Posted on 10/20/2004 2:40:59 PM PDT by Willie Green
For education and discussion only. Not for commercial use.
If you think Pedro Martinez' numbers against the New York Yankees look bad (and they do), they're nothing compared with the government's latest monthly trade figures. Dismal as the Boston Red Sox ace's performance against the Bronx Bombers has been, he looks like a champion next to the trade numbers, which are one important measure of the U.S. economy's performance against the rest of the world.
Not that the trade surplus and deficit figures tell us everything we need to know about America's competitiveness. In particular, they compare apples and oranges – how U.S. products fare in overseas markets versus how foreign products do in U.S. markets. And even studying the trade figures industry by industry can be misleading. By definition, they can't shed light on which U.S. industries depend how heavily on exports and/or face major foreign competitors, and which U.S. industries sell mainly to the humongous U.S. market and/or face little import competition.
Still, according to mainstream economic theory, these trade balance figures say a great deal about the relative strength of America's economy, whether it is waxing or waning, and what its future composition will be. The reason? What a country trades most successfully – where it wracks up its biggest surpluses - eventually becomes what it makes most successfully and prolifically. And what it trades least successfully – where it wracks up its biggest deficits - eventually becomes what it makes least successfully and prolifically. That, in plain English, is what comparative advantage in all its forms is all about.
The deficits also show that the United States is a country that consumes far more than it produces. Although the economic price for this profligacy has appeared minor so far, anyone expecting the situation to last forever and is blasé about its worsening must believe there really are free lunches after all.
The August, 2004 trade figures released Oct. 14 by the Census Bureau show an overall U.S. deficit in goods and services of $54.04 billion, second all-time only to June´s $55.2 billion. This year´s January-August deficit level, as a result, is more than 19 percent larger than last year´s, meaning that the annual deficit figure is on its way to smashing last year´s $421 billion record total.
Even worse, the U.S. deficits keep soaring despite the soft patch recently encountered in domestic growth, and the gradual continued weakening of the dollar. The first is supposed to keep imports down and the second is supposed to buoy exports, but little of these macroeconomic effects are being felt.
Further, the closer one examines the deficit figures, the worse they look. Remember the rule that what a country trades most successfully it will wind up making most successfully? Well, by this logic, the United States doesn´t have much of a long-term future as a manufacturer. August´s manufacturing deficit was the second highest on record, and this year´s cumulative manufacturing deficit so far is more than 21 percent higher than last year´s January to August record total of $307.45 billion.
And don´t think that the problem is concentrated in so-called dinosaur, smokestack industries – which, incidentally, create most of America´s best-paying jobs on average. The $4.5 billion August deficit in advanced technology products set a new record, too.
Of course, many supporters of current U.S. trade policies see no special value in maintaining a world-class domestic manufacturing at all. But the August trade figures should scare them, too. America´s longstanding surplus in tradable services shrank by 19 percent, to $3.2 billion – the lowest surplus since the Census Bureau began tracking this trade in 1992. Since 2001, moreover, the January-August service surplus has declined a stunning 27 percent, to $33.07 billion. Still think that we can export our way out of our enormous national trade deficits and resulting debts by speeding up our shift to a service economy? Please!
Even more worrisome, much evidence indicates that the United States is also seeing its competitive edge erode in information technology and professional services – the supposed industries of the future, for which displaced manufacturing workers are supposed to reeducate and retrain themselves, and which America´s youth should target during their schooling.
The U.S. surplus in the “other private services” category, which captures trends in these sectors, did rise from $31.44 billion in the January-August, 2001 period to $33.15 billion in January-August, 2002. Since then, however, the surplus has fallen by 4.4 percent, including a fractional decrease in August, 2004, to $3.96 billion. In August, 2003, the surplus was $4.08 billion – 2.94 percent higher.
When America began losing older industries such as textile and apparel and steel, free trade cheerleaders predicted that the forces of comparative advantage would push the nation up the technology ladder to automobiles and ships and machine tools and consumer electronics. When these industries began faltering, Americans were told not to worry, for they would be freed up to concentrate on high tech goods like computers and semiconductors and aircraft and advanced telecoms equipment. When many of these industries began migrating en masse to high-income Japan and then low-income countries like China, professional services like law, engineering, and finance, and info-tech services like software writing were then declared the new economic future.
The latest trade figures show that these sectors won´t be saviors for the vast majority of America´s workforce, either – leaving two obvious alternatives. Americans´ comparative advantage will be in sales – hawking to each other the wares of other nations. Or maybe we´ll just all go back to the farm. But the only problem with that scenario is that farming is also under intensive attack from foreign competition.
The very act of government imposing tariffs skews the numbers. I ship over $10K per month to consumers overseas, and, at my customers' request, I almost never declare the true value of the goods on the forms. Why? They want to avoid tariffs. And yet these are the numbers the government relies upon to determine if there is a trade deficit.
Get a clue. Compare our standard of living to just about anywhere else and you will see that the US is winning the trade wars. That said, there are places, such as Bermuda, that are kicking our butt. Not with tariffs but with low taxation, a strong rule of law, enforced immigration, and an open and free economy.
Is it possible to have racial diversity, very little crime and virtually no poverty? Go to Bermuda and you will see exactly that. That's what an open, capitalistic system combined with a a few sensible laws strictly enforced will get you.
And please note those export figures do not include ag-products. Nor do they include Mexico.
None of which, as I pointed out, has changed the purchase price of the car. I'll bet I could go down the road proving the purchase price of a VW Beetle then equals a Kia or Hyundai now or a Cadillac DeVille then equals a Lexus Infiniti now. What HAS changed is the ability of the consumer to pay for it.
