America’s Worst Trade Deficits in 2019

April 19, 2020

I’ve just finished the long, tedious process of analyzing the international trade data for 2019, which was posted by the Commerce Department in late February this year, instead of the mid-summer release caused by the government shutdown last year.  We’re going to look at this data in a lot of different ways in this and upcoming posts, so let’s begin with the basics.  The biggest problem with international trade is that the U.S. has been running a massive, ever-growing trade deficit for the past forty-five years.  All of the deficit is due to imports – and very weak exports – of manufactured products, and this category of products is where it hurts the most.  A deficit in manufactured products hurts the most because that’s where the most – and the highest-paying jobs – are lost.

So let’s begin this analysis with a list of our worst trade deficits in manufactured goods:  Top 20 Deficits, 2019.  The deficit with these 20 nations is almost $1 trillion!  It’s no great surprise that our deficit with China leads the list, by a wide margin.  And it would be worse by $20 billion if I hadn’t included Hong Kong with China.  (The Commerce Department tracks them separately, but we’re kidding ourselves to think that Hong Kong is an independent city-state.)  What’s new and interesting however is that the deficit with China is actually down substantially – by $73 billion – from 2018.  This is thanks to the Trump administration’s program of imposing tariffs on Chinese imports.  Look at how much the deficit with China has changed over the past ten years.  Though it grew rapidly for the first nine years of this period, it fell enough last year to yield only a 24% growth in the last ten.  That’s the 2nd slowest growth among the twenty nations on this list.

The deficit with Mexico has grown rapidly – 154% over the past ten years – to become our 2nd worst trade deficit.  However, if we are to believe the President, this should begin to change as the new USMCA agreement with Mexico and Canada – which replaces the now-defunct NAFTA agreement – begins to take effect this summer.  We’ll see.

Note that, contrary to the belief that low wages cause trade deficits, this list of our worst trade deficits is actually dominated by wealthy, developed nations, including many European nations.  In fact, if we add up the EU nations on this list, the combined deficit is $187 billion.  (The UK and Switzerland are not in the EU.)  By the way, the growth in the deficit with the U.K. – 3,125% in ten years – isn’t a typo.  When I first wrote Five Short Blasts in 2007, the U.K. was one of a few anomalies where, in spite of the high population density, we actually enjoyed a trade surplus with them.  But that trade surplus evaporated and, in 2010, the U.S. actually had a very small trade deficit with the U.K.  The deficit of $9.6 billion in 2019 is more than thirty times larger than the small deficit in 2010.  It’s growing rapidly.

As we’ve seen every year, it’s not low wages that cause our trade deficit.  So what does cause it?  I just gave you a hint.  Look at the population density of the nations on this list and compare it to the population density of the U.S. – 93 people/square mile.  The average population density of the nations on this list is almost seven times greater.  The combined population density of the nations on this list – the total number of people divided by the total land mass – is more than five times greater.  Only Sweden, near the bottom of the list, is less densely populated.  Nineteen of these twenty nations are more densely populated than the U.S.  Most are more than four times as densely populated.  Now that’s a powerful correlation to our balance of trade!

But why?  Why does something so seemingly unrelated have such a powerful effect on the balance of trade?  It’s because people who live in over-crowded conditions are incapable of using as many products as people who enjoy living in more wide open spaces.  They have no place to store them and no place to use them.  (Think cars.  the average Japanese person doesn’t have a garage and the roads are too crowded to drive anyway.)  Yet, they are every bit as productive.  The inescapable consequence is that, in order to be gainfully employed, they must produce far more than they consume, and there’s ony one thing that can be done with their excess production:  export it.  Unless the nation that those excess products are exported to takes some kind of action to keep those products out, their own citizens are now doomed to be put out of work by the market share they’ve lost.  Trading freely with badly overpopulated nations causes a massive shift of manufacturing jobs to the more densely populated nation.

But I’m getting ahead of myself.  Trade deficits are just one end of the trade spectrum.  What about surpluses?  Will we find that those nations are less densely populated, which the population density theory would predict?  Stay tuned.


“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.

 

 

 


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.

 


“Embrace change,” corporate America!

