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SequimBob2 On March - 31 - 2011

Not too long ago, I was at the shore waiting for something photographic to happen, when a containerized cargo ship slowly sailed by… and then another… and then another.

To be honest, I’ve never thought much about cargo containers and the ships that carry them — other than that they are a frequent sight in the Puget Sound area. A friend of mine and his wife once sailed halfway around the world in a small sail boat. He told me that his biggest fear arising from two-plus years at sea wasn’t pirates, but rather cargo containers. It turns out that somewhere between 2,000 and 10,000 containers fall overboard each year. A cargo container can float for days just below the surface of the ocean and can rip the bottom out of small boat literally in seconds.

So while patiently waiting for a fish-snatching Bald Eagle or a Great Blue Heron to fly by and make my photographic day, I occupied myself by watching three container ships heading toward Seattle or Tacoma and listening to MSNBC on my SiriusXM radio. During one particular political segment, the station played a clip of John Boehner doing one of his “Jobs…Jobs…(It’s all your fault, Mr. President)… Jobs” rants. At that point, a question occurred to me: How many US jobs, now exported, did those three cargo vessels represent?

Modern containerized shipping got its start in the 1950s. Twenty-foot containers became the standard and the basis for the unit of measurement known as TEU – which stands for Twenty-foot Equivalent Unit. These containers are 20 feet long, 8 feet wide and ~ 8 feet high. America imports roughly two (2) trillion dollars in goods annually from other countries. Approximately 50% of these imports come to America by container ship.

Although I’m not an economist, I like numbers (Numbers are our friends!) and assumed the math exercise would be a piece of cake. I reasoned that with a few key numbers: GDP, value of imports, the unemployment rate, and the number of containers and container ships arriving in US ports that I could calculate a fairly accurate estimate. It turned out to be a bit more complicated than I expected. But as I did my research, I kept uncovering questions. As I dug for answers, I invariably found even more questions. Aarrgghh! What started as a simple math exercise had morphed into an analysis of US economic policy, free trade and global economics.

Where did all the jobs go?

A commonly held belief is that one of the reasons hiring in the US has not yet improved significantly is that American companies have become much more efficient. While true, this axiom is only part of the story. As my research had shifted away from cargo containers to economic analysis, I learned that imports are having a more devastating effect upon the US workforce than I previously believed.

Free Trade –This will only hurt for a little while.

The way Free Trade was supposed to work was like this: As the “global economy” developed, when US jobs were exported overseas, they would be replaced by other jobs produced by the synergy of Free Trade. Said another way: If low-skill, piece-work manufacturing jobs were lost, this would be OK because other off-setting, higher skill jobs would be created here at home. Given sufficient time, free market economies would stabilize and countries would thrive; each doing what they do best and most efficiently. We’ve all been told that the US was moving toward a service and retail economy. “They” told us the free-market system was working as it should. “They” were (and are) horribly wrong.

American industry loved the idea of free trade. Cheaper labor… cheaper goods. What’s not to love? And thus American industry set about shedding US manufacturing jobs with abandon. Towards the end of the 2008 recession, 8.4 million US jobs were gone.

The problem is that when a country is not manufacturing things, it is not creating wealth. But the GDP numbers, the stock market numbers and the ever-rising home values gave Americans a false sense of prosperity and wealth. When things started to go badly in the US economy, the Fed opened the gates to free and easy money. Banks were flush with cash and their underlying problems masked. Homeowners, too, felt rich. Personal and public debt reached dizzying new heights. Then the music stopped, the bubbles burst, and the American dream seemed to vanish.

What problem? Please pass the Grey Poupon.

Surprisingly, the realization that this latest economic downturn is different was slow to arrive. Republicans prescribed tax cuts and less government as the cure. Democrats cited sins of the past and promoted the need for more regulation and Federal stimulus. But, as Ross Perot might say, no one was looking under the economic hood. America’s manufacturing base is almost gone. Once it was a robust 20% of our economy. Now manufacturing comprises just six percent. Meanwhile, the wealthiest in the country are reaping bountiful harvests in foreign fields. For them, the system is working wonderfully – even if over fourteen million Americans are not.

Leave it alone; the economy will fix itself.

Over the past couple of decades, Americans became accustomed to boom and bust cycles. The economy always seemed to bounce back – if not to previous heights, perhaps high enough. Possibly because of the expectation that the economy would recover and the “lost” jobs would come back, many economists failed to realize just how damaged the country’s economic engine had become.

A Fundamental Misunderstanding.

What happened? What went wrong? Our Government has bought into the false belief that America can prosper without a strong manufacturing sector –the mistaken belief that a service/retail-dominated economy will serve us just fine. I say again, if a country is not building things, it is not creating wealth. There is nothing inherently wrong with Free Trade. There is something terribly wrong with America believing it did not need to find a way to maintain a strong manufacturing sector.

I Pledge Allegiance to the Flag with the Highest ROI.

Rather than invest in new technologies that will allow us to automate and compete with low-cost manufacturers (as Germany successfully did), we contented ourselves with the notion that the market would soon right itself and the US economy would be reborn. Instead, we chose to invest in wars, in our military and in our wealthiest citizens. Corporations became international in both focus and allegiance. For the wealthiest, America became the place of low tax rates, favorable government policies and a nice place to live while investing their wealth overseas.

Captain, there seems to be a problem in the Engine Room and the helm is not answering!

Even now as many economists and some business leaders are now coming to realize the seriousness of the problem facing our country, the political partisanship has become so rancorous that real, cooperative and bi-partisan solutions are simply not possible. The debate has become so ideologically driven and so ‘dumbed-down’ that it is useless.

If, however, you are part of the country’s wealthy elite, the system has worked just fine. Over the past decade alone, your net worth has increased dramatically. If this is your socio-economic group, you want more of the same and thus you find and support politicians who share your views.

