The one-way street of Globalization by Corporate America.
By Wolf Richter for WOLF STREET.
So that was inevitable, after the US stimulus efforts: The US trade deficit in goods – exports minus imports of goods – hit a record in November of $84.8 billion, blowing by the prior record established in August, according to the advance estimate of US International Trade in Goods by the Commerce Department. This advance estimate will likely be adjusted one way or the other with the more complete batch of trade data early next year.
During the Financial Crisis, the trade deficit narrowed drastically as imports fell because US consumers cut back on buying goods, imported goods, though they continued buying services, which are mostly not imported. Now the opposite is happening: Consumers bought record amounts of durable goods, but curtailed their spending on services. And much of this merchandise they bought was imported:
This is among the peculiar effects of the US efforts to stimulate the economy with government handouts to consumers and companies, with Fed handouts to the financial markets, and with the Fed’s interest rate repression. Trillions of dollars have been flying by so fast it’s hard to see them.
These effects were heightened by the Pandemic shift from buying services, such as flights, lodging, and gym memberships, to goods such as hot tubs for the deck to vacation at home, laptops to learn at home, and bike trainers to work out at home.
One of those effects is that the US stimulated the manufacturing economies of China, Germany, Japan, Mexico, and other countries where these goods are made. But they in turn aren’t buying enough US goods, for myriad of reasons, including that the US no longer manufactures many of those goods because corporate America globalized its supply chains and offshored production.
Imports of goods have surged to $212 billion in November, according to the advance estimate by the Commerce Department today. This was still short of the record set in October 2018 ($219 billion).
Exports of goods have ticked up to $127 billion but remain below the 2018 levels which themselves were just a fraction of imports at the time. And the gap between imports and exports – the trade deficit in goods — has kept widening over the years:
The value of imports is a negative in the GDP calculations. The value of exports is a positive in the GDP calculations – hence the colors in the above chart, green for exports and red for imports.
The US consumer economy has been driven by Corporate America’s relentless globalization and its ambition to have the last shred of merchandise be manufactured in other countries, particularly cheap countries. The US tax system also encourages them to do so.
In terms of retailers, Walmart was one of the big trailblazers decades ago. But now, they’re all doing it. Ecommerce makes it easier. Amazon has perfected it; on its platform, Americans can buy directly from Chinese and Indian manufacturers.
Corporate America sells a lot of goods in other countries. For example, all US automakers are big in China. GM and its joint ventures are the number one automaker in China. But these vehicles are manufactured in China, and now some of them are imported into the US.
Tesla is doing the same thing; it obtained $1.6 billion in funding from government entities in China to set up a manufacturing plant and a design center in China. The Model 3 it sells in China, and soon the Model Y, are made in China. It’s now doing the same in Germany for its sales in Europe.
The majority of Apple’s revenues come from markets outside the US, and overseas is where most of its products that it sells there are made.
US consumer goods companies, automakers, and many other manufacturers have largely abandoned making their products in the US and exporting them. Globalization has become a one-way street.
American companies are powerhouses overseas, but they have shifted more and more production from the US to other countries. That’s why even a boom in American-branded consumer goods sold overseas doesn’t boost US exports and manufacturing. But a boom in the sales of goods in the US, such as the deficit-funded stimulus-powered boom now, boosts US imports. Thanks to that one-way street of globalization.
Consumers earned more in November than in the Good Times, but a lot less than back when free Pandemic-money was massively hailing down. Read… Majestic Overshoot of Stimulus Money Ended. Faced with Second Wave, Americans Cut Back, Even on Durable Goods
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