(What’s Left of) Our Economy: Which Democrats are Serious and Un-Serious About Trade Overhaul?

Tags

AFL-CIO, Bernie Sanders, Canada, Charles Schumer, currency manipulation, Debbie Dingell, Democrats, dispute resolution, Elizabeth Warren, environmental standards, labor standards, Mexico, NAFTA, North American Free Trade Agreement, Politico, Richard Neal, Robert Lighthizer, Rosa deLauro, rules of origin, Thea Lee, Trade, Trump, U.S. Trade Representative, unions, Wilbur Ross, William Pascrell, {What's Left of) Our Economy

Usually, paying attention to instances of politicians and other public figures getting up on their soapboxes is a waste of time. Yesterday served up an exception: a press conference held by House Democrats in reaction to President Trump’s official decision to open talks to renegotiate the North American Free Trade Agreement (NAFTA). The statements recorded in this Politico account offer some evidence as to which leaders on America’s Left are willing to work with the administration on trade policies that can help the working class voters Democrats still profess to champion, and those who will remain content to sit on the sidelines and take partisan potshots.

Reportedly, all of the House members who spoke at the event “said…they feared Trump would make only modest changes to NAFTA after blasting it as an economic disaster throughout last year’s presidential campaign.” The basis for these worries? The letter sent yesterday by new U.S. Trade Representative Robert Lighthizer to Congressional leaders announcing the administration’s intention to open NAFTA talks with the two other signatories, Canada and Mexico. According to these House Democrats and some other trade critics, the document apparently was “short on details,” which many claimed indicated Trump’s intention simply to “tweak” rather than comprehensively overhaul the agreement.

All else equal, wondering about the president’s real intentions is anything but unreasonable. His personality, after all, is mercurial, and one of his major trade initiatives to date – the negotiations begun with Beijing following February’s summit with Chinese leader XiJinping – has legitimately disappointed advocates of the major course change he pledged during the campaign. (The other major trade initiative, scrapping the Trans-Pacific Partnership trade agreement, kept a leading campaign promise to the letter.) Moreover, the Lighthizer letter is indeed short on specifics.

But none of the participants in the press conference seems to have noticed that in previous statements –including reportedly to leading Democratic lawmakers, top Trump officials have emphasized the need for dramatic NAFTA changes.

For example, Commerce Secretary Wilbur Ross has described as high NAFTA-related priorities greatly tightening the pact’s rules of origin in order to incentivize more non-NAFTA manufacturing investment inside the free trade zone, and restructuring a dispute-resolution system that gives each signatory an equal vote even though the United States represents more than 85 percent of North America’s total economic output. Reinforcing this point was the Lighthizer letter’s contention that “establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of these agreements and should be improved in the context of NAFTA.”

Meanwhile, Lighthizer reportedly has told Senators that the administration is thinking of adding to NAFTA rules that would prohibit currency manipulation – a move that would set a valuable precedent for future trade deals. In addition, his letter mentioned the need to improve NAFTA’s labor and environmental protections. In my view, they’re largely unenforceable. But they’ve been a prime focus of Democratic Party trade policy positions for decades.

So given that background, it seems fair at this point to finger Connecticut’s Rosa deLauro, New Jersey’s Bill Pascrell, and Massachusetts’ Richard Neal as grandstanders. The former stressed the “tweaking” allegation. The latter two charged that “It was clear from the start that the administration was only interested in working with the Congressional Republican leadership in drafting this notice [the Lighthizer letter].”

I’d also include in this group several key Senate Democrats, including Leader Charles Schumer of New York, former presidential candidate Bernie Sanders of New York, and Elizabeth Warren of Massachusetts. They voted against Lighthizer’s confirmation despite his decades-long record of fighting predatory foreign trade practices both as Deputy U.S. Trade Representative during the Reagan administration, and as a trade lawyer representing domestic American producers.

More temperate in their judgments were Michigan’s Debbie Dingell, and the AFL-CIO’s Thea Lee. The former stated that she was “investing the time to understand where the consensus is.” The latter said, “We enter every negotiation in a good faith state of mind and we expect a lot from our government. Certainly candidate Trump made a lot of promises about fixing flawed trade agreements and looking out for American workers and good jobs, so we will hold him and his administration to that promise.”

I can’t think of a more reasonable position for politicians and other supporters of a movement that still styles itself as the “party of the common man [and woman].”

(What’s Left of) Our Economy: Slight March Trade Deficit Dip Conceals Numerous Milestones, Major Asia Deterioration

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Asia, Canada, Census Bureau, China, European Union, exports, free trade agreements, high tech goods, imports, Japan, KORUS, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, Pacific Rim, recovery, services, South Korea, Trade, trade deficit, {What's Left of) Our Economy

Note:  So many new records and multi-year highs were revealed by the March trade figures released this morning by the Census Bureau that I’m posting this abbreviated, just calculated, write-up — containing all the main highlights — rather than the usual lengthier, more comprehensive version.

America’s goods and services trade deficit slipped by 0.12 percent on month in March, to $43.71 billion, but the decline was more than offset by a noteworthy 0.47 percent upward revision to the originally reported February figure – to $43.76 billion. This modest movement, moreover, masked major deterioration in America’s trade balances with Pacific Rim countries, many of whose surpluses with the United States had been depressed by winter or spring holidays. 