The next-generation manufacturing jobs, should we choose to pursue them, will be different from jobs in the past. They will involve the creation, maintenance and support of highly automated production lines that will enable American manufacturers to compete on price in the world marketplace. These manufacturing jobs will require specialized education, so now is not the time to be demonizing teachers. They literally carry the education lanterns that will illuminate our path out of this dark hole we’ve dug for ourselves.

Now, about those container ships…

According to my math, each container ship arriving at a US port represents the loss of 524 American jobs. I call it the five-twenty-four CSI – short for Container Ship Index – or Crime Scene Index — either one works.

Here are the numbers I used to make the calculations. It is not a perfect approach, but I tried several and this one seemed to work the best.  (If you have better numbers or a “better way,” please let me hear from you.)

Value of Imports ($1 trillion)————— $1,000,000,000,000
Containerized Imports (in TEU’s)———– 16,000,000
Value per TEU———————————— $62,500
Employment Impact (“lost” US jobs) ——–9,432,800
Number of Ship Calls in US ——————–18,000
Job Impact per Ship Call ———————524

US GDP ——————————————–$14,700,000,000,000
US Population ———————————— 311,000,000

Number of US Workers ————————-138,641,000
Worker Per Capita ——————————$106,029

No. of Unemployed Americans ————–14,837,000
Unemployment Rate —————————-9.7%

So how do the numbers break down?

US imports are calculated at $2 trillion per year. Since roughly 50% of this figure comes into US ports aboard containerized cargo ships, I cut the number in half to $1 trillion. 2010’s estimated number of containerized imports is sixteen (16) million.

For the purpose of the calculation, I “assumed” that the entire $1 trillion dollars of imports would “shift” directly to US GDP. In other words, our $14.7T GDP would, in effect, actually become $15.7T.

I calculated a Worker Per Capita by dividing the number of US workers (139 million) into the GDP of $14.7 trillion. This yields a “Worker Per Capita” of $106K. Using the forecasted GDP of $15.7T AND assuming the worker per capita amount would remain unchanged, I calculated that adding $1 trillion to the GDP would put 9.4 million Americans back to work and reduce unemployment rate to 3.5%.

Are these numbers realistic?

Yes… and no. Worker productivity is somewhat elastic. Productivity enhancement means more can be done with less, so it is reasonable to expect that the existing 139 million US workers would accomplish some of the extra work reflected in the $1T GDP increase without adding to the US employment numbers.

The expectation that we could shift $1trillion in imports to US GDP on a one-to-one basis is admittedly unrealistic. However, I believe we assign too low a value to the import numbers. Their true value is not what the items currently cost, but what the items would cost if they had been made in the US.  In addition, some of the imports are not finished goods and, therefore, would not count towards ‘final product’ status. Consequently, there are indeed some aspects of the formula and data inputs that are flawed. The remaining numbers used in the calculation are the best and most recent that I could obtain.  And, yes, I do believe the calculations reflect the size and scope of the US job-export problem.

But don’t US exports create jobs?

Absolutely, but not the same types of jobs as we exported. A lot of US exports are agricultural – important to be sure, but they do not create the same types of manufacturing jobs as those we transferred overseas.

Conclusion: While I haven’t changed my mind about cargo container ships representing dramatic losses of American jobs,  I now view the problem from a broader perspective.  I see container ships as a symptom of a much larger problem.

So, where do we go from here?

Cargo ships will continue to call on US ports in increasing numbers. The global marketplace is not going away. And while the world marketplace will remain fiercely competitive, it is not in America’s national interest to simply walk away from the struggle. We need to fight to keep manufacturing jobs in America. Presently our industrial policies are being set by corporations that are primarily international in their focus and allegiance. They see overseas markets as where the growth is – where cheaper labor is. If left to their own devices, American corporations will continue to export jobs and invest overseas. Why? Because that’s where they think the money is… where the profits are… where the largest Return on Investment (ROI) exists.

This is where the US Government has a role to play in establishing a national industrial policy. We should reward companies that create jobs here in America. We should go further by helping companies find ways to create the next generation manufacturing jobs. America has great schools, the proven ability to innovate, and a highly productive work force. We have so much going for us. We can create jobs here in the US if we choose to do so. But at present (in the eyes of corporations), it is easier and more profitable to create the same jobs overseas. We need to change that mindset. (And we will likely need to change a large number of ideological politicians along the way.) But we begin by communicating the principle that America needs manufacturing jobs and that a service/retail economy is not one that can produce the American dream.

Written by SequimBob2

Retired guy. Southerner by birth. Pacific Northwesterner by choice. Political junkie. Fiscal conservative. Social liberal. Writer. Avid photographer.

41 Responses so far.

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  1. Keramos says:

    It seems that I increasingly find myself in at least partial agreement with Pat Buchanan on this issue -- we’ve had our manufacturing sector “hollowed out” over the last 30 -- 40 years. This is simply not sustainable and is a form of economic suicide.

    We’ve outsourced the menial jobs but kept layers of overcompensated executives here in the US doing absolutely nothing to improve the general welfare of this country. This has been aided and abetted by politicians from both sides of the aisle, most notoriously in writing tax legislation that rewards this sort of activity. I personally find this to be treasonous and have stated that opinion many times during these last 30 plus years.

    Where is the point that money trumps patriotism?

  2. choicelady says:

    Sequim -- this is bloody brilliant! Thank you. I do agree with Abby that there are jobs in oversight, logistics, etc. that were created, but they are not the wealth creators you name. Adam Smith never envisioned nor would support what we’ve done in selling off our productive base.

    One thing that I always wonder about containers -- how many human beings are in them? When the ports shut down here a few years back, I was in agony thinking about the people sitting, and dying, in containers. How many have held people when they fell off or washed overboard? People fleeing the poverty and unrest in their nations come here in those containers. We never know which hold human rather than material cargoes. It is beyond contemplation -- the sheer misery of those people desperate for hope and the thin possibility of a better life is beyond awful. I wish we could tell with infrared which containers hold people and which hold rubber duckies, but we don’t even check.

    We don’t even check.

