(What’s Left of) Our Economy: A New Post-Virus Normal Emerging in U.S. Trade?

Tags

CCP Virus, coronavirus, COVID 19, goods trade, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

Back to the full-year 2022 trade figures today, and the focus is on this question: Is the structure of U.S. trade settling into to a somewhat stable post-CCP Virus pattern? That’s one possible conclusion that can be drawn from a detailed look at U.S. goods trade flows for full-year 2022 and comparing them with those of the year before, and then with those of 2019 – the last full pre-pandemic year.

What they show is that although this structure barely changed between 2021 and 2022, some sizable changes can be seen between 2019 and last year. The evidence comes from examining list of the products that have recorded the biggest trade surpluses and deficits during these years.

For data geeks, these lists are constructed from the U.S.government’s main system for slicing and dicing the economy by industry – the North American Industry Classification System (NAICS). The level of disaggregation used is the sixth – which in my view enables the clearest and most conveniient way to distinguish between final products (on the goods side of the economy) and their parts and components. With so much production of so many manufactures in particular still so globalized, that’s a crucial distinction. All specific amounts are presented in billions of pre-inflation dollars.

Finally, the numbers for the civilian aeropace sector (whose trade flows are enomous) are kind of funky, because the Census Bureau that gathers the data has been inconsistent in lumping all these numbers together and breaking them down into aircraft and the various types of aircraft parts.

That said, let’s start with the twenty categories that ran up the biggest trade surpluses in 2022 and the magnitude of those surpluses:

aircraft:                                                                           $90.53

natural gas:                                                                     $75.14

petroleum refinery products;                                          $60.51

misc special classification:                                              $35.51

soybeans:                                                                         $34.00

plastics materials and resins:                                           $23.16

waste and scrap:                                                               $20.82

corn:                                                                                 $18.59

non-anthracite coal & petroleum gases:                          $16.44

used or second hand merchandise:                                    $9.38

cotton:                                                                                $9.10

semiconductor machinery:                                                 $9.09

wheat:                                                                                 $7.82

non-poultry meat products:                                                $7.60

motor vehicle bodies:                                                          $7.21

non-aluminum non-ferrous smelted/refined metal:             $6.91

petrochemicals:                                                                    $5.66

tree nuts:                                                                               $5.61

semiconductors and related :                                                $5.59

copper, nickel, lead & zinc:                                                  $5.5

Now here are their counterparts in 2021:

civilian aircraft, engines, and engine parts:                        $79.89

natural gas:                                                                          $54.55 

soybeans:                                                                             $27.07

petroleum refinery products:                                               $26.29

special classification :                                                         $24.90

waste and scrap:                                                                  $21.39

plastics materials and resins:                                               $18.78

corn:                                                                                     $18.58

semiconductor machinery:                                                   $12.21

semiconductors and related devices:                                   $10.62

non-anthracite coal and petroleum gases:                             $9.29

used or second-hand merchandise:                                       $8.56

non-poultry meat products:                                                   $7.83

motor vehicle bodies:                                                            $6.95

wheat:                                                                                    $6.87

cotton:                                                                                    $5.76

copper, nickel, lead and zinc:                                                $5.46

tree nuts:                                                                                $4.69

prepared or preserved poultry:                                              $4.54

miscelleaneous inorganic chemicals:                                    $4.05

What jumps out is how similar these two lists are. In fact, 18 of the biggest surplus sectors for 2021 earned the same distinction in 2022. Even the order of the two lists is strikingly similar. No individual sector moved more than two rungs up or down in the rankings. And even the two 2021 biggest surplus winners that didn’t make the 2022 list, they came awfully close, with prepared or preserved poultry ranking twenty first in 2022 and miscellaneous organic chemicals ranking twenty fourth.

And don’t forget this head-scratcher: Between 2021 and 2022, a trade deficit in non-aluminum non-ferrous smelted and refined metals of $484 billion turned into a $6.91 surplus!

Very similar top twenty results emerge from the 2021 and 2022 lists of sectors with the biggest trade deficits for those years. Here’s the 2022 list:

autos and light trucks:                                                      $112.98

broadcast and wireless communications equipment;         $93.76

goods returned from Canada:                                             $90.79

computers:                                                                          $82.93

crude petroleum:                                                                $81.28

pharmaceutical preparations:                                             $66.02

female cut and sew apparel:                                               $47.85

male cut and sew apparel:                                                  $39.07

footwear:                                                                            $34.56

audio and video equipment:                                               $34.26

iron, steel, ferroalloy steel products:                                  $33.34

miscellaneous motor vehicle parts:                                    $31.17

dolls, toys and games:                                                        $30.79

printed circuit assemblies:                                                 $29.90

major household appliances:                                             $21.08

miscellaneous electronic components:                              $20.99

miscellaneous plastics products:                                       $20.03

storage batteries:                                                               $19.13

aircraft engines and engine parts:                                     $18.34

motor vehicle electrical and electronic equipment:          $17.67

And the top (bottom?) twenty for 2021:

goods returned from Canada:                                           $96.13

autos and light trucks:                                                      $95.84

broadcast and wireless communications equipment:       $80.02

computers:                                                                        $79.08

crude petroleum:                                                               $63.69

pharmaceutical preparations:                                            $63.57

female cut and sew apparel:                                              $40.98

audio and video equipment:                                              $34.34

male cut and sew apparel:                                                 $29.82

miscellaneous motor vehicle parts:                                   $28.91

dolls, toys and games:                                                       $26.67

printed circuit assemblies:                                                 $26.57

iron and steel and ferroalloy steel products:                      $26.21

footwear:                                                                            $25.81

major household appliances:                                             $20.84

miscellaneous plastics products:                                        $20.51

jewelry and silverware:                                                      $17.77

motor vehicle electrical and electronic equipment:           $16.09

curtains and linens:                                                            $15.23

aircraft engines and engine parts:                                      $14.06

Revealingly, the 2021 and 2022 lists are not only also very much alike each other. They’re alike in a big way very similar to how the surplus lists for the two yeasr are alike: Eighteen of the entries on the 2021 list are on the 2022 list.

The big difference: Movement up and down the ranks was somewhat greater. Three sectors changed places by more than two rungs: footwear (which rose from fourteenth on the 2021 list to ninth in 2022; jewelry and silverware, which dropped from seventeenth to twenty-first; and curtains and linens, which tumbled from nineteenth to twenty-ninth – likely because the domestic housing sector slumped.

