FACT:

The U.S. trade deficit rose about 50% from 2016 to 2021.   

 

THE NUMBERS: 

Q1/2022    -4.9%
2021          -4.0%
2016          -2.7%
2005          -5.7%*

* Highest on record; GDP stats begin in 1929. Deficits for 1815-1816 may have been higher, but GDP for those days is guess-work. In dollar terms, the 2016 deficit (goods/services) has grown by about 80%, from $481 billion; to a 2021 deficit of $861 billion.

WHAT THEY MEAN:

The Trump administration’s first “President’s Trade Agenda” report, released in March of 2017, cited U.S. manufacturing trade balance data as an index of the failures of previous administrations:

“In 2000, the U.S. trade deficit in manufactured goods was $317 billion. Last year it was $648 billion — an increase of 100%.”  

The next “President’s Trade Agenda” report of 2018 used “bilateral” trade balance to assert a failure of the North American Free Trade Agreement and set a goal for the “USMCA” which succeeded it:

“Our goods trade balance with Mexico, until 1994 characterized by reciprocal trade flows, almost immediately soured after NAFTA implementation, with a deficit of over $15 billion in 1995, and over $71 billion by 2017.” … “USTR has set as its primary objective for these renegotiations to improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries.”

The two assertions’ use of trade-balance data as a way to judge policies have well-known logical,* data,** and economic theory*** problems. This duly noted, how do they look on their own terms five years later? By 2021, U.S. exports had dropped from the 11.9% share of GDP they held in 2016 to 10.8%; imports, meanwhile, had grown a bit from 14.6% to 14.8% of GDP. Here then are the same two trade-balance statistics for 2021 and (very tentatively, based on one quarter’s worth of trade data) so far in 2022:

1. The U.S. manufacturing deficit in 2021 was $1.07 trillion. The last four months’ data suggest a 2022 total somewhere around $1.3 trillion. If this ends up about right, the 2016 manufacturing deficit noted in the 2017 “President’s Trade Agenda” would have doubled in five years.

2. The trade balance with Mexico (again, goods only) was $108 billion in 2021, a year after USMCA implementation. It looks likely to top $125 billion in 2022, with tariffs on Chinese consumer goods still shifting some purchasing of TV sets, auto parts, etc., to Mexico.

* The “post hoc, ergo propter hoc” fallacy.
** Comparison of nominal-dollar balance in 2000 to the nominal-dollar balance in 2016, unadjusted for inflation.
*** Global trade balance will always equal national investment minus national savings; if tax cuts and large fiscal-stimulus programs reduce savings, trade balances will automatically go into deficit unless investment collapses for some reason. So the 2017 comment is not a useful comment on trade agreements, and the 2018 objective likely not one achievable through policy. 

 

FURTHER READING

Data

The Census Bureau’s U.S. monthly trade data, through April 2022.

… and the U.S./Canada/Mexico balances.

…  and for the big picture, U.S. exports, imports, and balances from 1960-2021 on one convenient page.

What happened? 

Trumpism leaves a larger deficit overall, and more concentrated in manufacturing than the 2016 figures. Why the jump?

Tax policy, followed by heavy COVID-era fiscal stimulus, are the obvious suspects. Three of the four upward ratchets in U.S. trade deficits since the 1970s followed tax-cut bills — one in the first Reagan term, another in the second Bush administration, and the third in 2017.  With higher fiscal deficits, and without an offsetting rise in family or business savings, overall U.S. savings will fall.  All else equal, the “savings – investment = trade balance” identity means higher trade deficits. The Trump-era tariffs, though not likely the cause of the overall deficit growth, have two likely balance effects:

(a) Shifting import sources: Imports from China, though above pre-tariff levels in dollar terms, were 21.6% of goods imports in 2016, and about 17% in 2021. With clothes, consumer electronics, etc., from Vietnam, Mexico, India, Taiwan, and so forth replacing about $100 billion in Chinese-origin goods, the higher USMCA deficit reflects this shift.

(b) Shifting sectoral composition: Trump-era tariffs on steel, aluminum, and Chinese goods are concentrated in industrial inputs such as metals, auto parts, electrical converters, etc. As U.S. manufacturers — automotive, machinery, beer and soda canners, tool-makers, etc. — absorb these costs, they are likely to lose some marginal competitiveness whether in exporting or competing against imports. This likely pushes more of the U.S deficit into manufacturing.

The two reports:

The 2017 “President’s Trade Agenda.” 

… and the 2018 followup (with a wildly wrong claim that the 2017 tax bill “has the potential to reduce the U.S. trade deficit by reducing artificial profit shifting).

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007).  He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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FACT:

There are no shortages of infant formula in Europe, Canada, Australia, or New Zealand.

