(What’s Left of) Our Economy: A (Bad Kind of) Bubbly U.S. Trade Report?

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Advanced Technology Products, ATP, bubbles, Canada, China, Eurozone, goods trade, Japan, Made in Washington trade flows, manufacturing, Mexico, non-oil goods trade, services trade, Switzerland, Trade, trade deficit, U.S.-Mexico-Canada Agreement, USMCA, {What's Left of) Our Economy

Wednesday’s latest official report on monthly U.S. trade (for April) showed that the country’s huge and chronic trade deficit soared by a humongous 23.04 percent sequentially – from March’s $60.59 billion to $74.55 billion.

But did that really happen?

I ask because of the unusually big revisions made to the March deficit total: It was downgraded by a stunning (at least for trade data geeks) 5.66 percent, from $64.23 billion to $60.59 billion. That’s the lowest total since the $58.18 billion recorded in September, 2020, when the economy was still shaking off the depressing disruptive effects of the first CCP Virus wave.

It’s not that I doubt that the deficit rose. It’s just that the magnitude counts for a great deal. So it’s OK to be impressed that this reported April level is the highest since last October’s $78.33 billion, and that the increase is the fastest since the weather-affected results of March, 2015 (45.74 percent). But keep in mind throughout this post that this and numerous other large March revisions greatly affect the sequential baseline for judging the April increases and decreases. Therefore they inevitably create doubts about their true extent. And don’t forget that the April data could undergo major revisions, too.

With those caveats in mind, let’s proceed to observe that if the general April trends hold, the new data show that the deficit worsened for the worst possible combination of reasons – exports fell and imports climbed. That discouraging pattern hasn’t appeared since last December, and if it continues, could mean that the economy is transitioning from a period of relatively healthy, sustainable growth that’s led saving and producing to one of worrisome bubble-ized growth, led by borrowing and spending.

In this vein, the goods deficit in April surged from $81.58 billion to $96.11 billion. The level was the highest since last October’s $98.21 billion, and the 17.81 percent pace was the hottest since weather-affected March, 2015’s 25.18 percent. Don’t forget, however – the March goods deficit was downgraded by a whopping 5.79 percent, from $86.59 billion to $81.58 billion. That’s also the lowest total since September, 2020 ($79.25 billion).

Monster revisions also affected the April service trade surplus figure. It represented a 2.73 percent improvement, from $20.99 billion to $21.56 billion. That number is the best since March, 2021’s $21.94 billion and the biggest jump since last October’s 5.90 percent. But the March result was revised down by even more than the total trade deficit or goods deficit results – 6.15 percent (from $22.37 billion).

Combined goods and services exports slid from $258.19 billion to $249.02 billion, a 3.55 percent retreat that took them to the lowest level since March, 2022 ($245.68 billion). And the drop was greatest since peak pandemic-y March, 2020’s 9.48 percent. Revisions to total exports for March weren’t negligible either – 0.80 percent up.

Overall imports in April, however, were up for the first time since September, growing by 1.50 percent, from $318.78 billion to $323.57 billion. That March figure is a 0.50 percent downward revision.

Similar to overall exports, U.S. sales abroad of goods tumbled from $176.46 billion to $167.10 billion. This 5.30 percent contraction pushed goods exports down to their lowest level since February, 2022’s $161.45 billion and the decline was the steepest since peak pandemic-y April, 2020’s 25.52 percent. The March revisions? A 1.23 percent upgrade.

By contrast, services exports edged up in April by 0.22 percent (from $81.73 billion to $81.91 billion) – and set their fifteenth straight record in the process.

The April goods imports increase was the first since December, and at $262.22 billion came in at 2.01 percent higher than the March figure of $258.04 billion. But that number was downwardly revised by a considerable 1.10 percent.

In April, services imports decreased for the first time since last October, dipping by 0.64 percent. The drop was the biggest since January, 2022’s 1.72 percent, but as with most of these other trade figures, was surely affected by the major 2.13 percent revision (in this case, upward) of the March results.

Whereas the March trade figures were dominated by a more than ten-fold monthly jump in the surplus in petroleum products (by $6.40 billion), the results in this category played a less prominent role in the April data – with the surplus shrinking by 3.74 billion.

The April rebound in the combined goods and services trade deficit was led by a 12.19 percent widening of the non-oil goods deficit (which RealityChek regulars know can be called the Made in Washington trade deficit, because it consists of those trade flows most heavily influenced by U.S. trade deals and other policy decisions).

This surge in the Made in Washington deficit amounted to $10.89 billion, the new shortfall of $100.29 billion was the greatest since May, 2022’s $103.30 billion, and the increase was the biggest since the 20.74 percent burst in March, 2022.

These non-oil goods exports slipped from $146.58 billion to $141.73 billion (3.31 percent) and this third straight fall-off pushed the total down to its lowest level since March, 2022 ($142.09 billion).

Non-oil goods imports rose for the first time since December, and by 2.56 percent, from $235.97 billion to $242.01 billion.

RealityChek regulars also know that the Made in Washington trade data are useful because they’re a close proxy for China trade data. Therefore, they can shed light on the effectivensss of the high, sweeping tariffs imposed on imports from China by former President Donald Trump and overwhelmingly continued by President Biden.

The China goods deficit swelled by 22.12 percent in April – about twice as much as the non-oil goods deficit. And the increase from $16.61 billion to $20.28 billion was the biggest in percentage terms since it skyrocketed by 88.77 percent in April, 2020, as China’s economy continued its recovery from the first wave of the CCP Virus.