But the differences between the 2019 and 2022 lists are more substantial. Here are the former’s top twenty trade surplus winners:

civilian aircraft, engines, and parts:                                $126.02

petroleum refinery products:                                             $30.55

special classification provisions:                                       $24.51

natural gas:                                                                        $21.79

plastics materials and resins:                                             $18.80

soybeans:                                                                           $18.49

waste and scrap:                                                                 $13.07

non-anthracite coal and petroleum gases:                           $9.31

motor vehicle bodies:                                                         $ 9.20

semiconductors and related devices:                                   $9.01

used or second-hand merchandise:                                      $8.80

corn:                                                                                     $7.62

wheat:                                                                                  $5.85

tree nuts:                                                                              $5.10

computer parts:                                                                    $4.79

copper, nickel, lead and zinc:                                              $4.40

miscellaneous basic inorganic chemicals:                           $4.31

prepared or preserved poultry:                                            $3.79

in vitro diagnostic substances:                                            $3.27

surface active agents:                                                          $3.24

Here again, eighteen out of the 2019 entrants made it to the 2022 list. But there were quite a few more big movers and in two cases huge movers. No fewer than nine made shifts of more than two places, including motor vehicle bodies, which sank from nine on the former to 15 on the latter; semiconductors, which plummeted from tenth to nineteenth; corn, which rose from fourth to eighth; copper and the three other metals,which dropped from 16 to 20; miscellaneous inorganic chemicals, which fell from seventeenth to twenty-fourth; and surface active agents, which declined from twentieth to twenty sixth.

Much more dramatic, however, in computer parts, a $4.79 billion surplus turned into a $438 million deficit, and in in vitro diagnostic substances. a $3.27 billion surplus had become a ginormous $15.47 billion deficit by last year –no doubt mainly reflecting exploding demand for CCP Virus tests.

The differences between the 2019 and 2022 top twenty trade deficit sectors were noteworthy, but not quite so. Here are the results for 2019:

autos and light trucks:                                                      $125.47

goods returned from Canada:                                             $91.23

broadcast and wireless communications equipment:         $73.02

pharmaceutical preparations:                                             $62.24

crude oil:                                                                             $61.91

computers:                                                                          $59.44

female cut and sew apparel:                                               $42.07

male cut and sew apparel:                                                  $30.88

aircraft engines and engine parts:                                      $25.68

footwear:                                                                           $25.39

miscellaneous motor vehicle parts:                                   $23.21

audio and video equipment:                                              $22.36

non-diagnostic biological products:                                  $17.31

dolls, toys and games:                                                       $17.28

iron, steel and ferroalloy steel products:                           $16.95

printed circuit assemblies:                                                 $16.71

motor vehicle electrical and electronic equipment:           $14.36

non-engine aircaft parts:                                                    $14.33

major household appliances:                                              $14.12

miscellaneous plastics products:                                        $12.86

As with the surplus list, eighteen of the top twenty deficit 2019 showed up on the counterpart 2022 list. But whereas nine sectors made moves of more than two places between the coresponding surplus lists, that was the case for only six sectors in the deficit lists. They were iron, steel and ferroalloy products (fifteenth to eleventh); motor vehicle electrical and electronic equipment (seventeenth to twentieth); non-engine aircraft parts (eighteenth to fifty sixth); major household appliances (nineteenth to fifteenth); and miscellaneous plastics products (twentieth to seventeenth). In addition, the non-diagnostic biological substances went from a $17.31 billion deficit in 2019 to a $4.17 billion surplus in 2022! 

As with any economic developments coming out of the pandemic era, it may be way too soon to draw sweeping conclusions. So the structure of U.S. trade deficits and surpluses will be worth watching going forward. But it’s not too soon to ask whether these trends seem likely to benefit or harm the economy’s health longer term – or won’t matter much either way. And that will be the subject  of the upcoming final (for now) deep dive into the 2022 U.S. trade figures.        

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(What’s Left of) Our Economy: Why China Trade Will Long Remain a Loser for Americans

Tags

China, export-led growth, The Wall Street Journal, Trade, trade surpluses, Trefor Moss, Trump, {What's Left of) Our Economy

Since the United States decided to expand trade and commerce with China as fast as possible, numerous books and studies (including mine – see here and here) have tried to make the case first that this approach was certain to work out disastrously for the domestic economy, and later, that this scenario was actually unfolding.

If only when the major decisions were being made, or when they still could have been reversed relatively painlessly, could something like this new Wall Street Journal article have been published. For Trefor Moss’ report on China’s struggling export industries makes unusually clear that if pre-Trump presidents and Congresses (representing both Democrats and Republicans) truly tried to use trade policy to strengthen America’s productive core and its workers, facilitating business with China would have been one of their lowest priorities.

The reason, as Moss indicates: China’s economic strategy has always been so dependent on boosting exports much more than imports – in the words, on generating and increasing trade surpluses – that ever greater bilateral economic ties were never capable of creating more opportunities for domestic companies and workers than they wiped out.

Indeed, decades after Washington bipartisanly began to champion “coupling” the two countries, and throughout which Americans were constantly promised that China’s was going to become an economy driven more by domestic rather than by U.S. and other overseas demand, and therefore a huge winner for America on balance, Moss’ piece shows that these promises look more specious than ever. For even today, entire geographic regions of the People’s Republic and entire Chinese industries literally have nothing to do with supplying the needs and desires of Chinese customers, and everything to do with servicing foreign – and especially U.S. – markets.

Four particularly revealing observations in Moss’ article:

“Many of the products made [in the huge export hub of Yiwu], such as Christmas decorations and other low-cost, labor-intensive commodities, simply aren’t needed domestically in significant quantities. Only a small percentage of China’s 1.4 billion people are openly Christian, according to the U.S. human-rights group Freedom House.”

>”’Yiwu’s challenge is that the domestic market doesn’t have the stomach to consume all these products,’ said Dan Wang, chief economist at Hang Seng Bank China. ‘They’re not really suitable for domestic use.'”

>”Even getting products that Chinese people do want into domestic circulation will take time since Yiwu’s merchants lack local distribution connections, according to Andrew Batson, director of China research for Gavekal, a Hong Kong-based research firm.”

>”While consumption as a share of gross domestic product has risen over time in the U.S., reaching 68% in 2018, China’s has steadily declined to just 39%.”

Not explained by Moss, however, (and I’m not being critical here) is the fundamental explanation for this Chinese export orientation – and throughout the countries’ leading production cities and regions, not just Yiwu: It’s not simply a preference of the Chinese regime’s. It’s an iron necessity for achieving the country’s ambitious economic development goals, and as a result, for safeguarding China’s rulers paramount priority – keeping the populace happy enough to keep this dictatorship in power.

