Just Use Tariffs

April 16, 2021

https://www.fidelity.com/news/article/top-news/202104130705RTRSNEWSCOMBINED_KBN2C01AL-OUSBS_1

The above-linked article is an interesting case study of the challenges involved in bringing manufacturing back to the U.S. The product in question is a semiconductor – a “chip” – that is in such short supply that it has forced the shutdown of some auto production in the U.S. The Biden administration is looking at ways to break our dependence on imported semiconductors.

Oddly, the article begins with what seems to be an American manufacturer – On Semiconductor – supplying chips to to Hyundai in South Korea, perhaps because the Reuters author, Hyunjoo Jin, is herself Korean. You’d think that Reuters could find some American to write about the actual subject of the article – the challenges Biden faces in bringing chip manufacturing back to the states – but apparently they couldn’t. Maybe we first need to begin by bringing news reporting back to the U.S.? But I digress.

Never mind all that. The point of the article is the complex supply chain engaged in delivering a semiconductor chip to an auto manufacturer that could just as easily be General Motors in Detroit as Hyundai in South Korea. The author chronicles the myriad of steps that begins in Italy and makes its way through Taiwan, Singapore and China, just to name a few. So it’s not just a matter of building a chip factory here. It would require a daisy-chain of factories to turn silicon wafers into the actual semiconductor chips. So the Biden administration is faced with subsidizing a whole array of industries to entice them to move manufacturing to the U.S. It’s enough to make your head spin. The article concludes with “Simply throwing money at this does not solve the problem. It is a more complex problem.”

Moving that supply chain back to the U.S. is certainly a very complex problem. Negotiating subsidies with a dozen or more companies to entice them to make such a move would be difficult enough, not to mention expensive for American taxpayers, if that’s the approach that the government is considering. But there’s another much simpler solution – one so simple that it would require little more than the stroke of Biden’s pen. All he has to do is sign an executive order to levy tariffs on all manufactured products from the countries responsible for our twenty largest trade deficits. Each of the countries mentioned in this article as being involved in this supply chain – China, Taiwan, Singapore (a small city-state located in Malaysia) and Italy – are on that list, responsible for our largest, ninth largest, tenth largest and eleventh largest trade deficits respectively.

Here’s what would happen. Eager to mitigate the tariff, GM (for example) would soon move the final step in that process, the manufacturing of the chip, to a new plant in the U.S., perhaps as a subsidiary. Other potential suppliers like Japan, Vietnam, Mexico or others wouldn’t be viable options since they too are on the tariff list.

Next, that new GM chip-making subsidiary, eager to avoid tariffs on its supplies from Taiwan, would soon implement plans to develop a supplier in the U.S. Once established, that company in turn would soon make plans to source its silicon wafers from a new plant in the U.S. instead of from Italy.

The Biden administration, and whatever administrations succeed it, would barely have to lift a finger to make it happen and it wouldn’t cost American taxpayers one penny in higher taxes. Would it raise the price of semiconductors and, consequently, the price of new cars? Sure, but not much. A few bucks at the most. But, in terms of your purchasing power, they’d actually be cheaper when you factor in the upward pressure on wages – your wages – as the result of the demand for labor from this whole new U.S.-based semiconductor supply chain.

There are two elements of a tariff plan that would be critical to making it effective. First of all, by targeting those twenty nations that are responsible for our biggest trade deficits, the tariffs would eliminate from consideration all those grossly overpopulated nations with bloated labor forces who prey on the American economy. When Trump enacted tariffs on Chinese products, suppliers simply moved their operations to some other such country like Vietnam or Mexico. Those wouldn’t be viable options if moving there failed to eliminate the tariffs.

Secondly, the tariffs must be applied to all manufactured products from those countries. Why? Because otherwise, making our autos more expensive would put them at a disadvantage to autos imported from those countries, but not if those imported autos are subject to the same tariffs. For example, suppose that the tariff is 50%. That tariff might raise the price of an American car by 25%, let’s say. But you’d still opt for the American car if cars from Mexico, Japan, Korea, China, Italy, etc. are priced 50% higher. Now we’re not talking about just cars, but every single manufactured product you can imagine. The manufacturing of every one of them would come back to the U.S. since American-made products would then be the cheaper option for American buyers.

