GDP

Gotta Fix Trade

Dave Johnson — Fri, 29 Oct 2010 15:23:46 -0400

Today's GDP report shows slow growth. It isn't declining growth so technically is not a recession, but not enough growth to lead to job gains.

U.S. Economy Grew at a 2% Rate in the Third Quarter,

The United States economy grew at an annual rate of 2 percent in the third quarter, the Commerce Department reported Friday, as it struggles to gain any momentum for a sustained recovery.

. . . An economy growing at a sluggish, 2 percent, nearly all economists agree, cannot produce nearly the demand needed to bring down the nation’s painfully high 9.6 percent unemployment rate. And the trade gap remains wide, as imports outpaced exports.

It's Trade

Dean Baker writes at the Center for Economic and Policy Research that trade problems subtracted 2% from our GDP. Surging Inventories Sustain Third-Quarter Growth,

Trade was a big negative in the quarter, subtracting 2.01 percentage points from growth. The 17.4 percent growth in imports swamped the 5.0 percent growth rate of exports. The deficit is likely to expand somewhat less rapidly in future quarters if the pace of inventory accumulation slows, since a substantial portion of inventories is imported.

We've got to fix trade. First, the exports just are not catching up to the imports. So it's killing the economy.

More important to jobs, the "free trade" idea that we can just pack up a factory and move it away from the wage and environmental protections that we fought for, and call that "trade," and then come back and say "agree to lower wages or we'll send more jobs away" is just nuts. It is killing the economy, killing jobs, killing morale, killing families, killing communities and killing our future. Yes, a few are getting fabulously wealthy and using some of that money to swamp us with campaign ads and constant propaganda and fear and distraction over the media. But I haven't met one single Tea Party support who wants this "free trade' stuff. So come ON, people, stop listening to Limbaugh and FOX and scare ads and tell your Congress to stop this "free trade' nonsense and rewrite our trade agreements!

Frank Sobatka describes one of the main reasons for the problem:

GDP Revised Down -- Conservative Trade Policies Exporting Our Growth and Jobs

Dave Johnson — Fri, 27 Aug 2010 12:43:16 -0400

When we pack up a factory here -- and all of its jobs and supply chain and its support/.maintenance structure -- and send it all over there to a country that doesn't have the wage and safety and environmental protections we have, just to save a bit of money today we are also sending them the ability to make money in the future. And that future is here now.

The country's second-quarter GDP was revised down sharply to 1.6%. So the "stimulus," by raising GDP somewhere between 1.7% and 4.5%, is the only thing that has kept us from falling completely over the cliff. But we can't just get by on stimulus forever (especially when we waste one-third of it on tax cuts that leave nothing behind but debt). We have to fix the causes of the problems.

One big reason we are having so much trouble is that we haven't solved the trade problem and our efforts to get growth going are just being used to help other countries grow.

In The Washington Post today, Flow of imports drags down economic growth:

The government said the trade deficit subtracted almost 3.4 percentage points from second-quarter GDP - the largest hit from trade in 63 years.

Corporate conservatives talked us into sending our manufacturing out of the country. In the short term some executives got huge bonuses as assets and capacity were sold off and payrolls reduced. But in the long term the ability for the country to earn money has been sent "over there."

I recently came across this talk by Ian Fletcher, author of Free Trade Doesn't Work, given at the Heritage Foundation. I recommend watching, and clicking through to order his book. Ian doesn't come from the left or right (watch him make this clear in the video) but instead just looks at trade with a scientific, fact-based, analytical approach.

Comparative Advantage?

Here is the most important point he makes, 20 minutes in (use that slider bar), in regards to the problem of moving factories to cheap labor countries. Comparative statics: Free-trade economists argue that cheap labor is a "comparative advantage." Fletcher explains that this means that if they are already making something more efficiently, today, then our best move today is to buy it from them. But it doesn't make sense to just pack up an industry and reassemble it in a different country with low wages because then you are doing nothing more then sending away your ability to earn a living.

Yes, as I said, some people make a bunch of money in the short term doing that. But "it's obviously going to cause a decline in our capacity to produce goods and services in the future."

Our Growth Is Outsourced, Like Our Jobs

Dave Johnson — Wed, 11 Aug 2010 14:00:51 -0400

In the news today, a familiar story: imports increased, exports declined. About $50 billion in one month alone. The trade gap isn't just costing jobs, it's a significant factor in the slow recovery as well. See below.

In 2005, when we were halfway down to where we went, I wrote a post at my own blog titled, The Trade Problem. With (my) permission, here is the entire post:

View of San Francisco from Sausalito.

See how this ship is riding high off the water? This ship is loaded with empty containers, bound for China.

Ships come into the port loaded with goods that we buy from China. But China doesn't buy very much from us. So we have to send ships back loaded with empty containers. (Well almost empty, they're actually filled with dollars, and jobs, and the future.)

