Emerging Lessons from The Covid-19 Pandemic

March 31, 2020

As the Covid-19 pandemic has played out, lessons have begun to emerge about our society which, in blissful ignorance over the past seven decades, we have evolved in the interests of growth and efficiency in ways that are now proving to be dangerous – dangerous to our health, our economy and even civilization as we know it.

Globalism and Global Supply Chains:

Nothing became more readily apparent as the virus took hold than our inability to produce even the most basic medical supplies – masks, face shields, gowns, medicines and ventilators.  Why couldn’t we just crank up the capacity at our factories?  Because we don’t have any.  Like everything else, we’ve made ourselves totally dependent on foreign sources for these items.  Why couldn’t those foreign sources crank up their factories and just send us what we needed?  Because they were in the same boat and needed them themselves.  The whole world quickly found itself in the same boat.  “Globalism” has provided the perfect mechanism for spreading local outbreaks across the world almost overnight and has rendered us nearly incapable of fighting them.

At the beginning of the outbreak in the U.S., we were critically short of N95 masks, a shortage that, while being addressed, threatens to persist.  So just make more, right?  Some companies are tooling up to do just that.  But that’s the problem.  It takes time to “tool up.”  We haven’t been making any such masks in the U.S., so there’s no factory where we can just add more shifts or crank up the output.  The manufacturing has to be tooled up from scratch.

How hard can it be to make simple masks?  Start with the fabric.  No fabric of any kind is made in the U.S. any more.  It has to be engineered to screen out a minimum particle size.  Now it has to be thermoformed into the shape of a mask.  That takes special molding tooling.  To make that tooling requires sophisticated machining equipment.  We have that equipment, but almost all of it is foreign-sourced.  So what happens when that equipment breaks down?  Multiply that level of complexity a thousand-fold in order to produce ventilators which also aren’t made in this country (at least they weren’t until Ford, GE and GM began building factories recently to do it).

The same goes for test kits and pharmaceuticals, all of which until now have been foreign-sourced.

President Trump recently vented his frustration with this situation in one of his daily White House briefings.  He vowed that while we can engage in trade with everyone, we can never again let ourselves be dependent on anyone.  Others have made the same observation.  Complex global supply chains that depend on pulling together materials from all over the world in order to keep society functioning is a recipe for a disaster.

It’s interesting how quickly those who, in the past have mocked others as “protectionists” and “isolationists,” have resorted to exactly those measures to stem the spread of this pandemic.  Now, isolating ourselves is our only hope for saving hundreds of thousands of people and, while doing so, we’re put at risk by the globalism that they championed.

No Spare Capacity:

Global competition has fueled a relentless drive for efficiency, just-in-time delivery supply chains and cutting costs to the bone.  That means squeezing every ounce from every capacity available, whether it’s labor capacity, factory capacity, and even the capacity of our health care system.  Everything has been functioning with virtually no capacity to spare.  Even in the best of times, the intensive care units and emergency rooms at our hospitals function at near-capacity.  Most of you have visited hospitals before all this started.  How many empty beds did you see as you walked down the halls?  How many times did you pass a patient on a gurney in the hallway?

How many times have you gone to a store – any kind of store – and found that you were fortunate enough to get one of the few remaining items you’re looking for that are left on the shelf?  Maybe there are none, and you’re told that more are arriving tomorrow.  It’s because inventory management systems have cut to the bone the amount of inventory in the warehouse.  We’ve even learned that the stockpiles of critical items maintained by FEMA and the CDC, while sufficient for smaller local or regional disasters, are woefully short of what would be needed for any kind of major disaster.  (And isn’t it interesting how our definition of “major disaster” has just changed?)

That’s all great for minimizing costs, but now we can see just how risky that can be.  People are paying for that kind of efficiency with their lives.  There is a role for government to play in assuring that a certain minimum amount of spare capacity exists throughout our supply chains – supply chains that are not dependent on other nations – that can be readily tapped in the event of national disasters like pandemics, wars, etc.

The Risks of Dense Populations:

Consider where this virus originated and where it’s hit the hardest.  It originated in a country with one fifth of the world’s population, a country so densely populated that it’s people, at least in some quarters, rely on live animal markets as a source of food.  China is four times as densely populated as the U.S.  Pause and think about that.  Imagine if the U.S. had four times as many people.  Imagine New York city with four times as many people.  Or Chicago.  Or any other city you can think of.  Imagine our rural areas with four times as many people.  They’d no longer be so rural.