Are you making a "real income is falling" argument? Is that it?
And just how many of the folks there do their shopping at Wal-mart?
| Motor vehicle parts, not including engines | $6,813 |
| Automobiles | $2,999 |
| Motor vehicle engines | $1,773 |
| Trucks | $1,304 |
| Unshaped plastics | $436 |
| Motor vehicle engine parts | $403 |
| Plate, sheet & strip, steel | $300 |
| Air conditioning & refrigeration equipment | $287 |
| Bolts, nuts & screws | $188 |
| Furniture & fixtures | $176 |
I was about to laud this set of exports totalling $15 billion, when I visited the source page; the problem is the next table which shows $39 billion worth of imports from Canada to Michigan, leaving a difference of -$25 billion:
| Automobiles | $22,587 |
| Trucks | $7,968 |
| Motor vehicle parts, not including engines | $4,187 |
| Motor vehicle engines & parts | $1,310 |
| Synthetic rubber & plastics | $782 |
| Crude petroleum | $763 |
| Natural gas | $633 |
| Basic metal products | $375 |
| Aluminum, including alloys | $329 |
| Plate, sheet & strip, steel | $326 |
I don't know if this is representative of total trade for Canada/Michigan, but the massive deficit on this page doesn't convince me that we are pursuing wise policies.
Apparently, GMAC already has.
An increasing number of economists, including those with such clout as Milton Friedman,(http://www.hooverdigest.org/974/friedman.html) are saying that trade deficits aren't a big deal. Indeed, since the 70s, the economy has generally performed better in years when the trade deficit has increased as opposed to the years in which it shrank.
Regardless, though, a trade deficit, by any measure, is a small price to pay for free trade.
Not "desires". Needs. A car is a necessity unless you live in Washington or Manhattan. You can't choose not to have a car.
New cars have to compete with used cars and leases. If new cars could only be sold at 4 year terms, most people, balking at a $400+ monthly payment, would settle for a used car. So the six year term is an attempt to accomodate new car prices to the monthly budgets of most Americans.
What will you say when it's 7 or 8 year car loans ?
Taxes have destroyed the economy in Ohio. If Ohio wants to point fingers, it needs look no further than the Republican legislature in Columbus.
Ohio's tax rates are staggeringly high. It has an 8% sales tax, a 8.5% corporate income tax, and it is one of only a handful of states (12, I think) that allows municipalities to impose their own income tax--in Cleveland, for instance, the income tax is an additional 2%--and there is a ballot issue this fall to raise that tax!
Why are companies leaving Ohio? Free trade? That's garbage. Companies are leaving because they are taxed to death there and the economic model in the US is changing. In 1950, Cleveland had around 85 Fortune 500 companies based in the city. Now there is 11. All that is free trade, huh? Yeah, let's blame NAFTA for all of it. Right. It couldn't be stupid policies by the legislature or the city councils. Nope. It's all free trade.
If Ohio doesn't change its tune--and soon--there isn't going to be anything left except for the companies that use the natural resources of the area. Cleveland should thank its lucky stars that the largest salt mine in the United States sits under Lake Erie right off its shores--that might be the only employer left in the city in 20 years.
Cars are exactly desires. People choose to live beyond their means, which is why leases are so popular. Leases are stupid, but yet people can't sign them fast enough because it gives them a chance to drive a car that is far out of their price range.
Unfortunately, most people choose to live paycheck to paycheck and buy things that aren't within their means. If people can't afford a $400 a month car payment (high!), then don't buy an Infiniti or BMW or whatever. Buy a Ford Focus. Buy a Chevy Cavalier (or whatever it is they call the Cavalier now) or a Honda Civic. Problem solved.
And why exactly is the purchase of a new midsize sedan at a four year term out of the price range of more Americans now than in 1964 ?
The same thing I'm saying now, which is that if you are so convinced that people can't "afford" stuff, then you should be looking at household net worth figures, instead of the duration of consumer automobile loans.
I suppose this would be a good time for you to demonstrate your credentials, or provide support for your assertion.
Because there are more bells and whistles on cars now. Midsize sedans have GPS tracking and seat warmers and rear window defoggers and air bags and anti-lock brakes and leather seats and padded dashboards and five speed automatic transmissions and get 28 mpg and go for 100,000 miles without a tune up and all the rest.
That stuff costs money. People love to look back with fond memories at old cars (or anything else for that matter,) but those old cars were pieces of crap (and unsafe!) compared to the cars we have on the road now. All in all, we're a lot better off now than before.
While it's true that some people can't afford all of this stuff, there are other options--Ford Focus, Chevy Cavalier, Honda Civic, take your pick. As far as midsize goes, Kia and Hyundai make nice midsize cars for a comparatively inexpensive price.
And what do inflated real estate values have to do with real income ? It's real income that is relevant here. And GMAC has had to recognize that it is not what it was in 1964.
But as I pointed out, adjusted for inflation, a Kia costs pretty much what a VW Beetle cost in 1964. Car prices have been constant adjusted for inflation. Real income has not.
Please demonstrate that real income is lower now than in 1964. Thanks in advance.
Even on a Kia, though, you get things that you didn't get in a VW Beetle in 1964. You have to pay more for more things--that's just the way it goes.
A 1964 Beetle was a piece of crap. A Kia in 2005, while not the best car in the world by any stretch, is light years ahead of what a VW Beetle was in 1964.
I don't see your point. You're getting more. In life, a good rule of thumb is that you should expect to pay more when you're getting more.
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