For as I pointed out most recently in this post, however much wealth it’s gained in recent decades, China’s population collectively still remains too poor by itself to fuel the growth needed to continue raising living standards robustly. Indeed, Chinese incomes have long remained so low in absolute terms that even after its lengthy run of spectacular progress, China still needs foreign incomes to fill the demand gap left by its inability to consume adequately.

In recent years, much of official Washington, and even the Swamp full of hangers on and consultants and lobbyists that surrounds it, have become aware that national security worries call for rethinking longstanding U.S. trade policies with China.  Moss’ article is a valuable reminder that the purely economic case for a trade policy reversal remain compelling, too.

(What’s Left of) Our Economy: Biggest Mid-Year U.S. Trade Winners & Losers II

Tags

CCP Virus, competitiveness, coronavirus, COVID 19, intermediate goods, manufacturing, supply chains, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

Last Friday, RealityChek launched its midyear 2000 review of U.S. trade flows – which speaks volumes about which parts of the economy have held up best and have been hit harrdest by the CCP Virus. Today, following that post’s look at the goods sectors that have racked up the biggest trade surpluses and deficits between January and June, 2019, and this January and June, we’ll examine which industries have seen their trade balances improve and worsen the most during this period, and how these lists compare with those of full-year 2019.

Three big takeaways here: First, in contrast to the lists of biggest trade surplus and deficit sectors presented last week, which featured surprisingly little change on a year-to-date basis, the lists showing the sectors where the biggest changes in trade balances took place revealed enormous turnover.

Second, although a majority of the industries that saw the greatest improvements in their trade balances were already running trade surpluses, a significant number (seven of the 22 that could be counted in this way) were industries running deficits. (Because figures for crude oil and natural gas are now reported separately, as opposed to being lumped together, no such conclusion was possible for them.) Even better, one sector – miscellaneous metal containers – turned its deficit into a surplus. One plausible interpretation is that most of the most globally competitive industries in the nation have retained competitiveness so far during the pandemic, and some have improved lagging competitiveness. All the same, clearly at work here, especially concerning the sectors whose deficits have shrunk markedly, are virus-related effects that may be relatively short-lived.

Third, although most of the 21 parts of the economy whose trade balances deteriorated the most were industries already in deficit – indicating that sectors in competitive trouble pre-CCP Virus remain in such trouble – eight were running trade surpluses. That pattern indicates that the virus has damaged them.

One methodological point that needs to be made right away: These “Top 20” lists both contain more than 20 entries because of confusion caused by apparent duplication for aerospace-related sectors in the government industry classification system I’ve used. So I decided to present any aerospace data that the government figures indicate belong in these Top 20s, but also added other sectors to maximize the odds that each list contains 20 sectors that truly qualify.

But before getting too deeply into the methodological weeds, here’s the list of the Top 20 sectors that generated the greatest improvements in their trade balances between the first six months of 2019 and the first six months of 2020, along with the percentage changes. And as mentioned above, their ranking on the comparable full-year 2019 list is included. Industries that didn’t make that 2019 list are indicated with a hyphen. Industries in surplus and deficit are identified with Ss and Ds, respectively.

biggest trade balance improvers                                                               2019 rank

1. miscellanous metal containers:       $91m deficit to $72m surplus              –

2 miscellaneous grains:                             +503.71 percent                             –   S

3. semiconductor production equipment:  +245.18 percent                             –   S

4. iron ores:                                               +234.48 percent                              –   S

5. electronic connectors and parts:            +144.56 percent                            –    S

6. gaskets, packing and sealing devices:   +103.91 percent                            –     S

7. semiconductors:                                      +86.87 percent                            1     S

8. animal fats and oils:                                +82.00 percent                            8     S

9. crude oil:                                                 +60.24 percent               (new category)

10. misc measuring & control devices:       +54.06 percent                           –      S

11. heavy duty trucks and chassis:              +48.74 percent                           –      D

12. aircraft parts & auxiliary equipment:    +43.89 percent                           –      D

13. specialty canned foods:                         +42.37 percent                          20     S

14. cheese:                                                  +40.06 percent                           13     S

15. misc non-ferrous smelted metals:         +37.01 percent                            –      S

16. construction machinery:                       +36.34 percent                            –      D

17. peanuts:                                                +36.12 percent                            –      S

18. autos and light trucks:                         +35.76 percent                             –     D

19. aircraft engines and engine parts:       +35.55 percent                             –      D

20. iron and steel products:                       +34.99 percent                            –      D

21. male cut and sew apparel:                  +33.37 percent                             –      D

22. pulp mill products:                             +33.16 percent                             –      S

Let’s return to the methodology briefly. All the statistics in these mid-year trade posts cover goods industries. Service industries are left out because the government database I rely doesn’t report on the latter, and because comparably detailed data won’t be released for a while.

This database is maintained by the the U.S. International Trade Commission, which enables users to access them with its terrific Trade Dataweb interactive search engine. The specific goods categories used are those of the North American Industry Classification System (NAICS) – the federal government’s main way to slice and dice the U.S. economy. And the level of disaggregation I’m using is the sixth, since it’s the level at which you can keep the numbers of sectors analyzed manageable, and at the same time make distinctions between final products on the one hand, and their parts and components on the other (vitally important given much more specialized manufacturing has become).

Aside from the substantial degree of turnover, one prominent feature of this list is its domination by intermediate goods. Parts, components, and materials used in the production of final manufactured goods, or the machinery used in that production, account for 15 of these 22 sectors. Perhaps it’s a sign that global supply chains have proven more resilient during the pandemic than is commonly supposed, and that U.S. links on these chains have been performing exceedingly well?

In addition, 17 of the 22 are manufacturing industries, compared with 16 of the 20 on last year’s list. That’s a step backward for fans of U.S.-based manufacturing, but not a big one.

Nevertheless, two of the sectors that have improved their trade balances most are in the aerospace sector, and regardless of classification issues, since both those industries are deficit industries, their performance undoubtedly reflects both the drastic reductions in air travel imposed due to the CCP Virus (which affect orders for imported engines, their parts, and other parts)nd these goods), as well as the troubles at Boeing, which also reduce demand for foreign-made inputs.

A third deficit manufacturing sector – men’s and boy’s apparel – has also surely seen its trade shortfall shrink because American consumers are buying so few of these largely foreign-made goods. (In an upcoming post looking at export and import changes, we’ll see if this domestic demand-related hypotheses holds any water.)

