Seven Months Into Trump’s Administration, Has Anything Changed?

August 14, 2017

I’m back from a hiatus at my north woods retreat, and there’s a bit to catch up on.  For now, however, I’m wondering what has really changed in terms of the economy since Trump took office seven months ago.  Let me begin by sharing a recent experience.

My wife and I stopped into a small restaurant in Boulder Junction, Wisconsin for dinner one evening earlier this week.  Boulder Junction is a tiny town in Vilas County in northern Wisconsin, a popular vacation area frequented mostly by folks from Chicago and Milwaukee.  A polite Asian lady, speaking broken English, seated us and told us the waitress would take our order shortly.  Upon ordering, the waitress assured us that our order would be prepared as we had requested.  It wasn’t.  When we complained, the waitress – without even offering to make it right – apologized and explained that there was a “language barrier” in the kitchen.  A language barrier in Boulder Junction!  I couldn’t believe it.

Another old lodge that we visit for dinner is staffed with waiters and waitresses from Lithuania.  They just can’t find reliable help in the north woods of Wisconsin, they explain.  However, another restaurant just up the road seems to have no problem.

I know what’s going on here.  These little businesses don’t have the wherewithal to recruit foreign laborers.  So how do they get them?  While I can’t provide proof, I’m certain that the Chamber of Commerce is importing foreign labor and pushing them on these businesses, or making them available at rates so cheap that these businesses don’t even have to bother with trying to hire locally.  So, when it comes to Trump’s promises to stop these kinds of practices, there’s no evidence that anything has changed.

Changing gears, the Commerce Department released the June trade figures last week.  Here’s a chart that shows the balance of trade in manufactured goods:  Manf’d Goods Balance of Trade.  As you can see, it continues on the same downhill trajectory that it’s been on throughout the Obama administration.  In fact, in the 2nd quarter of 2017, the deficit in manufactured goods set a new record of $185.6 billion.  In other words, contrary to Trump’s inaugural vow that:

“… rusted out factories scattered like tombstones … stops right here and stops right now!”

matters have actually gotten worse.  While the Trump administration is currently involved in renegotiating NAFTA and in negotiations with the Chinese, and the U.S. negotiators are reportedly taking a much harder line in these negotiations, I’m very pessimistic that any improvement in our balance of trade will result.  Why?  Because there’s nothing to negotiate.  The ONLY thing that will make a difference in America’s favor is tariffs, something that no nation would agree to in “negotiations.”  Anything they will agree to will be totally unenforceable and any attempts to enforce them would be met with whining and, more importantly, a cut-off in funding of candidates unless they pressure the Trump administration to back off of enforcement actions.  These same kinds of negotiations have been tried and have failed for decades.  Most recently, Obama’s deal with South Korea, which he hailed as a “big win for American workers,” has actually proven to be a disaster.

In the meantime, the “new normal” economy that emerged during the Obama administration, in the wake of the Great Recession, goes on.  GDP growth remains stuck in the 1-2% range, wages are stagnant and job growth (when viewed in the context of the “100,000 jobs is the new zero” economy) is anemic at best.  The economy is being kept afloat by deficit spending (up 10% so far this year), a once-again growth in credit and an inflated stock market.  The illusion of good times isn’t going to last.

I’m growing impatient with the Trump administration’s dithering on these issues.  Can you tell?


Population Density Drives Trade Imbalances Again in 2016

June 26, 2017

I’ve finished my analysis of trade in manufactured goods for 2016 and, as expected once again, the news isn’t good.  The overall deficit in manufactured goods soared to yet another new record in 2016 of $680 billion, beating the previous record set one year earlier by $32 billion.  A thorough, country-by-country analysis of the data reveals one overriding factor that’s driving this deficit- population density.  Since the signing of the Global Agreement on Tariffs and Trade in 1947, the U.S. has systematically lowered barriers to its market for all countries, as required by that treaty and by the World Trade Organization that it spawned.  But that policy has yielded vastly different results.  While the U.S. enjoyed a surplus in manufactured goods of $34 billion with the half of nations with population densities below the world median, it was clobbered with a deficit of $704 billion with the other half of nations – those with population densities above the median.  Same number of nations.  Starkly different results.

