A sharp deterioration that started in Aug. 2017.
With the impeccable timing of coincidence, given the current spat over Gary Cohn’s departure from the White House, the Bureau of Economic Analysis this morning released some extra-gloomy numbers on the US trade deficit in goods and services for January. The consensus estimate by economists tracked by the Wall Street Journal projected that this deficit would widen to $55.1 billion, up from a nine-year high in December of $53.1 billion “amid a surge in imports.” But that was wishful thinking.
The deficit in goods and services widened to $56.6 billion, the worst since October 2008, and December deficit was revised to $53.9 billion. In the chart below, note the sharp deterioration since August 2017:
Year-over-year, the trade deficit in goods and services jumped 16.2% (or by $7.9 billion). Exports rose by $9.7 billion (or 5.1%), but that wasn’t nearly enough to balance out the surge in imports of $17.6 billion (or 7.4%).
The US still has a trade surplus in services with the rest of the world, but after growing for years, it peaked in February 2015 at $22.6 billion and has since been declining, In January, the surplus in services fell 2.1% year-over-year to $19.9 billion:
The trade deficit in goods widened by 10.8% year-over-year to $76.5 billion in January, barely above the worst-ever goods deficit during the trough of the Great Recession when global trade came to a halt for a brief moment. And note what has happened since August 2017:
These trends of growing imbalances are not propitious for the US economy. At some point, there will be an adjustment, either in some kind of “contained” and gradual manner, or something more out of control. Note how trade reacted in the Great Recession.
Whatever the solutions may be, to be functional rather than destructive, I suspect they’d be complex and nuanced and should include Corporate America because that’s where a big part of the causes lie. But at least the issue is on the table today, and is being publicly discussed, with policy makers lining up on all sides of the issue and taking a stance, after prior administrations have pussyfooted around it for two decades.
For the year 2017, the US trade deficit in non-petroleum products hit an all-time record of $734 billion in 2017. The US trade deficits by country. Read… How Out-Of-Whack are US Trade Relationships? 2017 Trade Deficit Worst since 2008
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Trade is not that big overall for the US but at the margin its important in manufacuturing. US needs higher wages and higher savings rates and tariffs will help companies pay those higher wages. Higher rates also help the USD and the USD funding squeeze/ carry trade/ DV01 losses
https://fred.stlouisfed.org/graph/fredgraph.png?g=iTjN
1) There are a multitude of tariffs in place in the US economy which have been in place for decades
2) Trade ‘ wars ‘ historically benefit no one . e.g. Trade wars are stupid
3) The USD will not benefit from a trade war . In fact just the opposite is true
4) Manufacturing will also not ‘ benefit ‘ from a trade war . Fair Trade ? Yes ! Free Trade ? Debatable . But a Trade War ? Definitely not
5) Trade has little or no bearing on job creation in the US . The simple reality is most jobs are being replaced by automation and/or outsourcing ( thus the rise in productivity while job growth remains stagnant if not in decline) .. not due to trade imbalances etc
6) Wages are purely dependent on the level of greed of the investors demanding instant and consistent returns on their investments regardless of the effect their agenda may have on the well being and productivity of the workforce
Simply stated .. if everyone from the C’s ( CEO CFO COO etc ) to the Board … right down to the shareholders made the choice to share the profits more equitably … wages would rise ( FYI I AM NOT in any way shape or form implying any kind of socialism or communism … just the simple formula of a fair wage for a solid days work )
7) It is doubtful that raising the value of the USD would in any way benefit manufacturing or trade . Simply stated … a higher US dollar means less US goods are sold overseas while more foreign goods are imported here
8) Higher savings rates are the responsibility of the individual .. not the consequences of a higher USD or higher wages . The simple fact is the majority of Americans have volitionally become Debt Slaves in order to fill their garages homes and basements with a plethora of goods they neither use nor do they nine times out of ten even remember they owned
RESPONSIBILITY being the key word
9) The link you provided is either corrupt or invalid
The link Rob provided works for me.
6. “Wages purely dependent on the level of greed”. This statement is not true and based on projection. Wages are based on the level of competition for the available labor. Big government with it’s crushing regulations, picking winners and losers, and “free money” to big corporations is the real problem.
Read this for more.
https://www.mythofcapitalism.com/worker-s-wages
Number 1 is bogus, no tariffs that the US has remotely match the VAT taxes the other countries place on their imports and exempt/rebate on exports. That is why a Japanese camera in NYC costs 2/3rds of what the same camera costs anywhere in the EU.