By the way, there’s another factor to consider here. If you’re a globalist, you may be turned off by a proposal that seems “protectionist.” But if you are a globalist, you’re probably also a person who’s concerned about the environment. In all of the talk about fossil fuels and CO2 emissions, you never, ever hear mention of the role of the global supply chain in “fueling” the problem. Did you know that the ships that transport manufactured goods back and forth across oceans and around the globe, goods that could just as easily be made locally, burn five billion barrels of oil per year? Think about that. If the Biden administration really wants to have an impact on climate change, implementing this tariff plan is probably the best place to start.


China Falls Short of “Phase 1” Goals Again in October

December 8, 2020

China signed the “Phase 1” trade deal with the U.S. in January, in return for the U.S. postponing a second round of tariffs on the remaining half of all Chinese exports to the U.S. China committed to meeting specific targets for imports of four classes of American goods for 2020 and 2021: manufactured goods, energy goods, agricultural goods and total goods.

The data for October was released on Friday and, once again, China has fallen far short of meeting its commitments. With only two months left in 2020, China is behind its commitment for manufactured goods by 30%. It’s behind in energy products by 64%. It’s behind in agriculture goods by 41%, and is behind in total goods by 35%. Here’s the year-to-date data: https://petemurphy.files.wordpress.com/2020/12/phase-1-china-trade-deal-2020-ytd.pdf.

Though China once again fell far short of its goal, it’s worth noting that they did increase their imports slightly. Most notably, for the 2nd month in a row, they exceeded the monthly goal for agriculture imports, making up a little lost ground toward meeting its 2020 commitment for that category of goods. Ten months into 2020, they are now 2 for 40 in terms of meeting its commitments (10 months times 4 categories of goods).

It’s also worth noting that China’s imports of American goods in October set a record of $14.7 billion, beating the old record of $13.6 billion set in December of 2017. However, that’s little cause for celebration because the goods trade deficit with China actually worsened to $30.1 billion, thanks to the 7th consecutive monthly increase in imports from China, which rose to $44.8 billion. The net result of the “Phase 1” deal is that our trade deficit with China has actually worsened in 2020.

Trump made the same mistake with the “Phase 1” deal that Obama made when he vowed to double U.S. exports to reduce our trade deficit. He focused on exports while ignoring imports. It’s impossible for the U.S. to export its way out of a trade deficit with a badly overpopulated nation with a bloated labor force that is dependent on manufacturing for export. When Trump’s focus was on the use of tariffs to reduce imports from China, we made significant progress in cutting our deficit. When he took additional tariffs off the table with the signing of the “Phase 1” deal, that progress was reversed.

It’s time to kill this dumb deal and levy more tariffs on China. If Trump won’t do it in his waning days, then Biden has an opportunity to show that he stands with American manufacturing and American workers. But he won’t.


Time has come to terminate “Phase 1” China trade deal and move forward with tariffs

November 14, 2020

At the time that he signed the “Phase 1” deal with China in January, I said that Trump was making a huge mistake.

Let’s back up to Trump’s inauguration three years earlier. Trump was elected to “Make America Great Again” and a huge part of that program was to bring down America’s trade deficit and bring our manufacturing jobs back home again. In his auguration speech, Trump noted the abandoned, decaying factories scattered like tombstones across the American landscape and said “it all stops right here and right now!”

To that end, Trump got off to a slow start. Proud of his deal-making ability that he demonstrated in the business world, he took the same approach toward trade. He spent two years negotiating a replacement for the North American Free Trade Agreement. The USMCA (United States, Mexico, Canada Agreement) that has replaced it only went into effect this past July. Though analysts predict it will be a net win for the United States, boosting manufacturing, the trade deficit with Mexico has tripled in the meantime and we’ve yet to see any change in business dealings with that country.

At the same time, China launched a charm offensive with Trump and it worked. Trump fell for their promises to boost imports from the U.S. When he realized he’d been snookered, Trump finally did what he should have done in the first place, slapping tariffs on some Chinese goods. He later boosted those tariffs to 25% and levied them against half of all Chinese products. Then, to get China to make a trade agreement with the U.S., the “Phase 1” deal, he threatened to levy the same tariffs against the remainder of all Chinese products.

Predictably, China agreed to make significant progress toward buying more American goods and, to his credit (and unlike deals made by previous administrations), he included specific goals and deadlines. However, just as predictably, China has made no effort whatsoever to comply. They’d already gotten what they wanted. No more tariffs, and they counted on Trump being no different than any president who preceded him – there’d be no follow-through or enforcement. So far, they were right.