Check out this chart:  Deficits Above & Below Median Pop Density.  First, some explanation of the data is in order.  I studied our trade data for 165 nations and separated out those product codes that represent manufactured products.  That’s no easy task.  There are hundreds of product codes.  While the Bureau of Economic Analysis makes it easy to track what’s happening with “goods” in general, that includes such things as oil, gas and agricultural products – goods that aren’t manufactured.  You’d think that they’d be interested in tracking manufactured products, given the level of political rancor on that subject, but they don’t.  The only way to arrive at that data is to sift it out, product code by product code.  Subtracting imports from exports, I was able to determine the balance of trade in manufactured goods for each.  I then sorted the data by the population density of each nation and divided these 165 nations evenly into two groups:  those 83 nations with a population density greater than the median (which, in 2016, was 191 people per square mile, up from 184 in 2015) and those 82 nations with a population density below the median.  I then totaled our balance of trade for each group.

As you can see, in 2016, our balance of trade in manufactured goods with the less densely populated half of nations was once again a surplus, but a smaller surplus of $34 billion.  This is down from $74 billion in 2015, is the third consecutive decline, and has fallen by almost 80% from the record high of $153 billion in 2011.  Why?  As the manufacturing sector of our economy is steadily eroded by huge trade deficits, we simply have fewer products to offer for sale to other nations.  Exports fell by $44 billion in 2016.  (Remember Obama’s pledge to double exports?  What a laugh.)

Conversely, our balance of trade in manufactured goods with the more densely populated half of nations was a huge deficit of $704 billion, down slightly from the record level of $722 billion in 2015.

Some observations about these two groups of nations are in order.  Though these nations are divided evenly around the median population density, the division is quite uneven with respect to population and land surface area.  The more densely populated nations represent almost 77% of the world’s population (not including the U.S.), but only about 24% of the world’s land mass (again, not including the U.S.).

Think about that.  With the people living in 76% of the world’s land mass, the U.S. enjoyed a surplus of trade of $34 billion in manufactured products.  But with the rest of the world – an area less than a third in size – the U.S. was clobbered with a $704 billion deficit!  Population density is the determining factor.  It’s not low wages.  The average purchasing power parity (or “PPP,” a factor roughly analogous to wages) of the densely populated half of nations – those with whom we have the huge deficit – is almost $20,000.  The average PPP of the less densely populated nations with whom we enjoy a trade surplus was about $18,000.  Wealthy nations were just as likely to appear among the deficit nations as among the surplus nations.

Nor is the other popular scapegoat – “currency manipulation” – a factor.  Nearly every currency in the world weakened against the dollar in 2016.  (Only 19 nations experienced an increase in the value of their currency.)  Among the 19 nations whose currencies rose, we had a deficit in manufactured goods with 8, and a surplus with 11.  On average, the deficits worsened by 115%, driven by a huge increase with Madagascar.  Remove that anomaly and the deficits actually declined by an average of 8.4% – in line with the currency theory.  Among the 11 nations with whom we had a surplus, the surpluses improved on average by 14% – again, in line with the currency theory.

However, among the 85 nations who experienced a decline in their currency vs the dollar, we had deficits with 27 of them.  On average, those deficits fell by 13.4% – exactly the opposite of what the currency theory would predict.  Among the remaining nations with whom we had a surplus, the surplus rose by an average of 33% – again, exactly the opposite of what currency theory predicts.