Number 5 is total BS. US plants have been shutdown, they are not being run by robots. The appliance isles in stores are full of Chinese imports (most made in automated factories) not ones made by robots.
Number 7 is obvious, foreign competitors convert their dollars to Tbills rather than convert to local currency to keep their currencies low and dollars high.
Overall this post indicates how ignorant most Americans are about trade.
Companies were just given massive tax cuts and a repatriation “holiday”, all in the name of jobs and wages. What have they done with the money? Buy back stocks and make the wealthy and the corporate managers that much richer. The idea that these tariffs will lead to more jobs and higher wages is, I believe, unlikely.
Trickle down is a failure in ANY FORM. How many more times will this need to be proven….
Everybody trots out this issue when ever any other economic issue (e.g. trade) is discussed.
Stock “buy backs” were only legalized back in the 70s. (They were treated as illegal market manipulation previously.) They can either be banned or taxed as a return to shareholders. A separate problem with a simple fix that you will never hear about because everybody assumes what is good for Goldman Sachs is good for the USA.
If you run almost 0.75 trillion in trade deficits on a GNP of 20 trillion, that means you import 4% more than what one exports. That can hold for a few years but not forever and is maintained only by an excessive debt buildup. Imposing tariffs on imports has only ONE consequence : inflation and trade implosion. This ( protectionism ) has been tried out many times in the past and everytime, the result was the same : economic disaster and war. The right way to improve the situation is by asking first “why are those others cheaper and better” on the manufacturing front? And what can we do to counter them by improved efficiency and/or technology? E.g. , the US Al smelters are far less productive than any other worldwide. US cars are still gas-guzzlers when compared with European-built cars ( by the way, also by Ford ). The US should work on THOSE items, not make reproaches on better producers abroad.
+1
I love these sweeping historical generalizations. The true history is that US grew into an industrial power house under a mercantilism regime with tariffs up to 68% paying most of the entire federal budget until almost the end of 1800s.
The idea that somehow trade in low margin, mature technology items like metals or automobiles is based on productivity or technical excellence is ridiculous. Subsidies at other countries range from worker health insurance coverage, lowered energy costs, compliance assistance, financing AND VAT TAXES which incentivize local production over imports.
What the US should “work on” are providing a VAT tax to at least capture the taxes lost when goods are imported versus locally produced. Won’t happen though because Americans are ignorant, and the oligarchs would not be able to avoid taxes by profit shifting and offshore schemes.
+1
“That can hold for a few years but not forever and is maintained only by an excessive debt buildup. Imposing tariffs on imports has only ONE consequence : inflation and trade implosion. This ( protectionism ) has been tried out many times in the past and everytime, the result was the same : economic disaster and war.”
As stupid pouts and stupid congress keep using the tariffs in the same incorrect manner.
Start with a tariff on unfair sate aid in Electricity and Energy. Both subsidised and straight out not paid for.
Its a weapon china has been using against the West since the 70’s, Then look at land taxes (which state companies dont pay), and free or excessively cheap land provided to State companies or companies with State shareholding, by the State.
Then look at finance including banks being forced/instructed to convert NPL’S into Equity, then lend to the same Entity again whilst being Also forbidden to sell the Equity or write down its gross overvaluation on book.
If those things were targeted it would become uneconomic to make computers, phones, cars Etc in china, and import them to the US. Even if they were imported at cost, instead of the current tax avoiding practice of importing them at almost retail price.
Use Tariffs to level the playing field, which the WTO has no interest in doing. Not target certain goods, which just starts a goods Tit for Tat.
The labor costs in the US are extremely high as they, that is why companies use every trick to outsource and that is not a good trend as you start losing competencies as you outsource more and more. High labor and other costs (including potential legal costs) discourage investment. And when you start using political tools like what seems to be happening in the oil and gas industry, your companies would fall back on bad and unprofitable investments pretty fast. Who would think that Exxon would fall behind their rivals like Shell, Total and BP. The same happened in other areas. For a while financilaization masked the negative trend and now we see companies like GE having problems. In fact, the only US companies that are still doing relatively well, are those transnationals that make more money overseas and those that still have a virtual monopoly in some markets like Microsoft or Google (but that position is not assured for long, given the recent US politically-motivated moves and this is what most likely happens with services). So when you see even slight increases in incomes, this immediately translates into higher trade deficits.
If you put pure water on one side of a permeable membrane, and water with a solution, say salt or sugar iodine on the other, and leave it alone, then a balance is reached over time.
