1) In light of the US Mexico Canada Agreement (USMCA) I thought it might be relevant to re-up a portion of an older thread.
One that discusses trade deficits and under-employment.
Examples are inherently simplistic but many seemed to find this useful.
One that discusses trade deficits and under-employment.
Examples are inherently simplistic but many seemed to find this useful.
2) President Trump is attacking long-standing trade inequities as a means to revitalize our domestic manufacturing capacity.
A re-balancing of our entire trade policy.
A re-balancing of our entire trade policy.
3) The Balance of Trade – or Trade Balance – is simply the value of exports minus the value of imports.
A Trade Surplus means the Value of Exports exceeds the Value of Imports.
A Trade Deficit means the Value of Imports exceeds the Value of Exports.
A Trade Surplus means the Value of Exports exceeds the Value of Imports.
A Trade Deficit means the Value of Imports exceeds the Value of Exports.
4) Country A exports 4 bags of chips and imports 3 bottles of beer.
Country B exports 3 bottles of beer and imports 4 bags of chips.
The price of chips is $2 and the price of beer is $3.
Country B exports 3 bottles of beer and imports 4 bags of chips.
The price of chips is $2 and the price of beer is $3.
5) The trade balance for Country A = Price of Chips * Bags of Chips – Price of Beer * Bottles of Beer
TB = ($2 * 4) – ($3 * 3)
TB = $8 – $9
Trade Balance = -$1
TB = ($2 * 4) – ($3 * 3)
TB = $8 – $9
Trade Balance = -$1
6) Country A is running a Trade Deficit of $1.
Conversely, Country B is running a Trade Surplus of $1 (Price of Beer * Bottles of Beer – Price of Chips * Bags of Chips).
Notably, the sum of Country A’s Trade Surplus and Country B’s Trade Deficit = $0.
Conversely, Country B is running a Trade Surplus of $1 (Price of Beer * Bottles of Beer – Price of Chips * Bags of Chips).
Notably, the sum of Country A’s Trade Surplus and Country B’s Trade Deficit = $0.
7) Country A is the U.S. & Country B is China.
China will be lending $1 to the U.S. in the scenario above.
The U.S. receives $9 worth of beer – plus $8 dollars worth of yuan for the chips sold to China.
China receives $8 worth of chips – plus $9 for the beer sold to the U.S.
China will be lending $1 to the U.S. in the scenario above.
The U.S. receives $9 worth of beer – plus $8 dollars worth of yuan for the chips sold to China.
China receives $8 worth of chips – plus $9 for the beer sold to the U.S.
8) The U.S. can trade its $8 in yuan for $8 of the $9 dollars China is holding from their transaction.
The remaining $1 in China’s possession is now a debt of the United States.
China has a $1 promise of future goods or services from the United States.
The remaining $1 in China’s possession is now a debt of the United States.
China has a $1 promise of future goods or services from the United States.
9) Assume this trade pattern is repeated – again and again.
Soon China has accumulated a large number of dollars – $1 for each transaction.
China will be forced to put these accumulated dollars to work by buying U.S. Treasury Bonds and/or U.S. stocks.
Soon China has accumulated a large number of dollars – $1 for each transaction.
China will be forced to put these accumulated dollars to work by buying U.S. Treasury Bonds and/or U.S. stocks.
10) China could also choose to buy factories – or other hard assets – in the United States but China has a surplus of workers.
China has an inherent motivation to purchase bonds and/or stock as opposed to physical assets.
China has an inherent motivation to purchase bonds and/or stock as opposed to physical assets.
11) This is what is meant by:
“foreign investment is the inverse of trade deficits”… “the bigger your deficit, the more foreign investment you get”.
“foreign investment is the inverse of trade deficits”… “the bigger your deficit, the more foreign investment you get”.
12) In the Short-Run there is nothing inherently bad about this practice.
China and the U.S. each get the goods they want – chips for China and beer for the U.S. – presumably at prices cheaper than the items could be manufactured at home.