At the same time, this China goods gap was the second narrowest (after March’s $16.61 billion) since the $11.71 billion of March, 2020 – earlier in the recovery in the People’s Republic.

Goods exports to China drooped by 9.78 percent in April, from $14.18 billion to $12.79 billion. And goods imports advanced by 7.43 percent, from $30.79 billion to $33.08 billion. That total was the highest since January’s $38.25 billion and the biggest increase since the 8.18 percent recorded last August.

Over a longer (and therefore more informative) period, however, the effectiveness of the tariffs can’t be legitimately doubted. Chiefly, on a January through April (year-to-date, or YTD) basis, the U.S. goods trade deficit with China has plummeted by 38.17 percent. The global non-oil goods deficit is off by less than half that – 15.13 percent.

The chronic and immense manufacturing deficit worsened in April, but only modestly – by 3.48 percent, from $109.64 billion to $113.45 billion. The level was the highest since January’s $116.83 billion but well below the record (March, 2022’s $242.22 billion).

April manufacturing exports declined by fully 10.72 percent, from $116.60 billion to $104.100 billion.

That retreat – the biggest by far since pandemic-ridden April, 2020’s 30.15 percent nosedive – prevented the 3.84 percent decrease in manufacturing imports (from $226.24 billion to $217.55 billion) from narrowing the gap or even stabilizing it.

At the same time, the manufacturing deficit just may be turning a corner. On a YTD basis, this shortfall is running 10.92 percent behind last year’s ($439.97 billion versus $493.88 billion. If this trend continues, the yearly manufacturing deficit would decline for the first time since the semi-recessionary year 2009.

Also widening month-to-month in April was the trade gap in advanced technology products (ATP). The increase was 4.53 percent, from $14.31 billion to $14.96 billion.

ATP exports slumped by 12.43 percent, from a record $38.33 billion to $33.57 billion – the biggest decline since January, 2022’s 12.92 percent.

The larger amount of ATP imports drooped, too, with the 7.82 percent decrease (from $52.65 billion to $48.53 billion) representing the biggest monthly decrease also since January, 2022 (12.92 percent).

Geographically, other than with the China flows, the goods trade balance changes with the world’s biggest economies were pretty widely spread out.

The trade shortfall with the U.S.’ fellow signatories of the U.S.-Mexico-Canada Agreement (USMCA) shrank by 1.42 percent.

The goods deficit with the euro area grew by 4.59 percent.

And that with Japan was up by11.81 percent.

And as often the case, all these shifts were dwarfed by a huge (76.35 percent) surge in the often wildly volatile goods trade deficit with Switzerland.

Despite the aforementioned revisions-based uncertainties, however, this April U.S. trade report looks like the latest sign that after an encouraging period of economic growth accompanied by trade deficit shrinkage, the nation is reverting to its decades-long pre-CCP Virus pattern of growth spurring deficit expansion. And as suggested above, if the trend continues, it could usher in yet another stretch of dangerous bubble-ization.

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(What’s Left of) Our Economy: Energy Drove the U.S. Trade Deficit Drop in a March Full of Records

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Advanced Technology Products, China, energy, European Union, exports, Germany, goods trade, imports, Made in Washington trade flows, manufacturing, Mexico, Netherlands, non-oil goods trade, oil, petroleum products, services trade, Trade, trade deficit, {What's Left of) Our Economy

The monthly improvement in the U.S. deficit in March revealed in today’s official U.S. trade report was first and foremost an energy story – not that other noteworthy developments couldn’t be found, specifically records in manufacturing and in American trade with several leading partner countries and regions, and big changes in goods trade with China.

The combined goods and services trade gap narrowed sequentially on month by 9.08 percent, from an upwardly revised $70.64 billion to $64.23 billion. The March total was the lowest since November’s $60.65 billion.

Moreover, the deficit shrank in the best possible way. Total exports rose by 2.12 percent, from a downwardly revised $250.84 billion to $256.15 billion, while total imports dipped (and for the second straight month) by 0.34 percent, from an upgraded $321.48 billion to $320.38 billion. And this trade deficit progress took place when the economy was still growing (albeit at a significantly slowing rate).

And of the $5.31 billion sequential increase in total exports, $4.68 billion (88.14 percent) came in the petroleum products category. In fact, these foreign sales grew at the fastest monthly rate (21.26 percent) since March, 2022 (28.22 percent).

Largely as a result, the goods deficit tumbled in March by 6.92 percent, from $93.03 billion to $86.59 billion – their lowest level since last November, too. ($83.02 billion).

Indeed, petroleum products exports accounted for 89.66 percent of the $5.22 billion expansion of goods exports. On a relative basis, these foreign sales climbed by 3.09 percent, from a downwardly revised $169.09 billion to $174.31 billion.

Goods imports, meanwhile, decreased for the second straight month as well, by 0.47 percent, from a downwardly revised $262.12 billion to $260.90 billion.

The longstanding surplus in services trade slipped in March by 0.11 percent, from a downwardly revised $22.39 billion to $22.37 billion – the lowest level since October’s fractionally higher figure.

Services exports improved by 0.11 percent, from a downwardly revised $81.75 billion to a second straight record of $81.84 billion. The new total topped the old $81.32 billion mark from last December by 0.65 percent.

