Trump’s Efforts on Trade a Spectacular Failure

September 9, 2020

I can’t tell you how disheartening it was to sift through the latest trade data, for the month of July, released by the Commerce Department late last week.  There’s just no getting around the fact that the administration’s efforts to cut the trade deficit and bring manufacturing back to the U.S. have failed.  “Failure” would be the word to describe results that haven’t shown any improvement.  But America’s trade picture has deteriorated so badly that the scope of the failure can only be described as “spectacular.”

In his inauguration address, Trump observed:

…  rusted-out factories scattered like tombstones across the landscape of our nation …

Earlier in the address, regarding situations like that noted above, he proclaimed:

… That all changes – starting right here, and right now …

The July trade data comes 3-1/2 years into his administration – plenty of time to implement changes and to see the effects.  It’s hard to find any silver lining.  Consider:

  1. The trade deficit in manufactured goods in July soared to $80.4 billion, a new record that completely blows away the record set under the Obama administration ($63.3 billion in March, 2015).  Check out this chart:  Manf’d Goods Balance of Trade.
  2. During the 2016 campaign, Trump vowed to quickly tear up the NAFTA deal and replace it with a much better deal.  Most of his term has been wasted negotiating the new “USMCA” trade deal that replaces it.  It finally went into effect on July 1st of this year, but the terms have been known for a long time, so you’d expect that manufacturers would have been busy implementing plans to get in compliance.  The results?  In July, the trade deficit with Mexico soared to $10. 6 billion.  When Trump took office in January, 2017 it was $3.8 billion.  Since then it has nearly tripled.
  3. When Trump took office, the deficit with China was $31.4 billion.  In July of this year it was $31.6 billion.  After Trump took office, the deficit with China continued to grow until, finally fed up with China’s promises to buy more American products, Trump imposed 25% tariffs on half of all Chinese products.  Almost immediately, the deficit with China began to shrink dramatically.  However, all momentum was lost with the signing of the “Phase 1” deal with China, when the U.S. agreed to halt plans to impose tariffs on the remainder of China’s products in exchange for Chinese promises to dramatically increase their purchases of American goods.  The results were predictable; China reneged on the deal.  They haven’t even measured up to the 2017 baseline that was used as a starting point.  Here’s the data, updated through July:  Phase 1 China Trade Deal 2020 YTD.  What has Trump done in response?  Nothing.  He continues to insist it’s a good deal, in much the same way that Obama stuck by his trade deal with South Korea while our deficit with them exploded.
  4. What progress was made in at least stagnating the deficit with China didn’t translate into any benefit to American workers.  Instead, it contributed to the tripling of the debt with Mexico and also ballooned the debt with Vietnam.  When Trump took office, the trade deficit with Vietnam, an economic back-water, was $3.3 billion per month.  In July of this year it was more than doubled to $6.8 billion per month.  Why?  Because no tariffs were applied to anyone other than China.  The tariffs motivated manufacturers to begin moving out of China, but there was no disincentive to simply move to secondary suppliers in Mexico, Vietnam and other places.

Some might say that such conclusions are unfair in the midst of the pandemic.  Not so.  The effect of the pandemic has been to cut economic activity to a depression-like level, and the effect of an economic slow-down has always been to shrink the trade deficit, not grow it.  That makes the enormous deficit in manufactured goods in July even more troubling.

Speaking of the pandemic, at least people are beginning to realize that being dependent on foreign suppliers for critical goods like ventilators and face masks is a threat to national security.  It’d be nice if that realization extended to other products that would just as easily be cut off during war time.  Better yet, wouldn’t it be nice if people realized that an economy that needs to stand on agriculture, construction, manufacturing and services is hollowed out and unstable if one of those legs is gone?

I don’t doubt Trump’s desire to truly “make America great again” by bringing back our manufacturing sector.  But he sees himself as a “deal-maker” and believes he can deal his way out of the trade deficit.  That’s where the problem lies.  For America, at least, there’s no such thing as a good trade deal.  I defy anyone to identify a single trade deal that has ever left America with anything but a growing trade deficit.

And forget about “free trade.”  That centuries-old concept is about as relevant to today’s trade environment as theories about a flat earth and how the sun rotates around it.  Today, trade is war – a war for increasingly scarce jobs in an ever more over-populated world.  Unlike America, the rest of the world understand this.  They know that what they really need is access to America’s market so that they can keep their bloated populations employed manufacturing goods for export.  Americans don’t have a clue.  They think it’s about lower price and more choice.

