Fast Track Faces Uphill Battle
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- BJohnson
- GeraldS_2
- GeraldS_2
- BJohnson
- GeraldS_2
- not_him_again
- BJohnson
- not_him_again
- BJohnson
- not_him_again
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» BJohnson - Gerald: Thanks for your responses to my explantions. Here are
Gerald:Thanks for your responses to my explantions. Here are my answers to your questions.
You said: This must also apply the other way around. Since there are only half as many Japanese as Americans and Japan exports 1.7 times as much to the U.S. as the U.S. exports to Japan, then the average Japanese must export 3.4 times as much to the U.S. as the U.S. citizen exports to Japan.
I'm afraid I do not understand what you are getting at here. My point was to illustrate that even if every American bought exactly the same amount (in value) of Japanese made products as Japanese buy U.S. products, there would still be a deficit simply because there are twice as many Americans as there are Japanese.
You said:Moreover, Japan is deficient in raw materials. I suspect that a good share of U.S. exports to Japan comes under that heading, for example Japanese factory ships off our west coast purchase logs from U.S. which they saw and plane and then sell back as finished lumber. I want to do a little more research on this.
This example is not entirely correct. In the your example, the raw material of trees are turned into another raw material, finished lumber. This hardly happens between U.S./Japan trade (Canada would be a better example of this). But this does touch upon yet another reason why I believe that countries like Japan are sometimes predisposed to run trade surpluses while countries like the U.S. are sometimes predisposed to run trade deficits. The following is an illustration:
Consider this: Japan is deficient in raw materials. So that means that Japan imports much in the way of low-cost, low-value raw materials. For which it then turns around and creates a finished product (i.e. a TV, an automobile, a main frame computer). The result often is a trade surplus.
Now consider this: unlike Japan, the U.S. is abundant in raw materials. Thus, it takes these low-cost, low-value raw materials and turns them into products. Moreover, it often exports raw materials. In addition, with the wealth America generates, it buys finished goods from abroad (Americans are consumers after all). The result often is a trade deficit.
Now, admittedly, this is a rather simplistic illustration. But is meant to demonstrate a point: there often are structural reasons why some countries may run a trade surplus, while others may run a trade deficit.
You said: In 1996 U.S. auto manufacturers produced just over six million cars (in domestic plants) while the U.S. imported over one million from Japan.
Again, I am not sure what your point here is. The fact is, Americans buy Japanese cars because they want them. If I determine that the 4WD Toyota pick-up is a better deal for me than the Ford Ranger, what's wrong with that? For every Japanese car imported into the U.S., there is an American who has chosen to buy it. Let's face it, Japan produces cars that Americans want to buy. Until very recently, American car companies did not produce cars that Japanese wanted to buy -- this is starting to change.
You said: I haven't been able to find statistics on services exported and imported with Japan. But after deducting services exchanged with Europe, Canada, Latin America and other western hemisphere countries, our trade surplus in services only was, for 1990, 17.7 billion, for 1992, 25.5 billion, for 1993, 36.1 billion and for 1994, 29.5 billion. Clearly, a large proportion of these figures much be with third world countries.
I don't have the link off hand. Check the BEA at the U.S. commerce Department. Also, the Survey of Current Business published by the U.S. Department of Commerce has these numbers. Most services exports by the U.S. are not to the third world. They go to Europe and Japan. Remember, much of these services are like computer programmers, network engineers, lawyers, accountants, architects, etc.
You said: While I have no doubt that a good deal of our trade deficit with third world countries results from this procedure, I am surprised that many American companies have subsidiaries in Japan where wages are higher than they are here. I would like to see some figures on this. But I shall have more questions on this matter.
American companies have a large presence in Japan. It makes no sense to have a joint venture between Intel and a Bangladesh electronics firm if the Japanese have the competitive advantage on manufacturing techniques for micro-circuitry. Fact is, for many, many, many advanced high-tech products, third world joint ventures just don't make any sense.
You said: Why don't they use this arrangement to manufacture some products in U.S. for shipment to Japan? Is this country so lacking of competent help that it is necessary to hire Japanese workmen?
They do, in steel, automobiles, semiconductors, flat panel displays, and hundreds of other ventures.