Services imports, meanwhile, advanced by 0.20 percent, from a downwardly revised $59.36 billion to $59.48 billion – the second highest total ever behind last September’s $59.55 billion.

The huge and longstanding U.S. goods trade deficit with China became a good deal less huge in March, sinking for the second straight month – and by 12.59 percent, fom $19.00 billion to $16.61 billion. Further, that total was the lowest since the $15.76 billion hit in February, 2020 – when China’s economy was still grappling with the devastating first wave of the CCP Virus.

U.S. goods exports to the People’s Republic shot up by 22.06 percent sequentially in March – from $11.62 billion to $14.18 billion. The new total is the highest since last November’s $15.58 billion, and the rate of increase the fastest since last October’s 31.33 percent.

For some perspective, though, this big March increase followed a sizable 11.26 percent decrease in February.

U.S. goods imports from China inched up for the second straight month, but by just 0.55 percent, from $30.62 billion to $30.79 billion. And those two totals are the lowest since early in China’s recovery from that first 2020 virus wave.

Most strikingly, on a year-to-date basis, the U.S. goods deficit with China has cratered by a whopping 39.85 percent, from $101.04 billion to $60.77 billion.

These results, moreover, clash loudly with those of the U.S. worldwide non-oil goods trade – which as known by RealityChek regulars is a close proxy for U.S.-China goods trade.

The U.S. non-oil goods deficit (which can also be considered the “Made in Washington” deficit because it tracks trade flows most strongly influenced by U.S. trade deals and other policy decisions) worsened by 0.19 percent between February and March – from $92.19 billion to $92.36 billion. So China goods trade performed better sequentially on this basis.

U.S. goods exports to China were up in March much faster than the 0.25 percent gain in non-oil goods exports (from $145.80 billion to $146.16 billion).

As for non-oil goods imports, they increased by just 0.23 percent in March (from $237.98 billion to $238.52 billion) – not dramatically different from the China goods performance.

But the year-to-date contrast is enormous. Whereas the U.S. goods deficit with China nosedived by nearly 40 percent, for non-oil goods trade, it fell by less than half that – 17.80 percent, from $336.25 billion to $276.40 billion.

That makes it hard to avoid concluding that the Trump (now Trump-Biden) tariffs keep punishing China (along with Beijing’s own-goals ranging from last year’s wildly over-the-top Zero Covid policies to increasing harassment of U.S.- and other foreign-owned companies) but not simply by diverting imports and trade to other countries and regions. Domestic American producers must be getting some of that old China business as well.

The manufacturing trade deficit, however, worsened by 9.08 percent in March, from $100.05 billion to $109.64 billion. True, this increase followed a 14.36 percent drop in February, but it can’t be good news given the sector’s recent weakness.

Interestingly, this deterioration reflected major changes in both monthly exports and imports. The former soared by 18.91 percent, from $98.06 billion to a new record $116.60 billion (which topped the previous mark of $114.78 billion set last June by 1.58 percent).

Industry’s foreign purchases jumped by 14.20 percent, from $198.10 billion to $226.24 billion.

Big monthly changes and a record were also recorded in Advanced Technology Products (ATP) trade in March. The ATP deficit dropped from $16.23 billion to $14.31 billion. The 11.82 percent narrowing brought the gap to its smallest since February, 2022’s $13.42 billion.

ATP exports shot up from $29.12 billion to a new all-time high $38.33 billion. And the 31.65 percent increase was the most dramatic since March, 2002’s 31.94 percent.

Imports surged, too – by 16.09 percent, from $45.35 billion to $52.65 billion. And that upswing was he fastest since the 33.64 percent burst of last March.

On the regional and bilateral fronts, many of the most dramatic developments came in U.S. goods trade with Europe.

America racked up its biggest exports total ever to the European Union ($34.96 billion – 12.04 percent greater than the $31.20 billion level hit last March) and bought its second greatest total of imports ($50.82 billion, a number trailing only last October’s $53.07 billion).

The volatile U.S. surplus with the Netherlands skyrocketed by 116.40 percent on month, from $1.84 billion to $3.98 billion, keyed by record exports of $7.76 billion. That smashed the previous mark of $6.96 billion by 11.50 percent.

U.S. goods exports to Germany achieved an all-time high, too, with the $7.50 billion figure exceeding the old record of $6.62 billion, set last March, by 13.20 percent.

The U.S. goods deficit with Mexico reached its highest ever, too, in March, with the $13.55 billion total coming in 8.25 percent higher than the old record of $12.57 billion from August, 2020. American goods sales to Mexico totaled $29.27 billion – their second best performance ever after last August’s $29.98 billion. But imports reached a new record of $42.82 billion – 5.87 percent greater than last March’s $40.45 billion mark.

Following Up: Podcast Now On-Line of National Radio Interview on U.S. China Strategy

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allies, Asia, Buy American, CBS Eye on the World with John Batchelor, Central America, China, decoupling, Following Up, friend-shoring, Gordon G. Chang, Immigration, Mexico, NAFTA, North American Free Trade Agreement, tariffs, Trade, U.S.-Mexico-Canada Agreement, USMCA

I’m pleased to announce that the podcast of my interview last night on John Batchelor’s nationally syndicated radio show is now on-line.

