(What’s Left of) Our Economy: Some Surprising New Data on Manufacturing and Trade

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China, IMF, International Monetary Fund, manufacturing, manufacturing jobs, Nicholas Lardy, Peterson Institute for International Economics, Trade, Trade Deficits, trade surpluses, World Bank, World Economic Outlook, {What's Left of) Our Economy

That was some chart in this week’s newest International Monetary Fund (IMF) update on the world economy on how different countries (including the United States) have fared when it comes to increasing or maintaining their manufacturing employment and their manufacturing output. (The detail in the below reproduction is tough to see, but for the original, see p. 5 in the third chapter of the Fund’s April World Economic Outlook.) 

 

Looking at performance for 20 high-income countries and 20 low-income countries, it makes clear that, contrary to the conventional wisdom, there’s nothing unusual about national economies boosting manufacturing jobs as a share of total jobs, and manufacturing output as a share of total output, at the same time. So it’s a powerful retort to claims from American globalization cheerleaders that all over the world, in rich and poor countries alike, both manufacturing indicators are bound to fall in relative terms as economies inevitably evolve in more services-oriented directions.

And at the very least, it calls into question the notion that trade balances in manufacturing have little or nothing to do job loss in the sector in particular. For example, according to the chart, 22 of the 40 countries examined have boosted manufacturing as a share of their employment and their real value-added (a measure of output) from 1960 through 2015. And 11 of these were high-income countries, where the conventional wisdom says manufacturing’s economic importance is likeliest to shrink over any significant time frame.

Of these 22 countries, 17 ran surpluses in their combined goods and services trade in 2015. And nine were high-income countries.

Not that trade surpluses are automatic indicators of economic success: This group does include economically stagnant Italy as well as economically collapsing Venezuela. Spain, which experienced a terrible stretch during the last recession, is on this list, too – although it’s been a strong grower more recently. And there’s one country whose failure to qualify sure surprised me: Germany. Nonetheless, the countries that have excelled at manufacturing during this period also include major success stories like Chile, the Netherlands, Sweden, Ireland, Singapore, South Korea, Malaysia, and of course China (along with Japan, which is currently in the midst of its best growth stretch in nearly three decades).

Of course, the 1960-2015 time frame is still problematic at best, especially for China – since in 1960 it was still being run by leaders enamored with ideas like making steel in peasants’ backyard furnaces. But more recent comparisons between China and the United States look much more instructive – and supportive of the idea that a strong manufacturing trade performance is a great way to maintain robust manufacturing employment and production – and of its converse.

Let’s examine the post-2002 period – with the baseline chosen because that’s the year China actually joined the World Trade Organization, and began receiving WTO-style protection for its predatory, surplus-building trade practices. And for manufacturing output, let’s use pre-inflation value-added, since I wasn’t able to find inflation-adjusted data for China.

According to World Bank figures, manufacturing by this measure dipped from 31.06 percent of China’s economy in 2002 to 29.38 percent – a 5.72 percent decline. For the United States, between 2002 and 2015 manufacturing value-added as a share of gross domestic product (GDP) fell from 13.74 percent to 12.27 percent. That 10.70 drop-off was nearly twice that of China.

As for employment, Sinologist Nicholas Lardy of the Peterson Institute for International Economics (and no hardliner on China) has compiled Chinese statistics dating from 2003, and covering employment in the country’s cities. They show that manufacturing jobs as a share of this China total rose from 15 percent that year to 20 percent in 2014. In the United States during those years, manufacturing employment as a share of total non-farm jobs (the U.S. Bureau of Labor Statistics’ American jobs universe), dropped from 11.91 percent to 8.76 percent.

And nowhere have the manufacturing differences between the two economies been greater than in trade flows. For the first year of its WTO membership, China’s goods and services trade surplus (which was mainly in manufacturing) was $30.35 billion. By 2014, it was ballooned to $382 billion. During this period, the American manufacturing trade deficit shot up by just under 74 percent – from $362.64 billion to $629.53 billion.

So the new IMF chart (and related data) by no means ends the debate over whether trade balances impact national manufacturing employment and output. But if I was a globalization cheerleader, I’d sure hope they didn’t attract too much attention.

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(What’s Left of) Our Economy: Trump Tariffs Evoke Summers Snake Oil

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Al Gore, China, Clinton administration, current account surplus, Emergency Committee for American Trade, exports, FDI, Financial Times, forced technology transfer, foreign direct investment, General Motors, intellectual property theft, Larry Summers, Obama administration, offshoring lobby, tariffs, Trade Deficits, Trump, {What's Left of) Our Economy

Larry Summers doesn’t like President Trump’s China trade policies – that’s not news. After all, he served in senior economic policy posts both in the Clinton administration, which proudly championed expanded trade with China and laid the groundwork for the PRC’s entry into the World Trade Organization, and in the Obama administration, which less proudly but nonetheless effectively coddled much of the Chinese trade predation (including intellectual property theft) that even most globalization cheerleaders now admit is a major problem.

Newsier are two arguments Summers made yesterday in the Financial Times that indicate how dishonest years of justification of the China trade policies by globalist U.S. administrations have been, and how clueless they remain.

The dishonesty entails Summers’ dismissive treatment of China’s intellectual property “extraction” (as he calls what is usually and rightly recognized as “extortion”) from U.S. and other foreign companies that are forced by Chinese policy into joint venture partnerships with Chinese entities. According to Summers, this form of theft is no big deal for Americans because these episodes

“typically involve cases where the company in question produces for China in China and so have little impact on US employment. In many cases a substantial number of the company’s shareholders are foreign and it pays taxes to many governments. It is more than a little ironic that an administration that condemns outsourcing should make standing up for those who move production to China so central a priority.”

As should be clear to anyone who has followed U.S. trade policy toward China and other offshoring-friendly countries, that’s a heckuva way to describe the outbound American investment that’s been encouraged by the trade deals and related policy decisions enthusiastically supported by Summers and his White House bosses.

For especially during the Clinton years, when so many of these policies were put in place, the construction of American-owned factories, labs, and similar facilities in China was depicted not as activity that would substitute for American exports, or for U.S.-based production (in the form of goods shipped from these factories to the U.S. market), but as activity that would benefit the domestic American economy and its workers by supercharging U.S. exports – which would comprise much of the content of these foreign-made products.

Here’s a typical example from a 1998 report by the (Offshoring Lobby-funded) Emergency Committee for American Trade:

“American companies with global operations ship the large majority — between 60 percent and 75 percent — of total U.S. exports. Their foreign affiliates are important recipients of these exports; their share has increased to over 40 percent today.”

And let’s not forget one of the showcase examples of such Clinton-era investments – General Motors’ 1997 agreement with a Shanghai-run entity to produce autos in China. GM gushed that the joint venture would generate billions in American auto parts exports to China, and the importance attached by the Clinton administration to such deals was made clear by the decision to send Vice President Gore to the PRC to attend the signing ceremony. (Neither GM Chairman John Smith nor Gore mentioned that the agreement’s provisions mandated that the factory achieve 80 percent Chinese content levels within five years.)

