Trade Deficit “Unexpectedly”(?) Narrows

June 8, 2019

https://www.fidelity.com/news/article/top-news/201906061158RTRSNEWSCOMBINED_KCN1T71LA-OUSBS_1

As reported in the above-linked Reuters article, America’s trade deficit fell slightly to $50.8 billion in April.  More importantly, the deficit in manufactured goods fell to $68 billion, it’s lowest level since June of last year.  The decline was due to a drop of $5.9 billion in imports, partially offset by a $5.2 billion drop in exports.

The reporting in the article seems to be intentionally misleading to promote a pro-free trade, pro-globalism agenda.  First of all, the article reports that the deficit “unexpectedly narrowed.”  Why “unexpectedly?”  I, and anyone who understands how tariffs work to restore a balance of trade, have been expecting it for months.

Then there’s this:

“U.S. trade with the world is slowing dramatically and the odds are rising that the economy is going to take a big hit,” said Chris Rupkey, chief economist at MUFG in New York.

“Globalization and expanded trade between nations benefited everyone and now the reductions in trade volumes between nations are going to subtract those benefits worldwide from everyone.”

The facts are that the economy is actually doing very well, especially in the U.S.  Globalization didn’t benefit everyone.  America’s manufacturing sector was devastated, turning a nation that was an industrial powerhouse into a skid row bum, economically speaking.

And this:

The politically sensitive goods trade deficit with China surged 29.7% to $26.9 billion. The gap with Mexico fell 14.1% to $8.2 billion in April.

Well, yeah, the deficit with China rose in April from March, but March was the lowest deficit with China in five years.  The Reuters article failed to mention that the 3-month trailing average deficit with China, which factors out month-to-month volatility, fell to its lowest level since April of 2014.  The data about Mexico is also misleading.  While the gap fell with Mexico in April from March, the 3-month trailing average rose to its highest level ever as manufacturers flee China for Mexico to avoid tariffs and to reduce their high shipping costs.

The tariffs on China are working, a fact more accurately covered in this article:  https://www.reuters.com/article/us-usa-trade-mexico-manufacturers/under-tariff-threat-mexico-less-attractive-to-companies-avoiding-china-trade-war-idUSKCN1T82HB.

Take the recent experience of outsourcing firm Tecma Group, which saw a surge in interest from companies mulling a move to Mexico as Trump raised tariffs to 25% on $200 billion of Chinese goods.

Tecma, which manages some 75 factories in Mexico, had been approached “every week” by companies selling items from furniture to ink pens seeking a pathway out of China and into Mexico, according to Alan Russell, its chief executive and chairman.

…  data showing Mexico emerging as the top U.S. trading partner as China exports less to the United States, combined with anecdotal evidence, suggest a significant trend.

… “Whatever we are doing in Mexico is for our company’s long-term strategic growth … If we produce in Mexico we’ll a save a lot on freight and it will reduce the time for delivery. It’s a huge advantage,” said (Fuling Global Inc.) CFO Gilbert Lee.

… Similarly, camera maker GoPro Inc decided in early May to move most of its U.S.-bound production to Mexico from China to “insulate us against possible tariffs,” Chief Financial Officer Brian McGee told investors at the time.

… In fact, Mexico overtook both China and Canada in the first quarter of 2019 to become the U.S.’s top trading partner in goods, according to U.S. Census Bureau data.

This is proof positive that the tariffs on China are working, forcing manufacturers to flee in search of a better deal.  The fact that, for now, they’re finding a better deal in Mexico instead of returning immediately to domestic manufacturing in the U.S. isn’t all bad news.  Mexico is a nation with only one tenth of the population of China, and with a GDP (gross domestic product) per capita that’s approximately 25% higher than China’s.  That means that Mexico doesn’t have enough slack labor force to take on all of the manufacturing currently done in China.  The demand for labor will quickly drive wages that are already higher in Mexico than in China even higher, to the point where manufacturing in Mexico has no advantage over the U.S.

The data shows that the tariffs are really beginning to work.

 

 

 

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GM’s Request for Chinese-Built Buick Envision Tariff Relief Denied by U.S.

June 7, 2019

https://www.fidelity.com/news/article/top-news/201906042147RTRSNEWSCOMBINED_KCN1T530U-OUSBS_1

This is rich.  GM actually had the nerve to ask the U.S. government for relief on the 25% tariff it now faces on the Chinese-built Buick Envision.  (See above-linked article.)  After repeatedly angering the Trump administration with plant closures in the U.S. and moving production to Mexico, did GM really expect its request to be granted?

