Understanding trade

[snousle]

You know, XM radio's "Road Dog Trucking" channel might not be the best source of information about the economy. But one announcers heated rant about a truck parts manufacturer moving their operations to Mexico did inspire me to read a little more about US international trade.

There are a couple of things that protectionists completely fail to appreciate:

That the US is one of the largest exporters in the world, with 1.2 trillion in exports every year, just shy of 10 percent of the whole economy, and...

That you can't have exports unless you have imports!!! If foreigners don't sell things for US dollars, they won't have US dollars to buy American products!!!

This last point is critical. For all this talk of "sending jobs overseas" there is no recognition whatsoever of the jobs being sent OUR way, which protectionism would destroy. Why is this? Why are American export industries left out of the populist agitation equation? Do they somehow matter less? This is not a small oversight. Restricting trade could destroy whole sectors of the American economy, and... you guessed it, send it overseas. For reasons that are hard to understand, protectionists are quite ready to throw the baby out with the bathwater.

Yes, the US is experiencing a huge trade deficit right now, but addressing that with reflexive protectionism is a "buy now, pay later" strategy. Tariffs may be part of the solution, but it is quite disturbing that the people making the most noise over trade show the least understanding of what is being traded. The next person that tells me that the US "doesn't export anything anymore" is going to get a dirty sock jammed in his mouth followed by a three hour lecture on Ricardian trade theory.

An interesting summary of American trade can be found here:

http://import-export.suite101.com/article.cfm/americas_top_imports_exports_2008

Also worth reading is the Wikipedia article on balance of trade:

http://en.wikipedia.org/wiki/Balance_of_trade

Comments

[oscarlikesbugsy.livejournal.com]

I thought Navistar had already moved their production. Who's on deck? PACCAR?

The Savings-Investment figure for a country partly determines the interest rate and relative interest rates should drive the foreign exchange rate. That, in turn, will have some impact on the balance of trade in goods/services, with some lag. With a "strong currency", you can buy more goods; a weak one, not so much. However, it is not the only determinant. Clearly, comparative and absolute advantage in costs drives what is produced where, to some large degree (but with surprising exceptions), and that, in turn, drives the trade imbalance.

Now, there are theorists who will tell you with confidence that the exchange rate will rise or fall, so as to keep all these factors "in balance". But frankly, that equation is so complex that ... well, let's just say, at some point, it will clearly look like the US maybe had 'too good terms of trade for too long' and the markets could adjust abruptly and savagely.

The "blind spot" is another rightwing talking point. The thinking folks on the Left have only pointed out that lifting the world's poor out of poverty will come at a price in America. Bhagwati, for instance, thinks that's "okay", a willingly paid price/risk. But the evidence is around: The "jobless recovery" during the Bush-43 era, the decline in median real wages, the pressure that puts in polarizing our politics, the greater differences between the haves and have-nots in this country.

We still attract a relative good share of investment. However, the more the poor countries come out of poverty, the less that will be true, other things being equal.

Our "psychology" for dealing with a transition to being 'one of many' is not really there. Our massive military investment forbids it.

[broduke2000.livejournal.com]

Since you mentioned Navistar:

I need a wheel cyl for my '57 IHC. Up until a few years ago, it was $10. Now it's $72! The way it was explained to me: Before the Chinese boom, it was cheap steel. Now with the boom and a shortage of metals, it's actually worth more if they melt it down than if they sell it to me to fix my truck.

One word: Highway Robbery!

[oscarlikesbugsy.livejournal.com]

I'm not sure that the casting processes are up to making that high grade stuff, so it might be more than just a metal boom, it could be that they have to be manufactured stateside.

Last year, I found out about an outfit called "Frozen Rotors". They test the junk rotors coming from China (includes a lot of impurities) and take the ones up to spec, then they put them through their freezing process to harden them.

[danthered.livejournal.com]

Cryogenic treatment of metals to improve their performance characteristics is quite interesting. Very good article on the subject from an old Popular Science magazine.

[danthered.livejournal.com]

Get in touch with Ray at Old Car Parts Northwest. Tell him Dan Stern sent you.