Now it’s time for the list of those sectors in which trade balances worsened the most.

biggest trade balance losers                                                                2019 rank

1. misc non-ferrous extruded metals:       -1,354.67 percent                 7      D

2. smelted non-ferrous non-alum metals: -1,254.08 percent                 1      D

3. farm machinery and equipment:             -404.19 percent                  –      D

4. miscellaneous textile products:              -399.55 percent                  –      D

5. computer storage devices:                      -271.11 percent                  –      D

6. jewelry and silverware:                            -98.97 percent                  –      D

7. non-diagnostic biological products:         -61.67 percent                16     S

8. computer parts:                                        -60.12 percent                  –      S

9. misc electrical equipment/components:  -50.76 percent                 15    D

10. misc apparel & apparel accessories:     -46.82 percent                   –     D

11. non-anthracite coal/petroleum gases:   -44.91 percent                   –      S

12. cyclic crude & intermediate products: -40.48 percent                   –      S

13. motor vehicle bodies:                           -39.49 percent                  –       S

14. computer storage devices:                   -39.07 percent                   –      D

15. civil aircraft, engines, equip, parts:     -36.95 percent                   –      S

16. medicinal/botanical drugs/vitamins:   -28.40 percent                   –      D

17. perfumes, makeup, and toiletries:       -28.19 percent                   –      S

18. communication and energy wire:        -25.63 percent                   –     D

19. power distribn/specialty transformers: -24.03 percent                  –     D

20. misc electronic components:               -23.92 percent                   –     D

21. corrugated & solid fiber boxes:           -23.61 percent                   –     S

Turnover here has been even greater than on the improvers’ list, with only four of the 21 sectors appearing on the full-year, 2019 list. And talk about manufacturing-heavy! Industry represents all of the sectors save one (non-anthracite coal and petroleum gases). That’s more than the 17 of 20 on the full-year 2019 list of trade deficit growers.

Moreover the dominance of intermediate goods industries (only four of the 20 manufacturing sectors – medicinal and botanical drugs and vitamins; perfumes, makeup, and toiletress, apparel and apparel accessories’ and jewelry and silverware) looks like evidence that not all such U.S. supply chain-related sectors have performed relatively well during the pandemic.

But neither actual deficits and surpluses nor how they’ve changed tell the whole story about the CCP Virus’ impact on American trade flows and competitiveness. The export and import flows that comprise them need to be examined, too, and they’ll both be coming up on RealityChek.

(What’s Left of) Our Economy: Biggest Mid-Year U.S. Trade Winners & Losers I

Tags

CCP Virus, coronavirus, COVID 19, goods trade, manufacturing, merchandise trade, recession, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

It’s June! Or it’s June at least according to the folks at the U.S. Census Bureau who track America’s international trade flows. And the arrival of this mid-year point means it’s a good time to see effectively various segments of the country’s economy are competing in the global economy, including here at home.

As with most of American life, this regular RealityChek exercise has been deeply affected by the arrival of the CCP Virus, and in particular, by the historic recession (and maybe depression) it’s triggered due to widespread lockdowns. But even though the figures below – which cover the nation’s goods industries but leave out services (because the government database I rely doesn’t report on the latter, and because comparably detailed data won’t be released for a while) are seriously distorted by the pandemic, they’re useful for three reasons.

First, they suggest which parts of the economy are holding up better and worse during a public health crisis the likes of which are, scarily, likely to recur more than once down the road. Second, the goods industries examined here (manufacturing, agriculture, minerals, and energy) have been affected less dramatically than most service industries, which depend heavily on various degrees of personal contact with customers. Therefore, the virus distortion isn’t nearly so great as might be initially supposed. Third, since all these goods sectors s have been affected by the CCP Virus, their trade performance could well reveal important information about their underlying strengths and weaknesses.

We’ll focus today on actual trade balances – deficits and surpluses – and how they’ve changed between the first half of last year and the first half of this year. As usual, the figures come from the U.S. International Trade Commission’s terrific Trade Dataweb interactive search engine. The goods categories used are those of the North American Industry Classification System (NAICS) – the federal government’s main way to slice and dice the U.S. economy. And the level of disaggregation I’m using is the sixth, since it’s the level at which you can keep the numbers of sectors analyzed manageable, and at the same time make distinctions between final products on the one hand, and their parts and components on the other (vitally important given much more specialized manufacturing has become).

One anomaly you may notice right away: Although these are both Top 20 lists, they each have more than 20 entries. The reason? Truly bizarre changes in the way the government reports results from the aerospace sector. Once upon a time, Washington used separate NAICS 6 categories for aircraft, non-engine aircraft parts, and aircraft engines and parts. Now they’re all being combined – except where they’re not! The best way I could think of to offset these inconsistencies was to include all the aircraft-related figures when they showed up in the Top 20, but add the twenty-first or twenty-second industry on that list to get the closest approximation of a real Top 20.

Let’s start with those parts of the economy that posted the biggest trade surpluses in the first half of 2020, the actual totals in billions of current (i.e., pre-inflation) dollars, and how this list compares with its counterpart from last year. A dash here means that that sector didn’t appear on the top 20 2019 list at all.

Top 20 2020 trade surpluses                                                          2019 rank

1. civilian aircraft, engines, equipment, parts:        $39.475b              –

2. petroleum refinery products:                               $16.138b              1

3. natural gas:                                                          $12.647b              –

4. other special classification provisions:               $10.927b               2

5. plastics materials and resins:                                $8.720b               3

6. waste and scrap:                                                   $6.403b               5

7. soybeans:                                                             $5.882b                4

8. semiconductors:                                                  $5.748b              12

9. corn:                                                                    $4.678b                9

10. used or second hand merchandise:                   $4.635b                7

11. non-poultry meat products:                              $3.388b              10

12. non-anthracite coal & petroleum gases:          $2.982b                 6

13. motor vehicle bodies:                                      $2.915b                 8

14. wheat:                                                             $2.847b                13

15. semiconductor production equipment:           $2.651b                 –

16. tree nuts:                                                         $1.890b               14

17. prepared or preserved poultry:                       $1.825b               17

18. invitro diagnostic substances:                        $1.653b               18

19. paperboard mill products:                              $1.621b               20

20. surface active agents:                                     $1.614b                –

21. computer parts:                                              $1.586b               15

What jumped out at me right away is that, with three exceptions, the top 20 (actually, top 21) for this year and the list last year were identical. Only three sectors – natural gas, semiconductor production equipment, and surface active agents were newcomers to the 2020 list. And shuffling around between these groups was pretty mimimal. Eight of the sectors either maintained their exact same rank between 2019 and 2020, or only moved one spot. Three more moved only two spots. Given the stunning disruption of life in the United States all around the world, those results seem remarkably stable – and indicate that this group of big American trade winners boasts impressive resilience.

From another vantage point, ten of the 21 sectors on the list were manufacturing industries. In 2019, manufacturing placed only eight representatives in the top 21. So for manufacturing fans (as everyone who’s hoping for enduring American prosperity should be), 2020 has been a year of progress so far.

