Thursday, January 06, 2011

Top Ten Reasons Trade is Good for America

From John Murphy's original Chamber post, supplemented by Cato's Dan Ikenson (in bold):

1. The United States is the number one manufacturing nation in the world, and that success depends on exports. And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.

2. The United States is the world’s number one services exporter and has been since services trade data have been tracked. And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.

3. U.S. agricultural exports support nearly a million jobs in the United States. And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.

4. 95 percent of the world’s consumers lives outside the United States…as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.

5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.

6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.

7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales…and in manufacturing.

8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports. And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.

9. U.S. companies with overseas investments account for 45 percent of all U.S. exports. And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports, pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.

10. Trade supports 38 million jobs in the United States–more than one in five American jobs. And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

HT: Mike Munger, who summarizes it well: "More trade is more good. Restricting trade is bad. It's not complicated."

78 Comments:

At 1/07/2011 2:45 AM, Blogger James said...

No matter how much we gain from trade we lose even more. It is called a trade deficit. We have more free trade than we have ever had. If free trade is so good why is the economy so bad?

 
At 1/07/2011 4:45 AM, Blogger Don Culo said...

Let's not forget we also have the advantage of providing China with the money to design and build this.

http://discussions.latimes.com/20/lanews/la-fg-china-military-20110107/10

 
At 1/07/2011 8:22 AM, Blogger geoih said...

Quote from James: "No matter how much we gain from trade we lose even more."

You mean I'm worse off from my giant trade deficit with the grocery store? I should stop buying food and electricity and gasoline and clothes because all of those vendors refuse to buy any of my labor?

The economy is so bad because it has been manipulated by the government to the point where all the market signals have been perverted beyond recognition.

There is only one good reason trade is good for America (or anybody). Because it's done freely between uncoerced parties exchanging something they have for something else they don't have, but want more.

 
At 1/07/2011 10:06 AM, Blogger Sean said...

Reading this, one would think we have a trade surplus from all our awesome exports. Trade is good: spending beyond your means is not. Being competitive in production is as important as having access to goods and services to consume. There's a strategic aspect to making that happen that this type of cheerleading begs one not to consider.

 
At 1/07/2011 10:12 AM, Blogger James Fraasch said...

Is a trade deficit a problem or not? It means we import more than we export, but is there a hidden cost to it?

 
At 1/07/2011 10:44 AM, Blogger PeakTrader said...

The U.S. believes in globalization, e.g. open markets, free trade, and unrestricted capital flows, while many of our trading partners don't, e.g. through trade barriers. The U.S. benefits from inferior foreign economic policies.

So, the U.S. can consume much more than produce each year, and raise its living standards at a faster rate than its trading partners, which it has done for 30 years and will continue to do, until foreign economic policies improve substantially.

 
At 1/07/2011 10:44 AM, Blogger Jet Beagle said...

James Frassch,

There is nothing "bad" about the U.S. trade deficit (more correctly, the U.S. current account deficit). What is usually not reported is that the U.S. current account deficit is always balanced by the U.S. capital account surplus. The U.S. has represented for decades for many foreigners the best opportunity for investment for the risk level they prefer. Instead of using the dollars gained in trade for purchasing U.S. goods and services, many have chosen to invest those dollars in U.S. equities, in U.S. debt, and directly in assets they build or purchase in the U.S.

We should be pleased that foreigners have for so long viewed the U.S. as a safe environment in which to invest the dollars they gained from trade.

 
At 1/07/2011 10:47 AM, Blogger morganovich said...

sean and james -

you are both subscribing to the popular and totally erroneous view that somehow a trade deficit means you are living beyond your means. this is a ridiculous statement if you look at it.

let's say that us GDP is 100. then we grow (domestically) 3% to 103. we export 1 and import 2.

so, we have a trade deficit, but so what? 103+1-2 = 102. we are still bigger and better off. how is the deficit a sign we are living beyond our means? and keep in mind that we have a whole 102 of new production/wealth in a year, not just the new 2 that comes from growth.

you have a huge trade deficit with the grocery store. what do they ever buy from you? this deficit is likely to persist for the rest of your life unless you go into the grocery wholesaling business.

so what? it says absolutely nothing about whether or not you are living beyond your means.

us gdp is around $14 tn.

the us trade deficit is what, $400bn? that's 2.8%.

if you made $14,000 and spent $400 on a car payment, would that be living beyond your means?

no. you'd consider it living well within your means.

so i fail to see any logic in your arguments that the precise same balance means that the us is living beyond it's means.

 
At 1/07/2011 10:51 AM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 1/07/2011 10:55 AM, Blogger sethstorm said...

Only for timespans that exceed people's careers and lifetimes.


freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.

Complete BS. The resources have been freed, but haven't been used.



~22 million people and their resources have been involuntarily "freed" by unemployment(including myself). Never mind the unwillingness to use the longer-term component of those "freed" people. Not only aren't they doing anything (except disappearing off U-3 stats), they are presumed as damaged goods.

No thank you, but our nation could get along without all the despotic nations taking jobs offshore.

 
At 1/07/2011 11:02 AM, Blogger PeakTrader said...

Seth, the U.S. economy can produce more with fewer resources, including workers. Of course, we can hire more workers by giving them spoons at "shovel ready" jobs. However, it might be better if they attended school instead, to learn needed skills.