China and the U.S. each get the goods they want – chips for China and beer for the U.S. – presumably at prices cheaper than the items could be manufactured at home.
13) There are several important inherent assumptions.
The country accumulating the debt is only better off if it’s using the proceeds for productive growth purposes.
We operate in a free & open market.
Displaced workers can transition to new, similar-paying jobs over time.
The country accumulating the debt is only better off if it’s using the proceeds for productive growth purposes.
We operate in a free & open market.
Displaced workers can transition to new, similar-paying jobs over time.
14) We have not had free markets for decades – if ever.
And we have been running a trade deficit since 1976.
And we have been running a trade deficit since 1976.
15) A sustained practice of running trade deficits leads to under-investment in those industries from which goods are being purchased abroad.
Expertise is lost, jobs are outsourced and entire industries can become effectively outsourced to other nations.
Expertise is lost, jobs are outsourced and entire industries can become effectively outsourced to other nations.
16) There are also some underlying problems.
Economists’ measures of benefit from trade are, by definition, net measures.
They calculate the increase in benefit to the nation as a whole – not to individuals.
Economists’ measures of benefit from trade are, by definition, net measures.
They calculate the increase in benefit to the nation as a whole – not to individuals.
17) But what happens when the benefits accrue to the few – while the many bear a disproportionate cost.
What happens when good-paying manufacturing jobs are “traded” for low-paying service sector jobs.
And are we adequately capturing that cost in our economic assessments.
What happens when good-paying manufacturing jobs are “traded” for low-paying service sector jobs.
And are we adequately capturing that cost in our economic assessments.
18) It’s easy to point to low unemployment as a counter to trade deficits.
If a trade deficit is “bad”, why is unemployment so low.
Unemployment provides a directional indicator of our economy’s health but it also masks some measurement flaws.
If a trade deficit is “bad”, why is unemployment so low.
Unemployment provides a directional indicator of our economy’s health but it also masks some measurement flaws.
19) We also need to focus on Under-Employment.
When people have been forcefully moved from higher paying jobs into service-sector oriented jobs that offer little in the way of advancement or higher income opportunities.
When people have been forcefully moved from higher paying jobs into service-sector oriented jobs that offer little in the way of advancement or higher income opportunities.
20) Here is some hard data to illustrate the under-employment problem.
In August 2018, the unemployment rate was 3.9 percent.
The number of unemployed persons was 6.2 million.
bls.gov/news.release/p…
In August 2018, the unemployment rate was 3.9 percent.
The number of unemployed persons was 6.2 million.
bls.gov/news.release/p…
21) The number of long-term unemployed (those jobless for 27 weeks or more) was 1.3 million in August 2018 and accounted for 21.5 percent of the unemployed.
The labor force participation rate was 62.7 percent.
The labor force participation rate was 62.7 percent.
22) The number of involuntary part-time workers was 4.4 million in August 2018.
Involuntary part-time workers are those who want full-time employment and are working part time because their hours had been cut back or because they were unable to find a full-time job.
Involuntary part-time workers are those who want full-time employment and are working part time because their hours had been cut back or because they were unable to find a full-time job.
23) An additional 1.4 million persons were marginally attached to the labor force.
These individuals wanted and were available for work & had looked for a job in the prior 12 months.
They were not counted as unemployed because they had not searched for work in the last 4 weeks.
These individuals wanted and were available for work & had looked for a job in the prior 12 months.
They were not counted as unemployed because they had not searched for work in the last 4 weeks.
24) Our unemployment rate is at 3.9% but the available pool is double that figure:
6.2 million unemployed Americans.
4.4 million involuntary part-time workers.
1.4 million Americans who've temporarily given up looking.
12.0 million Americans looking for full-time employment.
6.2 million unemployed Americans.
4.4 million involuntary part-time workers.
1.4 million Americans who've temporarily given up looking.
12.0 million Americans looking for full-time employment.