September 3, 2019

I was there, working in manufacturing in the 1980s, when a cold wind swept across America.  I was there when our corporations, until then led by manufacturing and the engineers who rose up through its ranks, kicked manufacturing to the curb and replaced their leadership with marketing people, skilled in the art of B.S., and bean counters, focused on nothing but cutting costs.  I was there when the United Nations and the World Trade Organization embarked on their campaign of raising poor nations out of poverty through the systematic plundering of jobs from the U.S. – as many jobs as possible without tipping the balance of power in favor of bad actors who might threaten this new concept of “globalism” and the “New World Order” – the new regime of parasites dedicated to keeping its U.S. host alive just enough to keep the blood flowing.

I was there when they began scaling back manufacturing operations, laying off good workers and closing plants.  “Embrace change,” we were told constantly by business managers with an air of condescension, as though they were addressing fools too dumb to recognize good things and good opportunities when they see it.  We had made careers of embracing change – change for the better – changes that automated our factories, boosted production, cut emissions, improved quality and grew profits.  Now we were being insulted by con men whose only goal was the next promotion, which required laying off more people than the next guy.

I was there at a big division-wide meeting – one of those meetings whose purpose was ostensibly to gather input, but it was clear from the start that input was the last thing they wanted.  What they wanted was “buy in” for the new direction of the company.  In other words, you’d better accept what’s coming enthusiastically, with a big smile on your face, if you know what’s good for you.  The leader, the division manager, asked, “what are we going to need to succeed?”  I raised my hand and replied – perhaps naively or perhaps in a thinly-veiled attempt to stand up for what I and many others present had built our careers around.  “We’ll need excellence in manufacturing.”  I was stunned by his arrogant, dismissive reply.  “Why?  We don’t need that.  We can buy that!”  I thought to myself, “you dumbass, you can buy it if you want, but you still need it, and now you’re at the mercy of your supplier.”  But it would have been a pointless example of falling on your own sword to come right out and say it.  “Embrace change.”  Here it comes.

Our final days before closing the doors were spent writing operating procedures, documenting every detail of our operations, and then training workers brought over from foreign subsidiaries.  We were forced to facilitate the widespread technology transfer that played a critical role in ruining the American economy.

It’s decades later and the tables have turned.  As it always does, the pendulum swung too far.  The globalist corporations over-played their hand, planting the seeds of political change.  Americans are sick of working for minimum wages and being the world’s chumps.  America itself can no longer fund massive trade deficits.  The wind has shifted and now blows cold on globalist dreams of reaping big profits from a China transformed into western-style consumers and from plundering the American market with cheap products.  Those dreams never had a chance.  China will never be more than a sweat-shop labor pool with their gross over-population dooming any hope of a western-style, consumer-driven economy.

In the meantime, a lot of weeds sprouted in the devastated American economic landscape.  By “weeds,” I mean business models that bring so little value to the table that they are dependent on virtual slave labor wages.  Cheap junk of poor quality has perpetuated a throw-away mindset among consumers.  Cheap clothing made of thin, flimsy fabric.  Tools that break after one use.  Auto parts and appliances that break as soon as the warranty expires.  An economy dependent on consumers burning through their severance packages.  A retail economy that employed laid-off workers manning check-out lines until everyone had burned through their savings.  An economy totally dependent on consumers buying stuff that they had no hand in producing.  All the while the economy grew.  It didn’t matter if the growth was flowers or weeds, as long as the color was green – money pouring into corporate coffers.

In the wake of Trump’s tariffs on China, retailers are having a hissy-fit when their suppliers ask for a price increase to cover the cost of the tariffs.  Products with high perceived value needn’t fear.  They’ll always find a way to be marketed successfully even if their prices do rise a few percent.  Those with low value will bite the dust.  Good riddance.  And retailers who turn their backs on good products just because the supplier needs to raise prices to make a profit – whether to cover the cost of the tariffs or, better yet, to begin manufacturing domestically – will lose out to retailers who understand their value, and they too will fail and vanish.  Again, good riddance.  It’s not like there’s a shortage of retailers.

So, corporate America, the shoe’s now on the other foot.  EMBRACE CHANGE!  Think of the possibilities and opportunities – the opportunity to cut your shipping costs dramatically, to be in charge of your manufacturing again instead of being at the mercy of Chinese companies, to boost sales to American consumers with more buying power thanks to rising wages.  EMBRACE CHANGE!!  Maybe you can mitigate some of the increased cost by cutting fat at the top layers of your organizations – those con men who grew fat and rich by ruining the lives of the people who actually did the work.  EMBRACE CHANGE!!!  Maybe you’ll survive.  If not, good riddance and adios.  Don’t let the screen door hit you on the way out.  Your workers will be fine.  The winning companies will snap them right up.