 
At 1/07/2011 11:12 AM, Blogger morganovich said...

seth-

get rid of trade and prices will spike for all manner of everyday goods and we'd have an immediate energy crisis.

and you will still have no job as given your attitude toward employments as an entitlement, i cannot imagine why anyone would hire you.

so you'd be even worse off.

 
At 1/07/2011 11:15 AM, Blogger Hydra said...

"If free trade is so good why is the economy so bad?"

+++++++++

"The economy is so bad because it has been manipulated by the government to the point where all the market signals have been perverted beyond recognition."


==============================

It is hard to say which of you two is more wrong. Why not eliminate economics and reason entirely and just govern by social dogma, regardless of the facts?

How has the government interfered with your decsion which cereal to buy at the grocery? Why do you buy chicken or tomatos instead of growing your own? How has the government interfered with your vendors decision not to buy your labor?

Ever consider that the economy is bad because so many people already have three of everything? You realize we have more square feet of rented houshold storage than we have square feet of houses?

Fear associated with the housing debacle knocked the economy for a loop. But as far as our basic needs are concerned, we need all the same stuff next week as we needed 18 months ago. We still have plenty of work that needs done.

What we have is a disagreement over priorities.

 
At 1/07/2011 11:17 AM, Blogger Hydra said...

Which would you rather have, a low wage immigrant working for you here, or a low wage potential immigrant competing against you over there?

 
At 1/07/2011 11:21 AM, Blogger Hydra said...

Sethstorm has a point, in that a policy that is generally good may take so long to show results that mortals suffer in the meantime.

Dogma over reason, facts, and results isn't necessarily a good idea.


He is also correct in pointing out that a lot of money and labor is sitting on the sidelines.

 
At 1/07/2011 11:27 AM, Blogger Hydra said...

"However, it might be better if they attended school instead, to learn needed skills."

================================

It might be.

But you make it sound as if that was a universal option that is easy, possible, available, and immediate.

Suppose everyone out of work had the resources to go to school for two or three years (if that would be enough).

They would still be out of work for two or three years, and Obama would no doubt get the blame for a stalled economy.

And after they got out, what would we do that we can't do cheaper overseas?

 
At 1/07/2011 11:48 AM, Blogger Jet Beagle said...

Hydra: " in that a policy that is generally good may take so long to show results that mortals suffer in the meantime."

What policy are you meaning? I agree that any U.S. law which prevents me from buying an item made in Mexico or made in China will immediately cause me to suffer. Is that what you were meaning when you said that sethstorm had a point?

 
At 1/07/2011 11:54 AM, Blogger Jet Beagle said...

hydra: "He is also correct in pointing out that a lot of money and labor is sitting on the sidelines."

Well, yeah. If I were a small business owner, I would not be adding labor right now. I have no idea how much Obamacare is going to cost me. I have no idea how much my taxes are going to be raised in order to pay for outrageous benefits which have been promised to state and local government workers. But that's not going to change if Congress slaps tariffs on imported goods. Given the economic damage which would result from such tariffs, I would be even less likely to hire additional workers.

 
At 1/07/2011 12:20 PM, Blogger juandos said...

"How has the government interfered with your decsion which cereal to buy at the grocery?"...

By and large hydra I agree with you 'but' there are external (read as governmental interference) forces that are at work and that can possibly influnence one's purchasing decisions...

Cash for clunkers ring any bells?

Obama's promises on the cost of energy...

Tax Breaks for certain product purchasing...

 
At 1/07/2011 12:29 PM, Blogger PeakTrader said...

Hydra, rich countries can afford more education and more education makes a country rich.

Is it better to learn a skill, particularly a needed skill, or to wait for a job to show up?

Also, do low-skilled workers overseas really compete with high-skilled U.S. workers?

The biggest constraint moving into the next inevitable economic revolution may be the lack of needed skills.

 
At 1/07/2011 12:32 PM, Blogger sethstorm said...


PeakTrader said...

Except for the part where people did everything the way you've suggested and they get the same treatment.

At some point, the businesses are going to have to give up on avoiding the longer-term unemployed.



morganovich said...

It was fine enough for countries like Canada and Australia; it was fine enough for regions such as the EU. Not only were they in a parallel situation, there was a similar respect for each other.

re: still not have a job
...and I'd still be paid to do something that is mutually agreed as non-productive by not having a job. The solution is within reach, but the private sector wishes not to grasp it.

 
At 1/07/2011 12:34 PM, Blogger sethstorm said...


The biggest constraint moving into the next inevitable economic revolution may be the lack of needed skills.

More BS. We have the skills and the people, unless you call desperation(as practiced in Third World countries) a skill.

Start giving the people the jobs and then training them up on how to do them. Think of it as an investment in the US, one that takes 22 million unemployed people, and makes 22 million good jobs happen.

 
At 1/07/2011 12:39 PM, Blogger Benjamin said...

GDP=C+I+G (X-M).

Hmmmm.

Now, pray tell, how does China prosper following none of precepts of free trade?

 
At 1/07/2011 1:02 PM, Blogger PeakTrader said...

Seth, millions of new high-paying jobs were created in the Information Revolution, and millions more will be created in the Biotech Revolution. These two economic revolutions are creating enormous value for society.

You don't give someone a job as a biochemist, MD, or computer software engineer, and then train him. You acquire the needed skills, e.g. in school, and then apply for the job.

 
At 1/07/2011 1:23 PM, Blogger Sean said...

morganovich,

We've discussed this before, and your arguments are not totally incorrect, but there is a real concern here.

