Trade Deficit in Manufactured Goods At Record High

December 7, 2017

The trade deficit in manufactured products* rose to a record high of $64.6 billion in October, surpassing the previous record of $63.3 billion set in March of 2015.  Take a look at this chart of our monthly deficit in manufactured goods:  Manf’d Goods Balance of Trade. Exports of manufactured goods haven’t risen since September of 2011 (in spite of Obama’s laughable proclamation in 2010 that we would double exports in five years).  In the meantime, imports have soared by almost $30 billion.  It’s a dubious distinction for President Trump who, during his inaugural address in January, spoke of “…rusted-out factories scattered like tombstones across the landscape of our nation…” and proclaimed that “This American carnage stops right here and right now.”

To be fair, Trump didn’t mean that it would happen on the spot.  His administration has been taking steps to address our trade problem, trying to renegotiate NAFTA (the North American Free Trade Agreement with Mexico and Canada), imposing tariffs on some products and, most recently, blocking China from rising to “market economy” status with the World Trade Organization.  Aside from the work on NAFTA, which may conclude soon with the U.S. walking away from that ill-conceived agreement, the rest amounts to little more than the token steps taken by previous administrations.  The net result is that the plight of the manufacturing sector of our economy grows steadily worse.

Enough is enough.  It’s time to walk away from both NAFTA and the World Trade Organization and begin implementing tariffs.  Any tariffs would be better than our current trade policy, but smart tariffs that address the real cause of our trade deficit – attempting to trade freely with badly overpopulated nations characterized by bloated labor forces and anemic markets – would be much more effective.  As an example, it was reported yesterday that Canada, angered by their treatment in the NAFTA negotiations, has canceled an order for Boeing-made fighter planes.  Why are we treating Canada this way?  Sure, we have a trade deficit with Canada, but it’s due entirely to oil.  In 2016, our biggest trade surplus in manufactured goods, by far, was with Canada – $44 billion, more than double any other country.  Canada is our best trading partner.  Why anger them?  Why not tell Canada that our beef is with Mexico, with whom we had a trade deficit in manufactured goods of almost $68 billion in 2016 – our third worst behind China and Japan – and that they’ll get just as good a deal from the U.S. without NAFTA?  Slap the tariffs on Mexico, not Canada.

We could completely wipe out our trade deficit in manufactured goods by applying tariffs to only ten countries – China, Japan, Mexico, Germany, Ireland, Vietnam, South Korea, Italy, India and Malaysia.  These ten countries, all more densely populated than the U.S. (all but Ireland are many times more densely populated), account for all of our trade deficit in manufactured goods.  While we have defiicts with others, they are much smaller and are offset by surpluses with the rest of the world.  The point is, we don’t have to anger the entire world with tariffs – just ten out of the more than 220 countries in the world.  So let’s be smart about how we do it, but the time has come, Mr. President.  Stop delaying the inevitable.  Do what you know needs to be done.

* The trade deficit in manufactured products is calculated by subtracting services, trade in petroleum products, and trade in foods, feeds and beverages from total trade, as reported by the Bureau of Economic Analysis in its monthly reporting of international trade.

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Trump: “I want tariffs. ….bring me some tariffs.”

September 1, 2017

https://www.cnbc.com/2017/08/27/trump-reportedly-demands-china-action-i-want-tariffs-and-i-want-someone-to-bring-me-some-tariffs.html

With trade negotiations with both China and Mexico bogged down in trivial minutae, it was beginning to appear that Trump’s campaign promise to impose tariffs on both was nothing more than a ploy to win votes.  After all, we’ve seen this movie dozens of times over the past decades:  endless talk about intellectual property rights, labor laws, unfair government subsidies.  The list goes on and on and, in the end, our trade deficit gets bigger and bigger while our manufacturing sector withers.

Then, a few days ago, the above-linked report appeared.  Perhaps Trump has just been giving the “globalists” one last shot at negotiating something meaningful so that, at least, they can’t say he didn’t try.  But it seems that he’s getting fed up with the lack of progress.