Now, according to Summers, these joint ventures don’t significantly benefit the American domestic economy at all. Of course, there’s still the matter of how this Chinese tech theft – including from world-leading U.S. companies in cutting edge industries – will affect America’s innovation and technology futures. But these critical issues don’t seem to be on Summers’ screen.

The author’s cluelessness is evident from his insistence that

“it is wrong to say nothing has been achieved through negotiation with China. Only a few years ago, China’s current account surplus was the largest relative to GDP among significant countries….Today China’s global surpluses are far below past US negotiating targets of a few years ago….”

Here’s the (glaringly obvious) problem. During the current economic recovery, China’s total trade surplus with the United States (including its services deficit) jumped by 75 percent – from $219.47 billion in 2009 to $385 billion in 2016 (the last year for which such figures are available). Can a piece from Summers expressing his astonishment that so many U.S. voters opted in 2016 for a candidate promising to look after “America First” be far behind?

(What’s Left of) Our Economy: February’s Big New U.S. Trade Deficit Driven by Lots of Volatile Internals

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Canada, China, exports, Financial Crisis, Great Recession, high tech goods, imports, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, services, South Korea, Trade, Trade Deficits, Trump administration, {What's Left of) Our Economy

The U.S. monthly trade deficit rose for the sixth straight month in February, to its highest level ($57.79 billion) since some of the darkest days of the last financial crisis (October, 2008’s $60.19 billion). Combined U.S. goods and services exports set their third monthly record ($204.45 billion) in the last four months, but total imports (at $262.04 billion) hit their fifth straight monthly all-time high. New monthly records were also set for goods imports ($214.49 billion), services exports (for the tenth straight month, with a total of $67.27 billion) and services imports ($47.85 billion).

With U.S.-China trade tensions rising, the huge and chronic American trade shortfall with the PRC sank by 18.61 percent on month in February, but the drop was from an unusually high January figure ,and the new total ranked as the biggest February number ever ($29.26 billion). Similar volatility was on display with the U.S. deficits with other trade partners in the Trump administration’s crosshairs, including South Korea, Canada, and Mexico, as well as in manufacturing and high tech goods.

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

>In the process of revealing several new all-time records and multi-year highs and lows, this morning’s U.S. trade balance report also made clear how volatile the nation’s monthly trade figures can be – including those describing the nation’s commerce with major foreign economies whose trade policies have evoked first criticism and now tariffs and threatened levees from the Trump administration.

>The combined U.S. goods and services trade deficit rose in February sequentially for the sixth straight month. The $57.59 billion total, a 1.63 percent increase from January’s upwardly adjusted $56.67 billion figure, was the biggest monthly trade shortfall since October, 2008’s $60.19 billion – when the Lehman Brothers bankruptcy pushed the global financial crisis into a dangerous new phase and ultimately helped usher in America’s worst downturn since the Great Depression of the 1930s.

> U.S. total exports in February set their third new record in the last four months. At $204.45 billion, they were 1.74 percent greater than January’s upwardly adjusted $200.95 billion and 0.41 percent higher than the previous best of $203.61 billion, set last December.

>But U.S. total imports in February set their fifth straight monthly record. The $262.04 billion total was 1.72 percent higher than the upwardly adjusted January level of $257.61 billion – the previous record.

>The $77.01 billion February U.S. trade deficit in goods was also the biggest such total since the last recession – specifically, the $77.63 billion figure for July, 2008. Sequentially, it grew 0.39 percent from January’s upwardly adjusted $76.71 billion.

>America’s services trade remained healthily in surplus in February. But the $19.42 billion excess of exports over imports was the smallest such total since December, 2012’s $18.63 billion. Month-on-month, the services surplus sank by 3.12 percent in February from January’s upwardly adjusted $20.04 billion – the biggest such drop since last April’s 4.88 percent plunge.

>U.S. goods imports set their third record in the last four months in February. At $214.19 billion, they exceeded the January total (the previous record, which has been upwardly adjusted) of $210.86 billion by 1.58 percent.

>Services exports in February set their tenth straight monthly record, rising sequentially by 0.70 percent from an upwardly adjusted $66.80 billion to $67.27 billion.

>Services imports in February set their fourth straight monthly record, rising sequentially by 2.34 percent from a downwardly adjusted $46.76 billion to $47.85 billion. The monthly increase, moreover, was the biggest since August 2016’s 3.67 percent.

>At the same time, reportedly, the February services imports total was fueled in part by payments made by American broadcasters for the rights to televise the Seoul Winter Olympics.

>With U.S.-China trade tensions escalating, the February figures showed that the massive, chronic goods trade surplus run by China with the United States plunged by 18.61 percent sequentially, from $35.95 billion (the second highest monthly total ever) to $29.26 billion.

>The February figure was the lowest since April, 2017’s $27.63 billion, and the monthly decrease was the biggest since last February’s 26.64 percent. Yet the February figure was an all-time February high.

>U.S. goods exports in February declined by 0.30 percent, from $9.84 billion to $9.81 billion – the lowest such total since last April’s $9.84 billion.

>The much larger amount of U.S. goods imports from China sank sequentially by 14.68 percent in February, from $45.79 billion to $39.07 billion.

>The goods import decline was the biggest since last February’s 20.82 percent, and the monthly total was the lowest since April’s $37.47 billion. Yet as with the goods deficit, the new February goods import total was a new monthly record for February.

>A similar story is told by the new statistics for U.S. merchandise trade with South Korea, whose bilateral trade deal with the United States was recently renegotiated.

>America’s goods trade deficit with South Korea also shrank dramatically on month in February – by 65.28 percent, from $1.97 billion to $0.68 billion.

>The February total was the lowest since the 0.56 billion figure recorded for March, 2012 – as the trade agreement went into effect. The month-on-month plummet, moreover, was the biggest since the 70.50 percent drop in February, 2012.

>Yet the January U.S.-South Korea merchandise trade deficit was the biggest since October’s $2.51 billion.

>Still, the composition of the monthly U.S.-South Korea goods trade deficit change differed dramatically from that of the U.S.-China deficit.

>Not only did U.S. merchandise imports from South Korea fall sequentially by 12.05 percent – to $4.97 billion, the lowest such total since last February’s $4.87 billion, and the greatest monthly percentage drop since that month. U.S. merchandise exports to South Korea also jumped on month by 16.36 percent, to $4.92 billion.

>That increase was the biggest percentage-wise since last March’s 22.04 percent.

>The U.S.’ merchandise shortfall with Canada nosedived in February, too – by 89.59 percent on month, from January’s $3.70 billion to $0.38 billion.

>The total was the lowest since last September’s $0.25 billion, and the sequential drop was the steepest since May, 2016’s 95.84 percent.

>But the January deficit was the biggest since December, 2014’s $4.07 billion.

