Trade Deficit in Manufactured Goods At Record High

December 7, 2017

The trade deficit in manufactured products* rose to a record high of $64.6 billion in October, surpassing the previous record of $63.3 billion set in March of 2015.  Take a look at this chart of our monthly deficit in manufactured goods:  Manf’d Goods Balance of Trade. Exports of manufactured goods haven’t risen since September of 2011 (in spite of Obama’s laughable proclamation in 2010 that we would double exports in five years).  In the meantime, imports have soared by almost $30 billion.  It’s a dubious distinction for President Trump who, during his inaugural address in January, spoke of “…rusted-out factories scattered like tombstones across the landscape of our nation…” and proclaimed that “This American carnage stops right here and right now.”

To be fair, Trump didn’t mean that it would happen on the spot.  His administration has been taking steps to address our trade problem, trying to renegotiate NAFTA (the North American Free Trade Agreement with Mexico and Canada), imposing tariffs on some products and, most recently, blocking China from rising to “market economy” status with the World Trade Organization.  Aside from the work on NAFTA, which may conclude soon with the U.S. walking away from that ill-conceived agreement, the rest amounts to little more than the token steps taken by previous administrations.  The net result is that the plight of the manufacturing sector of our economy grows steadily worse.

Enough is enough.  It’s time to walk away from both NAFTA and the World Trade Organization and begin implementing tariffs.  Any tariffs would be better than our current trade policy, but smart tariffs that address the real cause of our trade deficit – attempting to trade freely with badly overpopulated nations characterized by bloated labor forces and anemic markets – would be much more effective.  As an example, it was reported yesterday that Canada, angered by their treatment in the NAFTA negotiations, has canceled an order for Boeing-made fighter planes.  Why are we treating Canada this way?  Sure, we have a trade deficit with Canada, but it’s due entirely to oil.  In 2016, our biggest trade surplus in manufactured goods, by far, was with Canada – $44 billion, more than double any other country.  Canada is our best trading partner.  Why anger them?  Why not tell Canada that our beef is with Mexico, with whom we had a trade deficit in manufactured goods of almost $68 billion in 2016 – our third worst behind China and Japan – and that they’ll get just as good a deal from the U.S. without NAFTA?  Slap the tariffs on Mexico, not Canada.

We could completely wipe out our trade deficit in manufactured goods by applying tariffs to only ten countries – China, Japan, Mexico, Germany, Ireland, Vietnam, South Korea, Italy, India and Malaysia.  These ten countries, all more densely populated than the U.S. (all but Ireland are many times more densely populated), account for all of our trade deficit in manufactured goods.  While we have defiicts with others, they are much smaller and are offset by surpluses with the rest of the world.  The point is, we don’t have to anger the entire world with tariffs – just ten out of the more than 220 countries in the world.  So let’s be smart about how we do it, but the time has come, Mr. President.  Stop delaying the inevitable.  Do what you know needs to be done.

* The trade deficit in manufactured products is calculated by subtracting services, trade in petroleum products, and trade in foods, feeds and beverages from total trade, as reported by the Bureau of Economic Analysis in its monthly reporting of international trade.

Advertisements

Ending NAFTA Would Hurt U.S.?

December 1, 2017

https://www.reuters.com/article/us-nafta-economy/ending-nafta-would-hurt-growth-competitiveness-of-united-states-canada-report-idUSKBN1DR1D4

The above-linked story appeared a few days ago, warning of a 0.2% “hit” on U.S. GDP (gross domestic product) if the U.S. walked away from NAFTA, the North American Free Trade Agreement, which has resulted in a huge trade deficit with Mexico.  The argument is that the U.S. will be less competitive with the rest of the world without access to the cheap labor in Mexico.  Making autos and parts in the U.S. will raise costs, making American autos more expensive relative to imports from Japan, South Korea and Europe.

