Twenty-year truck driver: America’s “shipping crisis” will not end(medium.com)
medium.com
Twenty-year truck driver: America’s “shipping crisis” will not end
https://medium.com/@ryan79z28/im-a-twenty-year-truck-driver-i-will-tell-you-why-america-s-shipping-crisis-will-not-end-bbe0ebac6a91
77 comments
It sounds to me like the bottleneck is wages paid to truckers, and probably other workers in the supply chain. The US has a ~$600 Billion trade deficit. It never really made sense to me that we could continue to massively import goods from rest of world (mostly China)...without eventually reaching some sort of labor parity where delivering those goods all the way around the world didn't make economic sense, and especially political sense, as the gains, whatever they are, mostly accrue to multi-national corporations profit margins and stock prices.
It seems, much of this is built upon a foundation of crappy wages and under-investment in the people and infrastructure it all functions on top of. Doesn't sound sustainable as structured, and for many reason we should invest in labor and domestic production more than we have been. Inflation, like in the 2008 oil price spike leading to domestic production, might end up being the catalyst to this change.
It seems, much of this is built upon a foundation of crappy wages and under-investment in the people and infrastructure it all functions on top of. Doesn't sound sustainable as structured, and for many reason we should invest in labor and domestic production more than we have been. Inflation, like in the 2008 oil price spike leading to domestic production, might end up being the catalyst to this change.
The impact on truckers is a side effect... At the core, he's saying that the problem is a lack of unloading capacity. There aren't enough cranes, chassis, and railcars to handle both the regular shipping traffic, plus the backed up traffic from the pandemic... And the throughput gets worse, exponentially, as the system becomes overloaded. So the lack of capacity is making things worse.
But in the short term, the demand for cargo shipping is relatively inelastic. As costs rise, most shipping customers will just bite the bullet and pay the higher fees, because they'll go completely out of business without overseas shipping.
If everyone knew the port cargo crisis was going to be a long-term phenomenon, the shippers would probably invest money in buying more cranes, chassis, etc. to increase capacity. But those capital investments cost a lot of money up front, so they don't make good business sense if you expect the cargo crisis to end relatively quickly.
So far, the cargo shipping companies have just been jacking up prices, expecting that their customers will keep paying... But since they're not sharing the wealth with their drivers, by paying more & investing in infrastructure to improve throughout, they're exacerbating the problem.
But in the short term, the demand for cargo shipping is relatively inelastic. As costs rise, most shipping customers will just bite the bullet and pay the higher fees, because they'll go completely out of business without overseas shipping.
If everyone knew the port cargo crisis was going to be a long-term phenomenon, the shippers would probably invest money in buying more cranes, chassis, etc. to increase capacity. But those capital investments cost a lot of money up front, so they don't make good business sense if you expect the cargo crisis to end relatively quickly.
So far, the cargo shipping companies have just been jacking up prices, expecting that their customers will keep paying... But since they're not sharing the wealth with their drivers, by paying more & investing in infrastructure to improve throughout, they're exacerbating the problem.
>The impact on truckers is a side effect... At the core, he's saying that the problem is a lack of unloading capacity.
Right now that isn't even the real issue. The real issue is there simply aren't enough chassis to put containers on. Nott by a long shot, and many of the ones that are being used are barely usable.
The supply chain is currently impacted for umpteen reasons: lack of chassis, lack of drivers, a mass exodus of people out of the industry (customs clearance, handlers, drivers, dock workers, sort managers, maintenance, etc), weather, ongoing covid shutdowns at some facilities both foreign and domestic, etc.
It's nuts.
What's crazier is, after 15 years at my job, I make $4 more an hour than fast food is currently hiring at in my city... and I'm on like week 27 or 28 of 60-70 hour weeks with no end in sight. I haven't had a cost of living increase since 2008, TWO THOUSAND EIGHT.
sigh
Right now that isn't even the real issue. The real issue is there simply aren't enough chassis to put containers on. Nott by a long shot, and many of the ones that are being used are barely usable.
The supply chain is currently impacted for umpteen reasons: lack of chassis, lack of drivers, a mass exodus of people out of the industry (customs clearance, handlers, drivers, dock workers, sort managers, maintenance, etc), weather, ongoing covid shutdowns at some facilities both foreign and domestic, etc.
It's nuts.
What's crazier is, after 15 years at my job, I make $4 more an hour than fast food is currently hiring at in my city... and I'm on like week 27 or 28 of 60-70 hour weeks with no end in sight. I haven't had a cost of living increase since 2008, TWO THOUSAND EIGHT.
sigh
Real talk: Why haven’t you demanded a raise or left for other employment?
You can't ask for a raise at most companies, that's not a thing despite what internet articles and people in tech circles think. Most companies have clearly defined, set in stone, pay scales for a position and the only way to move up that scale is via a merit increase. Our merit increases are always at or less than inflation, this year's merit increase didn't even cover the inflation we saw that month.
As far as finding other employment, they don't pay all that much better and I have 15 years of experience doing a very specific thing (air freight customs clearance, just writing the entries) which doesn't really exist a whole lot of places.
Then there is the fact I have a GED (I'm in a degree program but that's still a couple of few years out) when places like Flexport (which isn't even in my state) wants a 4-year degree to even talk to you. Here's a response I got from them when applying to a job before I got married and would have considered moving to Chicago (at the time I had 12 years of actual experience having written over 100k entries):
"Hope all is well, Ryan! I wanted to extend a virtual wave and thank you for your interest in joining our team. You obviously have many of the skills we're looking for. However, for the Customs Brokerage role we require a BA/BS degree as well as previous experience in a broker role doing entries and customs classifications.
Based on your background, there is no doubt that you will shine in your next career endeavor. In the meantime, I hope you have a fantastic rest of your week!
All the best,
REDACTED"
And, from what I could tell, that job would have been a pay cut AND required me moving to a higher cost of living area.
As far as finding other employment, they don't pay all that much better and I have 15 years of experience doing a very specific thing (air freight customs clearance, just writing the entries) which doesn't really exist a whole lot of places.
Then there is the fact I have a GED (I'm in a degree program but that's still a couple of few years out) when places like Flexport (which isn't even in my state) wants a 4-year degree to even talk to you. Here's a response I got from them when applying to a job before I got married and would have considered moving to Chicago (at the time I had 12 years of actual experience having written over 100k entries):
"Hope all is well, Ryan! I wanted to extend a virtual wave and thank you for your interest in joining our team. You obviously have many of the skills we're looking for. However, for the Customs Brokerage role we require a BA/BS degree as well as previous experience in a broker role doing entries and customs classifications.
Based on your background, there is no doubt that you will shine in your next career endeavor. In the meantime, I hope you have a fantastic rest of your week!
All the best,
REDACTED"
And, from what I could tell, that job would have been a pay cut AND required me moving to a higher cost of living area.
For what its worth (and I know it's not much...) you wrote an EXCELLENT article, here. It's a truly great piece, and you're a talented writer. You mentioned having a GED, but you write like somebody who has a lot of experienced... You have a great voice.
You clearly have a lot to offer the world, so fuck Flexport. You'll find someplace that values you, properly. Keep your chin up, man.
You clearly have a lot to offer the world, so fuck Flexport. You'll find someplace that values you, properly. Keep your chin up, man.
Appreciate that you took the time to reply. I would absolutely apply again to Flexport and other logistics firms if they have any remote roles you could even be adjacent to with your current skill set and the fact that most people can grow and adapt into similar roles. The market has improved, clearly, and corporations are absolutely desperate for talent. Rejection sucks, but asking is free.
Lack of cranes means lack of operating cranes, I think. Most ports are still operating at reduced capacity due to COVID. So they can't run as many cranes as usual.
Once you see there is no connection between money and work it's like seeing the code of The Matrix.
I see this type of comment frequently but I dont know what this means...can someone pls explain it! Thanks!
Are you American? I don't know about other countries, but here in the US there's a cultural trope that our economic system finnacially rewards hard work & effort. It's hard to point to a specific piece of propaganda, but it's definitely baked into our social mythology.
