Tariffs Working. Trade Deficit and Unemployment Down in November.

December 7, 2019

As announced by the Commerce Department, the trade deficit fell again in October to $47.2 billion, the lowest since March of 2018.  And the all-important deficit in manufactured goods fell to $66.9 billion, the lowest level since June of 2018, and nearly $10 billion less than the record set one year ago.  Most notably, thanks to the tariffs enacted on Chinese imports, the deficit with that country fell to $31.3 billion.  Year-to-date, the deficit with China is $294.5 billion, down by over $50 billion from the same time last year.  This is proof positive that the tariffs enacted by the Trump administration are working.

What about the effect on America’s farmers?  Contrary to reports about how much they’ve been hurt by retaliation by the Chinese, overall exports of foods, feeds and beverages are actually up by $59 million year-to-date.  And soybean exports are up dramatically by $3.2 billion to $20.3 billion year-to-date.  See for yourself on page 20 of this report from the Commerce Department: https://www.bea.gov/system/files/2019-12/trad1019_2.pdf.   How can this be, when the media is constantly reporting that farmers are angry over lost exports due to Trump’s tariffs?  As in all occupations, some farmers are Republicans and some are Democrats.  Some are doing well, some not so well.  If you cherry-pick which farmers you want to listen to, you can build a narrative that makes it sound like the farming industry is being hurt by the tariffs.  The real data paints an entirely different picture.

Before I leave the subject of the trade report, it’s worth noting here that, year-to-date, imports of “automotive vehicles, parts and engines” stands at $316.7 billion (page 23 of the report), vs. exports of only $136 billion (page 21) – a deficit of nearly $180 billion for that one category of products alone.  The Trump administration has been threatening to levy a 25% tariff on all auto imports.  I can’t understand what in the world he’s waiting for!  Such a move would rapidly shift demand toward domestic makes in a big way.  The tariffs should be applied to Mexico as well.  If President Trump wants to get the new USMCA agreement with Mexico and Canada passed by Congress, who’s been sitting on it for over a year now, just tell them that the tariffs on Mexican imports will stay in place until USMCA is passed, and then watch how fast Congress moves!

The news on unemployment was just as good.  The economy added 266,000 jobs in November, and September and October were revised upward by 41,000 combined.  Here’s the report:  https://www.bls.gov/news.release/empsit.nr0.htm.  Unemployment fell to 3.5%.  And per capita employment held at 48%, it’s highest level in almost ten years.  Here’s a chart:  Per Capita Employment.

This is all great news and none of it would be happening without the U-turn on trade policy that the Trump administration made when it started levying tariffs.  We need more tariffs, applied to more countries that are running big surpluses with the U.S., until a balance of trade is restored.


Why Population Density Drives America’s Trade Imbalance

November 21, 2019

The Problem:

In my last few posts, we’ve seen a powerful correlation between America’s trade imbalances and the population density of its trading partners.  But how does that work?  It seems odd – something that seems highly unlikely to be a factor.  And you’ve likely never heard of it before.  What you have heard about are a host of other “factors,” things like low wages, trade barriers, intellectual property theft, lax labor and environmental standards, just to name a few.  All of them seem like more plausible explanations for trade imbalances than something like “population density.”

The reason population density has such a powerful effect on trade is what it does to the per capita consumption of products.  Beyond a certain critical population density, over-crowding begins to rapidly erode people’s need for and ability to use (or “consume”) virtually every product you can think of, with the exception of food.  At first glance, you might think that’s a good thing.  Everyone lives more efficiently, reducing their environmental footprint and their demand for natural resources.  However, the real problem is that per capita employment is tied directly to per capita consumption.  Every product not bought is another worker that is out of work.  As population density continues to grow beyond that critical level, an economy is rapidly transformed from one that is self-sufficient and enjoys full employment to one with a labor force that is bloated out of proportion to its market, making it dependent on other nations to sop up its excess labor or, put another way, making it dependent on manufacturing products for export to rescue it from what would otherwise be an unemployment crisis.

Let’s consider an example.  The dwelling space of the average citizen of Japan, a nation ten times as densely populated as the U.S., is less than one third that of the average American.  It’s not hard to imagine why.  In such crowded conditions, it’s only natural that people will find it impractical to live in single-family homes in the suburbs and will instead opt for smaller apartments.  Now think of all the products that go into the construction of dwellings – lumber, concrete, steel, drywall, wiring, plumbing, carpeting – literally thousands of products.  And think of furnishings and appliances.  A person living in a dwelling that is less than one third the size of another consumes less than a third of all of those products compared to someone living in less crowded conditions.  And what about the products used to maintain the lawns and gardens of single-family homes?  Consumption of those products doesn’t just reduce – it vanishes altogether.

