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Rampant Offshoring: Trade Deficit Hits Worst Ever

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EDITOR NOTE: Is it true that the federal government’s stimulus program is doing a better job boosting overseas economies than our own, let alone our own manufacturing sectors? After all, spending on durable goods is blowing up sky high. Yet, most of the durable goods we buy aren't made in America. Check your local Walmart store and see how fractional our own manufacturing has become. Our trade deficit in consumer goods has sunk lower than 2008 record-low levels. We’re importing more than exporting, and US companies are offshoring nearly most of their production and a good part of product design. There was a time when we thought our export of services might offset our trade deficit in goods. As it turns out, whatever surplus we have in services is dwarfed by the deficit, like trying to bail out water from a sinking boat with a water cup. At any rate, production plays a critical role in economic growth--some say it’s the only means to economic growth, at least in a “real” economy. For now, financialization reigns, and other countries besides the US might appreciate the added boost. Americans can satisfy themselves with the illusion of wealth. After all, we’re living in an era of hyperreality--where American consciousness is unable to distinguish the simulated from the real, the narrative from the truth, money from capital, and paper value from intrinsic value.

The US trade deficit in goods and services with the rest of the world, after going from record to record, soared by, I mean worsened by 87% in February compared to February last year, to $71.1 billion, according to the Census Bureau today. As the trade deficit in goods hit another all-time record, the trade surplus in services, which was already small, plunged to a nine-year low:

Trade deficits are a negative in the GDP calculation. They’re not a sign of a growing economy – though that is how they’re often described – but a sign of rampant offshoring of production of consumer and industrial goods to cheap countries.

Imports of goods jumped 10.3% from a year ago to $219 billion, after January’s all-time record of $221 billion (up 8.5% year-over-year). Exports of goods, you guessed it, sagged 5.2% to $131 billion. This produced a record goods trade deficit of $88 billion in February (red columns in the chart below).

Remember back in the day when globalization by Corporate America was still a good thing, and worries about a surging trade deficit in goods were brushed aside with the hoped-for exponential growth in the trade surplus of services, such as movies and software? Well, there is a trade surplus in services, but it’s small, and the surplus of services in February plunged 24.4% to $16.9 billion, the lowest since 2012. Note the deterioration of the services surplus since early 2018 (green columns):

During the Financial Crisis, the goods trade deficit  shrank substantially, as consumers cut back buying imported stuff, while the trade surplus of services dipped only briefly and the overall trade deficit shrank substantially.

But instead of reversing the course of the prior two decades of ballooning trade deficits, Corporate America went into hyperdrive during the Financial Crisis to offshore not only production, but also the design work that went along with it.

Most consumer goods bought in the US that are classified as “durable” – from smartphones and bicycles to appliances and clothes – are manufactured overseas. Go into a Walmart and try to find some durable goods that are still made in the US. On Amazon, foreign vendors are now direct-selling their products to US consumers. And even if the product is assembled in the US, such as cars and trucks, many or most of the components are designed and manufactured overseas and then imported.

This is now the pattern: After decades of rampant offshoring of production, US consumers get free stimulus money in the hopes that they will turn this taxpayer money – or rather future taxpayers’ money since this is borrowed money and will have to be dealt with by future taxpayers for all times to come – into a big-fat stimulus for the manufacturing economies in other countries.

Fired up by stimulus money, but also by not being able to spend on services, such as airline tickets, cruises, and concert tickets, consumer spending on durable goods has shot through the roof. And that’s where the surge in imports of goods came from:

This ballooning and record trade deficit is the most predictable outcome ever: Send stimulus checks to consumers and they’ll crank up the economies of China, Mexico, Germany, and other countries. The February trade data does not yet include the effects of the current generation of the $1,400 stimmies, which will show up in the trade figures over the next few months.

Original post from WolfStreet

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