Click here for a timely discussion – with co-host Gordon G. Chang – on whether President Biden’s Trump-y Buy American-focused trade policies are undermining his efforts to build effective global alliances to contain China.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Making News: Back on National Radio Examining the U.S.’ China Containment Strategy

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Asia, CBS Eye on the World with John Batchelor, Central America, China, decoupling, DR-CAFTA, friend-shoring, Gordon G. Chang, Immigration, Latin America, Making News, manufacturing, Mexico, NAFTA, national security, North American Free Trade Agreement, tariffs, Trade, U.S.-Mexico-Canada Agreement, USMCA

I’m pleased to announce that I’m scheduled to be back tonight on the nationally syndicated “CBS Eye on the World with John Batchelor.” Our subject – whether the trade and security elements of America’s strategy for countering the China threat are too often tripping over each other.

No specific air time had been set when the segment was recorded this morning. But the show – also featuring co-host Gordon G. Chang – is broadcast beginning at 10 PM EST, the entire program is always compelling, and you can listen live at links like this. As always, moreover, I’ll post a link to the podcast as soon as one’s available.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: 2022 Saw More U.S. Trade Deficits but More Secure Supply Chains

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Advanced Technology Products, ATP, Biden adminstration, Canada, Central America, Dominican Republic, European Union, friendshoring, Germany, Immigration, Japan, manufacturing, Mexico, offshoring, South Korea, supply chains, Taiwan, Trade, Trade Deficits, U.S.-Mexico-Canada Agreement, USMCA, Vietnam, {What's Left of) Our Economy

Sometimes the best-laid plans of mice and men etc etc. So this second look by RealityChek at the final (for now) year-end 2022 official U.S. trade figures is coming out today, rather than yesterday, as I expected.

The big takeaways: First, record deficits were set practically everywhere the eye can see – and on top of sizable increases – when it comes to trade flows in manufacturing, advanced technology products (ATP), and with nearly all of America’s major trade partners (except China, which was covered Friday).

Second, and more encouragingly, regionalization of U.S. trade within the Western Hemisphere kept growing, which is (a) surely making supply chains more secure; and (b) creating more economic opportunity in countries that have long sent the United States large numbers of migrants. In other words, the Biden administration goal of “friendshoring” keeps becoming a thing. 

The biggest absolute numbers were turned in by U.S. manufacturing, which saw its huge, chronic deficit rise by 13.46 percent, from $1.32544 trillion to a twelfth straight record $1.50379 trillion. (Unless otherwise specified, all figures in this post will be in pre-inflation dollars, which are the trade data most closely followed by students of the economy.)

And in context, these figures look just as bad. Although full-year, 2022 results won’t be available until late March, when the pre-inflation manufacturing output numbers come out, as of the third quarter, the manufacturing shortfall stood at 53.09 percent of its value-added production (a measure that avoids significant double counting for complex goods made up of lots of parts and components). That marks the first time this number has topped fifty percent.

Moreover, it could well climb further, since in inflation-adjusted terms, manufacturing output has weakened significantly in the fourth quarter.

The only remotely optimistic development: The growth rate of the manufacturing trade deficit last year slowed from 2021’s 18.84 percent.

The trade gap in advanced technology products widened even faster last year – by 24.58 percent, from $195.95 billion to a sixth consecutive all-time high $244.11 billion.

An even stronger goods trade deficit increase was registered by America’s partners in the United States-Mexico-Canada Agreement (USMCA) – the successor to the North American Free Trade Agreement (NAFTA). This shortfall worsened by 34.12 percent, from $158.19 billion to a second straight record .$212.17 billion.

The most dramatic USMCA deficit change came in U.S-Canada goods trade. Here, the gap soared by 63.14 percent, from $50.03 billion to $81.62 billion. That new record deficit was the highest since 2005’s $78.49 billion..

The goods trade deficit with Mexico surged more slowly – by 20.73 percent. But 2022’s $130.55 billion total was a new all-time high as well, surpassing 2020’s $112.08 billion.

American trade with the European Union (EU) was an exception to the 2022 pattern. The goods shortfall fell by 6.78 percent, from $218.74 billion to $203.91 billion, largely reflecting supercharged American exports of natural gas to the continent to make up for reduced post-Ukraine war Russian supplies.

But the goods deficit with the EU’s largest economy, Germany, increased by 5.44 percent, from $69.88 billion to $73.69 billion.

Turning to U.S. goods trade with Asia, the deficit with Japan grew by 12.80 percent on year, from $60.30 billion to $68.01 billion.

The gap with South Korea jumped by 51.39 percent, from $28.98 billion to a third straight record $43.87 billion.

In swelling by 19.65 percent, from $40.23 billion to $48.13 billion, the goods shortfall with Taiwan set recorded its fourth consecutive all-time high.

And consistent with its growing role as an alternative to offshoring export-oriented production to China, the U.S. goods deficit with Vietnam ballooned by 27.77 percent, setting a thirteenth straight record in the process.

At the same time, these geographic trade statistics show that despite the emergence of Asia altenatives to China, U.S. goods trade is becoming increasingly concentrated within the Western Hemisphere.

Between 2021 and 2022, two-way U.S. goods trade with Canada and Mexico combined as a share of total U.S. goods trade rose from 28.76 percent to 29.33 percent. And in 2019, the last full-year before the pandemic’s arrival state-side, this share was just 25.71 percent.

The numbers for Dominican Republic and Central America are much smaller but the trends more dramatic. Between 2021 and 2022, their share of total U.S. goods trade improved from 5.25 percent to 5.34 percent, but since 2019, it’s way up from 1.23 percent.   