June 2010 Trade Numbers: We're Back To Terrible

That was 2005, And now we're importing shiploads of stuff again, and sending the ships back filled with cash - and what's left of our future. The trade deficit widened to $49.9 billion in June,

The trade deficit in the U.S. unexpectedly widened in June to the highest level since October 2008 as consumer goods imports rose to a record and exports declined.

[. . .] Exports from the U.S. decreased to $150.5 billion from $152.4 billion, reflecting fewer shipments abroad of semiconductors, computers and steelmaking materials. Imports increased in June to $200.3 billion from $194.4 billion, led by telecommunications equipment, automobiles and consumer goods such as pharmaceutical preparations, televisions and furniture.

The quantity of imported petroleum increased, while the price per barrel fell to $72.44 from $76.93 the prior month, according to today’s report.

Trade Deficit Cuts Jobs And GDP

We are not just outsourcing jobs, we are outsourcing our own economic growth to others! Charles McMillion of MBG Information Services writes that, "the worsening trade deficit cut the Q2 GDP growth rate by -2.8%."

That is, if trade and production losses in Q2 had remained at Q1 levels, all other things equal, GDP would have risen at a 5.2% rate in Q2 rather than the actual estimate of meager 2.4% growth. Today’s report suggests BEA must now revise its estimate which could show the worsening trade deficit lowering the Q2 growth rate by a full -3.0% leaving growth at just 2.2% with, apparently, worse to come.

A lot of people think it's just "old stuff" like steel that is losing out. But look at this chart:

Note how the chart has to be extra tall to fit the huge decline in exports of advanced products. There are more charts with more bad news. (PDF)

Congress And The President's New "Make It In America" Initiative

Congress and the President are trying to do something about it, with the new "Make It In America" initiative. CAF's Bob Borosage in Politico today, Save American manufacturing,

More than 75 percent of Americans support a “national manufacturing strategy to make sure that economic, tax, labor and trade policies work together to help support manufacturing in the U.S.”

Not surprisingly, the Democrats’ lead initiative now is the National Manufacturing Strategy Act ... It calls for quadrennial review of U.S. manufacturing policy — including assessing strategic industries, reviewing tax and trade subsidies and requiring agencies to coordinate strategies.

. . . Obama’s “new foundation” for the economy offers first steps: public investment in 21st-century infrastructure, in education and training, in research and development. Yet these, slighted in years of conservative control, are necessary but not sufficient.

To ensure products are “made in America” requires hardheaded steps to balance trade and challenging the mercantilist countries, starting with China.

AAM: "Wrong Direction" and "Giving China Benefit of Doubt on Currency Falls Short

Alliance for American Manufacturing (AAM) Executive Director Scott Paul on this morning's latest monthly U.S. trade figures:

"The trade deficit is headed in the wrong direction, and that's bad news for American workers. ...

"The White House strategy of giving China the benefit of the doubt on currency has fallen short. The House and Senate must now step in and pass strong legislation to penalize China's currency manipulation and bring down our trade deficit. Over the longer term, we're encouraged that the recent focus by Congress and the Administration on 'Made in America' solutions to revitalize our manufacturing base and create jobs will bear fruit ...

"The drop in exports is also an enormous blow to the Administration's efforts to double American exports. ... The biggest internal obstacle is the lack of an aggressive strategy to boost American manufacturing. ...."

Are we right back to the "new normal" with even more jobs and industries being shipped overseas? Or are we going to learn from the past and do something about it this time? Conservative "free trade" and "free market" nonsense just doesn't work. It's time to leave that stuff behind instead of trying to accommodate and appease, and all the resulting backup that brought us, keeping us from moving forwards: We need "Buy American" in procurement. We need high-speed rail and local mass transit projects. We need a huge infrastructure rebuilding and modernization effort. We need the Local Jobs for America Act. We need a national Renewable Energy Standard. We need to set a high price on carbon. We need to build out the smart electrical grid. We need to address Chinese currency manipulation and trade violations. We need to restore taxation of the wealthy. We need free education for our people. We need to extend unemployment and COBRA subsidies for the "99ers." We need to increase the minimum wage. We need to pass the Employee Free Choice Act. We need Immigration Reform.

And this is just some of what we need. And these all just buy time until we can figure out how to restructure the economy by reforming who gets what for what and ideas of what "ownership" means, so that we can all move into a prosperous, progressive future.

Balance of Trade and Share of Global Manufacturing

Natasha Chart — Fri, 23 Oct 2009 10:10:53 -0400

Last time, we looked at manufacturing output per capita in the world's largest 20 economies. Taking at a smaller set of countries this time, I wanted to see how their ratio of exports to imports measured up against their share of global trade and the percentage of national GDP generated by their manufacturing industries over the last 30 years in five year intervals stepping back from 2008.

