An Example of Why Tariffs Can’t be Piecemeal

January 17, 2019

https://www.fidelity.com/news/article/top-news/201901170104RTRSNEWSCOMBINED_KCN1PB0CB-OUSBS_1

The above-linked article is a good example of why tariffs can’t be applied piecemeal to only specific products.  A Michigan auto parts supplier is shifting the manufacturing of some components from Michigan to Israel to skirt the tariffs on steel.  Israel gets steel tariff-free and the parts they manufacture no longer count as “steel,” so they can export them to the U.S. free of tariffs.

I give Trump a lot of credit for implementing tariffs and hope he goes much further but, in order to avoid situations such as the one reported on in this article, tariffs must be targeted at nations – densely populated nations – not products, and must cover every product from such nations – not just specific products.

If Trump had applied the tariff structure I recommended in Five Short Blasts, a structure indexed to population density, the RoMan manufacturing company would never dream of outsourcing components to Israel, since all imports from Israel would be subject to a 40% tariff.  It’s worth noting here that, in 2017, our third worst trade deficit in per capita terms was with Israel, one of the most badly over-populated nations on earth – three times as densely populated as China.  In per capita terms, our trade deficit with Israel is four times worse than our deficit with China.

The Trump administration sees tariffs as a tool to force concessions from nations that continue to maintain trade barriers (like tariffs) against American products.  It believes that if it can get Europe, for example, to drop its 10% tariff on American cars, then American manufacturers will begin exporting a lot more cars to Europe.  But they won’t, at least not nearly in the quantity needed to offset the number of cars imported from Europe.  The problem isn’t the tariff, it’s the inability of Europeans to consume even their own domestic capacity because their dense population (nearly equal to China’s population density) makes car ownership impractical.

Tariffs aren’t negotiating tactics.  They’re absolutely imperative to maintain a balance of trade with densely populated nations.

 

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It IS a crisis. Build the wall.

January 9, 2019

For those not familiar with this blog, let me begin by stating that I’m an independent who votes issues – two issues in particular:  trade policy and immigration.  These two issues dwarf all others in importance because of the role of population growth – the United States’ own population growth and the imported effects through trade with grossly overpopulated nations – in driving up unemployment and poverty.  Obama promised to address the trade deficit and I voted for him.  He reneged on that promise and I did not vote for him the 2nd time around.  Trump promised to address both the trade deficit and immigration, so I voted for him.  Trump’s doing a good job on both fronts – at least the best he can, given the push-back by the globalists in the media, in Congress and even among his own staff.

But a good communicator he isn’t.  I thought he missed some key points in his address last night.  So I’ll try to fill in the gaps.  First of all, it’s just common sense for any nation to build a physical barrier along any border that’s under constant assault, as our southern border has been for many decades.  The cost – a few billion dollars – is minuscule – chump change compared to the annual federal budget.  The federal government is constantly looking for new ways to inject stimulus into the economy to offset the economic drain caused by the massive trade deficit.  Virtually every penny spent on building a wall would create jobs, just as it does in infrastructure projects.

Claims by the Democrats that a physical barrier isn’t an effective tool against illegal immigration are, at face value, absolutely preposterous.  If a physical barrier isn’t effective, then why do so many senators and congressmen live in gated communities, as Trump pointed out?  Why do prisons have walls?  Why are airports fenced?  For heaven’s sake, even landfills have fences around them!

In the lead-in stories on the major networks that covered Trump’s address, they reported on the decline in border apprehensions.  From the year 2000 to 2018, border apprehensions have declined from 1.6 million per year to 400,000 last year.  Is that proof that a crisis doesn’t exist?  No.  What happened after those 1.6 million apprehensions in 2000?  Virtually all of those illegal immigrants, once processed, were released into the general population.  They, and the problems they brought with them, were here to stay.  Now, however, Trump has taken a zero tolerance approach to the problem, trying to detain all until either their requests for asylum can be validated or they can be deported.  The detention facilities are bursting at the seams.  Children are separated from their families.  A couple have died from the flu.  (No mention of the hundreds of American kids who die from the flu every year.)

There’s the crisis.  Even at the reduced levels of apprehension, the sheer numbers dwarf our ability to deal with them quickly and humanely.  Just because a crisis has been ignored for decades doesn’t make it any less a crisis.  Just because what needed to be done decades ago was never done doesn’t mean we shouldn’t do it now.  The very definition of insanity is doing the same thing over and over and expecting different results.  Expecting the illegal immigration problem to just magically go away without putting up a barrier is insane.