Therefore, we can conclude that our trade deficit in manufactured goods behaved exactly the opposite of what the “currency theory” would predict 80% of the time.  Why?  As noted earlier, most currencies fell vs the dollar last year.  This happened because the U.S. economy was in better shape than the rest of the world, at least in the minds of investors.  That’s what determines currency valuations.  Not manipulation.  Currency valuation has almost nothing to do with trade imbalances.  It affects the profitability of companies operating in different countries, but rarely makes any difference in the balance of trade.

This is absolute proof positive that trade imbalances in manufactured goods are driven by population density and almost nothing else.  Any trade policies that don’t take this factor into account are doomed to failure as evidenced by the destruction of the manufacturing sector of America’s economy.  The only remedy that offers any hope of turning this situation around is tariffs (or a “border tax,” as the Trump administration likes to call it).  Preferably, such tariffs would target only high population density nations like Japan, Germany, China, South Korea and a host of others.  Why apply tariffs to low density countries with whom we enjoy surpluses and anger them unnecessarily?

Trump was elected due in large part to his promises to tear up NAFTA and withdraw from the World Trade Organization and begin imposing a “border tax.”  It’s time to follow through on those promises while we still have a shred of a manufacturing sector left to build upon.

 


Trump’s “Faulty Trade Math?” Accuser’s math is faulty.

April 29, 2017

http://www.reuters.com/article/us-usa-trump-trade-analysis-idUSKBN17U2SL

This is rich!  In this above-linked op-ed piece (which isn’t identified as such but, rather, is presented as a factual report), the author takes Trump to task for “faulty math” regarding trade policy.  But it’s the author of this article whose math is “faulty” at best, or deliberately misleading at worst.  First, let’s consider some of the statements leading up to his “math.”

In the case of Mexico, the American companies that exported a quarter of a trillion dollars of goods and services to that country last year would be out a customer, and likely cut jobs.

Those American companies that tried to replace the $323 billion in Mexican imports would likely do so at a higher cost — assuming they are in the United States to begin with.

They would be in the United States if similar policies are applied to other countries, which would only make sense.  Then, yes, the domestic manufacturers would likely replace those Mexican imports at a higher cost.  But the author conveniently ignores the fact that the increased demand for labor in the U.S. would drive wages up even faster.

“Americans seem to really like guacamole,” Noland said, “but the idea that we are going to have giant greenhouses and lots of avocados and limes – the fact that we are purchasing them from the Mexicans rather than producing them at home tells you producing them at home is more expensive. We can stop trading with the Mexicans, and have $60 billion less in consumption.”

Seriously?  This is the argument for not bringing a million manufacturing jobs back from Mexico?  Avocados and guacamole?  If they cost 20% more, people won’t buy them?  They’ll just consume less?  They won’t serve onion dip at their parties instead?  Come on!  How much of your disposable income do you spend on avocados and guacamole?  How much more income would you have to spend on them if your wages went up?

By the statistics most widely accepted among economists, the U.S. position with the rest of the world has been steadily improving as investment flows into the country from abroad and supports millions of jobs.

This is an outright lie.  The flow of capital investment has been negative for decades.  While some investment dollars do come into the U.S., far more have left, making net investment a big drag on jobs.

OK, now for the “faulty math:”

Even if Trump achieved his wildest success, and eliminated the United States’ $500 billion trade deficit solely through increased exports that boosted gross domestic product on a dollar-for-dollar basis, it would do little to dent the estimated $7 trillion in government deficits his tax plan is projected to generate over the next decade.

Alan Cole, an economist at the Tax Foundation, said that every dollar of gross domestic product generates about 17.6 cents in federal government revenue, meaning the $500 billion trade shortfall would translate into just $88 billion in new taxes.