Reportedly, in the presence of the “globalists” on his economic team – U.S. Trade Representative Robert Lighthizer and Economic Council director Gary Cohn, among others (which perhaps included daughter Ivanka and her husband Jared Kushner?) – Trump told chief of staff John Kelly:

So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs … I know there are some people in the room right now that are upset. I know there are some globalists in the room right now. And they don’t want them, John, they don’t want the tariffs. But I’m telling you, I want tariffs.

Do it, John!  Draw up a tariff plan.  Help President Trump implement it and our long, long nightmare of trade policy idiocy will finally be over!  Then, instead of debt ceiling and budget negotiations getting deadlocked over how to pay for everything, our congressmen will have a new problem – what to do with all the additional revenue.

Let’s not give up hope yet.


Thank you Sheriff Joe. Thank you President Trump

August 27, 2017

http://www.reuters.com/article/us-usa-trump-arpaio-idUSKCN1B600O

As reported in the above-linked Reuters article, President Trump has pardoned Joe Arpaio, former sheriff of Maricopa County in Arizona.  Sheriff Joe was famous for his relentless round-up of illegal aliens and for his tough, but not brutal, treatment of all criminals.  As reported in the article:

He reinstated chain gangs, made inmates wear uniforms that were pink or old-fashioned black and white stripes and forbade them coffee, salt and pepper.

That’s it?  No beatings or torture?  He just made them wear uniforms, do real work and took away their coffee?  What an animal!  Seriously, we need a lot more sheriffs like this.  The sight of chain gangs when I was a kid helped me decide early on that I wanted to stay on the right side of the law.

To the chagrin of the globalist, open border advocates, Joe Arpaio took his job seriously and did what he could to protect our border and enforce our immigration laws.  His crime?  Focusing on Hispanics in his search for illegal immigrants in a state that borders Mexico.  Who else would he go after?  The notion that this somehow constituted illegal racial profiling is ridiculous.  If another sheriff were to focus on whites while searching for a group of murderous white supremacists, would a judge declare this racial profiling and insist that they include blacks, Hispanics and Asians in their search?  If the victim of a crime describes the perpetrator as black man, is it racial profiling to include only blacks in the police line-up?  Arpaio’s conviction was exactly the kind of overboard political-correctness-run-amok, common-sense-be-damned nonsense that propelled Trump to victory.  Just look at some of the quotes in this article:

“Once again, the president has acted in support of illegal, failed immigration enforcement practices that target people of color and that have been struck down by the courts,” said American Civil Liberties Union Deputy Legal Director Cecillia Wang, who sought the court injunction against Arpaio.

Alejandra Gomez, co-executive director of Living United for Change in Arizona (LUCHA), said: “President Trump pardoned a terrorist tonight. Joe Arpaio intentionally terrorized immigrant communities across Arizona for decades and traumatized an entire generation of Arizonans…  The only proper place for him is in a jail cell,” Gomez said in a statement.

“Illegal, failed immigration enforcement practices?”  How about Obama’s illegal refusal to enforce immigration laws at all?  Somebody had to do something, and Sheriff Joe stepped up.  And then this Gomez character from some obscure, fringe group in Arizona goes so far as to call him a “terrorist.”  It’s truly over the top.

As I said in Five Short Blasts, my concern with illegal immigration isn’t rooted in racism.  It wouldn’t matter to me if it was Ireland on the other side of our southern border and if every illegal alien was named Murphy.  The world faces no greater threat than worsening overpopulation, and illegal immigration is a major contributor to that threat in the U.S.

Unlike Obama, who pardoned hundreds of real criminals, Trump has pardoned an American hero who stood up for all Americans by enforcing our immigration laws.  Thank you for your work, Sheriff Joe.  And thank you for correcting this injustice, President Trump.


Low Wages Play Little Role in Trade Imbalances

July 20, 2017

In my previous two posts in which we examined the lists of America’s worst trade deficits and best trade surpluses in manufactured goods, it seemed clear that low wages were not a factor.  Many of our worst trade deficits were with wealthy nations like Germany, Ireland, Switzerland, Denmark, France, Japan and South Korea.  The list of our best trade surpluses was also dominated by wealthy nations.