OP is saying that the myth is a lie, and that hard work doesn't really guarantee you anything, in the United States.
OP is saying that the myth is a lie, and that hard work doesn't really guarantee you anything, in the United States.
No, it's calvanism. https://en.wikipedia.org/wiki/Protestant_work_ethic
Also, pay rates seem to be inversely proportional to the job's benefit to society. Vulture capitalists rake in the dough while workers who do essential tasks to actually make other people's lives better don't get paid shit.
Working hard does not mean you'll be paid well, or have money.
Then the other argument of money =/= wealth.
Then the other argument of money =/= wealth.
Watching the port of Los Angeles & Long Beach, since the COVID pandemic began, the growing backlog of container ships waiting outside the port has been obvious. But this article helps explain the strange part, which is that the shipping backlog has been getting worse even as
COVID cases & restrictions have steadily proved in California.
I can't speak to whether this explanation is correct, but it's better than literally anything I've heard so far.
I can't speak to whether this explanation is correct, but it's better than literally anything I've heard so far.
Hopefully we can use this failure of globalization to finally take a step back and acknowledge globalization has been a net-negative for the majority of Americans. Instead of trying to band-aid globalization to make a minority rich, how about we reduce the need for so much international shipping in the first place?
Ok, so you want to roll back globalisation and in-source as much as possible into the USA (or any developed nation). Making a lot more stuff in the good ole will employ tens of millions of people right? So, how many unemployed have you got to build those factories, make the equipment for them, run logistics and actually staff the factories themselves.
Well, most unemployed people are only unemployed for less than a year, because they are between jobs or have just entered the job market. So how many long term unemployed do we have to help us recreate the Chinese supply chain for the US on-shore? Well, before the pandemic hit that was barely over a million people. That's hardly going to substitute for 80 million Chinese factory workers, or even the subset of them making goods specifically for the US. So where are all these workers going to come from?
Then you have the fact that in-sourcing all that manufacturing will cause costs to shoot up. Everyone else in the US, including these workers too actually, will be paying a lot more for their goods. No more cheap products from China.
Then of course current on-shore manufacturing that depends on parts from abroad are going to get their supply cut off, or the costs of those parts will rise making their products uncompetitive internationally.
Result? Godawful mess. It might be possible, at exorbitant cost, on on-shore some manufacturing, but as many who have tried this found out it's incredibly expensive for very few jobs and the knock on effects can be worse than the benefits. This is why the USMCA is almost exactly the same deal as NAFTA with a few relatively minor updates, the effects of which have been negligible. It turns out more fundamental reform would have, for example, cut the legs out from under US export manufacturing relying on steel and parts from Mexico.
If you want to protect an industry, or subsidise it that has a cost. Those costs have to be paid for by somebody, somewhere, and that turns out to be ordinary citizens as every attempt at serious protectionism has found out.
Well, most unemployed people are only unemployed for less than a year, because they are between jobs or have just entered the job market. So how many long term unemployed do we have to help us recreate the Chinese supply chain for the US on-shore? Well, before the pandemic hit that was barely over a million people. That's hardly going to substitute for 80 million Chinese factory workers, or even the subset of them making goods specifically for the US. So where are all these workers going to come from?
Then you have the fact that in-sourcing all that manufacturing will cause costs to shoot up. Everyone else in the US, including these workers too actually, will be paying a lot more for their goods. No more cheap products from China.
Then of course current on-shore manufacturing that depends on parts from abroad are going to get their supply cut off, or the costs of those parts will rise making their products uncompetitive internationally.
Result? Godawful mess. It might be possible, at exorbitant cost, on on-shore some manufacturing, but as many who have tried this found out it's incredibly expensive for very few jobs and the knock on effects can be worse than the benefits. This is why the USMCA is almost exactly the same deal as NAFTA with a few relatively minor updates, the effects of which have been negligible. It turns out more fundamental reform would have, for example, cut the legs out from under US export manufacturing relying on steel and parts from Mexico.
If you want to protect an industry, or subsidise it that has a cost. Those costs have to be paid for by somebody, somewhere, and that turns out to be ordinary citizens as every attempt at serious protectionism has found out.
Look at the working age male labor force participation rate. We have plenty of unemployed, and underemployed workers, especially in specific geographic regions that have proportionally suffered the most through globalization and exporting of domestic production. These places have steadily lost population. Meanwhile, more people have crowded into a subset of metros in US chasing the remaining jobs leading to real estate costs outstripping any potential wage benefit.
>costs to shoot up.
So what? Henry Ford knew you could pay your workers more and they'd have more money to spend. The losers here will be multi-national corporations and wall st. who won't maximize profits by minimizing wages. My local area has lost many people in the last few decades. The people without good paying jobs don't have the income to benefit from supposed cost savings of cheap imports. If more people, and businesses, see increased production, complimentary business and economic gains will be seen in entire regions who have lost out from globalization.
Here's a good article covering the many ways regional economic loss occurs from globalized free trade where domestic production declines, through the lens of German and Chinese economies[0]
Here is quoted Chinese economic scholars describing the CCP policy of rejecting the American economic decline from loss of domestic production, in favor of embracing a German style industrial economy[1]
[0] "The Germany Shock: The largest economy nobody understands"
https://www.conradbastable.com/essays/the-germany-shock-the-...
[1a] "We have abandoned the American path for the German path."
https://twitter.com/ruima/status/1420109129847214084
[1b] https://twitter.com/ruima/status/1420060835313971200
>costs to shoot up.
So what? Henry Ford knew you could pay your workers more and they'd have more money to spend. The losers here will be multi-national corporations and wall st. who won't maximize profits by minimizing wages. My local area has lost many people in the last few decades. The people without good paying jobs don't have the income to benefit from supposed cost savings of cheap imports. If more people, and businesses, see increased production, complimentary business and economic gains will be seen in entire regions who have lost out from globalization.
Here's a good article covering the many ways regional economic loss occurs from globalized free trade where domestic production declines, through the lens of German and Chinese economies[0]
Here is quoted Chinese economic scholars describing the CCP policy of rejecting the American economic decline from loss of domestic production, in favor of embracing a German style industrial economy[1]
[0] "The Germany Shock: The largest economy nobody understands"
https://www.conradbastable.com/essays/the-germany-shock-the-...
[1a] "We have abandoned the American path for the German path."
https://twitter.com/ruima/status/1420109129847214084
[1b] https://twitter.com/ruima/status/1420060835313971200
The reason the ancestors of these people went to many of these places was to find jobs. Now those industries are dying out either we can start subsidising those jobs with more and more taxes from everyone else, we can take deductions from your wages to pay them to stay where they are, or those people can do what their ancestors did.
Not every country, or every region within a country, has to have the same economy. The Chinese economy is maturing, the global economy has absorbed hundreds of millions of Chinese workers into it's economy over the last few decades. That created huge opportunities, globally, and also caused some reorganisation. It has not been costless. Nevertheless it's happened and wages in china have risen to the point that manufacturers are expanding elsewhere but there isn't another China for the global economy to absorb in the short to medium term. The US economy is doing fine and is well placed to succeed. Throwing that away on massively costly protectionist navel gazing is not going to help.
Not every country, or every region within a country, has to have the same economy. The Chinese economy is maturing, the global economy has absorbed hundreds of millions of Chinese workers into it's economy over the last few decades. That created huge opportunities, globally, and also caused some reorganisation. It has not been costless. Nevertheless it's happened and wages in china have risen to the point that manufacturers are expanding elsewhere but there isn't another China for the global economy to absorb in the short to medium term. The US economy is doing fine and is well placed to succeed. Throwing that away on massively costly protectionist navel gazing is not going to help.
The existence of a giant $600+ Billion trade deficit, and supply chain breakdown, all of it built atop underpaying labor that facilitates this supply chain domestically (truckers etc getting paid terrible wages), illustrates that there are "jobs" to be done, to supply this consumption which we do not produce. Meaning it is a collapsing Rube-goldbergian system that shifts demand for workers out of the country, at a diminishing return and increasing cost..economic, political and social.
>navel gazing
You just mean to say it is not in your interest or the costs don't affect you, or you don't care, or you benefit and enjoy the effects of the last few decades of globalization.