Had Trump simply applied tariffs everywhere where America was suffering a big trade deficit in manufactured goods, manufacturers would have come running back like refugees fleeing a war.  Instead of improving incrementally, our economy would have exploded.  Manufacturers would have eagerly snapped up any workers who lost their jobs to closures of restaurants, bars, gyms, movie theaters, etc. during the pandemic.  Trump’s re-election would be a foregone conclusion.  Instead, he’s going to be lucky to win.  Forget about the pandemic.  It’s his failure to make progress on truly making America great again that has left him vulnerable.

Don’t interpret this post as an endorsement of Biden.  It’s reported in the news today that Trump has criticized Biden as a “globalist.”  He’s not wrong.  But it’s not just Biden.  Until Trump came along, every politician, Democrat and Republican alike, were and still are globalists.  I’d vote for Biden in a heartbeat if he vowed to use tariffs to restore a balance of trade, but he won’t.  Though the results under Trump have been disappointing, things could and would be much worse under virtually anyone else, at least until more American politicians are willing to engage in the trade war that they don’t even acknowledge today.

 

 

 

 


U.S. Fails to Enforce “Phase 1” China Trade Deal

August 27, 2020

https://www.fidelity.com/news/article/top-news/202008242045RTRSNEWSCOMBINED_KBN25L023-OUSBS_1

As reported in the above-linked article, with six months of results from the “Phase 1” trade deal with China now in, the U.S. has “rolled over” for China yet again, ignoring the Chinese snub of the deal.  The picture that accompanies the article, showing the flag of Red China flying above that of the U.S., is appropriate.  Red China dominates the U.S. in trade because it dominates the U.S. in terms of its willingness to stand up for itself.

In spite of the fact that China has not made one inch of progress toward meeting the goals of the deal – in fact, it’s not even measuring up to the 2017 baseline for purchasing American goods – the U.S. Trade Representative’s office had this to say following a phone discussion with Chinese trade leaders:

“Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,”

Red China has won again.  It’s tactic of making trade deals and then completely ignoring them, knowing that the U.S. never follows through on anything, has worked again, just as it has for decades.  The Chinese are once again rolling in the aisles with laughter.

Is Trump on board with this?  Is this a move calculated to avoid roiling the markets just ahead of the election?  Is he saving a tough response, like imposing the new tariffs that this deal delayed, until just ahead of the election, calculating that it will win him votes before anyone even takes notice of a market decline?

I don’t know, but I do know that the lack of progress in cutting the trade deficit and bringing back American manufacturing jobs is a major reason behind the decline in enthusiasm for his re-election.  Revitalizing the manufacturing sector of the economy is the key ingredient needed to “Make America Great Again” and it’s difficult to see any progress at all on that front.


Verdict is in: “Phase 1” Trade Deal with China is a total failure.

August 6, 2020

Trade data for the month of June was released by the Department of Commerce yesterday, so we now have a full six months of results of the “Phase 1” trade deal with China.  As I predicted when the deal was signed in January, the deal is a total failure.

You may have heard stories in the news, as I did, about how the Chinese were beginning to make progress on catching up to the goals established by this deal.  I had my doubts, so I was anxious to see the real data.  Here it is, year-to-date through June:  Phase 1 China Trade Deal 2020 YTD.

The deal established goals for the Chinese import of American goods in four categories, using 2017 trade results as a baseline:  manufactured goods, energy goods (like oil, gas, coal, etc.), agriculture goods, and total goods.  The goal was for them to increase their imports substantially in 2020, and then even more in 2021.  In the spreadsheet, I broke down those goals into monthly goals, ramping them up at a rate that would meet those goals by the end of the year.

Through May, the results were abysmal.  They failed to meet the goal in any category of product.  In fact, only their import of energy products even exceeded the 2017 baseline.  You’d think that if China were anxious to meet the goals in order to avoid further threatened tariffs, they’d at least make some good faith effort that they could point to as progress.  So what happened in June?  Their imports actually declined in every category.  They didn’t even meet the 2017 baseline in a single category.

A good faith effort to show progress?  The June results are exactly the opposite.  They are a slap in the face.  The Chinese are taunting the Trump administration – betting that they’ll be too distracted with other events to take action.