Where has the virus hit hardest?  Italy is almost twice as densely populated as China.  So too is Germany and the U.K.  Most of Europe is as densely populated as China.  Major cities in the U.S. and around the world are hundreds of times more densely populated.

Even in the best of times, living in a densely populated area is a little risky.  With a sky-high cost of living (especially housing), and with many (perhaps most?) people living paycheck-to-paycheck, you’re at constant risk of finding yourself homeless.  The supply of basic necessities relies on complicated supply chains that are vulnerable to disruptions.  In the worst of times – and what we’re enduring right now, while bad, is probably not even close to being “worst” – living in such densely populated conditions is downright dangerous.  Diseases can spread like wildfire.  Natural disasters or wars could cut off supply lines.

What’s the solution?  Live in a less densely-populated society.  How is that possible?  Modern civilization requires both urban and rural areas.  Cities are needed to pull together labor forces to manufacture goods and provide certain services, while rural areas are needed for farming, forestry, recreation, etc.

The way to achieve this is with fewer, smaller cities and more rural, wide-open space.  Consider countries like Canada and Australia – each with the same size as the U.S. but with one tenth or less population density.  Though each is dealing with coronavirus outbreaks, they’re no where near the scale of what the U.S. is facing.  Why?  Because they were already more isolated to start with.

On the other hand, think about India – a place so densely populated that it’s almost impossible for them to practice any kind of social distancing.  Will they pay the price, or will the fact that India is a hot climate where the coronavirus, like the flu, can’t survive to any great extent spare them?  No one knows.  Only time will tell.

Then there’s cruise ships.  Before any of this happened, we were already hearing constant stories of norovirus outbreaks that sickened passengers, cut cruises short and necessitated thorough cleaning of the ships.  Now we’ve seen that, given a deadlier virus, those ships are death traps.  And each is just a small-scale example of what can happen in a densely-packed society.

Secure Borders:

Together with the advocates of free trade and globalism, the open border advocates have also gone silent.  Our failure to quickly shut down international travel exacerbated the spread of the virus in the U.S.  How much worse could it have been had we not been able to shut down the borders at all?  How much worse could it have gotten had we not already taken steps to secure our southern border?  Now we can see the value in maintaining secure borders, and the need to further tighten down on illegal immigration.

Beyond these, there are many, many other lessons to be learned about preparedness for major disasters.  One lesson that will only become clear as our economy begins to recover is that we’re going to pay for decades for the folly of allowing our economy to be siphoned away to drive growth in the rest of the world.  Our dependence on deficit spending to offset the drain of the trade deficit had already become dangerous as our national debt swelled to an unsustainable level.  We were already bailing as fast as we could to keep our leaky boat afloat.  Now, the $2 trillion stimulus package, together with the $4 trillion in additional debt that the Federal Reserve is issuing, will blow the transom off the boat.  It will prove impossible to keep the economy afloat while maintaining a trade deficit.  It’s critical that we get serious about restoring a balance of trade, both to reinvigorate our manufacturing base and to stop the hemorrhaging of our national debt.

Economists have long boasted that “mankind is clever enough to overcome all obstacles to further growth.”  At the same time, survivalists have built bomb shelters, amassed stockpiles of food, ammunition, batteries and other gear, and have practiced survival skills.  Suddenly, the latter group looks a little less wacky and the economists seem a bit humbled.  Mankind is not clever enough to overcome all obstacles to growth because, in a finite world, it’s impossible for so many reasons that they can’t even be listed.  Try as we might to keep growing the population, nature will find a way to restore balance in ways that we can’t even imagine, and likely with consequences too horrible to contemplate.

We’d better learn these lessons, because next time it could be much worse.  Though this virus is very contagious and much deadlier than the flu, it’s not as deadly as it could be.  In 1918, the Spanish flu killed approximately 50 million people at a time when the world’s population was just 3 billion.  In 2003, the SARS virus killed 10% of the people it infected.  Luckily, SARS was only contagious when it when symptoms became obvious, making it easy to identify and isolate those infected, which limited the number of cases to just over 8,000 world wide.  Then there’s ebola, a virus that kills half of everyone it infects.  Imagine if a virus emerged that was that lethal and was just as contagious as the novel coronavirus.  It could wipe out three billion people or more and threaten the very survival of mankind.  It might be a hundred years from now.  It might be tomorrow.  But fail to learn these lessons from this virus, and that’s what’s going to happen.