GM, the largest U.S. automaker, argued in its request that Envision sales in China and the United States would generate funds “to invest in our U.S. manufacturing facilities and to develop the next generation of automotive technology in the United States.”

Someone at GM must have thought, “let’s anger the administration even more with a really stupid explanation.”

As mentioned in the article, the government also denied Volvo’s tariff relief request for the Chinese-built model XC60 SUV – its best seller in the U.S.

These are good examples of key points I made in my previous post.  First of all, as mentioned in the article, GM is “eating” the tariff and not passing along the extra cost to buyers.  Secondly, the article points out that the Envision, starting at about $35,000, is a mid-size SUV that competes with other such vehicles like the Jeep Grand Cherokee.  Not mentioned is that the Jeep Grand Cherokee starts at $32,000.  So much for the claim that imports provide American consumers with lower prices.

It’s nice to see that our trade policy isn’t being run by the kind of fools we’ve had in past administrations.  And it’s nice to see that sales of the Buick Envision are tanking.  Apparently, consumers who usually pay no attention to where something is made and just assume that a Buick is an American car are waking up to the fact that they come from China.  Will anyone feel sorry for laid-off Chinese auto workers when GM cuts a shift at the Chinese plant?


American consumers, rise up against American workers!

June 5, 2019

First Trump raised tariffs on Chinese imports and, as the media proclaims, American consumers are the ones who’ll get hurt, paying higher prices for nearly everything.  Now Trump has threatened across-the-board tariffs on all Mexican imports.  Again, American consumers will pay the price, with everything from cherry tomatoes and avocados to cars and trucks rising in price.  Who’s responsible for this?  Trump!  And who’s responsible for Trump getting elected?  American workers, fed up with no raises and losing their jobs to outsourcing!  How selfish of them!

Enough is enough!  It’s time for American consumers to rise up against these greedy American workers!  Do you know one?  Boycott their products!  Demonstrate in front of their businesses!  Write your congressmen!  March on Washington!

What’s that you say?  You know an American worker?  Your spouse is one?  Your mom or dad?  You’re actually one yourself!?!?  Shame on you!  If your spouse or your parents are American workers, maybe you can sit them down and explain to them how greedy they are.  Perhaps they should quit fighting for their jobs – may even just quit altogether.  If we can import everything a little cheaper, then we’ll all be better off.  Won’t we?

Obviously, I’m being facetious.  But this is exactly what the media would have you believe.  Every single story on the subject focuses on the higher costs for American consumers.  They never, ever want you to hear that the real long-term effect of tariffs is to provide motivation for companies to manufacture products domestically, which will benefit every American worker as the demand for labor drives wages higher, benefitting every single American – even those who aren’t in the labor force, but are dependent on someone who is.  Why?  Because corporations see the developing world – places like China and Mexico and many others – as the source of future profit growth.  America is fully developed, with little potential for profit growth.  They’re bored with America.  To them, America is yesterday’s news and Americans are irrelevant to the future.  Their strategy is to milk America’s wealth to fund development in the rest of the world, and to scare the hell out of them if they even think about standing up for themselves.

Since every American is a consumer, while just under half are workers, the free-trader globalists see focusing on consumer prices as a winning strategy in their fight against tariffs.  They’re counting on the majority of Americans who are not in the labor force to forget that they are dependent on someone who is.

Ask yourself this:  which is a better situation – to be unemployed while prices are slightly lower, or to have a good-paying job while having to pay slightly higher prices?  The answer is obvious.  Without a source of income, you can afford nothing.  Many people have committed suicide after losing their jobs and all hope of a secure retirement.  None that I’m aware of have committed suicide because the price of something rose a little.

Besides, the whole notion that we are paying lower prices for these imports is a myth.  When did the price of anything actually go down when it was outsourced to China or Mexico?  When did the Consumer Price Index actually drop?  Did the price of cars drop when they moved the factory to Mexico?  Did the price of iPhones drop when they moved production to China?  Of course not.  The narrative that says prices will soar if we have to manufacture domestically is nothing more than a scare tactic.  They hope you’re not bright enough to realize that the higher wages they’d be paying American workers will offset any small price increases.

Do you really think that all of this outsourcing – all of the enormous expenditures involved in rebuilding factories and infrastructure overseas and moving their sources as far from their customer base as they possibly could – that all of it was done in the interest of saving you a few bucks?  Don’t be ridiculous.  It was all done in pursuit of those markets.  It’s not saving you a thing.  So there’s nothing to fear from moving manufacturing back to the U.S.