Whereas in February, the American goods deficit with that region plunged sequentially by 30.76 percent, it rebounded in March by 25.39 percent, to $33.55 billion – the biggest such jump since last March 2015’s 52.63 percent. The greatest (15.53 percent) monthly merchandise import increase since then was largely responsible. Although the China goods deficit remained high – mainly because U.S. merchandise exports in March fell for the fifth straight month – the biggest trade swings were recorded with Japan and South Korea. Significantly, March marked the fifth anniversary of the implementation of the bilateral U.S.-Korea free trade agreement (KORUS) 

The March merchandise deficit with Japan soared by nearly 55 percent, to its highest level ($7.42 billion) since April, 2008 ($7.61 billion). And American goods imports from Japan rose by 32.12 percent to $13.04 billion – their highest total since March, 2007 ($13.47 billion). 

U.S. merchandise exports to South Korea hit a new monthly all-time high in March ($4.36 billion), imports rose to their second highest level ever ($6.61 billion), and the large sequential gains left the goods deficit at $2.25 billion. That was 73.50 percent higher than a February figure that itself had fallen by nearly 50 percent.  

Since KORUS’ implementation, in March, 2012, the U.S. merchandise deficit with South Korea has more than quadrupled (from $561.4 million) on a monthly basis.  By that same measure, U.S. goods exports to South Korea are up by 3.99 percent, and goods imports are 38.08 percent higher. 

The huge and chronic U.S. goods deficit with China rose by 7.03 percent sequentially in March, to $24.58 billion, but remained well below record levels. Nonetheless, American merchandise exports to China’s still strongly growing economy fell for the fifth straight month, to $9.63 billion. That was their lowest level since last September ($9.56 billion). 

Asia events also clearly influenced the big on month rebounds in the March trade deficits for manufacturing (up 15.23 percent, to $69.76 billion, after dropping by 19.88 percent) and high tech goods (up 33.87 percent, to $6.07 billion, after plummeting by 46.39 percent).

New records and multi-year highs were set in U.S. trade on other fronts, too. American goods exports to the European Union hit $25.69 billion – a new all-time best. Goods imports from NAFTA partner, Mexico, however, hit a new record as well ($21.02 billion), and helped boost the bilateral merchandise to its highest level ($7.03 billion) since November, 2007 ($7.23 billion) – just before the Great Recession officially began. The United States fared better with its other NAFTA partner, Canada. Its merchandise deficit sank by 35.49 percent, to $1.37 billion, as exports of $24.92 billion represented the best such total since March, 2015 ($25.50 billion), and imports of $26.29 billion represented their highest level since June, 2015 ($27.34 billion).

U.S. global services exports rose in March to a new record high as well ($64.70 billion), and helped push the surplus to its best level ($21.80 billion) since June, 2015 ($22.41 billion). As for overall goods and services exports and imports, they both fell sequentially in March (by 1.02 percent and 0.73 percent, respectively). 

The trade drag on the historically feeble American economic recovery declined as well, from 17.55 percent in the fourth quarter of last year to 17.44 percent of during the first quarter of this year, but still slowed the economy’s cumulative expansion by a staggering $433.76 billion after inflation.

(What’s Left of) Our Economy: Laughable NAFTA Defenses from the New York Fed

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Canada, competitiveness, Federal Reserve, intermediate goods, intra-industry trade, Mexico, NAFTA, New York Fed, North America, North American Free Trade Agreement, rules of origin, supply chains, tariffs, The Race to the Bottom, Trade, Trump, {What's Left of) Our Economy

Although the Federal Reserve Bank of New York says that posts on its Liberty Street Economics blog “do not necessarily reflect the position” of either this branch of the federal reserve system or the system itself, it’s hard to avoid the conclusion that the bank has gone to war against President Trump’s announced plans to renegotiate NAFTA (the North American Free Trade Agreement). Why else would it have run items critical of these plans on consecutive days last week?

Even more important, it’s hard to avoid the conclusion that these posts aren’t vetted seriously for basic knowledge of America’s international trade situation, or even common sense. Key examples from each of these posts should suffice to establish the New York Fed’s combination of bias and ineptitude here.

The first post, by a New York Fed official and an economist from the offshoring interests-funded Institute for International Economics, purported to show that “An underappreciated benefit of … (NAFTA) is the protection it offers U.S. exporters from extreme tariff uncertainty in Mexico….Without NAFTA, there is a risk that tariffs on U.S. exports to Mexico could reach their bound rates, which average 35 percent. In contrast, U.S. bound rates average only 4 percent. At the very least, U.S. exporters would be subject to a higher level of policy uncertainty without the trade agreement.”

But it quickly becomes clear that even the authors are skeptical about this outcome. Their main stated reason hints at one main reason: “”Given the large and well-documented benefits from low trade barriers, particularly those stemming from access to a wider variety of imported intermediate inputs and lower prices of intermediate inputs, it would not be in Mexico’s interest to raise all of its MFN tariffs to their bound rates.”

This argument is only a hint, however, because it jaw-droppingly softpedals some of the main characteristics of U.S.-Mexico trade – specifically, the hugely outsized role played in this commerce by intra-industry trade. As I first described at length in The Race to the Bottom, a large share of U.S.-Mexico trade has little to do with the exchange of finished goods that dominates the textbook models. Instead, it consists of parts and components and other inputs of finished goods that travel through international production chains until they’re turned into final products.