>Most of the U.S.-Canada merchandise deficit’s February monthly decrease came on the American imports side, as these purchases declined by 8.95 percent to $23.92 billion – the largest such decrease since last July’s 11.49 percent, and the lowest such total since that month’s $22.89 billion.

>But U.S. goods exports to Canada also rose on month in February – by 4.28 percent, to $23.53 billion.

>A different kind of volatility was exhibited by U.S. merchandise trade with its other North American Free Trade Agreement (NAFTA) partner, Mexico.

>The American goods trade shortfall with Mexico soared by 46.62 percent sequentially in February, to $6.06 billion. That’s the biggest such increase since the 81.73 percent of March, 2001 – nearly 17 years ago.

>Yet the $4.14 billion January U.S. merchandise deficit with Mexico was the smallest since last January’s $3.95 billion.

>U.S. goods exports to Mexico sank by 7.24 percent on month in February, to a five-month low of $20.22 billion, while goods imports from Mexico climbed by 1.35 percent, to $26.29 billion.

>Volatility in these bilateral deficits was mirrored in February by volatility in the manufacturing trade deficit. This chronic and enormous shortfall plunged sequentially by 15.48 percent, to $73.21 billion. But the January total of $86.62 billion was the second highest of all time.

>Manufacturing exports improved by 2.89 percent sequentially in February, to $88.86 billion, while imports skidded by 6.31 percent, to $162.07 billion.

>High tech goods trade displayed major ups and downs, too. In February, the shortfall cratered 30.96 percent, to $7.93 billion. That was the smallest total since last April’s $6.04 billion.

>But the $11.49 billion January gap was 14.25 percent bigger than the December figure.

(What’s Left of) Our Economy: On Eve of Trump Tariffs, a Big Increase for the (January) U.S. Trade Deficit

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Canada, China, European Union, exports, high tech goods trade, imports, manufacturing, merchandise trade, Mexico, NAFTA, North American Free Trade Agreement, oil, South Korea, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

The U.S. monthly trade deficit surged in January to its highest level ($56.6o billion) since October, 2008 ($60.19 billion) – when the Lehman Brothers bankruptcy sparked a worldwide financial and economic panic.

New all-time records were set by monthly services exports ($66.66 billion) and imports ($46.78 billion), and December results for both were revised significantly upward (0.77 percent for the former, and 2.07 percent for the latter). The trade deficit in petroleum products jumped by 116.64 percent on month in January – the biggest sequential percentage increase ever – to $7.08 billion. That total was a post-March ($8.28 billion) high.

America’s January merchandise trade deficit in goods ($76.49 billion) was a post-July, 2008 ($77.63 billion) high, while the trade gaps in manufacturing and in goods with China bounced back on month to their second highest all-time totals ($35.95 billion and $86.62 billion, respectively). Moreover, U.S. merchandise exports to China sank by their greatest percentage on month (28.05 percent) since January, 1999 (43.37 percent). Total exports fell on month (by 1.30 percent) for the first time since October, and combined goods and services imports dipped fractionally (to $257.51 billion) from the upwardly revised record set in December.

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

>The combined U.S. goods and services trade deficit rose on month in January to its biggest total ($53.91 billion) since October, 2008 ($60.19 billion) – when the world economy teetered on the brink of meltdown due to the Lehman Brothers bankruptcy.

>The figure represented a 4.99 percent increase from a December figure of $53.91 billion that was revised up by an unusually large 1.49 percent.

>January saw all-time records for monthly services exports and imports. The former improved sequentially from by 0.41 percent, from $66.39 billion to $66.66 billion, while the latter grew by 0.38 percent, from $46.60 billion to $46.78 billion.

>At the same time, both services trade figures also saw major revisions in the December – both upward. The exports number was raised by 0.77 percent, and imports upgraded by an enormous 2.07 percent.

>January’s trade deficit increase was led in relative terms by the nation’s oil trade deficit – which more than doubled sequentially, from $3.27 billion to $7.08 billion. That was the highest such total since last March’s $8.28 billion.

>Partly as a result, the U.S. merchandise trade deficit widened sequentially in January by 3.79 percent, to $76.49 billion – its highest such level since July, 2008’s $77.63 billion.

>But manufacturing contributed significantly to the rise in the overall trade deficit and the merchandise shortfall as well. Its chronic trade shortfall ballooned by 14.54 percent on month to hit $86.62 billion – just shy of October’s record of $88.98 billion.

>Manufacturing exports slid by 8.99 percent sequentially in January, from $94.89 billion to $86.36 billion, while imports were off by only 0.08 percent, from $173.13 billion to $172.99 billion.

>In turn, helping to fuel this deterioration in the manufacturing trade balance was the 16.70 percent worsening of the U.S. merchandise deficit with China. The January figure of $35.93 billion was the second highest of all time, too – trailing only September, 2015’s $36.29 billion. The increase, moreover, was the biggest since May, 2016’s 19.43 percent. 

>Mainly responsible for the China trade deficit’s increase was a 28.05 percent nosedive in U.S. goods exports to the strongly growing People’s Republic. Although the decrease followed a record December export total of $13.67 billion, it was still the biggest such percentage drop since January, 1999 (43.37 percent). 

>The $9.84 billion in U.S. goods sales to China in January, moreover, was the lowest such figure since June’s $9.71 billion. 

>U.S. merchandise imports from China rose – by 2.95 percent, to $45.79 billion.

>Total goods exports were down in January by 1.30 percent (to $200.91 billion) from December’s upwardly revised $203.61 billion. The drop was the first since October.

>Total imports in January dipped only fractionally – to $257.510 billion – from December’s upwardly revised record of $257.514 billion.

>The high tech goods trade deficit rose by 14.25 percent on month in January, from $10.06 billion to $11.49 billion.

>High tech exports plunged on month by 18.11 percent to $27.46 billion – a post February, 2017 ($25.39 billion) low, and the biggest falloff since January, 2017’s 19.01 percent.

>High tech goods imports sank, too – by 10.64 percent, to $38.95 billion. That was the biggest drop since last February’s 13.31 percent.

>As the Trump administration’s efforts to renegotiate the North American Free Trade Agreement (NAFTA) face an uncertain future, America’s merchandise trade deficit with Canada shot up by 65.04 percent on month in January, to $3.64 billion. That’s its highest level since December, 2014 ($4.07 billion).

>Yet the U.S. goods trade shortfall with Mexico decreased by 23.03 percent – to $4.14 billion. That’s the lowest such total since last January ($3.95 billion).

>Trade tensions with the European Union (EU) seem to growing as well, due mainly to the Trump administration’s announcement of steel and aluminum tariffs. In January, however, the merchandise trade gap with the EU fell by 13.88 percent, to $13.62 billion.

>President Trump is also hoping to revamp the bilateral U.S.-South Korea trade agreement (KORUS). In January, America’s goods trade deficit with South Korea hit $1.97 billion – a 57.57 percent monthly rise. At the same time, December’s $1.25 billion goods trade gap was the smallest since December, 2016’s $1.17 billion.

(What’s Left of) Our Economy: What Trump TPP Disaster?