 

Glad I Didn’t Say That: Nothing to See About Border Security and the Fentanyl Epidemic?

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Associated Press, Biden border crisis, border security, drugs, fetanyl, Glad I Didn't Say That!, Immigration, Mainstream Media, Mexico, national security, opioids, public health

”Advocates warn that some of the alarms [about fentanyl] being sounded by politicians and officials are wrong and potentially dangerous. Among those ideas: that tightening control of the U.S.-Mexico border would stop the flow of the drugs….”

– Associated Press, October 28, 2022

 

“A report this year from a bipartisan federal commission found that fentanyl and similar drugs are being made mostly in labs in Mexico from chemicals shipped primarily from China.”

-Associated Press, October 28, 2022

 

(Sources: “As fentanyl drives overdose deaths, mistaken beliefs persist,” by Geoff Mulvihill, Associated Press, October 28, 2022, As fentanyl drives overdose deaths, mistaken beliefs persist | AP News)

Im-Politic: More Evidence That it Really is a Biden Border Crisis

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Alejandro Mayorkas, Biden, Biden administration, Biden border crisis, Central America, El Salvador, Gallup, Guatemala, Honduras, Im-Politic, Immigration, Mexico, migrants, migration, Northern Triangle, polling

If there’s something that “everybody knows” about the floods of Latin Americans who keep trying to migrate to the United States, legally and not, it’s that they’re acting out of desperation because their countries are such terrible places to live. As stated just this morning by Alejandro Mayorkas, U.S. Secretary of Homeland Security, in the wake of news that 53 migrants found dead in the back of a sweltering tractor trailor that had snuck them across the U.S.-Mexico border paid the ultimate price for risking the dangerous journey northward:

“The migration that is occurring throughout the hemisphere is reflective of the economic downturn, increase in violence throughout the region, the — the result of the COVID-19 pandemic, the results of climate change.”

Surely the perils that have long faced Latin Americans (and many others) seeking new lives in America have been grave, and the living conditions (and physical dangers) in their home countries have often been appalling.

But what, then, is the explanation for four straight years of polling data from Gallup that consistently show the populations of some of the leading sending countries to be among the happiest on earth?

Recently, through an annual series of Global Emotions Reports, Gallup has tried to measure “positive and negative experiences” in most of the world’s countries to determine their people’s “day-to-day emotional states – such as enjoyment, stress, or anger – as well as their satisfaction with their lives.” Countries are then scored on a scale of 100, with the highest marks indicating where people by an average of these measures are happiest. (See here and here for these descriptions.) 

So it’s more than a little interesting that for most of the last four years (through 2021), the world’s happiest countries have included El Salvador, Guatemala, Honduras, and Mexico. Because, after all, the first three comprise Central America’s “Northern Triangle,” and collectively become the source of the largest number of immigrants arrested at the U.S.’ southern border as of fiscal year 2021. The latter remains the country that’s generated the most arrestees of any individual country. Here are the annual results from Gallup, including their score on that 100 scale and their global ranking.  (For links to the downloadable 2018-2020 reports and the 2021 report, see here.)  

                                    2018              2019            2020            2021

Guatemala                 3d (84)         2d (84)     not surveyed       n/a

Honduras                   4^th (83)         5^th (81)     not surveyed   3d (82)

El Salvador                4^th (83)         2d (84)        1^st (82)         3d (82)

Mexico                      3d (84)          4^th (82)           n/a               n/a

As is clear, Honduras and El Salvador have been among the top five happiest countries for three of these four years. Mexico and Guatemala made this list in 2018 and 2019.

Unfortunately, when it comes to 2020, Guatemala and Honduras were not surveyed. And because Gallup hasn’t provided the scores and rankings for every country it’s studied, no results were available for Mexico in 2020 and 2021, and for Guatemala in 2021.

But as Gallup noted in 2020, “While several of the countries that usually top the list every year, including Panama, Honduras and Guatemala, were not surveyed in 2020, the region is still well represented on the Positive Experience Index. El Salvador leads the world with an index score of 82.” So it sounds like the pollsters believe that countries for which data is missing or not reported stayed pretty happy.

Also striking – the happiness scores of these four major sending countries were not only among the world’s highest. They were way above the global averages, which respectively were 71, 71, 71, and 69.

Polls, as I’ve repeatedly said, are by no means perfect, and polling in developing countries can be especially tricky because inhabitants often do live in dangerous environments where even the authorities (and often especially the authorities) can’t be trusted.

But these Gallup results are consistent over several years. And they are so at odds with the conventional wisdom about the deep-seated socio-economic reasons for hemispheric migration that they seem to add to the evidence that the recent surge stems less from changes in those root causes — or perhaps from these root causes at all (as opposed to seeking improvement, not survival or freedom) — and more from the more permissive immigation measures and rhetoric emanating from the current U.S. administration from Day One. That is, the recent situation really is a “Biden border crisis.”

(What’s Left of) Our Economy: A Terrible March for U.S. Trade – With Worse Likely to Come

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Advanced Technology Products, Canada, China, currency, dollar, European Union, exchange rates, exports, Federal Reserve, goods trade, imports, inflation, Japan, Made in Washington trade deficit, manufacturing, Mexico, oil, services trade, Trade, trade deficit, {What's Left of) Our Economy

So many records (mainly the wrong kind) were revealed in the latest official monthly U.S. trade figures (for March) that it’s hard to know where to begin. Some important points need to be made before delving into them, though.

