Trump and Ross played for fools by China

May 13, 2017

In 2016, the U.S. trade deficit with China was $347 billion.  The deficit in manufactured goods was $372 billion.  China accounts for over half of the total U.S. trade deficit.  The deficit with China is responsible for the loss of five million manufacturing jobs in the U.S.  and for the downward spiral in Americans’ standard of living.

Throughout the campaign, Trump promised to impose tariffs of up to 45% on Chinese goods to restore a balance of trade.  It’s one of the key reasons he was elected.  In his inaugural address, Trump declared:

“These are just and reasonable demands of righteous people and a righteous public. But for too many of our citizens, a different reality exists. Mothers and children trapped in poverty in our inner cities, rusted out factories scattered like tombstones across the landscape of our nation, an education system flush with cash but which leaves our young and beautiful students deprived of all knowledge. And the crime, and the gangs, and the drugs that have stolen too many lives and robbed our country of so much unrealized potential. This American carnage stops right here and stops right now.

“Right here and right now.”  Yet, four months into his administration, details of his plans for trade with China are beginning to emerge, as reported in this Reuters article.

The United States and China have agreed to take action by mid-July to increase access for U.S. financial firms and expand trade in beef and chicken among other steps as part of Washington’s drive to cut its trade deficit with Beijing.

That’s it?!?!?!?  Beef and chicken!?!?!?!?  So instead of “right here and right now,” what we get instead is that, six months into his administration, we might be able to sell China a few more hamburgers?  And what do we get in return?  Chicken imports.  Who in their right minds would eat chicken imported from China?  We can’t even feed our pets dog food from China for fear that it’ll kill them, which has actually happened.  And we supposedly got some cooperation from China in reining in North Korea.  Doesn’t Trump realize that China and North Korea work together to blunt any action on trade?  Maybe that’s what we need – some puppet state to develop nuclear weapons to threaten China.  Then we can agree to pull in on their reins if China will just agree to some heavy tariffs.

What will the next 100 days of negotiations yield?  A side order of fries?

As has always happened following trade negotiations with the U.S., Chinese President Xi must have been rolling in the aisle with laughter on his plane ride home from Mar-a-Lago.  Trump and Commerce Secretary Wilbur Ross were played for total fools.  This is beyond pathetic.  It’s an insult to Trump’s supporters and all American workers.

“This will help us to bring down the deficit for sure,” U.S. Commerce Secretary Wilbur Ross said at media briefing in Washington. “You watch and you’ll see.”

Oh, we’re watching, Wilbur, and I already know what we’ll see.  Nothing.  The trade deficit with China will, if anything, get worse.  America’s been suckered yet again.


Apple’s “Advanced Manufacturing Fund” a PR Gimmick

May 4, 2017

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

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

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

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

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

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

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

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

 


Trump to Confront China’s Xi This Week

April 3, 2017

http://www.reuters.com/article/us-global-markets-idUSKBN175025

In the wake of the Obama administration, it still makes me nervous any time the president sits down for talks with a foreign leader.  For Obama, there were no concessions too big for him to make.  Foreign leaders played him like a fiddle.  Americans came out the losers every time.  I say this as one who had big hopes for Obama and voted for him in 2008.

As reported in the above-linked Reuters article, Chinese President Xi Jinping travels to Florida this week to meet President Trump at his Mar-a-Lago resort.  The media will be focused on dealings aimed at reining in North Korea’s nuclear ambitions.  But the real story will be their talks on trade.  America’s failed trade policy is far and away the biggest contributor to our economic decline.  All of our economic problems and virtually every other problem that is impacted by monetary resources allocated to deal with it can be blamed on our trade deficit.  The budget deficit, nearly all of our national debt, our crumbling infrastructure, our health care crisis, homelessness, poverty …. you name it, they’re all directly linked to the drain of our financial resources wrought by the trade deficit.  And no country is more responsible for that drain than China, who accounts for nearly one half of the entire deficit.

On Friday, the U.S. president sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clamp down on import duty evasion.

If the President is truly interested in the cause of U.S. trade deficits, he need look no further than this blog and can learn all he needs to know by reading Five Short Blasts.   Nations who come to the trading table with nothing to offer but bloated labor forces and markets emaciated by gross overcrowding are the cause of trade deficits.  By this criteria, China is the worst of the worst.  Only tariffs (or a “border tax,” if that term is less onerous) can maintain a balance of trade when dealing with such countries.  Negotiations are pointless since the only possible outcome is to trust the other side to take actions to rein in their appetite for our market.  Decades of experience since the beginning of the failed experiment with “free” trade has proven that they won’t.

So far, President Trump has proven that, for the most part, he can be trusted to follow through on his campaign promises.  No promise was bigger than getting tough with China on trade.  It seems that Germany’s Angela Merkel found him to be a very different president from Obama in her recent meeting with Trump.  Hopefully, he’ll be just as tough on Xi.  It seems that Trump’s “border tax” idea is now becoming more accepted as a crucial element of his upcoming tax reform plan.  Let’s hope he doesn’t negotiate away any of it this week.