Trump Tariff Policy and the Risk of Recession

August 21, 2019

Early this month, Trump announced that a 10% tariff would go into effect on September 1st on all remaining imports from China.  (Half of Chinese imports were already subject to a 25% tariff.)  Stock markets plunged amid warnings of a global slowdown, inflation and the possibility of recession in the U.S.  Investors rushed to buy safe-haven bonds, sending the yield on 10-year bonds below that of 2-year bonds, producing the dreaded “yield curve inversion,” which has often been a harbinger of a looming recession.  So the warnings of recession intensified.  Every weaker-than-expected economic report blames the “trade war” and Trump’s tariffs, while every stronger-than-expected economic report – most notably a strong labor market and good GDP growth (the exact opposite of recession) is shrugged off as happening in spite of the tariffs and trade war.  The globalist media is desperately stoking fear of a recession in the hope of creating a self-fulfilling prophecy.

Is there actually a risk of recession related to Trump’s tariff policy?  You bet there is.  But the relationship is exactly the opposite of what economists and the media would have you believe.  Trump’s “slow turkey” approach to the use of tariffs – imposing them only on China – so far hasn’t yielded anything in terms of reducing the trade deficit and bringing manufacturing jobs back to the U.S.  Don’t get me wrong.  The tariffs on China are definitely working – reducing the trade imbalance with China by nearly 25% this year.  But companies aren’t convinced that this is anything other than a blip in U.S. trade policy or that it could extend beyond China.  So, instead of bringing jobs back to the U.S., it has shifted them to other overpopulated nations hungry for work.  It appears that countries like Mexico and Vietnam have been the big beneficiaries so far, where our trade deficit with each has grown by approximately 25%.

Our overall trade deficit hasn’t budged.  In  June (the most recent month for which data is available), our deficit in manufactured goods was $73.1 billion – the 2nd worst figure ever recorded and only $3.6 billion below the record set in December of ’18.

Trump appears to be walking a fine line, taking the “slow turkey” approach to tariffs to avoid roiling markets but, at the same time, not realizing any of the benefit of bringing back manufacturing jobs, leaving the economy dependent on deficit spending to counteract the drag of the trade deficit, making it susceptible to a recession.  It’s a huge gamble.  A recession will doom any hope of a 2nd term and, with it, any hope of sustaining this badly-needed turn in trade policy.

 


Trump Threatens China with More Tariffs

May 7, 2019

https://www.fidelity.com/news/article/top-news/201905060845RTRSNEWSCOMBINED_KCN1SC0MF-OUSBS_1

As reported in the above-linked article, Trump has suddenly taken a more harsh tone with China, apparently frustrated with the slow progress in the trade talks with China.

It’s difficult to know what’s really going on here.  Last December, at a G20 meeting in Argentina, Trump announced that he was holding off on ratcheting up tariffs on Chinese imports which had been set to go into effect on January 1st until at least March 1st, pending the outcome of a new round of trade negotiations with China.  March 1st came and went as the trade talks dragged on endlessly, as they always do, which is precisely what communist dictator Xi wanted in the first place when he worked his charm on Trump at the G20 meeting.  He couldn’t care less about an agreement – something they’d never abide by.  All he wanted was more American inaction.

It seemed to be working.  But something has happened.  Reportedly, China back-tracked on some things they had agreed to earlier in the negotiations, perhaps calculating that it would result in more time wasted renegotiating what had already been negotiated.  Again, that’s all China wants – more wasted time and more American inaction.  One can only hope that, this time, they’ve miscalculated.

“What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect,” Geng said.

OK, Geng, let’s meet each other half way.  We’ll buy from you as much as you buy from us.  Nothing more.  Nothing less.  A balance of trade.  That’s all the U.S. is asking for.  That’s fair.  That’s real “trade” versus the mercantile relationship that you’ve enjoyed at Americans’ expense.

That’s not really what you want though, is it?  You want the U.S. to agree to a few token concessions in exchange for maintaining the host-parasite relationship that you currently enjoy, sucking the life out of the American economy while fattening your own.