The onslaught of migrants fleeing wars in the Middle East and famine and poverty in northern Africa for Europe has been universally described as a humanitarian crisis.  Since the beginning of that crisis a few years ago, Europe has taken in about 800,000 migrants and is struggling mightily to cope with the results.  The United States, with approximately the same population and geographical area as Europe, has been invaded by an even greater number of illegal immigrants yearly, year in and year out, decade after decade.  And yet, Democrats (along with plenty of Republicans) deny that a crisis exists.  Given their “druthers,” many Democrats would prefer to ignore the problem altogether and leave the border wide open.  Hillary Clinton is a self-proclaimed open border advocate.

Enough is enough.  If Democrats can’t stomach the thought of admitting that Trump is right on this issue and pony up the chump change needed to build the wall and re-open the government, then Trump should proceed without them.  If the Democrats didn’t want Trump to declare a crisis, then they shouldn’t have described the conditions at the detention facilities as a crisis.  Declare an emergency and immediately start building the wall.  Of course there’ll be a legal challenge.  So what?  The wall can be finished by the time that winds its way through the courts.

If that fails, here’s an idea:  put a road on top of the wall and bury the funding in a transportation bill!


Why is hate on the rise?

October 31, 2018

In the wake of the mail bombs sent to Democratic critics of Trump and the deadly mass shooting at the synagogue in Pittsburgh, many are raising alarm about what seems to be a dramatic increase in hate crimes and speech.  I was thinking about this and these lyrics came to mind:

“… The whole world is festering with unhappy souls.
The French hate the Germans, the Germans hate the Poles.
Italians hate Yugoslavs, South Africans hate the Dutch,
And I don’t like anybody very much.

… They’re rioting in Africa.
There’s strife in Iran.
What nature doesn’t do to us
will be done by our fellow man.”

Those lyrics are taken from a song titled “Merry Minuet,” released by the Kingston Trio in 1959.  Six decades have passed since then.  In spite of the strides we’ve made in being more tolerant of people who are different from us in terms of race, creed and sexual orientation, it does seem as though hate is more prevalent than ever before.  Maybe it is; maybe it isn’t.

The millenial generation now blames Trump and like-minded boomers for the rise in hate.  In 1959, the boomers were blaming their parents.  Hate and the primeval instincts that fuel it, like fear, distrust, envy, greed, and our territorial instincts, have always been with us.  Those instincts are critical to our survival.  One who wanders down a dark alley, oblivious to potential danger, ends up dead.  One who does so with an appropriate degree of fear and distrust is more likely to survive.

When driven to irrational extremes, however -as they can be when fed by false information, those instincts may cause us to unjustifiably hate others.  I and my fellow Christians believe that Christ came into this world to teach us to rein in our demons, to love our neighbor and to forgive those who wrong us.  Often, it’s not easy.  I see a couple of factors, beyond the political, that are making it much harder.

Number one is “social” media.  Not until the past few years have those beset with irrational fears and hatred had such a place to turn to for reinforcement, where their fears and suspicions could be stoked by gross propaganda designed to pull them in and exploit them.  There’s another factor, however, that few recognize – that high population densities are breeding grounds for hatred.  You can see it everywhere you look.  It’s not hard to understand.  Those who live in close quarters are more easily irritated by those around them.  Throw in obvious differences like race and creed and you have an explosive mixture.  “Good fences make good neighbors,” as the saying goes.  The point is that we can all more easily coexist when we have some separation.

I like to use what I call the “monkeys in a cage” effect as an analogy.  Build an enormous, beautiful cage – perhaps acres in size – with flowing streams and trees full of fruit and nuts.  Now put a monkey in the cage.  Will he be happy?  No, he’ll be lonely.  Put in another monkey.  Are they happy?  They’re happier, but still long for more companionship, being very social animals.  So put in some more.  And then more.  At some point, some monkeys will be driven out of the group, where they’ll move to the opposite side of the cage and form their own group.  Now put in more monkeys, and more and more.  At some point, the monkeys will turn on each other and you’ll return to the cage in the morning to find many of them dead, casualties of an enormous fight that broke out overnight.