 

 

 


No More Trade Deals, No More WTO

February 29, 2020

https://www.reuters.com/article/us-usa-trade/ustr-vows-to-push-for-trade-deals-with-britain-eu-seeks-reforms-at-wto-idUSKCN20M3BN

As reported in the above-linked article, the Trump administration continues to pursue more trade deals, with Britain, the European Union and now Kenya.  With his background in wheeling and dealing on real estate, Trump sees deal-making as the way to dig the U.S. out of the deep trade deficit pit it has fallen into.  Yes, I know, “digging” isn’t the way to escape from a hole.  It only makes the hole deeper.  That’s kind of the point I’m trying to make.  Trade deals are what got us into our trade mess in the first place, including the worst deal of all – the deal with the rest of the world to set up the World Trade Organization to oversee the whole process.

The whole point of a trade deal is to coerce another country into concessions (things they don’t like), using concessions of our own (things we don’t like) as the motivation.  Then what happens?  Being the global “nice guys,” we live up to our promises – the concessions we made – while the other side doesn’t.  We cajole them about their failures to live up to their side of the bargain.  They promise to re-double their efforts.  Months go by.  Still nothing happens.  Months turn into years.  The trade deal that was initially hailed as a “big win for American workers” instead yields a massive, persistent trade deficit and the dismantling of the manufacturing sector of our economy.

Why do we need trade deals?  Just tell us what you have for sale.  We’ll then decide if we want to buy it and how much we’ll buy.  We’ll reciprocate.  Here’s what we have for sale and here’s the price.  Buy it if you want.  But if you don’t buy from us as much as we buy from you, we’ll use tariffs to assure that a balance is maintained.

You want to sell us avocados?  Or coffee?  Fine.  We won’t put any tariff on them because we’re not able to grow them ourselves.  But you want to sell us a car?  We already have companies making and selling cars – more than we know what to do with.  So we’ll put a high tariff on your cars, unless you’re able to buy just as many from us.  That kind of seems pointless though, doesn’t it?

And we certainly don’t need a “World Trade Organization” setting rules to advance their own agenda.  The Trump administration is pushing the WTO to reform and end its practice of protecting developing countries like China at the expense of the U.S., and stubbornly insisting on “free” trade with other developed countries like those of the EU – countries whose gross overpopulation assures a trade deficit for the U.S. – even after decades of proof that a massive, destabilizing trade imbalance is inevitable.  Why bother?  We don’t need the WTO.  What can they do if they don’t like our tariffs?  They can authorize other countries to raise tariffs of their own, which is what they may or may not do anyway, regardless of whether or not the WTO even exists.  So the WTO really serves no purpose whatsoever, other than to suck funding from the American economy to support its endless meetings – meetings whose only purpose is to invent new ways to divide up the American market for the benefit of other countries.

Case in point:  Trump was having great success in cutting our trade deficit with China through the use of tariffs until he signed the “Phase 1” trade deal with them last month – a deal that had essentially been in place for months already, just awaiting the formality of the signing.  As a result, all of the momentum toward restoring a balance of trade with China has been lost.  The trade deficit status quo with China has been restored, albeit at a slightly lower level, and for what?  Chinese promises  – the same promises they’ve reneged on for years.  We’ve once again ceded control of the trade situation to China.

Another example:  the “USMCA” agreement with Mexico and Canada – supposedly an improvement over the NAFTA deal that devastated American manufacturing almost as badly as our trade situation with China.  What’s been the result?  Since Trump was elected, our trade deficit with Mexico continues to spiral out of control, and it’ll be years before anyone can say definitively that the USMCA agreement didn’t work.  (Anything less than a balance of trade with Mexico is a failure.)  The USMCA agreement eliminated the threat of tariffs on Mexico and put Mexico back in the driver’s seat of the trade relationship.

Throughout all of this deal-making for the past three years, the trade deficit declined slightly in 2019, and that decline was thanks to tariffs and not any deals.  The trade deficit remains enormous, leaving the manufacturing sector on life support and leaving us more vulnerable to recession and supply disruptions, something that’s becoming painfully obvious as the coronavirus problem worsens and we discover that we’re dependent on China for our supply of protective clothing and for pharmaceuticals to combat it.