Yes, a trade deficit (especially a bilateral trade deficit) does not necessarily mean you're living beyond your means.
Your "trade deficit" with your grocery store doesn't matter if you have a greater "trade surplus" elsewhere, such as gainful employment.
It's even true that you can run a small overall trade deficit and not be living beyond your means: you can produce more than you buy and trade only from your surplus.

But if we're buying a bunch of things overseas essentially on cerdit (paying in dollars, not goods or services), it's an indicator to pay attention. And when you look at the trade composition and import penetration rates, when you look at which industries are growing and shrinking... does that honestly make you feel better about American competitiveness? Do you really think we're in a strong position to grow overall in high profit industries that require high employment?

 
At 1/07/2011 1:27 PM, Blogger sethstorm said...


Now, pray tell, how does China prosper following none of precepts of free trade?

They follow the ideas of trade, just in a different way.

They offer a desperate and government-controlled labor supply, and output various trinkets. Not only are those trinkets a comparative advantage, so is the ability to easily disappear/replace workers that complain. Slavery easily outdoes nations that don't practice it.


PeakTrader said...

At the cost of using less-than-honest means to "free" people from work they did very well at.

For the greater part of things, a ban on overkill requirements, ban on discrimination against the long-term unemployed, and a willingness to train people go a long way.

 
At 1/07/2011 1:27 PM, Blogger sethstorm said...

...which means that you can train people while they have the job.

 
At 1/07/2011 1:37 PM, Blogger morganovich said...

benji-

you are committing the same fallacy i pointed out to sean and james.

go read it the earlier post.

GDP happens every year and we continue to grow and get wealthier. our trade increases our purchasing power.

the flaw in your argument is that the equation you use does not have independent variables. they related and affect one another.

C in real terms is a function of price level. price level is a held lower by trade. that inflates C in real terms and indicates greater purchasing power.

to take the trade you so wrongheadedly oppose out of the picture would raise prices. that would drop C and drop GDP by far more than the trade volume you eliminate.

cars from japan hold down the prices of cars from the US despite only being part of the market. make them all more expensive or keep them out, and you get more expensive US cars too thus C in real terms drops by more than the difference in X and I you create through tariffs or quotas.

if you are going to keep tossing out that equation, you should learn what it means.

 
At 1/07/2011 1:40 PM, Blogger morganovich said...

seth-

you are just making stuff up now.

slavery? labor in china is becoming a scare commodity. workers are being paid year end retention bonuses of 40% of income.

china just had a huge supply of dirt poor peasants to move to factories. as that runs out (lewis point) labor costs spike. this is getting ready to happen.

as ever, you have no facts at all, just a bunch of emotional misinformation and hyperbole.

 
At 1/07/2011 1:51 PM, Blogger sethstorm said...


morganovich said...

Hard to make up stuff that actually happens.

But you sure like to deny it, even if that's why those kinds of countries get picked.

 
At 1/07/2011 1:52 PM, Blogger Benjamin said...

Morgan-
It means we owe people outside the US a lot of money, and it is piling up.
Interest.
Now, if they invest back in the US, then we get something akin to a free lunch. And this happens.
If they don;t, we have to pay back what we ow.

The only good news out of this is that eventually the dollar will move to a lower exchange rate, and that will boost exports.

But, I said that 20 years ago.

 
At 1/07/2011 1:58 PM, Blogger juandos said...

"They offer a desperate and government-controlled labor supply, and output various trinkets. Not only are those trinkets a comparative advantage, so is the ability to easily disappear/replace workers that complain. Slavery easily outdoes nations that don't practice it"...

Do you have anything credible to back up that statement sethstorm?

If the following two articles/opinions are factually correct sethstorm then all you're doing is hauling out some strawmen to bolster your sloth when it comes to getting a job...

Megan McArdle of the Atlantic: Is China's Competitive Edge Already Eroding?


Nov 24 2010, 11:32 AM ET

Reuters: Special Report: China's new migrant workers pushing the line

 
At 1/07/2011 2:03 PM, Blogger morganovich said...

benji-

you also leave out the fact that what is going on in china would not be called anything remotely like "prosperity" in the developed world but rather abject poverty.

china is poorer on per capita GDP than bosnia and is at less that 16% of the US level.

it's easy to show huge % growth when you are still very poor and backwards.

such an effect easily swamps bad trade policy.

 
At 1/07/2011 2:10 PM, Blogger morganovich said...

benji-

if you make 14000 a month and spend 400 on groceries, do you worry about debt "piling up" at the grocery store? you're going to have a lifelong trade deficit with them. so what?

it doesn't mean you'll go broke or that anything bad at all will happen.

your argument doesn't make any sense at all.

then, while guys like you rail against US companies investing overseas, you also rail against foreigners using their dollars to invest here (instead of spending them). so which is it? they can't both be bad for us. dollars acquired but not spent are always invested so we are getting huge investment flows in.

you seem to be on both sides of this argument ans understanding neither.

seth-

again, more emotional drivel with no factual backup.

china is just another country making the transition from agrarian to industrialized. they are not doing anything different from what Britain did.

 
At 1/07/2011 2:14 PM, Blogger morganovich said...

we don't "owe" anything. we bought for cash. if the grocery store hordes the money you paid them, it doesn't mean you owe them anything. it just means they have a pile of cash they can spend some day.

shouldn't we be excited that potential customers have lots of cash?

i seriously have no idea where you get this stuff.