Any child whoever had an aquarium or terrarium understands that their bowl  or cage will only support just so many fish or animals, in spite of their best efforts to keep them fed.  And so it is with us.  Our country and our planet is twice as densely populated as it was fifty years ago, and is many times more densely populated that it was just a century ago.  While mankind may be clever enough to overcome many obstacles to never-ending population growth, it’s becoming increasingly obvious that there are also many factors that are escalating beyond our ability to control them.  Rising hatred, fed by worsening over-crowding is one that shouldn’t be ignored.

 


Low Wages Don’t Cause Trade Deficits!

July 31, 2018

Now that we’ve established (in previous recent posts) that it’s disparities in population density between the U.S. and its trading partners that causes our enormous trade deficit, let’s take a closer look at what role low wages might play.  Judging by the data we saw in the lists of America’s best and worst trade partners, there appeared to be little difference in the “purchasing power parity,”  or “PPP,” between the lists, suggesting that low wages (which track PPP) play no role.

Let’s begin by looking at America’s balance of trade with the twenty poorest nations in the world.  Here’s the list:  20 Poorest Nations.  First of all, you’ll notice that this list is dominated by poor African nations, with a few others like North Korea and Afghanistan thrown in.  The U.S. actually has a small trade surplus of just over a million dollars (an almost perfect balance of trade) with this group.  If low wages cause trade deficits, why doesn’t the U.S. have a huge trade deficit with this group of nations?  In the interest of fairness, I should point out that all foreign aid is booked as exports from the U.S., and the nations on this list are nearly all heavy recipients of U.S. foreign aid.

Let’s move on.  At the other end of the scale we have the twenty richest nations.  Since U.S. PPP is about $50,000, the U.S. would fall somewhere in the middle of this list.  So wages shouldn’t be much of a factor with this group.  Look at the list:  20 Richest Nations.  As you can see, we have a small trade deficit of $9 billion with this group of nations – virtually insignificant when compared to our total trade deficit in manufactured goods of $724 billion.

What we need to do is divide all of the world’s nations in half according to PPP and compare our balance of trade with the poorest half of nations to the richest half.  If we do that, the results are pretty startling.  With the poorest half of nations, the U.S. has a trade deficit in manufactured goods of $60.7 billion.  But with the richest half of nations, the deficit explodes to $663.5 billion!

How can we explain that?  First of all, to be honest, even the richest half of nations is made up almost entirely of nations that are poorer than the U.S.  Only about a dozen nations are richer than the U.S.  So one could argue that the low wage theory still holds.  Not true.  If it did, then it should be the poorest half of nations that we have the biggest trade deficit with, not the opposite.

The real explanation is that there is a relationship between trade and wages, but the cause and effect are quite the opposite of the “low wage theory.”  Low wages don’t cause trade deficits.  Instead, large trade surpluses like China, Germany and Japan have with the U.S., cause higher wages.  Manufacturing for export sops up excess labor supply and drives wages higher.

When the U.S. trades with poor but sparsely populated nations, they become wealthier but soon run out of labor.  Their now-wealthier populace becomes good customers for American products and trade levels off in a state of balance, more or less.

But when the U.S. trades with poor, badly overpopulated nations, wages rise but their overcrowded conditions leave them unable to consume products at anywhere near the rate needed to become customers for imported products.  Their oversupply of labor persists and a trade deficit with such a nation grows steadily worse.

America’s trade imbalance can never be resolved as long as it pursues policies that don’t target the real problem – disparities in population density.


Population Density Disparities Drive Global Trade Imbalances

July 14, 2018

In recent posts, we looked at lists of America’s best and worst trading partners in terms of the balance of trade in manufactured goods, and found strong evidence of a link to population density.  The lists of our biggest trade deficits, in both absolute and per capita terms, was dominated by densely populated nations like Germany, Japan and China.  The lists of our biggest trade surpluses was dominated by low population density nations, and by net oil exporters (caused by the fact that oil is traded in American dollars).

Now let’s include all nations*, dividing them equally around the global median population density (which is 194 people per square mile).  Look at this chart:  Balance of Trade Above & Below Median Pop Density.  With those half of nations below the median population density, the U.S. enjoyed a small surplus of trade in manufactured goods of $36 billion in 2017.  However, with those half of nations above the median population density, the U.S. suffered an enormous deficit of $761 billion.  Also, note how the disparity has dramatically worsened over the 14-year time period from 2005 to 2018.  The longer the U.S. attempts to engage in free trade indiscriminately, ignoring the role of population density, the worse the effects become.