Below are the goods sectors of the economy with the 21 biggest trade deficits.

Top 20 2020 trade deficits                                                           2019 rank

1. autos and light trucks:                                        $42.120b             1

2. goods returned from Canada:                            $39.008b             2 

3. pharmaceutical preparations:                            $34.867b              4

4. computers:                                                         $29.647b             5

5. broadcast & wireless communications equip:  $26.848b              3

6. smelted/ refined non-ferrous non-alum metal: $19.228b              –

7. miscelleaneous extruded non-ferrous metals:  $15.885b              –

8. women’s cut and sew apparel:                          $14.691b             6

9.crude oil:                                                           $13.658b              –

10. non-diagnostic biological products:              $12.486b            14

11. men’s cut and sew apparel:                              $9.706b              7 

12. printed circuit assemblies:                               $9.571b            15 

13. footwear:                                                         $9.276b              9

14. miscellaneous motor vehicle parts:                 $9.176b            10 

15. miscellaneous textile products:                       $8.892b             –

16. aircraft engines and parts:                               $8.709b             8

17. audio and video equipment:                            $8.107b            11

18. major household appliances:                           $6.801b             –

19. medicinal & botanical drugs & vitamins:       $6.651b             –

20. iron and steel products:                                   $6.460b             –

21.miscellaneous plastics products:                      $6.454b           20

One big difference between this list and the trade surplus list: Fully seven industries this year are newcomers. Even so, however, of the 13 sectors that made it onto both lists, shuffling was actually more limited as on the trade surplus list. Nine of them either held the same ranking or only moved one rung up or down the latter.

This trade deficit list, however, is much more manufacturing-heavy than the surplus list. In fact, it’s nearly twice as manufacturing-heavy, with such sectors accounting for 19 of the 21 on each A final, discouraging, difference: The trade deficits of the leading deficit industries are much bigger than the surpluses of the leading surplus industries. That’s a good reminder that even though the overall goods trade deficit (also called the merchandise trade deficit) is down 5.15 percent on a year-to-date basis so far, it was still more than $391 billion.  Similarly, although the manufacturing deficit is down 4.53 percent on a year-to-date basis, it’s still come in at $476.90 billion so far in 2020.  

But we’re far from finished analyzing the year-to-date trade flows. When it comes to trade balances, we still need to look at more dynamic figures – that is, at which sectors have seen the greatest improvements in their trade balances, and which have seen the greatest deterioration. And of course we can’t forget the export and import figures that comprise the trade balance data, and how they’ve changed between January and June of last year and January and June of this year. Keep checking in with RealityChek for those results!

(What’s Left of) Our Economy: Which Industries Were 2019’s Biggest U.S. Trade Winners & Losers?

Tags

Barack Obama, manufacturing, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

President Trump has set out to overhaul America’s trade policy, and RealityChek has presented abundant evidence showing that, from the proverbial 30,000-foot level and somewhat below, his years in office have seen impressive progress that’s laying the foundations for a healthier economy.

But what about the makeup of U.S. trade flows? Similar progress has been documented here in the recent leveling off of the still-enormous American trade gap in manufactured goods (despite the safety-related woes of aircraft giant and mega-exporter Boeing) and minimal growth in the Made in Washington trade deficit – the shortfall in those flows most strongly influenced by American trade policy decisions (i.e., which leave out oil and services trade).

At the same time, a detailed industry-by-industry examination of U.S. trade patterns reveals changes that have been more modest, though worth examining, especially when a reasonably obvious comparison is made with their counterparts during the last year of the Obama administration – which the President and his supporters (including me) view as a trade policy failure. Specifically, over these three years, the lists of the American industries that ran the biggest trade surpluses and deficits remained practically the same. By contrast, the lists of sectors that saw their trade balances improve or worsen to the greatest extent had almost nothing in common.

Let’s begin with one of Mr. Trump’s priority objectives – reducing the trade deficit. Despite the different look of aggregate deficits, one key measure of the industries winning and losing out most from trade looks remarkably similar last year to its appearance in the final Obama year, 2016. That’s the sectors of the U.S. economy with the biggest trade surpluses. Below are the Top 20 for 2019, in descending order. The magnitude of the 2019 surplus in value terms comes after the sector’s name, and the right-hand column shows how these industries ranked in 2016. Last year’s trade surplus champions that didn’t make the 2016 list are designated with a hyphen.

The categories come from the federal government’s North American Industry Classification System (NAICS), which has become Washington’s predominant system for slicing and dicing the domestic economy. They represent NAICS’ most granular level of disaggregation – the sixth level. And they leave out a catchall aerospace category that includes both planes and their parts – as opposed to many other NAICS-6 categories, which present the two separately.

Leading 2019 trade surplus sectors                                  2016 rank

1. petroleum refinery products: $30.71b                               1

2. special classification goods: $26.27b                                3

3. plastics materials & resins: 18.74b                                   4

4. soybeans: $18.46b                                                            2

5. waste and scrap: $13.11b                                                 5

6. non-anthracite coal & petroleum gases: $9.27b            16

7. used or second-hand merchandise: $9.16b:                  10

8. motor vehicle bodies: $9.12b                                         7

9. corn: $7.57b                                                                   6

10. non-poultry meat products: $7.36b                            11

11. cotton: +$6.23b                                                          14

12. semiconductors: +$5.91b                                            –

13. wheat: $5.84b                                                            13

14. tree nuts: +$5.10b                                                      15

15. computer parts: +$4.76b                                             9

16. misc basic inorganic chemicals: $3.88b                     –

17. prepared or preserved poultry: $3.75b                      18

18. in-vitro diagnostic substances: $3.39b                      20

19. surface active agents: $3.23b                                    19

20. paperboard mill products: $3.12b                              –

As the table makes clear, there’s been some reshuffling in this group, but not much. Indeed, 17 of the 2016 Top 20 made the 2019 Top 20, and all of the top five in 2016 were top five in 2019, though three of these industries switched orders. And the only major ranking changes occurred in non-anthracite coal and petroleum gases (which move up six places), and in computer parts (which moved down six).

Also of note: In 2016, eight of the Top 20 trade surplus sectors were manufactures, and this number rose to only nine in 2019. So despite the Trump administration’s focus on strengthening domestic manufacturing, little change is evident from this list of leading net exporters.

Yet very different results emerge from a different measure of trade excellence – the twenty industries that have seen their trade balances improved the most between 2018 and 2019, and between 2015 and that final Obama year 2016. Here, for three reasons, I’ve limited the total number of industries I’ve examined to the hundred biggest trade surplus and trade deficit industries.

