Trade, Jobs and Growth: Facts Before Folly

Trade.

Our new President rails against it, unions denigrate it, and unemployed blame it. And not without reason. On trade, jobs and economic growth, the US has performed less than stellar.

Let’s look at the data, but then drill down a bit to the nuances. Undirected bluster to reduce trade deficits and grow jobs will likely stumble on those nuances. Rather, an appreciation of economic intricacies must go hand-in-hand with bold action.

So let’s dive in.

The US Performance – Trade, Jobs and Growth

For authenticity, we turn to (by all appearances) unbiased and authoritative sources. For trade balances, we use the ITC, International Trade Commission, in Switzerland; for US employment, we use the US BLS, Bureau of Labor Statistics; and for overall economic data across countries we drawn on the World Bank.

Per the ITC, the United State amassed a merchandise trade deficit of $802 billion in 2015, the largest such deficit of any country. This deficit exceeds the sum of the deficits for the next 18 countries. The deficit does not represent an aberration; the US merchandise trade deficit averaged $780 billion over the last 5 years, and we have run a deficit for all the last 15 years.

The merchandise trade deficit hits key sectors. In 2015, consumer electronics ran a deficit of $167 billion; apparel $115 billion; appliances and furniture $74 billion; and autos $153 billion. Some of these deficits have increased noticeably since 2001: Consumer electronics up 427%, furniture and appliances up 311%. In terms of imports to exports, apparel imports run 10 times exports, consumer electronics 3 times; furniture and appliances 4 times.

Autos has a small silver lining, the deficit up a relatively moderate 56% in 15 years, about equal to inflation plus growth. Imports exceed exports by a disturbing but, in relative terms, modest 2.3 times.

On jobs, the BLS reports a loss of 5.4 million US manufacturing jobs from 1990 to 2015, a 30% drop. No other major employment category lost jobs. Four states, in the “Belt” region, dropped 1.3 million jobs collectively.

The US economy has only stumbled forward. Real growth for the past 25 years has averaged only just above two percent. Income and wealth gains in that period have landed mostly in the upper income groups, leaving the larger swath of America feeling stagnant and anguished.

The data paint a distressing picture: the US economy, beset by persistent trade deficits, hemorrhages manufacturing jobs and flounders in low growth. This picture points – at least at first look – to one element of the solution. Fight back against the flood of imports.

The Added Perspectives – Unfortunate Complexity

Unfortunately, economics rarely succumbs to simple explanations; complex interactions often underlie the dynamics.

So let’s take some added perspectives.

While the US amasses the largest merchandise trade deficit, that deficit does not rank the largest as a percent of Gross Domestic Product (GDP.) Our country hits about 4.5% on that basis. The United Kingdom hits a 5.7% merchandise trade deficit as a percent of GDP; India a 6.1%, Hong Kong a 15% and United Arab Emirates an 18%. India has grown over 6% per year on average over the last quarter century, and Hong Kong and UAE a bit better than 4%. Turkey, Egypt, Morocco, Ethiopia, Pakistan, in all about 50 countries run merchandise trade deficits as a group averaging 9% of GDP, but grow 3.5% a year or better.

Note the term “merchandise” trade deficit. Merchandise involves tangible goods – autos, Smartphones, apparel, steel. Services – legal, financial, copyright, patent, computing – represent a different group of goods, intangible, i.e. hard to hold or touch. The US achieves here a trade surplus, $220 billion, the largest of any country, a notable partial offset to the merchandise trade deficit.

The trade deficit also masks the gross dollar value of trade. The trade balance equals exports minus imports. Certainly imports represent goods not produced in a country, and to some extent lost employment. On the other hand, exports represent the dollar value of what must be produced or offered, and thus employment which occurs. In exports, the US ranks first in services and second in merchandise, with a combined export value of $2.25 trillion per year.

Now, we seek here not to prove our trade deficit benevolent, or without adverse impact. But the data do temper our perspective.

First, with India as one example, we see that trade deficits do not inherently restrict growth. Countries with deficits on a GDP basis larger than the US have grown faster than the US. And further below, we will see examples of countries with trade surpluses, but which did not grow rapidly, again tempering a conclusion that growth depends directly on trade balances.

Second, given the importance of exports to US employment, we do not want action to reduce our trade deficit to secondarily restrict or hamper exports. This applies most critically where imports exceed exports by smaller margins; efforts here to reduce a trade deficit, and garner jobs, could trigger greater job losses in exports.

Job Loss Nuances

As note earlier, manufacturing has endured significant job losses over the last quarter century, a 30% reduction, 5.4 million jobs lost. Key industries took even greater losses, on a proportional basis. Apparel lost 1.3 million jobs or 77% of its US job base; electronics employment dropped 540 thousand or 47%, and paper lost 270 thousand jobs, or 42%.