In this metaphor (regarding trade imbalances) the real question is whether the membrane analog of nation to nation relationships is permeable or not.
https://www.thoughtco.com/selectively-permeable-4140327
My position is that balance is eventually reached in most or even all things, given enough time. And hysteria or other over-reaction is generally not justified.
Balance will come, just wait. On the when is in question.
Robert, your metaphor is a good one. Problem is, the U.S. is a 325 million-person drop of water on a permeable membrane containing over 7 billion people. Our higher wealth per capita is the salt or iodine in your metaphor. Guess what happens to our drop of water when it hits the membrane. I believe that’s the fundamental reality we’re having a difficult time dealing with.
Like most metaphors this one oversimplifies the issue and fails upon examination. This analogy has really only a few variables: the transmission characteristics of the membrane and the difference in the amount of whatever in the solution. In the real world there are a lot more variables, and they change all the time. In this experiment these start as set constants. One changes, but keeps the amount of the substance in the solution constant, the other doesn’t at all. In reality both of these change all the time.
Two big variables of this bigger system is that the amount of money printed, continues, but varies all the time. This would be like continually adding more of the substance to the solution on one side. The other is the utility of that substance on the other side–the acceptance of the dollar. If the dollar weren’t accepted some day and were replaced by something else like another currency, or gold or a crypto, then the flows would stop almost immediately for the dollar. There are many other variables to numerous to mention in the real world as well.
This analogous world reaches stasis and then “all is well.” the real world of human made stuff, almost never reaches stasis and most simplistic models that predict this are flawed, because in real life humans game the system and so make it almost impossible to reach stasis. Read Bionomics by Michael Rothschild for a great primer.
This analogy / model is so simplistic as to be stupid. When the dollar is rejected, there will likely be a war. Think the UK when the Pound ceased to be the world’s currency and WWI and WWII. This is how human acheive stasis, like it or not, because the losing side won’t accept the balance until it capitulates. (Here read Clausewitz On War about going past the Culminating Point.)
Stupid models like this give people comfort and prevent the real situation from being examined critically. At some point in time in the not so distant future, people will cease accepting the dollar, but that requires a whole slew of things to happen.
As Will Durant says, “Empires and civilizations decay with glacial leisureliness.”
You’ve over-analyzed my model.
Things tend to reach balance over time. Certain systems that can be mathematically modeled and expressed, (however crudely) over time, revert to the mean.
I could go on. The tone of your post is arrogant and disrespectful, and goes way beyond what I was suggesting. Your post assumes facts (regarding my thinking) that are not in evidence.
Things revert to the mean and BALANCE IS RESTORED over time. Unless it is not, and then things can fall apart and be replaced with a new system which may or may not settle into a new and balanced stasis.
I might have added this to my post, but I wanted to specifically address the “TRADE WAR” hysteria I am hearing from all corners. What I might have added is that in centuries past, gold settlement was A PIECE OF THE SYSTEM that restored balance, over time. For example, gold inflows during Great Britain’s heyday, were necessarily absorbed by the B.O.E. when Merchants would deposit the gold, and paper notes were issued to the merchants. This was inflationary, so the B.O.E. took special steps to sterilize the gold inflows. A LOT OF DETAIL, that I glossed over, because ultimately, and however it was done, BALANCE WAS ACHIEVED OVER TIME.
Today we have no real gold flows, but what can give on the steady march towards balance is the value of the dollar and other currencies also. And adjustments to trade flows will follow currency adjustments .
The steady drum-beat of TRADE WAR — TRADE WAR ! ! ! — is, to me, unbalancing and destabilizing. And that, my friend is a danger.
So recognition that however, through currency or trade-flow adjustments, the system may — and hopefully will — restore itself to balance, is more hopeful and useful that shouting TRADE WAR ! from the highest buildings, when so many other countries ALREADY IMPOSE SIGNIFICANT TARIFFS. No trade war there.
Quote from your post : “This analogy / model is so simplistic as to be stupid. When the dollar is rejected, there will likely be a war. Think the UK when the Pound ceased to be the world’s currency and WWI and WWII. This is how humans achieve stasis, like it or not, because the losing side won’t accept the balance until it capitulates. (Here read Clausewitz On War about going past the Culminating Point.)”
Well my friend, I’d rather be “stupid” and believe that there is a path forward that is not either of a TRADE WAR or a SHOOTING WAR — than to agree that your solution might become necessary.
We’ve already done that, and it’s deadly, messy and expensive. I want us to do better . . . .
