Free trade has been one of my "hot" buttons as it is being applied without regard of consequences. Some (or a lot - who can prove?) of the USA unemployment crisis can be laid at the doorstep of blind application of this theory.
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Econintersect has considered the free trade was necessary to support a consumerism which was growing faster then the ability to produce (analysis here). We have postulated the effects on employment if some of the exported manufacturing jobs were kept in the USA (analysis here). We have shown how free trade by itself reduces the worldwide manpower to produce global output (analysis here).
We opined that currently our trade balance is exporting 1.3 million jobs (opinion here). And we have even argued Americans have to understand that people in other countries are willing to work harder for less (analysis here).
Free trade as a concept is good. Theory says it forces international competition of products and goods in each country - with the best product (cost / quality) winning. The competition forces prices down.
Free Trade theory says it is one way for countries to emerge (and better the situation for their citizens).
Econintersect's investigations point to the negative effects of free trade agreements in the USA economy taking hold around 2000. It is believed the USA's economic dynamics began to evolve into a New Normal which we are living today. The Great Recession sped up the evolution.
The USA economy is linking more and more with the international market place. This is an imperfect link today - but with globalization and free trade, this link should continue to build (click on chart to enlarge).
So while some talk about de-linking economies, the opposite is likely true. The difference is that the saying "when the USA sneezes, the world catches a cold" is becoming inoperative. Economic relationships are becoming more egalitarian.
The world's economies are becoming interwoven because of free trade. Since 2000, witness the growing synchronization between equities prices and trade volumes. U.S. stocks are linking more and more to the level of global trade. The state of the domestic economy is becoming a smaller part of U.S. equity value.
Wall Street might know best.
Economic News this Week:
Econintersect’s economic forecast for March 2011 points to a moderately improving economy with all segments of its non-monetary index positive. This week the Weekly Leading Index (WLI) from ECRI improved from 6.1% to 6.5%. This level implies the business conditions six months from now will be approximately the same or slightly improved compared to today (click to enlarge).
Initial unemployment claims in this week’s release bounced up again. The data for the last two months as been quite noisy, and it remains important to follow the four week moving average for analysis of unemployment to smooth out the reporting idiosyncrasies. Overall, the loss of jobs is improving – and is now roughly the same as mid-2008.
The data released this week was positive and consistent with Econintersect’s January, February and March forecasts of slightly improving economic conditions overall. The economy, similar to this period last year at this time, is gaining strength.
Weekly Economic Scorecard:
| Item | Headline | Analysis |
| February Retail Sales | Up | Up - No Impact from Energy |
| February Business Sales | Will post on Saturday | |
| January Trade Deficit | Grew Moderately | Both Imports and Exports at January's highs |
| January Wholesale Trade | Up | Exceeded pre-recession peak for the last 3 months |
| February Diesel Usage | Down | Are rising fuel prices effecting economic growth? |
| February Small Business Sentiment | Up | Improving but still remains in recessionary territory |
| January Consumer Credit | Up | Up only because of government loans for education |
| Bernanke and G-20 | Elliott Morss: Capital flows are important in determining dollar value | |
| February Rail Traffic | Up YoY | Rail traffic being compared to strong 2010 growth |
| Muni Bond Defaults | Will defaults happen as Meredith Whitney predicts? | |
| Investing with a System | Jeff Miller: You must have a system to be successful | |
| Investing - the Week Ahead | Jeff Miller talks about role of energy for markets this week | |
| U.S. Dollar | Eric McCurdy: dollar could be on the verge of a breakdown | |
| Dollar Overvalued | Elliott Morss: There are conflicting views | |
| Insurance and Banking | London Banker on risk, resiliency and harmonization | |
| Federal Budget | John Lounsbury: Why not have a popular vote? |
Bankruptcies this Week: None
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