Consequently, per capita employment in those industries involved in building, furnishing and maintaining dwellings in Japan is less than a third of that in America.  So what are all of those unemployed Japanese to do?  Will they be put to work building cars for domestic consumption?  Hardly.  As you can imagine, the per capita consumption of vehicles by people living in such crowded conditions is impacted dramatically as most opt for mass transit.  So emaciated is the Japanese auto market that even Japanese automakers have trouble selling cars there.  So now add to the workers who aren’t employed in the home industry those workers who also aren’t employed building cars for their domestic market.

And so it goes with virtually every product you can think of.  Japan is an island nation surrounded by water.  Yet their per capita consumption of products for the boating industry is virtually zero compared to other nations, simply because it’s so crowded.  There’s only so much marina space to go around.  Put a town of 100 families next to a marina with 100 slips and it’s likely that every single family will own a boat with a motor and fishing gear.  Put a city of a million families next to that same marina and, though the marina is still full, on a “per capita” basis boat ownership has effectively fallen to zero.

Japan’s only hope for employing its badly under-utilized labor force is to use them to manufacture products for export.  This is exactly why America’s second largest trade deficit in manufactured goods is with Japan.  It’s not so much that we buy too much stuff from Japan.  The problem is that Japan buys so little from us in return.  It’s not that they don’t want to.  They can’t.  Their market is so emaciated by over-crowding that they can’t even consume their own domestic production.  Why would they buy more from us?  The same is true of nearly every major U.S. trading “partner” that is badly over-crowded.  Attempting to trade freely – without tariffs or other barriers – is tantamount to economic suicide.  It’s virtually certain to yield a huge trade deficit.

Why have I never heard of this before?

Few, aside from those who follow this blog or have read my book, have ever heard of this before.  Even if you have a degree in economics, you’ve never heard of it.  In fact, you were likely taught the opposite.  If you studied economics, at some point you were surely introduced to the late-18th century economist Malthus, and were warned to never give any credence to any theories that revolved around over-population, lest you be derided as a “Malthusian,” which would surely doom your career as an economist.

In 1798, Thomas Robert Malthus published his essay titled “Essay on Population” in which he warned that a growing population would outstrip our ability to meet the need for food, effectively dooming mankind to a fate of “misery and vice.”  This led to the field of economics being dubbed “the dismal science,” something that really rankled other economists.  Yet, the idea gained some traction until, that is, as years passed and improvements in farming productivity exceeded the requirements of a growing population.  The other sciences mocked the field of economics unmercifully, proclaiming that mankind is ingenious enough to overcome any and all obstacles to growth.  Economists acquiesced and vowed to never, ever again give any consideration to any concerns about overpopulation.

And so it is today that economists have a huge blind spot when it comes to the subject of population growth.  You can’t discover something that you’re not even willing to look at.  It’s not unlike the medieval Catholic Church labeling Galileo a heretic for theorizing that the earth revolved around the sun instead of vice versa.  Where would we be today if the study of astronomy ended at that point?  Where would we be if Newton was mocked for his theory of gravity and the field of physics ended at that point?  That’s what economists have done.  They’ve turned their backs on what is arguably the most dominant variable in economics.

What does this mean for trade policy?

In the wake of the Great Depression, soon followed by World War II, economists disingenuously laid blame for what had transpired on U.S. tariffs and, eager to put to the test the theory of free trade, promised that it would put an end to such wars and depressions.  So, in 1947, the U.S. signed the Global Agreement on Tariffs and Trade, taking the first step to implement the concept of free trade on a global basis.  Within three decades, the trade surplus the U.S. had enjoyed was wiped out.  In 2018, the U.S. ran its 44th consecutive annual trade deficit which, by the way, set a record in 2018 and continues to worsen.

The problem is that the concept of free trade doesn’t take into consideration the role of population density in making over-crowded nations absolutely dependent on running trade surpluses in manufactured goods, and simultaneously sapping the life from the manufacturing sector of other nations.  No amount of trade negotiations can correct this imbalance.  No nation that is dependent on manufacturing for export would ever agree to anything that would slow their exports and it’s impossible for them to increase their imports because, after all, it’s their emaciated market that has caused the trade imbalance in the first place.  The only way to restore a balance of trade is to force the issue through the use of either tariffs or import quotas.  Any trade policy that doesn’t employ those tactics when trading with badly over-crowded nations is doomed to failure and puts our overall economy at risk.