    • SequimBob2 says:

      C’Lady: Thanks very much for the kind words. I’m glad you commented because I’ve been ‘following’ you around the planet. (Hmm, that sounds a bit sinister, doesn’t it?) Anyway, your posts have been excellent. Just wanted to pass it along.

      Abby, and you, are correct about imports (and exports) creating jobs in this country. These are often good, high-paying jobs. No disagreement here.

      But a manufacturing job is different in that by its very existence, it creates other jobs — purchasing, engineering, etc. That’s why I think mfg jobs are so important.

      As to your question on immigrants in containers, I could not find any statistics — though I did look. You are correct, we don’t look for people in containers. Neither do we do a good job of looking for contraband or theats, either. Other countries don’t need nuclear missiles to deliver a bomb to our shores. All they need is an uninspected cargo container.

      • choicelady says:

        Sequim = You as my stalker? Well, honey -- get in line. But you get to go to the HEAD of the line because of your kind words. Makes you waaaay cool and waaay different from the rest of those who lurk. YOU I appreciate!

        I had also had the same thoughts about WMDs in containers. I understand, though it’s entirely hearsay, that port security on this level is infinitely better under this administration. Radiation detectors and explosive sniffers routinely deployed, etc. Never could understand how the previous admin was so utterly indifferent. Makes you wonder what snuck in while we were declaring “Mission Accomplished.”

        At the bottom, though, it’s the fear of people being smuggled that makes me absolutely crazy. I know that back in the 70s quite a number of mad-as-hell economics profs went around El Segundo with heat sensors detecting how full or empty the oil storage tanks were while we were having our “oil crisis”. (They were full, BTW.) A friend who worked for the LA Port Authority said that tankers were at anchor off Catalina Island, hiding, to create a false shortage. I blew the whistle to the media -- they did NOTHING because my friend would not go on camera. They don’t have helicopters fer cryin’ out loud?

        So where are the thermal detectors to find men and women, mostly women, being trafficked here in containers? It’s NOT rocket science -- historic preservationists use them to detect underlying building structures and water leakes. If these non-technical types can weild such devices, where is the FBI and its “Rescue and Restore” program designed to stop human trafficking?????

        I, as a hugely outraged supporter of manufacturing who has watched the demise of everything that made this nation strong, SO appreciate your analysis!

        Architectural historian and urbaniste (can’t do justice to the French spelling) Jane Jacobs noted that the area around Toronto was predicted to have massive job losses from offshoring of jobs. The opposite occurred since Canadian manufacturing quickly determined that it was far more efficient and cost effective to produce parts and resources nearby. Canada has thrived as we’ve collapsed.

        My one summer living in Cape Breton gave me the chance to listen to many people engaged in the unions who were not afraid of socialism, of manufacturing, of working people, of fighting for ordinary folks. That was over 20 years ago, and they still are strong and still do fight. They take as a matter of course that blue collar jobs are valuable. We do not.

        We threw all that away believing that we could be rich with paper. Was not true with Samule Insull’s phony electrical generating “empire”, was not true in ’29, is not true today. Paper trading is, well, paper trading. Period. Same, sorry to say, with computers, iPads, G4 phones -- they DO produce wealth, but they are also disposable. When people hit hard times, the things that are produced for the edge rather than the core, the inessentials, will go. We need capital goods and durable consumer goods, not just frills (not that Apple or anyone actually makes much of substance in Silicon Valley anymore.)

        It’s not essential that we produce insubstantial gimcracks. We might not need to produce ALL the shoes and clothes, but we’d better get some back again. I am possessed of the belief that overseas production saved us very little -- I still pay pretty much the same prices, but the designers, manufacting labels -- they get MUCH bigger profits. Cheap goods are cheaper -- and more shoddy -- but mainline goods are not. It’s all about massive profit intervals for the corporation.

        And without good paying jobs? It’s overproduction, underconsumption a la 1929. Was it Yogi Berra who said deja vu all over again? Whoever -- he was right. And we never learn.

        Hope we can do something though about the human cargoes. That gives me the cold chills every time I go by the ports. Who’s in there? Are they OK? I hope we learn how to find out.

  3. Abbyrose86 says:

    One other thing, I feel the need to address…the term ‘free trade’ is a misnomer. Truly it is.

    The term ‘free trade’ means DUTY FREE TRADE.IT does not mean the goods just come and go over borders without oversight. ON the contrary!!!

    With the duty free status comes MORE regulation and documentation. WHICH believe it or not, requires more people to oversee. So while, a program such as NAFTA (Which the primary beneficiary of that program was CANADA, not Mexico…contrary to popular mythology) may have caused the exodus of some US manufacturing jobs…it wasn’t always due to lower wages, that the jobs were lost, but due to other reasons, such as cost/benefit analysis, perceived value and ability of the laborers in higher tech environments. The high tech manufacturing jobs went to Canada, the low skilled simple jobs went to Mexican Maquiladoras. (The costs weren’t just about labor costs either!, that was a component of why some manufacturers moved their low skilled jobs to Mexico, but the reason many shipped higher tech jobs to Canada has to with with health insurance AND the higher skills of the labor force up north.It is more cost effective for companies to do business in countries where they don’t need to provide health insurance to their employees if the country has universal health care.)

    But what many forget, is that programs such as NAFTA have created logistics and NAFTA specialists jobs in all three countries and at many companies Company headquarters, as well as more jobs at CBP.

    • kesmarn says:

      Abby, thanks so much for filling in a lot of the “rest of the story” on NAFTA. It helps balance out the picture quite a lot.

      Interesting, isn’t it, that “government run” health care is such a BAD thing here, according to the major corporations, but suddenly, in Canada it’s a GOOD thing when it helps lower their production costs? Total hypocrisy.

    • BigDogMom says:

      Abby, you just stated perfectly the case for having universal health care in our country, now why wasn’t this used by the President and the Dems?

      It is more cost effective for companies to do business in countries where they don’t need to provide health insurance to their employees if the country has universal health care

      Geeessshhh…

      • Abbyrose86 says:

        BDM, I was bringing this up a lot during the debates on HP on Healthcare. Sadly, our leaders weren’t!

