It just never ceases to amaze me how swiftly the people at the top of the US pyramid are about turning over our entire nation’s remaining industrial base to foreign entities. Actually, we started this with our entire shipping industry many years ago. The means of not only transporting imports into our nation was entirely turned over to foreign powers, we turned over all our exporting shipping to foreign powers. At first, our WWII allies did this. Then our WWII foes joined in.
Today, Europe does the majority of shipping to East Coast ports and Asia, to West Coast ports. Except for cars. All car cargos are carried on nationalist ships. For example, German ships carry German cars. Japanese ships carry Japanese cars. Now, as our domestic ownership of our own auto industry is rapidly coming to an ignoble close, our media assures us that will will still have cars and even some pitiful jobs making cars thanks to our dire trade rivals being ‘merciful’ to us. Isn’t that cute? As I keep saying, the real ball that is bouncing here is trade, not finance. Finance is a SYMPTOM, not a cause.
CLICK HERE LARGE PRINT EDITION:AUTOMATIC MISERY « Culture of Life News 2
This graph shows how our balance is increasingly unbalanced. The only time imports go down for more than a few weeks, is during major, global recessions. Note, too, how this graph shows the recovery of growth in imports took less than 2 years. The present climb from 2002-2008 is nearly triple the rise from 1994-2000. This unsupportable trade is being forced downwards despite heroic efforts of global media and global banks as well as all the leaders of the G20 nations.
They all dearly wish to continue as was in the past. The death of the US auto industry is all over the news today. And our leadership keeps talking about replacing well-paying, unionized jobs with mysterious ‘other jobs’ of unknown quality and quantity. The other day, a reader kindly sent me a book to read. DHL delivered the book to my mountain. I asked the driver about the looming withdrawal from US markets and his impending job loss.
‘I don’t mind,’ the cheerful young man said. ‘I will go to school and become a computer programmer.’
I said, ‘I hate to tell you this, but one of the jobs suffering the most outsourcing to foreign countries is exactly computer programming. I know a number of guys who can’t get work after graduating.’ The poor kid looked at me in disbelief. He couldn’t comprehend that his plans he was hatching were doomed from the very start. He thought it was still 1999 when computer programming jobs were all the rage. Within my own family, members had to shift gears and change majors due to the insidious loss of these sorts of jobs to overseas employment centers, mostly in China and India.
But many industry experts say the big foreign makers are established enough to take control of the industry and its vast supplier network more quickly than is widely understood.
“You would have an auto industry in the United States more like that of Mexico and Canada: foreign-owned,” said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich….The transition to that new equilibrium would surely be painful. The big American companies employ about 240,000 workers, and their suppliers an additional 2.3 million, amounting to nearly 2 percent of the nation’s work force.
The outright failure of General Motors would eliminate the biggest auto employer and more than 100,000 manufacturing jobs. That is roughly the number of jobs already lost this year at the nation’s automakers and their suppliers.
My own graph is much more dramatic. US auto employment is plunging to 0% of the US workforce. Foreign employment is rising but far, far slower than the losses. When I go to the deep sea port in New Jersey, I see acres and acres of parking lots waiting for unmarked foreign ships to dock and disgorge millions of cars made overseas for foreign-owned corporations. South Korea, Japan and Germany being by far, the major shippers.
All of this happened after the Plaza Accord, signed on September 22, 1985 :
7. The current sustained expansion is occurring within a framework of declining inflation, a phenomenon that is unprecedented in the past three decades. Inflation rates are at their lowest in nearly 20 years, and they show no signs of reviving.
8. There has been a significant fall in interest rates in recent years. Apart from welcome domestic effects this has been particularly helpful in easing the burden of debt repayments for developing countries.
9. This successful performance is the direct result of the importance given to macroeconomic policies which have reduced inflation and inflationary expectations to continued vigilance over government spending, to greater emphasis on market forces and competition, and to prudent monetary policies.
10. These positive economic developments notwithstanding, there are large imbalances in external positions which pose potential problems, and which reflect a wide range of factors. Among these are: the deterioration in its external position which the U.S.experienced from its period of very rapid relative growth: the particularly large impact on the U.S. current account of the economic difficulties and the adjustment efforts of some major developing countries; the difficulty of trade access in some markets; and the appreciation of the U.S. dollar. The interaction of these factors– relative growth rates, the debt problems of developing countries, and exchange rate development– has contributed to large, potentially destabilizing external imbalances among major industrial countries. In particular, the United States has a large and growing current account deficit, and Japan, and to a lesser extent Germany, large and growing current account surpluses.