That's fine, but it does affect me, my region my state and my interests. We will hash it out in the arena of politics. See: male labor force decline, record opiate death spike especially per-capita in rust belt regions, declining birth rates, declining life expectancy, declining home-ownership, stagnant real wages, increased inequality, and regional economic inequality and population growth (decline) rates.
>is doing fine
This is particular to which region and industry. Ultimately, for the people living in certain places, they have a different opinions and different interests, because "we live here, not there". US is massive, it is not true that all of it benefits the same from the same economic policies. Just as in your example of "the world". Just as I as an American shouldn't feel placated by policy that over the last few decades increased abstract aggregate measures of "global wealth" or "global growth/GDP", so to I am not comforted as a citizen in a rust-belt state to know that the overall, or particular states in the US like and benefit from globalism and outsourcing.
This is politics, and it all comes down to group interests, it's not complicated. We had the best domestic manufacturing economy in the world, and to use your terminology, we "threw that away" on costly financialization and outsourcing to juice capital inflows into wall street and create a giant debt and consumption economy, bailed out by China debt buying and growth as well as various tech booms/bubbles to keep the machine going, that particular regions in US benefited massively from but not all. I guess it is all subjective.
>navel gazing
You just mean to say it is not in your interest or the costs don't affect you, or you don't care, or you benefit and enjoy the effects of the last few decades of globalization.
That's fine, but it does affect me, my region my state and my interests. We will hash it out in the arena of politics. See: male labor force decline, record opiate death spike especially per-capita in rust belt regions, declining birth rates, declining life expectancy, declining home-ownership, stagnant real wages, increased inequality, and regional economic inequality and population growth (decline) rates.
>is doing fine
This is particular to which region and industry. Ultimately, for the people living in certain places, they have a different opinions and different interests, because "we live here, not there". US is massive, it is not true that all of it benefits the same from the same economic policies. Just as in your example of "the world". Just as I as an American shouldn't feel placated by policy that over the last few decades increased abstract aggregate measures of "global wealth" or "global growth/GDP", so to I am not comforted as a citizen in a rust-belt state to know that the overall, or particular states in the US like and benefit from globalism and outsourcing.
This is politics, and it all comes down to group interests, it's not complicated. We had the best domestic manufacturing economy in the world, and to use your terminology, we "threw that away" on costly financialization and outsourcing to juice capital inflows into wall street and create a giant debt and consumption economy, bailed out by China debt buying and growth as well as various tech booms/bubbles to keep the machine going, that particular regions in US benefited massively from but not all. I guess it is all subjective.
Well do you expect the US to keep running trade deficits of 2.8% of GDP every year?
In 1980 the foreign sector owned 10% of US assets. In 2020 it's 40%. Now that's not going to continue forever, because at some point the military wont even be able to make planes anymore, and the US government wont allow foreign ownership of Intel, SpaceX, Boeing, etc. Sure, we'll sell off McDonalds and Costco, but not Amazon or Google. Maybe we can reach 70% of our capital stock under foreign control after another 40 years, but not much more than that, so this party has a life expectancy of less than 40 years.
I don't care how irreplacable those Chinese workers are, they aren't going to work for free, so we will either need to produce more domestically or just do without, no matter how dependent we are on it, and no matter how unimaginable it is to live within our means.
At the same time, we are getting more and more domestic unrest as a result of the collapse of productivity as we outsource our increasing returns industries.
No productivity, foreign devaluation, supply disruptions -- that's a recipe for some serious social unrest, which will only increase once the supply of consumption drops from China comes to a halt.
So regardless of how unthinkable the alternative appears to be, the deficits will stop in the worst case with a currency crisis in the future. Many nations have gone through that, and it's terrible, it can even cause starvation, but it's not unheard of. Even if we do nothing about it, it will right itself, just through the dollar falling by a factor of whatever is required to bring the trade deficit into balance. At some nonzero factor that will happen. If it takes 100 dollars to buy 1 RMB, then we wont have a trade deficit with China, even if this means lots of industries become bankrupt. And if that's what it takes, then to bankruptcy they will go. If that means there are millions of people wandering the streets without jobs, and shortages of clothes, computers, concrete, and even basic machinary, well that's what it's going to be. Reality doesn't stop just because something becomes unthinkable. When Russia had its currency crisis, the life expectancy fell, inflation reached 84%, there were food shortages, and GDP contracted by half. We are not immune.
Bottom line, when you outsource your more productive industries, the standard of living has to decline. You can delay that decline for a while, but then the bill comes due and living standards drop. Your point, that we can't produce all these goods domestically, is just another way of saying we are living above our means. That will stop.
And if you think it's painful to stop the trade deficits today, imagine how much more painful it will be in 40 years when even more production has been outsourced, and we are able to produce even less domestically. Then a collapse of the dollar will be much worse than tightening our belt today and doing without. But the deficits will stop, it's only a question of how much longer we keep delaying it. Of course Trump didn't have the political will, or the mandate from our ruling class, to put an end to the party. But at some point we will have a President who will put an end to the party or the currency markets will do that for us.
In 1980 the foreign sector owned 10% of US assets. In 2020 it's 40%. Now that's not going to continue forever, because at some point the military wont even be able to make planes anymore, and the US government wont allow foreign ownership of Intel, SpaceX, Boeing, etc. Sure, we'll sell off McDonalds and Costco, but not Amazon or Google. Maybe we can reach 70% of our capital stock under foreign control after another 40 years, but not much more than that, so this party has a life expectancy of less than 40 years.
I don't care how irreplacable those Chinese workers are, they aren't going to work for free, so we will either need to produce more domestically or just do without, no matter how dependent we are on it, and no matter how unimaginable it is to live within our means.
At the same time, we are getting more and more domestic unrest as a result of the collapse of productivity as we outsource our increasing returns industries.
No productivity, foreign devaluation, supply disruptions -- that's a recipe for some serious social unrest, which will only increase once the supply of consumption drops from China comes to a halt.
So regardless of how unthinkable the alternative appears to be, the deficits will stop in the worst case with a currency crisis in the future. Many nations have gone through that, and it's terrible, it can even cause starvation, but it's not unheard of. Even if we do nothing about it, it will right itself, just through the dollar falling by a factor of whatever is required to bring the trade deficit into balance. At some nonzero factor that will happen. If it takes 100 dollars to buy 1 RMB, then we wont have a trade deficit with China, even if this means lots of industries become bankrupt. And if that's what it takes, then to bankruptcy they will go. If that means there are millions of people wandering the streets without jobs, and shortages of clothes, computers, concrete, and even basic machinary, well that's what it's going to be. Reality doesn't stop just because something becomes unthinkable. When Russia had its currency crisis, the life expectancy fell, inflation reached 84%, there were food shortages, and GDP contracted by half. We are not immune.
Bottom line, when you outsource your more productive industries, the standard of living has to decline. You can delay that decline for a while, but then the bill comes due and living standards drop. Your point, that we can't produce all these goods domestically, is just another way of saying we are living above our means. That will stop.
And if you think it's painful to stop the trade deficits today, imagine how much more painful it will be in 40 years when even more production has been outsourced, and we are able to produce even less domestically. Then a collapse of the dollar will be much worse than tightening our belt today and doing without. But the deficits will stop, it's only a question of how much longer we keep delaying it. Of course Trump didn't have the political will, or the mandate from our ruling class, to put an end to the party. But at some point we will have a President who will put an end to the party or the currency markets will do that for us.
It's true foreign ownership of US stock has risen, but US ownership of foreign assets has also risen roughly in line. That's globalisation working in both directions. Right now there is an imbalance, but that's due entirely to the strength of the US dollar inflating the value of US assets. What's actually happening is the opposite of the currency crisis you fear.
The USA today is not even remotely comparable to Russia in the 90s. That's completely absurd. The US is attracting so much foreign investment precisely because it's economy is in a very strong position. How can consumers buying Chinese goods be a sign of strength in China, but investors buying into US companies be a sign of weakness in the US? Meanwhile US companies and investors are investing heavily abroad. That's not weakness, it's integration.