It’s been said that these tariffs on Mexico will jeopardize passage of the new trade deal that the Trump administration worked for over a year to get signed with Mexico.  Why would he risk that?  I believe it’s because he’s actually quite unhappy with that deal.  Those negotiations began early on in his presidency when he was heavily influenced by the team of advisers he had assembled – a team he thought represented the best people he could find – people who ultimately proved to be free trade globalists interested not in “making America great again,” but in token moves that would leave the status quo firmly entrenched while creating the appearance of doing something.

Trump hates that deal.  He’s since learned the power and effectiveness of tariffs and wishes he’d slapped them on Mexico from the beginning.  Most of the people involved in that deal have left the administration, replaced by people who actually support his trade agenda.  And he also knows that the odds of that deal being passed by a do-nothing Congress are slim to none, leaving the horrible, existing NAFTA deal in place.

Mexico might retaliate with tariffs of their own on American exports?  I hope they do.  It’d be the dumbest move they could make, only stiffening Trump’s resolve to raise our tariffs further and make them stick.

Finally, a note of thanks to investors who buy into the baloney that these tariffs are going to hurt the economy and sell their stocks in a panic.  I’m the guy who buys them at the big discount you’ve created!

 


Tariff news coverage makes me want to scream!

May 13, 2019

The simple-minded, sound-byte news coverage of the tariffs on China just makes me want to scream.  “Trump lied!  China isn’t paying for the tariffs!  American consumers are going to pay!  It’s going to cost every household $1,000 per year in higher prices!  A million jobs will be lost! China will retaliate with tariffs on American imports!  American farmers are getting killed by the loss of exports to China!”

I could go on.  The list of ways in which the sky is falling is endless as every business failure or challenge is now blamed on the tariffs on China.

The problem with the warnings that I’ve singled out above is that there is some truth to all of it – but only a half-truth.  Less than half, actually.  But the media sees an opportunity to stir up Trump hysteria, and hysteria always stirs more interest than factual, balanced reporting.  It’s the very reason that the evening news on every channel begins with a frantic proclamation of “BREAKING NEWS!!!” delivered breathlessly by a news anchor in a tone of voice that sounds like he/she just stopped in to the studio while fleeing the apocalypse to warn us all to run for our lives.  Then you find out it’s not breaking news at all, but some damn thing that happened earlier in the day – something of little significance to 99.9% of the viewing audience – that some reporter just found a new little twist on the story.  And so it is with the story about the tariffs on China.

So I’m here to lend some balance to the tariff story.  Let’s take the above claims one-by-one.

  1.   “Trump lied!  China isn’t paying for the tariffs!  Etc.”  Maybe he did mislead us a bit with this one, as it actually is the importer that will pay the tariff, not the Chinese exporter.  However, in some cases, those are one and the same, since Chinese exporters have set up importing companies in the U.S.  Regardless, China will pay in a big way and China will be hurt badly, much worse than the U.S.  Chinese companies will be pressured to cut their prices to offset the tariffs paid by the importers, and they will, in many cases perhaps offsetting the entire tariff.  They may actually sell their products below cost, wiping out all profit for the Chinese company and all revenue that the Chinese government would have collected.  Chinese exports will fall dramatically as American companies find new, cheaper sources for their products.  Unemployment and civil unrest in China will rise.  China’s ability to fund its military expansion will be badly crippled.
  2. “American consumers are going to pay … $1,000 per year in higher prices!”  Yeah.  No one has ever denied that.  But what’s missing here is the fact that someone is going to give you $2,000 per year – maybe more – to cover it.  Who’s going to do that?  Your employer.  If not your current employer, your new employer – the one who just built a factory in your town to make some product that’s now too expensive to be imported from China.  Uncle Sam will be chipping in too.  Now that he’s collecting revenue from importers – that is, from people who still insist on buying the now-expensive Chinese imports, he has room to cut your income taxes without blowing up the federal budget.  Don’t like paying the tariff on the import?  Then don’t.  Buy the cheaper American-made alternative.
  3. “A million jobs will be lost!”  This one isn’t even a half-truth.  It’s an outright lie perpetrated by globalist economists who don’t like American efforts to restore a balance of trade.  They arrive at this figure by assuming that consumers won’t be able to afford the higher prices and will stop spending, forcing retailers to lay off workers throughout the supply chain – shipyard workers, truck drivers, warehouse workers, people stocking shelves and working cash registers.  They hope it won’t dawn on you that people will immediately seek out cheaper alternatives and will quickly find them in new products provided by new companies and entrepreneurs who have seized on the opportunity.  Truth be told, if the trade deficit with China were completely eliminated, as it will be if both sides escalate their tariffs higher and higher, the U.S. would add several million manufacturing jobs to its economy, not to mention the jobs involved in building that manufacturing capacity.
  4. “China will retaliate with tariffs on American imports!”  Maybe, but not if they’re smart.  Don’t forget that the real prize here to restore a balance of trade with China.  Any combination of imports and exports that gets us to that point yields the same positive benefit for the American economy.  If China wants to choke off U.S. exports altogether, then we can achieve a balance of trade by completely choking off Chinese imports.  We’re still the big winner and China will be an even bigger loser.
  5. “American farmers are getting killed … !”  Hogwash.  While farmers’ exports to China may be taking a hit, the free-trade globalists don’t want you to know that farmers are more than making up for it by increased exports to other countries.  It’s easy to verify this for yourself.  Just look at the trade report published monthly by the Commerce Department.  Farm exports (including the much-publicized soybeans) were actually up in 2018 and year-to-date in 2019 are running ahead of 2018 exports.  I also read a story that blamed the demise of family farms on the China tariffs.  More hogwash.  Family farms have been vanishing for decades, unable to compete with the huge corporate farms that are swallowing them up.