        • choicelady says:

          Hi- Yes, this issue WAS on the table, and HCR did incorporate some principles of national health insurance. In Europe most of the national insurance IS insurance; only the UK and Ireland have national health systems. Everyone else buys highly regulated private insurance. The key is that “highly regulated” part that WILL become a part of HCR in 2014 unless the Goopers can kill it. It’s why they hate it. It will resemble Germany and Switzerland in that respect. Their insurance buddies and Pharma don’t want the regs to kick in at ALL.

          So we need to keep our eye on the survival of HCR because it IS the essential America step of moving toward a Continental style health care plan. The “death panels” exist -- it’s what will cause insurance and drug corporate profits to die. I’m all for it. THAT is what the GOP wants to protect -- they don’t care about us.

          • Abbyrose86 says:

            HI Choice Lady….I should have phrased my comment better. They (many leaders and pundits) weren’t explaining it right during the health care debates. They framing the argument (in my opinion) wrong.

            Instead of explaining HOW universal health care or regulated health care systems actually benefit business, and thus help create jobs, they let the other side frame the debate, as a job killer.

            • choicelady says:

              Oh -- Abby yes, I DO definitely agree with that. Thanks for making me re-read what you’d said. Sorry I misunderstood!

        • BigDogMom says:

          Abby, I’m getting cynical, I was just thinking that the President must have gotten something from Big Pharma to get this through, something like, oh, I don’t know…a promise of support and a big campaign contribution for 2012?

          • choicelady says:

            I doubt that! In 2014 if the GOP can’t kill it off, HCR will clamp down on Pharma’s unregulated, runaway control over health care reimbursements. Closing the “donut hole” is the first thing Pharma wishes to kill off followed by the removal of the right of states and health providers to bulk buy at massive discounts. Pharma HATES this. So I don’t think they will be ponying up campaign cash for President O. anytime in the near future! They’re too busy slipping bucks to Mr. Boehner and his buddies to defund and end HCR rules on unfettered sales of drugs.

    • SequimBob2 says:

      Abby: You are correct. “Free Trade” is a word of art that has a specific meaning for professionals in the trade. (Hmm, accidental pun.)

      Anyway, the issue for me is jobs within our borders. I tended to use the term Free Trade interchangeably with global trade. My focus was not duty or tariff-focused.

      Jobs have moved offshore because some companies needed to do that to survive. Other jobs moved offshore because of their corporations’ desire to be global in focus and capability. Other jobs moved off shore in search of higher returns. And still other jobs moved off shore because it was simply easier to do it that way and obtain a higher ROI.

      I believe our country has a vital interest in retaining jobs here. Obviously, to do so it has to make business sense. We’re all answerable to accountants — well, everyone but Washington.

      I advocate investing in automation and high technology in order to keep jobs here at home. If job producers in this country only have allegiance to higher profits, then I believe the jobs picture in this country will remain dark and gloomy.

      • Abbyrose86 says:

        Bob, I did understand why you brought it up in that context. I just wanted to add it in to the discussion, because I think many don’t realize that the term is quite accurate.

        I think you did a fabulous job with this piece. I, too, would like to see more jobs created within the US, but I think we have to deal with the realities of our world today, rather than long for times past. I think that the genie is out of the box and returning to the old ways of thinking are probably not going to bring new jobs in the US.

        I agree with you too, that as long as the major “too big too fail” companies and other large corporate enterprises are simply looking at short term economic gain via higher stock prices vs long term viability, we aren’t going to get anywhere fixing our economic problems or create new jobs.

        For me, I don’t believe globalization in and of itself is necessarily a bad thing. Nor do I think strategic trade agreements (such as NAFTA) should receive the bad rap that they do, (especially among those who aren’t necessarily well versed in how these programs work or are supposed to work). I tend to think that trade is often used as a scapegoat and to take the focus off of our structural economic issues that REALLY are the problem.

        Like anything, concepts can be used for a wide variety of motives or agendas. Trade can be good or it can be bad, dependent on how it is used and by whom it is used or misused as the case maybe.

        I think, our problems with globalization and with many of our trade programs are more because they have been misused and the intent of the ideas has been bastardize to benefit of few at the expense of the many. In addition, the incentives structures, including too little regulation, not enough adequate resources to police the regulations in place, and economic incentives that reward bad behavior and penalize good behavior are at the heart of most of our problems.

        Somehow…that brings me back to a rant about GOP economic policies since Reagan and expanded upon by Bush….hmmm…funny how that happened!

        Laissaz Faire and trickle down concepts do not benefit the whole! WHY we keep repeating these bad policies is beyond me!

  4. PocketWatch says:

    SB -- Interesting!

    I like math… numbers are a way to show what’s really going on.

    I ran across something (I don’t know where anymore) that said that a large part of “imports” to the US were not imports at all in the classic sense. They were parts of “domestic” products brought into the country from mega-corps subsidiaries overseas. In other words, GE might have a motor assembly or something made in China in a GE plant and shipped here to a GE assembly plant for final assembly, packaging and sale.

    The idea is that GE is not really “importing” anything, really.

    If that is taken into account, only something like 20% of “imports” are really imports in the classic sense of a finished product or commodity coming into the country.

    I think the point is, if the US were to tax or tariff those pieces parts (GE being a global entity, and I would bet anything that China gets a piece of the action IN China, using my example), we would be fine in terms of budget balancing and trade differentials.

    Did you run into anything like that in your journey through the snake pit?

    • choicelady says:

      You are correct -- it’s what we call “captive imports” when it’s internal transfers from one part of a company to another.

      What I don’t understand is how that affects the IMBALANCE of trade with China -- it’s simply a massively different calculus from taking their steel their steel companies produce. I just cannot figure this out on a trade basis and how it contributes to the deficit we have on the books. Big difference from reality.

      But what it still registers is massive loss of jobs, and for China it’s a massive loss of domestic oriented production for their own needs. Too much is diverted to making widget parts for US companies rather than basic goods for the Chinese.