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exports, free trade agreements, merchandise exports, TPP, Trade, Trade Deficits, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

The foreign policy and economic policy establishment verdict is in: President Trump’s decision at the start of his administration to abandon the Trans-Pacific Partnership (TPP) trade agreement has been a “disaster.” Economically speaking, in particular, they insist, the deal would have significantly boosted U.S. exports, and therefore the nation’s growth and worker incomes. No less than Barack Obama said so when he was President. And the recent decision of the other eleven TPP countries to conclude the agreement on their own will only increase the costs to Americans.

No one has a perfect crystal ball on these matters, so these gloomy predictions could well be right. (At the same time, none of these forecasters seems to admit that, as I’ve pointed out, the United States would have represented nearly two-thirds of the total TPP economies, and that most of the major members depended heavily on net exports, especially to the United States, for their growth.) But it’s now been more than a year since Mr. Trump announced the pull-out, and raise your hand if you can see a trade or economic disaster.

Let’s start with one of the establishment’s main measures of U.S. trade policy success – boosting American gross exports – and let’s keep in mind that Mr. Obama signed the TPP in early 2016. The year before, U.S. goods exports to these eleven other countries combined fell by 6.51 percent. So that looked like one pretty strong argument for improving the situation with some effective trade diplomacy. For comparison’s sake, U.S. goods exports to the entire world that year decreased by somewhat more – 7.32 percent.

This export-focused pro-TPP argument seemed pretty convincing the following year, too, after the former President signed the deal and when he spent considerable time trying to secure Congressional ratification. That year, U.S. merchandise exports to the other signatories combined fell slightly faster (by 3.62 percent) than they did to the rest of the world (3.47 percent).

And what about the first year of TPP killer (at least for the United States) Donald Trump’s presidency? American goods sales to the “TPP Eleven” are back up by 5.98 percent. That’s somewhat weaker growth than global goods exports, (6.60 percent), but this particular section of the sky doesn’t seem to be falling.

It’s hard to find a disaster in the trade balance figures, either – my favorite method of evaluating American trade policy. Between 2014 and 2015, the year before the Obama signing, the United States’ merchandise trade deficit with the TPP countries grew by two percent, and with the world as a whole by 1.44 percent. So American trade with these prospective treaty partners was faring relatively well – though not very well.

The year after, mainly following the signing, came a major change. The goods trade shortfall with the TPP Eleven rose by 6.38 percent even as it was falling by 1.12 percent with the world overall. And in Trump Year One? Both such U.S. deficits rose – by 10.18 percent year-on-year for the TPP countries, and by 8.06 percent for the world as a whole.

In absolute terms, this means that the TPP gap lately is up faster than the global gap. So score one for the TPP fans? But the numbers also show that the deficit worsened much more dramatically with the rest of the world when compared with the previous year. So score one for the opponents.

As I see it, the opponents deserve far more credibility, since the next euphoric trade deal prediction by supporters will be their first. But given that the Trump TPP decision is only a year old, and the new agreement hasn’t even been signed yet, I’m willing to let a decent interval pass before rendering a firm conclusion. If the trade cheerleaders have any grip left on reality, they’ll do the same.   

(What’s Left of) Our Economy: So the Economy Can’t Grow When the Trade Balance Improves?

Tags

Associated Press, growth, inflation-adjusted growth, Paul Wiseman, real trade deficit, Trade, Trade Deficits, {What's Left of) Our Economy

Yesterday’s release of the December and full-year 2017 U.S. trade figures means that there will be lots of detailed data to mine for the next week or two. But the new numbers, and the press coverage, also create a great opportunity to dispel one of the leading myths surrounding the impact of trade – and especially trade deficits – on the U.S. economy.

The myth was nicely stated in the Associated Press coverage of the new trade report – which matters a lot because the AP is one of the leading sources of news for both the nation and the world. According to reporter Paul Wiseman,

“[W]hen it comes to trade, there’s a flip-side to good times [touted by President Trump and others]: ‘A stronger economy will draw in more imports’ as confident consumers seek out foreign products, says Bernard Baumohl, chief economist at the Economic Outlook Group.

“Recent history shows that the trade deficit tends to grow when times are good and shrink when they turn bad. The trade gap hit a record $762 billion in 2006 toward the end of a six-year economic expansion. It dropped to $384 billion in 2009, in the depths of the Great Recession as American consumers hunkered down and bought fewer imports.

“‘If the goal is to reduce the trade deficit, we know how to do that — just send our economy crashing and we won’t be able to afford to import as much’ says Bryan Riley, director of the conservative National Taxpayers Union’s Free Trade Initiative.”

This relationship holds more often than not. But the notion unmistakably conveyed by Wiseman and especially by the supposed authorities he cites – that it always holds – just doesn’t bear scrutiny.

The U.S. Census Bureau, which tracks the trade deficit, and the Bureau of Economic Analysis (like Census, another division of the Commerce Department), which tracks economic growth, both conveniently provide the historical statistics anyone needs should he or she show some actual curiosity about such claims. And what these figures show is that, for two and half decades – from 1961 till the early 1990s – the U.S. economy regularly managed to grow (and often quite nicely) in years when the trade balance improved. This includes years when a surplus increased, a deficit shrunk, or when a deficit turned into a surplus.

All told, such trade balance improvement took place thirteen times during this period: 1961, 1963, 1964, 1970, 1973, 1975, 1979, 1980, 1981, 1988, 1989, 1990, and 1991

And of these 13 years, the economy grew in nine on an inflation-adjusted basis (the most widely looked at measure): 1961, 1963, 1964, 1970, 1973, 1979, 1981, 1988, and 1990.

Moreover, even though improving trade balances (specifically, falling deficits) have been rarer since, they haven’t been unknown. This development took place in 1995, 2007, 2009, and 2012. And of these years, the economy grew in real terms in all except 2009.

What’s been seen more seldom – though not “never” – is a year-to-year speed-up in growth while the trade balance improves. But this combination has been seen five times since 1960: in 1964, 1973, 1981, 1988, and 2012. For good measure, the trade surplus expanded in 1961, and after-inflation growth remained at its previous-year level of 2.6 percent.

Nor does the picture change much when you look at the annual changes in the inflation-adjusted trade balance. From 1961 through the early 1990s, this trade balance improved in 13 years – the same number as that for the current-dollar trade balances, though the specific list is slightly different. These years were: 1963, 1964, 1970, 1973, 1974, 1975, 1979, 1980, 1987, 1988, 1989, 1990, and 1991

In ten of those years, the economy grew: 1961, 1963, 1964, 1970, 1973, 1979, 1987, 1988, 1989, and 1990

Since the early 1990s, the real trade balance has improved six times: 1995, 2007, 2008, 2009, 2012, 2013. And it remained roughly the same in 2011. In all of those years – except for 2008 and 2009 – the real economy expanded.

Re the accelerating growth criterion, through the early 1990s, it was met in three of the ten years during which the economy expanded and the trade balance improved. In two other years, the trade balance improved and economic growth held steady (1962 and 1987).