Balance being reached is just theory and only happens in science where the laws of physiques are, for all practical purposes, immutable. When it comes to human societies, it does not apply — it could swing up and down for practically eternity (relative to the scale of human lifespan). Humans often cannot “just wait”.
“In the long run we are all dead” – J.M. Keynes-
‘Life is solitary, poor, nasty, brutish, and short”. -Thomas Hobbes-
Balance will come just wait, however the interim will be quite entertaining until its not.
Wonderful post !
I learned the Keynes quote in Econ in college, and the Hobbes quote in Philosophy — and what is remarkable about the 2 quotes in your post (beyond their stark applicability) is that scarcely a day goes by in my life since college that I don’t think of one or the other or both . . . .
One other I am haunted by is like this, “Nature is red in tooth and claw . . .”, which, along with the Hobbes quote, keeps me mindful of my mortality and ensures humility.
It will be entertaining until it is not — and we will definitely “live in interesting times” for sure.
Pure economic theory agrees with you….over a long time period,normally, the dollar would depreciate and balance trade…..unfortunately,we are not living in a theoretical world…..our competitors are trying to destroy us by emptying our country of its wealth by artificially inflating the value of the dollar……without something to counter this policy we will encounter a hyperinflation someday which will threaten the basis of the country. Academic types and young people who think everything is easy do not understand that fundamentally someone is always trying to steal your lunch unless you stop them.
Your post says this : “…..unfortunately,we are not living in a theoretical world…..our competitors are trying to destroy us by emptying our country of its wealth by artificially inflating the value of the dollar……”
Well, call me naive. What we do KNOW is this, our competitors are COMPETING WITH US ! That’s all we know.
As an analogy (analogies seem to be getting me into much trouble here) I will state for the record that one of the great problems in all aspects of human relations is that of attributing motives to other people. One may analyze their actions and then infer their motives, BUT WE NEVER REALLY KNOW THEIR MOTIVES.
In human affairs I have seen this my entire life, attributing motives to people with out a “mind-reading app” exacerbates tensions, and very often damages relationships.
In this current analogy of mine, I will apply this analogy to relations between countries. Don’t attribute motives to other actors. Negotiate and try to determine a path forward.
Competition, yes! But saying in broad terms our competitors want to destroy us ? Simplistic and fraught with danger.
“our competitors are trying to destroy us by emptying our country of its wealt”
Is that what Freud called ‘projection’ ?
“My position is that balance is eventually reached in most or even all things, given enough time. And hysteria or other over-reaction is generally not justified.”
Big Banks fined hundreds of millions to billions of dollars for Fraud, Corruption & Manipulation of the Markets.
21 Trillion in Debt – Trillions Missing
Nobody Goes to Jail – FED Refuses to be Audited.
“Balance will come, just wait.”
You Will Be Waiting A Long Time.!!!!!
How many generation’s in the west must be destroyed, and live in poverty, whilst nations in the east eat their lunch, before this balance occurs??
Trade with china and Globilisation was supposed to raise the lowest boats first, and benefit all.
What it has done, is leapfrog china and its Globalised Vampire Corporate Allies to the top. At the expense of the Western middle class, whilst forcing the lowest boats lower.
This is a situation that MUST BE PROMPTLY RECTIFIED, or you WILL GET, war. Started by those that have not gained anything, allied with those that have lost a lot. That sort of war, you do not want to be on the recieving end off.
You mean the generations you yourselves destroy with your own policies that backfired (action-reaction) because of your insatiable greed and ambition?
Be an adult and assume responsibility instead of looking for foreign scapegoats.
Yes they should.
Just as the East needs to admit it is cheating in trade, and has been waging an economic war on the west since Nixon went to china.
Both are wrong, the greater evil cheats in trade, then blames the West for the problems its cheating creates there.
We signed a free Trade agreement with china, it gave huge advantage to china. Yet china CAN NOT EVEN KEEP TO THE TERMS OF THAT.
Ther is no point complaining to a lying bully that it is not keeping the terms of its agreement
Hence TPP was created, to counter those issues.
There are huge problems in global trade today, the vast Majority of them are rooted in china. Simple FACT.
Imagine a world with no state interference between people who want to transact. No PRC, no USG, etc….just private parties. Not exactly anarcho-libertarian, but much less of the crony capitalism that we experience in every corner of the globe now.
The Somalians have TRUE free market.
The animals in the jungle too “enjoy” free market — no entity to interfere with the food chain.