 
At 1/07/2011 2:28 PM, Blogger Benjamin said...

It is worth noting that our one strong exporting goods sector--agriculture--is also the most subsidized, mollycoddled, enfeebled of all our industries.

I am not sure what this means--is that how other nations maintain export powerhouses?

Our ag sector of course get direct subsidies, and then they also have 8,000 USDA extension agents working on their behalf for free.

Then, you have federally subsidized roads, power, water and rail systems, and subsidized phone service. We run a loss on our postal service servicing rural areas (people forget that when they lambast the postal service--they run routes no profit-oriented entity would undertake). Public universities run ag departments. Illegal Third World labor does the hard work in the fields.

In short, our ag sector floats on top of a pool of lard.

And it is a strong esporting entity, lionized in this post.

Makes you wonder if everything is a Potemkin Village sometimes.

 
At 1/07/2011 2:43 PM, Blogger Sean said...

morganovich,

I dislike your "grocery store" example, because it indicates a bilateral trade deficit, not a total trade deficit for you. Presumably you're paying for groceries out of income for services you provided: trade is presumably balanced or you are running a surplus.

As a nation we are paying for goods out of cash and then our trade partners are collecting those IOUs (dollars): that is what a trade deficit means. If we can cover those IOUs with our production, we are fine. If not, we may not like the results: in the long term, either our trade partners buy our resources and means of production, or the dollar will drop significantly in value. Either is detrimental to our future terms of trade. That's why a trade deficit is concerning: if we can't cover our IOUS, then the deficit is not sustainable. It reamins to be seen whether we can cover those IOUs, but do you honestly see America becoming stronger in terms of competitiveness right now?

 
At 1/07/2011 2:58 PM, Blogger morganovich said...

seabn-

dollars are not IOU's.

it's not a debt we incur. we spend 2.8% of our annual output on net foreign goods. so what? it's cash we had and cash we spent.

there is no IOU.

we don't have to repay anything. can you not see the complete inconsistency of your argument?

you complain about our dollars being held overseas because they one day (gasp) might come back?

isn't that the balanced trade you purport to prefer?

you seem to be against the dollars that would be spent upon our goods and balancing trade because they are some kind of IOU.

those dollars already come back in investment. that aids our growth and our wealth.

if they come back as orders for goods instead, great. that helps too.

you seem to be complaining that our potential customers have fat wallets. isn't that what we are supposed to want?

also realize that balanced trade would have a (at least short term) negative effect on GDP. more demand = higher prices and we will face them here as well. that drives C down by more that the difference between X and I (see my comment to benji)

i really don't get your position at all.

you seem to dislike the benefits of low prices and simultaneously demand that we find a way to balance trade while being afraid of overseas dollars coming back as orders because that is an IOU.

it seems there is no way to please you.

 
At 1/07/2011 3:03 PM, Blogger morganovich said...

benji-

your have your facts confused. agriculture is only 9% of us exports, 1/3 the size of chemicals and less than 1/5 the size of manufactured goods.

some powerhouse...

 
At 1/07/2011 3:06 PM, Blogger Buddy R Pacifico said...

As the U.S. becomes a knowledge based economy then U.S. exports become knowledge based (duh). Here is an example of how blatantly the #2 economy in the world ignores intellectual property right protection: highjacked itunes accounts in China sell for pennies on the dollar. The trade deficit has no chance of getting better if this type situation is not strongly addressed as a matter of course. Via Marginal Revolution.

 
At 1/07/2011 3:12 PM, Blogger morganovich said...

sean-

the more i think about this IOU thing, the more astounded i am that you can think like that.

if china has a dollar, great. that's purchasing power that will be used as a us investment until it's used.

but when they present it to a US company to by something, the US company gets the dollar. it's not some IOU where they have to surrender a product and get nothing. they can then use that dollar to do whatever.

you make it sounds like US companies are somehow in debt to china because china has dollars. if that is so, then they are in debt to all of us and that's obviously not true. we can't foreclose or even demand products. they can choose not to sell to us at their whim.

you really are just complaining that our customers have lots of money to spend because they have been saving up rather than consuming.

emerging economies always have high savings rates.

what you should really fear is what would happen to US government borrowing rates if china et al stopped buying our bonds to hold as forex reserves.

doubling US borrowing costs would cause a massive structural deficit which would lead to either higher taxes or less government spending, neither of which is a rosy scenario in the near term.

be grateful that they are so desperate to sell to us that they are willing to hold out government debt at such low prices to keep their currency in line. they are subsidizing our terrible fiscal policy.

 
At 1/07/2011 3:36 PM, Blogger geoih said...

Quote from Hydra: "How has the government interfered with your decsion which cereal to buy at the grocery? Why do you buy chicken or tomatos instead of growing your own? How has the government interfered with your vendors decision not to buy your labor?"

The government interferes with my grocery buying by increasing the money supply, which unequally inflates the prices of commodities. They interfere with the interest rates which corrupts the time-preference signals and credit markets and investments that lead to hiring workers. They continually change how they interfere with the economy so there is increased uncertainty and people are less willing to hire anybody, or make long term capital investments.

The whole trade deficit debate is about a meaningless aggregate of a fictional collective. When I buy something made in China, I don't have a trade deficit with China. I had dollars and they had consumer products. We traded and now I have consumer products and they have dollars. When people in China have more dollars than they want, then they trade them for something else.