First, these sectors represent the vast bulk of U.S. goods trade. Second, they enable a filtering out of the “small numbers effect” (that is, big percentage moves that are generated when sectors with small trade flows experiencing changes that are small in absolute terms but big in relative terms). Third, including the big deficit industries enables the identification of sectors whose trade shortfalls have shrunk the most – which on in trade accounting means just as much as boosting surpluses. (These sectors are the ones marked “DF,” for “deficits fell.”)

Just as with the first table, also presented here is where 2019’s biggest trade balance improvers ranked in 2016. And the big takeaway is that overwhelmingly, they didn’t rank at all. An amazing sixteen out of twenty sectors that improved their trade balances the most last year weren’t even on this Top 20 list just three years ago.

Leading trade balance improvers 2018-19                                       2016 rank

(including percentage changes)

1. semiconductors: +196.2 percent                                                         –

2. perfumes, makeup & other toiletries: +147.4 percent                        –

3. dental laboratories products: +120.0 percent                                     –

4. non-small arms ammunition: +79.8 percent                                      6

5. dried peas & beans: +60.4 percent                                                    7

6. carbon & graphite products: +55.9 percent                                      –

7. oil & gas field machinery & equip: +49.3 percent                           –

8. animal fats, oils & byproducts: +48.9 percent                                 –

9. petrochemicals: +44.9 percent                                                         1

10. computer storage devices: +42.7 percent                                    19

11. ships: +40.2 percent                                                                      –

12. misc chemicals: +35.1 percent                                                     –

13. cheese: +34.0 percent                                                                   –

14. potatoes: +33.6 percent                                                                 –

15. jewelry & silverware: +32.1 percent (DF)                                    –

16. search, navigation, detection instruments: +31.1 percent (DF)    –

17. printed circuit assemblies: +31.6 percent (DF)                            –

18. missile & space vehicle engines & parts: +30.0 percent             –

19. motor homes: +28.0 percent                                                        –

20. specialty canned foods: +27.6 percent                                         –

But also interesting – despite the extensive turnover, for both years, 13 of the twenty top trade balance improvers were manufacturing industries.

Maybe, however, the story is significantly different on the deficit side of the trade ledger? Not meaningfully. Below is a list of the twenty American sectors with the biggest trade shortfalls in absolute terms, in descending order. The actual deficits are included, too. In the right-hand column is their ranking on a similar 2016 table. And as with the surplus table above, that catchall aerospace category is excluded.

Leading 2019 trade deficit sectors                                                 2016 rank

1. autos & light trucks: $126.60b                                                        1

2. goods returned: $91.06b                                                                 4

3. broadcast & wireless communs equip: $73.74b                             3

4. pharmaceutical preparations: $62.36b                                            5

5. computers: $59.62b                                                                        6

6. female cut & sew apparel: $42.13b                                               7

7. male cut & sew apparel: $30.97b                                                   8

8. aircraft engines & engine parts: $25.68b                                     12

9. footwear: $25.62b                                                                        10

10. misc motor vehicle parts: $23.69b                                             11

11. audio & video equip: $21.71b                                                     9

12. dolls, toys & games: $17.37b                                                    13

13. iron & steel & ferroalloy products: $17.03b                             16

14. non-diagnostic biological products: $16.97b                             –

15. printed circuit assemblies: $16.75b 1                                         4

16. motor vehicle electrical & electronic equip: $14.63b              15

17. aircraft parts & auxiliary equip: $14.02b                                 18

18. light truck & utility vehicles: $13.19                                        –

19. misc plastics products: $13.03b                                                –

20. curtains & linens: $12.18b                                                       17

In this case, 17 of the 2019 Top 20 were in the 2016 Top 20. And the order hasn’t changed much, either – except arguably in the case of aircraft engines and engine parts, iron and steel and ferroalloy products, and curtains and linens. One major change does need to be noted, though: You may have observed that the second biggest trade deficit industry in 2016 didn’t make the 2019 list at all. That sector? Crude oil and natural gas, thanks to the U.S. energy production revolution of recent years.

All the same, the 2016 and 2019 lists of biggest trade deficit industries are pretty much…all the same. They’re also both manufacturing dominated, with that super-category accounting for 19 of the Top 20 deficit sectors in 2019 and 18 in 2016.

Turn to the industries whose trade balances have worsened the most (including sectors whose surpluses have declined), and you see a substantially different 2016-2019 comparison – but one strongly resembling that between the sectors whose trade balances have improved the most in 2016 and 2019: showing big-time turnover. (As with the biggest trade balance improvers’ list, the following are drawn from the hundred biggest trade surplus and trade deficit industries.) Those sectors whose surpluses fell are designated with (SF):

Leading trade balance “worseners”                                                      2016 rank

(including percentage changes)

1. non-aluminum, non-ferrous metal refining/extruding: +74.0 percent     1

2. semiconductor machinery: +70.8 percent (SF)                                       –

3. military armored vehicles & parts: +53.9 percent (SF)                          –

4. tobacco: +51.4 percent (SF)                                                                   –

5. electricity measuring & testing instruments: +50.8 percent (SF)          –

6. construction machinery: +47.4 percent                                                10

7. misc non-ferrous secondary smelting/refining: +47.3 percent (SF)     –

8, iron ores: +45.4 percent (SF)                                                                –

9. corn: +39.2 percent (SF)                                                                       –

10. non-reinforced plastic plate & sheet: +35.3 percent (SF)                   –

11. margarine & edible fats & oils: +34.6 percent (SF)                           –

12. timber & logs: +33.4 percent (SF)                                                     –

13. mobile homes & trailers: +30.5 percent (SF)                                    –

14. missiles, space vehicles & parts: +29.8 percent (SF)                        –

15. misc electrical equip & components: +27.4 percent                         –

16. non-diagnostic biological products: +23.1 percent                           –

17. aircraft engines & engine parts: +19.8 percent                                 –

18. light trucks & utility vehicles: +19.7 percent                                   –

19. chocolate & confectionary products: +18.4 percent                         –

20. fabricated structural metals: +17.2 percent                                     12

No fewer than 18 of the 20 sectors on the 2019 list don’t appear on the 2016 list. As for the two that did, construction machinery worsened its relative performance (moving up from the tenth worst sector in this respect to the sixth worst) and fabricated structural metals improved its relative performance (moving from the twelfth worst to the twentieth worst industry).

Of modest significance, though, for manufacturing: It accounted for only 15 of these Top 20 biggest trade losers in 2019, down from 18 in 2016.