Closing the Book on Obama’s Trade Policy

March 8, 2017

The U.S. trade deficit for the month of January was posted yesterday by the Bureau of Economic Analysis.  It was horrible.  President Trump took office on January 20th, but he can hardly be held responsible for any of the January results.  This is all on former President Obama.

How bad was it?  The overall trade deficit rose to its worst level in nearly five years – $48.5 billion.  At $62.1 billion, the deficit in manufactured goods just missed its all-time worst reading of $62.5 billion set in March of 2015.  As you can see from this chart, if the trend in manufactured goods continues, we’ll have a new record very soon and, without the change in trade policy promised by President Trump, it will likely get worse from there:  Manf’d Goods Balance of Trade.

Then there’s the export numbers.  In January of 2010, lacking the courage to take on the problem with imports, President Obama vowed to double exports in five years in an effort to turn the U.S. into more of an export-driven, Germany-like economy.  It never happened and never even came close.  In January of 2017 – seven years after Obama made that promise – total exports, at $192 billion – remained below the October, 2013 level.  Worse yet, exports of manufactured goods were below the level reached in September, 2011 – up only 26% from when Obama made that promise.  And that increase was due entirely to global economic recovery from the 2009 recession and had nothing to do with any real improvement in America’s export position.

So that closes the book on Obama’s trade policy, which was a total failure.  Actually, if President Trump follows through on his promise of tariffs (or border tax, or whatever you want to call it), this closes the book on a seven-decade-long experiment with free trade and globalization, begun in 1947 with the signing of the Global Agreement on Tariffs and Trade that, by any measure of its effect on the American economy, has been a complete disaster.

  • America’s trade surplus dwindled until we ran our last trade surplus in 1976.
  • 41 consecutive years of trade deficits has yielded a cumulative deficit of $14.4 trillion.  During that time, the national debt, which is closely linked to the trade deficit, grew by $19.4 trillion.  In 1976, the national debt was only $0.5 trillion.  Virtually all of our national debt is due to the cumulative trade deficit since 1976.
  • During this period, family incomes and net worth have declined, our infrastructure has crumbled, and our nation has been bankrupted.  The manufacturing sector of the economy has been gutted.  More than ten million manufacturing jobs have been lost.  The United States, once the world’s preeminent industrial power, has been reduced to a skid-row bum, begging the rest of the world to loan us money to keep us afloat.

This is all on you now, President Trump.  You own it.  You’ve promised to straighten out this mess.  America is watching and waiting.


Week 1 Done

January 28, 2017

The world is slowly awakening to a new reality.  It has profoundly changed.  And that may be an understatement.

Throughout the campaign, Trump’s “populist” rhetoric was dismissed by many – especially by those who stood to lose the most if globalization were dismantled – as exactly that, a play for votes or posturing designed to win concessions in the highly unlikely event that he would actually be elected president.  After all, this is the author of The Art of the Deal, a book about his tactics for winning in the business world.  He’s just  staking out his opening position.  Right?

During the transition, however, he doubled down on his rhetoric and stacked the cabinet mostly with people aligned with his positions.  The world grew a little more nervous.

Then came inauguration day and, I have to admit, that even I was taken aback by his speech.  It was as though he picked up a rhetorical two-by-four and began swinging at everyone who’d had a role in America’s trade mess and economic decline, and any who doubted his intentions or who stood in his way.

Now his first week in office is history, and what a week it was.  TPP (the Trans Pacific Partnership trade deal) is dead.  NAFTA (the North American Free Trade Deal) is as good as dead.  The wall on the southern border will be built.  Tariffs on Mexican imports will pay for it.  Immigration from many Middle Eastern countries has been brought to a halt.  And, in stark contrast to Obama’s visit to Mexico in the early days of presidency to discuss renegotiating NAFTA, a humiliating experience that yielded only more Mexican tariffs on American goods, Trump has put Mexico on notice.  If you can’t accept the new reality of American tariffs on Mexican imports and an all-out effort to halt illegal immigration from your country, then too bad – we have nothing to talk about.

Some seem to get it.  Some American companies have begun hedging their bets with announcements of plans to invest in American manufacturing.  Still, the world is largely in a state of denial.  Markets around the world continue to rally on optimism over the aspects of the Trump agenda that it likes – corporate tax breaks and infrastructure spending – while shrugging off the possibility that Trump means business about imposing tariffs on imports.

The world is made up of only two economies, really.  One is the economy of the more sparsely populated countries, able to gainfully employ their workers, which is dominated by the United States.  The other is the rest of the world, badly overpopulated and heavily dependent on manufacturing for export to the aforementioned countries – again, most notably, the United States.  Tariffs on imports into the U.S. will  totally alter the host-parasite relationship that exists between the two.  Those who continue to blindly invest in the economies of the latter may be making a serious mistake.

Americans have finally gotten fed up with playing the role of enabler to ever-worsening overpopulation, using immigration as a relief valve and trade to prop it up.  Trump has hastened the day when the rest of the world must face the consequences on their own.


On Tariffs, Indications are Trump Means Business!

