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This is Wall Street Week. I'm David Weston bringing you stories of capitalism this week. Why families from Las Vegas to Vancouver can't afford to buy a house. If you can buy the house, why you may not be able to afford to ensure it, particularly if you live in Florida or in California. And US ports are consistently ranked among the least efficient in the world. What sort of investment would it take to fix that? But we start with the story about that trade balance. President Electroump focuses
on so intently. On Thursday, we got the numbers, which once again showed the US in the red. But what does that tell us about the economy? And is restoring the balance, as mister Trump insists, really so important. Here's Bloomberg International Economics and Policy correspondent Michael McKee.
There is a story about a college professor who told his economic students anyone who used the term bilateral trade balance would automatically fail. That's because international trade is a system, not a series of summable individual country by country relationships. A country's trade balance is the difference between what it consumes and what it produces. In the US, we consume
more than we make. Aggregate demand is greater than aggregate supply, so we end up importing the difference to satisfy that demand. We have a trade deficit. China, on the other hand, produces more than it consumes. It sells its excess to US and the rest of the world. It has a trade surplus. To Donald Trump, the answer is to slap tariffs on Chinese made goods. But that won't solve the problem because we are the problem. As long as we demand more than we produce, the trade balance won't change.
We will just buy more stuff from countries other than China. If China isn't the lowest cost supplier, someone else will be. Why won't we make more stuff here? We likely will just not enough. Meanwhile, our other economic policies are working to worsen the trade deficit. The US has a large and growing budget deficit, which we fund by selling debt. As the deficit rises, interest rates have to rise to attract buyers. That strengthens the dollar, which makes American exports
more expensive and harder to sell. It makes imports cheaper. Tax cuts, meanwhile, give people more money to spend, increasing demand for those imports. We increase demand without increasing supply, and the trade deficit gets worse. Not even Donald Trump is above the law of supply and demand.
So why the difference between exports and imports matter to a country that hasn't had a goods trade surplus since nineteen seventy five? We asked very lovely of the Peterson Institute.
We shouldn't care about the trade balance. The trade balance is an accounting number, and sometimes a country has a trade surplus, sometimes it has a trade deficit. What it means is it reflects how much you are spending relative to how much you're earning. And just like in your own private life, there are times when you should spend
more than you earn. For example, the country of Norway discovered north sea oil, and it did not want to depress the consumption of the current generation the people alive at that time to build up the investment necessary to exploit that new resource, and so they ran trade deficits as they bowered from the rest of the world to begin to drill and to get this precious resource from under the ocean, and lo and behold, now they run trade surfaces. So they invested the money wisely in an
asset that played off for years to come. So the answer to is the trade devisit bad or good? Is really why do you have one?
We like to buy, we're big consumers, we have the most open market, we have low tariffs, and it's actually been a benefit.
Fred Hockberg was president of the Export Import Bank under President Obama and author of Trade is not a four letter word. Like Mary Lovely, he questions all the emphasis on the balance of trade.
Yes, there are obviously some shortfalls, but we have the greatest array of products. You go to a supermarket, they're over thirty thousand different products. So that's been a great benefit to our economy.
Even if it were important to address the trade balance. Lovely is not at all sure that the sixty percent tariffs on Chinese imports and twenty five percent reports from Mexico and Canada are the way to go.
There's a misunderstanding of thinking that TIFFs, because they'll lower our imports, will change our trade deficit. So if President Trump goes ahead and put on tariffs, we would expect that the US dollar will strengthen. That will make our exports less attractive to foreign customers, to buyers abroad to have to pay more for them, and so both imports and exports can shrink and the balance could very well be unaffected. So it may have zero effect on the
trade deficit. It could even increase the trade deficit, that is, if we don't handle the underlying drivers, which have to do with domestic saving and investment.
When the President elect talks about the problem of the US trade deficit, he consistently focuses on goods, not services, when much of US strength is in the latter category. Hackwork says that means the trade balance numbers may be distorted.
With the second largest export in the entire world, were second only to China, and one of the things we excel in is service exports, whether it's media like Bloomberg, media, financial services, insurance, travel, those are much harder to calculate and capture, so my hunches our exports is somewhat understated as a result.