First, don’t blame oil. Sure, this trade report broke new ground in containing a full month’s worth of Ukraine war-period data. But despite the disruption in global energy markets triggered by the conflict, on a monthly basis, the U.S. petroleum balance actually improved sequentially, from a $2.94 billion deficit to a $1.58 billion surplus on a pre-inflation basis (the trade flow gauges from these monthly government releases that are most widely followed)

And even on an inflation-adjusted basis, February’s $8.73 billion oil deficit shrank to $5.15 billion in March.

Second, don’t blame inflation much at all. The Census Bureau doesn’t report after-inflation service trade results on a monthly basis, but it does provide this information for goods (which comprise the great majority of U.S. trade flows). And the March figures show that before factoring in inflation, the goods trade deficit worsened by 18.89 percent from $107.78 billon in February to a new record $128.14 billlion, whereas when inflation is counted, this gap widened on month by 18.86 percent, from $115.96 billion in February to $137.83 billion in March. (Major trade wonks will note that these goods and services data are presented according to two different counting methods, but trust me: the difference in results is negligible.)

Third, don’t blame China. The March pre-inflation goods deficit with the People’s Republic was up sequentially from $42.26 billion to $47.37 billion (12.10 percent). But neither that absolute level nor the rate of increase was anything out of the ordinary, much less a record. In fact, the monthly percentage increase was just half the rate of that of the shortfall for total non-oil goods (a close worldwide proxy for China goods trade) – which hit 24.06 percent. One big takeaway here: the Trump China tariffs are still exerting a major effect, along of course with the supply chain knots Beijing has created with its over-the-top Zero Covid policy.

But regardless of where the blame lies, (and it looks like major culprits are continued strong U.S. spending on both consumer goods and capital equipment, combined with an improvement of the supply chain situation outside China), all-time highs and worsts abounded in the March trade report, include worsenings at record paces.

The combined goods and services trade deficit jumped on-month by 22.28 percent, to $109.80 billion. That total was the third straight record for a single month and the increase the fastest since the 43.71 percent explosion in March, 2015 – a month during which much of the country was recovering from severe winter weather.

As mentioned above, the $128.14 billion goods trade gap was the highest ever, too, topping its predecessor (January’s $108.60 billion) by 17.99 percent. As for the 18.89 percent monthly increase, that was also the biggest since March, 2015 (25.18 percent).

Even a seeming trade balance bright spot turns out to be pretty dim. The headline number shows the service trade surplus improving by 1.96 percent – from $17.98 billion to $18.34 billion. Unfortunately, nearly all of this increase stemmed from a big downward revision in the initially reported February surplus, from $18.29 billion.

As known by RealityChek regulars, the aforementioned non-oil goods trade deficit can also be called the Made in Washington trade deficit – because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

And not only was the March Made in Washington deficit’s monthly increase of 24.06 percent the second fastest ever (after March, 2015’s 31.24 percent). The March, 2022 level of $128.70 billion was the biggest ever.

The story of the non-oil goods trade gap’s growth was overwhelmingly a manufacturing story. The sector’s huge and chronic trade shortfall shot back up from $106.49 billion in February (which was a nice retreat from January’s $121.03 billion) to a new record $142.22 billion. And the monthly percentage jump of 33.55 percent was the biggest since the 37.62 percent during weather-affected March, 2015.

Manufactures exports advanced sequentially by a strong 20.53 percent this past March. That topped the previous all-time monthly high of $105.37 billion (set back in October, 2014), by 8.15 percent. But the much greater volume of imports skyrocketed by 27.43 percent. And their $256.18 billion total smashed the old record of $222.79 billion (from last December) by 14.98 percent.

Within manufacturing, U.S. trade in advanced technology products (ATP) took a notable beating in March, too. The $23.31 billion trade gap was an all-time high, and its 73.65 percent monthly growth the worst since the shortfall slightly more than doubled on month in March, 2020 – as the Chinese economy and its huge electronics and infotech hardware manufacturing bases reopened after the People’s Republic’s initial pandemic wave.

Yet as noted above, despite these extaordinary manufacturing and ATP trade numbers, the latest March numbers for manufacturing-heavy U.S. China trade were anything but extraordinary. U.S. goods exports to the People’s Republic increased on-month by 15.36 percent – slower than the rate for manufactures exports globally, but the fastest rate since the 52.47 percent rocket ride they took  last October.

Goods imports from China, however, rose much more slowly from February to March than manufactures imports overall – by just 12.10 percent, from $42.26 billion to $47.37 billion.

When it comes to other major U.S. trade partners, the March American goods deficit with Canada of $8.03 billion was the highest such total since July, 2008 ($9.88 billion). It was led by a 30.81 percent advance in imports reflecting the mid-February reopening of bridges between the two countries that had been closed due to CCP Virus restrictions-related protests.

The goods deficit with Mexico worsened even faster – by 35.11 percent, to $11.92 billion. That total was its highest since August, 2020’s $12.77 billion.

Another major monthly increase (31.59 percent) was registered by the U.S. goods shortfall with the European Union, but its March level ($16.87 billion) was subdued relative to recent results.

