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.


Globalism Establishment Starts to Sweat as their Regime Begins to Crumble

July 26, 2016

These three articles appeared in the news a couple of days ago almost simultaneously in the wake of the Republican convention.

In this first article, finance ministers and central bankers from the G20 nations pledge to “share the benefits of global growth more broadly.”  The article focuses on concerns surrounding “Brexit,” Great Britain’s vote to pull out of the European Union over dissatisfaction with the EU’s open border policies and with being fleeced to prop up the economies of other EU nations.  But the article also takes note of Trump’s vow to pull out of trade agreements.  The G20 is starting to sweat.

In the 2nd article, U.S. Treasury Secretary Lew is reported as saying that it’s time to “redouble our efforts to use all of the policy tools that we have to boost shared growth.” Why is it time to do that now?  Why weren’t we doing this all along?  It’s because it’s now clear that “free trade” policy is becoming more widely opposed, with the political left now opposing the Trans Pacific Trade Partnership (TPP) and with the right going further, vowing to pull out of all existing free trade deals.  The globalist Obama administration is also starting to sweat.

And further evidence comes in this 3rd article about a meeting on Friday between President Obama and his Mexican counterpart.  Don’t be fooled.  This wasn’t just a meeting designed to stress the importance of the relationship between these two countries.  Both are beginning to sense the very real possibility that their trade regime is nearing it’s end.  I predict that, sometime between now and the election, there will be an announcement of some deal, a deal that had its genesis in this meeting, that will move some token manufacturing back from Mexico to the U.S. in an effort to blunt some of the trade anger.

I have written occasionally about cracks that were beginning to appear in globalization – like more and more economists beginning to openly question whether donor countries like the U.S. and Britain were really seeing any benefit at all from these trade agreements and whether they have been, in fact, a net drag on their economies.  The globalization story has been very much like the annual reports that emanated from the now-defunct Enron Corporation.  We were told by Enron that their business was very complicated – too complicated for analysts outside the company to understand.  As it turned out, it wasn’t really complicated.  It was a scam.  People will only buy into such scams for so long.  And so it is with globalization.  The British people could no longer take it.  Nor can Americans.

Without the support of its donor nations and the continued subservient acquiescence of its citizens, the globalization scheme is doomed.  Good riddance.

 


Trump

July 22, 2016

So disillusioned was I with Obama’s broken promises to address the problems with our trade policy, his broken promise to double exports in five years, his signing of the awful trade deal with South Korea and, more recently, his pursuit of bigger, more expansive trade deals with Pacific rim nations and with Europe, I vowed to myself that I would stay out of politics on this blog going forward.  However, as discoverer of the inverse relationship between population density and per capita consumption, as author of the book Five Short Blasts that explains the relationship and its ramifications and, consequently, as an advocate of policies that would restore a balance of trade and move us toward a stable population, and in the wake of Donald Trump’s acceptance speech at the Republican National Convention last night, I feel I can no longer ignore the elephant in the room.

Now more than halfway through my seventh decade on this planet, I have spent my whole life watching our country being sucked into the vortex of “globalism” in which the United States has evolved from a beacon of hope and prosperity into a host upon which overpopulated nations, unable to sustain themselves, could feed and thrive.  Our political parties evolved into one “Republicrat” party, supporting the trade and open-border policies that are central to making “The New World Order” tick.  The “hope and change” that Obama spoke of, especially his promise to fix our trade policy, I thought, might be our last chance to stop that madness.  In the wake of his betrayal, I figured that was it – that I’d never live to see an America again that was something other than the hollowed-out shell we’ve become.

On more than one occasion, I have called Donald Trump a “buffoon.”  We’ve seen him dip his toe into politics before, only to self-destruct through outlandish pronouncements and behavior.  He got my attention with his vow to “build the wall,” but I figured the same thing would happen again.  He’d soon self-destruct.  I thought that those who gave him a 1% chance of winning the nomination were being generous.  He was just grand-standing and having fun, enjoying another brief stint in the spotlight like he’s done before.