It’s time to put an end to this stupid trade deal and follow through with the threatened 25% across-the-board tariffs on all Chinese exports to the U.S.  Trump was elected, in large part, to make real progress in cutting America’s trade deficit and bringing manufacturing back to the U.S.  Aside from tariffs on half of Chinese exports and a new trade deal to replace NAFTA, little has been accomplished.  All momentum on the trade front was killed when Trump signed the “Phase 1” deal with China.  Three-and-a-half years have been frittered away.  His supporters are getting disillusioned by the lack of progress.  If Trump loses the election, it will be due in large part to his failure to fix our trade mess.

There’s no more time to waste.  It’s time to declare this deal a failure and impose the tariffs that were put on hold.  In addition, it’s time for Trump to get serious with other Asian nations and the European Union as well.  Slap all of them with tariffs and start making real progress in bringing our manufacturing jobs back.


Protests against “systemic racism” are off the mark.

August 3, 2020

For a web site dedicated to raising awareness of the economic consequences of population growth, this topic may seem “off the mark.”  But bear with me.

The “Black Lives Matter” movement has evolved beyond protesting the brutal tactics used by some police when dealing with the black community to include “systemic racism” in broad terms.  Exactly what “systemic racism” is can be difficult to pin down and varies depending on who you ask.  There was a time when racism was codified and blatant.  Blacks were barred from voting in many places prior to the Voting Rights Act of 1965.  Segregation was practiced openly throughout society, limiting black access to virtually everything.

But all of that has changed.  The right to vote is secured.  Discrimination is now illegal everywhere, but I won’t deny that it still exists.  There are still subtle ways in which anti-discrimination laws are skirted, and this is the “systemic racism” that is the target of protesters.  I recently heard a protestor say (or perhaps I read it on a sign at a protest – I can’t remember exactly) that “we’re not just here to change laws, but to change attitudes and eliminate all sytemic racism,” or words to that effect.

Good luck with that.  Whatever “systemic racism” still exists is because people are prejudiced, and admonishing people for it won’t change them.  It’s likely to have the opposite effect.  People only change their prejudices out of necessity.

Take World War II for example.  Perhaps nothing, at least up to that point, did more to begin the process of changing minds and integrating blacks into society than the war.  It was an “all hands on deck” event.  Every last male of fighting age was needed in the service.  Every woman was needed to man the factories.  Even school-age kids were needed to collect scrap metal, rubber and even to glean the fields for milkweed to stuff life jackets for sailors.  Winning the war was far more important than silly prejudices.  Sure, there were still some segregated units like the Tuskegee airmen, but blacks could fight as well as whites and they all bled the same color.  A lot of attitudes began to change.

In 1970, in spite of the Civil Rights Act and the Voting Rights Act, the state of Alabama was still highly segregated and the University of Alabama football team was no different.  Bear Bryant had been head coach there since 1958 and steadfastly refused to recruit black players.  Every player on the Alabama team was white.  That year, Alabama took on the University of Southern California, a team that was fully integrated with many black players, led by Sam “Bam” Cunningham, a bruising fullback who led USC to a humiliating 42-21 lopsided win over Bryant’s team.  Like any good coach, Bryant hated losing and he could see the handwriting on the wall.  Afterwards, Bryant was overheard to say, “I want some players like those.”  He could see the folly of not recruiting the best players regardless of whether they were white or black.  The following year, Alabama fielded its first black player.  By 1973, one third of the team’s roster was black.  Bryant had changed out of necessity.  He wanted to win.

The “systemic racism” that persists today and all of its effects – chronic poverty, low wages, lousy schools, drugs, gangs, high rates of incarceration and hopelessness – won’t change because of protests against it.  It will only change out of necessity.  It will only change when every single person who wants to work is needed to make the economy function.  Instead, today, what the Federal Reserve defines as “full employment” – typically somewhere in the range of 4-5 percent – still leaves millions of Americans out of work, and those unemployed are disproportionately black.  Of those who are employed, few have any upward mobility – held back by a substandard education.

There is absolutely nothing that has hit the black community harder than America’s trade policy.  I don’t believe it was intended to be racist, but the results speak otherwise.  Aside from the vestiges of the automobile industry, American manufacturing has been totally decimated, shipping millions of high-paying manufacturing jobs overseas and putting millions of people – disproportionately blacks – out of work.  (It’s worth noting that virtually all of those jobs have landed in Asia and Europe.  Africa has been left completely out of the picture.)  Imagine if that were reversed.  Imagine if manufacturers had to scour the country to find workers to staff their production lines.  It’d take every last worker left in America to satisfy the demand.  Companies wouldn’t give a damn if those workers were black or white or purple, or if they came from Mars.  All they care about is making money.  Petty prejudices would quickly fall by the wayside, just like they did in World War II and like they did at the University of Alabama.  Every black person – hell, every person, regardless of race – could find a job making good money and good benefits.  It’d quickly break the back of the cycle that has kept blacks trapped in poverty.

