Still Faking It
The real cause of America’s shrinking manufacturing capacity is not the nation’s past trade policies (favoring free trade). It’s our monetary policies (favoring fake money!)
Tuesday, May 6th, 2025
Bill Bonner, from the ranch at Gualfin, Argentina
No financial analyst — no matter how bright his suspenders...and how gaudy his bow tie — should merit any attention unless he lived through the Reagan Revolution. There, he saw the clumsy interplay between politics and monetary policies.
Reagan’s promise to reduce the power of government was a flop; it grew larger than ever. But Reagan backed Volcker who succeeded in stopping the inflation that had plagued the country. A real boom followed.
Young analysts don’t know how lucky they are. The Trump Team is the most ambitious — in terms of new policies — since Franklin Roosevelt. Almost all of them will backfire...or simply fizzle out.
The press reports that the Trump Team is ‘disrupting’ things. It is introducing ‘game changer’ new policies, it says.
Hallelujah!
Things need to be disrupted – otherwise, the country is headed for crisis and chaos.
But on closer inspection, the game remains much the same. Fortune:
“This is going to lead to the construction of a lot of plants, in this case auto plants,” Trump said upon announcing the tariffs in March. “You’re going to see numbers like you haven’t seen... in terms of employment. You’re going to have a lot of people making a lot of cars.”...But the U.S. plan to strengthen blue collar work may be backfiring. President Donald Trump’s 25% tariff on imported cars could actually be sweeping away auto job opportunities for Americans, despite aiming to do the opposite.
The real cause of America’s shrinking manufacturing capacity is not the nation’s past trade policies (favoring free trade). It’s our monetary policies (favoring fake money!) No disruption of US monetary policy has been proposed. So, prepare for more floppy policies; don’t expect a real boom.
Trump’s ‘drill baby drill’ and trade war policies, for example, may not be boosting the US oil business, either. NBC News:
President Donald Trump wants the oil and gas industry to “drill, baby, drill” in pursuit of his energy dominance agenda, but the companies involved in the actual drilling and servicing of wells have instead taken a beating during his first 100 days in office. U.S. crude oil prices have fallen below $65 per barrel, down more than 20% since Trump’s second term began, making it unprofitable for many companies to boost production, according to a survey by the Federal Reserve Bank of Dallas.
The low-cost producers are in the Middle East and Russia, not in the US. And when prices go down, it’s the marginal producers — not the ‘core’ pumpers in the Saudi desert — who suffer. Trump’s energy policy was meant to boost US energy companies. Instead, it may be putting them out of business. Bloomberg:
Oil dropped after OPEC+ agreed to another large output increase, raising concern that additional supply could lead to a global glut just as the trade war threatens demand.
Activist policies always fail. Because they disrupt the natural, spontaneous arrangements that people make on their own. Left to their own devices, for example, businesses trade with whomever they want...however they choose. That’s what free trade is all about, not forcing other countries to follow your labor or currency commandments.
But along comes the Trump Team with a ‘trade policy.’ What happens? Trade declines...shippers and container ports are already slowing down. Bloomberg reports that a single ship, now arriving at Long Beach harbor, faces $417 million in new tariffs. Ultimately, that charge gets passed along to consumers and investors. People get less of what they want, pay more for it…and the administration claims victory.
Even when the feds aim to reverse previous policy mistakes...they generally fail to do it. In the latest employment numbers, for example, is a real petard. DOGE, as we all know, has been ‘disrupting’ the federal workforce. According to the press, hundreds of thousands of federal employees have been tossed out onto the streets...the whole federal establishment is supposed to be as quiet and gloomy as an empty morgue.
But wait. The employment numbers show total employment increasing, not falling. What happened to those disappeared federal workers? And then, looking closer, we find that the number of people currently employed by the federal government is almost exactly the same as it was a year ago when Joe Biden was president.
There were 2,378,000 federal employees a year ago. Guess how many there were last month? It was 2,379,000 (see Table B-1 in the link below). Total Federal employment IS down since January (and fell by 9,000 jobs in April). But it’s virtually the same this time last year. The Establishment Survey used by the BLS may not yet include terminated workers who are still receiving severance and therefore still counted as ‘employed.’ We’ll know more next month.
What about those manufacturing jobs? The tariffs have supposedly led to many businesses moving their factories to the US. If so, they haven’t begun hiring. The latest numbers show manufacturing jobs actually went down by 1,000.
In the last few days, America’s own Hannibal — Pete Hegseth — announced he would cut the number of high-ranking generals by 20%. Newsweek:
Trump Administration Slashing Four-Star Generals in Bid to Shrink Pentagon
But wait. Team Trump intends to propose increasing the Pentagon budget by 13% to $1 trillion, an increase of $113 billion.
Disruption?
Game changer?
Not exactly.
Regards,
Bill Bonner
Highway safety, clean air, free trade…
The primary issue remains how America’s, and the world’s, free trade policies were implemented beginning in the 1990s. As a person who ran a small manufacturing plant in the Pacific Northwest, I had a front row seat. It was a free trade clinic. For years my company had been a supplier to the aerospace industry. Our profit margins were always razor thin, such is the life of any company within the “tiers” supplying the worlds giant corporations. There was always pressure to reduce prices and thus costs, a business model that was viable for no other reason than our competition was in the same boat, and critically because our competition lived within the same labor and materials ecosystem that we were in. In other words, the fight was always on but it was a fair fight. Enter Chinese competition. The new reality did not emerge overnight, it was a creeping phenomenon that, for thousands of small US manufacturers, ended in death by a thousand cuts. My business was lucky. I saw the handwriting on the wall and negotiated a buyout by a larger company, convinced that my small enterprise would not otherwise survive Chinese pricing. We were being asked to meet the Chinese price to get the business. It was crystal clear that we could not do so for any length of time before insolvency would result. As it turns out, the larger company that acquired mine was dealing with the exact same phenomenon and it later threatened their business as well. They survive today as a smaller company.
So this was free trade. Was it fair trade? The question and answer are perhaps complex. In my own opinion this situation was brought about by both American and Chinese corporations enriching themselves at the expense of their workforces. The beneficiaries were Wall Street and the CCP, the 10% and the 1% in both countries. It happened, in different ways, on both sides of the Pacific. In my opinion free trade was never fair trade as advertised. It was implemented by the great nations of the world in the modern era to benefit the few, not the many. It was a gigantic wealth transfer. Freedom is great for the beneficiaries. For others, perhaps not so much.
It is really tough to cut government spending because every dollar they spend is going into someone's pocket, and all those someones tend to have connections in Congress or Federal agencies that will act to protect them.
I am grateful to DOGE for exposing a little of the waste, but I have no doubt that there is much more that should be exposed, and eliminated. Not likely to happen, largely because it would require congressional action, and, as noted above, members of Congress happen to be happy with the way things are. They do not yet see a crisis that threatens them, other than cuts to the grift they fund for their campaign contributors. That crisis will arrive, probably in the next few years, but by then it will be too late to avoid catastrophe for the general populace.