The implications seem strikingly clear – though one is much more surprising than the other. The not-so-surprising conclusion: Because the supertanker of U.S. trade flows is so big, changing it dramatically is a long-haul affair. So industries that are the biggest trade losers and winners in 2016 can be expected to hold the same positions in 2019.

But on a more dynamic basis (improving and worsening trade balances) substantial change is possible in a three-year period – both for better and for worse.

Tomorrow we’ll turn from industries’ trade balances to how well these generalizations hold for the sectors with the most and the fastest-growing exports and imports.

Those Stubborn Facts: How Protectionism Pays at the WTO

Tags

China, Those Stubborn Facts, Trade Deficits, trade surpluses, World Trade Organization, WTO

Disputes brought against the United States since China joined the World Trade Organization*: 99

Share of total disputes brought to the World Trade Organization since China joined: 28.37%

Disputes brought against China since China joined the World Trade Organization: 44

Share of total disputes brought to the World Trade Organization since China joined: 12.61 percent

U.S. cumulative merchandise trade balance since China joined the World Trade Organization:** -$9.509 trillion

China cumulative merchandise trade balance since China joined the World Trade Organization: +$3.028 trillion

*December, 2001

**2002 through 2018

(Sources: “How to Revive the WTO,” by Shang-Jin Wei and Xinding Yu,” Project Syndicate, December 11, 2019, https://www.project-syndicate.org/commentary/world-trade-organization-revive-appellate-body-by-shang-jin-wei-and-xinding-yu-2019-12; and calculated from “Net trade in goods and services (BoP, current US$) – China, United States,” DataBank, World Bank, https://data.worldbank.org/indicator/BN.GSR.GNFS.CD?locations=CN-US)

(What’s Left of) Our Economy: The Chamber’s “Trade Works” Campaign is Clearly Hoping that Trade Fakery Works

Tags

exports, imports, recovery, states, tariffs, Trade, Trade Deficits, trade surpluses, Trump, U.S. Chamber of Commerce, {What's Left of) Our Economy

The U.S. Chamber of Commerce is at it again: It’s launched a public relations campaign to strengthen American support for conventional trade liberalization policies (or at least to weaken support for President Trump’s increasing resort to tariffs to overhaul these policies). Its campaign focuses on how the old trade status quo was benefiting the U.S. economy. It’s using “state-by-state analysis to argue that Trump is risking a global trade war.” And as usual, it’s pretending that national and state trade flows (and their employment effects) consist of and stem only from exports.

Also as usual – there’s an excellent reason for the Chamber to resort once again to such intellectual dishonesty. Since the nation as a whole is running a huge and rising trade deficit that has cut into the subpar economic growth generated by the current expansion, it’s practically inevitable that the great majority of the fifty states have seen worsening trade balances significantly slow their recoveries as well.

And thanks to the Commerce Department, which tracks individual states’ merchandise exports and imports, it’s easy to see just how greatly the trade losers outnumber the trade winners. (State-level data on much smaller flows of services exports and imports are not available.) 

Specifically, from the year the current recovery began (2009) through last year, 26 states have seen their merchandise trade deficits increase, two have seen such trade surpluses fall, and in five, goods surpluses have turned into deficits. So in all, trade has dragged on growth during the recovery for 33 of the 50 states.

Of the 17 states that have improved their trade performances during this period, five have seen their deficits shrink, six have generated higher surpluses, and six have turned deficits into surpluses.

These data thoroughly debunk the claim made by the Chamber’s campaign that “Trade Works. Tariffs Don’t.” So it’s clear that what this pillar of the Offshoring Lobby is actually counting on is that trade fakery works.

(What’s Left of) Our Economy: A U.S. Trade Figures Update with a Special Focus on China & Trump “Foe” EU

Tags

Canada, China, EU, European Union, exports, goods trade, high tech goods trade, imports, manufacturing, merchandise trade, services trade, tariffs, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

The May U.S. trade figures are no longer exactly new, having been released July 6. But with a big round of U.S. tariffs just imposed on China, and many more possibly on the way (along with automotive trade curbs that would affect most major U.S. economic competitors), they’re still incredibly newsy. So here’s a quick rundown of some highlights closely related to recent headlines, starting with the China figures.

>The enormous American goods trade deficit with China shot up by 18.68 percent sequentially, from $27.96 billion to $33.19 billion. The May shortfall was the biggest since January ($35.95 billion) and the increase was the greatest since May, 2016 (19.49 percent).

>The widening of the trade gap was largely driven by a 14.56 percent monthly jump in U.S. merchandise imports from China, to $43.80 billion.

>That level was also the highest since January ($45.79 billion) and the increase was the biggest since March, 2015 (30.33 percent).

>U.S. goods exports to China rose on month by only 1.69 percent, to $10.61 billion.

>Year-to-date, the merchandise deficit is running 9.92 percent higher than last year’s rate – which resulted in a record $375.58 billion bilateral shortfall.

>Also, year-to-date, U.S. goods exports to China have increased by 7.79 percent, while the far larger amount of imports is up by 9.36 percent.

>The trade figures for another competitor in President Trump’s cross-hairs, the European Union (EU) tell a different story. In May, the goods trade deficit with this grouping – labeled a trade “foe” by Mr. Trump – declined by 8.57 percent, from $14.64 billion to $13.39 billion.

>U.S. merchandise exports to the EU advanced by 4.34 percent sequentially in May, to $27.97 billion, and American sales to the group have been improving steadily since November. Indeed, on a year-to-date basis, they’ve improved by a healthy 14.02 percent.

>The merchandise deficit, however, has risen by 14.77 percent year-to-date as of May, with the larger amount of imports up nearly as fast: 14.27 percent.

>The U.S. goods deficit with Canada, another country that has drawn Mr. Trump’s ire, nearly doubled on month in May, from $806 million to $1.50 billion. But because this shortfall has fallen to such low levels in recent years, largely because of reduced American energy imports, these figures now tend to be volatile.

>U.S. merchandise exports to Canada – still America’s largest single country trade partner – increased 4.42 percent on month in May, to $26.81 billion, while goods imports rose by 8.53 percent, to $28.31 billion

>But although that import figure was the highest such monthly total since December, 2014’s $28.83 billion, the year-to-date American bilateral merchandise deficit has plummeted by 40.78 percent, from $9.78 billion to $6.08 billion.

>U.S. goods exports to Canada year-to-date are up by 4.98 percent, as of May, and goods imports have risen by 6.02 percent.

>U.S. global trade flows set a series of multi-month bests and all-time records in May.

>The combined May goods and services deficit fell by 6.57 percent sequentially to $43.05 billion – the lowest such total since October, 2016’s $42.64 billion.

>The goods deficit declined by 3.77 percent on month to $65.79 billion – the lowest since last August’s $65.49 billion.