President Trump, please, no more trade deals.  Kiss the WTO goodbye and put the U.S. Trade Representative’s office to work setting an managing tariffs.

 


Is the “Phase 1” trade deal with China a bad deal?

January 20, 2020

https://www.reuters.com/article/us-usa-trade-china-details-factbox/whats-in-the-u-s-china-phase-1-trade-deal-idUSKBN1ZE2IF

The above-linked Reuters article provides a breakdown in basic terms of what’s included in the “Phase 1” trade deal with China.  To make it easier to understand – and in preparation for tracking progress – I’ve created this spreadsheet, which shows what China has agreed to in terms of boosting its imports from the U.S.  Phase 1 China Trade Deal.

In addition, China agreed to:

… stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

…  follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms

… refrain from directly supporting outbound investment aimed at acquiring foreign technology

… refrain from competitive currency devaluations

China’s retaliatory Dec. 15 tariffs, including a 25% tariff on U.S.-made autos, have been suspended.

So what did the U.S. give up in return?

… will cut by half the tariff rate it imposed on Sept 1. on a $120 billion list of Chinese goods, to 7.5%.

Tariffs that were scheduled to go into effect on Dec. 15 on nearly $160 billion worth of Chinese goods, including cellphones, laptop computers, toys and clothing, are suspended indefinitely.

That’s the deal in a nutshell.  On the surface, it sounds like a good deal, boosting exports by $200 billion per year.  But don’t be fooled.  This deal rolls back some existing tariffs and suspends new tariffs – tariffs that were making rapid progress toward restoring a balance of trade with China – in exchange for nothing more than promises, and China has a long history of breaking its trade promises.  China got exactly what it wanted – time – more time to continue business as usual.

With this deal, the U.S. is once again trying to export its way out of its massive trade deficit.  It’s similar to the vow that Obama made in January of 2010 to double export within five years.  It didn’t happen.  Not even close.  It’s impossible to export your way out of a trade deficit with nations whose gross over-crowding makes them utterly dependent on manufacturing for export to sustain their bloated labor forces.  And that’s China, among others.

Aside from their promise to boost imports, that promise about protecting intellectual property has been made many times before.  It’s untrackable and meaningless.  And currency manipulation?  The data proves that trade deficits have nothing to do with currency valuation.

The only hope is that the Trump administration will be more diligent than previous administrations in holding China’s feet to the fire, returning to the use of tariffs when China fails to meet its commitments.  China’s betting they won’t, and that future administrations will roll over like previous administrations.

I’ll begin tracking China’s progress on meeting its import commitments (or lack thereof) beginning with the January trade data, which isn’t released until March.


Case Study on Shifting Production Out of China

January 15, 2020

https://www.fidelity.com/news/article/top-news/202001140706RTRSNEWSCOMBINED_KBN1ZD1FV-OUSBS_1

The above-linked article provides an interesting example of a small company trying to move production out of China to avoid the tariffs.  This is a low volume, niche bicycle company.  Some of the points made in the article merit comment:

After months of research and several trips, a small Taiwanese factory agreed to make his bikes but he had to triple orders and pay 30% of the cost of goods up front, unlike in China where he paid upon delivery.

The new terms locked up as much as $1 million of working capital until the bikes were shipped and required a new credit line. After a year of toil, State Bicycle managed to shift production of only two of its five models which are sold in the United States.

Let’s step back and take a look at this situation.  Bear in mind, we’re talking about bicycles here.  Bicycles are not terribly sophisticated nor difficult to make.  The biggest components – the frame and the handlebars – are nothing more than bent and welded tubing.  Tools to bend and weld tubing are readily available at low cost right here in the U.S.  Beyond that, we’re talking about rims, hubs, spokes, sprockets, bearings, axles, chain, a seat, tires and little else.  The million dollars of working capital and the money spent on those trips to Taiwan could have easily purchased the tooling to make those parts right here.  How much sense did it make to spend months of globe-trotting like a chicken with your head cut off, and all that money?

In a move to help bicycle companies, the Trump administration has been granting tariff exclusions to some of their imports since September. The relief, however, is only for a year and is meant to give them more time to move production – ideally to the United States.