One may argue that perhaps dividing the nations of the world around the median population density skews the results, since the more densely populated half of nations includes far more people than the less densely populated half.  Fine.  Let’s divide the world in a way that compares the half of people who live in more densely populated conditions vs. the half of people who live in less densely populated conditions.  If we do that, in 2017 the U.S. had a trade deficit in manufactured goods of $510 billion with the half of people living in more densely populated conditions, and a deficit of only $214 billion – less than half – with the half of people living in less densely populated conditions.  Still a strong correlation to population density.

But maybe that’s not the right way to look at it either.  Perhaps we should divide the world in half according to land mass – that is, the half of the world’s surface area that is less densely populated vs. the half that is more densely populated.  (No, Antarctica is not included in this analysis.)  If we do that, the results are even more dramatic.  With the half of the world’s surface that is more densely populated (accounting for 6.6 billion of the world’s 7.1 billion people), we had a trade deficit in manufactured goods in 2017 of $831 billion.  With the less densely populated half of the world, we had a trade surplus of $107 billion.  (It’s worth noting here that the split occurs at a population density of 56 people/square mile.  That is, the less densely populated half of the world has a population density of 56 or less.  The more densely populated half is greater than 56.  The population density of the U.S. is about 90.)

Think about that.  This means that the U.S. economy would fare much better if the population of the more densely populated half of the world were no greater than the less densely populated half – which would yield a world population of about 1 billion people instead of 7.1 billion.  Instead of a net trade deficit in manufactured goods of $724 billion, we’d have a trade surplus of $214 billion (double the trade surplus that we currently have with the less densely populated half of the world).  One can debate what would be an optimum population density in economic terms, but there’s no question that this is a powerful argument for factoring population density into our trade policy.  Beyond that, it also debunks in a strong way the contention of economists that an ever-growing population is essential to sustaining a healthy economy.  It does nothing of the sort.  Instead, the crowded conditions that characterize a dense population stifle consumption – and thus employment – making people dependent on manufacturing for export to escape poverty.

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* Not all nations are included in the study.  Tiny island nations have been omitted since they don’t factor into the trade equation and, while such nations tend to be densely populated, they also enjoy unique economies, based primarily on tourism.


U.S. Trade Deficit with EU Rises to New Record in 2017

April 5, 2018

The U.S. trade deficit in manufactured goods with the EU (European Union) rose to a new record of $148.2 billion in 2017.  Here’s a chart of that deficit, dating back to 2001:  EU.  After falling slightly in 2016, it rose again to eclipse the record 2015 deficit by $0.3 billion.

This deficit is a lot less than our deficit with Red China, but some perspective is in order.  The population of the EU is 556.6 million people.  The population density of the EU is 327 people per square mile.  The population of Red China is 1.38 billion people and their population density is 383 people per square mile.  Our trade deficit in manufactured goods with Red China in 2017 was $405 billion.  In per capita terms, our trade deficit in manufactured goods with Red China was $294.  In per capita terms, our trade deficit in manufactured goods with the EU was $246.

So the only reason that our deficit with the EU is that much less than our deficit with Red China is that the EU is that much smaller.  If the EU were the same size as China, our deficit with the EU (in manufactured goods) would have been $367.4 billion – only 9% less than our deficit with Red China.  The reason for this is that the EU is nearly as densely populated as Red China – only 14.6% less densely populated.

Some say that our huge trade deficit with Red China is due to low wages.  Then how do you explain that, in per capita terms (which factors out the sheer size of a country), the trade deficit with EU, where wages are about 2-1/2 times higher than Red China,  is nearly as bad as the deficit with Red China?  In fact, almost half of our trade deficit with the EU is with Germany, where wages are nearly on a par with those in the U.S.   How do you explain that?  It’s because trade imbalances are caused not by low wages, but by disparities in population density.  The EU is more than three times as densely populated as the U.S.  China is four times as densely populated.  Germany is six times.  Trade deficits with such nations are virtually assured because their over-crowded conditions drive down their consumption while they produce just as much.  They can’t absorb their own output, much less consume imports from America.

Trade negotiations with nations that are so badly overpopulated are utterly futile because it’s impossible to negotiate down the disparity in population density.  The only thing the less densely populated nation (the U.S., in these circumstances) can do to restore a balance of trade is to levy tariffs or set quotas.  It’s the only way.