11. The U.S. current account deficit, together with other factors is now contributing to protectionist pressures which, if not resisted, could lead to mutually destructive retaliation with serious damage to the world economy: world trade would shrink, real growth rates could even turn negative, unemployment would rise still higher, and debt-burdened developing countries would be unable to secure the export earnings they vitally need.
12. The Finance Ministers and Governors affirmed that each of their countries remains firmly committed to its international responsibilities and obligations as leading industrial nations. They also share special responsibilities to ensure the mutual of their individual policies. The Ministers agreed that establishing more widely strong, non inflationary domestic growth and open markets will be a key factor in ensuring that the current expansion continues in a more balanced fashion, and they committed themselves to policies toward that end. In countries where the budget deficit is too high, further measures to reduce the deficit substantially are urgently required.
13. Ministers and Governors agreed that it was essential that protectionist pressures be resisted.
This treaty is infuriating, isn’t it? Very swiftly, the major parties here in the Trade Burmuda Triangle began a furtive and vicious struggle for power. The game was to somehow restrict trade while flooding the US with goods. The Germans did this by heavy social service taxes and the Japanese, by crushing the ability of Japanese consumers to get a hold of cheap credit.
The contribution of the Japanese auto industry to the country’s economy is large. Not only does the industry accounts for 10% of employment, but also contributes over 10% to the output of the manufacturing sector.
In the US, our auto employment was over 5% once upon a time, namely, before the broken promises of the Plaza Accords. Japan relies very heavily on their auto export business for domestic employment. Note here that except for the 1999 Asian Currency Crisis period, starting in 2002 when Greenspan made credit ridiculously cheap and lenders made borrowing ludicrously easy, Japanese auto exports shot upwards. This, and the rising incomes in OPEC nations and China, boosted exports hugely.
If anyone imagines Japan letting foreigners flood their markets with cheap cars from, say, China, are nuts. The Japanese worry about the free trade bugaboo. They desperately need ‘free trade’ but emphatically not within Fortress Japan.
The Government of Japan noting that the Japanese economy is in an autonomous expansion phase mainly supported by domestic private demand increase will continue to institute policies intended to ensure sustainable non inflationary growth: provide full access to domestic markets for foreign goods; and the Yen and liberalize domestic capital markets.
In particular, the Government of Japan will implement policies with the following explicit intentions.
1. Resistance of protectionism and steady implementation of the Action Program announced on July 30 for the further opening up of Japan’s domestic market to foreign goods and services.
2. Full utilization of private sector vitality through the implementation of vigorous deregulation measures.
3. Flexible management of monetary policy with due attention to the yen rate.
4. Intensified implementation of financial market liberalization and of the yen, so that the yen fully reflects the underlying strength of the Japanese economy.
5. Fiscal policy will continue co focus on the twin goals of reducing the central government deficit and providing a pro-growth environment for the private sector. Within that framework. local governments may be favorably allowed to make additional investments in this FY 1985, taking into account the individual circumstances of the region.
6. Efforts to stimulate domestic demand will focus on increasing private consumption and investment through measures to enlarge consumer and mortgage credit markets.
None of these things remained in force after a decade. Japan had to search and scratch around a bit to find ways of circumventing these Plaza Accords they signed. Finally, they discovered a wonderful tool: they would soak up excess US trade dollars in the Bank of Japan’s FOREX reserves and then dare the US to stop them. For this was one of the main tools for killing ‘inflation’. That, and the nifty tool of moving jobs to cheaper labor venues while not putting tariffs on the return trade and of course, the other tool used by Germany, that is, high taxes cutting into discretionary income spending.
The US exported more cars to Japan in 1985 than today. MIT SMR Article, “Are U.S. Auto Exports the Growth Industry of the 1990s?” – Fall 1993 Michael Smitka.
Japan has no more rabbits to pull out of the hat — its automotive production system has matured, and the industry is in decline. So argues the author, who shows how exchange rates, demographics, and the increasing sophistication of U.S. management are causing a shift in relative competitiveness. Furthermore, these changes affect most Japanese industries, and U.S. managers should be prepared to take advantage of them.
*This article from 1993 is so sad. Japan fixed that hole through which the US automakers hoped to drive by simply letting lending collapse inside Japan. The Japanese kept this depression going for they need to prevent domestic consumption from rising and thus, killing a great trade business. Japanese people accept this situation since they know that if they open up Fortress Japan, China, not the US, will flood them instantly with cheaper goods. This is why all G20 meetings end in a farce.