The guys with the most guns always win (assuming ammo is available). And who has more guns that USG? Somalia is not an indictment of libertarian ideals like Hong Kong is not an indictment of capitalism.
Poor reasoning. Your argument can only be true if all guns are the same and/or the numbers on side overwhelm the other side.
Let’s say the Ruskies have laser weapons and the USG still has conventional guns. Who cares how many guns the later has.
As I said in another post, the Ruskies have moved ahead of the US in terms of nukes. They’ve basically nullified every single one of US carrier groups.
Companies front-running the upcoming tariffs and renegotiated trade deals ?
I’m sure a good old fashioned trade war will fix everything, just like in the 1930s. Cure the trade deficit by killing the economy!
A slight historical correction along with a minor addendum if I may .
The Trade Wars you allude to … along with an overwhelming Nationalistic agenda such as we’re seeing now … were the product of the late teens ( 1919 ) to the late twenties ( 1929 to be exact ) ..
..leading up to the Great Crash and Depression of 1929
Then exacerbated in the early 30’s until FDR finally took the reins .
Fact is … the further we go down this road to perdition … the sooner we’ll all be singing ; ” Tonight we’re gonna party like its nine teen twenty nine “
A tiny addendum to the timeline.
A disagreement occuring from July 28, 1914 – November 11, 1918 and a document signed on June 28, 1919 in Versailles slightly impacted the nationalistic agenda.
The agenda was amplified by a bit of legislation authored by Reed Smoot and Willis C. Hawley.
And in addition Calvin Coolidge was President (taking office after Harding unexpected death) from 1923 to 1929, he reduced government spending, cut taxes, and left the budget deficit a fraction of when he started.
Yes it is widely believed that Smoot-Hawley bill started the decline into depression via trade wars. Sounds familiar with today?
The Atlanta Fed President just said that rate hikes might be slowed down after the latest trade war. It’s obvious the White House is providing cover.
keep the zero money flowing extend and pretend to oblivion is the plan! the hamptons are not a defendable position however?
They can withdraw all the way to Boulder, Colorado :)
If there’s anything that this country is overflowing with, it’s the number of beautiful locations that can be turned into the next Hampton.
In a country where we have labor protections that enforce minimum wages, a certain level of improved safety, mandatory breaks, overtime pay and unemployment insurance it’s never made sense to me how anyone thinks we could have balanced trade within the goods arena with countries where their workers are treated like machines with few protections that are inevitably going to be far cheaper. It’s like a permanent arbitrage opportunity, oh but wait, according to economics aren’t relative currency values supposed to adjust in relative value to correct for this? If so the dollar should have fallen down a steep cliff long ago and inflation would have adjusted real wages way down for Americans. It is only for political reasons that the dollar has remained strong, imo demand for treasuries. It seems there is growing angst among large state treasury holders around the world, they don’t want to dump but they don’t want to hold either, they’ve seemingly decided just to stay put. I think we’re going to see the dollar continue to fall in value only compensated if treasury yields continue upward. Back to my more important point though, if you want balanced trade doesn’t it only make sense to trade with other countries (besides perhaps in raw commodities) only if they engage in similar labor protections? Otherwise you have doomed yourself to higher costs and in a free trade situation this guarantees outsourcing of labor.
Concerning wages, labor projections, etc.: Check out the trade deficits the US has with Germany ($64 billion in 2017) and Japan ($69 billion in 2017). Both have greater labor protections than the US. Unemployment insurance exists in both. Manufacturing employees are paid fairly well. Etc. So your argument might work for Bangladesh, or maybe China and Mexico but not for Germany and Japan.
And Japan is world famous for its iron wall tariffs … though they implement them in be buricratuc ways not always perceived as traditional tariffs.
I worked for a global medical device company. We were required to sell to exclusively to Japanese distributors instead of selling directly to the healthcare providers. They used this method to fix the price and to this day we have less 1% gross margin. One big money loser but hey we got our foot into Japan.
My wife, who is Japanese, works for a US company that specializes in exporting to Japan. From what I hear, it’s a nightmare trying to get merchandise through the maze of administrative rules and shenanigans in Japan. And this company specializes in it. They have a subsidiary in Japan. They all speak Japanese on both sides of the Pacific. And they get the job done, mostly. But it’s expensive. This makes many imported products very expensive in Japan for consumers… a sort of an unofficial tariff.
But other imported products that are deemed of low value and no threat to treasured Japanese industries are let through without much fanfare.
Amen, timbers, I agree. I have read articles in the English edition of the Asahi Shimbun that fried my mind.