Making America Great Again came to a screeching halt – at least the trade reform portion of it which, of course, is the biggest and most important part. It was a huge mistake. I warned at the time that Trump was risking vital support by stalling his agenda.

Trade results for the month of September were released by the Commerce Department on November 4th. Nine months into the year, China has come up way short once again. Here’s the data: https://petemurphy.files.wordpress.com/2020/11/phase-1-china-trade-deal-2020-ytd.pdf. China’s purchase of manufactured goods is up slightly, but still less than the 2017 baseline and 30% short of the goal for 2020. Their purchases of energy products are 65% short of the goal. Their purchases of agricultural products is 52% below the goal, and their purchase of total goods is 38% short of the 2020 goal.

The deal’s goals were divided into four categories of goods. Nine months have passed. That’s 36 opportunities that China has had to demonstrate a good faith effort to meet the goals. Their score? Nine months into the deal, they are 0 for 36. They are only 8 for 36 in terms of meeting the 2017 baseline. No coach of any team would keep his/her job with that kind of record. It’s time to fire this deal.

Trusting China to meet their commitments was a big mistake that stalled Trump’s trade agenda and likely cost him the badly needed votes in the election. However, it’s not too late. Trump could put the trade agenda back on track toward making America great once again by declaring China’s performance a failure, terminating the deal and imposing the tariffs that should have gone into effect a year ago. Leave the deal in place and Biden will pretend that it doesn’t even exist. Terminate the deal and Biden will face a dilemma: cave in to China and drop the tariffs and prove to all American workers that he cares nothing about their plight, or leave the tariffs in place, scoring a big win for Trump’s legacy.

This is a last chance for Trump to demonstrate his determination to “Make America Great Again.”


Time to Leave the World Trade Organization

September 16, 2020

https://www.reuters.com/article/us-usa-trade-china-wto/wto-finds-washington-broke-trade-rules-by-putting-tariffs-on-china-ruling-angers-u-s-idUSKBN2662FG

As reported in the above-linked article, the World Trade Organization has announced its finding that the U.S. broke its rules when it imposed tariffs on Chinese imports two years ago.

The timing of this announcement is curious.  Of course the U.S. broke the rules.  Everyone knew it at the time.  Trump didn’t care.  It was the only way to make any progress on halting the explosion in the trade deficit with China.  So why wait until now?  Is it because Trump faces re-election in less than two months, running against a candidate who played a big role in the advancement of the globalism that the WTO enforces?

The WTO is the enforcer of the ill-conceived trade scheme hatched in the wake of World War II to bring the world together by employing the unproven concept of “free” trade.  Decades later, the results are in and “free” trade is now a proven failure.  Instead of lifting all economies of the world and bringing the world together through an inter-dependency, the WTO has destabilized the world by establishing a host-parasite relationship between reasonably-populated nations, like the U.S., and the others – like China, so badly overpopulated that they are totally dependent on manufacturing for export and feeding off of America’s market.  The WTO is directly responsible for building up a totalitarian communist regime bent on dominating the rest of the world.

It’s time to put an end to this.  Trump can do it by simply withdrawing from the WTO, a move that would quickly lead to its collapse.  Let’s return to truly free trade, where every nation is free to set its own rules in its own best self-interest.


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.


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.


How Population Density Drives Trade Imbalances

June 15, 2020

Now that an analysis of America’s 2019 trade results has revealed that population density is the biggest factor in driving our trade imbalance – just as we’ve seen in every year previous – it’s time for an explanation of how that happens.  How is it that something that seems so unrelated to the economy and trade can have such a dramatic effect, dwarfing the effect of other parameters that would seem to be more influential – things like wages, currency exchange rates, productivity and so on?

Population density is, by far and away, the single most dominant parameter in the field of economics, but one that goes unrecognized by economists because of their cowardly refusal to give any consideration to the subject.  The reason for that dates back to the mocking of economists by other academics in the wake of the seeming failure of the theories of economist Malthus regarding population growth.

The density of the population in which you live has an enormous impact on your ability to consume products.  That impact varies depending on the product in question.  In the case of food, there’s no impact at all.  Everyone needs to consume a certain amount of calories each day to survive.   At the other end of the spectrum, the impact on the consumption of housing, or dwelling space, is huge.  For example, the average citizen in Japan – a nation ten times more densely populated than the U.S. – lives in a dwelling space that’s less than one third the size of the average American.  When people are packed together so tightly, there’s simply no room for anything else.  So the average Japanese citizen’s consumption of everything used in building, furnishing and maintaining a home is less than one third of the average American’s.  Actually, it’s even worse than that when you realize that a much greater percentage of Japanese families occupy multi-family housing, like apartments.  In those cases, walls and foundations are shared, ceilings become floors for the apartment above, etc.