America’s trade policy is racist.  Protesting loosely-defined notions of “systemic racism” is off the mark.  If protesters want to make real headway in putting an end to “systemic racism,” they need to begin taking on America’s trade policy and the politicians who do the bidding of their corporate benefactors by sustaining this totally unfair system.  It doesn’t matter if those politicians are Democrats or Republicans because both parties have been complicit.  Only when a balance of trade is restored and our manufacturing jobs are brought back home will they see any meaningful improvement.

 

 


Trump vs. Biden on Immigration

July 22, 2020

https://www.reuters.com/article/us-usa-election-immigration-factbox/factbox-trump-and-biden-take-sharply-different-paths-on-immigration-idUSKCN24L122

The above-linked article is a comparison of Biden’s positions on immigration and Trump’s position and record on the same issue.  The article has a pro-Biden bias, casting his positions as having compassion for immigrants, while casting Trump’s positions as being more heartless and cruel.  Putting aside that bias, however, the comparison is relatively accurate.

Before going further, for the benefit of those new to this web site, my purpose is to bring attention to an economic consequence of population growth that has escaped economists because of their refusal to even consider the subject.  Simply put, beyond some optimum population density, further population growth begins to erode per capita consumption and, with it, employment.  While the macro economy continues to grow, it doesn’t grow at the same pace as the population.  The result is a bigger pie, but smaller slices for everyone.  Incrementally worsening poverty is the inescapable result.

With that said, let’s now talk about immigration.  Many claims are made about the supposed benefits of immigration and why it should continue.  It’s often said that immigrants are the engine of our economy, that they account for 25% of all new business start-ups, for example.  Just in the last few days, I heard it said that 19% of all long-haul truck drivers in America are immigrants.  Immigrants are doctors, engineers, scientists, professors, and so on.  At the other end of the scale, immigrants pick our crops, clean our hotel rooms, and do all of the other jobs that Americans seem loathe to do.

Regarding that last point, there’s some element of truth.  Few Americans work those jobs, but is it because they don’t like to work hard, or is it because the pay is too low?  I’d argue that many American workers would eagerly leave minimum wage jobs to do those other jobs if they paid more.  The wages are low because of the unlimited supply of immigrants who see those wages as a huge step up from what they can aspire to in their own countries.

As for those other workers – the entrepreneurs, the professional people, the long-haul truckers and skilled tradesmen, it’s true that a significant percentage are immigrants, but that’s only because a significant percentage of the population is immigrants.  They’re no more likely to fill those roles than native-born Americans.  Immigrants don’t possess any unique skills or powers to boost the economy.  They’re just people, and they want the same thing that all people want – to make a living and provide for their families.

Another claim often made is that America is enriched by the diversity that immigration provides.  Diversity, it is said, is a source of strength for our economy.  America is enriched by people with different backgrounds and different perspectives.

It can’t be argued that it isn’t interesting to learn about different cultures.  But the claim that diversity is a source of economic strength?  Baloney.  That’s a myth, invented and perpetuated by those who stand to benefit from never-ending population growth.  Who are they?  Corporations.  More people equate to more total sales and a bigger bottom line, while all of the negative consequences of population growth be damned.  Don’t believe me?  Go to the CIA World Fact Book web site and bring up a list of countries ranked by GDP per capita.  You’ll find the top of the list dominated by countries practically devoid of diversity.  Ranking high on the list is Ireland, a nation with virtually no diversity but, in terms of trade balance per capita, kicks America’s ass in trade far worse than any other country.  Diversity has nothing to do with economic prowess.

In the final analysis, the ONLY effect of immigration is to grow the population.  Growing the population makes sense only if you believe that we need more people – bigger and more crowded cities, more traffic, more demand on resources, more carbon emitters,  more trash in the landfills, and so on.  Worst of all, if you believe in the premise of this web site – that a growing population will doom the U.S. to worsening poverty by eroding per capita consumption – further population growth is tantamount to slow-motion economic suicide.