That part is true but, as free trade advocates tend to do, he’s presented only one half of the equation.  That annual trade deficit of $500 billion (actually $800 billion if talking about manufactured products) is a drain on the economy.  If every dollar of that deficit isn’t re-injected into the economy in some way, the result is a permanent recession.  Since we’ve already noted that capital investment is also a net outflow, the only way left to re-inject that money into the economy is through federal deficit spending, in all its forms.  Grants for education, for police and fire, for infrastructure. safety net programs like welfare and medicaid, health care premium support under the Affordable Care Act, student loans … the list goes on and on.  All of this federal spending is made necessary by the trade deficit drain of money from the economy.

So, not only would restoring a balance of trade produce an additional $88 billion in new federal revenue (nothing to sneeze at and it would likely be more than that), but it would also cut federal spending by $500 billion.  That’s a net impact of nearly $600 billion per year – enough for the federal government to balance its budget.  And it would likely pave the way for cuts to personal income tax rates, saving all of us a bundle.

The case for free trade made by its advocates often reminds me of the commercials we all see on TV for the local casinos.  Everyone gathered around the blackjack table or the crap table pumps their fists and high-fives their friends as they celebrate another win and rake in their money.  Everyone’s winning and having a great time!  “Casinos are a big boost for the local economy,” we’re always told when some development group wants to build a new one in your community.  The casino owners and a few surrounding hotels and restaurants are winners.  You’re not.  If you’re someone who frequents one of these places, you’re a loser.  You may not want to admit it, but you are – you’re a loser.  Don’t feel bad.  Everyone who goes there is a loser.  Everyone who owns a business where you’d spend your money if you hadn’t lost it at the casino is also a loser.  Casinos are a net drag on the broader community, siphoning away money that people need for other things.

It’s exactly the same with a trade deficit.  Global corporations are winners.  The rest of us are losers.  But they want you to think that free trade benefits you in ways that are just too difficult to understand or quantify.  Remember Enron, the huge “energy trading company” that was such a darling of Wall Street back in the ’90s?  No one could figure out exactly how they made money.  Enron executives condescendingly sneered that their business was just too sophisticated and complicated for most investors to understand.  And lots of otherwise-intelligent people were sucked in.  Eventually, the whole thing collapsed spectacularly and was exposed as a giant scam.  Investors had been played for fools.  That’s exactly the same scam free traders are running when they tell you that it’s not just a matter of money in versus money out.

If trade deficits don’t matter, why is it that countries like Mexico, China, Germany, Japan, South Korea and others are so adamantly opposed to taking their turn at it?  It’s because they know the real math.


Student Visas

February 24, 2017

The subject of student visas aggravates me as much as illegal immigration (although we’re finally getting some great news on that front).

Why?  “What’s the problem with student visas?” you might ask.  For most, the topic probably conjures up images of foreign exchange students coming to the U.S. to experience life here and return home to spread the news about what a great place the U.S. is and to help spread our value system around the world.  Or maybe you envision students coming here for an education that can be put to work back home in some underdeveloped country, helping to raise living standards there.  But the reality of the situation is nothing like this.  The student visa program boils down to money.  It’s a system designed to suck trade dollars back into the U.S. economy and to prop up inflated tuitions.

Let’s begin with some data.  Here are the statistics for non-immigrant visas issued from 2011 through 2015.  (The data for 2016 is not yet available.)  Student visas are primarily “F” visas.  “M” visas are for vocational students.  Taken together, they totaled nearly 700,000 in 2015.  These are “non-immigrant” visas, but don’t be fooled.  A large percentage of these students receive immigrant visas (leading to permanent status) almost automatically upon graduation.

Where do these students come from?  About 280,000 came from mainland China.  75,000 came from India.  28,000 came from Saudi Arabia.  27,000 came from South Korea.  17,600 came from Vietnam.  An equal number came from Mexico.  17,000 came from Japan.  The rest are spread across the remaining nations of the world.  The significance of this list will be discussed later.