You said: Bryan, we are running trade deficits with almost every country of consequence. They should have a plentiful supply of dollars to buy anything they want in the U.S. and still have a bunch left over to dispose of.
You make it sound as if hardly anyone is buying U.S. goods and services. Don't you realize that the U.S. is the single largest exporter of goods and services in the world? Don't you think that the dollars necessary to purchase those goods and services need to be in abundance?
You said: Now I wish to suggest an idea that may surprise you, coming from me. I have decided that this long period of low unemployment, low inflation, rising stock market prices--just general "good times" are due to our trade deficits, not just with Japan, but with the rest of the world!!
Again, I am not sure what you are trying to get at. I know it is often difficult to think such, but it really is important to realize that the U.S. trade deficit is a sign of strength. IMHO , it is a reflection of our wealth. Can trade deficits be damaging? Of course. Do I think they are at harmful levels in the U.S.? Hardly. Is the trade deficit the most revealing aspect of international economic well being? Of course not. That's what the current account deficit is for.
If you don't mind me saying, I think you are a little too fixated on this Japanese angle. There is little in Japan worthy of replicating in the U.S. For whatever economic success Japan has achieved, it pales in comparison to the U.S. development experience. I suggest you read the new paper by the Cato Institute about, "The Rise and Fall of the Japanese Economic Model." I can't say I agree with everything in this paper, but you may find it interesting and worthy of your read.
Bryan
-- posted by BJohnson
» GeraldS_2 - Bryan, I have studied the link you recommended. The authors are
Bryan, I have studied the link you recommended. The authors are convinced that the Japanese economy is suffering while the U.S. economy is thriving. I wonder if their conclusions are not a bit premature! I suspect that we are seeing the first signs of a world depression which will almost surely drag our own economy down with the rest of the globe.My point is (and I am having difficulty in trying to explain it) is that our economy has been booming due to the injection into it of some hundred billion of foreign capital each year for the last twenty. The fact that the dollar has remained strong despite these huge current (trade and services) deficits shows that the nations realizing the current surpluses have not been converting the dollars received for their U.S. imports back into their own currency for investment in their own economy. Rather they have invested the bulk of these funds in our own economy.
Now if our congress runs a hundred billion budget deficit and the treasury (and the Fed) does not sell bonds to withdraw this money from circulation, this causes inflation, right? But if the treasury sells bonds, the inflationary trend is offset. Everything is rosy, except the hundred billion in bonds adds to our national debt.
But if we run a hundred billion dollar current deficit, we have the best of all worlds, (at first sight). The foreigners invest the funds buying treasury bills, stocks, or building auto plants. But the imports are keeping prices down. Both of these actions cancel inflationary pressures. It is also a fact that (the Japanese at least) sell their products in this country for much lower prices than they do in their own domestic market.
The problem is that the books have to balance. If they purchase treasury securities, they are assuming part of our debt. If they invest in capital items, we are selling some of our assets to them.....or rather, we are trading our capital assets for their merchandize!!
But they realize a degree of power over our economy. They are in a recession (as might be anticipated) as a result of this policy of foreign investment. The actions they take to correct their own problems can seriously affect our economy.
-- posted by GeraldS_2
» GeraldS_2 - Now to respond to your last message Bryan. You said: <blockq
Now to respond to your last message Bryan. You said:If you don't mind me saying, I think you are a little too fixated on this Japanese angle
Bryan, I am not fixated on the Japanese angle, but rather use Japan as a convenient example. But I am fixated on our continual and growing trade deficits. No one seems concerned about these. You even offer the opinion:
I know it is often difficult to think such, but it really is important to realize that the U.S. trade deficit is a sign of strength. It is a reflection of our wealth.
Bryan, that is equivalent to saying that if a guy who inherits a million dollars and blows it on fast automobiles and high living, it a sign of his wealth!!! That guy's wealth might last very long. When we run a trade deficit, that should be reflected in a weakening dollar, and the dollar should continue to weaken until a current balance is realized. Our nation is trading our wealth for imported merchandize. Like Esau, we are trading our birthright for a bowl of pottage.
My point was that even if every American bought exactly the same amount (in value) of Japanese made products as Japanese buy U.S. products, there would still be a deficit, simply because there are twice as many Americans as there are Japanese.