Joe Biden is an advocate for more immigration and, thus, more rapid population growth.  That position isn’t surprising and it’s not something unique to Democrats.  Virtually every Republican takes the same stance, though they tend to pay more lip service to opposing illegal immigration.  Both parties are in agreement on immigration.  Why?  Because that’s the stance that their corporate benefactors pay them to take.

Only very recently have some environmentalists begun to awaken to the fact that they’ve been hoodwinked by the faux-environmentalists who would have you believe that the planet can be saved from the vast array of negative consequences of worsening over-population through technological gimmicks like cutting carbon emissions, paving the way for more “sustainable development,” a corporate euphemism for more population growth.  In light of this awakening, policies that promote population growth may soon seem out-of-step with the reality of the challenges that confront this planet.

Trump is unique in being opposed to both legal and illegal immigration alike.  If we can believe him, his motivation is his belief that immigrants hold down wages and take jobs from American workers.  Is there an element of racism?  He denies it.

I wish Trump were a more likable person – more eloquent, more compassionate, less hot-tempered, a better role model.  Would I vote for Biden over Trump if Biden took a hard line on immigration like Trump?  You bet, especially if he also favored restoring a balance of trade through the use of tariffs, as Trump does.  If there were no differences in their positions on these two critical issues, I’d vote for Biden in a heartbeat.  But that’s not the case.

 

 


Token Bump in Exports to China in May Falls Far Short of “Phase 1 Trade Deal” Goals

July 4, 2020

Trade data released by the Commerce Department on Thursday for the month of May reveals that China bumped up its imports from the U.S. slightly, but still fell far short of the goals of the “Phase 1 Trade Deal” signed with the U.S. in January.  Here’s the data (source:  USA Trade Online):  Phase 1 China Trade Deal 2020 YTD.

This deal sets goals for Chinese imports of American goods for four different categories of products:  manufactured products, energy products, agriculture products, and total products, using 2017 Chinese imports of these products as the baseline for increases.  Through May, we’re now five months into this deal.  That’s 20 opportunities to meet the monthly goal for each category of product.  So far, China has not met one single goal.  In fact, in May, for the first time, China exceeded the 2017 baseline for one category of product.  They imported $1.249 billion in energy products vs. the 2017 baseline of $0.758 billion, but still fell short of the goal for May of $1.943 billion.

Year-to-date, China is behind its commitments by the following amounts:

  • manufactured products – 25.7% below goal
  • energy products – 69.6% below goal
  • agriculture products – 60.6% below goal
  • total goods – 35.9% below goal

This is pathetic.  At this point, one can only conclude that, rather than trying to live up to the deal and boost its purchases of American goods, China is actually making a concerted effort to reduce its purchases.

In October of 2018, the monthly trade deficit with China hit a record of $43 billion.  In May of this year, that deficit was down to $27 billion.  But the “Phase 1 Trade Deal” gets no credit for that decrease.  In December of 2019 – the last month before the deal was signed, the deficit with China was $24.8 billion.  All of the drop in the trade deficit with China is thanks to the 25% tariffs that are in effect for half of all Chinese imports.  The “Phase 1 Trade Deal” has had absolutely no impact on further reducing that deficit.

A huge part of the “Make America Great Again” promise was to reduce the trade deficit and bring manufacturing jobs back home.  There has been virtually no progress.  In May, the deficit in manufactured goods fell just $1 billion shy of the record deficit of $75.8 billion set in December, 2018.  Trump has squandered his term with making fruitless deals.  The deficit with Mexico is worse than ever, hitting a record in March.  The progress made in reducing the deficit with China (through the implementation of tariffs) was offset by increases in other countries, most notably Vietnam and Mexico, and that progress ground to a halt with the signing of the “Phase 1 Trade Deal.”  There’s been absolutely zero progress in reducing the deficit with the EU.  To date, there hasn’t even been an attempt.

Trump needs to kill the “Phase 1” deal now and extend the tariffs across the board to all Chinese products to demonstrate that he’s still committed to the “MAGA” promise if he’s to have any hope of being re-elected.  Far too much time has been wasted, but it’s not too late.


China Fails to Meet “Phase 1 Trade Deal” Goals Again in April

June 5, 2020

As I predicted at the outset, the “Phase 1” trade deal with China, formalized by President Trump and Chinese dictator Xi in early January, is proving to be a total waste of time in the push toward achieving a balance of trade with China.  Once again in April, as it has done every month so far, China has not only failed to live up to its promises to increase imports of American goods, it hasn’t even met the baseline of matching its 2017 imports of U.S. goods.  Here’s the table I created to track their progress, updated through April (the most recent data available):  Phase 1 China Trade Deal 2020 YTD.  Their imports were up very slightly in April, but are still well short of even the 2017 baseline.