To get an idea of what the student visa program is really about, take a look at this web site, which provides information for foreign students for how to apply:

https://www.studyusa.com/en/a/33/how-to-get-your-u-s-student-visa

What it boils down to is this:  you have to explain why you want to study in the U.S. and, more importantly, you have to prove that you can pay for it.  There’s no student loan program here, at least not through U.S. agencies.  If you can get scholarship money from your native country, fine, but regardless of how you get the cash, you have to be able to pay your way.  You must also declare your intent to return to your home country when you’re finished with your studies.  But that’s a formality, one easily skirted when you actually get your degree.

In 2015, over 677,000 “F” visas were issued.  223,000 applicants were refused.  In other words, about three quarters of all applicants are accepted.

Now, let’s take a look at some interesting findings about the student visa program published in a study by the Brookings Institution in 2012.  Here’s the link:

https://www.brookings.edu/interactives/the-geography-of-foreign-students-in-u-s-higher-education-origins-and-destinations/#/M10420

“From 2008 to 2012, 85 percent of foreign students pursuing a bachelor’s degree or above attended colleges and universities in 118 metro areas that collectively accounted for 73 percent of U.S. higher education students. They contributed approximately $21.8 billion in tuition and $12.8 billion in other spending—representing a major services export—to those metropolitan economies over the five-year period.”

Got that?  They paid full tuition and living expenses, bringing over $33 billion into the economy.  And that was through 2012.  In 2015, when 25% more visas were issued than in 2012, that figure rises to over $42 billion.

Two-thirds of foreign students pursuing a bachelor’s or higher degree are in science, technology, engineering, mathematics (STEM) or business, management and marketing fields, versus 48 percent of students in the United States.

Remember how tech companies claim that they depend heavily on immigrants to provide the advanced skills that they need?

Forty-five (45) percent of foreign student graduates extend their visas to work in the same metropolitan area as their college or university.

In other words, these students then go on to become the H1-B visa workers that the tech industry (and many others) claim that they need.  So the “non-immigrant” nature of student visas, and the declaration of intent to return to their home country, is truly a joke.  Here’s further evidence that student visas are used as the pipeline for H1-B visas:

http://www.h1base.com/content/f1visa

These companies who claim that they’re dependent on immigrants for the skills they need are trying to pull the wool over your eyes.  What they need are STEM graduates and they get them from American universities.  They like the fact that foreign students contribute to a glut of labor that helps to keep their payroll costs suppressed.  When Apple claims that, if immigrants aren’t allowed to travel freely to work in the U.S., then they might need to relocate to where they can have easier access to immigrant labor, that’s a “crock” and they know it.  Go ahead, Apple, move to Yemen or  Iran or Libya or one of those other countries, and let’s see how successful you can be there.  What you really need are the STEM graduates of American universities.  You won’t find them in those other places.  But what you will find are poverty, illiteracy and oppressive governments.  But you say you can do better there.  So prove it.  Just leave.  Go ahead.  Go.

There’s a mind-numbing amount of information in these links.  Let’s boil it all down:

  • Immigrants currently fill 1.2 million of the seats available in American universities.  That’s a significant percentage of the seats available.
  • Approximately three quarters of foreign students who apply are accepted.  Compare that to the acceptance rate for American students at most prominent universities, where only 10% or fewer attain admission.
  • Why the preference for foreign students?  Because they pay full tuition, propping up the ridiculous rate of tuition increases.
  • Foreign students are given preference over American students because of their ability to pay.  This effectively shuts American students out, especially from STEM curricula.
  • The influx of foreign students actually counts as an export of services.  Can you believe that?  It’s one of the tricks used by the government to draw trade dollars back into the U.S. economy and to keep our trade data from looking even worse than it does.
  • University sports teams have also gotten in on the act, now recruiting foreign students through the “student” visa program, denying athletic scholarships to deserving American athletes.  When it comes time for the Olympics, those athletes, trained in America, compete for their home countries, leaving the American teams thin.
  • Almost half of foreign students then go on to work in America, shutting American students out of those jobs as well.
  • The student visa program feeds into the H1-B visa program, which then begins to feed many of the other immigrant categories such as immediate relatives and family-sponsored preferences.