The effect on every single product you can imagine is to reduce its per capita consumption.  Cars?  There’s no room to drive or park them for most people in Japan.  You’ve all seen news stories of Japanese trains carrying commuters literally packed together so tightly that they can barely breathe.

Boats?  In spite of the fact that Japan is an island nation, their per capita consumption of boats is close to zero.  The same is true for Denmark, a nation consisting of one large peninsula and many islands, but which is also very densely populated.

Lawn care and gardening equipment?  On a per capita basis, lawns and gardens virtually don’t exist in Japan.  Sporting goods?  There’s little room for golf or tennis or anything else that requires much real estate.  Even things like electronics are affected, since such cramped quarters as you find in places like Japan force people to share them.

So you get the idea.  A dense population absolutely strangles per capita consumption.  On the other hand, when someone in Japan (or China, or Germany, or South Korea, or any densely populated nation) goes to work, they are every bit as productive as an American worker.  It takes no more or less labor to manufacture something, like a car, for example, in Japan than it does in America.

People make things and people buy things and that, in a nutshell, is what makes an economy tick.  But what happens if people aren’t able to buy as much as they’re able to make?  Now you have a situation where the supply and demand for labor are out-of-balance.  Less demand for labor translates into higher unemployment.  Higher unemployment means lower wages for everyone, and it necessitates greater government spending to provide a safety net for the unemployed.  It’s a recipe for disaster for any nation’s economy.

However, there’s an escape mechanism for nations that find themselves in this fix.  They can put their excess labor capacity to work making products for export.  Of course, that requires a trading partner who’s willing to share their market.  If that partner has a shortage of labor – perhaps because they are very sparsely populated and lack the labor force needed to manufacture everything they need – then it can be a beneficial situation, one that is likely financed by the sparsely populated nation selling natural resources like food, oil, lumber, minerals, etc. to the densely populated partner.

But what if that trading partner isn’t sparsely populated and has no shortage of labor?  To welcome imports from that densely populated nation will inevitably put its own people out of work and create a big trade deficit.  It’s absolutely inescapable.  The densely populated nation won’t buy products from the less densely populated nation in equal measure because they can’t even consume their own domestic manufacturing capacity, much less take in more from other countries.

Either a densely populated nation sustains its economy by manufacturing for export, or it lapses into abject poverty because of extreme unemployment.  Look around the world and you’ll see that this is true, although I should point out that there are a couple of exceptions.  Many small island nations, though they tend to be densely populated, maintain vibrant economies that are based on tourism.  And some small but densely populated nations have oceans of oil beneath their feet and trade that oil for all the other products its citizens require.  But these are the exceptions.  Any densely populated nation of any size is either dirt poor or is totally dependent on manufacturing for export.   Attempting to trade freely with such nations is economic suicide.  A big trade deficit and a loss of manufacturing jobs is inevitable.

What is the point of trade policy that only serves to erode our economy?  The purpose of trade is to make available products that can’t be obtained domestically.  For a nation like the U.S. – big and rich in resources – there isn’t much we need.  Tropical fruits, out-of-season produce, and a few rare minerals are examples.  But manufactured products?  There are none that we can’t make domestically and more efficiently, especially when you factor in the five billion barrels of oil burned annually by ships bringing in products from half-way around the world.  It makes absolutely no sense.

Tariffs are the only remedy available to maintain a balance of trade.  Trade deals don’t work, because there is no motivation for a nation dependent on manufacturing for export to abide by them.  The reduction in the trade deficit with China is proof that they work.  Those tariffs need to be expanded to include all Chinese imports, not just half of them like we have now.  Beyond that, their implementation needs to be spread to other densely populated nations that prey on the American market to sustain their bloated labor forces – Germany, South Korea, Ireland, Vietnam and other Asian and European nations.

Virtually every problem in America, beyond unemployment and low wages, in which a lack of funding is a factor, can ultimately be traced back to our trade deficit – inadequate funding of schools, neglected infrastructure maintenance and improvements, inner city blight, health care – the list can go on and on.  Ultimately, the federal budget deficit and national debt can be attributed to the federal spending needed to offset the financial drain of the trade deficit.

And still economists keep their heads in the sand and insist that population growth plays no role in economics.


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.