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Any U.S.-Kenya FTA Must Build from Floor Set by New NAFTA

Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch

Note: At a meeting today at the White House, Kenyan President Uhuru Kenyatta and U.S. President Donald Trump announced that the two countries intend to launch negotiations for a bilateral Free Trade Agreement (FTA).

Any new U.S. trade agreement being negotiated from scratch – whether it is with Kenya, the United Kingdom, European Union or other nations – must build from the floor set by the new North American Free Trade Agreement (NAFTA).

Trying to fix an existing bad deal like NAFTA to reduce its ongoing damage is very different from creating a truly good trade deal that generates jobs, raises wages and protects the environment and public health.

Any new U.S. trade pact, including with Kenya, must build on the floor set by the new NAFTA, meaning no special protections for foreign investors or Big Pharma, stronger rules to stop race-to-the-bottom outsourcing of jobs and pollution, binding climate standards, enforceable rules against currency cheating and no limits on the protections needed to ensure that our food and products are safe, our privacy is protected, monopolistic online firms are held accountable and big banks do not crash the economy again.

One question is why Kenya would want to take on take on a raft of new obligations under a U.S. FTA when it already enjoys largely duty-free access to the U.S. market under the African Growth and Opportunity Act (AGOA).

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Trade Deficit in Trump’s Third Year Is 14% Higher Than When He Took Office, Not Quickly Eliminated as He Promised as a Candidate

Drop of $28 Billion in U.S. Goods and Services Deficit in 2019 Relative to 2018 Explained by $44 Billion Improvement in U.S. Energy Trade Balance

Contrary to candidate Donald Trump’s pledge he would quickly end the U.S. trade deficit, today’s release of annual 2019 trade data show the overall U.S. goods and services deficit in Trump’s third year in office is 14% ($77 billion) larger than the deficit in 2016, the last year of the Obama administration. (Figures are inflation-adjusted* In nominal terms, the overall 2019 goods and services deficit 22% ($109 billion) larger than in 2016.)

Given the trade deficit has increased during Trump’s presidency, today the administration is spotlighting the drop in the 2019 deficit relative to the deficit in 2018, but:

  • A $36 billion decline in U.S. oil imports and an $8 billion increase in oil and gas exports – a $44 billion improvement in the U.S. energy trade balance relative to 2018 – entirely explains the overall $43 billion decline in the U.S. goods trade deficit between 2018 and 2019. The improvement in the energy trade balance also is considerably larger than the decline in the overall U.S. goods and service deficit of $27 billion or 4% – from $646 billion in 2018 to $619 billion in 2019. The energy trade balance shift is not a sustainable way to decrease the U.S.-world trade deficit and poses serious climate change threats.
  • The 2019 non-energy goods trade deficit is up $1 billion relative to 2018 and up 17% ($122 billion) relative to the end of the Obama administration.
  • The 2019 manufacturing trade deficit in Trump’s third year is up 14% ($130 billion) relative to 2016, the last year of the Obama administration. Because these are the inflation adjusted terms, so they represent the growth in the deficit in constant December 2019 dollars.
  • The sizeable 2019 decline ($82 billion) in the goods trade deficit with China relative to 2018 was countered by a $39 billion increase in the goods trade deficit with the rest of the world. (The China goods deficit dropped from $432 billion in 2018 to $350 billion in 2019 while the rest of the world goods trade deficit increased from $469 billion in 2018 to $508 billion in 2019.) Economists note that such “trade diversion” is driven by imbalances in currency values: While tariffs on Chinese goods may promote a decline in Chinese imports to the United States, deficits with the rest of the world increase. This is likely to continue while the U.S. dollar remains unsustainably high in value, in part because countries such as China hold massive dollar reserves, while other countries’ currencies remain undervalued. Note: The U.S. goods trade deficit with China in 2018 was the largest ever recorded, at $432 billion, up from $396 billion in 2017. This compares to $373 billion in 2016, Obama’s last year.