The USA today is not even remotely comparable to Russia in the 90s. That's completely absurd. The US is attracting so much foreign investment precisely because it's economy is in a very strong position. How can consumers buying Chinese goods be a sign of strength in China, but investors buying into US companies be a sign of weakness in the US? Meanwhile US companies and investors are investing heavily abroad. That's not weakness, it's integration.
> It's true foreign ownership of US stock has risen, but US ownership of foreign assets has also risen roughly in line.
Foreign holdings of US Assets, as of Q2 2021 are 43592.2 Billion[1]
US holdings of foreign assets are: 7694.6 Billion.[1]
We owe the world 43.6 Trillion, and they owe us 7.7 Trillion. That's a net debt of 35.9 trillion.
> Right now there is an imbalance, but that's due entirely to the strength of the US dollar inflating the value of US assets.
If by "right now", you mean we reached that 36 Trillion of net debt through steady growth since the 1970s, then I agree with you - assuming "right now" refers to a 50 year period of systemic and growing trade deficits.
> but that's due entirely to the strength of the US dollar inflating the value of US assets.
No, it's due to the rest of the world desiring to run trade surpluses against the U.S. in order to support an export led growth policy.
All of East Asia has industrialized on the back of running large export surpluses to the U.S. That's a strategic policy decision to drive the growth of manufacturing, and it is implemented by purchasing dollar denominated assets.
One side effect of these purchases is an overly strong dollar (as well as excessively low interest rates) but then that's what we had for most of the last 50 years.
It's not like the dollar is too strong as a result of some accident of the weather, and then this causes a trade deficit just out of nowhere. Golly, how did that happen?
> What's actually happening is the opposite of the currency crisis you fear.
I am not saying we are in a crisis right now. The reason why a crisis happens is because the currency becomes overvalued! That's where we are right now. The crisis is the future downward adjusment from the present overvalued state.
As the currency becomes overvalued over a long period of time, the nation begins to deindustrialize (due to importing too much) and suffers from asset bubbles (due to artificially low interest rates).
Then there is a crisis and the currency adjusts rapidly downward.
The bigger the overvaluation, the bigger the fall. You usually get an overcorrection as the current account swings into surplus.
> How can consumers buying Chinese goods be a sign of strength in China, but investors buying into US companies be a sign of weakness in the US?
Because they are the same damn thing.
For the US to run a trade deficit with the rest of the world, we have to be buying their goods and they have to be re-investing the proceeds back into buying US assets.
That's the only possible way you can have a trade deficit!
Look, the rest of the world sells us an apple for 1 dollar. Now, what does the world do with the dollar? We don't live in an age of specie flows, so they can't spend that money at home. It's fiat, and must be spent in the U.S.
Option A) It buys something from the US -- a peach. Trade is balanced.
Option B) It invests the money in the US -- it buys a bond, or a share of stock. Trade is not balanced.
But those are the only two options.
So saying the rest of the world is a net purchaser of US financial assets is exactly the same thing as the rest of the world is a net exporter to the US of their goods.
> The US is attracting so much foreign investment precisely because it's economy is in a very strong position.
No, the US is not "attracting" foreign investment, the US is selling off its assets to the rest of the world in exchange for higher present consumption.
> Meanwhile US companies and investors are investing heavily abroad.
No they are not. They own a total of 7.7 Trillion of foreign assets, whereas the rest of the world owns 43.6 Trillion of US assets.
> That's not weakness, it's integration.
OK. Can I integrate with your balance sheet along the same terms? I'll end up with $44,000 of your assets, and you'll end up with $6,700 of my assets. It's equal! We will dance in mutual friendship.
> The USA today is not even remotely comparable to Russia in the 90s.
You'd be surprised to learn that as far as international trade goes, our biggest exports are commodities. No, we are not Russia, of course, but then concerns about the U.S. currency are much bigger than in Russia -- I was using Russia as an example of the pain of currency adjustment. I was not saying that we were Russia.
[1] https://www.federalreserve.gov/apps/fof/guide/l133.pdf
Foreign holdings of US Assets, as of Q2 2021 are 43592.2 Billion[1]
US holdings of foreign assets are: 7694.6 Billion.[1]
We owe the world 43.6 Trillion, and they owe us 7.7 Trillion. That's a net debt of 35.9 trillion.
> Right now there is an imbalance, but that's due entirely to the strength of the US dollar inflating the value of US assets.
If by "right now", you mean we reached that 36 Trillion of net debt through steady growth since the 1970s, then I agree with you - assuming "right now" refers to a 50 year period of systemic and growing trade deficits.
> but that's due entirely to the strength of the US dollar inflating the value of US assets.
No, it's due to the rest of the world desiring to run trade surpluses against the U.S. in order to support an export led growth policy.
All of East Asia has industrialized on the back of running large export surpluses to the U.S. That's a strategic policy decision to drive the growth of manufacturing, and it is implemented by purchasing dollar denominated assets.
One side effect of these purchases is an overly strong dollar (as well as excessively low interest rates) but then that's what we had for most of the last 50 years.
It's not like the dollar is too strong as a result of some accident of the weather, and then this causes a trade deficit just out of nowhere. Golly, how did that happen?
> What's actually happening is the opposite of the currency crisis you fear.
I am not saying we are in a crisis right now. The reason why a crisis happens is because the currency becomes overvalued! That's where we are right now. The crisis is the future downward adjusment from the present overvalued state.
As the currency becomes overvalued over a long period of time, the nation begins to deindustrialize (due to importing too much) and suffers from asset bubbles (due to artificially low interest rates).
Then there is a crisis and the currency adjusts rapidly downward.
The bigger the overvaluation, the bigger the fall. You usually get an overcorrection as the current account swings into surplus.
> How can consumers buying Chinese goods be a sign of strength in China, but investors buying into US companies be a sign of weakness in the US?
Because they are the same damn thing.
For the US to run a trade deficit with the rest of the world, we have to be buying their goods and they have to be re-investing the proceeds back into buying US assets.
That's the only possible way you can have a trade deficit!
Look, the rest of the world sells us an apple for 1 dollar. Now, what does the world do with the dollar? We don't live in an age of specie flows, so they can't spend that money at home. It's fiat, and must be spent in the U.S.
Option A) It buys something from the US -- a peach. Trade is balanced.
Option B) It invests the money in the US -- it buys a bond, or a share of stock. Trade is not balanced.
But those are the only two options.
So saying the rest of the world is a net purchaser of US financial assets is exactly the same thing as the rest of the world is a net exporter to the US of their goods.
> The US is attracting so much foreign investment precisely because it's economy is in a very strong position.
No, the US is not "attracting" foreign investment, the US is selling off its assets to the rest of the world in exchange for higher present consumption.
> Meanwhile US companies and investors are investing heavily abroad.
No they are not. They own a total of 7.7 Trillion of foreign assets, whereas the rest of the world owns 43.6 Trillion of US assets.
> That's not weakness, it's integration.
OK. Can I integrate with your balance sheet along the same terms? I'll end up with $44,000 of your assets, and you'll end up with $6,700 of my assets. It's equal! We will dance in mutual friendship.
> The USA today is not even remotely comparable to Russia in the 90s.
You'd be surprised to learn that as far as international trade goes, our biggest exports are commodities. No, we are not Russia, of course, but then concerns about the U.S. currency are much bigger than in Russia -- I was using Russia as an example of the pain of currency adjustment. I was not saying that we were Russia.
[1] https://www.federalreserve.gov/apps/fof/guide/l133.pdf
Statistics eh? What can you do. The stats you gave are the fed's view of dollars. Foreign assets priced in foreign currency are not included. The net US international investment position is actually $34tn in assets and $49tn in liabilities. That's in deficit, but like I said that's mainly due to the strength of the dollar (currency collapse my arse) depressing the relative value of US owned foreign assets. If the currency were to drop, they would even out.
https://www.bea.gov/data/intl-trade-investment/international...