We can only hope that Trump stands tall this time and puts the new tariffs in place, ratcheting up the existing tariffs and slapping 25% tariffs on the remainder of Chinese imports.  What’s at stake here is more than low prices for American consumers.  We can work through the short-term pain of that.  It’s not an exaggeration to say that America’s very existence – and perhaps even the future of mankind – is at stake.  It’s become clear that China is using its trade-fueled wealth to build itself into the world’s preeminent power – not just economically but also militarily – bent on world domination.  What’s at stake is mankind’s future as a free people vs. living under the thumb of a totalitarian communist regime.

All of the dire warnings about a U.S. – China trade war doing irreparable damage to the global economy is a bunch of baloney.  China is actually a drag on the global economy, sapping the life out of the manufacturing sector of economies around the world to sustain a labor force bloated by gross overpopulation and to stave off the civil unrest and potential collapse of its communist regime that would likely result without it.

End the negotiations.  A balance of trade with a badly overpopulated nation like China is something that can’t be achieved through negotiations because it would never agree to give up the huge trade surplus it needs for its very existence.  On the other hand, a huge trade deficit is something the U.S. can no longer endure if it wants to assure its own continued existence.  Maintaining tariffs sufficient to assure a balance of trade is absoutely crucial.


A Trump Report Card

April 23, 2019

It’s been a while since I’ve posted anything, and thought it’d be a good time to give President Trump a sort of mid-term report card, albeit a little late.  I’ll grade him in two subjects only – immigration and trade policy – since these two areas address the economic effects of population growth, both actual growth the effect of growth imported through trade with overpopulated nations, the focus of this blog.  Beyond these, little else matters.  What about environmental policy?  Without a focus on stabilizing our population (and virtually all of America’s population growth is driven by immigration), all other environmental policies are doomed to failure.  What about foreign policy?  It’s impossible to project strength in the world if you’re weak on trade.

So, with that said, let’s begin with the good news:

Immigration Policy:  A+

Trump has done a fantastic job on both illegal and legal immigration, each of which had been contributing a million people per year to America’s population growth.  Thanks both to Trump’s zero tolerance policy for illegal immigration and dramatic cuts in legal immigration, the Census Bureau reduced its estimate of the U.S. population by 1.3 million people at the end of 2018.  He spent a lot of political capital in his efforts to get funding for a border wall and, when Congress wouldn’t agree, had the guts to declare a national emergency to obtain the funds.  “What emergency?” the media cried at first, but not for long, when their own reporters in the field began reporting on the humanitarian crisis at the border that resulted from the adminstration’s efforts to enforce the law instead of turning a blind eye to illegal immigration as previous administrations have done.  Now there’s virtually no complaints about Trump’s enforcement efforts or his emergency declaration.  His policies are likely responsible for the fact that increases at the low end of the wage scale are outpacing higher income increases.  Recently, during a trip to the southern border, Trump declared that “Our nation is full.”  Truer words were never spoken.  Ultimately, this is the biggest reason that immigration needs to be reduced.  Trump has done an absolutely fantastic job of reining in out-of-control immigration.

That’s the good news.  Now for the not-so-good:

Trade Policy:  D

Such a low grade may seem surprising and harsh, especially in light of the tariffs on metals and his seemingly tough position with China, including a 25% tariff on some items and a 10% tariff on half of all Chinese imports.  However, it’s those very actions that elevate his score to a “D” from an “F”, the score I’d give to every previous president going as far back as Franklin Roosevelt.  They’ve been a nice start, but fall far short of what we were led to expect from him in the way of trade policy.  Like all previous presidents of the modern era, Trump has been sucked into endless trade negotiations, a ploy that nations with large trade surpluses have used successfully for decades to forestall meaningful action by the U.S. – namely, tariffs.  We were promised that the North American Free Trade Agreement (NAFTA) would be torn up or promptly replaced.  Trump’s administration did negotiate a new agreement, but one that reportedly does little to shrink the enormous deficit with Mexico and it may never even be enacted, if Congress has its way.

