A Dramatic Change In Trade With China.

Now when Washington and Wall Street think of international commerce, they usually think of the country's balance of trade. And fair enough. The Balance of Trade Numbers are an excellent score card of how a country in doing in the international arena. And for the last quarter of a century or more, the balance of trade numbers show that the United States has been loosing, and loosing bad when matched up against the Peoples Republic of China. For 25 straight years, China trade with the US showed a trade deficit for the Americans. Unrelenting, always growing. Money flowing to China from the US coffers. Until last November. In a report released on Tuesday, the Bureau of Economic Analysis is reporting that for the first time in memory there was a drop in the American Trade Deficit. And not an insignificant drop, an 8% drop, representing a reduction in that trade deficit of $43 billion dollars. Washington is scratching their head, Wall Street is puzzled. What just happened?

We are watching the biggest transformation in International Commerce in our lifetimes. And by my estimation most of Wall Street and all of Washington has it wrong.

Now when Washington and Wall Street think of international commerce, they usually think of the country's balance of trade. And fair enough.

The Balance of Trade Numbers is an excellent scorecard of how a country is doing in the international arena. And for the last quarter of a century or more, the balance of trade numbers shows that the United States has been losing and losing badly when matched up against the Peoples Republic of China.

For 25 straight years, China's trade with the US showed a trade deficit for the Americans. Unrelenting, always growing. Money flowing to China from the US coffers.

Until last November.

In a report released on Tuesday, the Bureau of Economic Analysis is reporting that for the first time in memory there was a drop in the American Trade Deficit. And not an insignificant drop, an 8% drop, representing a reduction in that trade deficit of $43 billion dollars.

Washington is scratching their head, Wall Street is puzzled.

What just happened?

The answer, I believe, lies in a very special culture in this country, which makes up the background of President Trump.

The culture I'm speaking of is the world of the entrepreneur. Now I'm not talking about some middle manager at a giant corporation. I'm talking about someone who puts his own capital on the line, to build a business.

I'm talking about the personal history of the President.

Now when an entrepreneur wants to get something done, like building a new shy scrapper, the last place he would go for help is the government. Regulators are usually the problem, not the solution. No, an entrepreneur would look up the people and resources that he needs to accomplish the task at hand. Just like Trump has done with International Commerce.

Let's look back for a second. First came the Trump Tax Act, passed late in 2017. One of the chief features of that law was to provide US Multinational Companies incentive to move their offshore capital back to the US. Providing their US divisions with the capital needed to expand here at home.

Then came the meetings in November of 2017 with the US allies in Asian: Japan, South Korea, Vietnam and the The Philippines. Was it possible that he was encouraging the supply lines needed to supplant production in China? It sure looks that way, and that's what is happening.

Finally USMCA, the agreement between the US Canada and Mexico is poised to be confirmed in the Senate, thereby creating yet another move of production away from China and to the United States' closest nearby countries.

But again that's a political answer, to an event that really transcends politics.

What is really happening here, is that the competitive advantage that China has enjoyed for a generation that is slipping away.

And so too, is China's stated objective of becoming the World's Producer.

Just to name a couple: China came on the world's stage as the low-cost provider, thanks in large part to their incredibly low cost of labor. Interestingly new technology, principally robotics, are now making any human labor advantage moot.

So too, China's reputation as a politically stable country has suffered a huge blow, with the riots in Hong Kong. This is exposing an entire class of Chinese are not happy with the current regime.

Finally China's reputation as a “can-do” supplier is coming under increasing criticism. It turns out that the Chinese willingness to partner with American companies often comes at the cost of the Americans disclosing their own trade secrets.

This is the Intellectual property issue, that you've likely read so much about.

For Wall Street and the nation, all eyes will focus on Washington next Wednesday, as China and the United States, are slated to sign the Phase 1 Agreement of their International Trade Accord.

There is no doubt, that this will be a significant event.

However, most of this dispute is being fought in a different venue: the world of International Commerce.

The home of the entrepreneur.

Tags:
Start listening to The Coronavirus Scorecard.
6:27
Start listening to The Coronavirus Scorecard.
6:27