OK, remember the above list of countries that send the most students?  Did you notice anything about that list?  Did you notice that it includes the countries with whom America has the biggest trade deficits?  That should give you a clue as to where these foreign students are getting the money they need for tuition.  Their parents are getting rich on manufacturing for export to the United States.  What this means is that, in addition to taking your job, they then use your money to pay for their kids to come over here and take your kids’ jobs too!  Can this scheme possibly get any more outrageous?

If you’re an American student who hasn’t been able to get accepted into the school or program of your choice, the student visa program is probably the main reason.  If you’re a recent graduate and find yourself now saddled with crushing student loan debt, you can blame the student visa program for propping up ridiculous tuition rates.  And if you now find yourself struggling to find a job, you can once again blame the student visa program.

The student visa program is an outrage perpetrated on unsuspecting parents and students, depriving them of opportunities to help America out of its trade-created cash crisis, to help greedy universities prop up inflated tuition rates and to help corporations suppress wages with a labor glut.  It has to stop.  No foreign student should be admitted until every last American kid who wants a college education has gotten a seat in a university.  President Trump … please … take a close look at the student visa program and rein it in.


America’s Worst Trading Partners

January 12, 2016

I have finally finished tabulating the trade data for each country for 2014.  (2015 data won’t be released by the Bureau of Economic Analysis until sometime in March.)  What took me so long?  This is no small task.  Since the BEA doesn’t track “manufactured products” as a category, I have to take the data for hundreds of product codes for each of 165 nations and subtract out the categories of raw materials in order to arrive at a figure for manufactured products.  I maintain a massive spreadsheet for each nation and then compile the results for all on an even bigger spreadsheet.

Anyway, the results are in and over the next couple of weeks or so, beginning with this post, we’ll break down and analyze the results.  I like to begin by listing America’s 20 worst per capita trade deficits in manufactured goods.  In essence, this is a list of America’s 20 worst trade partners.  These trade deficits are expressed in per capita terms in order to put the citizens of all nations on an equal footing.  For example, our trade deficit with China, when expressed in dollars, dwarfs that of every other nation because they represent one fifth of the world’s entire population.  But when it comes to trade, borders are meaningless and China could just as easily be 100 smaller nations instead of one.  It would have no effect on our total trade deficit whether we draw a line on a map around 1.3 billion people, or draw 100 lines around clusters of 13 million people each.  Expressing the deficits in per capita terms eliminates the sheer size of nations as a factor.

If you’re new to this web site, you probably expect to see this list populated with poor nations.  You’d be wrong and, by the end of this post, you’ll understand why.  So let’s take a look at the list for 2014:  Top 20 Deficits, 2014.  Some observations are in order:

