering our trade barriers has helped our current account deficit, now approaching $1 trillion per year.  The real motivation for the WTO’s insane outburst becomes evident in the following sentence:

“However the sustainability of the deficit cannot be taken for granted, and as such carries certain downside risks including an increase in protectionist sentiment,” it said.

Here is a rare, candid admission by the WTO that America’s trade deficit is unsustainable, but the whole purpose of this rant against the U.S. becomes clear in the second half of its sentence:  it wants to head off the growing protectionist sentiment in the U.S.  The tapeworm senses that the dog’s owner, the American people, now suspect the existence of this tapeworm and is about to take the dog to the vet for treatment.  The tapeworm realizes that it needs to suck up the last of the dog’s blood before it’s too late. 

As if that wasn’t enough, and still not lacking for gall, the WTO goes on to suggest that it’s Americans’ own fault for not saving and investing enough:

Measures to restrict trade would not be appropriate as the deficit reflects a gap in savings and investment, it said.

The United States may need to boost its savings rate while maintaining its traditional openness that allows U.S. producers and consumers to access foreign goods, services and capital.

They want our marrow to generate more blood to keep feeding their pack of hungry parasites.  Does the WTO seriously believe that all of us wouldn’t love to increase our savings and investments?  The American people used to do a great job of savings, but our ability to save has been steadily eroded by the falling wages and benefits that accompanied our loss of manufacturing jobs, thanks to our idiotic trade policies and our submission to the bites of the WTO’s parasites. 

The article closes with one final, outrageous insult to the American people:

Although the United States is a strong supporter of the global trading system and a comprehensive deal in the long-running Doha round to open up world trade, it has not fulfilled all its international obligations, the WTO said.

These include notifying agricultural tariff quotas and government procurement statistics and fully implementing WTO rulings on intellectual property rights and anti-dumping.

The WTO is scolding us for our record on intellectual property rights and for practicing dumping!!!  Can you believe this?  The U.S. may be the only place on earth where intellectual property rights are actually respected, and we’re the world’s biggest dumping ground for products sold below cost, and yet we get the scolding!

My response if I were president?  I’d tell the WTO (after stifling the urge to tell them to go to hell), “That’s the last straw.  We’re withdrawing from this organization.  It’s now clear that your agenda is to fleece America of its assets for the benefit of the rest of the world.  We won’t stand for it any longer.  All trade deals negotiated to date are null and void.  We’ll implement new trade deals with individual nations on a case-by-case basis, and they’ll be structured to assure a balance of trade, using tariffs as necessary.” 

But what are the chances that we’d ever have a president with that kind of backbone?  We certainly don’t have one now.  Do either McCain or Obama have it?  I doubt it, but we’ll soon know for sure. 

 

 


Treasury International Capital Report

February 16, 2008

http://eresearch.fidelity.com/eresearch/goto/markets_sectors/landing.jhtml?bar=s

This link will take you to a calendar of economic data releases available on Fidelity.com.  Check the “Treasury International Capital Report” for February 15th.  But to make things easy, I’ve quoted the text of the report below.  I’m posting this because it’s a good illustration of the sell-off of American assets needed to finance the trade deficit.  Notice that foreign demand for U.S. bonds last month was flat.  Bond auctions have been going badly since the Fed lowered interest rates.  Although the Fed has officially cut interest rates to 3.5%, the interest on 10-year bonds has actually jumped back up to close to 3.8% to attract buyers.  And foreign purchases of U.S. stocks was strong.  That’s because foreigners have to use the dollars they’ve gotten through trade to buy one of three dollar-denominated investments:  U.S. bonds, bonds of U.S. corporations or stocks of U.S. corporations.  Either that or they have to sit on the money and earn no interest at all.  At any rate, the sell-off of American assets continues at a furious pace to finance the trade deficit.  What happens when these assets are depleted?  If changes aren’t made to balance our trade equation, we may find out and it won’t be pretty.

“Definition
These Treasury data track the flows of financial instruments into and out of the United States. Instruments tracked include Treasury securities, agency securities, corporate bonds, and corporate equities.”

“Highlights
Net foreign purchases of long-term U.S. securities rose $56.5 billion in December vs. $90.9 billion in November. December’s increase is on the low side but does match the nation’s roughly $60 billion monthly trade deficit, a match up that excludes the nation’s roughly $35 billion monthly federal deficit but still enough to limit reaction in the financial markets. Foreign demand for Treasuries and federal agency bonds was flat in December, but not demand for U.S. corporate bonds and, interestingly, U.S. equities which was very strong. By banking region, holdings of U.S. securities in China showed a solid increase, this despite talk in the markets that Chinese investment in the U.S. is slowing. In sum, the decline in the dollar has not limited foreign demand for U.S. securities, at least not yet.”

Pete


Decoupling of the Interests of Big Business and Individual Americans

February 15, 2008

I just finished watching the Nightly Business Report on PBS, which included an interview by Susie Gharib of Caterpillar’s CEO, Jim Owens.  She questioned him at length about Caterpillar’s role in the global economy.  She asked Mr. Owens what is the biggest thing he worries about.  His response was basically that he’s worried about any moves toward protectionism in the U.S.  He explained that, with only 5% of the world’s population, it’s critical to companies like Caterpillar that they have free access to the rest of the world’s market in order to grow their business and maintain their status as a global leader in their field. 