Bryan, the are four and a half times as many Chinese as there are Americans. Does that mean we should be running a trade surplus with China, exporting four and a half times as much to them as we import from them? A trade balance is the difference between exports and imports. Why not consider the production angle rather than the consumption one, saying that we import seventy percent more from Japan than they import from us. Then, since there are only half as many Japanese as there are Americans, each Japanese must produce three and a half times as much for export to the U.S. as each American must produce for export to Japan!
My point about raw materials was to indicate that Japanese exports to the U.S. are consumed by the populace, while American exports to Japan are (in large part) utilized in production. Almost all of the items we import from Japan contain raw materials that the Japanese imported.
Understand, I am not saying this is wrong. I do not advocate cutting off trade with Japan (or anyone else), I am simply trying to show that we cannot continue to run current deficits forever. Sooner or later, we are going to have to pay the piper, and I believe that time is imminent.
Now consider this: unlike Japan, the U.S. is abundant in raw materials. So that means that Japan imports much in the way of low-cost, low-value raw materials. For which it turns around and creates a finished product (i.e. a TV, an automobile, a main frame computer.
Yes, I understand this. Now let us get to the heart of the matter. Why don't we all, all of us Americans, simply sit on our cans and let foreigners do all the work and we will all lead lives of leisure. Let them make our cars, our cameras, our VCRs, our TV sets etc. We can provide some services, like transportation for them, but mainly we will provide services for each other! Then we can spend our time at the beach or travelling. ANSWER ME THAT!
-- posted by GeraldS_2
» BJohnson - Gerald: <i> Bryan, I have studied the link you recommended. T
Gerald:Bryan, I have studied the link you recommended. The authors are convinced that the Japanese economy is suffering while the U.S. economy is thriving. I wonder if their conclusions are not a bit premature! I suspect that we are seeing the first signs of a world depression which will almost surely drag our own economy down with the rest of the globe.
The U.S. is in no way immune to global economic trends. However, whether the U.S. economy is eventually brought down by global trends will have little to do with the U.S. trade deficit.
My point is (and I am having difficulty in trying to explain it) is that our economy has been booming due to the injection into it of some hundred billion of foreign capital each year for the last twenty. The fact that the dollar has remained strong despite these huge current (trade and services) deficits shows that the nations realizing the current surpluses has not been converting the dollars received for their U.S. imports back into their own currency for investment in their own economy. Rather they have invested the bulk of these funds in our own economy.
Of course, there are many reasons why the U.S. economy has been booming and other countries (like Indonesia) have been faltering. Nothing that can be said here would truly do justice to such a complex set of issues. However, for simplicity's sake, the reason the U.S. has been booming while other countries are faltering is because the U.S. has its economic fundamentals in order while other countries do not. The U.S. still remains the single best investment destination in the world.
My point is (and I am having difficulty in trying to explain it) is that our economy has been booming due to the injection into it of some hundred billion of foreign capital each year for the last twenty. The fact that the dollar has remained strong despite these huge current (trade and services) deficits shows that the nations realizing the current surpluses have not been converting the dollars received for their U.S. imports back into their own currency for investment in their own economy. Rather they have invested the bulk of these funds in our own economy.
I don't know what you mean by "huge current (trade and services) deficits." Surely, you are not referring to the U.S. As Alex is so found of correctly point out, these deficits are minuscule in comparison to the size of the U.S. economy (the only correct way of viewing them). While this deficit has increased slightly since a low of less than one percent of GDP in 1990, it remains below 2 percent of GDP and has gone down drastically from a high of just over 3 percent in 1986. I suggest you take a look at Alex's site Globalization FAQ in general and his U.S. trade balance chart in particular. In either case a trade deficit of less than 2 percent of GDP is not "huge" by any measure.
Now if our congress runs a hundred billion budget deficit and the treasury (and the Fed) does not sell bonds to withdraw this money from circulation, this causes inflation, right? But if the treasury sells bonds, the inflationary trend is offset. Everything is rosy, except the hundred billion in bonds adds to our national debt.
I admit that I am not a finance expert. This question would be better addressed to someone who is.
But if we run a hundred billion dollar current deficit, we have the best of all worlds, (at first sight). The foreigners invest the funds buying treasury bills, stocks, or building auto plants. But the imports are keeping prices down. Both of these actions cancel inflationary pressures.