Action on China is stalled.  Tariffs on auto and parts imports now appear to be idle threats.  Beyond China, there’s been no action on reducing the trade imbalance with other nations like Germany, Japan, South Korea, Taiwan, Vietnam and a host of others.  The trade deficit in manufactured goods has continued to explode to new record levels under Trump.  Employment in manufacturing has stalled once again.  Trump sees trade as a venue for demonstrating his deal-making prowess, and he sees tariffs as leverage to use in trade negotiations.  He doesn’t understand that favorable “deals” with overpopulated nations are impossible and a waste of time, and that tariffs are the only way to restore a balance of trade with those nations.  Regarding the ongoing trade negotiations with China, he recently declared that the U.S. will win, whether a deal is reached or not.  He’s wrong.  The Chinese have already won by sucking him into time-wasting talks that, at best, will yield a deal that the Chinese will use to continue to grow their trade surplus with the U.S.  He had them on the ropes with the tariffs and then caved in, letting them off the hook.

In summary, Trump’s trade policy is stalled and our trade deficit is getting worse, not better.  This has been a major disappointment.  He’s wasted valuable time.  As I’ve said many times, a tariff program will produce some pain in the short term as prices rise and companies are slow to build manufacturing capacity in the U.S., but will ultimately yield incredible economic growth once that capacity is in place.  Had Trump been more aggressive with tariffs, the short term pain would have given way to some major economic gains by the time of the 2020 election.  Now, that’s probably not possible and, instead, his economic program is at risk of stumbling into the election.

He’s done a terrific job on immigration but all may be lost if he doesn’t get his trade policy off dead-center.


More Evidence that Tariffs are Working

March 8, 2019

https://www.reuters.com/article/us-trade-emerson/as-trade-wars-rage-emerson-plots-new-u-s-expansion-idUSKCN1QP0IQ

Here’s more evidence that the tariffs on Chinese imports are working.  As reported in the above-linked article, Emerson Electric now plans to move manufacturing back to the U.S.  It’s a complete reversal from their strategy of only ten years ago.

In 2009, the chief executive of Emerson Electric Co. bluntly told investors at a Chicago conference what many of his counterparts at other manufacturing firms would only say privately.  “I’m not going to hire anybody in the United States. I’m moving,” David Farr said as he blasted U.S. taxes and regulations and called it an easy decision to expand in India and China.

A decade later, Farr has made a stunning reversal: Emerson now plans to build at least three new U.S. plants and is already expanding existing domestic operations. Farr saw a new era of U.S. protectionism coming before Trump’s election – and started planning accordingly, he said in an interview with Reuters at the company’s sprawling headquarters near St. Louis, Missouri.

“For the first time now, I’m looking for best-cost U.S. locations” to build factories, he said.

Trump’s election, Farr said, accelerated a political shift against free trade policy that is now transforming many U.S. firms’ domestic investment strategy. Protectionist policies — especially toward China — are now a rare point on which many Democrats and Trump agree, relegating formerly bold Republican free traders to the sidelines.

The article goes on to provide some details of Emerson’s plans, particularly to spend $425 million on capital projects in the U.S., including $250 million for new manufacturing facilities.

And it’s not just Emerson:

Farr’s new take on U.S. investment reflects a broader questioning of overseas expansions, especially in China, for both political and operational reasons. A survey of top managers at 500 U.S. companies conducted in December by investment bank UBS AG found that 31 percent have moved or are moving production facilities to avoid tariffs. Fifty-eight percent said they expect tariffs to “have a positive impact on domestic investment.”

It’s not just the tariffs.  Farr seems to be disillusioned with manufacturing in China.

Forces beyond politics are pushing manufacturers like Emerson to reconsider investments in China, including rising labor and logistics costs there …

… Emerson’s renewed commitment to U.S. manufacturing is also part of a larger move by global manufacturers to produce more goods in the regions where they are consumed to save on transportation costs.

I believe there are other factors at work here too.  The domestic Chinese economy is flattening out at a far lower level than CEOs expected.  They dreamt of a nation of more than a billion people becoming western-style consumers in the mold of Americans, making China a market four times the size of America.  It hasn’t happened because gross overpopulation in China strangles their per capita consumption.  They built a lot of capacity in China to serve a market that never materialized – capacity that was then dependent on exports to make it profitable.  Along with higher wages and high shipping costs, Trump’s tariffs have eroded their profits even further.  Supplying the American market from China no longer makes sense.