It got me thinking about how critically important it is to understand my theory of “Population Density-Induced Decline in Per Capita Consumption,” (see Figure 6-1 on page 106 of “Five Short Blasts”) and its ramifications for the relationship between individual Americans and corporations.  As you can see in Figure 6-1, their interests were the same throughout human history until an optimum population density was reached, which I believe has happened in the last few decades. 

Once that optimum population density is breached, the interests of individuals decouple from the interests of corporations.  It is in the best interest of corporations to continually grow their sales volume through population growth and through marketing to very densely populated countries.  Although per capita consumption may be in decline, total consumption will always grow as the population grows.  They couldn’t care less about declining per capita consumption.

However, once the optimum population density is exceeded, it is in the best interest of individuals to refrain from trading with countries more densely populated than our own because of the effects of rising unemployment and declining quality of life. 

Corporations don’t care about risiing unemployment.  They actually like it because it drives down their labor costs.  They don’t care about a declining quality of life (except for their top executives).  All they care about is sales volume and profit.

It is critically important to understand this because our country is locked in a tug of war of competing interests.  Corporations insist upon free trade because they don’t want to jeopardize their positions in foreign countries with huge populations (customer bases).  Given a choice, they’d be perfectly happy to surrender the American marketplace if it meant they could sell in China, for example. 

Increasingly, individuals sense that free trade is at the root of their economic demise and they are growing impatient with our nation’s trade policies.  They understand that our enormous trade deficit is sucking the life blood from our economy. 

So don’t be confused.  The old adage that “what’s good for Bull Moose Motors is good for America” no longer holds true.  It broke down when that optimum population density, which was effectively magnified by free trade with grossly-overpopulated nations, was breached.  Stand up for your interests.  Write your senators and congressmen today to demand an overhaul of our trade policies to restore a balance of trade! 

I have absolutely no problem with corporations making plenty of money.  But a couple of boundaries need to be established:  (1) trade (especially in manufactured goods) must be balanced and (2) they can’t use population growth to increase volume.  The U.S. population must be stabilized. 

Pete


Middle Class Can’t Afford Homes

January 31, 2008

http://money.cnn.com/2008/01/29/real_estate/Housing_unaffordability_persists/index.htm?section=money_mostpopular

This article is proof of what I’ve been saying about our current recession.  You have to look past the most obvious symptoms – like the burst of the housing bubble – to find what’s really going on if we want to take meaningful action. 

Even in spite of the decline in housing prices, the middle class still isn’t even close to being able to afford an average home.  Why?  Because incomes haven’t kept pace with inflation?  Why?  Because we’ve carved out much of the entire manufacturing sector of our economy and given it away to foreign countries for nothing in return. 

Labor obeys the law of supply and demand as much as any other commodity.  Take away a big piece of the labor demand and the price will drop.  Wages will go down.  Balance our trade equation with a tariff structure (one indexed to population density), and that demand for labor will come back home and restore wage growth. 

We can cut interest rates and pass stimulus packages until the cows come home; in the long run it won’t make a bit of difference in stemming our economic decline.  We have to take meaningful action to address real problems instead of treating only the symptoms.  You can’t cure the flu by wiping your runny nose.  Neither can we fix our economy with actions that don’t address the real problem.

Pete


Trade Deficit Blamed for Sinking Dollar

November 13, 2007

Here’s a link to a great article by a senior editor at Fortune magazine:  http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232904/index.htm?section=money_mostpopular

He correctly blames our enormous trade deficit for the sinking dollar.  Unfortunately, he offers no solutions other than to suggest that “we’ve been living beyond our means.”  He implies that we should just save our money and stop buying things.  Unfortunately, that doesn’t target the real problem because we stop buying American-made products as well as imports, doing even more damage to the economy. 

Eventually people will come to understand that tariffs are the only way to restore a balance of trade and that a tariff structure indexed to population density provides the rationale for doing it and the means to do it without adverse consequences from our beneficial trade partners. 

Pete


September Trade Deficit – lots of bad news, little good news

November 11, 2007

The September trade deficit was released Friday.  Another $56.5 billion given away in the form of trade welfare, to be financed by a further sell-off of American assets.  That’s an annual rate of $678 billion.  Imagine what could be done with that money here in the U.S.!  That’s an extra $2,260 for every man, woman and child in the U.S. – an extra $9,040 for every family of four.! 

The only good news in Friday’s report was that the deficit shrank very slightly from August’s level, due to higher exports and lower imports.  But  improving our trade balance by letting our currency steadily devalue isn’t the right approach.  We need trade policies (a tariff structure indexed to population density, specifically) to restore a balance of trade while simultaneously strengthening the dollar. 

Expect more slight improvement in the trade deficit in the coming months, but nothing much – not enough to slow the problems eating away at Americans’ finances.  Our trade “partners” simply won’t tolerate falling exports.  They’ll cut prices to maintain their market share. 

Pete