And because there’s so little consumer purchasing power in Mexico, and so much in the United States, the lion’s share of this bilateral intra-industry trade in turn consists of intermediates being sent from U.S. factories to Mexican facilities, where they’re assembled into final products for export back to America.

Sure, in principle, a U.S. scrapping of NAFTA (which of course is not the Trump administration’s stated intention) could enable Mexico to substitute non-U.S. parts and components etc for the American-made intermediates that current make up so many of its exports. But without NAFTA, Mexico would also lose much and probably most of its current, unconditional access to the U.S. market. And since that market currently buys nearly 80 percent of Mexico’s exports, and since Mexico’s economy relies so heavily on those exports, it should quickly becomes obvious how self-defeating such a Mexican effort at hardball playing would be.

How bizarre that neither the article’s authors, nor anyone else involved in producing Liberty Street Economics, recognized these longstanding realities. Even weirder: The importance of this intra-industry trade in U.S.-Mexico trade was the major theme of another post from the same authors (plus a third) on this same blog that appeared the very next day.

Yet the NAFTA-related follies of the authors and of Liberty Street Economics hardly end there. In that second post, readers are warned that stricter rules of origin (ROO) for NAFTA could “disrupt supply chains” and in particular backfire on U.S.-based businesses by increasing the costs of their imported inputs and undermining the competitiveness of their exports outside North America.

To which someone who actually knows something current U.S. NAFTA renegotiating plans can only reply, “Seriously?”

For what the authors and the rest of the Liberty Street crowd seem to miss is that the only ROO revamping that would make any sense from a U.S. standpoint is also precisely the kind of revamping that the Trump administration seems to be considering: not only tightening the ROO (to confine duty-free treatment for goods traded inside the NAFTA zone to goods with higher levels of content produced inside the zone), but increasing the tariff penalties imposed on goods with relatively low levels of non-North American content.

In other words, the North American supply chains created by NAFTA wouldn’t be weakened. They’d be strengthened and greatly expanded.

Now the authors could still be right in arguing that such measures would raise the prices of goods made inside North America and thereby undermine their competitiveness outside North America. But they completely neglect two counter-arguments.

First, because the (U.S.-dominated) North American market is already so vast, and because intermediate goods industries in the three NAFTA countries are already so enormous, external tariffs that encourage North American businesses to use even more North American content could well bring gains inside the NAFTA zone that exceed whatever non-NAFTA losses are incurred.

Second, NAFTA as it currently exists was touted as a major boost to U.S. and North American global competitiveness, but there’s no evidence that this goal was achieved. Quite the contrary, at least according to World Trade Organization data.

They show that in 1993, the year before NAFTA went into effect, North America’s share of global goods exports was 17.9 percent. By 2015, it had shrunk to 14.4 percent. The U.S. share during this period fell from 12.6 percent to 9.4 percent, and the Canadian share decreased even faster – from 3.9 percent to 2.6 percent (no doubt, however, largely due to falling prices for the oil it exports so abundantly).

Mexico’s share of global exports did increase – from 1.4 percent to 2.4 percent. But surely that improvement stemmed mainly from selling to the United States, not to any non-North American customers.

The North American share of world merchandise imports did decrease during this period as well. But the decline was much smaller, and one quick look at the U.S. trend makes clear that the lion’s share of this improvement has resulted from the recent, dramatic turnaround in American energy trade patterns – which have nothing to do with NAFTA or any other supply chains.

The Federal Reserve system, and especially its crucially important New York branch, have long been renowned for employing premier economists and sponsoring first-rate economic analysis. But these Liberty Street Economics posts indicate that, at least when it comes to NAFTA, the New York Fed is better described as the Gang that Can’t Shoot Straight.

(What’s Left of) Our Economy: Where America Has Literally Been Asleep at the Switch on Trade

Tags

Buy American, Canada, Commerce Department, European Union, free trade agreements, FTAs, government procurement, Government Procurement Agreement, GPA, Japan, Jeff Merkley, NAFTA, North American Free Trade Agreement, Norway, Politico, South Korea, Tammy Baldwin, Trade, Trump, Wilbur Ross, World Trade Organization, WTO, {What's Left of) Our Economy

Here’s a big, sincere shout-out to U.S. Senators Jeff Merkley (Oregon) and Tammy Baldwin (Illinois). Thanks to their insightful curiosity, Americans have just gotten evidence that their country’s trade policy is indeed as much of a disaster area as claimed by President Trump and other critics.

Their accomplishment? The two Democrats asked the Government Accountability Office (GAO) to look into how well Washington has been implementing a more than two-decade-old global trade agreement aimed at opening government procurement markets around the world. Also examined: the trade liberalization record of government procurement provisions of bilateral and regional trade agreements signed by the United States (like the North American Free Trade Agreement, or NAFTA).

The findings were released last month (and alertly reported by Politico‘s trade correspondents), and make clear that the United States has been getting royally shafted. Moreover, these results have been inevitable both because the global deal was so poorly conceived from an American standpoint, and because literally no one in the U.S. trade policy-making apparatus has been tracking the results of either the global agreement or the relevant sections of the narrower trade deals agreement affecting literally trillions of dollars worth of actual and potential sales.