Since World War II, other presidents have tinkered with tariffs in those rare instances when the World Trade Organization has green-lighted their use to correct for some other nations’ trade transgressions.  But President Trump is the first president in seven decades to implement a significant tariff program aimed at reducing our trade imbalance with China.  But much, much more needs to be done.  There are many other nations whose trade imbalances on a per capita basis are much worse, nations like Germany, Japan, Mexico, Ireland, South Korea, Taiwan and a host of others.  While many are allies, none of them are “allies” when it comes to trade.  All are eager to sustain and even grow their trade imbalances at the expense of American workers and families.  All want the U.S. economy to bear the cost for their overpopulation.  None want to face their own problems.  The U.S. needs to put an end to pointless – even counterproductive – trade negotiations, and do the things that are within our power to force the restoration of a balance of trade.

 


Population Density Effect on Trade Imbalance Intensified in 2018

November 18, 2019

In previous posts, we’ve noted the apparent role of population density at both ends of the spectrum of our trade imbalances – the top deficits and surpluses in manufactured goods.  Now let’s look at the world as a whole.  Let’s include all 165 nations in the study and let’s divide those nations equally around the median population density (which is 192 people per square mile), such that there are 82 nations with densities above the median and 83 nations below the median.  Look at this chart:  Deficits Above & Below Median Pop Density.

With the half of nations with population densities above the median we had a deficit of $815 billion in manufactured goods in 2018.  With the other half of nations we had a deficit of only $0.5 billion (the first deficit with that group of nations since 2005).  $815 billion vs. $0.5 billion.  Same number of nations.  How much more obvious can it be that population density is, by far and away, the single biggest force in driving trade imbalances?  How much more evidence do you need?

More?  “That’s not a fair comparison,” you might say.  “The half of nations that are more densely populated have a lot more people than the other half.  There needs to be the same number of people included in each group.”  OK, fair enough.  Let’s divide the world in half by population.  Half of the world’s population lives in more densely populated conditions, and half lives in less densely populated conditions.  In order to divide the world that way, however, the dividing line falls on China.  Not surprising since that country has one fifth of the world’s population.  So to make the populations of the two halves equal, almost 40% of China’s population – a nation with a population density four times that of the U.S. – must be included with the half of people living in “less densely populated” conditions.  Nevertheless, if we do that, and if we allocate 40% of our trade deficit with China to the less densely populated half, the result is that we still have a trade deficit (in manufactured goods) of $557 billion with the half of people living in more densely populated conditions and a trade deficit of $259 billion with the less densely populated half of the world’s population.  The trade imbalance is still more than double with the more densely populated half.

If we include all of China in the more densely populated half of people, then the split of people is 4.15 billion vs. 3 billion.  If we do that, the deficit with the more densely populated “half” of people is $730 billion vs. $86 billion for the less densely populated “half” – 8-1/2 time bigger.

I would argue that an even better comparison is to divide the world in half by land area:  the half of the world that is more densely populated vs. the half that is less densely populated.  If we factor out Antarctica and the United States (because we are evaluating our trade partners), the world’s land surface area is 47.3 million square miles.  If we divide that in half by population density, we find that 6.66 of the 7.15 billion people occupy the more densely-populated half of the world’s surface area while the other half of the world holds only 0.49 billion people.  With that more densely-populated half of the word we have a trade deficit in manufactured goods of $923 billion and a trade surplus of $107 billion with the less densely populated half.  That’s a difference of over one trillion dollars in trade with the more densely populated half of the world vs. the less densely populated half.

Finally, let’s look at one more split – probably the most relevant:  the nations more densely populated than the U.S. vs. the less densely populated nations.  The U.S. has a population density of approximately 92 people per square mile.  114 of our trading partners are more densely populated and 41 are less densely populated.  With those more densely populated we have a trade deficit in manufactured goods of $934 billion vs. a surplus of $119 billion with those less densely populated.  Again, that’s a difference of over one trillion dollars!

Clearly, any trade policy that doesn’t take population density into account is virtually guaranteed to yield absolutely horrible results, yet that’s exactly what the U.S. does.  It completely ignores population density and attempts to trade freely with everyone regardless of population density.  And in a few decades it’s transformed the U.S. from the world’s preeminent industrial power and the wealthiest nation on earth into a virtual skid row bum, plunging us into $20 trillion of debt.