Competition in general produces lower prices and higher quality goods and services than monopolies (most times). I am not sure what you are advocating, restricting competition?
It is also a fact that (the Japanese at least) sell their products in this country for much lower prices than they do in their own domestic market.
This is not a "fact." What is a fact is that the U.S. uses arbitrary and confusing antidumping and countervailing duty laws to attempt to "prove" your assertion. Read my (now several years old) study on Abolish America's Costly Anti-Dumping Laws which updates a 1993 study I wrote on the entire U.S. anti-dumping law procedure (I would be glad to send you the longer 1992 study in the mail).
The problem is that the books have to balance. If they purchase treasury securities, they are assuming part of our debt. If they invest in capital items, we are selling some of our assets to them.....or rather, we are trading our capital assets for their merchandize!!
I am not sure by whom you mean "we"? Surely, these decisions are made by individual Americans who have chosen to part with THEIR money for what THEY want. I am not sure of what you are advocating -- preventing Americans from deciding which is best for them?
But they realize a degree of power over our economy. They are in a recession (as might be anticipated) as a result of this policy of foreign investment. The actions they take to correct their own problems can seriously affect our economy.
It sounds like you have taken Tom Clancy's Debt of Honor a little too seriously.
Bryan, I am not fixated on the Japanese angle, but rather use Japan as a convenient example. But I am fixated on our continual and growing trade deficits. No one seems concerned about these.
While these deficits ARE growing historically from the mid 1970s as a base, they are much lower than figures from early in America's history. More importantly however, they are on a trend downward from the mid-1980s. The reason "no one seems concerned about these" is because most experts do not feel these deficits are a problem.
Bryan, that is equivalent to saying that if a guy who inherits a million dollars and blows it on fast automobiles and high living, it a sign of his wealth!!!
Yes, that is like saying that. Consumption is NOT a deficit. You must understand this simple idea. Otherwise, it makes no sense to move forward from there.
Our nation is trading our wealth for imported merchandize.
Again, who is this "our." It is not "our" wealth. It is the individual's wealth who has chosen to part with it.
Like Esau, we are trading our birthright for a bowl of pottage..
Hmmm, well if a person chooses to trade his or her "birthright" for a bowl of "pottage," I am afraid that there is nothing that either you, or I have to say about it. It is their business.
Bryan, the are four and a half times as many Chinese as there are Americans. Does that mean we should be running a trade surplus with China, exporting four and a half times as much to them as we import from them?
Of course not! I was trying to use a simple metaphor to explain a complex issue. I see that it has failed. Thus I will no longer try to use this example.
A trade balance is the difference between exports and imports. Why not consider the production angle rather than the consumption one, saying that we import seventy percent more from Japan than they import from us. Then, since there are only half as many Japanese as there are Americans, each Japanese must produce three and a half times as much for export to the U.S. as each American must produce for export to Japan!
Why does this present such a hurdle for you? Americans consume more of what they produce. Moreover, America creates so much wealth that they consume many foreign goods and services too. Japanese do not consume at the levels of Americans (for many, many, many reasons) So what? Are you advocating that Americans should live like Japanese?
My point about raw materials was to indicate that Japanese exports to the U.S. are consumed by the populace, while American exports to Japan are (in large part) utilized in production. Almost all of the items we import from Japan contain raw materials that the Japanese imported.
Again, I see no problems here. I am sure you would not find many middle class Americans that would swap their lifestyles with middle class Japanese.
Understand, I am not saying this is wrong. I do not advocate cutting off trade with Japan (or anyone else), I am simply trying to show that we cannot continue to run current deficits forever. Sooner or later, we are going to have to pay the piper, and I believe that time is imminent.
This seems to be the biggest stumbling block for you. But as Alex has continually pointed out (and I too on occasion), the current account deficit presents a far more accurate picture than the simple trade deficit numbers you continually refer too. You seem to completely neglect the billions of dollars Americans invest abroad each year and the hundreds of billions Americans own in foreign holdings. Moreover, these deficit numbers are minuscule compared to the size of our economy AND they are generally shrinking from their rates in the mid-1980s. The reason people do not seem too concerned over them is because most experts do not feel these rates warrant much attention, nor concern.