Beyond their effects on the trade balance, there's another aspect to tariffs that have attracted President elect Trump, the prospect of raising revenue.
Why did we turn away from tariffs as a source of revenue? And the historical record shows us what folks were talking about one hundred years ago. What they were talking about is that it was a tax on consumption,
and it left earnings that were saved untacked. So what you had was lower income people who save relatively small percentage or even zero of their income, really facing taxes on everything that they buy, whereas rich people were only taxed in the small share of their income that they actually used to buy things.
Donald Trump is far from a loan in thinking that the sort of across the board free trade approach taken in the past has done real damage to certain industries and workers in some parts of the country. The question is whether tariffs are the best way to address the issue, or whether a more selective approach is called for.
We have something called trade adjustment assistance. It's never been really fully funded to sort of support workers whose jobs have been compromised or loss due to trade, to make sure that they can find other jobs and seek other employment. That needs to be far more robust than it's ever been.
To say that we may be misled by focusing too much on the trade deficit, or that imposing tariffs may not get us where we want to go, is not to say that the new President Trump's trade policies could not help the US accomplish things it needs to get done well.
I think what he likes to do is one on one negotiations. He doesn't want to like the trans specific partnership, and there's a talk he might want to do some other one on one trade deals that would include higher tariffs that they would impose on China to sort of stop the Chinese overproduction. And China is overproducing and exporting a lot of the goods because they want to keep
people employed. That hurts other countries that are trying to increase their businesses, their manufacturing, or their agriculture.
In the end, maybe the most important point about the US trade deficit is that it can distract US from its underlying cause and a much bigger problem, how much the US is borrowing from the rest of the world.
A trade surplus is the excess of your saving over investment, so that can change when you're saving the rate changes or when your investment rate changes. The US has had very healthy investment, and that's good. Our saving, though, has gone down, so we have a relatively low savings rate comparing across countries, and part of that is due to
low private savings. But also low government savings. So here we get back to the large federal budget deficit and evaluating whether you think that deficit is something that should be made smaller.
You know what drives our economy, it's consumer spending, business investment, government spending, and a deficit, whether it's exports or our budget deficit, so that it's only one of four components. We need to up our exports. We probably need to have our budget and better alignment because we are spending a lot more than we're taking in. It's one of the things Scott Bessant, the incoming Treasury nominee, says he wants to work on so that we have to look
at in the totality. But it's easy to focus on the trade deficit because it's like foreign and we don't have to talk about raising taxes.
Coming up. The US is way behind in the efficiency of its ports. Does it matter and what can be done about it? That's next on Wall Street Week. This is a story about American exceptionalism, but not necessarily the good kind.
Their Rural Bank comes out with this list of the top four hundred or five hundred.
The USA ports are not hardly ever in the top one hundred.
That's Mario Cardera, CEO of the Port of Long Beach in California, America's second busiest port. It ranks number nine in the world and level of activity, but number three hundred and seventy three in the list. He refers to the World Bank's annual Container Port Performance Index, which measures efficiency based on how long a ship stays in port. That index for twenty twenty three ranked Yangshan, China, Salala, Oman,
and Kartahina, Columbia, first, second, and third. The only US ports that made the top one hundred were Philadelphia at fifty five and New York, New Jersey at number ninety two. Of the bottom fifty ports listed, six of them are in the US, making America's shipping infrastructure exceptional in the length of its delays. Turlock Mooney is the global head of Port Intelligence and Analytics at S and P Global, which partnered with the World Bank to create the efficiency ranking.
Ports are critical to fluid supply chains. Efficient ports are extremely necessary to keep goods flowing smoothly. Efficient ports are actually catalysts for development. They attract investment, they attract logistics infrastructure, and they ultimately helped to drive growth Conversely, in efficient ports can have the opposite effect.
Time, as they say, is money, and when it comes to United States imports, it can be a lot of money given the importance of consumers, which makes ports like Long Beach an indicator of the strength of the economy.
Overall, you have a great economy, and you know the amer consumer is spending in terms of peor Long beachs our numbers lately have been historic, so we're approximately now after nine months, we're up in terms of te volume.