More recently, since the early 1990s, the economic grew in price-adjusted terms in four years when the trade balance improved. In addition, the trade balance barely budged (for the worse) in another growth year: 2011.

A bigger difference comes in terms of accelerating growth – an improving real trade balance has coincided with a growth speed-up only once during this period: 2012.

Now a skeptic could (correctly) observe that during the 1960s and 1970s, trade was considerably less important to the economy. At the same time, this observation also means that American economic policymakers have failed to meet the crucial challenge of helping the economy sustain healthy growth as it’s steadily – and sometimes rapidly – internationalized.

But the paramount point is that, contrary to the conventional wisdom, there’s no inherent reason why the economy’s trade position should worsen when it grows. And you can indeed look it up.

(What’s Left of) Our Economy: September Trade Figures Show Continuing Asia and NAFTA Challenges

Tags

Canada, China, exports, imports, Japan, Made in Washington trade deficit, Mexico, NAFTA, North American Free Trade Agreement, North Korea, recession, recovery, South Korea, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

Since it’s not the usual same-day report, here are the highlights of Friday’s Census Bureau September U.S. trade report in a slightly different than usual format.  And there were lots of highlights, especially for those following President Trump’s current trip to Asia and his continuing efforts to renegotiate the North American Free Trade Agreement (NAFTA).   

September’s combined U.S. goods and services trade deficit increased modestly month-to-month, by 1.70 percent from an upwardly revised $42.77 billion to $43.50 billion. Though the total was the year’s second lowest (just behind August’s), it brought the overall shortfall year-to-date 9.30 percent above last year’s nine-month level. Yet arguably its most noteworthy details concern economies identified by the Trump administration as troublesome U.S. trade partners.

In particular, as the president begins his trip to Asia, the new trade figures showed that the chronic American goods shortfall with the region fell 6.71 percent sequentially, from $44.48 billion to $41.49 billion. Merchandise exports to the Census Bureau’s Pacific Rim country grouping (which does not include Western Hemisphere economies) rose 4.90 percent on month, from $32.27 billion to $33.85 billion. Goods imports, however, fell by 1.83 percent, from August’s record $76.76 billion to $73.35 billion (still the third highest total ever).

On a year-to-date basis, the goods trade gap with the Pacific Rim is up by 2.03 percent.

The new trade figures remind that Mr. Trump’s goal of reducing American trade deficits with NAFTA signatories Canada and Mexico will be a tall order.

The combined NAFTA merchandise deficit actually plunged by 14.63 percent month-to-month, from $6.97 billion to $5.95 billion. The total was the second lowest of the year – nosing out July’s $5.99 billion.

U.S. goods exports to its North American neighbors declined by 1.84 percent sequentially, from $45.04 billion to $44.21 billion, while goods imports dropped by 3.56 percent on month, from $52.01 billion to $50.17 billion.

Year-to-date, however, the NAFTA goods deficit is 24.16 percent higher.

Bilateral trade developments within these regional flows also warrant attention.

The massive and chronic U.S. trade deficit with China – which the president hopes will help pressure North Korea to abolish its nuclear weapons program even has he has targeted its predatory trade practices – slipped sequentially in September by 0.73 percent, from $34.89 billion (the highest total of the year) to $34.64 billion (the second highest total).

America’s goods exports to the strongly growing Chinese economy decreased on month by 1.11 percent, from $10.93 billion (the year’s highest total) to $10.80 billion (the second highest total).

U.S. merchandise purchases from China slipped by 0.82 percent on month, from $45.82 billion (the all-time record) to $45.44 billion (the third highest total ever).

Year-to-date, the merchandise deficit with China is up 6.27 percent.

Japan, has expressed special alarm over the dramatic recent improvement of North Korea’s nuclear arsenal, but is also trying to reconstruct the Trans-Pacific Partnership trade deal without the United States. It saw its even longer-standing merchandise surplus with the United States plummet 26.17 percent sequentially in September, from $6.55 billion to $4.84 billion.

U.S. goods exports to Japan grew by 10.41 percent month-to-month in September, from $5.41 billion to just under $5.97 billion – the second highest total of the year after the just over $5.97 billion figure of April.

U.S. goods imports from Japan sank by 9.66 percent sequentially, from $11.96 billion to $10.81 billion.

All the same, on a January-to-September basis, the American merchandise deficit with Japan is 1.32 percent higher than last year’s nine-month total.

South Korea is on the front lines of the Korean peninsula crisis, and President Trump has launched an effort to revamp its 2012 bilateral trade agreement with the United States. Its merchandise trade surplus with the United States fell by 12.25 percent on month in September, from $2.22 billion to $1.95 billion.

U.S. goods sales to South Korea improved sequentially by 2.38 percent, from $3.74 billion to $3.83 billion, while goods imports shrank by 3.06 percent, from $5.96 billion to $5.77 billion.

Year-to-date, the American goods deficit with South Korea is way down: by 24.01 percent. But since the trade deal with the United States went into effect, in March, 2012, it’s up more than 247 percent on a monthly basis.

Within North America, the goods deficit with Mexico was down 7.67 percent on month in September, from $6.18 billion to $5.70 billion.

U.S. goods exports to Mexico – many of which are industrial inputs that return to the United States as final products – fell by 3.75 percent sequentially, from $20.87 billion to $20.09 billion. America’s merchandise imports from Mexico dropped by 4.64 percent, from $27.05 billion to $25.79 billion.

Year-to-date, the U.S. goods deficit with Mexico is up 10.93 percent from the January-to-September period last year.

Trade balances with Canada – which has been a target of several contentious American trade law actions during President Trump’s first year – have been exceptionally volatile lately. The September merchandise deficit with Canada nosedived by 68.77 percent on month – from $794 million to $248 million, the lowest total of the year.

American goods sales to Canada dipped by 0.19 percent sequentially, from $24.17 billion to $24.13 billion, while goods purchases from Canada dropped by 2.38 percent, from $24.97 billion to $24.37 billion.

Year-to-date, though, the merchandise deficit with Canada is up nearly 153 percent.

The September trade figures also reflected the receding impact of this year’s violent hurricane season.

Principally, the U.S. trade deficit in oil, much of whose production and transport infrastructure is located on the Texas and Louisiana Gulf coasts, soared sequentially in August by 61.65 percent in pre-inflation dollars (from $3.02 billion to $4.88 billion), largely because exports fell by 11.54 percent. That monthly export decrease was the biggest since August, 2015’s 12.62 percent.

In September, however, oil exports rebounded on month by 13.59 percent. That was the biggest monthly increase since May, 2016’s 15.47 percent. And the oil deficit shrank by 17.82 percent, to $4.01 billion – the year’s second lowest total after July.

The overall September trade deficit rose even though exports across the board performed well that month.

Total exports hit $196.82 billion – their highest level since December, 2014 ($197.18 billion). The same held for goods exports, whose $130.58 billion was their best total since December, 2014’s $134.19 billion.

Moreover, services exports hit their second straight all-time high ($66.24 billion).