As long as foreign investment is going into productive assets this is fine. Many countries have run extended periods of trade deficit for decades, including the US, and it's been no problem. Being a wealthy country that buys stuff is not a bad thing. The problem comes if you're running a deficit and the inward investment dries up or reverses. Then your deficit is being funded by debt, and you're in big trouble. That's what happened to Russia in 1998.
So what actually matters is that you run a productive economy. Protectionism and subsidies is (and I can't believe I have to spell this out) not the way to run a productive economy.
https://www.bea.gov/data/intl-trade-investment/international...
As long as foreign investment is going into productive assets this is fine. Many countries have run extended periods of trade deficit for decades, including the US, and it's been no problem. Being a wealthy country that buys stuff is not a bad thing. The problem comes if you're running a deficit and the inward investment dries up or reverses. Then your deficit is being funded by debt, and you're in big trouble. That's what happened to Russia in 1998.
So what actually matters is that you run a productive economy. Protectionism and subsidies is (and I can't believe I have to spell this out) not the way to run a productive economy.
In essence, what really matters is that the USD remain the reserve currency.. That arrangement is what, it's (ab)using to run the show..
I think this is reversed. A currency can be devalued a number of times before it stops being used as the reserve currency. Reserve currency status does not prevent devaluation, it allows devaluation. Think of the Roman Empire debasing the coinage for hundreds of years before people gave up on it. The post Bretton-Woods system goes back to the 70s -- we are just on decade number 5. Lots of devaluations are ahead.
Well, now the dollar is not just a reserve currency, it's a floating one. I'm not sure to what degree "devaluation" is a meaningful concept in that environment - certainly not "a devaluation", referring to a discrete event. The devaluation is a continuous, ongoing operation, as exchange rates move in real time, and as CPI changes happen.
So when economists talk about "devaluation", they include floating currencies. What that means is that the investment demand for the currency declines, causing the currency to decline.
What are the mechanisms that would cause the investment demand to decline? It can be any of
- different tax treatment
- reduction in respect for property rights of foreign investors
- changes in interest rates
- political instability causing fears of the above
Other factors may also come into play. But at some point, some of these factors cause foreign investors to take a second look at whether they should reduce their purchase of dollar assets, and that reduction in investment demand causes a devaluation.
If the demand for foreign investment in the US falls below the demand for US investment abroad, then what happens is that the currency falls so that the trade balance swings away from deficit and into surplus. That is true irrespective of whether we need those foreign imports -- we will need to find domestic substitutes or do without. Therefore this devaluation creates hardships.
But none of the above necessarily means that the dollar stops being a reserve currency. It's enough that the rest of the world pairs back their positions, as the relevant factor is the flow, not the stock.
What are the mechanisms that would cause the investment demand to decline? It can be any of
- different tax treatment
- reduction in respect for property rights of foreign investors
- changes in interest rates
- political instability causing fears of the above
Other factors may also come into play. But at some point, some of these factors cause foreign investors to take a second look at whether they should reduce their purchase of dollar assets, and that reduction in investment demand causes a devaluation.
If the demand for foreign investment in the US falls below the demand for US investment abroad, then what happens is that the currency falls so that the trade balance swings away from deficit and into surplus. That is true irrespective of whether we need those foreign imports -- we will need to find domestic substitutes or do without. Therefore this devaluation creates hardships.
But none of the above necessarily means that the dollar stops being a reserve currency. It's enough that the rest of the world pairs back their positions, as the relevant factor is the flow, not the stock.
[deleted]
> The net US international investment position is actually $34tn in assets and $49tn in liabilities. That's in deficit, but like I said that's mainly due to the strength of the dollar
The Fed's view is relevant for analyzing dollar flows, but I'll happily go with the BEA data. Take a look here: https://www.bea.gov/news/2021/us-international-investment-po...
And see the graph with the steeply falling blue line, which is our balance. What I am saying is that continuing this for another 40 years is not sustainable.
> That's in deficit, but like I said that's mainly due to the strength of the dollar (currency collapse my arse) depressing the relative value of US owned foreign assets. If the currency were to drop, they would even out.
OK, so you again confuse my argument, which is that the dollar is overvalued, with the claim that the dollar has already collapsed. I am not claiming it has collapsed, I'm claiming it is overvalued, and it will need to adjust sharply down.
I don't know why this is so hard to get straight. Then you counter with "if the currency were to drop, they would even out", which is the whole point I've been making!
When a currency is overvalued, it eventually drops to bring the trade into balance, and that is the currency crisis.
But the evening out is painful, because it means we can no longer afford the things that we rely on the foreign sector to provide, and have lost the ability to provide for ourselves via de-industrialization. That means, shortages, lower living standards, etc.
This goes back to understanding why the dollar is overvalued, which you claim is some random inexplicable thing, like why does J Lo have so many husbands. Who knows, it's a mystery! But it's not a mystery, it is just supply and demand. The dollar demand is foreign demand for US goods, combined with foreign demand for US assets. The dollar supply is domestic demand for foreign goods, and domestic demand for foreign assets. These meet, and that determines the dollar's value.
Therefore the high dollar is not a cause for extreme levels of foreign demand for dollar assets, it's the result of that elevated asset demand.
How do we know that this demand for dollar assets is irrational? Because the returns the foreign sector gets from the US is too low in comparison to their own investment opportunities domestically.
That means that they are purchasing dollar assets for non-investment reasons -- they are buying them in order to promote domestic production and support exports.
That means those dollar assets are being bought indiscriminately, and at scale, pushing down interest rates in the US and creating asset bubbles. Now that's a whole separate discussion -- the distortionary effects on interest rates -- but I brought up the scale of the asset purchases as evidence that these trade surpluses cannot continue indefinately. At some point, we will run out of assets that we are willing to sell to the foreign sector. And the foreign sector is not building new assets here, they are purchasing existing assets. You can see this from the either the BEA data or the FoF data. about 1/3 of the foreign asset purchases are US equities, 1/3 are US bonds, and 1/3 are direct investment, which is 99% acquisition of existing companies and 1% creation of new capital:
https://www.bea.gov/news/2021/new-foreign-direct-investment-....
So 1/3 of 1% of that foreign investment is actually "productive", as you say.
> Many countries have run extended periods of trade deficit for decades, including the US, and it's been no problem
No, the trade imbalances we've seen are unique in terms of scale. A good overview is here:
https://www.cfr.org/blog/why-global-trade-imbalances-could-g...
> So what actually matters is that you run a productive economy.
Yes, but you cannot run a productive economy with massive social unrest and permanent price distortions in the capital markets. OK, so what if the entire nation de-industrializes and needs to constantly borrow from the foreign sector to get the next consumption drop? That's sustainable, right? What if each home in the U.S. costs 3 million dollars and is owned by some REIT, what does it matter if an entire nation is forced to become renters -- it worked well for Ireland, so why can't it work for us, right?
Well, that's a recipe for social unrest in which the US decides it no longer respects property rights, and that's the point when the investment demand for dollars drops, and we swing into a current account surplus with the crisis I mentioned. Except then we will look around and see a deindustrialized commodity exporter with massive social unrest, and maybe then you'll stop saying "what's the matter? This is fine".
> Protectionism and subsidies is (and I can't believe I have to spell this out) not the way to run a productive economy.
At some point you have to go beyond buzzwords and actually string some thoughts together, based on real data, and a sober analysis of whether these global imbalances can continue. Waving red flags like ZOMG Protectionism!!! is not a substitute for that necessary work (I can't believe I actually have to spell this out).
The Fed's view is relevant for analyzing dollar flows, but I'll happily go with the BEA data. Take a look here: https://www.bea.gov/news/2021/us-international-investment-po...
And see the graph with the steeply falling blue line, which is our balance. What I am saying is that continuing this for another 40 years is not sustainable.
> That's in deficit, but like I said that's mainly due to the strength of the dollar (currency collapse my arse) depressing the relative value of US owned foreign assets. If the currency were to drop, they would even out.
OK, so you again confuse my argument, which is that the dollar is overvalued, with the claim that the dollar has already collapsed. I am not claiming it has collapsed, I'm claiming it is overvalued, and it will need to adjust sharply down.
I don't know why this is so hard to get straight. Then you counter with "if the currency were to drop, they would even out", which is the whole point I've been making!