This story, and the one I posted about yesterday – about BMW putting on hold its plans to export EV’s from China – are just tiny examples of the effect that tariffs have in driving manufacturing back to the U.S.  Just imagine the potential as this begins to snowball.  Imagine how many factories would have to be built and how many people would have to be hired to staff them to make all of the products you see on the shelves at the box stores today that are all sourced from China.  There would be an economic explosion in this country the likes of which haven’t been seen since the end of World War II.

The tide is turning against the failed concepts of free trade and globalization.  It’s crumbling right before our eyes.  The very fact that Reuters, a pro free trade and pro globalization publication until now, saw fit to even publish this information is evidence in itself of changing sentiment.

And kudos to Reuters for pointing out that Republicans were even more guilty than Democrats for pushing the free trade globalization agenda to the detriment of the American people, and that Trump has led the charge against it.  Nice to see that some on both sides of the aisle are getting on the bandwagon.

 


California Admits Failure in its Carbon Reduction Efforts

February 5, 2019

https://www.reuters.com/article/us-usa-climatechange-california-insight/a-climate-problem-even-california-cant-fix-tailpipe-pollution-idUSKCN1PQ4MJ

Once in a while I divert my focus from the economic impact of population growth to highlight other impacts, like environmental.  This is one of those times, as the report in the above-linked article is so significant that I can’t let it pass without comment.  The state of California is admitting that its decades-long drive to reduce auto exhaust emissions is a complete failure.

For three decades, California has led the fight to control tailpipe pollution, with countless policies promoting cleaner gasoline, carpooling, public transportation and its signature strategy – the electric vehicle.  Californians now buy more than half of all EVs sold in the United States, and the state’s auto-pollution policies have provided a model being adopted around the world.

Indeed, California’s focus on reducing carbon emissions has been a model for the rest of the world.  In fact, such carbon reduction is the model upon which the Paris Climate Accord, whose stated goal is to reduce greenhouse gas emissions to a level at which sustainable development can continue, is based.  The result?

Tailpipe pollution here is going up, not down, despite billions of dollars spent by one of the most environmentally progressive governments on earth.

“The strategies that we’ve used up until now just haven’t been effective,” Mary Nichols, the head of the California Air Resources Board, told Reuters.

How is this possible – that such measures are having no effect?  The answer is quite simple, and it’s a point I’ve tried to drive home repeatedly.  The planet doesn’t give a damn how much you reduce your carbon emissions.  All it cares about is the total amount of greenhouse gases in the atmosphere.  Population growth is negating any gains in per capita carbon emissions.  What difference does it make if everyone reduces their personal emissions by 50%, let’s say, if the population doubles?  Not one damn bit.

That failure has less to do with energy or environmental policies and more with decades-old urban planning decisions that made California – and especially Los Angeles – a haven for sprawling development of single-family homes and long commutes, according to state officials.

Note the word “development.”  It’s the same word you find in the stated mission of the Paris Climate Accord – sustainable “development.”  It’s a code word for population growth.  “Sprawling development” doesn’t happen without it.  “Sustainable development” doesn’t happen without it.  In fact, “sustainable development” has been the biggest cause of climate change and those who continue to promote it are scamming you into supporting their real agenda – profit growth for global corporations.

The fact is that there is no solution to climate change or any of the other myriad negative consequences of population growth that doesn’t BEGIN with a focus on stablizing the human population.  That’s not to say that we shoudn’t also focus on minimizing our emissions of all kinds – not just greenhouse gases but gaseous, liquid and solid emissions of all kinds.  Nor is “sustainable development” a solution to poverty.  It’s actually making it worse, with over-crowding driving down per capita consumption and, with it, employment.

Of course, there’s no overt mention of “population growth” in this article – just “sprawling development.”  So don’t be surprised if the scam continues, but with a new, additional focus on trying to drive people together into tiny apartments in high-rise housing.  Yeah, that’ll work.  That’s a future we can all really look forward to.

 

 


MAGA: Is Trump Becoming a Liability?

January 28, 2019

In the wake of the government shutdown fiasco, you have to begin to wonder whether Trump is becoming a liability to the “Make America Great Again” movement.