Yet the much larger amount of imports grew fast enough to more than offset these gains.

Total imports hit rose 1.18 percent on month in September – the fastest rate since January’s 2.83 percent. And the $240.31 billion level was the second highest of the year, after January’s $240.47 billion.

Goods imports rose 1.22 percent on month in September – also the fastest rate since January (3.09 percent). And the $195.97 billion total was also the second highest of the year (after January’s $197.07 billion).

The September monthly increase in services imports (0.98 percent) was also the biggest since January (1.05 percent). And the $44.34 billion total was a new all-time high (passing July’s $44.14 billion).

The huge and chronic American manufacturing trade deficit retreated from August’s monthly record of $82.15 billion. But at $79.91 billion, it was more than enough to keep the shortfall running 5.95 percent ahead of last year’s record shortfall.

Similar trends seem to be unfolding in the nation’s high tech goods trade. The volatile monthly deficit in this category jumped by 15 percent on month in September, to $10.34 billion. That was the second highest total of the year (after May’s $9.47 billion).

Year-to-date, the high tech goods shortfall is up 23.64 percent, a rate of increase that would enable it to surpass the full-year record of $98.72 billion, set in 2011.

Nevertheless, the September figures also made clear that trade’s drag on the current U.S. economic recovery – created by the increase in the trade deficit since the end of the last recession – continued decreasing.  As shown in last week’s initial real gross domestic product (real GDP) data, trade’s overall hit to American growth since the recovery began in mid-2009 has fallen from 10.04 percent in the first quarter to 9.24 percent in the second quarter to 8.18 percent in the third quarter (according to the initial read on the latter). That last number translates into $229.2 billion in lost growth after inflation. 

The September trade figures enable the growth hit to be calculated for the increase in the inflation-adjusted Made in Washington trade deficit – i.e., in those trade flows heavily influenced by American trade agreements and related policy decisions. This trade shortfall, which excludes commerce in energy and services, has sliced recovery-era growth by $459.19 billion after inflation, or 16.39 percent. 

As big as that sounds, its smaller proportionately than the cost of the Made in Washington deficit as of the second quarter – 17.30 percent.    

 

(What’s Left of) Our Economy: Cutting Manufacturing Trade Deficit Can Help Trump Meet Growth Target

Tags

Great Recession, manufacturing, recovery, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

President Trump has long spoken of juicing still sluggish U.S. economic growth by raising tariffs on imports and thereby replacing the foreign products Americans buy with counterparts made at home. Hopefully, he’ll follow through one of these days, because some economic data I’ve just looked over shows that his instincts are spot on, especially concerning the domestic manufacturing sector. Specifically, the figures make clear that, throughout the current, inadequate recovery, immense and steadily rising trade deficits in industry have crippled its production rate.

According to official data, between 2009 (the year the recovery began) and 2016 (the last full year for which numbers are available), the manufacturing trade deficit soared from $457.21 billion to $868.48 billion (a new all-time high) in pre-inflation terms. That’s not far from a doubling. So cumulatively, it was up by $411.27 billion.

And what’s happened to manufacturing output during that period? In pre-inflation value-added terms (measure that aims to eliminate various forms of double-counting), it grew by $448.5 billion. As a result, all else equal, if the manufacturing trade shortfall in 2016 was simply where it was in 2009, industry’s growth would have nearly doubled.

Of course, all else is never equal, and it’s reasonable to argue that the manufacturing trade and output numbers were thrown off early in the recovery by the unusual, and unusually deep, nature of the recession that preceded it. For the Great Recession was not only devastating for a cyclical industry like manufacturing. It devastated trade flows, too, because so much of it affected global finance (because global finance’s weakness were so largely to blame for its outbreak).

But it’s possible to correct to some extent for this unusual distortion by looking at the statistics starting in 2011 – when some degree of economic normalization had returned. (And yes, I know that massive government stimulus was largely responsible.)

During those years, the manufacturing trade deficit rose by just under $196 billion. Manufacturing output in current dollar value-added terms was up by just under $268 billion. So the growth drag was still powerful.

It remains too early in the current year to come to any definitive conclusions about these relationships under Mr. Trump. But so far, the evidence isn’t very promising. On a year-to-date basis through July, the manufacturing trade deficit is running 7.04 percent above last year’s record level. And through July, inflation-adjusted manufacturing production was only 1.49 percent higher than its level the previous July. (August’s year-on-year figure was a slightly better but still meh 1.63 percent.)

It’s possible, of course, that if they pan out, the new U.S. investments promised under President Trump will boost manufacturing output without dramatic changes in trade policy. But it’s just as possible that many of these new factories and other facilities have been promised in order to escape the effects of the tariffs Mr. Trump has threatened. Indeed, that’s what the CEOs of several of the companies involved have said.

If so, the longer the President waits to Make Trade Policy Great Again, the less credible his pronouncements will seem. And an opportunity both to speed up growth and improve its quality (by obviating some of the need for either deficit-ballooning tax cuts or deficit-ballooning spending increases) will be squandered.

(What’s Left of) Our Economy: Mixed Results from a Deep, Dynamic Dive into U.S.-China Trade Figures

Tags

advanced manufacturing, China, commodities, exports, high value manufacturing, imports, manufacturing, Trade, trade balances, Trade Deficits, trade surpluses, {What's Left of) Our Economy

On Tuesday, RealityChek performed its first deep dive into the U.S.-China trade figures for the first half of 2017, and how they compare with the performance of the January-to-June, 2016 period. Today. It goes dynamic, looking through that same, detailed industry-by-industry lens which sectors have seen the biggest improvements and worst deteriorations in their exports to and imports from China, and in their trade balances with the PRC.

The same technical considerations that applied to Tuesday’s static figures apply to those below. The categories presented are from the federal government’s prime system for slicing and dicing the U.S. economy: the North American Industry Classification System (NAICS). And the level of detail is NAICS’ most granular – the six-digit level. It’s especially revealing because it does the best job of distinguishing between finished goods and parts and components and other inputs for these goods – which matters greatly because so much international trade is conducted in these intermediates. Because of data limitations, however, the aerospace results shown below are five-digit statistics, which combine finished goods and their parts and components.

In addition, because services trade statistics come out so much later than goods trade statistics, only the latter are presented here.

Finally, because today’s emphasis is on rates of change, I’ve confined my research to the top 50 industries for all the metrics examined below, in order to prevent the results from being distorted by big percentage increases or decreases for sectors with very low export, import, and trade balance numbers. Fortunately, because U.S. trade is so highly concentrated, the top 50 lists are highly representative of the nation’s trade as a whole.

