The one-way street of globalization across corporate America.
By Wolf Richter for WOLF STREET.
This was inevitable, after the US stimulus efforts: The US trade deficit of goods – exports minus imports of goods – broke a record in November of US $ 84.8 billion, surpassing the previous record recorded in August, according to an anticipated estimate by US International Trade in goods by the Department of Commerce. This advance estimate is likely to be adjusted in one way or another with the most complete batch of business data early next year.
During the financial crisis, the trade deficit narrowed dramatically as imports fell because US consumers reduced the purchase of goods, imported goods, although they continued to buy services, which for the most part are not imported. Now the opposite is happening: consumers have bought record quantities of durable goods, but have reduced their spending on services. And much of that merchandise they bought was imported:
This is one of the peculiar effects of US efforts to stimulate the economy with government donations to consumers and businesses, with Fed donations to the financial markets and with the Fed’s tightening of interest rates. Trillions of dollars have gone flying so fast that it is difficult to see them.
These effects were intensified by the pandemic shift from purchasing services, such as flights, accommodation and gyms, to goods like hot tubs on deck for a vacation at home, laptops to learn at home and bicycle trainers to exercise at home.
One such effect is that the US has stimulated manufacturing economies in China, Germany, Japan, Mexico and other countries where these products are made. But they, in turn, are not buying enough American products, for a multitude of reasons, including the fact that the United States no longer manufactures many of those products because corporate America has globalized its supply chains and offshoring production.
Imports of goods rose to $ 212 billion in November, according to the Commerce Department’s anticipated estimate today. This was still below the record set in October 2018 ($ 219 billion).
Goods exports rose to $ 127 billion, but remain below the levels of 2018, which were only a fraction of imports at the time. And the difference between imports and exports – the trade deficit in goods – has widened over the years:
The value of imports is negative in GDP calculations. The value of exports is positive in the GDP calculations – hence the colors in the chart above, green or exports and red for imports.
The United States’ consumer economy has been driven by the relentless globalization of corporate America and its ambition for the last fragment of merchandise to be manufactured in other countries, particularly in cheap countries. The US tax system also encourages them to do so.
In terms of retailers, Walmart was one of the great pioneers decades ago. But now, they are all doing this. E-commerce makes this easier. Amazon perfected it; on its platform, Americans can buy directly from Chinese and Indian manufacturers.
Corporate America sells many products in other countries. For example, all American automakers are big in China. GM and its joint ventures are the number one automaker in China. But these vehicles are made in China and now some of them are imported into the United States.
Tesla is doing the same thing; obtained $ 1.6 billion in financing from government entities in China to establish a factory and design center in China. The Model 3s it sells in China, and soon the Model Y, are made in China. Now it is doing the same in Germany for its sales in Europe.
Most of Apple’s revenue comes from markets outside the United States, and it is overseas where most of the products it sells are made.
Consumer goods companies, automakers and many other manufacturers in the United States largely abandoned the manufacture of their products in the United States and exported them. Globalization has become a one-way street.
American companies are powers abroad, but they increasingly shift production from the United States to other countries. That is why even a boom in American branded consumer goods sold abroad does not drive US exports and manufacturing. But a boom in US sales of goods, like the boom driven by deficit-financed stimuli now, drives US imports. Thanks to this one-way street of globalization.
Consumers earned more in November than at the Good Times, but much less than at the time when free Pandemic money was declining massively. Read… Majestic overcoming of stimulus money ended. Faced with the second wave, Americans cut, even in durable goods
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