That’s probably true, but the answer to that is fairly simple.  Raise tariffs on products from those regions as well.  The trade deficit has never been about “competitiveness.”  Rather, it’s the result of attempting to trade freely with badly overpopulated nations who come to the trade table with a gross over-supply of labor and markets plagued by low per capita consumption.  I’ve always maintained that a piece-meal approach to addressing this problem can never work.  Tariffs need to be applied universally to every country whose emaciated markets are out of balance with their over-supply of labor.

One might question whether this will result in higher prices for American consumers.  Sure it will.  But the explosion in the demand for labor to make all these products in the U.S. once again, as we did decades ago, would drive wages higher even faster, making products more affordable in spite of higher prices.

President Trump has long promised to “put America first” in trade by withdrawing from NAFTA and even the World Trade Organization, and by then levying tariffs as necessary to restore a balance of trade.  During his recent trip to Asia, he made it clear once again that that will be our approach to trade from now on.  This is exactly what’s needed to halt the parasitic drain of the life blood from our economy.  The time has come, Mr. Trump.  Do it.

 


Trump on Trade with China: Media Misses the Point

November 10, 2017

http://www.cnn.com/2017/11/08/politics/donald-trump-xi-jinping-statement/index.html

As was widely reported yesterday morning, Trump emerged from two hours of a meeting with Chinese premier Xi Jinping and had this to say:

I don’t blame China. “After all, who can blame a country for being able to take advantage of another country for benefit of their citizens? I give China great credit.”
The above-linked article goes on:
Instead of pointing the finger at Beijing for exacerbating trade disputes, Trump blamed past US administrations “for allowing this trade deficit to take place and to grow.”  It was a notable shift in tone from a President who was elected to office partly for his tough talk on holding other countries accountable for practices that disadvantage US workers.
Trump went on:
We want a vibrant trade relationship with China.  We also want a fair and reciprocal one. Today, I discussed with President Xi the chronic imbalance in our relationship as it pertains to trade and the concrete steps it will take to solve the problem of massive trade distortion.
A “notable shift in tone?”  Maybe a shift in tone, but the media is completely missing the not-so-subtle and huge shift in U.S. trade policy that this represents.  Previous presidents have chided China for unfair trade practices like currency manipulation, theft of intellectual property, subsidizing their exports, and manufacturing in sweat shops that also pollute with reckless abandon.  They used to put all of the onus on China for helping to correct our enormous trade imbalance.  The Chinese must have been rolling in the aisles with laughter when our trade negotiators left.
Not this time.  What Trump is saying is that the time has come for the U.S. to take the matter of restoring a balance of trade with China into our own hands.  Trump has been itching to begin levying tariffs on imports from countries that have large trade surpluses with the U.S. and, though he made no mention of tariffs in this speech, his vow to take matters into our own hands should send chills down the spine of Xi.  Restoring balance with China by slowing their exports with the use of tariffs would practically collapse the Chinese economy.
But so far it’s just talk.  What is Trump waiting for?  It seems clear that he’s biding his time with China in the hope that their help with reining in “Little Rocket Man” in North Korea will lead to his demise.  Probably a smart move but, if it doesn’t work by the time North Korea has the ability to put a nuke on an ICBM, the U.S. will have to act and the Chinese will lose whatever leverage holding the North Korean attack dog at bay has afforded them.
In the meantime, our trade deficit in manufactured goods grows worse.  Here’s the latest chart, gleaned from the trade data for September that was released on last Friday:  Manf’d Goods Balance of Trade.  Nothing has changed since Trump took office, and nothing will until he stops dithering with pointless negotiations and begins applying tariffs to these countries with bloated labor forces and emaciated markets.  My sense is that that time is growing nearer, but time will tell.

Auto Industry: “We’re winning with NAFTA.” Seriously?

October 25, 2017

http://www.reuters.com/article/trade-nafta-autos/auto-industry-tells-trump-were-winning-with-nafta-idUSL2N1MZ028

The above-linked article reports on an effort to generate opposition to the Trump administration’s tough stance on the renegotiation of NAFTA.