25) There’s another pool of workers to supplement the 12.5 million number.
President Trump references 100 million Americans not in the workforce.
This is factually correct – the actual number for January 2018 was 95.6 million.
About half – 46.7 million – are retired.
President Trump references 100 million Americans not in the workforce.
This is factually correct – the actual number for January 2018 was 95.6 million.
About half – 46.7 million – are retired.
26) 13.8 million are on some form of disability.
The disability number is acknowledged as "swollen".
Another 6.4 million are Social Security beneficiaries who are neither aged nor disabled (i.e. early retirees, young survivors).
The disability number is acknowledged as "swollen".
Another 6.4 million are Social Security beneficiaries who are neither aged nor disabled (i.e. early retirees, young survivors).
27) 15 million were in school or in job-training.
The remaining pool of ~13.7 million Americans were care-givers of some nature.
The remaining pool of ~13.7 million Americans were care-givers of some nature.
28) There are currently 12.0 million Americans looking for full-time employment.
Add to this “retired but willing to work” along with excesses from disability ranks.
We have significantly more flexibility within our employment levels than the stated rate of 3.9% would suggest.
Add to this “retired but willing to work” along with excesses from disability ranks.
We have significantly more flexibility within our employment levels than the stated rate of 3.9% would suggest.
29) Lack of job training & skills among the unemployed is a relevant issue.
But the true employment picture helps explain why wages lag in a recovery.
There are more available workers than a simple unemployment number suggests.
But the true employment picture helps explain why wages lag in a recovery.
There are more available workers than a simple unemployment number suggests.
30) Here’s another way to look at the employment scenario:
The % of Americans expected to pay no Federal Income tax in 2018 is 45%.
This doesn’t mean 45% of Americans pay no taxes.
Most still pay Social Security & Medicare payroll taxes along with state and local sales taxes.
The % of Americans expected to pay no Federal Income tax in 2018 is 45%.
This doesn’t mean 45% of Americans pay no taxes.
Most still pay Social Security & Medicare payroll taxes along with state and local sales taxes.
31) There will always be a significant percentage who pay no federal taxes due to retirement, etc.
But it doesn’t equate to anywhere near 45%.
But it doesn’t equate to anywhere near 45%.
32) The 45% rate, when combined with low REPORTED unemployment levels, is indicative of the problem.
A large portion of Americans are chronically under-employed, working in low-paying service sector jobs, trying to make ends meet.
A large portion of Americans are chronically under-employed, working in low-paying service sector jobs, trying to make ends meet.
33) Manufacturing jobs provided a significant segment of our population with a viable means to support themselves.
Some of these folks couldn’t afford a higher education or lacked the opportunities to gain skills required for the white-collar world.
Some of these folks couldn’t afford a higher education or lacked the opportunities to gain skills required for the white-collar world.
34) Manufacturing jobs offered these folks the chance to pursue the American Dream.
Now, many are relegated to McDonald’s or Starbucks for career paths.
Our unemployment numbers are good.
But there are a lot of folks under-employed & willing to work for higher paying jobs.
Now, many are relegated to McDonald’s or Starbucks for career paths.
Our unemployment numbers are good.
But there are a lot of folks under-employed & willing to work for higher paying jobs.
35) I’m not arguing for government intervention or protectionism.
I’m arguing for the removal of unfair trade agreements.
I’m arguing for the removal of layers of unnecessary regulations.
I’m arguing for an even playing field.
I’m arguing for the removal of unfair trade agreements.
I’m arguing for the removal of layers of unnecessary regulations.
I’m arguing for an even playing field.
36) The US is the sum of its individual citizens.
A net economic number fails to adequately tell the full story.
There’s the classical economic definition and there’s President Trump’s definition.
We have the most productive workers on earth.
It’s time we unleashed them.
/End
A net economic number fails to adequately tell the full story.
There’s the classical economic definition and there’s President Trump’s definition.
We have the most productive workers on earth.
It’s time we unleashed them.
/End