Then he vowed to rip up our trade deals and start over on trade, making new deals that actually worked for us.  He got my attention again.  I wanted to get my hopes up, but figured that, surely, his antics during the primary race would sink his chances.  To my amazement, they didn’t.  He was saying the right things about illegal immigration and about trade, but I was dismayed with the personal attacks.

Finally, last night, I saw the Trump I’d been wanting to see.  He was still Trump and, defying predictions that he’d back away from earlier promises in order to broaden his support, he actually doubled down on each one.  But gone were the personal attacks.

Trump was exactly right when he pointed out that our trade and immigration policies have done more harm to the poor, to the inner cities, to blacks and Latinos than to anyone else. I hope the folks from these demographics paid attention and kept open minds.

Unlike the Trump I’ve seen in the past, he seems truly sincere in his desire to turn the country in a very different direction.  At least that’s the way he came across last night.  It’s hard to imagine that a man 70 years old would subject himself to everything that goes with winning this nomination and waging the campaign to follow unless he really has a fire in his belly to do what he says.

But can he?  Can he get the political establishment to go along with with his plans – plans that seem radical and dangerous to many of them?  Can he back us out of trade deals in the face of threats from these other countries that will probably scare the hell out of people?  I have said that restoring a balance of trade would not be without pain, driving up the cost of goods until our own domestic manufacturing can get re-established.  Can he, a total Washington outsider, do this without mucking it up and perhaps forever sinking any hope that it will ever be tried again?   Will he be brain-washed into joining the ranks of the globalists as Obama was?  (That would seem unlikely with Trump.)  Does he really have the energy and drive to make all this happen?

Or am I just being suckered again?  I hope not.  As one who understands that the effects of our enormous trade deficit and our immigration policies on our economy dwarf all other factors – including currency valuations, Fed policy, stimulus programs, and so on – I have to at least give the benefit of the doubt to candidates who are at least claiming that they’ll tackle these issues.  Only time will tell.

In the meantime, I’ll keep doing my small part to convince you and others of the perils of our free trade and open border policies.

 


“Brexit” Another Failure of Economics

June 30, 2016

Why is it that all the big stuff happens while I’m on the road and unable to comment?  So it was with the “Brexit” vote last week when Britons voted to split from the European Union – the EU.  Well, better late than never.  So the following are some thoughts regarding the “Brexit” vote.

There has already been a lot of analysis of the underlying reasons for the surprising results of this vote.  They focus on three main issues:  immigration, trade, and the fact that Britain was being fleeced by the EU to the tune of about $350 million per day – only about half of which was returned to Britain in the form of “subsidies.”

The real root cause goes much deeper.  For decades, the main thrust of the United Nations has been the eradication of hunger and poverty among undeveloped nations – a noble goal.  But instead of helping such countries by fostering real, organic economic growth that begins with self-sufficiency and nurtures domestic industrialization to meet the growing wants and needs of the people, economists decided on an easier route.  They relied instead on “free” trade and population growth.

There was once a time when nations were free to strike trade deals with one another that were of mutual interest to both.  Both sides benefited.  Each gave something and each got something on terms that worked out to the best interests of both.

But faced with the challenge of elevating the fortunes of undeveloped countries, the United Nations and the World Trade Organization seized on a quick fix – the implementation of a trade regime that would tilt the playing field such that jobs and money would slide from the developed world to the undeveloped world.  “Don’t worry,” they assured the developed world.  “It’ll benefit you, too, when these nations develop into customers for your goods.”

Well, they haven’t, and now we have a system of trade where the rules are rigged in favor of one country over another – where developed countries are forced into trade relationships that are actually detrimental to them and their citizens.  This situation is now referred to as “free trade” while the previous system in which countries were free to make their own trade deals is decried as mercantilism.

The other tool in economists’ bag of tricks is population growth.  Population growth translates to GDP (gross domestic product growth), something that business loves, so the economists found ready and willing allies among global corporations, chambers of commerce and others.  None recognize that such cancerous growth actually degrades the quality of life of individuals and fuels more poverty.  The EU is no different and has seized upon immigration-driven population growth as a tool to prop up GDP.