But why is population density such a factor?  I could write a book on the subject.  Actually I already did.  It’s what this blog is all about.  But I’ll summarize it for you in the next post.  Stay tuned!


America’s Best Trading Partners

November 12, 2019

In my last post, we looked at a list of America’s worst per capita trade deficits (in manufactured goods) in 2018 and found a strong correlation with population density.  Nearly every nation on the list was much more densely populated than the U.S.  Conversely, there was virtually no correlation with low wages, as measured by those nations’ “PPP” or Purchasing Power Parity.

Now it’s time to look at the other end of the spectrum – America’s best per capita trade surpluses in manufactured goods.  If population density is a factor in driving trade imbalances, then this list should be populated with more sparsely populated nations.  Here’s the list:  Top 20 Per Capita Surpluses, 2018.

Well, we do indeed see many nations that are more sparsely populated, but there are some very densely populated nations on this list too.  Many of them can be explained by the fact that they’re net oil exporters and, as we established in my post from October 23rd about our largest trade surpluses, oil exporters use their “petro-dollars” to buy American-made goods.  In that same post, we also noted that The Netherlands and Belgium appear on this list because they take advantage of their location to make themselves into European trading hubs and, as such, are a destination for American goods that will ultimately be distributed throughout Europe.

Still, there is solid evidence that population density plays a major role in driving trade imbalances on this list, just as it did on the list of our worse deficits, but this time driving surpluses in our favor.  Here are more observations that support that:

  • The average population density on this list is 216 people per square mile, compared to an average of 540 people per square mile for the nations on the list of our largest per capita trade deficits.  The population density of the nations on the list as a whole – total population divided by total land mass – is only 22 people per square mile.  Compare that to the population density of the twenty nations on the list of our biggest per capita deficits, which is 377 people per square mile.
  • The average PPP for the nations on this list is $45,995.  Factor Qatar out of this list and the average drops to $41,842 – nearly the same as the average PPP of $39,040 for the nations on the list of our biggest per capita deficits.  So which seems more likely to be driving trade imbalances – the 1600% disparity in population density or the 18% disparity (leaving Qatar in the average) in PPP?
  • Over the past ten years, our per capita surplus in manufactured goods with the top twenty nations has grown by 84%.  Meanwhile, our per capita deficit with our worst trading partners has grown 114%.  Our trade deficit is eroding the manufacturing sector of our economy, leaving us with fewer and fewer products to export.

That’s the two ends of the trading spectrum, a total of forty countries with whom we have the biggest per capita deficits and per capita surpluses in manufactured goods.  It’s already pretty strong evidence that trade imbalances are driven almost entirely by population density and by very little else.  But what about the other 124 nations that are included in the study?  Will the correlation look as strong when we throw them all together?  Stay tuned, that’s coming up next.


America’s Biggest Trade Surpluses in 2018

October 23, 2019

In my previous post, we examined the list of America’s biggest trade deficits.  Of the top 20 trade deficits, all but one were with nations more (usually much more) densely populated than the U.S.  It appears that population density may be a factor in driving these deficits.  But what will we find at the other end of the spectrum?  Will a list of our top 20 trade surpluses be dominated by more sparsely populated countries?  Well, let’s see.  Here’s the list:  Top 20 Surpluses, 2018.

We do see more sparsely populated nations on the list, but we also see a half dozen very densely populated nations.  At first glance, there doesn’t appear to be much correlation with population density.  But let’s take a closer look at those densely populated nations.  Do they all have something in common?  Indeed they do.  Most of them, but not all, are net oil exporters.  Canada, United Arab Emirates (UAE), Saudi Arabia, Qatar, Kuwait, Norway and Nigeria are all net oil exporters.  Why is that significant?  Because all oil is priced and sold in U.S. dollars.  And, ultimately, there is only one place where those U.S. dollars can be spent as legal tender – in the United States itself.  So those oil exporters use their “petro dollars” to buy products from the U.S.

Consider an example.  If China buys oil from Saudi Arabia, they have to pay for it with U.S. dollars.  No problem for China.  They’re rolling in dollars that Americans spent on their exported manufactured goods.  So now Saudi Arabia has a bunch of dollars.  They have no choice but to use it to buy American goods or American investments, like U.S. bonds.  But their economy is built around oil.  They don’t manufacture anything else to speak of.  So they have dollars to spend on manufactured goods and the only place they can spend those dollars is in the U.S.  Thus, the U.S. has a trade surplus in manufactured goods with Saudi Arabia and, for the same reason, with virtually every nation that is a net oil exporter.