      It’s all a horrid mess with no thought or planning going into projections for the future and the well being of people’s internal economic stability.

      Hope this crash will begin to have us reorder our priorities and the Chinese reorder theirs.

    • SequimBob2 says:

      Hi, PW: I did run into some info along the lines of what you’re talking about. To be honest, though, I seemed to find more questions than answers.

      One thing I tumbled upon was the belief that GDP numbers are overstated due to higher levels of imports than have been measured. This goes to the issue that we don’t truly have our arms (or numbers) around the behemoth (thank you, WTS) that is global trade.

      For example, the computer industry accounted for a significant amount of the growth during the late 2000’s, yet one source I found says that we are actually losing marketshare due to the and that the growth being reported is a false signal due poor measurements.

      To Abby’s point earlier, computers contain a lot of offshore components — to the point that they are really more of transshipment than domestic production. If the numbers aren’t accurately reported, we get false signals from our economic atltimeter.

      As I mentioned to Abby, I’m not sufficiently informed to speak to tariffs, but my instinct is that corporations are manipulating the system to maximize their profits and minimize their tax exposure. Given the number of major corporations that manage to pay no taxes, I suspect they are equally adept at keeping the tariff man at bay.

      The other thing I ran across that might be of interest were that virtually all of the government projections regarding the job-creation impact of TARP appeared to be off dramatically. (Reality appears to have been much lower than projections.) I was stunned to find that economists can’t seem to agree on much of anything — to include the best way to calculate GDP.

      My belief is that we entered the global trade arena in a higher ocean than our competitors. With the advent of globalization, the US ‘economic’ water will seek out its own level. Unfortunately, that means we will be raising the boats of other countries, but we are lowering our own.

      • Abbyrose86 says:

        And Bob…your suspicions that they can AND DO manipulate the tariff codes would be correct.

        I big part of my job is helping them take advantage, within the law, what they can take advantage of…as such, I can assure you that the law is inadequate to deal with today’s global realities.

      • PocketWatch says:

        SB -- When dealing with economists, remember one thing…

        If you get 10 economists in a room and ask a question, not only will you get 15 answers, every one of those answers will have a “but on the other hand” attached to them.

        Economics is not anything like an exact science, it is more philosophy than anything. Models are made after the fact, then theories are developed around what has already happened as to why they happened, then are projected out into the future. What could possibly go wrong?

        I have thought lately that the group of economists working on a more psychology-based model may have something. It has been shown that even experts in money make irrational money decisions every day. Why? No answers yet, but that seems to be why we get into the messes we get into as a society.

        • SequimBob2 says:

          You brought a giant smile to my face with this post.

          A friend and I get together to talk about investments once a week. We’ve been following investment service that provides recommendations. They have a great track record with a very high success ratio with their picks.

          My friend was upset because one of the recommended stocks went down. “But the other stocks are ahead,” I told him. He said, “Yeah, but I want to win on everyone.” Ahh, the human condition.

          Thanks for sharing.

    • Abbyrose86 says:

      Actually PW you bring up a good point. Many imports ARE not finished goods that are going on to the final consumer. HOWEVER, your take on it was off. THEY do pay tariffs on the goods. AN import is an import REGARDLESS of whether it is a related party transaction or not.

      So in your example, the motor assembly (highly unlikely a motor assembly would come from China though…more likely Japan) would be imported in the commerce, entry filed with applicable duty paid, and shipped into the US for final assembly into a product for sale. IF the good was exported AFTER production in the states, the importer could apply for a duty refund of 99% of the duty paid on the imported good (manufacturer’s duty drawback). HOWEVER, the duty is payable on such an import at the time of import…unless the good is going into a Foreign Trade Zone.

      • PocketWatch says:

        Abby -- thanks for the response. Always good to have an expert on hand! I was working from a months-ago memory, and don’t know the ins-and-outs of tariffs and finished goods and all that fun stuff.

        ****EDIT****
        I think the point of the article had to do with the idea that it was all GE (or whoever), and actual “foreign” products that were wholly from other countries (as opposed to within a family of a single company) were not as large as one might think.

        • Abbyrose86 says:

          Thanks PW….I didn’t see the article. But that would make sense. There are many variables involved in the international trade process that many don’t realize. It’s not as cut and dry as it looks on the surface.

  5. Abbyrose86 says:

    Bob,
    You have provided an interesting analysis. I do agree that the problem is bigger than what many believe in some areas (as to the overall economy) but I would argue on some of your conclusions based on the raw data you used.

    I’ve been a part of the trade for over 20 years, and am considered an international trade expert. (Really!!:) ). I’m a licensed customs broker, certified customs specialist and international freight forwarder. SO this truly is what I do for a living. As such, I read your article with a different perspective and with great interest.

    While, it is TRUE, that the United States does import MORE than 2 trillion dollars worth of goods, that number is a relatively new number. FY 2005, imports were at 1.3 trillion and FY 2000 were well under 1 Trillion and before that the numbers were less each year. (I actually have physical documents that provide the trade numbers over the years. Some of this older data is hard to find on line.)

    HOWEVER, this is not due to NAFTA or specific trade programs per se. It is due to the ideals behind global trade initiatives that were at the heart of GATT, The Uruguay Round Table and the formation of the WTO.

    The major spike in containerized imports after the year 2001 came from China having been admitted into the WTO in December 2001.

    Now, with that being said, using the aggregate values of the total imports is misleading. AS a good portion of imports are raw materials, believe it or not, that DO get manufactured into products within the NAFTA countries. Some of those containers you see are NOT just bound for US ports, either. This is important. In addition, some of those containers contain MULTIPLE shipments, that have various uses and final destinations, so not ALL shipments are “full container load”, and thus skew such analysis. In addition, some imported items are very high value goods and can skew the data IF only looking at the aggregate value of total imports for a year. For example, it NOT uncommon to have a container load of a particular imported item,such as a state of the art machine, needed for a manufacturing facility, be valued at many millions of dollars. Thus there may only be one imported article in that container. OR you can have 10 containers that are all part of 1 shipment (entry) that ALL combine together to form one thing. Honest, this happens ALL the time.