There is just one problem with this grand scheme – democracy, and the fact that all of the ballyhooed intangible benefits of these approaches couldn’t obscure from the people the fact that they’re getting screwed.  I’ve occasionally high-lighted cracks that have been appearing in “globalization,” mostly in the form of skepticism about whether “free” trade was really any benefit at all for the donor countries or if it was actually dragging them down.  Now comes the “Brexit” vote, ripping a gaping hole in it.

Congratulations to the British people who rejected the econo-babble of the EU elites and applied common sense to their evaluation of what’s become of their country.  And it doesn’t stop with Britain.  Other EU nations who find themselves being fleeced to prop up the likes of Greece and Spain are also ready to jump ship.  In the wake of “Brexit,” EU leaders commented that, with the loss of British revenue, the EU may now be forced to raise taxes and implement even more austerity.  Smooth move, Brussels!

Speaking of dumb moves (dumb from the perspective of the globalists), how about Obama’s trip to Britain in which he chastised the “leave” supporters and threatened that the U.S. would relegate them to 3rd class status in trade negotiations if they did, in fact, leave the EU?  If any Brits were on the fence on this issue, Obama’s comments offered proof that Britain had been subjugated to the interests of the global elite.  Obama may very well be responsible for pushing Brits over the edge.  Yet another foreign policy blunder on his part (right on the heels of his disastrous trip to Japan, during which he was publicly berated by the Japanese president).  Continuing down that tangent, just yesterday he met with the Canadian and Mexican leaders in support of NAFTA, a meeting that the press hailed as “the three amigos.”  Could he possibly have made a more tone-deaf move when the nation is already fed up with illegal immigration from and job losses to Mexico?  Now Obama is known as an “amigo?”

As proof that sentiments that drove the “Brexit” vote go beyond the EU, Donald Trump has also blown a big hole in America’s one-party Republi-crat support for free trade and mindless pursuit of population growth as a crutch for a sick economy that was long ago ceded to the World Trade Organization.  The Republican elite are abandoning him in droves, but voters couldn’t care less.  They’re fed up with their leadership, just as the Brits were fed up with theirs.  America’s “Brexit” from globalization may come in November.

 

 


America’s Worst Trading Partners in 2015

May 19, 2016

It’s time for my annual ranking and analysis of America’s best and worst trading partners for 2015.  No surprise, it was another dismal year for American manufacturers, racking up the 40th consecutive year of trade deficits and setting a new record in the process – a deficit of $648 billion.  That surpasses last year’s record deficit by a whopping $109 billion.

Since the surpluses of trade with our best trade partners is overwhelmingly swamped by the deficits with our worst partners, let’s begin there.  This year I’m going to first present the list in the most basic terms – a list ranked in order of the sheer size of the deficits. Check out this list of America’s twenty worst trade partners in terms of our deficit in manufactured products:  Top 20 Deficits, 2015.

The nations at the top of this list should come as no surprise to anyone.  Trade with China dwarfs them all with a deficit of $367.5 billion – more than four times larger than our second largest deficit with Japan.  That’s not surprising when you realize that China has ten times as many people as Japan.  China actually accounts for about one fifth of the entire world’s population.  The following are some other key observations about this list:

  • Look at the population density of these nations.  The average population density is 737 people per square mile.  That’s eight times the density of the United States.  With only one exception – Sweden – every nation on this list is more densely populated than the U.S.  Most are much, much more densely populated.
  • Eight of these nations are wealthy European nations.
  • Over the past ten years, our trade deficit has worsened with 17 of these nations.  Most have worsened dramatically.  The nation with whom our balance of trade has improved the most (that is, with whom the deficit has declined the most in the past ten years) is Sweden – the only nation on the list less densely populated than the U.S.
  • Our trade deficit with Japan has actually declined by 18% over the past ten years.  Why?  Simple.  South Korea is “eating their lunch.”  Imports of South Korean cars – Hyundais and Kias, along with imports of South Korean appliances like those made by LG, Samsung and others – has cut into Japan’s market share.  Remember when President Obama signed a new trade deal with South Korea in 2012, proclaiming it a “big win for American workers?”  In three short years our trade deficit with South Korea jumped 50%.
  • Our fastest growing trade deficit is with Vietnam, growing by 440% in the last ten years.  Some may point to the fact that at $6100 per person, Vietnam has the lowest purchasing power parity of any nation on this list – only slightly better than India – and that this is the reason for the explosive growth in our trade deficit with them.  However, our second-fastest growing trade deficit is with Switzerland, a nation that is actually more wealthy (with higher wages) than the U.S.  What Vietnam and Switzerland do have in common is a high population density.  It’s the one thing that (nearly) all of these diverse nations have in common.

Many people will look at this list and quickly conclude that, when it comes to our trade deficit, the problem is China and so that’s where we should focus.  Somehow, some way, they’re obviously not playing fair with us.  They’re manipulating their currency, they’re ignoring workers’ rights.  They’re trashing the environment.  And so on.  So let’s get tough with China.

The problem is that China can legitimately complain that of course our deficit with them is big, simply because they are a big nation.  Person-for-person, our trade deficit with Japan is worse.  OK, so in an effort to be fair, let’s broaden our efforts to include Japan.  “Not so fast!” the Japanese will complain.  “What about Germany?  Their surplus with you is nearly as large and they have only half as many people as we do!”

The point is that in determining the root cause of these enormous deficits in order to formulate an effective trade policy, we need to factor out of the equation the sheer size of these nations.  Let’s determine who are really our worst trade partners on a person-for-person basis.  So here’s a list of our worst trade partners in terms of the per capita trade deficits:  Top 20 Per Capita Deficits, 2015.

Now we can see what a mistake it would be to simply conclude that China is the problem.  In per capita terms, they barely make the list of the top twenty worst deficits.  In fact, there are now ten European nations on this list and, in per capita terms, our trade deficit in manufactured products is worse with all ten of them than it is with China.  Here are some more key observations about this list:

  • Once again, all but two of the nations on this list – Sweden and Finland – are more densely populated than the U.S.  Most are far more densely populated.  Only three have population densities less than the median population density of the world, which is 184 people per square mile.  One – Ireland – is right on the median.  The other 80% of the nations on this list are much more densely populated.
  • Most of these are wealthy nations, with an average purchasing power parity of $44,370 per person.  In fact, the top of the list is dominated by the wealthiest.  Clearly, the argument that low wages cause trade deficits doesn’t hold water.  If anything, the cause and effect is exactly the opposite.  Running large trade surpluses makes nations wealthier.
  • There is one nation on this list that is a net oil exporter – Mexico.  I point this out because oil is priced in U.S. dollars, and every dollar spent on oil produced by foreign countries must be repatriated to the U.S., since that is ultimately the only place where they are legal tender.  Those dollars are repatriated in several ways, primarily through the purchase of American bonds or through the purchase of American goods.  The latter tends to make net oil exporters strong buyers of American products, which usually means that the U.S. enjoys a surplus of trade in manufactured products with such nations.  But not Mexico.  What this means is that the large trade deficit in manufactured goods that we have with Mexico is actually even worse than it appears.  For a nation whose population density is one of the lowest on the list – less than twice that of the U.S. – it means that something beyond population density – such as some unfair trade practice – is at work here.  Ditto for Ireland, which has fashioned itself into a tax haven for manufacturers, virtually bankrupting itself during the “Great Recession” of a few years ago.

If you are seeing such data for the first time, it may be a little early, based on this data alone, to conclude that population density is the driving force behind trade imbalances.  More proof is needed.  If such a relationship exists, then we should see exactly the opposite at the other end of the spectrum.  We should see a list of America’s best trade partners – those with whom we have trade surpluses – loaded with nations with low population densities.  We’ll take a look at that list in my next post.