December 22, 2016

http://www.reuters.com/article/us-usa-trump-navarro-idUSKBN14A27N

http://www.cnn.com/2016/12/21/politics/donald-trump-tariffs/?iid=ob_homepage_deskrecommended_pool

I’ve provided links above to two articles reporting on some very important developments in the Trump transition that have taken place over the last two days.  First of all, Trump has chosen a real trade hard-liner, Peter Navarro, University of California economics professor and author of Death by China: How America Lost its Manufacturing Base, as head of a newly formed White House National Trade Council.  The second article reports that the Trump team is planning to slap up to 10% tariffs not just on imports from China, but across the board on all imports.

These developments are an indication that, instead of merely pandering to populist sentiments during the election, Donald Trump was deadly serious when he made trade the centerpiece of his plan to “make America great again.”  Never mind threatening to label China a currency manipulator, complaints about unfair trade practices, enforcement actions taken up with the World Trade Organization, or any of the other mamby-pamby “actions” taken by previous administrations.  It now appears likely that Trump will go right for the jugular.  A 10% across-the-board tariff on all imports would be a death blow to globalization.

To put such a tariff in perspective, in 2015 the U.S. imported $2.76 trillion worth of goods and services.  A 10% tariff would raise $276 billion per year in federal revenue.  Opponents say that this is actually a huge tax on American consumers.  They’re lying.  Tariffs are paid by the companies who ship the products to the U.S.  Those companies then have a choice.  They can try to maintain their profit margin and pass it along to consumers, but that opens the door to domestic manufacturers who could undercut them on price.  Or they can “eat” the tariff and not raise prices, maintaining their market share but eroding their profits.  Either way, there’s a huge incentive to shift manufacturing to the U.S.

Consider another benefit.  That increase in federal revenue can be used to fund an equally large cut in income taxes for American taxpayers.  So, even if the importing companies pass along the cost of the tariff, you’ll have that much more money in your pocket to cover the higher cost.  Essentially, the tariff takes the money right out of the pockets of the global corporations and puts it into the pockets of walk-around Americans.  For all of you who have railed against the worsening income disparity between the top 1% and the rest of us, this is exactly the right way to go about addressing that problem.

For those who doubt the effectiveness of tariffs in boosting domestic manufacturing, consider this:  in spite of the fact that U.S. automakers lost half of the domestic market to imports, nearly every truck on American roads is still built in the U.S. Why?  Because trucks are one category of product on which the U.S. still maintains a 25% tariff.   Without that tariff, it’s likely that most trucks would now be imports and the “Big Three” automakers may not have survived.

Brace yourself, folks.  All hell is going to break loose on January 20th!  It’s been a long time coming and it’s going to be fun to watch.  I can’t wait.


Overpopulated Nations Sucking the Life out of American Manufacturing

May 11, 2016

I’ve finished my analysis of trade in manufactured goods for 2015 and the news isn’t good.  The effect of attempting to trade freely with nations that are much more densely populated than our own intensified yet again in 2015, dragging our deficit with those nations to a new record.

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 166 nations and separated out those product codes that represent manufactured products.  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 166 nations evenly into two groups:  those 83 nations with a population density greater than the median (which, in 2015, was 184 people per square mile) and those 83 nations with a population density below the median.  I then totaled our balance of trade for each group.

As you can see, in 2015, 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 $74 billion.  This is down from $132 billion in 2014 and is less than half of the record high of $153 billion in 2011.

Conversely, our balance of trade in manufactured goods with the more densely populated half of nations was a huge deficit, plunging to a new record deficit of $722 billion, beating last year’s record by $53 billion.

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 $74 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 $722 billion deficit!  Population density is the determining factor.  Not wages or wealth.  Wealthy nations were just as likely to appear among the deficit nations as among the surplus nations.  Not currency valuations.  Virtually ever currency in the world weakened against the dollar in 2015.  Population density is the key factor that drove these trade imbalances.

Some may point to the increase in the trade deficit as proof that currency values and manipulation are driving the imbalance.  But the data from previous years has shown that no such relationship exists.  A much more likely explanation is that American exports are declining and imports are rising because as more and more manufacturers lose ground to foreign competition, there are fewer and fewer products available for export or for purchase by domestic consumers.  Like a horde of mosquitoes, the overpopulated nations of the world are literally sucking the life out of American manufacturing and, with it, the American economy in general.

So what’s to be done?  “Give free trade enough time to work,” free trade advocates say, “and these imbalances will even themselves out.”  Wrong.  Free trade policy has had decades to work, beginning with the signing of the Global Agreement on Tariffs and Trade (GATT) in 1947 and the result has been that the trade deficit with densely populated nations just gets worse and worse.  This happens because free trade theory doesn’t account for the inverse relationship between population density and per capita consumption.

The only remedy that would restore a balance of trade is the same trade policy that the U.S. employed until 1947 to maintain such a balance – tariffs.  The use of tariffs to compensate the U.S. for nations’ inability to provide us access to equivalent markets – markets that have been emaciated by overcrowding – would restore a balance of trade and breathe life back into the American economy.