Therein lies a big part of the problem.  Companies believe the tariffs won’t hold and can just wait them out.  Eat the tariffs for a year or so and avoid the cost of moving production.  Trump’s use of tariffs has been far too timid and too narrowly focused on China.  Why only focus on China when, in per capita terms, other countries’ trade surpluses with the U.S. are much larger?

Don DiCostanzo, chief executive officer of Pedego Electric Bikes https://www.pedegoelectricbikes.com in California, said higher labor costs and the absence of a viable supply base have made it “virtually impossible” to assemble bikes in the United States.

Seriously?!?!?  Again, we’re talking about bicycles here.  We build cars, trucks and airplanes in the U.S.  Are we to believe that the simple parts I’ve listed above can’t be sourced in the U.S.?  Most any half-competent machine shop, of which there are thousands in the U.S., could quickly produce those parts.  With a little effort, Pedego could set up shop and make them themselves.  Yes, labor costs would be a little higher, but not that much, and they’d be offset by far lower shipping costs.

In the 1970s, the United States assembled more than 15 million bicycles a year. Now it makes fewer than 500,000, according to industry data presented to the United States Trade Representative (USTR) in 2018. By contrast, China made about 95% of the 17 million bikes sold in 2018, U.S. Census data showed.

OK, wait a minute.  This paragraph just refuted the whole premise of this article – that there’s no supplier base and labor costs are too high to build bicycles in the U.S.  Now we learn that somebody is actually building a half million of them in the U.S.  Obviously there actually are sources available for the parts and bikes can be built and sold here at a profit.

Pedego Electric Bikes said it didn’t have any difficulty finding a factory in Vietnam because it was among the first companies to move there. But it faced other challenges.

It had to bring in workers from China to train local staff. Batteries had to be sourced from Japan or Korea and tires from Malaysia. “We had to set up the supply chain,” DiCostanzo said. “That was perhaps the most frustrating part.”

They had to bring workers in from China to train the Vietnamese?  Why didn’t Pedego train them themselves?  It’s likely because Pedego laid off everyone in the company who actually knew how to manufacture bicycles when they moved to China in the first place.  Personally, I’d be ashamed to market bicycles that I didn’t even know how to make.  Nor would I want to buy one from a company who knew so little about their own product.

“It is very difficult to get out of China,” said Alex Logemann at U.S. industry association PeopleForBikes https://peopleforbikes.org.

Baloney.  They had no problem getting into China when it was an undeveloped backwater of rice farmers and little else.  Getting setting up somewhere else, especially in the U.S., should be far easier.

By the way, I own two bicycles myself – both of them Schwinn.  The oldest, a Schwinn Continental that I bought in 1971, is a beautiful bike that was built in the U.S.  While somewhat crude by today’s standards, it was one of the finest bikes you could buy back then and it’s my favorite.  The newer one I received as a gift and it’s a nice bike, but it saddened me when I learned that it was built overseas.

When I first read this article, I was rooting for these companies to figure out a way to set up shop in the U.S.  I think I’ve changed my mind.  Frankly, I hope they all fail, making it that much easier for those companies who are currently building those half million American-made bikes to flourish and grow.  Nearly every bike sold in the U.S. was American-made at one time.  It could be that way again.

 


November Trade Report Best in Two Years

January 11, 2020

https://www.bea.gov/system/files/2020-01/trad1119.pdf

… or three years, depending on how you look at it.  In terms of the overall trade deficit, it was the lowest since October of 2016.  More importantly, the deficit in manufactured goods, at $63.2 billion, was the lowest since September of 2017 – good news, but that’s still a horrible deficit.  (A link to November’s report is attached above.)  Check out this chart of the balance of trade in manufactured goods:  Manf’d Goods Balance of Trade.

The drop in the deficit is due entirely to a decline in imports.  (Exports remain flat.)  Most notably, the deficit with China shrank to $26.4 billion, the lowest reading since March, and down from $37.9 billion during the same month in 2018 – a 30% drop.  This is solid evidence that the tariffs on China are having the desired effect.