In one they claimed Japanese intestines were different from westerners and they could only process Japanese beef. Another stated Japanese snow was different than European snow and only Japanese skis would perform on their snow.
√
Where is the army of Wall Street insiders, academic economists, think tank “thinkers,” and CNBC and Bloomberg free trade propagandists to explain to us peons why humongous trade deficits are good for us and we’re just too stupid to know it?
It’s a trade-off. Massive deficits are the only way to maintain the US dollar as the world reserve currency and protect the petrodollar. The advantages of this for the US are staggering, both economically and in terms of raw power. The negatives are also very real, and hurt certain sectors very painfully. A wise course would be to redistribute some of the gains to those who are losing out, but our political economy seems to preclude this.
With Trump due to sign a ‘Trade Proclamation’ tomorrow clearing the way for tariffs to be imposed, it puts in jeopardy the close trade relationship with Canada.
Since the main target of Trump’s Trade War is against the importation of aluminum and steel, well guess what? Canada is the largest supplier of aluminum and steel to the US.
This does not put a large trade imbalance in place, since the US and Canada have a two-way trade that is almost in balance. With Canada enjoying a small surplus.
Leader’s must recognize that a Trade War is a two-way street. In a tit-for-tat situation the US has much more to lose than Canada, since almost all of the US imports are manufactured goods with a good portion of California fruits and veg. But these can always be found in abundance from Mexico and Central America.
If NAFTA is newly structured as a Trade War tool against Canada and Mexico, expect sharp blow back. As Peter Schiff has said; “This is war that the US cannot win”.
Wolf –
It seems my comments spend an inordinate amount of time “awaiting moderation” lately. Are they too “controversial” or is there some other reason to with hold them from the open forum?
I hold ‘wolfstreet’ in highest esteem as to subject content and intelligent commentary, when other so-called “free” internet sites are resorting to ever more stringent censorship.
They occasionally get caught in the trip wires I set up to keep this comment section sane and informative. A lot of comments get caught in it. I release many of them when I get to them.
There is strict censorship on this cite. It goes in all direction. A number of topics are totally off limits. Nastiness is off limits. Etc. Read the commenting guidelines. This is NOT a free-for-all.
https://wolfstreet.com/2017/10/07/finally-my-guidelines-for-commenting/
Thank you for your moderation of the comments. It keeps the site on topic and sane.
Yes I have had comments “waiting for moderation” but I have never had one rejected.
Thanks Wolf for the great moderation job. I agree with Ponzi that it keeps the sight on topic and sane!
No more comments from me as to not exceed my limit here :)
Fair enough.
John Maynard Keynes spent the last few years of his life addressing the imbalance in trade between debtor nations and those nations with a trade surplus. He believed that a trade deficit would prove fatal to any nation that ran one long enough. The last surplus the US had was in 1975 and we’re still here and still buying but I have to wonder if it’s because we are the world’s reserve currency where we have some control over interest rates.. Keynes believed that without some mechanism to bring trade into some kind of balance the world would end up like we see with Germany with large surpluses and Greece with trade deficits and in constant need of bailouts.
Saint Raygun said trade deficits are awesome and the “doom-criers” need to stop complaining.
http://articles.latimes.com/1988-01-11/news/mn-23515_1_trade-deficit
You mean he was wrong?
What makes these numbers really frightening is that they include a $120 billion reversal in net oil exports and $250 billion in tourism. (Tourists coming in is an export.
Much if not most of the services exports are simply American companies operating overseas or in the NAFTA zone.
To even come close to the 2007 trade deficit numbers which caused a massive bubble in housing and mortgages is truly scary.
Paul;
do you know if those services in foreign subs are in captive companies were the product comes back to the US or do they end up being mfg and distribution points throughout Asia Europe, etc?
Thanks
making a long story short, most of the trade surplus in services comes from intellectual property–selling software-and people coming to the US for healthcare.
A chunk is financial services sold.
net import of oil has decreased 200 bil since 2010.
remember 3 years ago the govt added IP to GDP. Tats kind of double counting as the internal work in a company results in , hopefully, sales and revenues,
once MSFT creates a new version of windows, or office pro, it can crank out units in mass quantity al at nominal cost but big price and that big prices has been reducing the deficit. Does not create a lot of jobs.
since these companies have subs there, the money and proficts had been held overseas.
this gets back to the good deficit which is now 72 billion a month, net of the increase in oil exports which is a couple hundred billion a year. W/o that oil export-a natural resource of the US, we would be talking about 100 billion a month trade deficits.
services used to be 8 bil a month in 2000, 4 bil a month in 2005, now its over 20 bil a month. Just services cut the deficit by 150 bil a year and I am not sure what it really is, although not that the companies have to pay taxes on cash held overseas, not its kind of warranted.