When a currency is overvalued, it eventually drops to bring the trade into balance, and that is the currency crisis.
But the evening out is painful, because it means we can no longer afford the things that we rely on the foreign sector to provide, and have lost the ability to provide for ourselves via de-industrialization. That means, shortages, lower living standards, etc.
This goes back to understanding why the dollar is overvalued, which you claim is some random inexplicable thing, like why does J Lo have so many husbands. Who knows, it's a mystery! But it's not a mystery, it is just supply and demand. The dollar demand is foreign demand for US goods, combined with foreign demand for US assets. The dollar supply is domestic demand for foreign goods, and domestic demand for foreign assets. These meet, and that determines the dollar's value.
Therefore the high dollar is not a cause for extreme levels of foreign demand for dollar assets, it's the result of that elevated asset demand.
How do we know that this demand for dollar assets is irrational? Because the returns the foreign sector gets from the US is too low in comparison to their own investment opportunities domestically.
That means that they are purchasing dollar assets for non-investment reasons -- they are buying them in order to promote domestic production and support exports.
That means those dollar assets are being bought indiscriminately, and at scale, pushing down interest rates in the US and creating asset bubbles. Now that's a whole separate discussion -- the distortionary effects on interest rates -- but I brought up the scale of the asset purchases as evidence that these trade surpluses cannot continue indefinately. At some point, we will run out of assets that we are willing to sell to the foreign sector. And the foreign sector is not building new assets here, they are purchasing existing assets. You can see this from the either the BEA data or the FoF data. about 1/3 of the foreign asset purchases are US equities, 1/3 are US bonds, and 1/3 are direct investment, which is 99% acquisition of existing companies and 1% creation of new capital:
https://www.bea.gov/news/2021/new-foreign-direct-investment-....
So 1/3 of 1% of that foreign investment is actually "productive", as you say.
> Many countries have run extended periods of trade deficit for decades, including the US, and it's been no problem
No, the trade imbalances we've seen are unique in terms of scale. A good overview is here:
https://www.cfr.org/blog/why-global-trade-imbalances-could-g...
> So what actually matters is that you run a productive economy.
Yes, but you cannot run a productive economy with massive social unrest and permanent price distortions in the capital markets. OK, so what if the entire nation de-industrializes and needs to constantly borrow from the foreign sector to get the next consumption drop? That's sustainable, right? What if each home in the U.S. costs 3 million dollars and is owned by some REIT, what does it matter if an entire nation is forced to become renters -- it worked well for Ireland, so why can't it work for us, right?
Well, that's a recipe for social unrest in which the US decides it no longer respects property rights, and that's the point when the investment demand for dollars drops, and we swing into a current account surplus with the crisis I mentioned. Except then we will look around and see a deindustrialized commodity exporter with massive social unrest, and maybe then you'll stop saying "what's the matter? This is fine".
> Protectionism and subsidies is (and I can't believe I have to spell this out) not the way to run a productive economy.
At some point you have to go beyond buzzwords and actually string some thoughts together, based on real data, and a sober analysis of whether these global imbalances can continue. Waving red flags like ZOMG Protectionism!!! is not a substitute for that necessary work (I can't believe I actually have to spell this out).
> How do we know that this demand for dollar assets is irrational? Because the returns the foreign sector gets from the US is too low in comparison to their own investment opportunities domestically.
I like your general analysis. But must pick a nit here. In any market, you don’t have irrational players at scale. I would say assets in the rest of the world are nominally over valued and at high risk of devaluation. Rest of the world overly concentrates there wealth in real estate without equivalent property tax structure to the usa. This is at risk from new property taxes (already proposed in China), and people simply moving around (electronically if not physically, though both are risks). if I was a land holder in China or india, me diversifying by buying us assets would make a lot of sense. And a rich person in the usa, it is even more risky to own land in China and india (outright disallowed, also at risk for new property taxes, etc).
The usa will be fine as long as the top 5% of the worlds merit and Capital gravitates towards the usa. i would simply pay attention to the Uber wealthy (musk, bezos, gates, page etc). When they start relocating together into the same place, Pay attention. Right now they are mostly in the usa, with some minor presence from page in New Zealand and Singapore, and maybe London.
I like your general analysis. But must pick a nit here. In any market, you don’t have irrational players at scale. I would say assets in the rest of the world are nominally over valued and at high risk of devaluation. Rest of the world overly concentrates there wealth in real estate without equivalent property tax structure to the usa. This is at risk from new property taxes (already proposed in China), and people simply moving around (electronically if not physically, though both are risks). if I was a land holder in China or india, me diversifying by buying us assets would make a lot of sense. And a rich person in the usa, it is even more risky to own land in China and india (outright disallowed, also at risk for new property taxes, etc).
The usa will be fine as long as the top 5% of the worlds merit and Capital gravitates towards the usa. i would simply pay attention to the Uber wealthy (musk, bezos, gates, page etc). When they start relocating together into the same place, Pay attention. Right now they are mostly in the usa, with some minor presence from page in New Zealand and Singapore, and maybe London.
> Well do you expect the US to keep running trade deficits of 2.8% of GDP every year?
2.8% trade deficit isn't very high compared to other countries (Canada, NZ, and the UK are higher). More to the point, a world busy doing trade with each other is a much more peaceful one than ones with an isolationist USA and China without less to lose economically if they decide go to war over Taiwan.
> But the deficits will stop, it's only a question of how much longer we keep delaying it.
Historically that isn't true at all: economies aren't closed systems where imports and exports have to be eventually balanced. The only reason the deficits stop is if the country goes bankrupt and can't afford to import anything anymore. Trump's experience in going bankrupt not withstanding, I don't think anyone wants to go there.
2.8% trade deficit isn't very high compared to other countries (Canada, NZ, and the UK are higher). More to the point, a world busy doing trade with each other is a much more peaceful one than ones with an isolationist USA and China without less to lose economically if they decide go to war over Taiwan.
> But the deficits will stop, it's only a question of how much longer we keep delaying it.
Historically that isn't true at all: economies aren't closed systems where imports and exports have to be eventually balanced. The only reason the deficits stop is if the country goes bankrupt and can't afford to import anything anymore. Trump's experience in going bankrupt not withstanding, I don't think anyone wants to go there.
> 2.8% trade deficit isn't very high compared to other countries
You are joking, right? You can find some years where the US trade deficit isn't the absolute highest as a percentage of GDP, particularly if you start throwing in small island economies like New Zealand into the mix, but you will not find any other nation whose balance of current accounts is anywhere as close to the size of the U.S.'s in terms of GDP share.
Morever the sustainability arguments have nothing to do with whether you like globalism or not. I may like housing, but that doesn't mean I can keep going into debt buying more and more houses on the same income.
> Historically that isn't true at all: economies aren't closed systems where imports
This is a complete non-sequitur. You need to logically connect this statement to the argument I am making rather than just changing the subject to something irrelevant. Please read and understand and then respond to the arguments made, rather than responding to just how those arguments make you feel and what they remind you of.
You are joking, right? You can find some years where the US trade deficit isn't the absolute highest as a percentage of GDP, particularly if you start throwing in small island economies like New Zealand into the mix, but you will not find any other nation whose balance of current accounts is anywhere as close to the size of the U.S.'s in terms of GDP share.
Morever the sustainability arguments have nothing to do with whether you like globalism or not. I may like housing, but that doesn't mean I can keep going into debt buying more and more houses on the same income.
> Historically that isn't true at all: economies aren't closed systems where imports
This is a complete non-sequitur. You need to logically connect this statement to the argument I am making rather than just changing the subject to something irrelevant. Please read and understand and then respond to the arguments made, rather than responding to just how those arguments make you feel and what they remind you of.
> You are joking, right? You can find some years where the US trade deficit isn't the absolute highest as a percentage of GDP, particularly if you start throwing in small island economies like New Zealand into the mix, but you will not find any other nation whose balance of current accounts is anywhere as close to the size of the U.S.'s in terms of GDP share.
The USA isn't even that high...middle of the pack. Yes, the USA has the highest GDP of any other nation on earth, but Canada is no slouch either, it almost has an economy as large as California.