Auto trade associations representing General Motors Co Toyota Motor Corp, Volkswagen AG, Hyundai Motor Co, Ford Motor Co and nearly every other major automaker, are part of the coalition dubbed “Driving American Jobs” and backing an advertising campaign to convince the White House and voters that the agreement has been crucial in boosting U.S. automotive sector production and jobs.

“We need you to tell your elected officials that you don’t change the game in the middle of a comeback. We’re winning with NAFTA,” the group said on its website.

OK, wait a minute, domestic auto manufacturers, especially GM and Chrysler.  First of all, you’re not “winning.”  You’re barely hanging on, thanks to a taxpayer-funded government bail-out a few years ago, made necessary by the fact that rotten trade deals drove you into bankruptcy.  What American jobs have come back since then were largely driven by the fact that the United Auto Workers, being one of the stakeholders in the bankruptcy process, demanded that it have some say in the location of new plants.  That’s GM.  And Chrysler?  Part of their pathetic “comeback” required them to be sold to Fiat, globally recognized as one of the shoddiest car-makers on earth.

Ford survived without a bailout, a point of pride for that company, but now finds itself struggling with a shortage of capital to modernize its product offerings.  Not a problem for GM and Chrysler who factored that need into the bailout.

No doubt, NAFTA has played a role in propping up the profitability of these companies.  But to suggest that that somehow is a “win” for American workers is ludicrous.

The campaign comes amid rising concern that the Trump administration could opt early next year to withdraw after giving six months notice, a move that could expose automakers to high tariffs who are building trucks in Mexico and impose new tariffs on parts and cars made throughout North America.

This coalition would like you to believe that automakers would have no “plan B” to counteract tariffs.  That they’d have no choice but to continue building in Mexico, forcing consumers to pay the tariffs.  Don’t be ridiculous.  Production would be moved back to the U.S. to avoid the tariffs and the impact on production costs would be largely offset by reductions in shipping an other supply chain costs.  The impact on consumers would be virtually zilch, and the impact on the American labor force would be an upward pressure on wages.

I don’t understand why the Trump administration is even wasting its time with trying to renegotiate this agreement, whose sole purpose was to boost Mexico’s economy, in line with the United Nations’ push to raise living standards in underdeveloped countries.  I suppose to be able to at least say, “we tried.”  But there’s nothing to negotiate.  Just impose the tariffs and watch them work their magic.

 


How’s Trump Doing?

October 3, 2017

With some slack time on a rainy day in the north woods, I thought I’d take a few moments to share some thoughts about Trump and his policies to date, as they relate to the economic problems wrought by worsening overpopulation: falling per capita consumption and the inevitable trade deficits caused by attempting to trade freely with badly overpopulated nations. So here goes:

Immigration:
Still no border wall. Other than that, I’ve been quite pleased with his other actions – the travel ban, the dramatic slowdown in visa processing, going after sanctuary cities, deporting illegal aliens, and so on. I also applaud him for his stance on the “dreamers,” those brought here as young children by their illegal alien parents. It may surprise you to learn that I’m actually in favor of allowing them to stay, even providing them a path to full citizenship. By all accounts, we’re talking about 800,000 people here. But it needs to be a one-time program. And it needs to be part of a bigger immigration reform that includes dramatic cuts in legal immigration – at least 50% (including student visas), and an end to the pyramid scheme of “family preferences” that, within a few generations, would make virtually every person on earth a candidate to become a permanent legal resident in the U.S. Trump is right to kick this issue back to congress and to demand action, but I don’t understand why he’s “selling it” so cheap. By demanding the above reforms, he could put an end to our out-of-control immigration. No senator or congressman would dare vote against it because all anyone would ever remember is that they voted against the “dreamer act” and in favor of deporting the dreamers.