Even worse, the blithe assumption that other signatory countries has been scrupulously abiding by all of these procurement agreements has sharply limited America’s willingness to expand and tighten the Buy American rules that cover its own official purchases – in the process, passing up major opportunities for growth and job creation at a time of economic weakness. And P.S. This includes President Trump.

The GPA is a “plurilateral” agreement negotiated under the auspices of the World Trade Organization. In other words, accession by WTO members is voluntary. Still, the deal, which went into effect in 1996, currently encompasses 47 countries that are now committed to placing foreign enterprises and their own domestic entities on an equal footing when they compete for government contracts. Nine other WTO members are in the process of signing on. Most of America’s bilateral and regional trade agreements also prohibit discrimination in awarding these opportunities for supplying governments with goods and services. Consequently, 19 other countries have promised the United States to open their official procurement markets to the United States in return for America opening its own to them. (All of these governments have carved out various agreed on exemptions. And sub-national governments are covered by these deals as well.)

With stakes this high, you’d think that at some point the U.S. government would display reasonably consistent interest during the multi-decade lives of these trade agreements in whether they’ve been paying off. But according to the GAO researchers, you’d be wrong.

Even though the GPA requires detailed, annual reporting of procurement statistics by signatory governments, the GAO’s

“review of data that the United States and next five largest GPA parties [the European Union, Japan, Canada, South Korea, and Norway] submitted to the WTO for 2008 through 2013 found that a number of parties did not submit the reports annually, the submitted reports did not include all required data, and each party’s reports included inconsistencies that limit the data’s comparability. Further, a lack of common understanding on definitions of key terms has led to inconsistent reporting practices among the GPA parties, and a GPA statistical working group has made little progress in addressing such challenges.”

Some specific failings:

>”although Canada submitted annual notifications with central government procurement data for 2008 through 2013, the notifications did not include data on procurement by subcentral governments or by other government entities”;

>”Japan’s annual notifications have not included procurement by entities such as utilities and state-owned enterprises that are covered by the GPA”:

>”South Korea has not submitted notifications for any year except 2010, and Japan has not submitted a notification for 2012 although it did so for other years through 2013.”

>”Of the U.S. FTAs [free trade agreements] we reviewed, only NAFTA requires its parties to report annual statistics on government procurement; however, the last data exchange between the three NAFTA parties took place in 2005. As a result, information about the extent to which U.S. FTA partner governments open procurement to U.S. suppliers is not available.” [Emphasis added.]

The United States has been far from a whiz in reporting, either. But its failings have been much less excusable given all the evidence provided by the GAO showing that it’s opened its procurement markets much wider than any other GPA or FTA signatory. Despite the above data limitations, the GAO nonetheless felt confident in concluding that for 2010, “[T]he United States reported more than twice as much GPA-covered government procurement as the next five largest GPA parties combined, although total U.S. government procurement is less than the combined total for the other five parties.”

In money terms, the value of contracts opened to non-discriminatory bidding by the United States at all levels of government was $837 billion. The value of contracts opened by those five non-U.S. GPA parties that promised to liberalize the most in absolute terms was some $381 billion. Yet total government procurement in the United States that year was some $1.7 trillion, the GAO estimates. For the other five GPA signatories, it was much larger – $4.4 trillion.

Moreover, because of the aforementioned reporting failures, it’s not possible at all for the U.S. government, or the American people, to gauge procurement liberalization under free trade agreements – with the exception of Canada. But when their procurement budgets are added in, and duplication eliminated (e.g., for Canada), the total market that should be available to American business and workers at least in principle is $4.4 trillion. 

The GAO doesn’t conclude that U.S. trade partners are simply capitalizing on Washington’s indifference to flout their treat obligations. In fact, in one instance, it even tries to get them partly off the hook: “Many EU member states, as well as Japan and South Korea, have actual government expenditures smaller than the United States’ and are therefore likely to have more smaller-value individual procurement contracts that fall below the GPA threshold levels.” (Decisions on the smallest government contracts typically are one of the main GPA and FTA procurement carve-outs.)

But if so many foreign government contracts are too small to be opened for non-discriminatory bidding, then obviously these trade deals are too poorly structured to give American producers anything remotely like reciprocity. And more important, Washington so far has had no way of knowing judging by any measures whether non-discrimination in principle is being translated into non-discrimination in fact .

As Mr. Trump’s Commerce Secretary, Wilbur Ross, recently noted, “There’s not a lot of point making trade deals if you don’t enforce them.” He could have added that such enforcement is impossible without seeking and obtaining reliable data on results. Donald Trump’s predecessors have flunked these two crucial tests of American trade policy-making. Until he gets strong evidence to the contrary, it’s time for the president to take the logical next step, assume that the GPA and the FTA government procurement measures have been serious mistakes, and ignore them as thoroughly as America’s competitors evidently have.

(What’s Left of) Our Economy: A Comeback for the U.S. Trade Deficit – & Most (but not all!) of the Usual Suspects

Tags

Canada, China, energy, exports, GDP, Germany, gross domestic product, high tech goods, imports, Korea, Made in Washington trade deficit, manufactures, Mexico, NAFTA, non-oil goods deficit, North American Free Trade Agreement, oil, recovery, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit recorded a near-double-digit sequential increase in January to hit $48.49 billion. That monthly total was the highest since March, 2012’s $50.22 billion. Combined goods and services exports inched up sequentially to $192.04 billion – their best performance since December, 2014’s $197.46 billion. But total imports grew some four times faster, to $240.59 billion. That total also was the highest since December, 2014 ($241.21 billion).