> You need to logically connect this statement to the argument I am making rather than just changing the subject to something irrelevant.
You stated that the USA cannot run a trade deficit forever, which I guess is because you assumed the economy must be a closed system that would simply deplete itself eventually. That isn't true. I'm not seeing a very well formed argument to understand here, just more of the same isolationism movement we've been hearing about since the 1930s.
The USA isn't even that high...middle of the pack. Yes, the USA has the highest GDP of any other nation on earth, but Canada is no slouch either, it almost has an economy as large as California.
> You need to logically connect this statement to the argument I am making rather than just changing the subject to something irrelevant.
You stated that the USA cannot run a trade deficit forever, which I guess is because you assumed the economy must be a closed system that would simply deplete itself eventually. That isn't true. I'm not seeing a very well formed argument to understand here, just more of the same isolationism movement we've been hearing about since the 1930s.
> Instead of trying to band-aid globalization to make a minority rich, how about we reduce the need for so much international shipping in the first place?
I think the answer is here:
> Before the pandemic, through the pandemic, and really for the whole history of the freight industry at all levels, owners make their money by having low labor costs — that is, low wages and bare minimum staffing. Many supply chain workers are paid minimum wages, no benefits, and there’s a high rate of turnover because the physical conditions can be brutal (there aren’t even bathrooms for truckers waiting hours at ports because the port owners won’t pay for them.
Making the goods onshore won't change the desire to drive labor costs as low as possible. It doesn't matter whether we're talking about truckers or factory workers.
The American consumer wants more more more cheaper cheaper cheaper, and the people supplying the American consumer want as much profit profit profit as they can squeeze. This is always going to lead to a very unhealthy and unsustainable, and thus very vulnerable, supply chain.
The pandemic was the straw that broke the camel's back, but the camel wasn't in very good shape before the pandemic. We just didn't notice how bad the camel was.
I think the answer is here:
> Before the pandemic, through the pandemic, and really for the whole history of the freight industry at all levels, owners make their money by having low labor costs — that is, low wages and bare minimum staffing. Many supply chain workers are paid minimum wages, no benefits, and there’s a high rate of turnover because the physical conditions can be brutal (there aren’t even bathrooms for truckers waiting hours at ports because the port owners won’t pay for them.
Making the goods onshore won't change the desire to drive labor costs as low as possible. It doesn't matter whether we're talking about truckers or factory workers.
The American consumer wants more more more cheaper cheaper cheaper, and the people supplying the American consumer want as much profit profit profit as they can squeeze. This is always going to lead to a very unhealthy and unsustainable, and thus very vulnerable, supply chain.
The pandemic was the straw that broke the camel's back, but the camel wasn't in very good shape before the pandemic. We just didn't notice how bad the camel was.
I look at his as a reminder of all of the benefits of globalization, which are now being taken away because we can't ship things. We've enjoyed cheap imports and lower prices for decades because we can make goods cheaply abroad. Goods are about to get much, much more expensive, and it's already started. I'm not sure that once people see the results of an on-shore economy, they'll think it's an improvement.
Note that the 1950s utopia that many want to go back to wasn't a domestic economy, it was a globalized economy where we were the only industrialized nation left standing. Truly domestic economies are more like the 1930s and 1970s. The issue with the non-globalized regions of the U.S. isn't that their economies fell abruptly in the 90s, it's that they never really recovered from the 1970s, while the coastal metropolises have moved on with gleaming capital infusions from abroad.
Note that the 1950s utopia that many want to go back to wasn't a domestic economy, it was a globalized economy where we were the only industrialized nation left standing. Truly domestic economies are more like the 1930s and 1970s. The issue with the non-globalized regions of the U.S. isn't that their economies fell abruptly in the 90s, it's that they never really recovered from the 1970s, while the coastal metropolises have moved on with gleaming capital infusions from abroad.
> how about we reduce the need for so much international shipping in the first place?
Because China has 1.44 billion consumers and the USA only has 330 million, and companies like Apple in the long run can sell more iPhones in China because there are more people to buy them. The Chinese see Western brands as more desirable and authentic, much like many affluent Americans would prefer a foreign Mercedes to a domestic Cadillac.
Starting pay for Chinese workers assembling iPhones is $3.15 per hour[1].
China does not have as strong of environmental regulations so massive toxic lakes can be produced there extracting rare earths like neodymium[2].
Chinese women have more children than American women because in America we are constantly told the earth is overpopulated and man is destroying the climate, and in America we are told it is medieval for women to focus on being mothers who produce and raise children who ultimately become the workers and consumers that are a nation's true wealth. (The goose that lays golden eggs is more valuable than the golden eggs.) But if a woman enters the workforce today instead of having children her immediate production and consumption can improve this quarter's profits, whereas if she instead has 4 children who won't enter the workforce until two decades in the future, well, that's two decades in the future and here in the West investors won't wait two decades for returns.
So we must increasingly have non-American women give birth to the workers who make and consume Apple products and other Western brands.
[1] https://archive.ph/yemy3
[2] https://www.bbc.com/future/article/20150402-the-worst-place-...
Because China has 1.44 billion consumers and the USA only has 330 million, and companies like Apple in the long run can sell more iPhones in China because there are more people to buy them. The Chinese see Western brands as more desirable and authentic, much like many affluent Americans would prefer a foreign Mercedes to a domestic Cadillac.
Starting pay for Chinese workers assembling iPhones is $3.15 per hour[1].
China does not have as strong of environmental regulations so massive toxic lakes can be produced there extracting rare earths like neodymium[2].
Chinese women have more children than American women because in America we are constantly told the earth is overpopulated and man is destroying the climate, and in America we are told it is medieval for women to focus on being mothers who produce and raise children who ultimately become the workers and consumers that are a nation's true wealth. (The goose that lays golden eggs is more valuable than the golden eggs.) But if a woman enters the workforce today instead of having children her immediate production and consumption can improve this quarter's profits, whereas if she instead has 4 children who won't enter the workforce until two decades in the future, well, that's two decades in the future and here in the West investors won't wait two decades for returns.
So we must increasingly have non-American women give birth to the workers who make and consume Apple products and other Western brands.
[1] https://archive.ph/yemy3
[2] https://www.bbc.com/future/article/20150402-the-worst-place-...
Not commenting on the rest of your comment, but
> Chinese women have more children than American women
The fertility rate of the USA and China is the same - 1.7 children per couple. China's facing a huge demographic crisis in the coming decades, primarily as a result of the one child policy.
> Chinese women have more children than American women
The fertility rate of the USA and China is the same - 1.7 children per couple. China's facing a huge demographic crisis in the coming decades, primarily as a result of the one child policy.
> The fertility rate of the USA and China is the same - 1.7 children per couple. China's facing a huge demographic crisis in the coming decades, primarily as a result of the one child policy.
Is this really true? No wonder America seems more depressing every day. I didn't realize China's fertility rate was so high (thought it would be <1).
Is this really true? No wonder America seems more depressing every day. I didn't realize China's fertility rate was so high (thought it would be <1).
It’s not a demographic crisis, but an economic one. China’s citizens will be fine if the economy is appropriately managed (with healthcare and elderly care prioritized over more frivolous spending/investment categories), but China and the CCP will have diminished power with less labor and consumers available. It’s an important distinction.
There's still a short-term dependency ratio crisis brewing. Healthcare and eldercare are very labor-intensive, low-productivity industries; if you "prioritize" them such that all of the old get adequate care, the rest of the economy is going to be severely starved of workers. That's going to cause a standard of living drop that working-age Chinese may or may not be okay with.
Over the long run a lower population usually leads to higher quality of life for each individual, but you've got to get to the long run first.
Over the long run a lower population usually leads to higher quality of life for each individual, but you've got to get to the long run first.
Population debt can be a useful tool when not abused, but it must be paid back.
> It’s not a demographic crisis, but an economic one.
I'm not sure what that means but perhaps they aren't mutually exclusive?
I'm not sure what that means but perhaps they aren't mutually exclusive?