“Donald Trump has not delivered on the trade promises so central to his 2016 victory in Midwest states: The U.S. trade deficit is up significantly during Trump’s presidency, U.S. job outsourcing has continued and the manufacturing sector’s four-year employment boom that started two years before he took office flatlined in 2019,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

The U.S. goods trade deficit with North American Free Trade Agreement partners Mexico and Canada increased to $243 billion in 2019 – up 31% and $58 billion since the start of the Trump administration. As Trump stonewalled congressional Democrats for a year before reopening and rewriting the revised NAFTA that he signed in 2018 to remove giveaways to Big Pharma and strengthen anti-outsourcing terms, the deficit grew 10% ($23 billion) between 2018 and 2019.

*Data Note: Trade data is sourced from the U.S. Census Bureau. We present deficit figures adjusted for inflation to the base month of December 2019 and expressed the data in constant dollars so the figures represent actual changes in the trade balances. We also offer the “nominal” figure, which is the number you will see in the U.S. Census Bureau data for figures earlier than 2019. Some economists view the nominal data as more accurately reflecting the overvalued U.S. dollar. “Manufacturing” is defined by BEA’s scope for manufacturing trade flows.  

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Ongoing Job Outsourcing, Jump in Trade Deficit During Trump Era Clash With Expected Trade Triumphalism During SOTU

Trump Betrayed Additional Campaign Trade Promises: Serial Job-Outsourcing Firms Get New Federal Contracts, Manufacturing Sector Slides Into Recession

President Donald Trump is likely to focus on trade in his State of the Union address. Yet, he has not delivered on the pledges that were central to his 2016 victory in key Midwest swing states: U.S. job outsourcing has continued, the manufacturing sector’s four-year employment boom that started two years before he took office flatlined in 2019 and the U.S. trade deficit rose 19% in inflation-adjusted terms (25% in nominal terms) relative to the end of the Obama administration.

Trump is likely to tout what he calls a “phase 1” China deal and the new North American Free Trade Agreement (NAFTA), which finally passed after Democrats forced him to reopen and redo the deal he signed in 2018 to remove giveaways for Big Pharma that would have locked in high drug prices and strengthen terms to counter outsourcing. But for the wide swath of American voters outside Trump’s base of whatever-he-says believers – namely the voters he must persuade to support him – decisions will be made based on the factors that affect their daily lives, not the inside-the-Beltway news about  trade deals being completed. Thus, for instance, many people know they did not get the tax cuts they were promised and have seen more firms outsource jobs – whether or not they know that Trump’s tax bill incentivized more outsourcing by providing a major tax cuts for firms that move offshore.

  • Tens of thousands more U.S. jobs have been government-certified as lost to outsourcing during the Trump era. This includes outsourcing by General Motors, Boeing, Honeywell, Siemens, IBM, Hewlett Packard, United Technologies (the Carrier plant candidate Trump insisted would not leave), Caterpillar, Electrolux, General Electric, Harley-Davidson, Honeywell, Kohler, Intel, Thompson Reuters, AT&T, Dun & Bradstreet, Verizon and Ministry Health. Ford and Nabisco also have outsourced under Trump but have not yet been processed on the certified list.
    • The new NAFTA will not bring back hundreds of thousands of jobs: Nothing makes that clearer to voters than recent U.S. layoffs and new investment in Mexico by U.S. auto makers. GM is closing numerous U.S. plants while making popular models in Mexico. Ford is even making its new Mustang electric SUV in Mexico – the first Mustang not to be made here.
  • Manufacturing job growth hit a wall in 2019 as the sector slid into recession. Manufacturing job creation nearly stopped after a job growth boom that started two years before Trump was elected. December 2019 actually saw a contraction, with 12,000 manufacturing jobs lost compared to November 2019. Late last year, an important indicator of manufacturing sector health – the Purchasing Managers Index – registered its lowest reading (for December 2019) since the June 2009 financial crisis. The PMI is up slightly in January 2020, but excluding periods in 2013 and 2016 has not been so low since 2009. The U.S. manufacturing sector was in a technical recession for the last two quarters of 2019.
  • During the Trump administration, the overall U.S. goods and service trade deficit with the world rose 19% in inflation-adjusted terms (25% in nominal terms) relative to the last year of the Obama administration from $542 billion to $646 billion ($503 billion to $628 billion nominally). The U.S. trade deficit in goods increased from $792 billion in 2016 to $901 billion through 2018 in inflation adjusted terms (or $735 billion to $875 billion in nominal terms). When the annual 2019 trade data are released later this week, the 2019 manufacturing trade deficit is expected to be more than 12% above that in 2016. (The Census data is released Feb. 5, 2020.)