To begin, here are the fastest growing U.S. merchandise exports to China between the first half of last year and the first half of this year:

1. Crude oil & natural gas: +3,250.25 percent

2. Wheat: +251.29 percent

3. Primary smelted non-ferrous metals: +194.76 percent

4. Cotton: +149.26 percent

5. Miscellaneous engine equipment: +72.10 percent

6. Liquid natural gas: +66.23 percent

7. Petroleum refinery products: +58.41 percent

8. Motor vehicle transmission & power train parts: +52.84

9. Plastics and rubber industry machinery: +45.41 percent

10. Pharmaceuticals: +45.25 percent

Although four of the ten items are high-value manufactures, which generate outsized benefits for the American economy in terms of high wage job creation, productivity growth, and innovation, they dominate the bottom of this list. And their growth rates are considerably lower than those for the commodities and low-value products so prominent at the top of the list.

Encouragingly, though, the China list is a higher-value list than that for U.S. merchandise exports as a whole (presented right below). And by and large, the advance manufactures sectors above are increasing their exports to China much faster than the leaders worldwide are increasing their exports globally.

1. Non-anthracite coal & petroleum gases: +180.9 percent

2. Crude oil & natural gas: +109.0 percent

3. Cotton: +89.9 percent

4. Liquid natural gas: +62.4 percent

5. Semiconductor manufacturing equipment: +58.2 percent

6. Primary smelted non-ferrous metals: +54.0 percent

7. Soybeans: +27.6 percent

8. Petroleum refinery products: +26.1 percent

9. Motor vehicle engines & engine parts: +19.2 percent

10. Corn: +18.7 percent

Now for the goods categories that performed worst in boosting their exports to China:

1. Industrial valves: -32.46 percent

2. Miscellaneous grains: -30.76 percent

3. Broadcast & wireless communications equipment: -20.89 percent

4. Electricity measuring & testing instruments: -20.48 percent

5. Telecomms equipment: -17.58 percent

7. Aerospace: -10.74 percent

8. Photo films, plates, paper & chemicals: -7.9 percent

9. Irradiation apparatus: -4.87 percent

10. Semiconductors & related devices: -2.67 percent

Worrisomely, this list is completely dominated by advanced manufactures. What about the worst performing U.S. global export sectors?  Here they are:

1. Medicinal & botanical drugs & vitamins: -25.4 percent

2. Turbines & turbine generator sets: -15.1 percent

3. Computer parts: -9.4 percent

4. Autos and light trucks: -8.3 percent

5. Telecomms equipment: -6.6 percent

6. Electricity measuring & test instruments: -5.9 percent

7. Aerospace: -4.0 percent (5-digit, due to reporting limits)

7. Surgical and medical instruments: -1.1 percent

8. Electro-medical apparatus: -0.9 percent

9. Industrial valves: -0.1 percent

9. Computers: -0.1 percent

10. Surgical appliances & supplies: +0.2 percent

10. Analytical laboratory instruments: +0.2 percent

There’s considerable overlap between this list and the China list. But whereas the China export winners generally are increasing their sales to China much faster than the best global export performers are increasing their worldwide sales, the biggest China export losers are seeing bigger sales declines than the biggest worldwide export losers.

Next let’s look at those merchandise sectors whose trade balances with China improved the most from January-June, 2016 to January-June, 2017. These trade balance figures matter decisively, of course, because standard economic theory holds that countries that trade products most successfully will become the countries that make these products most successfully. That’s how trade is supposed to create the most efficient possible global patterns of production. In this list, the industries marked with asterisks are those whose trade deficit with China decreased:

1. Semiconductors & related devices: $190 million deficit to $615 million surplus

2. Crude oil & natural gas: +3,250.38 percent

3. Non-anthracite coal & petroleum gases: 1,537.71 percent

4. Niscellaneous metal ores: +807.54 percent

5. Smelted non-ferrous metals: +519.07 percent

6. Wheat: +251.43 percent

7. Cotton: +149.26 percent

8. Treated wood products: +139.62 percent

9. Miscellaneous women & girls’ outerwear: +131.72 percent*

10. Heavy-duty trucks & chassis: +105.11 percent

Here are the goods sectors that have improved their global trade balances the most on a year-to-date basis:

1. Primary smelted non-ferrous metals: $5.00 billion deficit to $0.76 billion surplus

2. Relays and industrial controls: $1.27 billion deficit to $2.26 billion surplus

3. Semiconductors: $1.48 billion deficit to $1.01 billion surplus

4. Non-costume jewelry: +574.44 percent

5. Drawn/rolled/extruded miscellaneous non-ferrous metals: +305.69 percent

6. Miscellaneous basic inorganic chemicals: +300.00 percent

7. Non-anthracite coal and petroleum gases: +224.29 percent

8. Medicinal and botanical drugs and vitamins: +104.35 percent

9. Cotton: +91.09 percent

10. Semiconductor manufacturing equipment: +64.82 percent

Both lists are pretty evenly split between higher value and lower value sectors, which looks like a wash for America’s global competitiveness.

The list of America’s fastest growing goods imports from China features mostly manufactured products as well, but few would be characterized as cutting edge:

1. Switchgear & switchboard apparatus: +278.27 percent

2. Printed circuit assemblies: +49.98 percent

3. Aluminum sheet, plates, and foils: +39.64 percent

4. Goods returned from Canada: +28.75 percent

5. Broadcast & wireless communications equipment: +26.74 percent

6. Miscellaneous basic organic chemicals: +23.42 percent

7. Miscellaneous special classification provisions: +22.62 percent

8. Lighting equipment: +18.83 percent

9. Telecomms equipment: +18.20 percent

10. Miscellaneous manufactures: +16.85 percent

And here’s the global counterpart of this list:

1. Switchgear and switchboard apparatus: +174.3 percent

2. Crude oil and natural gas: +53.7 percent

3. Printed circuit assemblies: +44.2 percent

4. Iron and steel: +41.3 percent

5. Primary aluminum: +38.6 percent

6. Non-diagnostic biological products: +29.4 percent

7. Petroleum refinery products: +22.2 percent

8. Miscellaneous non-citrus fruits: +20.8 percent

9. Motors and generators: +13.7 percent

10. Lighting equipment: +12.7 percent

10. Surgical appliances and supplies: +12.7 percent

According to my count, both lists are comprised mainly of high-value products (six for the China imports and seven for the global imports). More important, both import lists contain more high value products than the lists of fastest-growing American exports to China and worldwide.