If you’re optimizing for GDP, it’s a crisis. If you’re optimizing for quality of life, not necessarily.
> how about we reduce the need for so much international shipping in the first place
While there are a lot of negative aspects of international shipping, one major benefit of interinternational economic integration is that it serves as a deterrent to physical warfare.
While there are a lot of negative aspects of international shipping, one major benefit of interinternational economic integration is that it serves as a deterrent to physical warfare.
That's actually a good point. I'm quite against international economic integration since it usually ends in exploitation, stratification and social de-integration.
But you've got a point with regards to physical warfare.
But you've got a point with regards to physical warfare.
> Instead of trying to band-aid globalization to make a minority rich, how about we reduce the need for so much international shipping in the first place?
Because if you propose any solution to such things, you are apparently a racist.
Because if you propose any solution to such things, you are apparently a racist.
Or a socialist, which is equally bad.
Isn't it interesting how the moneyed classes successfully arranged for the workers of each nation to despise each other while still being able to exploit all?
Classic!
Isn't it interesting how the moneyed classes successfully arranged for the workers of each nation to despise each other while still being able to exploit all?
Classic!
> It’s important to understand what the cost implications are for consumers with this lack of supply in the supply chain.
The sea is full of ships with 1000's of containers full of goods.
The port is full of containers with goods.
The warehouses are full of goods and have containers sitting around in the lots or on the streets, also full.
Where is the lack of supply exactly?
The sea is full of ships with 1000's of containers full of goods.
The port is full of containers with goods.
The warehouses are full of goods and have containers sitting around in the lots or on the streets, also full.
Where is the lack of supply exactly?
The lack of supply is in the market for cargo unloading at the ports... There are not enough cranes & container chassis to service the combined weight of regular demand plus the backed-up pandemic demand. The unloading infrastructure is very capital-intensive, and highly localized, and so far the shipping companies have been unwilling to invest in expanding unloading capacity.
> Where is the lack of supply exactly?
There's a terrible lack in moving capacity. Sea, ports and warehouses are full of static containers, and that's bad: the optimal state for a container is "moving".
There's a terrible lack in moving capacity. Sea, ports and warehouses are full of static containers, and that's bad: the optimal state for a container is "moving".
I get the feeling that the people in charge of the USA don't understand how markets work.
I’m pretty sure a big percent of Congress has never worked a normal job in their lives nor created any jobs.
No, but it sounds like the people managing ports sure do.
Everyone understands their own bubble of experience, like this truck driver. But it seems like we often go off the rails on things outside that bubble, as this truck driver does when he starts generalizing (nobody will do this, everybody does that) and assigning motives (greed, stupidity, etc) to everyone else. I am trying to be better about this. It is definitely a bad habit of mine.
I dunno about that. A lot of the article is talking about incentives. The ports enjoy a monopoly, and the manner in which they're handling these delays allows them to charge exorbitant fees to everybody using the port. And, sure enough, cranes are expensive and have a long lead-time, especially when steel is bottlenecked. Fixing this would be costly and the ports are probably concerned about building up capacity that won't be necessary when the problem clears. When the solution is expensive and the problem is profitable, is inaction "greed?"
From the article: "So when the coastal ports started getting clogged up last spring due to the impacts of COVID on business everywhere, drivers started refusing to show up. Congestion got so bad that instead of being able to do three loads a day, they could only do one."
I could not make the connection from the first sentence to the second. If drivers are not showing up, congestion (in the lines for drivers) should go down, shouldn't it?
I could not make the connection from the first sentence to the second. If drivers are not showing up, congestion (in the lines for drivers) should go down, shouldn't it?
There are plans to fine companies for slow moving freight (https://losangeles.cbslocal.com/2021/10/25/ports-of-los-ange...).
Additionally the east coast has been ramping up capacity for years. The port of Baltimore is experience no such slow-down and just added more cranes. It is one of the fastest growing ports in the nation.
Additionally the east coast has been ramping up capacity for years. The port of Baltimore is experience no such slow-down and just added more cranes. It is one of the fastest growing ports in the nation.
The medium post predicted that the ports would start implementing fines for slow moving freight as a money making scheme, because they know the freight can't move any faster.
You know, your second point leads to a question: what would it take for a container ship to be willing to route to any of a collection of ports?
If I am order a shipping container full of stuff from Asia, do I really care what port it arrives at? Someone is driving it from the port to my warehouse (with maybe a train ride along the way)? I have to think that my top priorities are 'what time will it arrive' and 'how much will it cost', right?
But ships are waiting in a months-long line in LA and not rerouting to Baltimore. Or Oakland, Seattle, etc. So what gives?
You know, your second point leads to a question: what would it take for a container ship to be willing to route to any of a collection of ports?
If I am order a shipping container full of stuff from Asia, do I really care what port it arrives at? Someone is driving it from the port to my warehouse (with maybe a train ride along the way)? I have to think that my top priorities are 'what time will it arrive' and 'how much will it cost', right?
But ships are waiting in a months-long line in LA and not rerouting to Baltimore. Or Oakland, Seattle, etc. So what gives?
> The medium post predicted that the ports would start implementing fines for slow moving freight as a money making scheme, because they know the freight can't move any faster.
It gets worse. They were talking about progressive fines. That means the slower it gets, the more money they make. That's not the incentive we want the ports to have...
It gets worse. They were talking about progressive fines. That means the slower it gets, the more money they make. That's not the incentive we want the ports to have...
How can you get to the East Coast if the container ship is bigger than panamax. And there may the bottleneck at the channel too. And you may not have enough fuel to go around cape horn and we are probably talking months anyway ... it is a total mess.
Once someone pays for it to ship, the shipping company has their goods. If it's stuck in line, they can't get it out, and there are endless others to point fingers at too.
I can see (eyes on) ships waiting to enter the Port of Baltimore. 6 Ships this morning at 830am Eastern time..
Make stuff closer to where it's used again.
I've been in international air freight for over 15 years, I don't see things getting even remotely "back to normal" until 2023, if it doesn't continue to worsen before getting better.
Seem like the solution is simple: pay truck drivers to do the work that needs to be done.
The article says different... The author's core claim is that unloading capacity is the bottleneck, specifically a lack of infrastructure (cranes - container chassis, mostly).
The costs of slowdowns at the unloading bottleneck is passed on to truckers, because most of them are contractors, paid by the load and not by hours worked... They're waiting in much longer lines than pre-pandemic, but aren't compensated for the additional time. So lots of truckers have quit driving.
So he's saying that the solution is to (A) invest in unloading infrastructure to remove the bottleneck, and (B) improve pay & working conditions to get the truck drivers back to work.
The costs of slowdowns at the unloading bottleneck is passed on to truckers, because most of them are contractors, paid by the load and not by hours worked... They're waiting in much longer lines than pre-pandemic, but aren't compensated for the additional time. So lots of truckers have quit driving.
So he's saying that the solution is to (A) invest in unloading infrastructure to remove the bottleneck, and (B) improve pay & working conditions to get the truck drivers back to work.
Can't read because published on reader hostile platform.
coolspot(2)
> Why is there only one crane for every 50–100 trucks at every port in America? No ‘expert’ will answer this question.
Cranes should be THE bottleneck. They are massive, expensive and land intensive. Maybe LA needs more cranes, but it doesn't sound like that is the issue. The author states the problem is a trucker problem, "lines to get in, lines to get out" but that isn't a crane problem.
The author gets paid by the hour, others get paid by the job, job duration is variable and undefined, so wages are undefined. One solution is to pay drivers more, and pay them per hour. I've had containers full of goods waiting somewhere around the port of LA in the last year. If there were way to pay more to move them on through the system, I'd gladly pay, but its a giant black box.
My conjecture is that the REAL real issue is a very complicated and embedded union vs non-union vs contractor vs fed government vs state govt vs local govt pissing contest that could all be circumvented by federal government investing in alternative ports around the US border. Port of Louisiana, Port of Houston, Ports of Florida in the gulf. Lots of alternatives, and we are all sitting around like Port of LA is the sole option. Separately, I dont understand why Mexico isn't more prominent in container transport moved via trains into Texas.