Everyone feels safe, calling on the US to increase our debts and consumption rates. Not a soul is demanding Japan do likewise. Now, let’s look at the Plaza Accord’s promises signed by the US:
The United States Government is firmly committed to policies designed to: ensure steady non inflationary growth; maximize the role of markets and private sector participation in the economy; reduce the size and role of the government sector; and maintain open markets.
In order to achieve these objectives, the United States Government will:
1. Continue efforts to reduce government expenditures as a share of GNP in order to reduce the fiscal deficit and to free up resources for the private sector.
2. Implement fully the deficit reduction package for fiscal year 1986. This package passed by Congress and approved by the President will not only reduce by over 1 percent of GNP the budget for FY 1986, but lay the basis for further significant reductions in the deficit in subsequent years.
3. Implement revenue-neutral tax reform which will encourage savings, create new work incentives, and increase the efficiency of the economy, thereby fostering non inflationary growth.
4. Conduct monetary policy to provide a financial environment conducive to sustainable growth and continued progress toward price stability.
5. Resist protectionist measures.
Just like Saturday’s G20 Kabuki Theater, the US promised to not protect ourselves from excessive imports pouring into our nation’s ports. This demand is cheerfully signed by all our Presidents since Reagan decided to work for the Japanese. We must not forget that they paid him over $2.5 million to give an addled, short speech due to his brain damage. They mostly didn’t understand what he was saying. But him being there to collect his bribes was the most important message. One that all of Asia understood quite clearly.
Here is an old news broadcast about the Plaza Accords:
And here is the latest unemployment map from the St. Louis Federal Reserve:
Michigan and Mississippi both have unemployment rates above 7%. Ohio, Kentucky, South Carolina and California are all above 6.3%. Nearly the entire eastern half of the United States is over 5% unemployment. Ditto, the entire West Coast. Imagine if 10% of Americans were employed in making our own cars! Wouldn’t that change this map a tad? Now, back to the Mad Hatter world of US media. The New York Times loves to write about the economy, yet, mysteriously, it is 100% pro-free trade!
Given Chrysler’s weakness, the new kings of the auto industry would presumably be Toyota, Honda, Nissan, Volkswagen, Ford, Mercedes-Benz, BMW and Hyundai-Kia. (Volkswagen has not yet opened a plant in the United States, and BMW and Hyundai each have one plant.)
Like the Big Three, they would together dominate manufacturing in the United States, becoming big customers for steel, aluminum, plastics, glass, machine tools, computer chips and rubber.
Even in this year of plunging car sales, the automakers and their vast supplier network still account for 2.3 percent of the nation’s economic output, down from 3.1 percent in 2006 and as much as 5 percent in the 1990s, according to government data. More significant, economists say, 20 percent of the shrinking manufacturing sector is still tied to the automobile industry.
We cannot have a growing economy if our biggest industry is in sharp decline. This isn’t a simple matter of our banks giving us more loans to buy more cars. This is a national crisis that will turn us all into serfs if we don’t stop consuming foreign goods. The ravaging of our industrial base is malicious and deliberate. We can see from the Plaza Accords that even President Reagan didn’t want to make the US auto industry die totally!
Yet here we are, a few years later, doing exactly that. When Japan began buying our national debt as well as squirreling away nearly a trillion dollars in their FOREX reserves, the US auto industry was running at 5% of our national output. Even last year, it was still 3%. But now, the contraction is killing it totally. It can’t fall much further without vanishing.
Half of this is our own fault: we wanted tax cuts and much, much greater military spending. So we merrily trotted off to sell our birthright to nations we nuked in the past. As if the Japanese have forgotten that small detail!
The American automakers, of course, have bought more and more parts from overseas. But 85 percent of their products are made in North America, compared with 60 percent for the foreign-owned automakers, said Dan Luria, research director at the Michigan Manufacturing Technology Center….Vehicles built entirely abroad drive down the percentage at the foreign-owned automakers. The popular Toyota Prius, for example, is not yet manufactured in the United States. That will come soon, Toyota says. But given worldwide demand for the car, Toyota achieves economies of scale by centering production in Japan rather than using multiple sites.
Such an inclination on the part of foreign companies to keep their production out of the United States helps to explain the push by the Democrats in Congress to provide aid to keep the American automakers alive. The federal help would probably go first to G.M., which says it will run out of cash by early next year and be forced out of business without federal help….But if the current downturn is prolonged, it might be too late. In an industry capable of making 17 million cars a year, sales have dropped to an annual rate of only 10 million vehicles made here.
“None of the Big Three — and perhaps not the transplants — can make money at 10 million,” Mr. Luria said. “The transplants are O.K. at 12 million and the Big Three at 15 million or so.”