  1. The key take-away from this list is that 18 of these 20 nations are more densely populated than the U.S.  Most are much more densely populated.  The average population density of this list is 539 people per square mile.  This compares with the U.S. population density of about 87 people per square mile.  This average is up from the average population density of 504 people per square mile on the 2013 list.
  2. Instead of poor, low wage nations, this list is populated by rather wealthy, high wage nations.  The average purchasing power parity (PPP) of the nations on this list is $40,700 per person, up from $35,330 in 2013.  Only one nation on this list has a PPP of less than $10,000 – Vietnam, at $5700 per person.  Only three other nations have a PPP of less than $20,000 – Costa Rica, Mexico and China.  By comparison, U.S. PPP was $54,400 in 2014.
  3. Though our trade deficit with China has exploded since they were first granted “Most Favored Nation” status in 2000, their position on this list has barely budged since I published Five Short Blasts in 2007.  They were 19th on the list in 2006 and have risen only one point to 18th in 2014.  That’s because our trade deficit with nearly all of these nations has grown just as rapidly.  To illustrate this, I’ve included a column on the chart that shows the percent change in our balance of trade with each nation over the past ten years.  Our deficit with China has grown by 82%.  But the results with some other nations have been even worse.  In 2006, Costa Rica didn’t even appear on this list.  In fact, in 2005, we had a trade surplus with Costa Rica.  That has now reversed into a large trade deficit, big enough to move them to number 8 on this list.  The same is true for Vietnam.  In 2005 they were nowhere close to being on this list but, in the past ten years, our deficit with Vietnam has worsened by almost 500%.  Our deficit with Switzerland has worsened by over 200% in the last ten years, moving them to 2nd on the list.  It’s worth noting here that Switzerland is the one nation on the list that is even wealthier than the U.S.  But the one thing all of these nations have in common is a high population density.
  4. In case you’re tempted to conclude that Costa Rica, Vietnam, Mexico and China are on this list because of low wages (low PPP), consider this.  In the past ten years, their PPPs have risen by 41%, 136%, 50% and 184% respectively.  If wages are a factor in trade imbalances, then such rapidly rising wages should tend to slow or even reverse our trade deficit with these nations.  Instead, each is accelerating.
  5. It’s also worth noting here than one of the only two nations on the list less densely populated than the U.S. – Sweden – is slowly sliding off of this list.  Our trade deficit with Sweden has actually improved by 44% over the past ten years – the only such improvement on this list.  As a result, they’ve slid from no. 2 on the list in 2006 to no. 12 in 2014.
  6. Another nation that has slid noticeably on this list is Japan.  They were no. 4 on the list in 2006, sliding to no. 10 in 2014.  Why?  Other nations, most notably South Korea and Germany (who have each risen on the list), have cannibalized their auto exports.  This explains why Japan’s economy has been mired in recession for years.

In 2014, the U.S. suffered a total trade deficit in manufactured goods of $539.9 billion.  The trade deficit in manufactured goods with just the twenty nations on this list was $728.3 billion.  In other words, these twenty nations account for our entire trade deficit in manufactured goods, and then some.  It should be clear to anyone that it’s the large disparity in population density between the U.S. and these nations that drives our trade deficit.  It’s just as clear that low wages play no role whatsoever.  Any trade policy that fails to take into account the role of population density in driving trade imbalances is doomed to failure, just as U.S. trade policy has been for decades.

Those who blame trade imbalances on low wages either don’t understand trade or are simply lying.  So too are those who blame currency valuations – something we’ll examine later.  And those who tell you that we simply need to be more competitive are playing you for fools.  The only way to restore a balance of trade is by applying tariffs to counteract the effect of population density.

Not enough proof?  Stay tuned.  In my next post we’ll take a look at the opposite end of the spectrum – America’s twenty best trade partners – and see if population density is a factor there too.

 

 


Obama’s Trade Failure Grows Worse

October 9, 2015

http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

A week ago, the Bureau of Labor Statistics released the jobs report for September – a report that was the worst in four years.  The same thing could be said for the trade report released earlier this week.  Manufactured exports, which the president had vowed to double – a cornerstone of his economic policy, fell to a level that was actually less than July, 2011.  The trade deficit in manufactured goods worsened to $60.6 billion, the second worst reading ever.  (The record was $63.7 billion, set only five months ago.)  Here’s the chart:  Manf’d Goods Balance of Trade.

In 2012, the president hailed a new trade deal with South Korea as a “big win for American workers.”  The trade deficit with South Korea, which was $13.2 billion in 2011, nearly doubled to $25.0 billion in 2014 and is on track to reach nearly $30 billion this year.

Our trade deficit with China was $268 billion in 2008, the year the president was elected.  This year our deficit with China is on track to easily surpass $350 billion.