The only problem has been that China has been trading their dollars for US Treasury securities and then the US government has been spending that borrowed money to maniputlate the economy (see the paragraph above).

It may have been stupid for China to have buy all those Treasuries, and it's definitely stupid for the US government to borrow so much money, but it has nothing to do with trade deficits.

The problem isn't trade, it's government.

 
At 1/07/2011 3:49 PM, Blogger morganovich said...

geo-

"The only problem has been that China has been trading their dollars for US Treasury securities and then the US government has been spending that borrowed money to maniputlate the economy (see the paragraph above).

It may have been stupid for China to have buy all those Treasuries, and it's definitely stupid for the US government to borrow so much money, but it has nothing to do with trade deficits.

The problem isn't trade, it's government."

that is exactly correct. US business is not in hock to china, just our government as they prop up our fiscal mess to manipulate their own currency. the two governments are like some sort of dysfunctional codependent couple that can't figure out how to be together, but need each other desperately and spiral into ever more destructive behavior.

but, as you say, this had ZERO to do with trade deficits and everyhting to do with bad governmental policy on both sides.

 
At 1/07/2011 3:54 PM, Blogger juandos said...

BSer benny claims: "It is worth noting that our one strong exporting goods sector--agriculture--is also the most subsidized, mollycoddled, enfeebled of all our industries"...

You of course have something credible to back that up right?

And NO, wikipedia is NOT a credible source...

"Then, you have federally subsidized roads, power, water and rail systems, and subsidized phone service"...

Federal taxes are paid to finance all of these services...

Mostly fuel excise tax which is about $23 billion annually should cover most of the costs...

 
At 1/07/2011 4:36 PM, Blogger Jet Beagle said...

To several of you above,

Please do not confuse the trade deficit with the federal budget deficit. The Treasury securities which China and Japan have been buying would exist regardless of the U.S. balance of trade position. China and Japan do not "enable our budget deficits", as some misinformed commentors have argued in the past.

If China and Japan did not hold billions of dollars in U.S. Treasury securities, someone else would hold those securities. It really should make no difference who buys government debt, just as it makes no difference who buys corporate bonds.

 
At 1/07/2011 5:21 PM, Blogger Jet Beagle said...

Benjamin: "It is worth noting that our one strong exporting goods sector--agriculture"

Do you have any data to support this assertion, Benjamin?

In 2009, U.S. exports of goods totalled $1.056 trillion - that's over 1,000 billions, Benjamin.

As morganovich pointed out, agriculture exports accounted for only 9% of that total, or about $94 billion. Exports that recession year for some other industries:

Automobiles & parts - $82 bill
Pharmaceuticals - $46 bill
Semiconductors - $37 bill
Telecom equip - $29 bill
Medical equip - $27 bill
Civilian aircraft/parts - $75 bill
Computer/acessories - $38 bill

Those are big numbers, Benjamin. U.S. exports prior to the global recession were at all time highs.

You can find exports for many more industries in the Census Bureau's International Trade report.

 
At 1/07/2011 5:33 PM, Blogger Jet Beagle said...

Buddy: "As the U.S. becomes a knowledge based economy then U.S. exports become knowledge based (duh)."

What do you mean when you write that "the U.S. becomes a knowledge based economy"? I really want to know what you think that means.

It has always taken knowledge to produce the goods and services we consume and export. So what do you mean by the word "becomes" in that statement?

 
At 1/07/2011 6:19 PM, Blogger Buddy R Pacifico said...

Jet Beagle, what I mean by knowledge based economy is:

Technical skills, generally the result of higher education, that are assembled into groups that produce innovative products and services. Often they result in information technology that affords greater span, data and control for institutions, groups and individuals. So, the result is creative products such as music and movies or much more complex results such as pharmaceuticals, computer chips or smart phones.

A good primer on the subject is the OCED background on Knowledge Economies. Knowledge based teams produce mother boards, computer chips and software probably found on John Deere tractors but less likely in old-growth logs (ok, not likely at all).

BTW, how would you approach the problem of protecting intellectual property and its comparitive advantages for U.S. exports?

 
At 1/07/2011 7:15 PM, OpenID Sprewell said...

Buddy, and it was the US that flouted copyright laws a century or so ago, when British books were widely pirated here. This is the natural course of things, emerging economies always do this. Also, the US had a bunch of railroads and other investments collapse in the 19th century and they just told the foreigners who invested to fuck off: guess what's going to happen to foreign investors in China when their bust inevitably happens? :)
Getting back to IP rights, I don't think piracy is just a China problem, Steve Jobs himself admitted 4 years ago that 97% of all music on iPods was DRM-free, with the implication that the vast majority was pirated. Also, now all major music services are DRM-free, so they've all given up on selling music essentially, at least over the medium-term. So the piracy genie is out of the bottle everywhere.

However, if you want only to look at high-value IP like patents that're perhaps more easily protected, you fail to realize that means that high-value design work, that supposedly depends on such patents, can never be done in China to be sold there, because they won't be able to get patents either. So if you believe that it hurts US companies, it hurts them too. Since I'm against all govt-enforced IP rights, I frankly think China gets this right and it's the crazy patent system in the US that gets it wrong. I'm glad that Russia and China are taking this route and I hope they're smart enough not to repeat the mistakes of the US IP regime.

 
At 1/07/2011 7:20 PM, Blogger morganovich said...

jet-

"China and Japan do not "enable our budget deficits", as some misinformed commentors have argued in the past.