 

THE NUMBERS: 

130,000 tons    New Zealand infant formula exports to world, 2021
0 tons               New Zealand infant formula exports to U.S., 2021

 

WHAT THEY MEAN:

A cautionary tale this spring, as White House officials and Congress consider hopes and plans for supply-chain “reshoring,” “resilience,” and import management: In the U.S., dairy vies with sugar as the most tightly policed trade product. According to the White House, 98% of formula in the U.S. is locally manufactured from milk from American dairy cows. The remaining 2% is mainly from Mexico, otherwise, about 2,000 tons come from Ireland, 1,300 tons from Chile, and 600 tons from the Netherlands. The result is a plausible claim to be America’s most completely on-shored, “post-neoliberal,” localized supply chain.

New Zealand, meanwhile, is (likely) the world’s most dairy-centered country. It is second only to Uruguay in cows-to-people ratio; first in the world for total dairy exports; and second to the Netherlands as an infant formula exporter, sending 130,000 tons per year to China, Australia, Hong Kong, Southeast Asia and other destinations.

New Zealand has a lot of formula.  With American stores suddenly short of it after the recall at the U.S. plant in Sturgis, Mich., we don’t have enough. Here, though, is what grocery store managers hoping to restock with New Zealand formula would need to do:

(1) Fit your purchase, by weight, within an annual global quota limit of “4,105 tons”* “other dairy products.” Most of this is already filled by formula and other non-cheese products from Ireland, Chile and the Netherlands; and in any case, to apply you would need to USDA quota regulations as follows: “A person may annually apply for a nonhistorical license for articles other than cheese or cheese products (Appendix 2) if such person meets the requirements of paragraph (b)(1)(ii) of this section.”

Paragraph (b)(1)(ii) in turn, related to purchases “where the article is not cheese or cheese product,” says you must be:

“(A) The owner of and importer of record for at least three separate commercial entries of dairy products totaling not less than 57,000 kilograms net weight, each of the three entries not less than 2,000 kilograms net weight;

“(B) The owner of and importer of record for at least eight separate commercial entries of dairy products, from at least eight separate shipments, totaling not less than 19,000 kilograms net weight, each of the eight entries not less than 450 kilograms net weight, with a minimum of two entries in each of at least three quarters during that period;

“(C) The owner or operator of a plant listed in the most current issue of “Dairy Plants Surveyed and Approved for USDA Grading Service” and had manufactured, processed or packaged at least 450,000 kilograms of dairy products in its own plant in the United States; or

“(D) The exporter of dairy products in the quantities and number of shipments required under (A) or (B) above.

“(2) Succeeding in this, you must make sure your supplier meets the Food and Drug Administration’s rules for labeling, ingredients, and preparation, which FDA inspectors verify factory-by-factory. Reasonable in itself, though New Zealand’s child health and food-borne illness statistics compare quite well to America’s.

“(3) Pay a 17.5% tariff. (Or a much higher one, “$1.035/kg + 14.9%”, if you’re trying to buy product that exceeds the quota.)”

In practice, at least on short notice, no one seems able to do all this.  So the fully on-shored, non-global supply chain turns out to be very brittle. With the Sturgis factory down and import quotas already filled, there’s no alternative, the shelves quickly go bare, and Air Force planes fly around the world trying to scrape up whatever they can find in Europe. A tactful comment from Jan Carey of New Zealand’s Infant Nutrition Council:

“I think it does show weakness in their policy. … We can speculate that [this crisis] might make the Food and Drug Administration consider why they make it so difficult for, other entrants to come into the market. Why can’t they make it a bit easier to get it in? We have such fantastic products in New Zealand, our products are highly regulated under the Food Standards code for Australia and New Zealand and they meet all of the nutritional requirements of an infant.”

What do we draw from this? Probably a lot of lessons for formula policy specifically. Also, a case study in “localized” supply chains with tight controls over sourcing, which may have some general relevance.

* Mexico is outside this limit with essentially unlimited rights under NAFTA and its successor the USMCA, and provided 12,000 of the 16,800 tons of formula entering the U.S. last year. Canada, in theory, gets a bit more under the USMCA than it did under NAFTA, but hasn’t used it.

 

FURTHER READING

We don’t have enough

The FDA explains its regulatory system.

… and announces some easing of import rules.

… while the USDA scrambles to find formula for WIC (Women, Infants, and Children) program users.

… and the Air Force ferries back 35 tons.

President Biden announced actions to address the formula shortage.

They have lots 

The U.S. Department of Agriculture examines the New Zealand dairy industry, with data on infant formula production and trade.

New Zealand’s Infant Nutrition Council on formula shortages in the U.S.

And New Zealand government’s child health and safety stats.

Formula trade policy

Tariff rates from U.S. International Trade Commission, the Harmonized Tariff Schedule. See Chapter 19, heading 190110, for infant formula.

Apply for a “dairy import license” from USDA, here.

… but read up on the regulations first.

And also…

“If you want to scare a room full of [economists], talk about breastmilk” — UC-Davis’ Kadee Russ on inadequate U.S. support for breastfeeding moms.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007).  He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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FACT:

1 in 25 of all humans ever have accessed the internet.