The president’s mistake on trade policy is the same mistake made for decades by the presidents who preceded him – putting blind faith in “free” trade, taking no account of the role of population density in driving trade imbalances.  He fails to understand that, when dealing with nations far more densely populated than our own, “free” trade is a worse policy than no trade at all.  That’s not to say that we shouldn’t trade with nations like China, Japan, Germany, South Korea and others who are totally dependent on manufacturing for export to sustain their bloated labor forces.  It simply means that some mechanism for assuring a balance of trade – tariffs, quotas or whatever – is essential to prevent a crippling of our own economy.

The Trans Pacific Partnership trade deal that Obama has recently concluded again blindly applies “free” trade policy to each nation regardless of their population density.  Based on the long track record we have with that approach, it’s easy to predict the results if Congress is foolish enough to enact it.

 

 


The Problem with TPP

June 14, 2015

On Friday, the House of Representatives dealt a major blow to what would have been a crown jewel in President Obama’s economic plan – the “Trans Pacific Partnership” (TPP) trade deal that he has worked for his entire presidency.  It’s a good thing.  Had he gotten the fast track trade authority he was seeking in order to steamroll this trade deal through Congress, it may well have sounded the death knell for the American auto industry, and perhaps even American manufacturing in general.

The problem with TPP can be summed up in two words – population density – and its failure to take this factor into account.  The TPP is a deal that has been negotiated between the U.S. and eleven other countries:  Australia, Brunei , Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  Of these eleven nations, five are less densely populated than the U.S. – Australia, Canada, Chile, New Zealand and Peru.  The United States enjoys a surplus of trade in manufactured goods with every one of them – a surplus totaling almost $103 billion.

Of the remaining six nations, one – Brunei – is a net oil exporter.  The U.S. enjoys a surplus of trade in manufactured goods with all net oil exporters since oil is priced in dollars, and dollars can only be spent in the U.S.  Another – Singapore – is a tiny city-state and the U.S. enjoys a surplus of trade with nearly all such city-states.  Why?  Because manufacturing requires some serious real estate, something that city-states lack.  Their dense populations necessitate an economy built around services, like banking, for example.  That leaves four nations more densely populated than the U.S. – Japan, Malaysia, Mexico and Vietnam.  The U.S. suffers a trade deficit in manufactured goods with all four nations – a deficit totaling almost $155 billion.

A surplus with all five less densely populated nations of $103 billion vs. a deficit with all four more densely populated nations of $155 billion.  This is no coincidence.  It’s yet another demonstration of the power of population density in driving global trade imbalances.  It dwarfs all other factors in international trade.  Low wages, currency manipulation, lax labor and environmental standards – none of these things amount to a hill of beans in comparison to the effect of population density.  Compared to the citizens of less densely populated nations, those living in intensely crowded conditions such as you find in these four nations consume comparatively nothing, but are every bit as productive.  The result is that these nations come to the trade table with massive labor forces desperate for work, but offer nothing in return except puny markets emaciated by low per capita consumption.  Huge trade deficits with such nations are inescapable without the use of tariffs.

Many believe that globalization and free trade has already wiped out tariffs.  It has eliminated and reduced many, but consider this:  the American truck market, unlike the automobile market, is still protected by a 25% tariff.  Because of this, virtually every pickup truck and every larger truck, up to and including semis, are built in the U.S.  Take away that tariff, as TPP has vowed to do, and you can kiss the U.S. truck industry goodbye.  One might argue that that isn’t so – that the U.S. auto industry still thrives without the tariffs.  However, it thrives not because of tariffs but because of quotas, something else that will vanish under TPP.  If the American truck-building industry and what’s left of the auto industry vanishes, there’s a good possibility that a domino effect may very well lead to the collapse of virtually all of American manufacturing.

Trade policy that fails to account for the effect of population density has proven to be an unmitigated disaster for the U.S. economy for decades.  President Obama seems hell-bent to make matters worse, just as he did with the deal with South Korea that, in only a couple of years, has cost thousands of Americans their jobs.  Let’s pray that our congressmen will continue to stand fast against any further such hare-brained deals.