America’s pre-inflation oil trade deficit spurred much of the total trade gap’s January rise, soaring by nearly 25 percent sequentially to $7.56 billion – the highest level since July, 2015’s $8.01 billion. An 18.37 percent surge in imports to $16.87 billion, the highest total since January, 2015’s $19.63 billion produced much of this result. But the huge, chronic U.S. manufacturing trade deficit also shot up in January – from $69.52 billion to $75.54 billion. And following a record December monthly plunge in its volatile trade balance, the shortfall in high tech goods more than doubled in January, to $8.46 billion.

The massive and longstanding American merchandise deficit with China rebounded by nearly 13 percent in January from a nine-month low to reach $31.30 billion. The main culprit – the biggest decrease in monthly goods exports to China (13.37 percent) since last January’s 18.87 percent plunge. The goods gap with NAFTA partner Canada jumped by more than 68 percent on month, to $3.62 billion. And the merchandise deficit with free trade partner Korea more than doubled, from a nearly two-year low, to $2.59 billion. Yet the U.S. merchandise deficit with Germany — whose big global surpluses have just been targeted by the Trump administration — hit its lowest level ($4.88 billion) since last February ($4.51 billion), and that with Mexico shrank by just over 10 percent, to $3.95 billion. That was its lowest level since July, 2015 ($3.71 billion).

Most troubling, however, the Made in Washington trade deficit – the gap in goods other than oil that is heavily affected by U.S. trade policy – rose by more than five percent on month to hit $61.43 billion. That total, the highest since March, 2015’s $61.90 billion, signals that the trade drag on the already sluggish current American economic recovery will increase further in the first quarter of this year.

Here are selected highlights of the latest monthly (January) trade balance figures released this morning by the Census Bureau:

>In January, the U.S. trade deficit hit $48.49 billion – its highest monthly level since March, 2012’s $50.22 billion.

>The January total represented a 9.56 percent increase over the December total, which was adjusted only fractionally downward, to $44.26 billion.

>Combined goods and services exports of $192.09 billion represented a 0.56 percent increase over the upwardly revised December figure of $191.01 billion – and the highest monthly result since December, 2014’s $197.46 billion total.

>But combined goods and services imports grew by 2.26 percent in January, from an upwardly revised December level of $225.27 billion to $240.59 billion. That total was also the highest since December, 2014 ($241.21 billion).

>Much of the January trade deficit increase resulted from a 24.72 percent monthly pop in the current-dollar U.S. oil trade deficit. The $7.56 billion total was the highest since July, 2015’s $8.01 billion.

>Pre-inflation oil exports increased by 13.68 percent on month in January, from $8.20 billion to $9.32 billion. But imports surged by 18.37 percent – from $14.26 billion to $16.87 billion. That was their highest total since January, 2015’s $19.63 billion.

>But January’s poor U.S. trade performance was also fueled by an 8.66 percent increase in the massive and chronic manufacturing trade gap, from $69.52 billion to $755.54 billion.

>Manufactures exports sank by 7.02 percent sequentially in January, from $89.36 billion to $83.09 billion. But manufactures imports dipped by only 0.16 percent, from $158.88 billion to $158.62 billion.

>Within manufacturing, the high tech goods deficit worsened dramatically in January, as the monthly shortfall rebounded from a record (71.78 percent) sequential drop in December, to $3.82 billion, to $8.46 billion – i.e., a more-than-doubling.

>U.S. high tech goods exports plummeted in January by 18.93 percent – from $32.18 billion in December to $26.06 billion. Imports, however, declined by only 4.11 percent, from $36.00 billion to $34.52 billion.

>The wider January trade deficits in manufacturing and high tech goods were no doubt linked to the 12.78 percent increase in the American merchandise trade shortfall with China – from $27.76 billion in December (the lowest such figure since last April’s $24.31 billion) to $31.30 billion.

>U.S. goods exports to China fell by 13.37 percent on month in January – from $11.63 billion to $10.07 billion. That was the biggest sequential decrease since last January’s 18.87 percent. U.S. goods imports from China hit $41.38 billion – a 5.07 percent rise from December’s $39.38 billion.

>America’s merchandise deficit with Canada skyrocketed in January by 68.37 percent, from $2.15 billion in December to $3.62 billion. U.S. goods exports to this North American Free Trade Agreement (NAFTA) partner fell 2.35 percent on month, but imports advanced by 4.17 percent.

>The goods deficit with bilateral free trade partner Korea more than doubled in January, from $1.20 billion (the lowest such total since February, 2014’s $1.08 billion) to $2.59 billion. America’s merchandise exports to Korea ticked up by 0.27 percent on month, but its merchandise imports were up 8.91 percent.

>Since the bilateral trade deal went into effect in March, 2012, the U.S. merchandise deficit with Korea has roughly quintupled on a monthly basis.

>By contrast, even though the Trump administration has recently criticized Germany’s burgeoning global trade surpluses, the American merchandise deficit with that country actually shrank on month by 8.72 percent to $4.88 billion.  That was its lowest level since February, 2014 ($4.51 billion).

>Similarly, the United States’ merchandise deficit with its other NAFTA partner, Mexico, fell by 10.13 percent, from $4.39 billion to $3.95 billion. That’s its lowest level since July, 2015 ($3.71 billion).