We're up about nineteen percent over and above last year's number.
To handle all that volume, ports like Cordero's Long Beach have been changing the way they do business, trying to make sure that they're as efficient as they can be, improving that low ranking in the World Bank Index. And some of that requires automation.
The research right now points to the fact that automation clearity is a cost reduction policy for the poor Long Beach.
We're interested in productivity as.
A global community. We've entered the fourth Industrial Revolution, so to speak, and that is the coming of robotics automation. If you go back to a report that mckensey issued back in twenty seventeen, they predicted that by twenty thirty we would lose two thirds of American jobs. As we know, for every robot that you put in place, there's six jobs that are limited. So I think for a poor long beach, how we navigate that issue as a public port. We have to consider all factors and I think what
we've been successful at. Then when we do talk about automation or in the case of the Blombach container termal semi automation, we have that discussion as a stakeholder group, a collaborative effort.
Automation at seaports is not an all or nothing proposition. Loading and offloading ships and moving cargo from one form of transportation to another involves many complex steps, some of which are more readily automated than others, and some of which don't lend themselves to automation at all given current technology.
The main benefit of automation and the reason that it is the future and the reason that you see the most efficient ports and the world automating operations more and more, is that it sits very well with digitization. So it's an important part of the technical foundation for interoperable data sharing of data between different stakeholders. Sharing of good quality data so that action can be taken where necessary to drive efficiency and improve efficiency of port operations.
Automation is far from the only way that ports like Long Beach are seeking to improve efficiency. Indeed, it may not even be the best way. A better approach may be to get more productivity from the system the way it's now configured, particularly by extending the hours the port operates.
One of the things that I was very vocal about is how we move to twenty four to seven operations.
Now we're not working twenty four hours a day, seven days a weekening time soon. Imagine if you told the American consumer you can only fly during the week and the airport will closed on weekends, or you can only fly between the hours of eight am and six pm. I mean, imagine what the airport bottleneck would be like. So I think the same emphasis needs to be put in terms of how we move cart.
Another route to improve efficiency is rail. One train can carry seven hundred and fifty trucks worth of cargo, and earlier this year, Long Beach broke ground on a one point five billion dollar expansion of its rail yard that will triple the amount of cargo it can handle annually. John Gabriel is Group president for Consumer Products at b ANDSF, one of the two railroads servicing Long Beach.
October of twenty twenty four was the biggest single month moving intermodal that we've had as BNSF Railway. Tying that back to the ports this year has it's on a record pace for the most shipped the train movements that we've done. It's the fastest we've ever gotten to a million containers loaded on the trains and departed out of the ports of LA and Long Beach. And I would certainly say that's a testament to, you know, the investments
we've made. Again, we've invested in tracks facilities more than two and a half billion dollars over the last five years. I think it's a testament to the collaboration we have with the ports of LA and Long Beach and the
investments they've made. That's so important. Right now, right now, we're handling more volume than we were post supply chain crisis, where we saw the huge uptick in consumer demand, you know, post pandemic, and we're doing it about fifty percent faster from ship to train and ultimately the ship to end destination. Across our animal network is about seventy five percent faster than it was from a transit perspective back in twenty
twenty two. And you know, really, I would say the entire supply chain and all stakeholders have really stepped up and it's really been a great demonstration of you know, a capacity and supply chain resiliency for all the goods moving through the West Coast.
Containers and Rossterdam are only thirty three percent off the total cargo through pit the major cargo nearly fifty percent of liquid bulk clicking i AIN World Away.
Anna Steltzel is working on maximizing efficiency in Rotterdam, where she's the Director of Containers. It's the world's tenth busiest port and ranks ninety first in the World Banks Efficiency Index. As with Long Beach, Rotterdam is facing increasing demand.
We're expanding our container capacity. We do know from research that to container business in Europe will be actually it will be growing all over the world. That has to do with containerization, that has to do with a growing middle class, and in order to prepare for their growth and to participate in their growth, we had decided to invest into our.
Infrastructure Rotterdam is a leading port in a new system called Gemini, involving shipping companies HAPAC, Lloyd and Meersk.