Why don't we all, all of us Americans, simply sit on our cans and let foreigners do all the work and we will all lead lives of leisure. Let them make our cars, our cameras, our VCRs, our TV sets etc. We can provide some services, like transportation for them, but mainly we will provide services for each other! Then we can spend our time at the beach or travelling. ANSWER ME THAT!
Gerald, despite the tone of the question I will treat it fairly. The scenario you describe is a bit absurd. The U.S. is not simply a producer of services. Moreover, the services we are world leaders in are not necessarily as trivial as "transportation." Indeed, the U.S. is the world leader in high tech services such as computer network engineering, computer programings, medicine, business management, etc., etc. In addition, the U.S. also is a global leader in the production of many high-tech goods like microprocessors, eight cylinder engines, main frame computers, precision measuring equipment, aerospace technology, etc., etc., etc.
Now, a more appropriate example is: why not let other countries sew the washing instructions on the backs of our sweaters, glue the soles on our tennis shoes, put the little plastic tips on our shoelaces, while we design and manufacture Pentium II processors and develop mining mission to Mars so we can make even more high tech goods?
Bryan
-- posted by BJohnson
» GeraldS_2 - Bryan, I am sorry about the tone of the last question....I shoul
Bryan, I am sorry about the tone of the last question....I should have reread it. I didn't mean it to sound sarcastic.I have read (no, studied) Paul Krugman's "Pop Internationalism". I find it totally illogical and am writing a critique to show the errors in his "proofs". More later.
-- posted by GeraldS_2
» not_him_again - Brian Carpenter I am sorry I did not get to see this earlier...
Brian Carpenter I am sorry I did not get to see this earlier... its just what I am always looking for.Bryan, would you care to offer an opinion as to what you expect the downturn in 1999 to be like, assuming there is one? If not, what do you foresee for the US economy before the 2000 elections?
Thanks.
-- posted by not_him_again
» BJohnson - Hi Brian! And thanks for visiting my page. I have sworn aw
Hi Brian!And thanks for visiting my page.
I have sworn away from predicting ever since I predicted that the Buffalo Bills would win a Superbowl before 1995 (I made this in 1989, despite the fact that I am a hardcore Miami fan).
In any event, I am not a forecaster by trade, my work generally involves analysis of public policy issues and performing statistical anaysis of various economic data, of which, I allow others to use to make predictions.
Having said that, it does not take an expert to realize that there is a good chance of an economic downturn before the next Presidential election. But there are many factors to consider: Federal Reserve policy; how quickly Japan recovers; whether the Asian Financial crisis can be contained; what kind of policies are adopted by those countries most affected by the crisis; how well key U.S. industries like agriculture, automobiles, semiconductors, and steel are hit, etc.
Still, there are those that continue to argue that trade, while important, remains a small portion of our economy and that the U.S. can withstand such turmoil.
At this point, it is too early for a novice like me to get a real handle on how severe any downturn will be. Hell, many continue to predict that the U.S. will not suffer such economic turmoil.
In any event, if I see any significant material on this issue, I'll post it here.
Bryan
-- posted by BJohnson
» not_him_again - Brian Carpenter thank you very much for taking time from your p
Brian Carpenter thank you very much for taking time from your professional duties to answer my question, Bryan.I realize this is a prediction, but it is also public policy related- do you expect another NAFTA extension vote next year? And do you care to offer any comments on that?
Thanks for any information you wish to share, now or in the future.
-- posted by not_him_again
» BJohnson - Brian: My sources on the Hill have said that the fastr track
Brian:My sources on the Hill have said that the fastr track bill is "just about as dead as dead can be." Last year's H.R. 2621 introduced by Archer turned many Republicans and Democrats off.
Still, there may be an effort to revive the issue next year. The question is, what kind of chances does it have of passing. Quite frankly, I don't put its chances above 10 percent of passing before 2001.. People are concerned about the massive trade deficit numbers that are sure to rise over the next several quarters.
Also, there are those that are concerned that the Y2K problem will all but stop much of international commerce after January 1, 2000. Thus, people's focus will be on solving this issue, rather than on expanding trade.
The bottom line: don't bet on fast track passing anytime soon.
Bryan
-- posted by BJohnson
» not_him_again - Brian Carpenter Again, thanks Bryan.
Brian Carpenter Again, thanks Bryan.-- posted by not_him_again
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