>On the services side, the May surplus of $22.74 billion bested the April result by 2.04 percent, and fell just short of the record $22.77 billion recorded in February, 2015.

>Total exports, which rose sequentially by 1.94 percent, to $215.33 billion, hit their fourth straight monthly record.

>U.S. goods exports, which increased on month by 2.62 percent, to $144.89 billion, set their third straight such record.

>U.S. services exports, which advanced by 0.56 percent, to $70.44 billion, set their 13^th straight monthly record.

>U.S. non-oil goods exports (pre-inflation) in May climbed by 2.75 percent on month, to $129.98 billion, and set their third straight monthly record.

>U.S. current dollar oil exports inched up by 0.77 percent sequentially in May, to $14.18 billion – the second best performance on record after December, 2013’s $14.27 billion.

>The immense American manufacturing trade deficit in May continued its march toward the $1 trillion-dollar annual mark, and a new yearly record.

>The May manufacturing trade deficit totaled $85.05 billion – its fourth all-time highest, and an increase of 8.95 percent sequentially.

>Manufactures exports improved on month by 4.89 percent, from $96.72 billion to $101.45 billion. But the much greater amount of manufactures imports increased even more – by 6.71 percent, from $174.79 billion to $186.50 billion.

>Year-to-date, the manufacturing trade shortfall reached $397.48 billion in May – 11.89 percent higher than the comparable level in 2017, when the gap finished the year at $929.14 billion.

>Year-to-date manufacturing exports have increased by 7.38 percent, but imports are 9.27 percent higher.

>America’s trade deficit in advanced technology products also keeps heading to a new annual record.

>On month, the chronic shortfall in this category rose by 8.44 percent, to $10.32 billion.

>That increase brought the year-to-date deficit to $45.37 billion –32.62 percent higher than the comparable total last year, when this full-year trade gap reached $110.93 billion.

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

Tags

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.

(What’s Left of) Our Economy: Why Trump was Still Right to Nix Obama’s TPP Trade Deal

Tags

Asia, Barack Obama, bilateral trade agreements, China, export-led growth, mercantilism, multilateral trade agreements, non-tariff barriers, rules of origin, subsidies, tariffs, tech transfer, TPP, trade surpluses, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

At first I was irritated with President Trump for his expressions of interest this year in reviving U.S. efforts to join the Trans-Pacific Partnership (TPP) – the Pacific Rim-wide trade agreement that former President Barack Obama couldn’t persuade Congress to ratify, and that Mr. Trump removed from America’s policy agenda during his first week in office.

I still wish the President had kept the TPP consigned to the proverbial ash heap of history. But I do see one silver lining in his apparent about-face: the new opportunity it creates to remind how awful the Obama TPP was, and in particular how cynical the case that it represented a masterful ploy to contain the rise of Chinese power regionally and globally, and even shape it to serve America’s goals of sustaining an open world trading system.

In fact, it’s entirely possible that Mr. Trump’s apparent new openness to TPP results at least partly from widespread claims from mainstream politicians and analysts that its multilateral nature endowed the deal with much more potential to curb China’s trade predation than the unilateral tariffs he’s announced.

Yet this contention is the one that’s most easily refuted. First, the version of the treaty signed by Obama contained a wide open back door for many Chinese exports by allowing goods that contained high levels of content produced outside the TPP zone to be traded freely within the zone. Given how central China is to Asia-wide production chains, these loose rules of origin were bound to enable China to enjoy crucial benefits created by the TPP without incurring any of the obligations.

Second, until the eve of its departure from office, neither the Obama administration nor any TPP supporters in Congress or the mainstream media or the think tank world lifted anything more than the occasional pinky even to protest perhaps the principal source of China’s rising economic and military power – the massive transfer of cutting edge knowhow, along with capital, from U.S. tech companies to Chinese business partners or other institutions, either voluntarily (including through shortsighted training programs and investments in Chinese entities) or involuntarily (due to Beijing’s widespread practice of linking access to the China market to the handover of critical technology).

The sudden transformation of these corporate panda-huggers and their hired American guns into China skeptics and even hawks has demonstrated nothing more than that national security is the last refuge of a trade policy scoundrel – especially since by all accounts, U.S. technology and investment continue pouring into China – including defense-related tech. (See here and here for some evidence.)

Third, there’s no reason to believe that most of the other key TPP members have any interest in turning China into a free-trading economy. Quite the contrary. Whether it’s Japan or Singapore or Vietnam or Malaysia, most of the treaty’s most important countries have followed China-style economic development models (except when they’ve borrowed from Japan’s somewhat different but of course much earlier blueprint). And economic openness emphatically isn’t in the recipe. What’s central to these strategies is amassing trade surpluses with the United States and the rest of the world to help generate adequate levels of growth and employment.

The bottom line: Most TPP countries knew that effective disciplines on the trade predation largely responsible for China’s surpluses could be used against their own subsidies and non-tariff barriers. Conversely, it’s surely the reason that these economies accepted the paper curbs on mercantilism that are mandated by TPP. They’re rightly confident that thanks to the secretive bureaucracies that keep their economies effectively closed – and their barriers difficult for outsiders even to identify, much less litigate – none of these curbs is remotely enforceable.

Even better for TPP’s mercantile majority, the treaty’s dispute-resolution system ensured that the United States would be repeatedly outvoted when it sought to advance or defend its interests.

That’s why the TPP was so likely to supercharge America’s already enormous and economically damaging trade deficits. The TPP mercantilists’ liberalization promises would do nothing substantial to open their markets and increase U.S. export opportunities. But America’s TPP commitments, carried out by a government characterized by transparency, would be very effective guarantees that the American market would remain wide open to the TPP majority’s products.

President Trump has demonstrated that he recognizes many of these fatal flaws in the Obama TPP. His stated preference for bilateral over multilateral trade deals suggests an understanding that the former give the United States much more legal authority in dispute resolution. Moreover, he has explicitly tweeted that he’d only back rejoining the TPP if major fixes were made.

Precisely because he’s the only American President in recent memory to show any interest in changing the nation’s ill-considered trade status quo, and any awareness that the United States retains ample leverage to achieve its trade objectives unilaterally, I can’t rule out the possibility that Mr. Trump might turn TPP into a winner for the U.S. domestic economy (as opposed to the importing and offshoring lobbies).

But the main lesson that should be taken from decades of American trade diplomacy with Asia is that economies structured to promote exports and limit imports are going to stay substantially closed no matter what promises they make. Therefore the best course for the United States to make is to expend its energy and resources on reducing its economic engagement with Asia, rather than trying to remake the region in anything like its own image.