Feb. 8, 2022

Today's Trade Deficit: The Cost Of The Supply Chain...

It's called a balance of trade for a reason. In an ideal world, with a properly functioning economy, all things should be in balance. The economy itself should be balanced. With production and consumption roughly equal.

And so to, trade with other countries should be balanced. This country trades its goods and materials with the rest of the world, in relative balance.

And there are several major economies that are currently operating that way. England, Mexico, India, and Japan, are all examples of countries with very small trade balances. Which swing between slight surplus or deficit depending on current conditions. But the point is that these economies are clearly in balance.

And there are in fact a couple of countries that report surplus trade results currently driven primarily by their generous natural resources. Those countries are Saudi Arabia and Russia, with their vast petroleum reserves, and South Africa, with its gold mines.

Of all the countries, that stand out for playing the international trade balance game the best, is China. With the world's second-largest economy overall, China has a trade balance that is the smallest compared to their overall economy.

In the past 25 years, only 5 times has China ever had a trade deficit. And those were extremely minor.

But if China runs the best Balance of Trade in the world. There is a country at the other end of the spectrum. A country that consistently runs the absolute worst Balance of Trade.

Now there have been some countries, like Spain right now, who for a year or two try to match this Profligate Champion, no other country even comes close to the 25-year record, of the worst Trade Imbalance In the World.

And the absolutely worst trade record over the past quarter-century goes to the United States. In this 25 year run, the US has never even come close to a trade surplus.

It's deficit after deficit.

And, as I pointed out just last week, in the latest Trade Good Report, the US Ended 2021 with a trillion-dollar deficit in Trade Goods.

I'm very sure, that no nation will ever match that record.

Now in just a couple of hours, the latest combined Trade Balance report will be produced. This report will include both Trade Goods and Trade Services. Fortunately, we do better in Traded Services, so this report will not match that trillion-dollar record.

For years now, we've deluded ourselves into believing that these American Trade Deficits weren't such a bad deal. Economists have touted the marginal advantage of low-cost foreign labor.

Multinational US Companies have been quick to exploit the cost advantage of manufacturing overseas.

Can you say Apple iPhone or Nike Sportswear?

I knew you could.

And politicians from Nixon to Biden, have been happy to cozy up to Beijing.

It has been a steady, unrelenting march, that has drained American coffers and enriched China.

But I have a feeling that all of this is about to come to a climax. The so-called supply chain mess is really the result of having so much of your retail products produced a thousand miles away, across a vast ocean.

Can you say Walmart and Amazon?

All of this is not an accident. It is by design. In their latest Annual Report, Microsoft reports that:

Our devices are primarily manufactured by third-party contract manufacturers

What they fail to tell you is that these third-party manufacturers are primarily outside the US.

Creating a business model in which most manufacturing is done offshore. Further enhancing our trade deficit.

Something that is not always distinguishable from the various product labels, which denote where a company is headquartered. But not always where a product is made.

We've seen the Trade Deficit's other side: the Supply Chain. Now it's not just a question of price.

It's also availability.

From medical equipment to Auto parts, companies in America are starting to run out of supplies.

So, in just a few minutes when the latest Trade Deficit is announced, consider it the price tag of our inability to manufacture goods here at home.

It's the running total of the cost of our Supply Chain.