>At the same time, the 5.21 percent monthly rise in the January real non-oil U.S. goods deficit of $61.43 billion – the biggest such total since March, 2015’s $61.90 billion – spells trouble for American economic growth in the first quarter of this year. This Made in Washington deficit – which strips out areas like energy and services, which are only slightly impacted by American trade policies – influences the most closely followed gross domestic product figures, which are inflation-adjusted.

>Although the final fourth quarter 2016 results are not yet available, preliminary figures so far show that the strong growth of this policy-shaped trade deficit has slowed the cumulative pace of the nation’s historically weak economic recovery by fully 20.56 percent – or $434.78 billion.

(What’s Left of) Our Economy: Some Real Fake News on Trump and Trade Data

Tags

Canada, data, domestic exports, economic growth, exports, imports, imports for consumption, Jobs, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, Public Citizen, re-exports, The Wall Street Journal, Trade, Trump, {What's Left of) Our Economy

Talk about a non-story. That some globalization cheerleaders have tried to blow up into a scandal. And all because the Trump administration seems to be interested in correcting important distortions in some commonly used U.S. trade data that presents a misleading picture of America’s exports, imports, and trade balances.

Here’s the situation. Last Sunday, The Wall Street Journal reported that  “The Trump administration is considering changing the way it calculates U.S. trade deficits, a shift that would make the country’s trade gap appear larger than it had in past years, according to people involved in the discussions.”

According to the Journal, “The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged….”

Continued the article, “Economists say that approach would inflate trade deficit numbers because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.”

So in other words, President Trump and his minions are thinking of artificially deflating the figures describing what the United States sells to the rest of the world, but not making a corresponding change on the import side that would reduce the amount of goods that the nation buys from its trade partners. The result would be a larger U.S. trade deficit, and added ammo for the administration’s claim that America’s trade policy needs major surgery. Talk about creating “alternative facts,” right?

That’s what the Journal‘s editorial board concluded. Charged these trade zealots, the Trump-ers’ “effort to recalculate U.S. trade flows to show larger deficits” is a “trick….borrowed from the political left” that “deserves to be hooted down as an attempt to manipulate statistics to assist bad economic policy [i.e., curbs on trade flows].”

But these allegations aren’t even close to the mark – that is, if you believe the Journal‘s own reporting. For as the original piece eventually reveals (based, as is the entire article, on anonymous sources), the president’s team is indeed mulling making those import data changes, too – which would involve switching the import measure “to ‘imports for consumption,’ a slightly narrower way of measuring imports that would make less of a difference in the overall balance. “

Which means that – weirdly – the Journal reporters decided not to tell those outraged economists that the supposed Trump administration exercise would make statistically valid symmetrical changes, or that these (of course nameless) economists received this info from the reporters and decided to ignore it in order to try to create the appearance of impropriety. It also means that Journal editorial writers either didn’t read their own publication’s coverage all the way through, or chose to ignore that decisive material. Either way, someone has just massively violated their profession’s ethics.

As for the change (reportedly) under consideration itself, it’s entirely justified because those re-exports that under the main system for presenting trade data are counted as real exports literally are not Made in America. As indicated above, they enter the U.S. economy from abroad and then are shipped overseas (or across the border to Canada or Mexico) in nearly all cases entirely or virtually unchanged.

This means that they add virtually nothing to American economic growth or employment – a major and entirely valid reason that exports are so beloved). And although, as some trade advocates claim, their transit into and through the United States creates logistical jobs (in transportation and,warehousing services), such logistical jobs would be created anyway if those goods were domestically produced (Unless you think that such products typically don’t need to be stored after production and then transported to customers, too?)

Moreover, the distortions resulting from sloppy methodology of the main exports numbers are anything but bupkis. Last year, for example, failing to strip out foreign-produced goods boosted total U.S. merchandise exports by 15.43 percent – or $224.33 billion. Relatively speaking, the impact on manufactures exports was even bigger – 17.48 percent, or $223.36 billion.

And the effects on America’s goods exports to Mexico and Canada, its partners in the controversial North American Free Trade Agreement (NAFTA), are especially noteworthy. Proper counting would reduce 2016 U.S. merchandise exports to the former by 23.19 percent and manufactures exports by 25.30 percent. The comparable numbers for Canada are 17.14 percent and 17.93 percent.

Moreover, since proper counting has little effect on import totals, either globally or for NAFTA trade, raising its profile would definitely show higher U.S. deficits. And the export gap has been growing steadily across the board.

Fittingly, this story can be closed on an absurd note, too. As indicated above, the U.S. government already compiles and reports (though in an unsatisfactorily low-profile way), export and import data that quantify exports actually produced in America, and imports actually consumed in America (although, as discussed in this solid Public Citizen analyses, the import numbers could still use some improvement). So a changeover to more accurate figures that reveal trade’s true impact on U.S. production and job creation looks to be pretty easy. Think we’ll be reading about that in The Wall Street Journal?

Making News: CNBC NAFTA Interview – & More!

