Please give that chart more than a quick glance. There’s a lot going on that’s worth a bit of reflection.
In particular, note the falling trendline in US service exports since 2015.
Also note the surefire way to help reduce the trade deficit: Sponsor a recession.
Neither Good Nor Easy to Win
Now let’s reflect for a moment on one of my favorite Trump Tweets.
U.S. Dominance in Global Services Weakens
Adding to Trump’s trade war misery, U.S. Dominance in Global Services Weakens
While the U.S. usually runs a deficit in goods, it actually runs a surplus in services. Yet that surplus is shrinking. Exports of services barely rose in the first nine months of 2019, while imports rose 5.5%, the Commerce Department said. The services surplus, at $178.5 billion through September, was down 10% from a year earlier, on pace for its steepest annual decline since 2003. October data are due out Thursday.
The services pullback is significant because in the last half-century the U.S. has evolved from an industrial superpower into the undisputed champion of the global services economy. From 2003 to 2015, the U.S. trade surplus in services such as medical care, higher education, royalties and payments processing nearly sextupled to $263.3 billion.
The U.S.’s largest export isn’t cars or soybeans but spending by foreign visitors on food, lodging, tuition, health care and other items. These exports, collectively labeled “travel services,” were down 0.6% in the first nine months of the year to $160.5 billion.
The trade war with China appears to be taking a toll. U.S. immigration officials have ramped up scrutiny of visa applications by Chinese students, tourists and medical patients seeking treatment in U.S. hospitals. Beijing this year advised its citizens to reconsider visiting or studying in the U.S. due to heightened scrutiny at the border and frequent “shootings, robberies and thefts” on American streets.
In September, FedEx Corp. reported a drop in revenue and profit, and disclosed plans to retire or idle dozens of cargo planes due to rising trade tensions and a slowdown in the global economy. “Weakening global trade and industrial production have resulted in less-than-expected demand for our most profitable Express package and freight services,” Chief Financial Officer Alan Graf said in a conference call. “Adverse changes in international trade policies and relations would likely drive additional weakness in our business.”
Steel Surprise
Yesterday I reported Trump Surprise Tweet Restores Steel and Aluminum Tariffs.
It cannot possibly help.The global car industry is already faltering and Trump is hell bent on raising the price of steel and aluminum.
Trump also Eyes More Airbus Tariffs. I sarcastically commented, hey, why not?
Here’s a Recession Warning: ISM Contracts 4th Month.
US Parts Not Needed
Why should anyone be surprised that manufacturing is suffering when there are headline news stories like this: China No Longer Needs US Parts in its Phones.
Q: How did that happen?
A: Trump cut off supplies so China looked elsewhere.
This was going to happen anyway but Trump accelerated the process.
FedEx Freight Concerns
Highlighting FedEx concerns, recall that Freight Volumes Negative YoY for 11th Straight Month.
Losing is Losing
It’s true that the US can apply more tariffs on China than China can on the US. But losing less is not winning.
Besides, who is hurt more when Trump ramps up scrutiny on Chinese students? The US or Chinese students?
These trends started long before Trump. But that does not excuse Trump’s economic ignorance.
Trade Blames NAFTA
The US has a massive budget deficit. It needs to import money. And the US has the world’s reserve currency. Combine that with the end of gold standard and Trump is fighting a battle that cannot possibly be won by tariffs.
Trump blames NAFTA. It’s a ridiculous idea.
As I have pointed out before, this all goes back to Nixon.
After Nixon closed the gold window, there were no constraints on either trade deficits or budget deficits.
Gold provided a trade enforcement mechanism that cannot be fixed by tariffs, blaming the Fed, or throwing temper tantrums.
By trying to fix a problem that cannot be fixed by tariffs, Trump managed to escalate a decline in services that began in 2015.
It is likely not a coincidence that the acceleration in the decline of the US services surplus coincides with Trump’s absurd announcement “Trade wars are good and easy to win.”
Impossible Mission
Finally, please note Trump’s Impossible Fight to Stop Theft of Ideas.
Once again, tariffs cannot possibly be the answer.
Mike “Mish” Shedlock
These trends cross presidential terms. While I agree Trump may be exacerbating the problem, he’s not the root cause.
KidHorn – ” While I agree Trump may be exacerbating the problem, he’s not the root cause.”
Neither is he the root solution. Nor does he seem to have any solutions in mind that hold any hope for remedying the problems.
It’s no mystery – it’s what happens when you marry a fiat money system with a welfare system, in the process creating a quite extraordinary level of debt. If professional investors, much less the man in the street, actually understood ‘money’ they’d have you invested in gold in a heartbeat. Sadly, 99.999% of people on this planet are clueless. Oh well, not my problem ..
It was impossible to move a billion Chinese from mud huts and Maoism to comparative modernity in 40 years without massive ripple effects in the global economy.
For me, the scary thing is that Americans are still stupidly buying Chinese trinkets, sucking up $100 billion annually of Mexican dope and partying like it’s 1945.
abend237-04: Americans buy Chinese trinkets because they are cheap and have utility. If the US could manufacture items of a similar quality and an equal or lower price, Americans would buy ours. Anyone who thinks otherwise has a lot more money than the average American. If you don’t know what it means to be one broken refrigerator or one busted transmission away from economic disaster (as is the case with about 40% of our population – many Trump voters by the way) you really have no right to criticize anyone for “buying Chinese trinkets”.
Much of the Chinese originated items are crap. Cheaper, crappier items. Rarely the same quality as American designed made in China items. Planned obsolescence that is American unfortunately and ultimately the ruin of American manufacturing. Next time you have your appliance repaired, ask the repairman about it. They will tell you what is junk, why it breaks down, etc. The combination of cheaper parts and having the Chinese (and other nations) manufacture them increases your cost in the long run. But ask the lobster how the water is. By the time he’s complaining….
The larger trend for declining net exports of goods started over half a century ago. Declines have occurred regardless of the party of the President. No President in the past 50 years has had a positive net export of goods. The idea that a service economy would make up for lost manufacturing jobs clearly has fallen flat. Something much larger than any President or party has caused this.
“Something much larger than any President or party has caused this.”
…..as Mish keeps pointing out…
Peak services Q1/2015.
Trump presidency starts at Q1/2017.
Wasn’t a trend already set by this point?
Shhh… he’ll put tariffs on them!
So when the service surplus was declining in the late 1990s, what was that ? I would hardly call what’s happening a collapse given it back to 2014 levels.
Late 90s was obviously Trump’s fault, as everyone with TDS can tell you and will tell you even if you laugh in their face. Any temporary improvements in the interim were caused by Obama’s aura, of course.
And these people wonder how Trump got the better of them