Uncle Sucker's Trade Deficit Worsened In November

Includes: EWJ, EWY, FXI, GXC, UDN, UUP
by: Howard Richman

The Commerce Department reported on Friday that, overall, the U.S. seasonally-adjusted trade deficit deteriorated from $42.1 billion in October to $48.7 billion in November. The negative trade balance subtracts from America's economic growth but adds to the growth of America's trading partners.

These trade deficits are intentionally produced by the central banks of America's trading partners, including those of South Korea, China and Japan. They buy U.S. financial assets in order to perpetuate favorable exchange rates so that their producers get low costs and increased investment while U.S. producers get high costs and reduced investment.

South Korea

In 2012, President Obama signed a "free trade" agreement with South Korea. The agreement lets South Korea continue to manipulate the won-dollar exchange rate in order to increase market share of Korean products and reduce market share of U.S. products in U.S. and Korean markets. The Federal Reserve reported that South Korea spent 4.24% of its GDP on currency manipulations between September 2009 and September 2010.

The agreement went into effect in March 2012. Ever since, the U.S. merchandise trade deficit with South Korea has deteriorated. descending to $16 billion for the 12 months ending in November as shown in the graph below:


According to the Asian Development Bank, the People's Bank of China added $669.8 billion worth of foreign assets to its reserves in 2011. Partly as a result of these currency manipulations, Chinese products continue to gain market share vs. U.S. products in world markets.

The Obama administration has tolerated this. Outgoing Treasury Secretary Timothy Geithner issued biannual reports to Congress which pretended that China was not manipulating its currency, rather than take the issue to the International Monetary Fund whose articles of agreement prohibit currency manipulations.

As a result, the U.S. trade deficit with China has deteriorated steadily throughout the Obama administration. For the 12 months ending in November, the U.S. merchandise trade deficit with China was a negative $314 billion and worsening steadily, as shown in the graph below:


The U.S. trade deficit with Japan has not been getting worse in recent years, but that is about to change. Japan's new Prime Minister is demanding that Japan's central bank resume its mercantilism, Ambrose Evans-Pritchard wrote on January 1:

Japan's new premier Shenzo Abe is sweeping into office like Roosevelt in 1933, commanding the central bank to do whatever it takes to defeat deflation, deliver 3pc NGDP growth, and drive the dollar-yen rate [down] to 90.

So, into the foreseeable future, Uncle Sucker will continue to give away its industries and its potential economic growth to all those governments who wish to take them.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.