It isn’t so much the fact that he reopened the government.  It’s the way he did it.  He caved in.  He totally capitulated to Democrats’ insistence on maintaining an open border, getting absolutely nothing in return.  What should he have done?  First of all, he should have followed through with his threat of declaring a national emergency.  Secondly, he should have withdrawn America from NAFTA and immediately put in place tariffs on all manufactured goods from Mexico, effectively making Mexico pay for the wall like he promised.   Finally, he should have immediately begun deporting the “deferred action” illegal aliens that he offered to protect.

The “deal” to reopen the government for three weeks, supposedly for the purpose of giving Trump and congress time to negotiate a deal on border security, is a farce.  Trump has given up all leverage that he had on the border wall issue and Democrats have made it crystal clear that they’ll never support a dime for securing the border in the only way that it can be secured – by building a barrier.  Either there’ll be an impasse again, or Trump will cave in a 2nd time and try to sell something less than a barrier – maybe more funding for border patrol agents and technology – as a win.

The problem goes far beyond the border wall issue to the half-hearted, inconsistent implementation of virtually every element of his “Make America Great Again” (or “MAGA”) program, a program consisting of three key elements:  a re-balancing of trade to bring manufacturing jobs back to the U.S.; putting an end to rampant, out-of-control immigration – both legal and illegal; and putting an end to the rest of the world behaving like a spoiled, entitled teenager treating the U.S. like a doting parent, providing everything it asks for and getting nothing but scorn in return.

We were promised a wall to virtually put an end to illegal immigration across our southern border, to be paid for by Mexico.  We were promised a prompt withdrawal from NAFTA, and tariffs on products from Mexico, which would have made fulfilling the border wall promise a snap.  We were promised tariffs on Chinese imports and on auto imports.

Soon after the inauguration, Trump invited Red China’s communist dictator to dinner at Mar A Lago and was quickly seduced into holding off on tariffs on China.  Then he caved in to pressure not to withdraw from NAFTA and instead got sucked into a ridiculously drawn out negotiation of a new agreement with Mexico and Canada that may or may not be any improvement at all, and that Congress seems in no hurry to take up.  Goodbye to any chance of getting Mexico to pay for the wall.  He did implement a small ten percent tariff on half of Chinese imports after it became clear that Chairman Xi’s promises were nothing more than a ploy, but caved in on further implementation once the global corporations began their pissing and moaning.  Now we’re sucked into the same kind of trade negotiations that the rest of the world has used for decades to stall America’s efforts to stand up for itself.

Then there’s North Korea.  Give Trump credit for using the toughest sanctions ever to forced them to agree to denuclearization, but Kim’s promises have proven hollow and North Korea seems to be off the hook once again.

I don’t blame Trump alone for all of this.  Everyone around him has been against him from the start – the Democrats who despise him and would never agree to anything he wanted, the media, global corporations, global organizations, his own staff and even members of his own family (globalists like Kushner and Ivanka) who have stonewalled his programs.

All of the backlash from the MAGA initiatives was to be expected.  I predicted as much in Five Short Blasts – a period of inflation caused by significant tariff-induced price increases, but eventually followed by explosive economic growth as manufacturing in America returned.  Trump needed to go all in with his program quickly, enduring withering criticism for a couple of years or so before having the last laugh when GDP began to explode as factories were rebuilt and as the manufacturing sector of the economy exploded.  It would have taken a lot of guts to be almost universally despised in the short term in order to have history remember him as an American hero in the long term.

However, I see a real danger in what’s happening here.  Trump’s incomplete implementation of these policies will yield only the pain without achieving the benefits that would eventually come, and will be deemed complete failures.  They’ll be forever labeled as “Trumpian” policies that no one will ever dare to attempt again.  America will be forever doomed to massive trade deficits and budget deficits, and will eventually collapse under the weight of gross overpopulation and a national debt that the rest of the world can no longer sustain.

It’s not too late for Trump, but it’s getting pretty darn close.  He needs to immediately begin ignoring all of globalist noise and whining and go all in with what he knows needs to be done.  Declare an emergency.  Build the wall.  Withdraw from NAFTA and slap tariffs on Mexico, and tell congress that if they don’t like it, then they can pass the new agreement he negotiated.  Slap tariffs on all Chinese exports and raise them to 25% or higher.  Slap 25% tariffs on all auto imports.  Tell the rest of the world that we’re willing to buy from them only as much as they buy from us.  Sure, the globalist outcry will be almost unbearable, but so what?  Continue down the path you’re on and history will remember you as a complete failure.  So what is there to lose?