If China and Japan did not hold billions of dollars in U.S. Treasury securities, someone else would hold those securities"

this is not true.

those who buy our debt to hold down their currencies do so in a price insensitive manner.

absent them, we would see pricing move to levels that would attract financial investors.

this would drive rates MUCH higher.

that would put huge pressure on the US deficit as the cost of debt service spiked, especially given how short the average duration of our debt currently is.

so, yes, our profligate government is not of their making, but they do enable it by making the money it borrows cheap. this lets us keep playing out this failing game for longer than would otherwise be possible just like a drug dealer giving credit to a broke and dying smackhead or the mom who hides him from the police or the debt collectors.

absent them, we would already be in a budget and debt crisis.

it's not the cause, but that is absolutely enabling.

 
At 1/07/2011 7:23 PM, Blogger Buddy R Pacifico said...

Sprewell, you have probably never invested five cents or five minutes in any creative endeavor that might result in a market for such product or service. You are full of blarney. Your attempt at justification of stealing of property is pure shenanigans.

 
At 1/07/2011 7:45 PM, OpenID Sprewell said...

Buddy, wow, ad hominem attack on me, great way to back up your point. ;) And btw, I make my rent by selling software that I contributed patches to, so you're wrong on that point too. However, I am pointing out that IP law as it currently exists is very badly structured and that the internet demolishes certain ways of doing business. For example, selling recorded music is over: musicians will have to give mp3s away for free as advertising, in order to make money on concerts, T-shirts, licensing, and the like. I don't think other information markets like news or video will have to go quite that far, but the status quo is effectively dead, as you see with all the radio businesses now going under. There are already podcasters who mimic musicians by giving away free podcasts and then charging for tickets at live shows, though I don't think that free/live model will be what works best for podcasters. Regardless of what the model is, at least some of these people are thinking about what might work better, rather than clinging to outmoded notions of "stealing" like you apparently do.

 
At 1/07/2011 7:58 PM, Blogger Buddy R Pacifico said...

Sprewell, the fact that musicians want to control their own professional destinies by free distribution of their property is like free samples -- they are not choosing to give up on the IP property rights issue whatssoever. Your fairy tale is without merit and absurd.

 
At 1/07/2011 8:07 PM, OpenID Sprewell said...

Buddy, they are essentially giving up one of their IP rights by doing so, ie the right to sell that music in electronic form later, as all it takes is one "free sample" for peer-to-peer software to spread it everywhere. This is why I said earlier that the online music services going DRM-free means that they have essentially thrown their hands up and decided that they will not be able to sell music much longer. I can see by your silly arguments that all this is flying over your head, so I won't bother rebutting your dumb arguments anymore.

 
At 1/07/2011 9:32 PM, Blogger Rebel Yid said...

If you write a book that is published overseas, is the royalty and compensation for intellectual value picked up as an export? Does this measurement become a greater concern as intellectual capital replaces goods and services?

 
At 1/07/2011 9:32 PM, Blogger Rebel Yid said...

If you write a book that is published overseas, is the royalty and compensation for intellectual value picked up as an export? Does this measurement become a greater concern as intellectual capital replaces goods and services?

 
At 1/07/2011 9:34 PM, Blogger Rebel Yid said...

This comment has been removed by the author.

 
At 1/07/2011 10:34 PM, Blogger Hydra said...

I'm saying that, say you are an hvac mechanic, modest home, medium mortgage, two kids. Not unskilled and not a bad life.

Suddenly, the housing bust and you are unemployed. Wife is still working as a bank teller, but now you have to do child care, while seeking work and odd jobs you can catch.

And all you have to do is start over training for a new career as a brain surgeon.

You make it sound like a snap.

 
At 1/07/2011 10:40 PM, Blogger Hydra said...

Government external costs are only one kind.

Total Cost = Production Cost + External Cost + Government Cost

I'm looking for lowest Total Cost, not lowest government cost.

 
At 1/07/2011 10:51 PM, Blogger Hydra said...

Lets say lower taxes eventually grow the base enough to increase revenue. You are driving over a bridge when it falls in the river for lack of maintenance funds.

Good long term policy. For you, not so much.

 
At 1/08/2011 4:21 AM, Blogger DaveinHackensack said...

I'd like to see Mark Perry debate Ian Fletcher on trade. My money would be on Ian Fletcher.

 
At 1/08/2011 5:21 AM, Blogger Jet Beagle said...

morganovich,

Everyone can have their opinions. But I don't think you can say with certainty that, absent Chinese and Japanese purchases of Treasury debt, interest rates would rise high enough to curb U.S. government borrowing.

Do you have any data to support your statement that my comment is "not true"?


China has REDUCED its holdings of U.S. Treasuries the past 12 months. In other words, they stopped buying Treasury debt. Where's the interest rate spike which forced the federal government to crub deficit spending?

 
At 1/08/2011 5:49 AM, Blogger sethstorm said...


that is exactly correct. US business is not in hock to china

Their behavior suggests otherwise, amounting to treason.




juandos said...

You just proved one of my points about them having a government that's willing to side with the multinational.

