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Containers, full and empty

November 24th, 2004

If you want to see why adjusting the balance of trade will be a painful task for the US, it’s worth reading this generally upbeat article about the revival of the port of New York, thanks to imports from Asia. The money quote, several pages in

After unloading 1,120 containers from the [Hyundai] Glory, the longshoremen reloaded the ship for the return trip. Of 667 containers to be sent back, 419 were empty, being returned to Asia to carry more goods back to the United States. Of the rest, most were stuffed with two of New York’s biggest exports: wastepaper and scrap metal.

Even on the most generous interpretation of comparative advantage, I don’t think returning packaging material and scrap to your suppliers can form a sustainable basis for trade.

If you want to keep up with this topic, bookmark General Glut and Brad Setser

UpdateA comparison with Australia. The picture at container ports here is much the same, which is one reason I always found the focus on improving waterfront efficiency so odd. I’m not a mercantilist, but it doesn’t seem to me that, for a chronic deficit country, our top economic priority ought to be improving the efficiency with which we import things.

For most of the 1990s, our deficit on manufactures (which mostly come in containers) was pretty much offset by surpluses in agriculture (shipped in bulk carriers) and some services like education and tourism. So, we had a roughly sustainable position, with trade in balance. The current account deficit reflected payments to foreign capital and was broadly consistent with a stable ratio of foreign debt and equity to GDP.

In the last few years, however, our manufacturing exports have fallen in a hole, while imports have boomed, producing large and unsustainable trade deficits again (though not as bad as the US). The growing CAD has mainly financed investment in housing, as far as I can see, which is not a good sign as housing services are mostly not tradeable.

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  1. Uncle Milton
    November 24th, 2004 at 21:18 | #1

    “I don’t think returning packaging material and scrap to your suppliers can form a sustainable basis for trade.”

    Why not? It works for us.

    On a more serious note, the US will balance its trade by selling things like construction services in Iraq (Haliburton, step up to the plate!) not goods in containers.

  2. November 24th, 2004 at 21:27 | #2

    Ahh…. comparative advantage. A nice theory, but the world doesn’t quite work that way in practice, does it?

  3. November 24th, 2004 at 22:25 | #3

    General Glob waxed doom-laden on US trade prospects yesterday, Quiggers. He agrees with you. Only more so. And he seems to be employing the term ‘comparative advantage’ more generously than some might.

  4. kyan gadac
    November 24th, 2004 at 23:40 | #4

    empty containers and goods worth a tenth of the price taht was paid for them – that’s not comparative advantage that’s an economy that’s about to be reconstructed.

    And uncle Milton’s wrong – we sell holds full of wheat, coal and gas to China and sure we import processed goods – but the comparative advantage for us is our relatively small population hence relatively(to other possible Chinese markets) small demand for processed goods versus our wealth in primary goods.

    Construction services! give me a break – I know we like wasting money on overseas experts – it’s an island thing – ask Nauru – but China! – they might give the odd contract to Haliburton to appease the US but the last thing they would do is employ overseas experts like Haliburton. They spent the 90′s as I recall letting contracts to overseas companies – these days, I suspect, they supply their own experts as well ass there own labour and AKAIK nearly all business in CHina is joint ventures. Recent contracts in W.A. mining, for instance, have included significant Chinese ownership and management of the production cycle.

  5. khr
    November 24th, 2004 at 23:53 | #5

    I work for a big container shipping company, and, indeed, shipping empty containers out of the US to be refilled in Asia or Europe is an important cost factor for us. This also shows up in the the freight rates charged. For the customer, it is cheaper to ship stuff out of the US than into the US, as the shipping companies are happy about any container they can fill.

  6. Harry Clarke
    November 25th, 2004 at 05:05 | #6

    I agree that this seems unsustainable but two obvious qualifications:

    1. Countries with good investment prospects have run current account deficits for long periods sustainably. Australia has run deficits almost every year since 1860. Normally around 2% of GDP.

    2. Countries like the US would own many plants in Asia and elsewhere that are doing the exporting. These exports however would be credited to their country of origin not to the US.

    Of course too I agree that the recent surge in current account deficits is deeply troubling.

  7. Denis Bright
  8. Simon
    November 25th, 2004 at 10:07 | #8

    Hey Chantilly St, my wife looked at a house on Chantilly last Monday. Small world. Sorry off-topic…

  9. James Farrell
    November 25th, 2004 at 11:23 | #9

    “…the US will balance its trade by selling things like construction services in Iraq…”

    And let’s not forget that we will be paying them more for our drugs.

  10. November 25th, 2004 at 11:41 | #10

    Interestingly, last night was the first time I heard even a hint of realism on this area on a TV news financial report. Up to now, it has always been how well the A$ is doing, not how the US$ is weakening (which a glance at the other currencies’ rates easily shows). Last night the reporter said something about how the US$ was weakening against the Euro, and that this was because of the unsustainable US deficit.

    It looks as though the ranks of the professional optimists may be about to break.

  11. khr
    November 25th, 2004 at 17:22 | #11

    About agricultural exports and containers:

    While grains and similar bulk goods are transported by specialized bulk carriers, a lot of agricultural products are shipped in containers nowadays: Fruit, meat, wine (either in tank containers or bottled), wool etc. Indeed, as many of these are relatively lightweight and low-value compared to machinery or electronics, Australia might well need more containers for its exports than for its imports. I don’t have the statistics to hand to check this, however.

  12. November 25th, 2004 at 20:56 | #12

    One doesn’t have to be einstein to see that australians are running up debt buying imported products.
    I well recall howard’s response when asked about double payments for the $600 child bribe-oh well,he said, you could could pay the school fees or buy a DVD player!!
    What a dickhead.

  13. November 26th, 2004 at 00:29 | #13

    khr – Isn’t it more likely that we need LESS containers for our exports?

    Wheat,coal etc out in bulk containers. Sheep Cattle live exports plus a bit of dead meat. Might mean that the number of containers in / out don’t have to add up.

  14. Razor
    November 26th, 2004 at 13:22 | #14

    This discussion is chicken little stuff. So there is a current account deficit, which is offset by a capital account surplus, which creates the balance. Why is this a bad thing? It is a dynamic process in a dynamic world economy (dynamic meaning changing not ‘going off’). When demand for the AUD increases our exports are less desirable and we can afford to import more and travel – you beauty. When our dollar goes down our exports are more desirable and we import and travel less – you beauty. Where is the problem????

  15. November 26th, 2004 at 15:25 | #15

    Razor, there is a range of possible problems. Here is just one: open capital markets mean that printing US$ flows into end countries via middlemen, not just as new real investment (“good”) but also as merely nominal new investment, simple wealth transfers (“selling the farm”, “bad”).

    Essentially, there are mechanisms at work here that are market imperfections, and all is not for the best in this, far from the best of all possible worlds.

  16. November 26th, 2004 at 18:12 | #16

    There were two issues connected with reform on the docks, one was efficiency and that applied to exports as much as imports, it was a matter of costs and reduction of costs for the benefit of Australians, whether they were producing exports or consuming imports.

    The other issue was the abuse of monopoly power by a trade union, for a long time under communist leadership, that had been a pace-setter in violent and irresponsible activities to the detriment of all Australians (apart from the wharfies themselves).

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