Included are China and the US, and five other countries with roughly US-equivalent standards of living: Canada, France, Germany, Japan and the United Kingdom.

The chart below puts the relative size of a country's manufacturing sector next to its export strength and share of world GDP. Looking at the balance of trade figures, only Canada, China and Germany are doing better at selling more than they buy than they were 30 years ago. Yet the three listed countries with a positive balance of trade, China, Germany and Japan, all have manufacturing sectors in excess of 20 percent of GDP. Of those, it's encouraging to see Germany having steadily improved their balance of trade while setting themselves up to meet their Kyoto emissions targets early.

There are countries that are in the business of "cashing out their intellectual assets" through outsourcing, and those who aren't. Productivity gains that decrease the manufacturing job pool aren't the only problem with keeping productive industries up and running.

Next time we'll take a look at how some of these measures compare with the number of manufucturing jobs.

By The Numbers

All figures, such as GDP and manufacturing GDP are from United Nations statistics. The world GDP and world manufacturing figures used to calculate the first row in the table were arrived at by adding entries for GDP and manufacturing output for all countries respectively, then using that number to calculate the percentage of global output generated by manufacturing activity. These figures have then also been used to calculate figures throughout the chart as described below.

(I have issues with the term 'world GDP', but it seems to get the point across.)

For each country, there's an export/import ratio, calculated by using UN reported figures for total exports and imports. Numbers greater than one indicate a positive balance of trade, numbers less than one indicate that a country is buying more than they're selling.

The following three rows for each country allow you to compare the percentage of national GDP generated by manufacturing, the percentage of global manufacturing output their national industry represents, and then their GDP as a percentage of world GDP.

Regarding China, as noted in this article about the largest manufacturing countries from 1990-2008, China's UN-reported data doesn't separate out manufacturing from mining and utilities. Figures for China's manufacturing sector are therefore inflated, as are the ratios calculated from them. The Curious Cat entry suggests that through 2005-2007, the manufacturing share of this figure should have been 78%, so we can guess that their recent numbers, at least, are off by a little over 20%.

Country	Indicator	1978	1983	1988	1993	1998	2003	2008
World	Mfg/GDP Ratio	25%	23%	23%	20%	19%	17%	17%
Canada	Ex/Im Ratio	1.02	1.15	1.03	1	1.05	1.11	1.05
	Mfg/GDP Ratio	17.5%	15.8%	17.5%	14.7%	16.9%	15.4%	13.0%
	% World Mfg.	1.6%	1.9%	2.0%	1.7%	1.9%	2.1%	1.9%
	% World GDP	2.3%	2.7%	2.5%	2.2%	2.1%	2.3%	2.5%
China	Ex/Im Ratio	0.93	1.1	0.92	0.92	1.27	1.08	1.14
	M-Mfg-U/GDP	44.6%	38.2%	38.0%	38.8%	39.3%	40.3%	41.5%
	% World Mfg.	4.1%	4.3%	3.5%	5.0%	7.4%	10.6%	17.3%
	% World GDP	2.3%	2.6%	2.1%	2.5%	3.5%	4.5%	7.2%
France	Ex/Im Ratio	1.03	0.95	0.95	1.05	1.11	1.04	0.91
	Mfg/GDP Ratio	21.0%	18.6%	16.6%	14.7%	14.6%	12.7%	10.7%
	% World Mfg.	4.5%	3.6%	3.7%	3.8%	3.9%	3.6%	3.0%
	% World GDP	5.4%	4.5%	5.1%	5.1%	4.9%	4.9%	4.7%
Germany	Ex/Im Ratio	0.91	0.88	0.99	1	1.05	1.13	1.15
	Mfg/GDP Ratio	28.5%	26.5%	26.5%	21.3%	20.6%	20.2%	21.0%
	% World Mfg.	8.8%	7.0%	8.1%	8.6%	8.1%	7.8%	7.4%
	% World GDP	7.8%	6.1%	6.9%	8.0%	7.3%	6.6%	6.0%
Japan	Ex/Im Ratio	1.18	1.14	1.28	1.32	1.21	1.16	1.01
	Mfg/GDP Ratio	28.8%	28.1%	27.0%	24.3%	22.5%	21.0%	21.3%
	% World Mfg.	12.0%	11.8%	17.8%	21.2%	15.6%	14.1%	10.1%
	% World GDP	10.5%	9.6%	14.9%	17.2%	12.9%	11.4%	8.1%
UK	Ex/Im Ratio	1.06	1.04	0.87	0.97	0.97	0.92	0.9
	Mfg/GDP Ratio	24.6%	22.2%	21.0%	18.4%	17.2%	12.5%	12.1%
	% World Mfg.	3.5%	3.7%	4.0%	3.6%	4.5%	3.7%	3.1%
	% World GDP	3.5%	3.8%	4.3%	3.9%	4.9%	5.0%	4.4%
US	Ex/Im Ratio	0.88	0.84	0.8	0.91	0.86	0.68	0.72
	Mfg/GDP Ratio	22.7%	19.6%	19.4%	17.1%	16.6%	13.6%	13.0%
	% World Mfg.	22.2%	24.5%	22.0%	22.8%	25.9%	23.6%	17.7%
	% World GDP	24.7%	28.5%	25.8%	26.2%	29.1%	29.5%	23.3%