If still not convinced, my next posts will take a broader look at U.S. trade results with the world as a whole, and you’ll see that the population density effect is absolutely undeniable.


“U.S.” Chamber of Commerce Sides with China

March 16, 2018

https://www.reuters.com/article/us-usa-trade/chamber-of-commerce-warns-trump-against-china-tariffs-idUSKCN1GR29G

There are few groups I despise as much as the “U.S.” Chamber of Commerce.  First of all, let’s be clear about who they are.  It’s not an American organization that promotes American interests.  Rather, the “U.S.” Chamber of Commerce is the U.S. branch of a global trade organization that was founded in France in 1599.  Its mission is the promotion of trade and they consider all trade, regardless of winners and losers, to be good.  If trade benefits China to the detriment of the U.S., then that’s fine with them and they want more of it.  They couldn’t care less that it results in an enormous, unsustainable trade deficit that drives unemployment and poverty in the U.S.

So it should come as no surprise that it opposes any efforts by the administration to restore a balance of trade.  After imposing tariffs on steel and aluminum, the Trump administration is now taking aim at certain imports from China that have thrived on the theft of American intellectual property.  Protecting national security from the theft of such property is a no-brainer, though past administrations haven’t had the guts to do it.  Naturally, the Chamber of Commerce doesn’t like it.  Siding with the Chinese, here’s what they have to say:

U.S. Chamber of Commerce President Thomas Donohue said in a statement on Thursday that such tariffs, associated with a probe of China’s intellectual property practices, would be “damaging taxes on American consumers.”

… Donohue said the Trump administration was right to focus on the negative economic impact of China’s industrial policies and unfair trade practices, but said tariffs were the wrong approach to dealing with these.

… “Tariffs of $30 billion a year would wipe out over a third of the savings American families received from the doubling of the standard deduction in tax reform,” Donohue said. “If the tariffs reach $60 billion, which has been rumored, the impact would be even more devastating.”

… “Tariffs could lead to a destructive trade war with serious consequences for U.S. economic growth and job creation,” hurting consumers, businesses, farmers and ranchers.

Of course, the Chinese wholeheartedly agree:

In Beijing, Chinese foreign ministry spokesman Lu Kang said Donohue’s comments were correct, adding that recently more and more American intellectuals had made their rational voices heard.

“In fact, U.S. trade with China in the past 40 years very objectively reduced American families’ per capita spending burden,” Lu told reporters. “We have said many times, there are no winners in a trade war.”

These statements are loaded with lies about trade that have been perpetrated for decades by globalists and their organizations like the World Trade Organization and the Chamber of Commerce.  Here’s the truth:

  1. Tariffs are not taxes on American consumers.  They’re taxes on the companies who export to the U.S.  They’re incentives to encourage corporations to produce domestically, driving a demand for workers.  They’re incentives to encourage consumers to buy the cheaper, domestically made alternatives.  If some consumers choose to continue buying the more expensive imports, then the revenue from the tariffs enables the federal government to keep individual tax rates low.  In the first half of America’s history, all federal revenue was generated by tariffs.
  2. Tariffs don’t cause trade wars.  All trade is a “war”  and those who run chronic trade surpluses are the winners and those with chronic trade deficits – the U.S. has the worst in the world by far – are the losers.  We’ve been in a trade war since the birth of our nation.  In 1947, with the signing of the Global Agreement on Tariffs and Trade (GATT), the U.S. gave up the fight in the hope that doing so would placate the aggressor nations who had initiated the past world wars.  It’s the global equivalent of local businesses paying “protection” money to local gangsters.  At some point – the point the U.S. has now reached – the extortion becomes too much to bear.
  3. When you have such an enormous trade deficit as the U.S. – the goods deficit now approaching a trillion dollars per year – it’s impossible to come out the loser by imposing tariffs and restoring a balance of trade.  Contrary to the claims of the globalists, costs for American consumers would actually go down when those costs are measured as a percentage of their incomes, which is the only rational way to measure it.  Who cares if prices rise when your wages rise even faster?  That’s exactly what would happen.

Don’t listen to the self-serving traitors like the U.S. Chamber of Commerce.  The tariffs that the U.S. used throughout its history to build itself into the world’s preeminent industrial powerhouse will work again just like they did in the past.  It’s time to force grossly overpopulated nations with bloated labor forces to deal with their own problems.  Americans are tired of footing the bill.  Bring on more tariffs!