Anything but subdued was the Japan goods shortfall, which shot up sequentially in March by 49 percent. The $6.77 billion total also was the biggest since November, 2020’s $6.78 billion, and the monthly jump the greatest since the 84.37 percent burst in July, 2020, during the rapid recovery from the sharp U.S. economic downturn induced by the first wave of the CCP Virus and related economic and behavior curbs.

The Europe and Japan trade figures stem significantly from a development that’s bound to turn into an increasingly formidable headwind for the U.S. trade balance for the foreseeable future – the dollar’s rise versus other leading currencies to levels not seen in 20 years. And unless it’s reversed substantially soon, China’s latest currency devaluation, which began in mid-April, will weaken the effects of both the Trump tariffs and the Zero Covid policy. So even if the Federal Reserve’s (so far modest) inflation-fighting efforts do slow the American economy significantly, it’s likely that, as astronomical as the March trade deficits were, we ain’t seen nothin’ yet.

(What’s Left of) Our Economy: Biden Big Wigs Signal a Cave-in on China Tariffs

Tags

apparel, bicycles, Biden, Biden administration, CAFTA, Central America, Central America Free Trade Agreement, China, consumer goods, consumer price index, CPI, Daleep Singh, Donald Trump, Hunter Biden, Immigration, inflation, Janet Yellen, Mexico, NAFTA, North American Free Trade Agreement, tariffs, Trade, trade war, {What's Left of) Our Economy

In theory, once can always be dismissed as a gaffe (even President Biden isn’t the speaker) or a trial balloon motivated by genuine uncertainty and curiosity. Twice, especially within two days, looks an awful lot like the preview of a policy change. Which is why recent remarks by two senior Biden administration officials last week are so worrisome. If that’s the game they’re playing, then the President is planning what could be major cuts in the Trump tariffs on China – without requiring any meaningful concessions from China in return. Even worse, the rationale being advanced – reducing inflation — is completely bogus.

This potential tariff-cutting spadework began last Thursday, when deputy White House national security advisor Daleep Singh told a conclave of globalist poohbahs that tariffs could advance U.S. [in the words of Reuters reporter Andrea Shalal “strategic priorities such as strengthening critical supply chains and maintaining U.S. preeminence in foundational technologies and to support national security.”

But, he added (in his words) “For product categories that are not implicated by those objectives, there’s not much of a case for those tariffs being in place. Why do we have tariffs on bicycles or apparel or underwear?”

“So that’s the opportunity,” he continued. “It could be that in this moment of elevated inflation and China having its own very serious supply chain concerns … maybe there’s something we can do there.” Singh also suggested that eliminating such U.S. tariffs could prompt China to cut duties on comparable American products, though he didn’t establish such Chinese moves as a condition.

The very next day, Treasury Secretary Janet Yellen said on Bloomberg Television that “We’re re-examining carefully our trade strategy with respect to China” and that removing the tariffs is “worth considering. We certainly want to do what we can to address inflation, and there would be some desirable effects. It’s something we’re looking at.”

One immediate problem with Yellen’s position is that she herself has belittled it. As recently as last December, she testified to Congress that cuts in so-called non-strategic tariffs would not be an inflation “game-changer.”

In addition, although Yellen might be excused for not recognizing a major strategic benefit that the China tariffs could create, to the second in command in President Biden’s National Security Council – which is supposed to look at the nation’s global opportunities and challenges holistically – they should be obvious. Specifically, these kinds of labor-intensive consumer goods are exactly the kinds of products that could create the kinds of vital economic opportunities in Mexico and Central America that could many of the incentives for mass emigration.

Indeed, as I’ve written, pre-Trump presidents’ short-sighted decision to pursue trade liberalization with virtually all low-income countries guaranteed that the gains that could have flowed to U.S. neighbors via the North American Free Trade Agreement (NAFTA) and the Central America Free Trade Agreement (CAFTA) would shift instead to China and the other more competitive economies of East Asia. Just something to keep in mind the next time the Biden administration claims it’s serious about solving the “root causes” of mass migration in this hemisphere.

As for the inflation angle, Singh and Yellen have some big questions to answer. First of all, all sports vehicles (the category in which the U.S. Labor Department includes bicycles when it breaks down the contributions made to rising prices by different types of goods and services) comprise about 0.4 percent of the core Consumer Price Index (CPI) and apparel makes up about 3.2 percent. So it is indeed difficult to understand how stemming price rises of these products could be an inflation game-changer, as Yellen observed. (See here for the official CPI breakdown.)

Second, and at least as important, announced tariffs on some Chinese bicycles and bike products had already been suspended for much of the Trump China trade war period. For the rest of imports from China in this grouping, the 25 percent tariff remained unchaged. Yet annual inflation in the sports vehicles category has ranged from 4.8 percent in February, 2021 (President Biden’s first full month in office) to 10.52 percent this past January. Why such dramatic price fluctuation and big net increase over time? 

As for U.S. apparel imports, products from China represented just about a quarter of the U.S. global total last year – so it would seem that these goods represented just about a quarter of the total apparel contribution to the CPI (or about 0.80 percent).  And the Trump trade war levies cover just a tiny share of these imports, according to this industry source. Even so, however, annual apparel inflation rates have fluctuated even more dramatically than those for the bicycle category during the Biden presidency. They’ve ranged from -3.72 percent in February, 2021 to 6.79 percent last month (the latest available figures). 