Higher prices that are more than offset by higher wages are a good thing, not a bad thing.  That’s the very mechanism that has enabled our standard of living to advance.  We all pay higher prices for every product than we did in the past, but we have a higher standard of living because the demand for labor has driven our wages higher.  “Wages aren’t higher today,” you may say.  Yeah, and why is that?  It’s because of our huge trade imbalance, the very thing Trump is tackling with these tariffs.

If all Americans understood the truth about trade and the damage that huge trade deficits do to an economy, we’d all be cheering for Trump – Republicans and Democrats alike.  We’ve been in a trade war for decades and have been losing badly.  Finally we have someone willing to take up the fight.  That’s the truth.


March Trade Report Shows Signs that Trump Trade Policy is Working

May 11, 2019

https://www.bea.gov/system/files/2019-05/trad0319.pdf

The above-linked March trade report is showing signs that Trump’s trade policies – particularly the tariffs on Chinese imports – may be beginning to yield positive results for the U.S. economy.

The overall trade deficit held steady at the same level as February at $49.3 billion, the lowest level since June, 2018.  More importantly, the trade deficit in manufactured goods fell $1.1 billion to $68.2 billion, also the lowest level since June, 2018.  More encouraging is the way in which it fell, with imports falling $0.9 billion while exports of manufactured products rose to their highest level since May, 2018.  Here’s a chart of the trade deficit in manufactured goods:  Manf’d Goods Balance of Trade.

In the past few months there’s been a lot of volatility in the data as U.S. businesses stocked up on Chinese imports to avoid the tariff.  Perhaps the March data reflects a slowdown in imports as businesses now find themselves overstocked, but I think that’s not likely.  I thought that when the February data was released, but it seems unlikely that such an overstocked condition could persist for three straight months.  It also wouldn’t explain why manufactured exports are at their highest level in ten months.

Most encouraging of all is that the trade deficit with China fell dramatically in March for the fifth straight month to $20.7 billion, its lowest level since March, 2014 – an unusually low deficit that year – a level more typical of the monthly deficits with China back in 2007.

Trump’s trade policies – attacking our trade deficit with tariffs – is working.  As I write this, on the very day that the tariffs on $200 billion of Chinese imports were more than doubled to 25%, the stock market has shrugged it off, recovering all of its early losses.  Investors are beginning to sense that all of “the sky is falling” warnings of dire consequences of the big, bad, scary U.S.-China trade war is a bunch of baloney.  They’re beginning to look past it, looking for companies that will benefit, and they’re finding plenty.  The fact is that China has been a huge drag on the American economy and even the global economy, and investors are beginning to see it that way. That’s China’s worst nightmare and a dream come true for Trump, now more  confident in pressing these policies even further.


Trump Threatens China with More Tariffs

May 7, 2019

https://www.fidelity.com/news/article/top-news/201905060845RTRSNEWSCOMBINED_KCN1SC0MF-OUSBS_1

As reported in the above-linked article, Trump has suddenly taken a more harsh tone with China, apparently frustrated with the slow progress in the trade talks with China.