In related news, this Reuters article reports that tariffs – primarily the tariffs on China – have cost U.S. companies $46 billion.  That’s actually good news.  It means that they’re “eating” the cost of the tariffs and not passing it on to consumers.  It also means that U.S. companies are evaluating what to do about it.  Should they keep their manufacturing in China in the hopes of waiting out the “trade war” for the tariffs to come down?  Or do they begin implementing plans to shift manufacturing to other locations?  If they choose the latter, do they move operations to some other country and risk facing tariffs there too?  Or do they bite the bullet and move operations back to the U.S.?  If the U.S. is serious about cutting its trade deficit, it has to remain committed to tariffs and implementing them on a much broader scale.  If they do, moving manufacturing back to the U.S.  is the only logical choice for U.S. companies.  Adapt or just keep “eating” those billions of dollars.


“Phase 1” Trade Deal with China a Major Disappointment

December 17, 2019

https://www.reuters.com/article/us-usa-trade-china-details-factbox/whats-in-the-u-s-china-phase-one-trade-deal-idUSKBN1YH2IL

On Friday, the Trump administration announced that it had reached a “Phase 1” agreement with China that cancels a new round of tariffs that were to have taken effect Sunday, and rolls back some other tariffs, in exchange for … well, nothing really, except some empty promises by the Chinese.  (The above-linked article details what’s included in the deal.)  This is a huge disappointment.  It sends a message to manufacturers that waiting out the tariffs was the right move, as opposed to repatriating their manufacturing operations, and it’s now “business as usual” with China.

Trump clearly got suckered on this one.  China has a long history of reneging on their promises and this will be no different.  Actually, it’s worse than that.  Even if most of these promises are kept, it’ll have no impact on America’s economy.  Why?  Let’s go through the items in the deal as listed in the above-linked article, and see why.

China canceled its retaliatory tariffs due to take effect that same day, including a 25% tariff on U.S.-made autos.

China scarcely imports any U.S. autos anyway, and that’s not going to change regardless of whether or not they’ve placed tariffs on them.  China is awash in auto manufacturing capacity and isn’t about to put their auto workers out of business in order to import cars from the U.S.  So this concession is of zero value to the U.S.

U.S. officials say China agreed to increase purchases of American products and services by at least $200 billion over the next two years, with an expectation that the higher purchases will continue after that period.

Note that it’s “U.S. officials” making this claim.  China hasn’t actually agreed to this and they would never do it.  They have no capacity to absorb such imports.  Mark my word, U.S. exports will scarcely rise at all in the next two years.

China has committed to increase purchases of U.S. agriculture products by $32 billion over two years. That would average an annual total of about $40 billion, compared to a baseline of $24 billion in 2017 before the trade war started. … China agreed to make its best efforts to increase its purchases by another $5 billion annually to get close $50 billion.

They might actually increase their imports of U.S. agriculture products some, but so what?  If they do, Europe will return to buying theirs from South America (where the Chinese have been sourcing theirs), so the increase in Chinese imports will be offset by a loss of other exports.  The impact on American farmers will be zilch.  Regarding that last statement, “China agreed to make its best efforts …”  That’s their way of saying they won’t.

China has committed to reduce non-tariff barriers to agricultural products such as poultry, seafood and feed additives as well as approval of biotechnology products.

For the reasons I just stated, this commitment is meaningless.  Shifting American exports from other markets to the Chinese market accomplishes nothing.

The deal includes stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

The deal contains commitments by China to follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals and to eliminate any government advantages for such transfers.

China also agreed to refrain from directly supporting outbound investment aimed at acquiring foreign technology to meet its industrial plans — transactions already restricted by stronger U.S. security reviews.

They’ve agreed to these same things many times in the past.  When it doesn’t happen and an American company complains, China will brush it off as an isolated incident that they’re addressing.

The currency agreement contains pledges by China to refrain from competitive currency devaluations and to not target its exchange rate for a trade advantage — language that China has accepted for years as part of its commitments to the Group of 20 major economies.

So here’s another agreement that the Reuters article correctly identifies as nothing new.  Besides, as I’ve explained many times in other posts, currency values have absolutely nothing to do with trade imbalances.

Under dispute resolution is an arrangement allowing parties to resolve differences over how the deal is implemented through bilateral consultations, starting at the working level and escalating to top-level officials. If these consultations do not resolve disputes, there is a process for imposing tariffs or other penalties.

I’m sure the Chinese love this one.  “Dispute resolution” is something they’ve used for decades to forestall any meaningful retaliation when they violate or fail to live up to their agreements.

U.S. officials said the deal includes improved access to China’s financial services market for U.S. companies, including in banking, insurance, securities and credit rating services.