THE NUMBERS: 

All humans, ever:        ~117.0 billion*
All humans, 2022:             7.9 billion
Internet users, 2022:         5.3 billion

* Population Research Bureau estimate, 2021

WHAT THEY MEAN:

Posted three weeks ago, the “Declaration for the Future of the Internet” joins the Biden administration and 60 other governments in an attempt to define the principal challenges to the digital future and set a direction for policies to address them. A few bits of data first:

According to the International Telecommunications Union, 4.9 billion people around the world used the Internet last year. A less official update from WorldInternetStats.com this spring finds 5.3 billion. This is just over two-thirds of the world’s 7.9 billion people, up from 50% at the end of the Obama administration, and about 1% in faraway 2000. Put another way, demographers at the Population Research Bureau calculate the total human population since the origin of the human species about 300,000 years ago at 117 billion.  If this is about right, today’s Internet users make up one in 25 of all the men, women, and children who have ever lived. This year they will:

… transfer roughly 100 zettabytes of data around the world via fiber-optic cable and satellite beam. (A zettabyte is 1 sextillion bytes. The European Space Agency believes the universe contains somewhere between 100 sextillion and 1,000 sextillion stars.)

… conduct $26.7 trillion in electronic commerce, by UNCTAD’s 2022 estimate. (The International Monetary Fund believes global GDP this year is $103 trillion.)

… and spend 4.2 trillion hours on social media. (This sums to 479 million years, roughly the time elapsed since the “Cambrian Explosion.” Alternatively, the longest recorded single lifespan, that of Arles resident Jeanne Calment, 1873-1998, was 0.00000000012 trillion years.)

Another way to put these figures in context: at the birth of the Internet somewhere in the 1980s, a statistician might count a few million bytes of data transferred across early computer networks, about $0 in electronic commerce, and a few thousand academics and government officials berating each other on electronic bulletin-boards.

So, quite a remarkable first generation.

After appropriately noting this fact and recognizing the scientific and technical achievement that enabled it, the Declaration for the Future of the Internet focuses on (a) emerging policy challenges for the second generation, and (b) the values and goals that should inform a response to them. Top concerns include:  escalating use of digital technologies, in some cases by governments, for disinformation and cybercrime; spread of national firewalling and restriction of information, also by governments; fears among many users of loss of privacy and eroding ability to control personal data, whether to governments, unscrupulous businesses, or criminals; and abuse of online platforms to inflame conflict, undermine respect for human rights, and threaten groups vulnerable to prejudice and hate.

The Declaration offers no specific technical measures or agreements to address these concerns, nor new venues in which governments and/or “multistakeholder” fora should develop them. Instead, it sets out a long-term objective — “an environment that reinforces our democratic systems and promotes active participation of every citizen in democratic processes, secures and protects individuals’ privacy, maintains secure and reliable connectivity, resists efforts to splinter the global Internet, and promotes a free and competitive global economy” — and proposes five general principles to inform the actual policies that might deliver this:

1. “Protection of Human Rights and Fundamental Freedoms,” including combatting online violence and exploitation, reducing illegal content, and protecting freedom of expression.

2. “A Global Internet,” in which governments are discouraged from restricting access to lawful content, or shutting down access generally or to specific types of information, and encouraged to support free flows of data, cooperate in research and development, and act responsibly themselves.

3. “Inclusive and Affordable Access,” including through closing digital divides, encouraging diverse cultural and multilingual content, and supporting digital literacy and skills for publics.

4. “Trust in the Digital Ecosystem,” involving common responsibilities to combat cybercrime, protect personal data, use trustworthy technologies, avoid attacks on elections, support open trade and fair markets, and minimize digital contributions to climate change emissions.

5. “Multistakeholder governance,” to support technical advance and avoid undermining technical infrastructure.

 

 

FURTHER READING

Via the White House, the Declaration for the Future of the Internet.

A signers list from the State Department: 39 governments in Europe, five in the Pacific, three in Africa, one in the Middle East, and nine in the Western Hemisphere. (Some puzzling non-participants — Korea? Switzerland? Norway?)

And looking back: In the 50-million-internet-user world of 1997, the Clinton administration imagines policies for today’s digital global market.

BEA on the American digital economy in 2020 (with quiet side note to BEA, the dots are three places off to the right on page 4).

UNCTAD on global e-commerce.

The Internet Society’s attempt to document the actual “launch of the Internet” date. Authors settle on the January 1, 1983, transition of U.S.-based academic and government networks to an interoperable TCP/IP protocol:

Geneva-based CERN, on the other hand, looks to Berners-Lee’s 1989 WWW software, and the first web-site launch.
And some fun with 2022 Internet numbers
100 zettabytes – The European Space Agency calculates stars in the heavens.

1 in 25 humans: The Population Research Bureau counts all the people who have ever lived.

4.2 trillion person-hours of social media: Stephen Jay Gould’s Wonderful Life (1989); Gould’s theses on the Cambrian’s possibly wider variety of phyla are not in favor, but still the best ever user-friendly descriptions of Anomalocaris, Opabinia, and the weird world of the first big animals.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007).  He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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