 
At 1/08/2011 8:58 AM, Blogger Sean said...

morganovich,

you seem to be against the dollars that would be spent upon our goods and balancing trade because they are some kind of IOU.
Not at all! But they don't want our cars, they want our factories.


it seems there is no way to please you.
If our trade partners were buying close to the goods and services from us that we are from them, that would please me. If they didn't manipulate trade in order to invest in austerity now in the name of greater control later, I'd be happy. If I though our trade imbalance were a result of our investing in being more competitive, that would please me. If foreign Sovereign Wealth Funds weren't playing with our jobs in order to gain leverage for political concessions, that would please me.
Many other countries are playing a long-term game of amassing economic power for political ends: we don't seem to know such a game exists: that's what bothers me.

 
At 1/08/2011 9:50 AM, Blogger juandos said...

"I'd like to see Mark Perry debate Ian Fletcher on trade. My money would be on Ian Fletcher"...

Yeah, I would also like to see that debate too DaveinHackensack...

Anyone that cites Krugman as some sort of credible source on anything will have a tough time making an intelligent argument in a debate...

 
At 1/08/2011 10:27 AM, Blogger morganovich said...

jet-

i trade bonds (among other things) for a living.

did you not see the huge interest rate spike when QE2 was announced and after the asian g20 summit?

that was the asians registering their displeasure with the policy.

fed buying should have driven rates down. instead, it spiked them across the long end as the asians registered protest.

the 30 year year went from 3.86 to 4.62 in 5 weeks, a 20% increase in servicing costs at issuance.

the 10 year went from 2.45 to 3.56 in the same period, a stunning 45% increase in yield.

the 5 year went from 1.00 to 2.15, 115% increase in yeild.

starting to see my point?

these were very mild withdrawls by the asians, but they were targeted right where QE2 was.

between the fed and the EE's (and it's not just china) you are looking at 40-70% of most of the auctions last year.

to claim that 30% of the buyers in an auction can leave and not spike prices wildly is just nonsense as is the claim that the fed could by 70% of auctions itself and not trigger disaster.

 
At 1/08/2011 10:39 AM, Blogger morganovich said...

sean-

"Not at all! But they don't want our cars, they want our factories."

that sounds like hysterical xenophobia to me. remember how the janapnese were going to buy america in the late 80's? remember how that worked out? there is not threat that china is going to "buy" america.

how is it that when a us companie invests in a chinese factory, you see it as dangerous capital flight and a loss of jobs, but when they chinese do it here, it's a mortal threat? we should be glad of their investment. it creates jobs and growth.

all the things you list as making you unhappy are functions of bad government, not trade imbalance. you cite a laundry list of government actions and not a single one that has to do with trade. you are confusing trade deficit with fiscal deficit.

trade deficit is just a meaningless artificial term. it creates no debt. you have no "gas station" trade deficit and more than wal mart has a chinese one. they send dollars and get stuff which they sell for more dollars. repeat as needed. why should they care any more about what the chinese do with the dollars than you do about what the gas station does with yours?

every single problem you identify is a function of US federal debt and bad governmental policy.

you are also terribly short on solutions.

so what would you propose to do? show up with gunboats and make them buy our opium? raise tariffs and harm ourselves? print to many dollars that our currency is useless?

 
At 1/09/2011 1:15 AM, Blogger Sean said...

morganovich,

Foreign investment in US isn't necessarily bad, nor is our investment overseas. The devil is really in the details.
Interesting how when you keep claiming a trade deficit has no meaning whatsoever, you only focus on the bilateral sub-case.

so what would you propose to do? show up with gunboats and make them buy our opium? raise tariffs and harm ourselves? print to many dollars that our currency is useless?
As I've said before, we should do what other countries have done, and we have in the past: have a competitiveness strategy. Countries that have higher growth rates than we do have such strategies. Typically it's been done by government, but I'd love to see a non-government effort there. The focus should be on where to invest, although it's not impossible that tariffs could be part of a solution in really extreme cases. But I'd be more than happy with just the former: a concerted attempt to see ow we could coordinate high-value industry investment in the US.

 
At 1/09/2011 6:32 AM, Blogger Milton Recht said...

Mark,

I think that many people who are for trade protectionism and opposed to outsourcing assume that tariffs are necessary to equalize the wage differences between lower wage foreign countries and the higher wage US to protect industries.

A worker's wage, including benefits, is usually a small part of the cost of manufactured goods. For example, for a US manufactured automobile, labor costs are about 10 percent of the selling price, and labor cost in the 10-20 percent range is a typical amount for most goods.

The other costs are materials, energy, capital, corporate taxes and foreign currency conversion rates.

Lower wages in foreign countries exporting to the US are not the primary reason for the substantially lower prices of imported goods into the US.

US corporate taxes and unfavorable US dollar foreign currency conversions are the two major causes of the comparative disadvantage of US manufacturers versus foreign manufacturers exporting to the US.

If lower foreign wages were the primary cause of US outsourcing and foreign made imports into the US, US manufacturers could increase their capital investments, increase their production efficiency and lower the percentage of labor per unit of goods until the US price differences between imported and domestic manufactured goods were negligible.

If people for protectionism understood that wage differences are not the cause of increased imports or the cause of the decline in certain industries, they would be much less in favor of tariffs. Tariffs just allow the protected industries to avoid lowering prices through competition and efficiency/productivity gains to the harm of US consumers. Sure, there are times when domestic manufacturers cite high wages as the cause of their decline, but productivity gains through increase capital investment can offset high wages. The unwillingness to make further capital investment in an industry causes it to decline. The unwillingness to continue to invest in an industry comes from expected low future profits and the availability of other, newer opportunities with much higher expected returns and profits on the investment.