Let’s take a closer look at the issue.  If we sort a list of nations by purchasing power parity, or “PPP” – a factor roughly analogous to wages, and divide them equally into five groups, ranging from the wealthiest nations to the poorest, here’s what we find:

  • Among the 33 wealthiest nations, whose PPP ranged from $129,700 (Qatar) to $34,400 (Cyprus) in 2016, the U.S. had a trade deficit in manufactured goods with 15 of them.
  • Among the next 33 nations, whose PPP ranged from $33,200 (Czech Republic) to $16,500 (Iraq), the U.S. had a trade deficit with 13 of them.
  • Among the next 33 nations, whose PPP ranged from $16,100 (Costa Rica) to $8,200 (Ukraine), the U.S. had a trade deficit with 10 of them.  China is near the top of this group.
  • Among the next-to-last poorest group, whose PPP ranged from $8,200 (Belize) to $3,100 (Lesotho), the U.S. had a trade deficit with 13 of them.
  • Among the very poorest nations, whose PPP ranged from $3,100 (Tanzania) to $400 (Somalia), the U.S. had a trade deficit with only 4 of them.

So if low wages cause trade deficits, why aren’t our trade deficits concentrated among the poorest nations instead of that group actually representing the fewest deficits by far.  And why does the richest group of nations include the most (and some of the biggest) deficits?

There’s no denying the fact that, among the poorest nations, the U.S. had a deficit in manufactured goods with 17 of them.  Included in that group are Vietnam and India.  But both rank among the top 25 nations with the fastest growing PPP (146% and 145% relative to the U.S., respectively) over the past ten years.  Since incomes are rising so fast in those countries, then if low wages are a factor in driving trade imbalances, shouldn’t our deficits with those countries be declining?  They’re not.  Quite the opposite is happening.  Our deficits with both have exploded over the past ten years, by 349% with Vietnam and 250% with India.  Our trade deficit is making them wealthier.

It’s difficult to argue that low wages play no role whatsoever.  Mexico is an obvious example of where American companies are setting up shop there, just across the border, for no other purpose than to save on labor.  Everything made there comes back into the U.S.  Virtually none of those products are sold into the Mexican market.  While many of the other manufacturing operations built in other countries like China are put there primarily in pursuit of those markets, that’s not the case with Mexico.  And mysteriously, the increased demand for labor in Mexico doesn’t seem to do much to raise wages there.  Mexico is being used as a virtual slave labor camp and, by all appearances, there must be some collusion between American companies and the Mexican government to keep it that way.

Aside from the glaring example of Mexico, low wages play no role whatsoever in creating our massive trade imbalance in manufactured goods, as proven by the fact that the vast majority of our worst trade imbalances are with wealthy nations.  Instead, trade imbalances are caused by high population densities that make our trading partners incapable of consuming products anywhere close to their productive capacity.


America’s Best Trading Partners in 2016

July 12, 2017

In my previous post we found that the list of America’s worst trade partners in 2016 – those with whom the U.S. has the biggest trade deficit in manufactured goods – in terms of both total dollars and in per capita terms – was dominated by nations whose population densities were far above the world median.  Only two of the twenty worst nations had population densities below the world median.

So what about the other end of the spectrum – the nations with whom the U.S. enjoyed trade surpluses in manufactured goods in 2016?  If there is a relationship between population density and trade imbalance, we should see the opposite effect – that the list is dominated by nations with low population densities.  Here’s the list of America’s twenty biggest trade surpluses in manufactured goods in 2016:  Top 20 Surpluses, 2016

It isn’t as clear as you might expect, and here’s why.  The fact that all oil around the globe is priced in U.S. dollars makes oil exporters float to the top of the list, regardless of population density.  Those nations with whom the U.S. has a trade deficit in oil are high-lighted in yellow.  Of these twenty nations, eleven were net exporters of oil to the U.S.  Why does this matter?  Because American dollars, aside from being legal tender for purchasing oil anywhere in the world, can only be used as legal tender in the U.S.  That means that all those “petro-dollars” have to be used to buy something from the U.S. – primarily two things:  U.S. government bonds and products made in the U.S.  While eleven net oil exporters appear on this list, only one appeared on the list of our top twenty worst trade deficits – Mexico.