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Akron, Canada, China, CNBC, dollar, Japan, Jobs, Kelly Evans, Lifezette.com, Making News, Marketwatch.com, Mexico, Mike Santoli, NAFTA, North American Free Trade Agreement, Ohio, Shinzo Abe, The Ray Horner Morning Show, Trade, Trump, Voice of America, WAKR-AM

I’m pleased to report that the video of my interview earlier today on CNBC on President Trump’s intentions toward the North American Free Trade Agreement (NAFTA) is on line.  Click here for an informative segment involving me, the Council on Foreign Relations’ Thomas Bollyky, and CNBC anchors Kelly Evans and Mike Santoli.

In addition, on February 10, Lifezette.com ran this post previewing the just-concluded summit between Mr. Trump and Japanese Prime Minister Shinzo Abe. It included my views on U.S.-Japan trade relations.

On February 8, Marketwatch.com featured my comments on the crucial economic question – posed recently by President Trump – of whether the U.S. economy is better off with a strong or weak dollar.  Click here to read them.

The previous day, a Marketwatch analysis of the recently released 2016 U.S. trade figures highlighted my perspective on President Trump’s chances of significantly changing America’s approach to the global economy.  Here’s the link.

On February 6, I was interviewed on “The Ray Horner Morning Show” on Akron, Ohio’s WAKR-AM on Mr. Trump’s trade and manufacturing policies. Unfortunately, a podcast is not yet available.

This February 3 post on Lifezette drew upon my same-day report on the January U.S. jobs figures – which closed the book on former President Obama’s employment-creation record.

And on January 30, the U.S. government-run Voice of America interviewed me on the future of U.S.-China trade and broader economic relations. You can read some excerpts at this post – which was translated somewhat imperfectly from the original Mandarin

Keep checking back with RealityChek for news of upcoming media appearances and other events.

Making News: Back on CNBC This Afternoon Talking Trump and NAFTA

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"Closing Bell, Canada, CNBC, Making News, Mexico, NAFTA, North American Free Trade Agreement, Trade, Trump

I’m pleased to announce that I am scheduled to appear today on CNBC’s “Closing Bell” program today to talk about President Trump’s plans to revise the North American Free Trade Agreement (NAFTA) and to overhaul U.S. trade policy more broadly. The segment, which is slated to begin at 4:30 PM EST, can be viewed on television and on CNBC.com.

As usual, if you can’t catch the program live, I’ll be posting a link to the streaming video as soon as one’s available. And keep checking in here at RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Trump’s Globalization Promises are Already Producing Victories

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Canada, China, Digitimes, H1B visas, Immigration, India, Infosys, Mexico, NAFTA, Reuters, Taiwan, Trade, Trade Deficits, trade surpluses, trade wars, Trump, {What's Left of) Our Economy

America’s political and media establishments keep warning of the disastrous consequences of President-elect Donald Trump’s vow to conduct international economic policy by in effect telling U.S. competitor countries and offshoring multinational companies to “Jump.” And rather than responding indignantly by promising to resist or retaliate and touch off a series of international trade wars and other conflicts, businesses in these countries keep responding by in effect asking “How high?”

As a result, they keep adding to the already copious body of evidence indicating that the United States boasts more than enough leverage (thanks to the matchless power of its market) to achieve better terms of trade unilaterally. Here are two of the latest examples.

Yesterday, the reliable Taiwanese technology publication Digitimes reported that “US-based high-tech enterprises are expected to reduce their reliance on data centers abroad and add ones in the US.” In addition, the Digitimes piece quoted a Taiwanese tech magnate speculating – reasonably – that tech companies (like his) that have already built significant manufacturing capacity in the United States will have advantages over more foreign-centric competitors – who will “have to evaluate the feasibility of shifting factories from Mexico or other areas to the US….”

Meanwhile, on Sunday, Reuters quoted the COO of the Indian tech services giant Infosys as stating that because they expect Mr. Trump to curb significantly the visa programs that enable American tech companies to replace U.S. workers with low-paid imported Indian counterparts, companies such as his will “speed up acquisitions in the United States and recruit more heavily from college campuses there.”

Specifically, according to this Indian executive, “We have to accelerate hiring of locals if they are available, and start recruiting freshers from universities [in the United States].”

Previously, it should be noted, both Canada and Mexico announced in the wake of the Trump victory that they would indeed be willing to renegotiate or “discuss” NAFTA.

China may still apparently believe it can bluff Mr. Trump. But good luck to Beijing and its still export-heavy economic growth strategy if it thinks it can find foreign markets to substitute for America’s, with which it ran a $367 billion goods trade surplus last year. Good luck also to China’s efforts to maintain political stability if, as likely, declaring a trade war on such a crucial foreign customer raises unemployment.

America’s economic competitors are fully aware that its enormous trade surpluses have fueled much of their own, and global, growth for decades. The biggest change on this front represented by Trump’s election is that now a U.S. president clearly understands – and has been publicly touting – this indisputable reality as well.  In otherwise, for the first time in decades, America is led by someone well versed in “the art of the deal.”   

Im-Politic: GE’s New Gift to the Trade Populists

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2016 election, Bernie Sanders, Canada, China, Donald Trump, GE, General Electric, Im-Politic, India, investment, Jeffrey Immelt, Jobs, manufacturing, multinational companies, NAFTA, North American Free Trade Agreement, protectionism, reshoring, Saudi Arabia, scale, Trade

The maverick presidential campaigns of Donald Trump and Senator Bernie Sanders just got a major boost from an unexpected source: General Electric CEO Jeffrey Immelt.