A state-by-state look, though, reveals some twists. While the manufacturing belt receives attention, no individual state in that belt – Pennsylvania, Ohio, Illinois, Indiana and Michigan – suffered the greatest manufacturing loss for a state. Rather, California lost more manufacturing jobs than any state, 673 thousand. And on a proportional basis, North Carolina, at a manufacturing loss equal to 8.6% of its total job base, lost a greater percent than any of the five belt states.

Why then do California and North Carolina not generally arise in discussions of manufacturing decline? Possibly due to their generating large numbers of new jobs.

The five belts states under discussion lost 1.41 million manufacturing jobs in the last quarter century. During that period, those five states offset those loses and grew the job base 2.7 million new jobs, a strong response.

Similarly, four non-belt states – California and North Carolina, mentioned above, plus Virginia and Tennessee – lost 1.35 million manufacturing jobs. Those states, however, offset those loses and generated a net of 6.2 million new jobs.

The belt states thus grew 1.9 jobs per manufacturing job lost, while the four states grew 4.6 jobs per manufacturing job lost.

Other states mimic this disparity. New York and New Jersey ran a job growth to manufacturing job lost ratio of under two (1.3 and 2.0 respectively), Rhode Island less than one (at .57), and Massachusetts just over two (at 2.2). Overall, the 8 states of the Northeast (New England plus New York and New Jersey) lost 1.3 million manufacturing jobs, equal to 6.5% of the job base, but grew the job base by only 1.7 jobs per manufacturing job loss.

In contrast, seven states that possess heavy manufacturing employment, and losses, but lie outside the belt, the Northeast, and the CA/VA/TN/NC group, grew 4.6 jobs per manufacturing job lost. These seven are Maryland, Georgia, South Carolina. Mississippi, Alabama, Missouri, and Arizona.

Welcome to Ho Chi Minh City!

Ho Chi Minh City is the largest city in Vietnam. The city center is situated on the banks of the Saigon River, 37 miles (60 kilometers) from the South China Sea and 1,094 miles (1,760 kilometers) south of Hanoi, the capital of Vietnam.

Over the past decade, Vietnam has been improving its legal infrastructure, banking systems and overall economic and social environment. On January 11, 2007, the country became the 150th member of the World Trade Organization. Today, the local business community is as enthusiastic about the country’s growth and future potential as foreign investors are. In fact, foreign direct investment in Vietnam is expected to reach US $15 billion in 2008, which is more than double from the same period in 2007.

Ho Chi Minh City is the financial hub of Vietnam with over 300,000 businesses in industries such as technology, electronics and construction. It is a fast-paced city that is growing rapidly both in terms of its industry and its population. The city’s vibrant culture and historical ambiance–combined with an optimistic workforce (many of which have no direct memories of the war with America that ended in 1975) -have catapulted the city into one of the fastest growing economies in Asia.

The metropolitan area, which consists of the city center and surrounding towns, is home to more than 9 million people, making it the largest metropolitan area in Vietnam and Indochina. Walking through the streets of Ho Chi Minh, one gets a sense of the modern mixed with traditional Asian ambiance.

The local language is Vietnamese but English is spoken almost everywhere. All foreign restaurants have English-speaking staff and most taxi drivers speak a little English. The street and store signs are in Vietnamese. Learning at least a little Vietnamese will make life easier and efforts to do so will be appreciated by the locals.

All foreign visitors are required to get a Visa. A foreigner who comes to live and work in Vietnam usually obtains a visa through his or her sponsoring organization. For a three- or six-month work visa, a passport and an invitation or assignment letter will need to be produced. The passport with a relevant visa is the most important document for a foreigner in Vietnam. It is recommended that all visitors register with their local Consulate or Embassy upon arrival in Ho Chi Minh City.

The local currency is Vietnam dong (VND). The dong comes in notes and coins, which range from 200 to 500,000 VND. It is advisable to take US dollars into Vietnam and exchange it upon arrival. US dollars can be used and changed although dong is the most commonly-used form of payment for everyday purchases such as groceries. Larger establishments accept credit cards but they will levy a 3-5% service charge. Smaller local markets only accept cash.

There are many foreign banks in Ho Chi Minh City and accounts are easy to open. Most banks are open Monday through Friday from 8am to 3pm. There are automatic teller machines (ATMs) available around the clock all around Ho Chi Minh City.

For expats seeking housing in Ho Chi Minh City, proximity to schools and the degree of security are the most important issues. Most expats choose to live in expat communities. Inside Ho Chi Minh City are a mix of older, French-style villas and modern serviced apartments. Expats seeking to live in houses tend to live outside the city, where there are larger villas with elaborate gardens and swimming pools. The international schools are also located in these areas outside of the main city. Expats typically rent their homes. Rental agreements require a deposit that is equal to three months’ rent and the renter will need to pay six months’ rent in advance.