Still, the population density effect is in play, even among these net oil exporters.  Believe it or not, Canada (not Saudi Arabia or some other Middle Eastern country) is our biggest source of imported oil.  With Canada, our trade surplus in manufactured goods is bigger than our deficit in oil by about $6 billion per year.  With Saudia Arabia, trade in oil and manufactured goods was almost perfectly balanced.  The same with New Zealand.  With Norway, our surplus in manufactured goods exceeded the deficit in oil by over $3 billion.

In addition, there are two very densely populated nations that appear on this list who are not oil exporters – the Netherlands and Belgium.  There’s a reason for this also.  Both are tiny European nations who happen to share the only deep water port on the Atlantic coast of Europe.  They use this to their advantage, buying American exports and then re-selling them to the rest of Europe.  Taken as a whole, the trade deficit with the European Union in 2016 was $138 billion, which would rank it 2nd on the list of our worst trade deficits, just after China.  The population density of the EU is 310 people per square mile – a little less than China.  And, in per capita terms, our trade deficit in manufactured goods with the EU was $274, a little worse than China.

Now let’s look at a list of our top twenty trade surpluses in per capita terms in 2016:  Top 20 Per Capita Surpluses, 2016.  This results in some small nations floating up onto the list:  Brunei (an oil exporter), Iceland, Belize, Guyana (an oil exporter), the Falkland Islands, Suriname, Oman and Equatorial Guinea (the latter two also being net oil exporters).  But in terms of population density, both lists are pretty similar.  The average population density of the nations on both lists are 213 people per square mile and 197, respectively.  Compare that to the lists of nations with whom we have the largest trade deficits where the population densities were 729 (our largest deficits in dollar terms) and 522 (our largest deficits in per capita terms).  But let’s look at those lists another way.  Let’s calculate the overall population density (the total population divided by the total land area) for the nations with whom we had the twenty largest per capita trade deficits vs. the nations with whom we had the twenty largest per capita surpluses.  Those figures are 372 people per square mile vs. 20 people per square mile.

Oh, and by the way, look at the purchasing power parity of both lists.  They’re remarkably the same.  Clearly, wealth (or wages) play no role in determining the balance of trade whatsoever.

The data couldn’t be more clear.  While other factors may come into play in trade, their effects are dwarfed by the role of population density in determining the balance of trade.  Free trade with densely populated nations is almost assured to yield terrible results for the U.S. – a huge trade deficit in manufactured goods, the loss of manufacturing jobs, and the ruination of the manufacturing sector of our economy.  Because of the role of over-crowding in eroding per capita consumption, those nations consume little but are very bit as productive.  So they come to the trade table with a bloated labor force hungry for work, and a wilted market, unable to consume our exports in equal measure.  Free trade with more sparsely populated nations, on the other hand, is likely to yield the opposite result.  Any trade policy that doesn’t use tariffs to maintain a balance of trade with densely populated nations is doomed to failure, as decades of America’s free trade policy has proven.

We’ll look at even more data from 2016 in upcoming posts.  Stay tuned.

 


Trade Deficit in Manufactured Products Hits Record in April

June 2, 2017

The Department of Commerce released the April figures for international trade in goods and services this morning, and the trade deficit rose again to its worst reading since January – $47.6 billion.  Imports were up and exports were down.  But you can’t even find the worst news in the report – the deficit in manufactured goods.  The Commerce Department doesn’t even bother to calculate it.  But I do.  By subtracting from the overall deficit the figures for services, foods, feeds, beverages and petroleum products, you can arrive at a pretty good estimation of trade in manufactured goods.  The news is bad.  The deficit in manufactured products rose to $63.4 billion, beating the previous record set in March, 2015 by $0.1 billion.  Imports rose to a record level and exports fell to their lowest level in five months.  Here’s a chart:  Manf’d Goods Balance of Trade.  As you can see, the deficit in manufactured goods continues to worsen at the same pace that it has since 2010, more than doubling in seven years.