Interestingly, the list of sectors where imports from China have fallen fastest contains lots of low-value goods, along with electronics ranging from consumer sectors to semiconductors. Moreover, in every one of the sectors, these imports from China have fallen faster than U.S. imports worldwide (indicated inside parentheses), strongly indicating that America-based businesses have been changing their sourcing practices.:

1. Miscellaneous women & girls’ outerwear: -56.72 percent (-51.5 percent)

2. Tires & tire parts: -30.04 percent (-0.9 percent)

3. Semiconductors & related devices: -29.28 percent (-6.4 percent)

4. Computer parts: -19.17 percent (-12.3 percent)

5. Women & girls blouses & shirts: -19.02 percent (-12.1 percent)

6. Audio & video equipment: -14.95 percent (-5.3 percent)

7. Computer storage devices: -12.31 percent (-3.1 percent)

8. Miscellaneous footwear: -8.24 percent (-4.9 percent)

9. Women & girls’ dresses: -6.71 percent (-1.9 percent)

10. Men’s footwear (non-athletic): -4.45 percent (-0.5 percent)

How does this list compare with that of those U.S. global goods imports with the slowest growth rates between the first six months of last year and the first six months of this year? Here’s that list:

1. Medicinal and botanical drugs and vitamins: -39.4 percent

2. Computer parts: -12.3 percent

3. Women’s and girls’ blouses/shirts: -12.1 percent

4. Primary smelted non-ferrous metals: -8.8 percent

5. Men’s and boys non-work shirt shirts: -8.3 percent

6. Non-costume jewelry: -6.7 percent

7. Semiconductors and related devices: -6.4 percent

8. Audio and video equipment: -5.3 percent

9. Jewelers materials/lapidary work: -4.1 percent

10. Aerospace products: -3.4 percent

Both lists look like oddly mixed bags. But whereas the China list contains just one industry widely considered to be crucial to America’s economic future, along with its national security (semiconductors), the global list includes aerospace along with semiconductors.

Finally, where have America’s fastest-growing merchandise trade deficits with China been? The list below shows a highly diverse mix of industries. The asterisked sectors are those in which trade surpluses have decreased:

1. Switchgear & switchboard apparatus: +365.30 percent

2. Malt & beer: +80.29 percent*

3. Electricity measuring & testing instruments: +71.39 percent*

4. Primary smelted & refined copper: +56.71 percent*

5. Printed circuit assemblies: +49.75 percent

6. Industrial valves: +43.72 percent

7. Plastic floor coverings: +42.55 percent

8. Miscellaneous grains: +30.82 percent

9. Broadcast & wireless communications equipment: +29.14 percent

10. Goods returned from Canada: +28.75 percent

In terms of manufacturing, and advanced manufacturing, sectors versus lower-value sectors, this China list looks slightly less worrisome in competitiveness terms than the global list below:

1. Non-diagnostic biological products: +856.00 percent.

2. Switchboard and switchgear apparatus: +437.35 percent

3. Oil and gas field machinery and equipment: +130.00 percent

4. Iron and steel: +76.25 percent

5. Surgical appliances and supplies: +71.55 percent

6. Printed circuit assemblies: +47.08 percent

7. Crude oil and natural gas: +45.30 percent

8. Primary aluminum: +42.73 percent

9. Turbines and turbine generator sets: +39.46 percent

10. Copper and nickel ores: +35.96 percent

Needless to say, over longer periods of time, China has significantly closed the competitiveness gap with the United States, and has done so faster than the rest of the world. Over the last year, however, these trade data indicate that China has gained little, if any, ground, by either measure. Holding the competitiveness line, vis-a-vis China or vis-a-vis other trade competitors, is certainly a better performance than the United States generally has registered recently. But it’s doubtful whether many Americans would agree that it’s good enough.    

(What’s Left of) Our Economy: NAFTA’s Been a Bust for U.S. Agriculture

Tags

Agricultural Policy Analysis Center, agriculture, Canada, Daryll E. Ray, free trade agreements, Harwood D. Schaffer, Mexico, NAFTA, North American Free Trade Agreement, Trade, Trade Deficits, trade surpluses, University of Tennessee, {What's Left of) Our Economy

Few beliefs about the North American Free Trade Agreement (NAFTA) are more solidly entrenched than the conviction that the deal has been a slam dunk winner for American farmers. Perhaps the most important believer now? President Trump. Last spring, he acknowledged that he shelved his plan to scrap the agreement after his Agriculture Secretary showed him data indicating that an American withdrawal would hammer many of the states and counties that voted him into the White House.

There’s just one major problem – the data say otherwise. Indeed, according to the U.S. International Trade Commission’s invaluable Trade Dataweb interactive database, American agriculture runs a sizable trade deficit with Canada and Mexico combined, and the gap has ballooned during the deal’s lifetime. Moreover, the statistics make clear that Washington’s trade policies overall have done nothing to bolster the U.S. farm sector’s international fortunes – at best.

The best apples-to-apples (no pun intended!) data date from 1997 – when the U.S. government began using the North American Industry Classification System (NAICS) as its main tool for slicing and dicing the American economy analytically. And although NAFTA went into effect at the beginning of 1994, the post-1997 figures represent a nearly complete data set.

In 1997, U.S. agriculture ran a trade deficit with its NAFTA partners of just under $877 million. By last year, the shortfall had swollen to nearly $6.77 billion. Mexico has been the big problem; during this period, American farm trade across the southern border deterioriated from a surplus of just under $353 million to a deficit of more $5.83 billion. The U.S. agriculture trade performance with Canada has actually improved, with its deficit shrinking from 1997 to 2016 from $1.22 billion to $940 million. Still, American agriculture is in deficit with its northern neighbor all the same.

But maybe as bad as these numbers are, American farm trade under NAFTA has fared better than American farm trade globally? Unfortunately, there’s no evidence for that proposition, either. Between 1997 and 2016, the U.S. worldwide agriculture trade balance worsened also. But it actually worsened less – with a surplus that shrank from $15.79 billion to $10.79 billion – than the balance with the NAFTA partners.

Surely, however, America’s other free trade agreements have more than compensated for the NAFTA-related losses? If only. According to the Trade Dataweb, in 1997, the United States ran a trade deficit with these countries of $1.99 billion. By 2016, this figure had soared to $8.91 billion. That’s about as bad a record as NAFTA farm trade has compiled.

Of course, American agriculture is a large sector of the economy. (Although it’s not that large: In current dollar value-added terms, it only represented 0.86 percent of the gross domestic product in 2016. Manufacturing, by contrast, comprised 11.71 percent.) Moreover, trade performance has varied greatly by specific crop or product.

For example, between 1997 and 2016, the American corn trade surplus with Mexico skyrocketed more than seven-fold, to just under $2.60 billion. The soybean surplus jumped nearly ten-fold, to $1.02 billion. And major gains have also been recorded in non-poultry meat, poultry, wheat, dried and condensed dairy products, and many other sectors. With Canada, the big U.S. agriculture winners have been mainly fruits and vegetables, as well as wines and spirits.

The big agriculture losers in Mexico trade have been – interestingly – fruits and vegetables, along with liquor and beer. With Canada, sectors with big or big and rapidly rising surpluses have been led by miscellaneous oil seeds products where the deficit has soared more than seven-fold, to $2.27 billion), followed by fish of all kinds (where the trade gap has more than tripled, to $1.34 billion), cattle, and frozen fruits, juices, and vegetables.

Overall, though, the message sent by the data could not be clearer: The idea that NAFTA has been a bonanza for U.S. agriculture needs to be put out to pasture. And far from adopting a “don’t rock the boat” posture, it’s high time for the Trump administration to start identifying fixes.

P.S. I was first alerted to these adverse trends in U.S. farm trade by the excellent research of Harwood D. Schaffer and Daryll E. Ray of the Agricultural Policy Analysis Center at the University of Tennessee.