Utilities are extra and will need to be paid separately and usually with cash. Furnished homes are decorated to suit the taste of the landlord, and such styles might not appeal to the typical expat. It is sometimes possible and becoming more common to negotiate with the landlords of unfurnished properties and purchase furniture to that of your own taste, dependent on the length of your lease.

Ho Chi Minh City is not, overall, a dangerous city. However, petty theft and house break-ins concern many expats. A home security system is not very expensive and is recommended.

International schools are very popular with Ho Chi Minh City’s expats. British, Australian, French, Japanese and Korean international schools are all available but they can be quite expensive. There are many to choose from but it can be difficult to secure a spot. The British International School and International School of Ho Chi Minh City have pre-school programs. The school year starts at the end of August and ends in early July.

The water in Ho Chi Minh City is not fit for drinking from the tap but is more than safe for brushing teeth and cleaning dishes. Bottled drinking water is delivered to the home or purchased from a store. “Pharmacy” in Vietnamese is “Nha Thuoc Tay” and they can be found throughout the city. The Vietnamese word for “doctor” is “Bac Si.”

It is recommended that travelers to Vietnam have a variety of vaccinations such as hepatitis A and B, Japanese encephalitis and typhoid, in addition to Malaria capsules. Visitors should bring an extra supply of prescription medications as they might be hard to come by in Vietnam. Healthcare facilities in Ho Chi Minh City are limited but are ever improving with the opening of International clinics.

There are a few foreign health care providers that have different things to offer. These include International SOS, Columbia Saigon Clinic and the Franco/Vietnamese Hospital. If the scope of care needed is beyond what’s offered at Ho Chi Minh City’s foreign hospitals, visitors can be evacuated to Singapore or Thailand. It is recommended that all visitors research this information as soon as they move into their new home.

The rapid growth of the city has created unbearable traffic throughout the city. Since traffic laws are not strictly enforced and driver’s education is limited, patience on the roads is mandatory. Visitors who wish to drive will need to obtain a Vietnamese driving license. Typically, expats have their own car and driver. People drive on the right side of the road. Ho Chi Minh City does have buses, but they are very crowded.

Motorbikes are by far the most common form of transport. It’s not uncommon to see whole families on one motorbike. They make crossing the street incredibly difficult. Visitors have to have the confidence to find a gap in the traffic, make eye contact with any oncoming drivers, and cross slowly, always walking forwards, do not hesitate and do not step backwards.

To travel outside of the city, there are trains going out every day and there are rental cars available. Taking a mini-bus is another option. These are small, air-conditioned and clean.

Expats might want to bring along their favorite designer-label clothing, cosmetics and sporting goods–as the genuine articles are hard to come by in Vietnam. There is more choice when shopping in Ho Chi Minh City than there is in other cities. For large-sized clothing or shoes, it is recommended that expats bring enough clothes to last through their stay. Finding apparel that fits can be very challenging, though custom tailoring is an option.

The stores of serviced apartments sell foreign items. Local markets are used for fresh dairy and produce where bargaining is the norm. It’s a good idea to learn the numbers in Vietnamese and it’s best to not seem too interested in an item. When bargaining, one should make an offer and leave if it’s not accepted. If the seller changes his mind, he will call the person back. A good rule of thumb when bargaining is to give a counter-offer of half the price originally offered, and then bargain to a middle point. Also, a smile goes a long way!

Counterfeit merchandise–from handbags to mineral water–is everywhere in Ho Chi Minh City. It’s best to buy such items from department stores or other official retailers rather than street vendors. For other household items such as cleaning materials and home furnishings, Ben Thanh Market and Diamond Plaza are two places to look for such items in Ho Chi Minh City. Ben Thanh Market is the home of everything one could ever need such as clothing, shoes, home furnishings, keepsakes as well as fruits, vegetables and some other very interesting food.

Spouses are permitted to work however, finding employment can be difficult. In addition, there are professional associations specifically for women. For recreation, joining a golf and tennis group is a popular option. Bars and restaurants are popular hangouts. Beside expat groups, clubs like the International Ladies of Vietnam, Amicale des Francais (a French association) and various business organizations are very popular.

Playing or watching sports, traveling to local beaches and riding in go carts are also among the city’s favorite diversions for kids. School-related activities are ideal for teenagers looking for something to do. Clubs and sporting activities are very very popular. One can enjoy tennis, squash, swimming, badminton and Rugby (Aussie rules) are just a few.

Chris Draeger, Group Vice President, Crown Relocations

Crown Relocations has been providing international moving and relocation services since 1965. With 200 offices in 50 countries, Crown has “people on the ground” in all the major Expat communities around the world. Crown provides a range of services to help Expats and their families move and settle into their new home ranging from Orientation Tours, Home finding, School Search and more.

Crown also organizes Expat Clubs with regular events to help people meet and socialize with other Expats.

We also serve corporate clients as they develop and manage the relocation policies and employee benefit programs for the staff moving overseas. Services include expense management, program development, policy counseling, customized online reporting and full departure and destination services for the employees.