The only possible explanation for these trends: As with the rest of the economy, apparel and bicycle prices have been determined ovewhelmingly by forces other than tariffs – principally the status of the CCP Virus pandemic and of the overall economic growth and consumption rates it’s so powerfully influenced; the injection of trillions of dollars worth of stimulus injected into the economy by the administration, the Congress, and the Federal Reserve; the supply chain snags that have caused shortages and therefore boosted prices of practically everything that needs to be transported; and the energy price rises that have generated the same kinds of effects. In other words, it’s the supply and demand, stupid.

And speaking of stupid, that adjective doesn’t begin to describe the politics of this seemingly impending Biden move. In an election year, does the President really want to expose himself to charges of being soft on China? Especially since evidence keeps emerging of his son Hunter’s lucrative business dealings with Chinese interests – which have clearly feathered the nests of the entire Biden family, including the President’s?

Even though, as I’ve pointed out, Mr. Biden has been a China coddler for his entire career in Washington, I was convinced that the American public’s mounting fear and loathing of the Beijing dictatorship would keep persuading him to follow the basic Trump approach to China trade. Indeed, his chief trade advisor implicitly endorsed this Trump strategy less than a month ago and indicated it would shape Biden administration polic going forward.

The President can still stop this initiative in its tracks.  But if he doesn’t, he’ll have only himself to blame when his political opponents ramp up their charges that he’s in Beijing’s pocket after all, and that his early China hawkishness meant that the payoff from his election, far from being off the table, was merely being delayed.  

(What’s Left of) Our Economy: How to Really Make Trade Fair

Tags

automotive, BBB, Biden administration, bubbles, Build Back Better, Canada, consumption, Donald Trump, electric vehicles, EVs, fossil fuels, manufacturing, Mexico, NAFTA, North America, production, tax breaks, Trade, U.S.-Mexico-Canada Agreement, USMCA, {What's Left of) Our Economy

There’s no doubt that the next few weeks will see a spate of (low-profile) news articles on how unhappy Canada and Mexico are about proposed new U.S. tax credits for purchasing electric vehicles (EVs) and how these measures could trigger a major new international trade dispute.

There’s also no doubt that any such disputes could be quickly resolved, and legitimate U.S. interests safeguarded, if only Washington would finally start basing U.S. trade policy on economic fundamentals and facts on the ground rather than on the abstract and downright childishly rigid notions of fairness that excessively influenced the approach taken by Donald Trump’s presidency.

The Canadian and Mexican complaints concern a provision in the Biden administration’s Build Back Better (BBB) bill that’s been passed by the House of Representatives but is stuck so far in the Senate. In order to encourage more EV sales, and help speed a transition away from fossil fuel use for climate change reasons, the latest version of BBB would award a refundable tax break of up to $12,500 for most purchases of these vehicles.

The idea is controversial because the administration and other BBB supporters see these rebates as a great opportunity to promote EV production and jobs in the United State by reserving his subsidy for vehicles Made in America. (As you’ll see here, the actual proposed rules get more complicated still – and could change some more.) And according to Canada and Mexico, this arrangement also violates the terms of the U.S.-Mexico-Canada-Agreement (USMCA) governing North American trade that replaced the old NAFTA during the Trump years in July, 2020.

Because USMCA largely reflects those prevailing concepts of global economic equity, Canada and Mexico probably have a strong case. But that’s only because this framework continues classifying all countries signing a trade agreement as economic equals. Even worse, there’s no better illustration of this position’s absurdity is the economy of North America.

After all, the United States has always accounted for vast majority of the continent’s total economic output and therefore market for traded goods. According for the latest (2020) World Bank figures, the the United States turned out 87.51 percent of North America’s gross product adjusted for inflation. And when it comes to new car and light truck sales, the U.S. share was 84.24 percent in 2019 (the last full pre-pandemic year, measured by units, and as calculated from here, here, and here).

But in 2019, the United States produced only 68.88 percent of all light vehicles made in North America (also measured by units and calculated from here, here, and here.) Moreover, more than 70 percent of all vehicles manufactured in Mexico were exported to the United States according to the latest U.S. government figures. And for Canada, the most recent data pegs this share at just under 54 percent (based on and calculated from here and here).

What this means is that, without the American market, there probably wouldn’t even be any Canadian and Mexican auto industries at all. They simply wouldn’t have enough customers to reach and maintain the production scale needed to make any economic sense.

So real fairness, stemming from the nature of the North American economy and the North American motor vehicle industry, leads to an obvious solution: Give vehicles from Canada and Mexico shares of the EV tax credits that match their shares of the continent’s light vehicle sales – just under 16 percent.

Therefore, using, say, 2019 as a baseline, from now on, the first just-under-16 percent of their combined light vehicle exports to the United States would be eligible for the credits for each successive year, and the rest would need to be offered at each manufacturer’s full price (a pretty plastic notion in the auto industry, I know, but a decision that would need to be left to whatever the manufacturers choose).

Nothing in this decision would force Canada or Mexico to subject themselves to these requirements; they would remain, as they always have been, completely free to try to sell as many EVs as they could to other markets (including each other’s).

What would change dramatically, though, is a situation that’s needlessly harmed the productive heart of the U.S. economy for far too long, resulting from trade agreements that lock America into an outsized consuming and importing role, but an undersized production and exporting role. In other words, what would change dramatically is a strategy bearing heavy responsibility for addicting the nation to bubble-ized growth. And forgive me for not being impressed by whatever legalistic arguments Mexico, Canada, any other country, or the global economics and trade policy establishments, are sure to raise in objection.