Why on earth would all our trade rivals want more than token plants here? They are not stupid. We are certainly stupid. Of course, the New York Times reporter should suggest that all this would vanish in a flash if the US were to impose significant trade barriers. Or we can do the other very smart thing: imitate our trade rivals. Both Germany and Japan restrict the purchase of foreign goods the simple way: they tax gasoline very heavily, much higher than the US. And they have significant Value Added Taxes. And higher income taxes. And harsher lending rules.
This restricts buying! In Japan, car ownership is dropping, not rising. Hard to penetrate a market that is declining! The US cannot merrily have the exact opposite rules of trade rivals. Either we totally imitate them or we have huge barriers that are external. The present system is stupid.
I notice a number of romantic thinkers online who imagine the cure is to have no social services and no controls at all. This is how the Third World runs. And we will be third world in no time flat if we do this. None of the nations eating into our gingerbread economic house are third world manufacturing nations. They are either socialist or communist. India is eating our jobs but not exporting high-value-added manufacturing goods. Yet. There is a strong move to socialize India, they even have a very active communist party there, unlike the US.
Net Exports’ Recent (and Surprising?) Contribution
to GDP Growth
What explains the surprising strength of net exports? Net exports depend positively on foreign demand, but negatively on domestic demand. In the past few months, the U.S. economy has experienced sluggish growth compared with the major trading partners.
Thus, the U.S. demand for foreign-produced goods and services stalled, while the
demand for U.S.-produced goods and services remained strong. An additional boost to net exports likely came from the depreciation of the dollar against the currencies of major
U.S. trading partners in the first half of the year. The net effect has been a significant unexpected export boom during which the trade balance has behaved as a countercyclical variable, in a fashion similar to episodes of sluggish growth.
Answering the second question involves a look at history. So, can we expect this contribution to last? The forecasts of lower world GDP growth as a result of recent financial turmoil and U.S. dollar appreciation over the past few weeks might further curb net exports growth.
History also suggests that large contributions of net exports are rare events in the United
States. However, if the demand for U.S. products from abroad weathers the current financial turbulence, the net export component of GDP might continue to be significant.
The growth of exports is growing. But note that IMPORTS are now growing faster than the rising growth of exports. The export growth rate is still barely higher but momentum is on the side of the nations selling to us, not the reverse. Nd government expenditures are growing, rapidly. This means much of our vaunted GNP growth is fake. Just like our entire banking system is fake.
The Financial Times reports the run on the bank scenario mooted by TTAC– bankruptcy-wary suppliers demanding cash-on-the-nail for goods and services– may be going down across the pond. “Troubled US carmakers General Motors and Ford Motor have been given a potentially devastating vote of no confidence by three big European credit insurers [Euler Hermes, Atradius and Coface], which have removed cover from their suppliers. The withdrawal of credit insurance – which covered suppliers against the risk of the car companies’ failing – has previously hastened the demise of a string of European companies, with suppliers to retailers and construction companies finding cover increasingly hard to come by.” The FT reports that the move leaves only three possibilities, all them swirling around a bathtub full of Not Good: “GM and Ford can start paying upfront for goods; they can hope their suppliers will trade uninsured; or they could be unable to buy the parts they need for car production.” [Thanks to Uncommon Sense for the link]
The US auto industry is being shorted and hounded. And will go bankrupt. Trade is very much a part of this collapse. For our major industries need insurance and lending so they can run their business overseas. Imagine the Bank of Japan leaving its own exporters to flounder and die! IMPOSSIBLE. I can’t even begin to conceive of this happening there. Any more than China letting their growing industrial base shrink at the wrong points.
China wanted to ditch the ‘Dollar Store’ manufacturing sector that has flooded American homes with odd bits of brick brack and toys. They certainly want a powerful automobile market, controlled by themselves. To gain the ability to do this, to learn the modern, Japanese systems, they let Japan in. Japan is very nervous about this. They know the Chinese will not let them run China’s auto industries by 2020. So the Japanese try to keep the bulk of the most modern parts out of China. Just like they will not let any Prius cars be assembled in America.
Bank of America Corp., the company that’s buying Merrill Lynch & Co., plans to almost double its stake in China Construction Bank Corp. to about 19.1 percent.
Bank of America will exercise its option to buy shares in China Construction from China SAFE Investments Limited, the Charlotte, North Carolina-based company said today in a statement. The U.S. bank said it expects the transaction to be completed by the end of this month.
And our banks, after being capitalized by the US taxpayers, are taking the loot and running off to Asia to expand Asia’s infrastructure and manufacturing base. When will we ever learn?
FEEL FREE TO EMAIL ME AT email@example.com