If you’re already acquainted, however, with the relationship between population density and trade imbalances, which I explored thoroughly in Five Short Blasts, then this data is just further proof that population density is, in fact, the driving force behind these trade imbalances.  Such deficits are inescapable when applying free trade theory, which fails to account for large disparities in population density, to such nations.  It will only get worse with each passing year, exactly as we have seen.

 


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.

 


Pace of Growth in U.S. Trade Deficit with China Unabated in 2015

May 2, 2016

America’s trade deficit in manufactured goods with China continued to worsen in 2015 at the same pace that it has since China was granted MFN (most favorable nation) status by President Bill Clinton back in 2000.  This is in spite of the fact that wages in China have nearly quadrupled and the yuan has risen in value by 36% during that same time frame.

Here’s a chart that shows how the deficit has worsened by 367% since 2001:  China.  On average, our deficit with China has worsened at a rate of nearly 10% per year.  In 2015, it grew by yet another 6%, now reaching a staggering total of almost $388 billion.  Assuming that 2/3 of the cost to manufacture products is labor, and assuming that those jobs would pay an average of $50,000 per year, that’s a loss of 5.2 million manufacturing jobs from the U.S. economy.  It also accounts for most of the federal budget deficit in 2015, since the federal government is forced to run a budget deficit to make up the money that is drained from the economy by the trade deficit.

In fact, going back to 2001, the cumulative trade deficit in manufactured goods with China now totals $3.77 trillion.  That’s about 20% of our total national debt.

Free trade advocates would have you believe that such trade deficits are the result of a couple of factors:  low wages and/or currency manipulation – the practice of keeping a nation’s currency valued artificially low in order to make its exports cheaper and to make the exports of other nations more expensive for their own citizens.  Why do they want you to believe these things?  Because it leads one to believe that, over time, as wages rise in that country, the trade deficit will correct itself and, if we just shame that country into ending their manipulation of their currency, free trade will work as it should.  Either way, they want you to believe that free trade will work if we just give it enough time.

But the data speaks otherwise.  First of all, regarding the “low wage” argument, here’s a chart that shows how the Purchasing Power Parity (or “PPP” – analogous to wages paid) for Chinese citizens has grown since 2001 vs. the trade deficit:  China PPP vs deficit.  As you can see, the wealth of the Chinese has grown from $2,616 per person in 2001 to $14,300 in 2015.  That latter figure is now greater than the income of Americans who earn minimum wage.  In other words, the Chinese are rapidly catching up to wages in America.  But that hasn’t reversed the course of our trade deficit with China.  It hasn’t even slowed down its growth.  If there was any validity at all to a relationship between low wages and trade deficits, we should at least have seen some effect by this point.  There is none.

What about the effect of currency valuation?  Check out this chart:  China Xch rate vs deficit.  In 2005, the Chinese agreed to begin to let their currency rise in value.  By 2015, it had risen from 8.27 yuan/dollar to 6.09.  But there’s been absolutely no impact on the worsening pace of our trade deficit.  Even these two factors -rising wages and a rising Chinese currency – working together have had absolutely no impact on the pace at which our deficit with China continues to worsen!

There is no impact because neither of these factors play any role in determining the balance of trade.  Currency values don’t determine the balance of trade.  Instead, the opposite is true:  the value of China’s currency is rising because of China’s huge trade surplus.  And wages are soaring in China for the same reason.

The trade imbalance exists because of the huge disparity in population density between the U.S. and China.  China’s severe over-crowding limits their potential for personal consumption, emaciating their potential as a market place for U.S. exports.  But they are every bit as productive as American workers.  The result of attempting to trade freely under such circumstances is inescapable – an enormous trade deficit.

The only possiblity for restoring a balance of trade with a nation like China is to abandon free trade theory – a theory that doesn’t take into account the role of population density in driving trade imbalances – and adopt the use of tariffs to compensate the U.S. for China’s inability to provide access to a market that is equivalent to our own.  Nothing short of that has any chance to restore a balance of trade and avoid the U.S. being driven further toward bankruptcy.