What are working well are the tariffs on Chinese imports which Trump was smart enough to leave in place until China demonstrated its sincerity in abiding by the “Phase 1” trade deal.  Imports from China remain approximately 40% below their 2018 level.  Through the first third of 2020, the trade deficit with China is on track to fall to its lowest level in ten years.  Had Trump not implemented the “Phase 1” deal and instead had enacted across-the-board tariffs on all Chinese imports, as he was on the verge of doing before signing the deal, we may very well have been on track to wipe out the deficit with China altogether.

Trade deals don’t work.  Tariffs do.  We have no control over exports because we have no control over what other countries are willing to buy from us.  But tariffs give us total control over imports – what we buy from them.  Trade policy should be the simplest policy that any president deals with, yet every one of them makes it as complicated as possible.  We make the same mistakes over and over and American workers pay the price.  It makes me sick.


Emerging Lessons from The Covid-19 Pandemic

March 31, 2020

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

Globalism and Global Supply Chains:

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

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

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

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

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

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

No Spare Capacity:

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

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

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

The Risks of Dense Populations:

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

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

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

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

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

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

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

Secure Borders:

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

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

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

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

 

 

 


“Phase 1” China trade deal off to a really bad start

March 7, 2020

You’d think that if China liked the “Phase 1” trade deal that it signed with the Trump administration in early January, and the hope for tariff relief that it offered in the future, that China would have gone out of its way to demonstrate a good faith effort in its first month.  It did just the opposite.  To say that it didn’t meet its quotas for imports from the U.S. would be an understatement.  I suspected that China never had any intention of complying with this agreement.  They already got what they wanted – a reprieve from any further tariffs and a return to the status quo trade relationship with the U.S. – one in which it protects its massive trade surplus.  So I promised to track China’s progress in complying (or not) with the agreement.  The trade data for the month of January was released yesterday by the Commerce Department.  So here we go.

First of all, a little background is in order.  What did China agree to in this “Phase 1” deal?  They agreed to meet four major milestones in terms of importing U.S. goods and services in the years 2020 and 2021, with the objective of reducing China’s trade surplus with the U.S.  The goals use 2017 as a baseline.  Here are they are:  Phase 1 China Trade Deal Goals.

These goals weren’t broken down into monthly goals, but it was made clear to the Chinese that the U.S. would be tracking progress toward meeting these goals and would quickly call out China if they fail to demonstrate progress.  It would be reasonable to expect that China would gradually ramp up its imports of U.S. products such that by the end of 2020 they would have met the goals for the year as a whole.  Therefore, I’ve broken down the annual goals into monthly goals that ramp up in a linear fashion to meet the annual goals.  For example, in order the meet the goal for their purchases of U.S. manufactured goods – $121.1 billion for 2020, starting from a baseline of $88.2 billion in 2017, which is $7.35 billion per month – China needed to import $7.772 billion in January, $8.194 billion in February, $8.616 billion in March, and so on, in order to reach $121.1 billion by the end of the year.

The results are in for January.  China failed to meet the goal for each category of products, and not by a little.  Here’s the results (in billions of dollars):

Category                     January Goal            January Actual

Manf’d Goods                 $7.772                          $5.597

Energy Products              $0.995                           $0.276

Agriculture Products       $2.16                             $0.944

Total Goods                     $10.921                         $7.215

Monthly data for services exports to China isn’t available.

In each case, China’s imports of American products not only didn’t meet the goals, but declined from the 2017 baseline levels.  One month’s worth of data isn’t enough to pass judgment yet on whether or not China is failing to live up to the “Phase 1” deal, since monthly figures vary up and down.  Like I said at the beginning, however, you’d think that China would want to get off on the right foot.  If I were Trump, I’d review the data through March (which isn’t released until May) and then warn China if their imports are lagging.  Three months later, I’d scrap the “Phase 1” deal and reinstate all tariffs that had been planned prior to its signing.  Hopefully, at that point, Trump will have learned a lesson about making any further trade deals with China.  There is simply no way that China will voluntarily reduce its trade surplus with the U.S.  Tariffs are the only way to make that happen.


No More Trade Deals, No More WTO

February 29, 2020

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

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

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

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

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

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

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

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

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

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