The trends that we see is that transhipment volumes are growing. That has to do, for example, with the fact that we have hubbinspoke concepts that are being introduced. Maersk, together with Harperkloyd, introduced the Gemini concept.
The Gemini project features a series of hub ports around the world that handle the bulk of the cargo. Containers are then immediately loaded under smaller ships destined for spoke ports dotted all over the world. Central to the project in Rotterdam is APM, which bills itself as the most advance against most fully automated terminal in the world. Its CEO is Harold Kunst.
The Gentleman and I approach is different than the traditional shipping line approach.
We took for many decades.
With the up structure integrated into the network of the five hubs in the East West approach from the trade is that we are able to enable the ships to be nine days earlier from far rays into Europe. Sports like Rotterdam in Europe and Long Beach in California are seeing greater demand than ever for cargo handling, and are investing and innovating to keep up with what's coming their way. So why is it that they still lag so far behind their counterparts in Asia, in the Middle East, and
even in Latin America. Why is it that it takes two or three times as long to move a container at a US port than it does in China. It turns out that there are several reasons. First, and most basic is that twenty four to seven schedule that Cardero is pushing for at Long Beach, but that hasn't yet been accomplished.
After nine months in the year twenty twenty four because of expanded hours of operation which commenced with the twenty four to seven conversation. Again, are we twenty four seven today? No,
have we taken incremental steps to expand operation hours. Yes, that's a big reason why we don't have congestion and bottlenecks at the Pear Long Beach because our terminals have been able to work with us and making sure that we use night gates, we use early morning gates, we use weekend hours in times that we have historic volume, which is what we have done.
So I think again we'll get there.
Even if Long Beach were up and running all the time, it would be very difficult for it to approach the efficiency level of some major ports because of where it fits in the supply chain. Goods coming into Singapore or Oman, for example, are transferred from one ship to another rather than being moved over land by train or truck for distribute. In the United States, we're not a transhipment port.
I mean some of the larger ports that you look at, for example Singapore, they are a transhipment port. They always have been, and the allies will.
And finally, there is the question of automation, something that others make more use of than the US. But as much as automation promises to be an answer to so many prayers for greater efficiency, first it comes with a price, quite literally, in the investment it requires, with the associated questions of where the capital will come from and whether it will earn the return on investment normally required.
There's about twelve hundred legitimate container terminals throughout the world, only about four percent are automated.
So the challenge with any type of transformation of technology is a costly endeavor. So from a private sector perspective, what's the return on investment. I think that question is probably going to be more challenging moving forward, because obviously none of this happens under some private sector investment in.
The United States. It's not just a question of the capital investment in return. Automation also has potentially substantial effects on employment, which led forty seven thousand members of the Longshoreman's Union to go on a three day strike in US ports on the Eastern Seaboard and Gulf Coast in October, something Cordero on the West Coast is very aware of.
For a port like Low Beach, who are public ports, we need to take into account the social impacts that has. I think that at the Port of Lombreaes we're proud about the footprint that we have in terms of job production. You know, five hundred and thirty five thousand the local level, at the state level seven hundred and four thousand plus jobs directly and directly as a result of the pro Long Beach, and at the national levels the numbers like
two play six million. So we just were talking earlier about the great economy that we have, our dependency of our GDP based on consumer spending robots don't spend money.
Consumers do.
So that's the conversation that I haven't really heard amplify it because for US, it's very important to keep labor in place, because hypothetically you eliminate labor, what are you doing to the economy and spending in terms of consumer spending.
And that story will be an important part of the larger story of American exceptionalism and whether the US can remain the dominant economic force in an increasingly competitive world. Coming up by families from Las Vegas to Vancouver can't afford to buy a house. If you can buy the house, why you may not be able to afford to ensure it, particularly if you live in Florida or in California. On Wall Street Week, this is a story about risk, how much we are willing to pay to protect against the
risk of losing something we value. It's a story that always begins when something goes very wrong.
This is where we designated the water levels for Helene.
Glenn Scarpa and his wife own Scarpu's Coastal restaurant in Boca Grande, a small island town in Florida.
We cut everything around the whole restaurant at two feet, you know, to get all the wet stuff and insulation out. Ten twelve days later we got this one. And then we walked in here and said.