When China was given “most favored nation” trading status by Clinton in the late ’90s, it was clear that the manufacturing factor sector of our economy was about to be destroyed.  The free trade globalists promised that America would be transformed into a services powerhouse economy.  It never happened.  Such services are nothing more than computer transactions and create few jobs.  The inclusion of a promise of more access to the Chinese economy would mean virtually nothing to the American economy, even if it did happen, which it likely will not.

All of the emphasis in this trade deal is on exports to China, with no emphasis on the reduction of imports.  It’s as though Trump has taken a page from Obama’s playbook when Obama promised in 2010 to re-balance trade by doubling exports in five years.  How did that work out?  Five years later, exports of manufactured goods were up by only 9% – not even keeping pace with inflation, which means that exports actually fell.  By the time Obama left office, exports were even lower.  Obama’s failure to do anything meaningful to re-balance trade during his two-term tenure was a major factor in Trump’s victory over Hillary Clinton.

So that’s it.  Trump’s trade agenda has been not just stalled, but rolled back to some degree, for nothing more than promises that won’t be kept.  The emphasis on boosting farm exports is a blatant pandering to Trump’s electoral base.  It seems as though, with this trade deal, Trump believes that the U.S. will be better off if it returns to being an agrarian society.  If we were a country of 100 million people, like in the late 19th century, that might be true.  With a population of 330 million people, we can’t have a viable economy without an industrial base.  The de-industrialization of America has got to stop.  When dealing with a badly overpopulated nation like China, it’s impossible to export your way out of a trade deficit.  They have no capacity to boost their imports because their per capita consumption, emaciated by overcrowding, prohibits them from even absorbing their own domestic industrial capacity.

So what would a better deal look like?  No deal at all.  No overpopulated nation like China will ever deal away the manufacturing for export that is so vital to their economy, and wouldn’t comply with any deal that threatened it.  The only way to restore a balance of trade with China is to levy heavy tariffs to make their products noncompetitive with American-made goods.  If it ultimately leads to a cessation of trade with China altogether, the American economy would enjoy a $450 billion/year boost.  The American economy would actually be far better off if China fell off the map.

The Trump administration needs to stop seeing tariffs as negotiating leverage, and start seeing them as the only way to maintain a balance of trade.  Trump is frittering away his opportunity to truly “Make America Great Again,” something he can’t legitimately claim has happened until America is restored to the industrial powerhouse that it once was.

 

 

 


WTO Gutted by Trump Administration

December 11, 2019

https://www.reuters.com/article/us-trade-wto/u-s-trade-offensive-takes-out-wto-as-global-arbiter-idUSKBN1YE0YE

Here’s a perfect example of what I’m talking about when I say that the media slants its coverage of Trump, ignoring accomplishments and anything that puts the Trump administration in a positive light.  At the same time, it’s also an example of my complaint that Trump isn’t an effective communicator.

The above-linked article reports on one of the most significant milestones of the Trump administration.  As of yesterday, the World Trade Organization, or “WTO,” has been effectively gutted by the Trump administration’s blocking of appointments to its “Appellate Body,” rendering it unable to rule on trade disputes.

It’s impossible to overstate the significance of this milestone.  The WTO was founded in 1995, but its roots go back much further, to the signing of the Global Agreement on Tariffs and Trade (or “GATT”) in 1947.  Its mission has been to advance the cause of undeveloped and underdeveloped countries through the transfer of industry and wealth from the United States.  As a result, the U.S. has run a trade deficit every year since 1976, a deficit that set a new record in 2018, reached a cumulative total of over $16 trillion and is responsible for 80% of our national debt.  It has shifted millions of high-paying manufacturing jobs overseas and left many millions of Americans unable to afford health care or to save for retirement.  Decades of mush-headed presidents, Democrat and Republican alike, have stood idly by while “economists,” bought-and-paid-for by global corporations, assured them that such “free trade” was in our best interest.

Yesterday should have been celebrated like the end of a major war.  Yet there was little mention of it in the media and no mention of it by Trump, who should be credited with one of the biggest achievements by an American president in decades.  I was lucky to stumble across this article on Reuters where, only an hour later, it was gone from the their web site and I had to do a search to resurrect it.

No country should ever hand over its economy to any global organization that is dedicated to managing it in favor of other countries to its own detriment, but that’s exactly what the U.S. did.  As of yesterday, Trump has effectively put an end to it.