Trade:
Here I have to say that I’m “hugely” disappointed in Trump’s failure to deliver on his promise to raise tariffs and/or border taxes in order to rebalance trade. But perhaps I’m impatient for action on this issue. His administration has taken some tough stances and is in the process of renegotiating NAFTA while also trying to reform the World Trade Organization. Last week it was revealed that the U.S. has been quietly blocking the filling of vacancies on the panel of appeals judges at the WTO and is now trying to assume a veto power if judges aren’t available. Reportedly, Trump told John Kelly, his new chief-of-staff, that he wants someone to bring him some tariffs. And most recently, when Boeing complained of Bombardier “dumping” planes on the U.S. market, the Trump administration promptly levied a 216% tariff on Bombardier planes. So there’s still reason for optimism.

Tax Reform:
Though this is the issue that excites the business community, the media and maybe even average Americans the most, for me it’s a non-issue unless a border tax is included as part of the reform. Dramatic cuts to corporate taxes, combined with some minimal cuts for average taxpayers, will blow a huge hole in the budget, just like it did when Reagan did the same thing back in the ‘80s. Sure, it’ll stimulate economic growth just a little, but no more than the amount of tax reductions that are plowed back into the economy. To expect a trillion dollar tax cut to generate economic growth of $4 trillion (the amount of growth it’d take to make it revenue-neutral) is a hocus-pocus fairy tale. And cutting corporate taxes that much will simply leave corporations with more money to invest in more job-killing manufacturing overseas. But all of that would change if a border tax were part of the package. Then it would truly be revenue-neutral and would fuel an explosion in economic growth. Trump is missing a huge opportunity by not insisting that a border tax be part of the package.

Paris Climate Accord:
Trump was 100% right to pull out of this agreement. Ask anyone and everyone the purpose of that agreement and every single person will tell you that its goal is to stop climate change. And every one of them would be wrong, because they haven’t read the stated mission of the accord, which is to merely slow climate change to a pace that would allow “sustainable development” to continue and, by the way, would essentially “tax” Americans to help fund that development in the rest of the world. “Sustainable development” is the very reason the world now finds itself in this global warming fix – because what world leaders thought was “sustainable” has proven not to be. So if global warming is slowed so that “sustainable development” can continue unabated, then every other problem associated with our exploding population – environmental and otherwise – will worsen, including mass extinction as habitat loss accelerates, more landfills, more trash in the ocean, more underground disposal of various hazardous wastes (including nuclear), and now a new one – the underground disposal of CO2 removed from exhaust streams. Where does it end? It needs to end now, and just maybe mother nature is doing us a favor by using climate change to wake us up. With all of that said, it disturbs me to hear that Trump may consider re-entering a renegotiated climate accord.

Repeal and replace “Obamacare”:
For me, this is another non-issue. The unaffordability of health care is a symptom of a deeper underlying problem, namely that every year the U.S. economy is drained of about $800 billion through the trade deficit, making everyone poorer and more dependent on deficit spending by the federal government to maintain an illusion of prosperity. Fix the trade deficit and the whole health care issue will go away.

So that’s it. Although I never really liked Donald Trump very much, and cringe at a lot of his “tweets” and some of the things he says, overall I’ve been pretty pleased with where the country is headed under his direction. But the trade/tariff/border tax issue is critical. If we don’t see action on reducing the trade deficit in manufactured goods, I fear that all will be lost. Like you told John Kelly, Mr. Trump, “we want tariffs and we want them now!”


Trump: “I want tariffs. ….bring me some tariffs.”

September 1, 2017

https://www.cnbc.com/2017/08/27/trump-reportedly-demands-china-action-i-want-tariffs-and-i-want-someone-to-bring-me-some-tariffs.html

With trade negotiations with both China and Mexico bogged down in trivial minutae, it was beginning to appear that Trump’s campaign promise to impose tariffs on both was nothing more than a ploy to win votes.  After all, we’ve seen this movie dozens of times over the past decades:  endless talk about intellectual property rights, labor laws, unfair government subsidies.  The list goes on and on and, in the end, our trade deficit gets bigger and bigger while our manufacturing sector withers.

Then, a few days ago, the above-linked report appeared.  Perhaps Trump has just been giving the “globalists” one last shot at negotiating something meaningful so that, at least, they can’t say he didn’t try.  But it seems that he’s getting fed up with the lack of progress.