Separately this morning, the Bureau of Labor Statistics released a weak employment report for the month of May.  Unemployment dropped, but thanks only to the old “mysteriously vanishing labor force” trick used so often during the Obama administration.  The employment level actually fell by 133,000 workers.  An accurate reading of unemployment would have had it actually worsening by two tenths of a percent.  Manufacturing employment fell yet again by another 1,000 jobs.  No surprise, in light of what’s happening with the trade deficit.  Add this data to the extremely weak first quarter GDP and you have a picture of an economy that’s stalled and might be on the brink of something worse.

So President Trump now owns the worst performance in manufactured goods of any president.  He vowed to “Make America Great Again.” The first step in that process is to stop it from getting worse.  That hasn’t happened yet.  Talk and optimism will only carry you so far.  There’s been little action.  There’s no border tax.  NAFTA still stands.  Jobs are still heading to China and Mexico.

To be fair, it’s still early in his administration, and the Republican congress has done nothing either.  But I fear that the opportunity to “make America great again” is being frittered away.


Apple’s “Advanced Manufacturing Fund” a PR Gimmick

May 4, 2017

http://www.reuters.com/article/us-apple-fund-idUSKBN17Z2PI

Today Apple’s CEO, Tim Cook, announced plans to set up a $1 billion “advanced manufacturing” fund, making it sound as though it’s going to create manufacturing jobs in the U.S.  (See the above-linked article.)  It’s actually nothing more than a clever public relations ploy – a gimmick designed to polish Apple’s tarnished image.

Ever since Trump’s message about bringing back manufacturing jobs began to resonate with voters, free trade advocates like Cook have begun waging a campaign on two fronts designed to blunt any efforts aimed at reversing globalization.  On the one hand, there has suddenly emerged a lot of talk about how most manufacturing jobs have actually been lost to automation and not trade policy which is, of course, a lie.  If the plant you worked in has just closed, you merely need to ask yourself where that product is now being made.  Is it being made by robots in a new factory, or is it now being made in a sweat shop in China or Mexico?  The answer is obvious.

The other tactic is to make themselves appear to be gung-ho for American manufacturing, lest they risk alienating the growing majority of Americans who now see free trade as a drag on the American economy.  As part of this effort, they’ve advanced the notion of “advanced manufacturing” – something that will somehow create jobs by developing factories so automated that human workers aren’t required.  Sounds like double-talk?  Of course it is.  But they believe you’re too dumb to see through it.

Apple is a perfect case in point.  Their products are considered the epitome of “high tech.”   Such a “high tech” company must be on the cutting edge of “advanced manufacturing,” right?  Nothing could be further from the truth.  The manufacture of Apple’s electronic gizmos is about as low-tech as you can get.  Contracted out to companies like China’s Foxconn, Apple’s products are pieced together by hand, utilizing thousands of workers in sweat shop conditions to insert tiny components into circuit boards.  Truth be told, the manufacture of cars in Detroit assembly plants which utilize robots for hundreds of assembly tasks is far more advanced than anything that Apple does.  The manufacturing jobs in those assembly plants are well-paid, high-skilled jobs.  Interfacing with all of that automation is no job for dummies.

Apple could move their manufacturing back to the U.S. today, but they resist for two reasons.  One is the investment that would be required to build proper manufacturing facilities that comply with environmental and labor laws.  More importantly, however, they resist because they need to maintain their manufacturing presence in China in order to have access to the Chinese market.  China’s leaders are smart enough to insist that products sold in China be made in China.

Cook wants you to think of Apple as a good corporate citizen of the United States, interested in creating jobs for Americans.  Give me a break.  They want to sell you an iPhone.  They want you to pay as much as possible (regardless of whether or not you can actually afford it) for something that’s made as cheaply as it can be, and they want you to pay for it with money earned anywhere except at Apple.

Gimmicks like these won’t bring manufacturing jobs back.  Only tariffs (or “border taxes” or whatever you want to call them) will force companies like Apple to manufacture in the U.S. and actually create real jobs for American workers.