It’s difficult to know what’s really going on here.  Last December, at a G20 meeting in Argentina, Trump announced that he was holding off on ratcheting up tariffs on Chinese imports which had been set to go into effect on January 1st until at least March 1st, pending the outcome of a new round of trade negotiations with China.  March 1st came and went as the trade talks dragged on endlessly, as they always do, which is precisely what communist dictator Xi wanted in the first place when he worked his charm on Trump at the G20 meeting.  He couldn’t care less about an agreement – something they’d never abide by.  All he wanted was more American inaction.

It seemed to be working.  But something has happened.  Reportedly, China back-tracked on some things they had agreed to earlier in the negotiations, perhaps calculating that it would result in more time wasted renegotiating what had already been negotiated.  Again, that’s all China wants – more wasted time and more American inaction.  One can only hope that, this time, they’ve miscalculated.

“What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect,” Geng said.

OK, Geng, let’s meet each other half way.  We’ll buy from you as much as you buy from us.  Nothing more.  Nothing less.  A balance of trade.  That’s all the U.S. is asking for.  That’s fair.  That’s real “trade” versus the mercantile relationship that you’ve enjoyed at Americans’ expense.

That’s not really what you want though, is it?  You want the U.S. to agree to a few token concessions in exchange for maintaining the host-parasite relationship that you currently enjoy, sucking the life out of the American economy while fattening your own.

We can only hope that Trump stands tall this time and puts the new tariffs in place, ratcheting up the existing tariffs and slapping 25% tariffs on the remainder of Chinese imports.  What’s at stake here is more than low prices for American consumers.  We can work through the short-term pain of that.  It’s not an exaggeration to say that America’s very existence – and perhaps even the future of mankind – is at stake.  It’s become clear that China is using its trade-fueled wealth to build itself into the world’s preeminent power – not just economically but also militarily – bent on world domination.  What’s at stake is mankind’s future as a free people vs. living under the thumb of a totalitarian communist regime.

All of the dire warnings about a U.S. – China trade war doing irreparable damage to the global economy is a bunch of baloney.  China is actually a drag on the global economy, sapping the life out of the manufacturing sector of economies around the world to sustain a labor force bloated by gross overpopulation and to stave off the civil unrest and potential collapse of its communist regime that would likely result without it.

End the negotiations.  A balance of trade with a badly overpopulated nation like China is something that can’t be achieved through negotiations because it would never agree to give up the huge trade surplus it needs for its very existence.  On the other hand, a huge trade deficit is something the U.S. can no longer endure if it wants to assure its own continued existence.  Maintaining tariffs sufficient to assure a balance of trade is absoutely crucial.


Trump, tariffs are not “unfair.”

April 25, 2019

https://www.fidelity.com/news/article/top-news/201904230802RTRSNEWSCOMBINED_KCN1RZ144-OUSBS_1

As reported in the above-linked article, President Trump complains that EU (European Union) tariffs on Harley Davidson motorcycles are “unfair.”  I disagree.  Tariffs are neither “fair” nor “unfair.”  They’re simply a tool used by nations to manage foreign access to their economy.  Every nation should be free to use them as they see necessary for their own best interest.  In this case, the EU has decided that it doesn’t want Harley Davidson infringing on their domestic motorcycle industry.  That’s fine.  That’s their right.

We should do the same.  Is it acceptable for EU motorcycle imports to infringe on our motorcycle industry?  If we see value in having a vibrant motorcycle manufacturing industry, then the answer is no, and the U.S. should impose its own tariffs on EU motorcycle imports.  Both sides win.  The EU protects its motorcycle industry and the U.S. does likewise.  Otherwise, if we don’t really care if we have any motorcycle industry in the U.S., then there’s no need for tariffs.

It’s as simple as that.  It’s pointless to try to threaten the EU into dropping their tariffs.  They’ve already decided that they need them, in spite of the potential ramifications that they surely considered when they imposed them.  So stop putting our trade policy in the hands of our competitors and seize control of the situation by taking actions that are within our control – not theirs.

Beyond the motorcycle industry, Trump needs to consider a whole range of imports from the EU that impact our economy.  For example, is it in the best interest of our domestic auto industry and our labor force to cede a large percentage of auto sales to EU imports?  Of course not.  But that’s exactly what we’re doing.  We have an enormous trade deficit in automobiles with the EU.  It’s long past time to impose tariffs that will restore balance to trade in automobiles.  We should buy no more from them than they buy from us.  Imposing large enough tariffs on EU auto imports is the only way to make that happen.

Come on, Mr. President, it’s time to stop playing the victim, as your predecessors have done for decades, and take meaningful action to restore a balance of trade with the EU.