    Thus the trade and CBP, don’t really use aggregate data for real analysis of trade issues. It is much more helpful to look at specific tariff number trade data, and country of export/origin data as well as valuation to determine trade issues.

    Also, the term import can be misleading to the layman as well. For something to be considered an import for statistical purposes, it must be entered into the ‘commerce of the United States’. ENTRY is what differentiates whether a good is an import or not, and the entry process is where ALL trade data originates. Trade data and the statistics are supplied by Customs brokers who file ENTRY on behalf of importers to CBP, who in turn take the data we supply and provide the reports.

    TO this day, the US’ number 1 trading partner is CANADA. NOT CHINA, not MEXICO but CANADA. As of 2010, China took the 2nd place. HOWEVER, up until last year, Japan was our second largest trading partner.

    To make things even more complicated, most products today, are not just manufactured in one country. However, the final country of significant production is the country used to report the country of origin (i.e. country of manufacture) of a good. Two countries data are reported for each type of item being imported…the country of export AND the country of manufacture or produce(country of origin).

    However, this can get complicated when goods are transshipped to another country, before being shipped to their final destination for consumption. This situation happens quite often with NAFTA qualifying goods.

    My point in bringing up these variables, is that global trade is not as simple as many think. There are many variables involved in the import process that can create misleading information to those who aren’t aware of all the specifics.

    I can have a shipment of goods originate in Egypt, send it to Singapore, where it is ‘entered into the commerce'( or not), predicated on what import process is deemed necessary, wherein another manufacturing process is done which then gets reloaded on the container and shipped to LA…where it is unloaded, put in a foreign trade zone, which DOES not get entered into the commerce, which then has another process done to it, and then is reloaded AGAIN onto the container and shipped to Israel. OR that shipment can be entered into the commerce….sent to a facility in the US for a manufacturing process or to be placed in a warehouse for sale in the US or to another country at a later time.

    JUST because something enters the commerce and is imported doesn’t mean the good is staying or is for US consumption. Often, about 1/3 of the time, goods that are imported into the US are not staying here or being sold to the average consumer. Many times good are entered into the commerce(imported) because it is cheaper for the IMPORTER of RECORD, to utilize a trade program and import the goods which are NOT staying here. What we call ‘cheaper to pay duty’. It’s cheaper to pay the low duty rate than to deal with the costs associated with other programs that allow for transshipping. Those are more complicated and come with higher private industry costs.

    Something that many forget, when reviewing international trade policy, is that many jobs have been created in this sector (logistics) to provide the necessary services required from trade. From customs brokers and ALL the necessary personnel they need to the dock workers, truckers, railroad workers, airline workers, warehouse workers, etc. WHICH are ALL services and service jobs, that are ALL necessary to make this all work. These jobs tend to be better paying jobs than manufacturing jobs AND do tend to require more training and knowledge.

    Over the last 20 years, opportunities in logistics have increased dramatically. 20 some years ago, there was no such thing as a Bachelors in logistics management. Nor were there many jobs in fields related to international trade. Today, most large companies have customs brokers, import/export specialists and others related to trade on staff. 20 years that was very uncommon. JOBS such as these, ARE service jobs and do tend to pay well, because of supply and demand. There aren’t enough people who know how to do all this, and the training is quite time consuming. Thus wages tend to be higher. This is a growing field.

    There are other related jobs that come with this situation and trade as well. However, it does take time and most careers/jobs in these fields are still in their toddlerhood.

    Now, one of the things I do think needs to be addressed on our US trade policies is a revision of our tariff rates, most specifically our MFN (most favored nation) most of them are too low and are based on old ideas. Another thing I think needs changing is more regulation with REAL teeth and more CBP officers. Right now there aren’t enough officers and I don’t mean those at the front lines, I mean import specialists at CBP, they are severely understaffed and thus don’t have the resources to adequately ensure that importers are honestly assessing their shipments.

    CBP also acts as an agent for other government agencies that oversee imported products, such as the USDA, EPA and others. While agencies like the FDA also are at the front lines and work WITH CBP on imported products that they oversee, and have their own import policies and programs in addition to those CBP oversees, they could use more resources as well.

    • SequimBob2 says:

      Abby: Welcome! I am delighted to have a “trained professional” here to help with the discussion… and keep me straight.

      As I began doing the research for my math project, the factors bearing on the problem became complex pretty quickly. What I soon realized is that we do not necessarily measure the right things. So there are data gaps in our economic instrument panel.

      Exports and trade certainly create jobs, but a manufacturing job loss is a bit of an iceberg. It’s all the “other” jobs… those beneath the surface… purchasing, supplier jobs, engineering, contracts, management, accounting, HR, etc., that are also lost when products are moved offshore. I think of it as an economic eco system.

      I’m not bashing service jobs, so I hope that was not what you took away from the piece. I’m criticizing the easy surrender of our manufacturing jobs to other countries. I’m criticizing the idea that we can have a truly healthy economy without manufacturing.

      I’m also advocating for an industrial policy that helps keep manufacturing jobs in this country. (I used to work in Flint, MI and have seen what happens when jobs leave.)

      I really can’t speak to tariffs and their impact on trade, but I hope you will.

      In the end, my point is this. We import two trillion dollars worth of goods into this country. Some of these imports create jobs, but I think for the most part the result of imports is a loss of US manufacturing jobs. Some of these jobs were destined to depart with advent of global trade. Others, I think, could have been saved if we, as a country, had a more effective industrial policy — and if our leaders truly valued the importance of these jobs and their contribution to our society.

      Unfortunately, we are governed by a the-markeplace-is-the-best-policy-maker philosophy. While this approach certainly works for corporations, I don’t think it works so well for America as a whole.

      Thanks so much for adding to the debate.

      • Abbyrose86 says:

        Bob, thanks…I love talking about this stuff…so this right up my alley!