Reportedly, in the presence of the “globalists” on his economic team – U.S. Trade Representative Robert Lighthizer and Economic Council director Gary Cohn, among others (which perhaps included daughter Ivanka and her husband Jared Kushner?) – Trump told chief of staff John Kelly:

So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs … I know there are some people in the room right now that are upset. I know there are some globalists in the room right now. And they don’t want them, John, they don’t want the tariffs. But I’m telling you, I want tariffs.

Do it, John!  Draw up a tariff plan.  Help President Trump implement it and our long, long nightmare of trade policy idiocy will finally be over!  Then, instead of debt ceiling and budget negotiations getting deadlocked over how to pay for everything, our congressmen will have a new problem – what to do with all the additional revenue.

Let’s not give up hope yet.


Low Wages Play Little Role in Trade Imbalances

July 20, 2017

In my previous two posts in which we examined the lists of America’s worst trade deficits and best trade surpluses in manufactured goods, it seemed clear that low wages were not a factor.  Many of our worst trade deficits were with wealthy nations like Germany, Ireland, Switzerland, Denmark, France, Japan and South Korea.  The list of our best trade surpluses was also dominated by wealthy nations.

Let’s take a closer look at the issue.  If we sort a list of nations by purchasing power parity, or “PPP” – a factor roughly analogous to wages, and divide them equally into five groups, ranging from the wealthiest nations to the poorest, here’s what we find:

  • Among the 33 wealthiest nations, whose PPP ranged from $129,700 (Qatar) to $34,400 (Cyprus) in 2016, the U.S. had a trade deficit in manufactured goods with 15 of them.
  • Among the next 33 nations, whose PPP ranged from $33,200 (Czech Republic) to $16,500 (Iraq), the U.S. had a trade deficit with 13 of them.
  • Among the next 33 nations, whose PPP ranged from $16,100 (Costa Rica) to $8,200 (Ukraine), the U.S. had a trade deficit with 10 of them.  China is near the top of this group.
  • Among the next-to-last poorest group, whose PPP ranged from $8,200 (Belize) to $3,100 (Lesotho), the U.S. had a trade deficit with 13 of them.
  • Among the very poorest nations, whose PPP ranged from $3,100 (Tanzania) to $400 (Somalia), the U.S. had a trade deficit with only 4 of them.

So if low wages cause trade deficits, why aren’t our trade deficits concentrated among the poorest nations instead of that group actually representing the fewest deficits by far.  And why does the richest group of nations include the most (and some of the biggest) deficits?

There’s no denying the fact that, among the poorest nations, the U.S. had a deficit in manufactured goods with 17 of them.  Included in that group are Vietnam and India.  But both rank among the top 25 nations with the fastest growing PPP (146% and 145% relative to the U.S., respectively) over the past ten years.  Since incomes are rising so fast in those countries, then if low wages are a factor in driving trade imbalances, shouldn’t our deficits with those countries be declining?  They’re not.  Quite the opposite is happening.  Our deficits with both have exploded over the past ten years, by 349% with Vietnam and 250% with India.  Our trade deficit is making them wealthier.

It’s difficult to argue that low wages play no role whatsoever.  Mexico is an obvious example of where American companies are setting up shop there, just across the border, for no other purpose than to save on labor.  Everything made there comes back into the U.S.  Virtually none of those products are sold into the Mexican market.  While many of the other manufacturing operations built in other countries like China are put there primarily in pursuit of those markets, that’s not the case with Mexico.  And mysteriously, the increased demand for labor in Mexico doesn’t seem to do much to raise wages there.  Mexico is being used as a virtual slave labor camp and, by all appearances, there must be some collusion between American companies and the Mexican government to keep it that way.

Aside from the glaring example of Mexico, low wages play no role whatsoever in creating our massive trade imbalance in manufactured goods, as proven by the fact that the vast majority of our worst trade imbalances are with wealthy nations.  Instead, trade imbalances are caused by high population densities that make our trading partners incapable of consuming products anywhere close to their productive capacity.