Throughout this political year, the presumptive Republican nominee and the Democratic challenger have drawn scorn from the nation’s intertwined political class and business establishment for promising voters that their administrations will bring back to America significant numbers of manufacturing jobs that have been lost to foreign competition. But in a speech last Friday, Immelt (unwittingly, to be sure) made clear both that their ambitions are eminently realistic, and that his own giant company plans to adjust its production and employment policies in response to just these “protectionist,” “populist” pressures – which he noted are appearing all over the world.

Immelt’s apparent tone and much of his phrasing indicates that he intended his remarks – to the graduating class at New York University’s business school – as a ringing defense of GE’s contributions to both the U.S. and world economies so far; as a grim warning that shortsighted, misguided fears about the costs of trade liberalization and global integration were about to endanger the much greater good done by these developments; and as a defiant declaration that his company was positioned to thrive come what may from the world’s cowardly politicians.

Let’s leave aside for now his claims about the net effects of GE’s operations and about today’s version of globalization – although once more he provided a specific number for GE’s annual exports without revealing how much the company imports into the U.S. market. What was actually most remarkable about Immelt’s speech was how strikingly it contrasted with the picture of U.S. multinational companies that’s emerged and prevailed especially since the debate over the North American Free Trade Agreement (NAFTA) more than 20 years ago ushered in the current era of American trade policy.

As Americans and their leaders have constantly heard throughout this period, corporations – especially gigantic ones like GE – had become completely liberated from specific locations and their political authorities. Thanks to dramatic breakthroughs in transportation and communications, these firms could establish any kind of operation anywhere in the world that created a favorable business climate. And if any retrograde national governments tried to interfere, executives could flip them the bird, pick up stakes, and condemn their unfortunate citizens populations to isolation and impoverishment.

The resulting policy conclusion that the multinationals and their mouthpieces in politics and the media obviously have tried to reinforce is that the form of globalization that was emerging is inevitable – a product of progress itself – and that nothing would be more foolish and futile than for the public sector to get in the private sector’s way.

My book on globalization exposed these claims as nonsensical. My research – conducted back in the late-1990s – showed that even the leaders of smallish countries, notably in prospering East Asia, routinely established conditions on in-bound foreign investment from the multinationals as a matter of course. And when faced with requirements to share technology with local partners or use certain levels of domestic content or export specific percentages of their output, the companies routinely complied. And as has just been reported today, these practices are still standard operating procedure the world over.  

The only important economic power that has failed to use its leverage has been the United States, which is why its approach to globalization was forcing its citizens into a “race to the bottom.”

So it’s crucial to understand that what Immelt was telegraphing to his Friday audience was not only that the American political system seemed likely to present the multinationals with comparable requirements, but that GE, for one, had no choice to comply. In his words:

“[T]he globalization I grew up with – based on trade and global integration – is changing.

“As a business leader, it is difficult to decide when to defend the old way (what you were taught) or when to change based on what you see.

“With globalization, it is time for a bold pivot….In the face of a protectionist global environment, companies must navigate the world on their own.

“We must level the playing field, without government engagement. This requires dramatic transformation. Going forward:

“We will localize. In the future, sustainable growth will require a local capability inside a global footprint. GE has 420 factories around the world giving us tremendous flexibility. We used to have one site to make locomotives; now we have multiple global sites that give us market access. A localization strategy can’t be shut down by protectionist politics. …

“We will produce for the U.S. in the U.S., but our exports may decline. At the same time, we will localize production in big end-use markets like Saudi Arabia. And countries with effective export banks, like Canada, will be more attractive for investment. ”

And if GE perceives no choice but to reply “How high?” when governments say “Jump!” it’s likely that similar firms will respond similarly to more demanding American trade policies.

With his suggestion of fewer GE exports, Immelt clearly hopes to convey the idea that although GE may weather this policy storm just fine, Americans as a whole won’t – and that therefore the populist candidates’ promises about returning jobs and achieving other economic gains will backfire big time if they’re kept.

But iron global economic realities have always meant that the main beneficiary of less globalized, more localized production patterns will be the United States. For how many other economies have the scale to support the manufacture of hi value industrial products – like those in which GE specializes – without needing major access to export markets? Obviously, the answer is “Not many.”  The number of economies with the scale to support such production without exporting to the United States is even smaller.

That’s why Immelt’s vow to “localize production in big end-use markets like Saudi Arabia” is so manifestly un-serious. Saudi Arabia isn’t nearly big enough for GE to profit by producing, say, jet engines or turbines for power plants in the kingdom solely for the kingdom. Canada, which his speech also mentioned as an attractive future location for investment, doesn’t qualify, either – despite its “effective” export financing bank. After all, as Immelt has explained, in a world of increasingly localized production, export possibilities by definition shrink substantially.

As for India and China, also touted as ever more important centers of future GE output, the still super-low incomes of their populations will prevent companies like GE from enjoying the kinds of pricing power and margins that remain essential for justifying servicing only those national markets with domestic factories.  To be sure, individual companies might figure out the necessary formula. But even after several decades of record-setting growth, China still needs to export desperately – which explains why such success won’t be possible for most firms.

So whenever you hear or read some self-appointed expert insist that job reshoring promises are simply cynical political pandering exercises, keep in mind that not only do Trump and Sanders disagree. So does one of America’s biggest industrialists.