Year (11-month comparisons - 2019 data released on 2/5/2020)

U.S. Manufacturing Trade Deficit with World

2016

$853.9 billion

2017

$896.2 billion

2018

$968.5 billion

2019

$962.9 billion (12.8% higher than 2016)

  • Dramatically lower U.S. oil imports and growth in U.S. oil and gas exports will likely result in the overall 2019 U.S. trade deficit declining relative to 2018 even as it will remain significantly higher than in 2016. The increase in the U.S. oil and gas trade balance will be more than $41 billion – larger than entire 2018-2019 decline in the U.S. trade deficit with China, which will be around $39 billion. The energy trade balance shift is not a sustainable way to decrease the U.S.-world trade deficit and poses serious climate change threats.
  • The U.S. goods trade deficit with the rest of the world jumped 22% in real terms – from $323 billion in 2016 to $443 billion in 2019 during the 11-month period for which data is available even as the U.S. goods trade deficit with China is projected to decline from 2018 to 2019.
  • Economists note that imbalances in currency values drive this trade diversion phenomena. While tariffs on Chinese goods may promote a decline in Chinese imports to the United States, growing deficits with the rest of the world increase. This is likely to continue while the U.S. dollar remains unsustainably high in value, in part because countries such as China hold massive dollar reserves, while other countries’ currencies remain undervalued.
  • Contrary to his campaign promises, Trump has rewarded firms that outsourced jobs with lucrative government contracts. The list is sizable. Consider just the state Trump visited last week: In December 2018, the Siemens plant in Burlington, Iowa, closed after 148 years of operation. The plant closure eliminated 107 jobs, which was part of a nationwide loss to outsourcing of 1,800 jobs by Siemens. But during 2019, Siemens received $877,354,618 in federal contracts.

Firms That Have Caused TAA-Certified Job Losses in Iowa

Value of Federal Contracts Received in Last 12 Months

Siemens

$877,354,618

Verizon Communications

$754,077,723

United Parcel Service (UPS)

$637,292,359

Hewlett Packard

$265,824,579

Cummins

$255,917,252

Cargill

$184,535,591

Delta Air Lines

$141,014,806

John Deere

$18,517,349

Bayer Pharmaceuticals

$6,578,386

  • Many American did not get Trump’s promised tax cut. Will they connect Trump’s tax bill with continuing job outsourcing? If a firm shuts down production in the United States and moves to Mexico, its U.S. federal tax rate is cut in half. (A firm in the U.S. would pay a 21% corporate tax rate, while offshore income is taxed at a 10.5% rate.)
  • It remains to be seen if what the White House is selling as a “phase 1” China trade agreement will incentivize more job outsourcing or translate into positive changes in trade flows or Chinese policies.
    • The China agreement does not cover the mass subsidies or other “China 2025” policies that the White House has spotlighted as a threat to U.S. manufacturing and geopolitical interests. Indeed, policy changes China has made that are reflected in the agreement, including more access for foreign investors and protections for their intellectual property, may promote more outsourcing of U.S. investment and jobs.
  • China’s action since the deal’s announcement suggest the promise of one-time increased purchases of $50 billion in energy supplies, $35 billion in services, $32 billion in agricultural goods and $80 billion in manufactured goods may prove elusive.

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