That leaves two other very densely populated nations on the list that are thus far unexplained – Belgium and The Netherlands.  They’re tiny, adjoining nations who together enjoy the only deep water sea port on the Atlantic coast of Europe.  They use this to their advantage, making themselves into major points of entry for imports from America and for their distribution to the rest of Europe.  So their presence on the list is more of a geographic anomaly than anything else.

Now, back to the subject of population density.  With all of the above said, the list of our top 20 trade surpluses is still dominated by eleven nations that are less densely populated than the U.S., and three more that are only slightly more densely populated.  The average population density of these twenty nations is 239 people per square mile, compared to the average population density of 629 for the nations that represent our biggest trade deficits.  The combined population density of all twenty nations on the surplus list (total population divided by total land surface area) is  43 people per square mile, compared to 502 for the deficit list.  It certainly appears that population density is a real factor in driving trade imbalances.

A few more observations about this list of our biggest trade surpluses is in order:

  1. At number one on the list, Canada is both very sparsely populated while also being a huge oil exporter.  In fact, they are America’s biggest source of imported oil.  This is why the surplus with Canada is more than three times the size of our next largest surplus.  The U.S. has no better trade partner than Canada – hands down.
  2. Are you surprised to see Russia on the list?  It’s less surprising when you look at their population density.
  3. Also, take a look at the Purchasing Power Parity (PPP, roughly analogous to wages) of the nations on this list.  The average PPP is just under $40,000 per capita.  The average of the nations on the list of our biggest deficits was $35,000 – a difference of only 15%.  The difference in population density between these two lists is almost 1200%.  Which do you think is more likely to be the real driver of trade imbalances – wages or population density?

When it comes to the sheer size of trade imbalances, of course our deficit with China is bigger than our deficit with other, much smaller nations.  And of course our trade surplus with Canada is much larger than, say, our surplus with New Zealand.  Does that mean that Canada should enjoy more favorable trade terms than New Zealand, or that China should be punished with harsher trade terms than, say, Japan or Germany?  Hardly seems fair.  Trade policy should be formulated to address the factor that actually drives trade imbalances, regardless of the size of the nation in question.  That factor is population density.  In order to factor sheer size out of the equation, let’s now look at our trade deficits and surpluses in per capita terms, starting with our biggest per capita trade deficits.  The results are fascinating.  Stay tuned.


America’s Worst Trade Deficits in 2018

October 22, 2019

With little more than two months left in 2019, I’ve finally finished compiling and analyzing America’s trade data for 2018.  Why the delay?  Thanks to the government shutdown early this year, the trade data wasn’t released this year until nearly July – four months later than usual.  And tabulating the results for hundreds of 5-digit end use code products for 165 nations is no small feat.

What we’re looking at here are the deficits in manufactured goods as opposed to services and various categories of natural resources.  Why?  Because manufacturing is where the jobs are.  Yes, there are jobs associated with the harvesting and mining of natural resources but, pound for pound, those jobs pale in comparison to the number generated by manufacturing.

And it should be noted that there are more than 165 nations in the world.  The CIA World Factbook lists 229.  Nearly all of the 64 nations that I left out of this study are tiny island nations with whom, combined, trade represents only a tiny fraction of America’s total.  Also, their economies tend to be unique in that they rely heavily on tourism and their manufacturing sectors are virtually non-existent, if for no other reason than a lack of space to accommodate manufacturing facilities.

It should also be noted that I’ve rolled the results for tiny city-states into their larger surrounding nations – states like Hong Kong, Singapore, San Marino, Luxembourg, Liechtenstein, Monaco and others.  They too tend to have unique economies, heavily dependent on services like financial services, and mostly devoid of manufacturing for the same reason as small island nations – a lack of space.  There is no room for sprawling manufacturing complexes.

So, with that said, let’s begin with a look at America’s biggest trade deficits.  Here are the top twenty:  Top 20 Deficits, 2018.

It comes as no surprise that China once again has topped the list with a whopping $416 billion deficit – up from $385 billion the year before.  It’s more than four times as large as the next biggest deficit – Japan.  But Japan is less than one tenth the size of China, making the deficit with Japan nothing to scoff at.  Look at our deficit with Ireland.  It’s one tenth that of China, but China is 200 times as large as Ireland.