G-20 Manufacturing: A Look At The Numbers

Natasha Chart — Tue, 20 Oct 2009 00:16:51 -0400

It's fairly common to refer to the world's wealthier nations as industrialized nations, though with the advent of outsourcing and widespread export-oriented development strategies, that term isn't as precise as it used to be. Then even if it were precise, discussions of global economic issues often involve numbers that we're ill-prepared to digest and have little to compare to; all the numbers just sound ridiculously large. This is an attempt to quantify industrialization and break it down for comparison among the 20 largest national economies.

So below are the manufacturing output and gross domestic product data for 19 members of the G20, excluding the European Union (which isn't a country,) and including Iran (which would be in the G20 if they were on better terms with the U.S.) broken down per capita and relative to each other.

The countries are ranked in order of their manufacturing:population ratio, or the per capita manufacturing share of GDP. The population figures can be compared to further add some perspective on how relatively industrial different nations are, and how productive (or industrialized) their economies are.

Relative productivity is also important to an understanding of manufacturing as a global industry because manufacturing job pools haven't only been shrinking within countries as investors and managers pit countries against each other on cost. In fact, the global pool of manufacturing jobs has been shrinking, at least in part because of increases in productivity.

A policy solution focused on boosting wages for the general world population might create enough demand to reverse that trend in declining manufacturing employment. Though in the current recession that seems unlikely. A U.S. Census Bureau report indicates that median U.S. income dropped 3.6 percent from 2007-2008, suggesting that a decline in consumer spending power was in full swing before the financial meltdown and subsequent tightening of the credit markets.

The next post in this series will look at the balance of trade as compared to national manufacturing and productive output for seven countries, including the U.S., China, and a selection of five countries with living standards comparable to the U.S.

G20 (w/o EU, +Iran)	Population*	2008 GDP**	2008 Mfg output**	Mfg:Population	Mfg:GDP
Germany	82,140,000	3,649,468,713,255	767,173,986,290	9,340	21%
Japan	127,704,000	4,910,691,611,512	1,044,573,591,840	8,180	21%
Italy	59,855,000	2,303,058,798,157	381,043,924,161	6,366	17%
United States	304,060,000	14,096,716,929,022	1,830,682,964,800	6,021	13%
Canada	33,311,000	1,502,198,148,431	195,141,329,938	5,858	13%
United Kingdom	61,399,000	2,666,266,099,179	323,014,231,511	5,261	12%
France	62,048,000	2,856,528,838,542	306,279,105,638	4,936	11%
South Korea	48,607,000	929,123,721,319	230,763,192,037	4,748	25%
Australia	21,374,000	1,016,897,316,528	100,814,383,824	4,717	10%
Mexico	106,350,000	1,081,683,289,858	196,798,970,122	1,850	18%
Russian Federation	141,800,000	1,676,587,800,343	256,176,482,781	1,807	15%
Argentina	39,876,000	333,322,390,163	70,904,305,110	1,778	21%
Turkey	73,914,000	741,448,415,136	117,362,508,155	1,588	16%
Saudi Arabia	24,646,000	467,600,800,000	38,736,800,000	1,572	8%
Brazil	191,972,000	1,595,497,752,838	237,337,404,166	1,236	15%
China~	1,325,640,000	4,327,024,438,542	1,399,427,894,063	1,056	32%
South Africa	48,687,000	276,445,740,280	46,691,753,078	959	17%
Indonesia	228,249,000	510,779,261,184	139,528,690,939	611	27%
Iran	71,956,000	346,611,390,279	36,510,371,841	507	11%
India	1,139,965,000	1,253,859,848,115	188,135,054,712	165	15%

Resources

* - 2008 population data (pdf); World Bank figures
** - 2008 GDP and Manufacturing output in current US dollars; United Nations figures
~ - UN manufacturing data for China isn't separated out from mining and utilities, used a 78% multiplier on the UN-supplied figure.

Trade Adjustments and Stimulus Packages in the Global Recession and Recovery

Mike Elk — Mon, 27 Jul 2009 12:09:41 -0400

Manufacturing is Major Contributor to Economy and Growth

Armand Biroonak — Tue, 07 Oct 2008 00:00:00 -0400

The manufacturing sector is responsible for more than 12 percent of America’s gross domestic product and pays for approximately 60 percent of the research and development work that has made America a technological leader.