Before fixing a chronic trade deficit, it is important to understand why you have one. “Not enough tariffs” probably isn’t the reason.
simple-the US is not cost competitive.
wages, benefits, EPA and OSHA regs.
we need a trick to force other counties to regulate more
NO
You dont need a trick, instead of Tariffing a good, Tariff a Behavior/Standard, or lack of.
Much more legitimate that targeting a Good as it raise working conditions and standards or cut trade with those that cheat by having lower standards and conditions..
Note Wolfs comment above on our trade deficits with Germany and Japan …I think that points to a more complex problem.
It seems obvious – To reduce the trade deficit, have a recession. Problem solved.
The trade deficit is due to US over consumption, plain and simple, supported by an overvalued dollar that serves as a world reserve currency.
Look at it another way. Either the US gets the rest of the world to buy $55 billion more a month, or the US buys $55 billion less a month (or some combination). The only one the US has control over is what it buys. But NO ONE wants to cut back. It is the american god given right to consume, even if one can not afford it.
There is no free lunch. Social costs associated with forcing
American labor to compete with foreign labor has consequences.
Most first world labor has a better safety net than American
workers. Competing with third world labor is a no win proposition.
Access to the US market ought to be worth something. Let’s find out.
It’s so sad how few people understand trade or debt. If I give you a chicken and you give me a duck, that’s trade. If I give you a chicken and you give me a piece of paper saying “I owe you a chicken” that’s not trade.
If you lend your 4 year old $20, is that a loan? Of course not. It’s not going to be paid back.
The US doesn’t owe anybody anything for the simple reason that’s it’s never gonna pay back a dime. We don’t have a deficit with China because we don’t send them enough to cover the gap.
China has 20 million unoccupied housing units. This long term planning has always been hog wash. Natural system don’t plan long term, or we’d all be extinct.
It’s often said that china has 20% too much steel capacity. That’s bull. It has 50% too much steel capacity as well as no clean water, soot filled air and toxins up the wazoo. They also have a 1,000 year history of environmental degradation.
We are at the end of what Jim Grant calls, the PHD era. Mother nature is getting ready to spank some ass/
What’s sad is that you failed to acknowledge that the US is not getting things for free either.
It’s true that the US can’t pay back anything, but that does not mean the Chinese has gotten a big fat zero.
1. The US barely manufactures everything anymore. That knowledge does not come back very quick. Nothing is free so basically the Chinese paid us for the opportunity to learn and if you want to turn things around, you’ll have to pay them. And we will.
2. The lack of good jobs has lead to a ton of social issues: homelessness, opioid crisis, etc. Obviously you don’t care about your fellow citizens. And how about Flint, Michigan eh and a number of places like that. Nah, you don’t give a shit. Pollution in Murica is just BETTER. Fools like me can’t possibly understand that.
3. Murica also does environmental s*** MUCH BETTER than China. Witness fracking and its related earthquakes. Nobody died yet right? But don’t worry, eventually a big one will come.
I can probably fill this box with so much points, but it will just be flagged by Wolf’s software.
You can say whatever you want about the end of some era. The elites don’t care about you. In fact once SHTF here, most tech elites are debunking to New Zealand. That’s right. New Zealand, not America. https://www.theguardian.com/news/2018/feb/15/why-silicon-valley-billionaires-are-prepping-for-the-apocalypse-in-new-zealand
The details of what sorts of goods you could export to decrease portions of our trade deficit are probably fairly complex. Countries like Germany export high end goods but I assume many of them like their cars are built with parts from all over the globe, we would probably seek to mirror them more than China.
Under the current US dollar reserve system, for the time being, US trade deficits do not matter. Any imbalances are simply made up by printing more US dollars.
Venzeula, Zimbabwe, and many other countries are desperately short of US dollars proving just how valuable the service of creating USDs, out of thin air, is to the rest of the world!
Export spike post the hurricanes.
If the US was producing herself what we had to replace, instead of
boosting other nations, billions of dollars would empower mfg and workers
in the US, on top of the tax break.
We click debt and other countries get the jobs & the action.
We got a malware in our brain, installed by the free traders theorists, long time ago.
It’s a fake free trade, because other nations put tariff on export from us.