        I do think we have lost a lot of jobs, but I think some of that blame goes to other things and not just trade. Trade has been with us forever.

        Whenever I start a seminar on international trade, I start it with this question…

        “Why did Columbus sail the ocean blue?” And this answer…”to find an efficient ocean trade route to India and China.”

        Trade truly is what makes the world go round, and the argument for or against foreign trade has been going on since the US started.

        The problem I think is not trade itself, nor is trade with any particular nation. The problems the US has is more structural in nature. The rest of the world has changed, and is evolving…the US is resisting those changes and in such is hurting itself.

        For example, Universal health care. Large companies who are located in the US, need to offer health insurance to employees. This is a much more substantial cost, than the actual wages they pay. Thus it is cost effective for companies to move operations where they don’t have that cost. Whether it be on the higher end jobs or lower end jobs. Thus a company that needs an engineer is more likely to send those engineering jobs to Germany than the US.
        AND if they need low skilled workers, they are more than likely to send those jobs to China or MExico.

        It’s not just about wages, its about a lot of different things. Labor costs and labor laws are only one factor that determines where a company sends their facilities.

        I had a very large European client, that was looking to open a North American facility to manufacture their product that was for the US market. At the time, the company was strictly exporting their product from Europe to the US and paying high shipping and duty costs. The product has a very high duty rate and is subject to quotas. It took them almost 3 years to make a decision. They looked at Mexico, various spots in the US and Canada.

        They chose Canada, for the following reasons….the potential labor pool was more skilled and better educated than those in the US and Mexico. They would not have to pay as much for health insurance and other benefits, while still having to pay decent wages, and the infrastructure of the region in Canada was in better condition than that of the US and Mexico. WHEN they took ALL their costs and the benefits and analyzed the situation, they felt it was in their best business interests to locate their North American facility in Ontario.

  6. Chernynkaya says:

    Great post Bob! I can’t analyze your numbers because I am severely math challenged, but here’s what I think I understand:

    The Boston Globe made this graph about America’s global manufacturing strength. (It includes mining and utilities because it draws from a UN database that bundles together data for manufacturing, mining and utilities). And I don’t have any stats about the last two years.

    [img][/img]

    The graph suggests U.S. manufacturing is doing just fine. But it doesn’t feel that way.
    It’s partly because the consumer goods you can buy at the store (clothes, cheap electronics) are probably made overseas. The strength in U.S. manufacturing is in high-end products (airplanes, say, or semi-conductors).
    There are a few other, more fundamental reasons that U.S. manufacturing doesn’t feel so strong.
    One, even though U.S. manufacturing has grown in absolute terms, other sectors of the economy have grown much faster. As a result, manufacturing represents a much smaller share of our economy than it did a few generations ago. Finance, insurance and real estate have a much bigger share of GDP.

    Plus, as you say, manufacturing jobs are disappearing, even though the manufacturing sector is making more more. In other words, we have lots of really high-tech factories churning out fancy, complex stuff. But those factories just don’t need that many employees. More than five million manufacturing jobs disappeared in the 10 years through December of last year — and most were already gone by the time the financial crisis hit.

    So the big flaw here is that while yes, in a vaccuum, manufacturing output has grown since 1970, as a percentage of the economy manufacturing has shrunk dramatically. Eyeballing the numbers on the chart, in 1970 manufacturing output was roughly $1 billion, and this year it is $2.2 billion. But in 1970 US GDP was $3.6 billion and now it is around $13 billion. So back in 1970, manufacturing accounted for around 28% of our economy, and now it accounts for 17%.

    So the fact of the matter is far fewer people work in manufacturing than in the past, and manufacturing makes up a much smaller portion of our economy than in the past. Is it really debatable that if manufacturing was a bigger component of our economy, that there would be more good jobs available for more people, and that our economy would be stronger as a result? I wholeheartedly agree that we need to make more things in this country. And we as consumers need to support those companies that do make things in this country, so they’ll be able to hire people to make more things in this country.

  7. agrippa says:

    The loss of jobs comes not from just outsourcing -- free trade -- it also comes from automation. The computer has automated the office, just has transfer machines have automated the factory. Service/retail cannot make up for that.

    Free trade is fine with countries that are basically equal; it does tend to balance out over time between equals. But, the USA cannot compete on labor cost with countries like China or India. That drives down USA wages. China and India can do those high skill jobs as well as the USA can.

    We do need an industrial policy. But, we will not have one. People are locked into the doctrine of free trade -- they will stick to their guns, come what may -- and the opposition to ‘government interference in the free market’.

    • SequimBob2 says:

      Agrippa: I do think automation represents an opportunity for the US. You are correct; we can’t compete on touch-labor cost to touch-labor cost, but we can innovate and automate. That automation would allow us to bring jobs back into this country.

      Some argue that automation defeats the purpose that we’re replacing people with robots, but we need people to engineere, build, maintain support the robots (forgive Orwellian comparison). Equally important is that some of the subcomponent parts can come back to the US as well. It’s doable, if not likely

      You are also correct about the resistance to establishing an industrial policy that upsets the status quo. As I mentioned in the post, if you are top corporate exec or part of the top 1%, the current system is working just fine for you.

      • agrippa says:

        It looks like the argument goes like this: if you cannot compete on the price of touch labor, you compete on having higher skilled labor. That appears to be the argument for free trade/globalization. That will, at the end of the day, where the adjustment will have to come.

        I think that we all aware that places such as China and India could not stay where they were; poor and underdeveloped. Those people are, potentially, just as telented as Americans. Those countries are under great internal pressure to devlop economically.

        And, labor cost is not the only cost in the mix. There are transportation and fuel costs as well.

        • SequimBob2 says:

          My objection is not so much with Free Trade as with the commonly held belief that we did not need to manufacture things in this country. Germany took a different path and their government worked with industry to retain a viable manufacturing base. Germany’s competitive edge comes in the form of quality, high-end, high quality goods. This approach has worked for them.