Since sustainable foreign currency conversion rates are not easy to modify, the best way to protect and increase US manufacturing companies would be to lower the US corporate tax rate. It would do much more good for US manufacturers and US consumers than trade tariffs.

 
At 1/09/2011 12:36 PM, Blogger Jet Beagle said...

morganovich,

First, I do not appreciate the tone in which you respomnd to my comments. Stating that something I post is nonsense is not going to make it easier to convince me.

My statement earlier was that purchases of government debt by China and Japan do not "enable" U.S. government borrowing. China stopped buying U.S. Treasury securities and our government is still borrowing. I do not consider an increase of interest rates from 3.8% to 4.6% sufficient to stop U.S. government borrowing.

I really do not care whether or not you trade bonds for a living. I'm entitled to my own opinion, and you are entitlded to yours. I would not label your opinion as nonsense, and I expect to receive equal consideration from you.

 
At 1/09/2011 12:58 PM, Blogger morganovich said...

sean-

saying "we should have a competitiveness strategy" is like saying "we should work for the common good".

it's just a vague platitude.

i'm asking you for details.

 
At 1/09/2011 1:06 PM, Blogger morganovich said...

jet-

you are entitled to your own opinion, but not your own facts.

china did not "stop buying bonds". they just bought a few less. keep in mind that they hold mostly short duration instruments and need to buy huge amounts all the time just to stand still.

and if you think that 100% increases in the cost of debt service are not a big deal, then you have not looked at our budget. we've already seen more than that on the 5 year. (keep in mind the 30 year market is VERY small at this point). and this was just a tiny nudge.

the EE's a a huge source of demand for our debt.

if it goes away, bond prices will fall and rates will rise. if we were paying 7% for 5 year debt again, current deficits would be CRUSHING.

i'm not claiming that they are making us deficit spend. that would be "cause". i chose the word "enable" because what they are doing is making it easier.

they keep the costs down, and make the consequences of our actions less severe, allowing us to continue on with our bad course of action for longer than we otherwise could.

that's pretty much the definition of enable.

so i really have no idea what your point is.

 
At 1/09/2011 1:36 PM, Blogger morganovich said...

ps.

i presume that this is the comment to which you are objecting?

"to claim that 30% of the buyers in an auction can leave and not spike prices wildly is just nonsense as is the claim that the fed could by 70% of auctions itself and not trigger disaster."

i think you'll find upon re-reading it that it makes no reference to you in any way.

i am merely making an opinion about a view, not talking about you in any way at all.

 
At 1/09/2011 1:55 PM, Blogger VangelV said...

If free trade is so good why is the economy so bad?

The economy is bad because there is no free trade and no economic liberty. The government keeps getting in the way and keeps growing and growing. At some point that growth is not possible and you have a massive crisis that plays out badly.

 
At 1/09/2011 5:16 PM, Blogger Jet Beagle said...

morganovich,

Your comment listed my statement:

"If China and Japan did not hold billions of dollars in U.S. Treasury securities, someone else would hold those securities"

You then wrote:

"This is not true"

Now you seem to be claiming that I was making up my own facts in making that statement.

I do not think that you can state as fact that someone else would not have purchased the Treasury securities now held by those two nations. You can disagree with my opinion about that. But to accuse me of inventing facts in that case is, IMO, disrespectful.

Have I misunderstood you statement "This is not true." ?

 
At 1/09/2011 5:25 PM, Blogger Jet Beagle said...

morganovich: "china did not "stop buying bonds". they just bought a few less."

Perhaps I should have written that China is selling more bonds than it is purchasing. The basis for my argument can be found at this link:

U.S. Treasury bonds ownmed by foreign countries

It shows these holdings of U.S. Treasury securities by China:

Aug-2009 $936 billion
Aug-2010 $868 billion

and lists as the source www.treasury.gov.

Am I misstating facts when I say that China has not been buying U.S. Treasury securities for the past year? Is this source incorrect?

When I went to that link, I found that China has increased its holdings since August. But those holdings are still below levels of a year ago.

 
At 1/09/2011 5:31 PM, Blogger Jet Beagle said...

morganovich,

One last comment. The most recent data I found on foreign holdings of Treasury securities shows that such holdings increased by $744 billion over the past 12 months. So,

- China did reduce its holdings of U.S. Treasury securities; and

- someone else other than China and Japan bought over $600 billion of U.S. Treasury securities.


That's exactly what I said would happen. Why do you say that I am creating my own facts?

 
At 1/09/2011 6:34 PM, Blogger Sean said...

morganovich,

saying "we should have a competitiveness strategy" is like saying "we should work for the common good".

it's just a vague platitude.

i'm asking you for details.

It depends on the group of people you can get together. I did mention that looking for local opportunities to invest in would be prominent component.
A union or trade group could possibly select a group of promising technologies being developed in the US and publish a list of companies working on them to invest in. I would think a properly functioning union would be interesting in offering labor concessions for promising companies that intend to "stay local".
The government is using education subsidies and tax breaks as a means of attracting high-value investment, but still a lot of companies complain they can't find workers with the exact right technical skills. Better coordination between business and educational institutions, coordinated with help from a union, government, a professional organization, etc. could do a lot of good.
Some consumer organizations list good American made products and which companies make them, but there's further room to go there.
There are alliances, lobbyists, and standards organizations all over the place in the name of competitiveness. I find it difficult to believe we can't do more for national labor competitiveness than we do when there's such a large incentive.

 

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