If we will try to compete with them, they will threaten us with retaliation, they will cheapen their goods, reducing price, destroying any opposition.
That will pleasing our obese consumers, wealthy traders, wall street
investors…
The 250 years MOAT of free trade, will never, never ever fail !
It just shift it’s headquarter, showing it’s zest and flexibility.
All the cries for Free Trade coming from Europe seem self serving.
https://www.theguardian.com/business/2016/oct/07/european-union-import-duties-chinese-steel-port-talbot-tata
Great Britain enforced its empire with naval force, until it could no longer do so. And when European populations starved, they emigrated to North America, Australia, and NZ in succesive droves over the last century.
The US built and enforced its empire with military force, after WW2 destroyed all serious competitors.
This trade situation is just another factor in the Decline. The super-rich already have their money hiding away in offshore havens. The super-rich already have a network of like-minded friends to call on for favours, (loans from ?….) These same people already have safe refuge ready to move to. Meanwhile, they continue to whittle away at Unions in the courts (under the guise of freedoms), ensure friendly Govt pass advantageous laws (tax cuts), and most likely are manuevering to manipulate/change to the US Constitution in preparation for civil unrest. Of course the current playbook also includes attacking press and public education. Within a few years, ‘Entitlements’ will be stripped to insure taxes remain low and profits high for those few at the top.
For the bottom, debt serfdom is the norm. Critical minds are stifled with drug use and electronic addictions. Growing disenfranchised fill the Private for Profit prisons.
However, unlike the last century, there are no empty continents for the common-folk survivors to move to. I look for unintended consequences as this Economy is ‘gamed’ to death and the riches continue to flow upwards. Unrest, poverty, violence, and ultimately State control to prevent collapse.
And the rich will continue to get richer.
note: (My family and my wife’s family were European refugees early last century. My own family emigrated from US in ’68 during the unending riots and protests).
regards
No continent left? That’s true, but there’s space … the final frontier. Why do you think the rich keep sending rockets up there?
Your expectations are depressing but probably realistic. Our unwashed will get a spoonful of “sugar” to make the medicine go down, though. Debt slavery is easier to endure with the proper pharmaceutical products. I would even suggest that social unrest can be managed. And Huxley imagined it nearly a century ago!
Slave labor around the world is rendering US production irrelevant even under its current slave labor laws, became it’s still too expensive and it can carry legal liabilities that don’t exist in countries where US production has been transferred.
Still, it’s a good question how much longer the US slave can afford to buy.
Still, it’s a good question now much longer the US debt slave can afford to buy.
FIFY
Well, once rigged computer programs stop “trading,” the masters will fly to their islands near New Zealand and a number of other remote places into isolation, and the rest of us can start over.
Nobody mentioned the intellectual property issue. Maybe China will put a tariff on that?
Interestingly, 2017 was a record year of counterfeits seized from China and Hong Kong. I’m sure there is x1,000 that were not caught. There is never any mention of counterfeit semiconductor chips as it would cause too much embarrassment.
US-made hard drives have had back doors and content-reporting/planting spyware/malware (think of simple data collection about you that can be manipulated or simply used against you as needed or child porn popping up in your storage, again, as needed) in their hardware for quite a few years (my estimate is no less than17).
Why do you think you can get “security” software for free? You are the product.
Retail sales is weak and yet the deficit soars. What’s up?
http://mam.econoday.com/byshoweventfull.asp?fid=485134&cust=mam&year=2018&lid=0&prev=/byweek.asp#top
Somehow the stories do not jive.
Retail sales have been strong:
In Q4, total retail sales – e-commerce and brick-and-mortar combined, but excluding sales at restaurants and bars – jumped 5.7% year-over-year.
https://wolfstreet.com/2018/02/16/online-retail-soars-at-fastest-rate-in-years/
In January, retail sales rose 5.1% year-over-year.
https://wolfstreet.com/2018/02/14/retail-sales-inflation-add-fuel-to-feds-rate-hike-trajectory-treasuries-dive-as-yields-surge/
Well…what do you expect when you continually elect a political class (‘wing’ – irrelevant basically) that almost exclusively comes from a background in finance, who have a vested interest – literally – in believing that a country can be ‘post-industrial’ and prosper without making anything.
Something the trajectory of China over the last three decades strongly suggest is a pile of garbage (because it is).
You fully bought in to the anti-union rhetoric that vilified people trying to protect your wealth-creating productive industries.
You chose easy credit and narcissistic consumption. You chose coffee shops and tattoo parlors rather than factories.
So suck it up and stop whining.