          In the US, we just abandonned the field — choosing to make money by moving it around. Not too long ago the best and brightest graduating from top schools chose finance over manufacturing. (Two guys at a bar are hitting on the same lady. One says he’s a hedge fund manager. The other says he is a manufacturing plant manager. All things being equal, the plant manager will probably be watching pay-per-view as the hedge fund manager and his ‘date’ go out on the town.) Manufacturing was, and still is, not considered sexy. More importantly, it is not considered essential.

          A non-US company bought out the manufacturing company I worked for. They would send in their execs and tell us we needed to be buying off shore that we could get cheaper components overseas. We were constantly fending off efforts to out-source our in-house work (and jobs) as well. Everything was finance and accounting-driven. I always felt my job was to employ Americans, buy and build American. Mine was a minority view.

  8. SequimBob2 says:

    Kesmarn:

    Re: Outsourcing and loss of technical jobs as well

    You make a great point. When we export a product’s manufacture overseas, we not only lose the touch labor to produce the item, we lose the supporting engineering, program management, marketing, accounting, purchasing, warehousing, IT and HR jobs that supported the touch labor job.

    The ironic thing about the idea of wealth redistribution (from rich to poor) — the ‘socialist monster’ that the Tea Party and right wing so love to demonize is that a reverse wealth redistribution is the reality. Chernynkaya has covered this extremely well in her recent DP postings.

    In answer to your specific question, I favor corporations and the wealthy paying their fair share of taxes. I don’t think of it as wealth redistribution, but I guess some would argue that it is.

    When a nation’s wealth is concentrated in the hands of only a few, it’s not a good thing and that is exactly where we are today.

    I had the pleasure and privilege of doing a lot of work with other countries. I remember when we sent a proposal to Indonesia and the propspective customer sent three engineers to ask questions about our technical proposal. These guys were incredibly bright and extremely well prepared. No work came of the job. They were simply attempting to gather intel to assist them in doing the job “in-house.”

    Same experience in dealing with Koreans and Chinese. By the time I finished answering their questions, they knew more about my proposals than I did.

    My point is that a lot of policy makers believed that other countries were not capable of taking our high-tech work. They assumed that the ‘easy’ touch labor jobs would be what went overseas. Fact is, the folks overseas are highly educated and willing to work hard and more than capable of taking both our low tech AND high-tech jobs.

    We need an industrial policy in this country. We need our politicians to quit fighting about whether or not a plant is union or non-union and worry more about whether or not there is a plant at all.

    Thanks for responding to the post.

    • kesmarn says:

      I totally agree with your points, SB2.

      And your observations about working with the engineers and businessmen from Indonesia, China and Korea are so interesting. Gathering info is a real strong suit there.

      Over 30 years ago, when my father was working as an engineer for the company that manufactured Jeeps, a delegation was sent there from Japan’s Mitsubushi Heavy Industries to study the assembly plants here. They stayed for at least two weeks, just at this one plant. They were exceptionally gracious and made a point of befriending my dad and other people they worked with — including dinners and small gifts for family members.

      We had never heard of Mitsubishi then. But after all that careful info gathering and planning — what a powerhouse they are today!

  9. whatsthatsound says:

    Another great SB2 article. I talked to a guy who works for a company that makes cargo vessels. The newest generation ones might just be the biggest things humans have ever made (technically, I think that’s the Boeing hangar, but….) They are like three football fields long now. I think it takes almost an hour to walk around one. 100 years ago Liverpool was the world’s busiest port, I think, but you couldn’t even get one of these monsters in there. Kobe was the world’s largest for a while, but it’s too small for today’s mega-ships. They have to keep making bigger and bigger ports now because the ships are so darn big. So the three biggest ports in the world now are all in -- you guessed it -- China. Port of L.A. is number four (but was #1 up until just recently).
    Not really sure what my point is. Just mind blowing what a behemoth the world’s economy is.

    • SequimBob2 says:

      WTS: One of the reasons I included the photo of the ship sailing by our local lighthouse was that it captured the sheer size of the ships. Ours is NOT a small lighthouse and the ship is not terribly close to it, so the comparison is somewhat reduced from reality. The ships are just huge.

  10. kesmarn says:

    Thanks for this excellent, article, SB2.

    So much to think about here. Your suggestion that American companies be rewarded for creating jobs in the US rings true. I wonder if we as a country could also consider the corollary notion of economic penalties for US corporations who use foreign labor (which is often perilously close to slave labor) to produce their goods? The revenue from these penalties could help fund programs (like unemployment, food stamps, and job training) that help displaced American workers.

    One other aspect of the unemployment problem in the US that is almost equally worrying is the loss — not only of manufacturing jobs — but of technical ones, and jobs requiring higher levels of education. Paul Krugman recently wrote a column about the myth that prevails regarding the value of college education in getting Americans back to work. In short, he said, getting a degree (even in a technical area or from a law school, for example) does not make future employment necessarily a given.

    Computers, it turns out, can quickly analyze millions of documents, cheaply performing a task that used to require armies of lawyers and paralegals. In this case, then, technological progress is actually reducing the demand for highly educated workers.

    And legal research isn’t an isolated example. As the article points out, software has also been replacing engineers in such tasks as chip design. More broadly, the idea that modern technology eliminates only menial jobs, that well-educated workers are clear winners, may dominate popular discussion, but it’s actually decades out of date.

    […]

    [T]he notion that putting more kids through college can restore the middle-class society we used to have is wishful thinking. It’s no longer true that having a college degree guarantees that you’ll get a good job, and it’s becoming less true with each passing decade.

    In effect, we’re losing not only manufacturing jobs to outsourcing, but intellectual and technical ones as well. Is some form of wealth redistribution (the words that terrified the whole right wing and made Joe the Plumber the Justin Bieber of the Tea Party) the primary answer to dealing with the top 1% who have benefited from all the layers of outsourcing? I’d be interested in your thoughts.

    Link for the above-quoted Krugman article, btw: http://www.nytimes.com/2011/03/07/opinion/07krugman.html


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