There are many other interesting observations that can be made about this list:

  1. There’s a lot of variety on this list – nations big and small, rich and poor, Asian, European and Middle Eastern nations.  But there’s one thing that all except one have in common – a high population density.  The average population density of this list is 629 people per square mile.  Compare that to the population density of the U.S. at 92 people per square mile.  On average, the nations on this list are seven times more densely populated than the U.S.
  2. With a few exceptions, these are not poor countries where wages are low.  Half of the top ten nations have a “purchasing power parity” (or “PPP,” a measure of wealth that is roughly analogous to wages) near or, in two cases – Ireland and Switzerland, above that of the U.S. ($59,500).  Only one nation in the top ten – Vietnam – has a PPP of less than $10,000.  So, the conventional wisdom that low wages cause trade deficits isn’t supported by this list.
  3. Two nations on this list – China and India – represent 40% of the world’s population.  On the other hand, there are others that, combined, make up less than 1% of the world’s total.  Naturally, if we have a trade deficit with a big nation, it tends to be really big.  In order to identify the factors that influence trade, we need to factor sheer size out of the equation.
  4. On average, the U.S. trade deficit in manufactured goods has risen by 166% with this group of nations over the past ten years.  Whatever it is that drives trade deficits has a very potent effect.  The fastest growing deficit is with India, rising by 428% in ten years.  India is the 2nd poorest nation on the list.  Perhaps low wages do play a role here?  On the other hand, nearly tied with India (in terms of the rate of growth in the deficit, not the deficit itself, which is actually larger) is Switzerland, the 2nd wealthiest nation on the list – wealthier than the U.S. – debunking the low wage theory.
  5. It’s often said that America needs to be more productive in order to compete in the global economy.  Yet we see nations like France and Italy on this list – nations notorious for long vacations, short work weeks, etc. – not exactly bastions of productivity.  So if productivity is an issue, why are we losing out to nations who are much less productive?
  6. In 2018, the U.S. had a total trade deficit of $816 billion in manufactured goods.  Of the 165 nations in this study, the top nine deficits on this list account for more than that entire total.  The U.S. actually has a small surplus of trade with the other 156 nations of the world combined.

Trade deficits matter.  As noted above, our overall deficit in manufactured goods in 2018 was $816 billion.  On a per capita basis, that’s a deficit of $2,500 for every man, woman and child in the U.S., or a deficit of nearly $10,000 for an average household of four.  That’s how much poorer you are than if we had a balance of trade.

In my next post, we’ll take a look at the other end of the spectrum – America’s top twenty trade surpluses in manufactured goods.  If population density is a factor, then we should see that list comprised of nations with low population densities.  And if low wages aren’t a factor, we shouldn’t see anything much different than what we saw on this list presented here – a list peppered with rich and poor nations alike.  So stay tuned.  You won’t find this in-depth analysis of trade or the factor that actually drives it anywhere else.


August Trade Data – More Evidence that Tariffs Work

October 7, 2019

You won’t find it in the headline number, but the August trade data that was released on Friday provides more evidence that tariffs work to reduce trade imbalances.

The overall trade deficit in August remained in the same tight range where it’s been for over a year, at $54.9 billion.  Imports remained locked in the same range where they’ve been for a year, while exports remained at the same level where they’ve been for two years.  The deficit in manufactured goods, which came in at $73.8 billion, may be showing signs of finally leveling off, although it’s too early to draw that conclusion.  (Here’s a chart of that all-important trade category:  Manf’d Goods Balance of Trade.)

What’s significant is what’s happening in trade with China.  Through August, the trade deficit with China is on track to finish at about the same level as 2014 – $345 billion – after soaring to $420 billion in 2018.  It will likely end the year even lower as companies ramp up efforts to shift manufacturing to tariff-free suppliers.

The August trade data also illustrates that all of the talk of the tariffs hurting farmers is a bunch of baloney.  Through August, total farm exports are off from the previous year by less than 1%.  Exports of soybeans, which gets so much attention, are actually up in 2019 to $17.3 billion from $15.3 billion during the same period in 2018.

Unfortunately, the exodus of companies from China to find other tariff-free manufacturers hasn’t yet led to a boost in manufacturing in the U.S.  The trade deficit with other suppliers like Mexico, Vietnam, South Korea and others is actually getting worse as companies turn to them, their alternate, back-up manufacturers, to provide the capacity that’s been pulled out of China.  That won’t change until Trump begins extending his tariff policy to those countries as well.  Tariffs on all auto imports would be especially helpful.   As I said last month – what’s he waiting for?