O, December first marks the end of the Atlantic hurricane season, and it's been expensive and deadly. In Florida alone, three hurricanes made landfall in twenty twenty four, tying the highest years on record, And although the toll is still being added up, we now know the storms sweeping through the United States took more than three hundred lives and cost over one hundred and ninety billion dollars across the country. That price tag makes it the third costliest season in
US history. Scarpa, like millions of other Floridians, turns to insurance to help protect against losses from extreme weather. As the insured, he's the first step in a food chain of risk that starts with individuals or businesses, goes up to insurers, then to reinsures, and ultimately can hit investors or even taxpayers. With each step, the risk is calculated, changed, repackaged, spread around. But one thing we know for certain, it
never goes away. As risk increases in the United States and costs, two insurers stack up insurance premiums have also been on the rise. Are we in a historical high here in the cost of insuring a home?
I'd say yes. The average cost for Florida homeowness policy is about six thousand dollars.
Jerry Theodoru is director of the Finance, Insurance and Trade Policy Program at Our Street Institute, a DC based think tank that promotes free markets.
In the insurance world. In rate making and pricing, the rate follows the risk. The risk magnitude has increased, So because the risk has increased, the losses have increased, and insurers are playing catch up and raising prices. And there are some unique factors for Florida which differentiated from the rest of the country.
It turns out that extreme weather is only one of those unique factors. Insurance has also gone up because of people moving to the state and building more expensive houses in risky locations.
There's more built up value. Had a population of two point two million in nineteen forty six and it's now twenty two million. It increased ten times, So there's a lot more built in value in Florida that's available there to be hit by hurricane and be destroyed. So we've got climate change We've got the built up environment which has grown, there's more real estate out there to be destroyed, and you have the inflation in these prices. So it's like a trifecta.
A lot of circumstances hit at the same time.
One step up the ladder of risk from insured to ensure. Tim Cirio is CEO of Citizens Property Insurance Corporation.
You had, you know, COVID and post COVID, A lot of folks flocked to Florida. You had property values skyrocket, which you know, you could be very happy that your home was worth more, but if it costs a lot more to replace it, you know you're going to be paying more in insurance. You had inflation over the last several years which drove up construction calls cost to replace your home.
It's not just Florida. It's been hit by higher insurance costs recently. Across the country. Insurance prices have surged over the past two years. Since the beginning of twenty twenty three, the cost of homeowners insurance nationwide has climbed over twenty one percent, while CPI rose just five percent. The price of some commercial insurance is up nearly fifteen percent over the same period. Theodorus says the greatest problems facing insurance
markets have been man made. Companies leave states like Florida and California, not because they can't price climate risk, but because they know the risk and state laws and litigation won't always let them keep up with it.
Now, if they're underpricing, they're not going to have a six percent profit margin, which is the going rate for insurance companies. Insurance companies are not fat rich organizations, so that's why you have this seeming exodus from California.
This problem of insurance companies leading the state gave rise to Cirio's Citizens Property Insurance Company.
Citizen is the state created insure of last resort. The idea is that we exist to help the people of Florida find insurance when they really have no options. Maybe it's because of maybe they're a higher risk, not necessarily because they've done anything wrong, but the characteristics of their home.
Today, the last resort has become the only one for many who live in Florida. Citizens is the largest insurance firm in the state.
Our rates were artificially suppressed and we became probably on the whole, the cheapest in the state. Of Florida, which caused us to grow exponentially, and that's not a good thing. There has been pretty much bipartisan agreement that a very large citizens is not healthy overall for Florida because if we grow too large and there's a storm or a
series of storms and we can't pay our claims. The good news for our policyholders is their claims will always be paid because we have the requirement to levy a surcharge on citizens policy holders. And if that doesn't suffice to pay claims, then it's an assessment on policy holders and non policy holders alike to make sure claims are paid.
Individuals may be struggling to pay their premiums and states may be struggling to keep premiums within reason, but it's not because the insurance companies are pocketing big profits. Profit margins for the S and P five hundred insurance sector have climbed over the last few years, but to levels that are far from shocking, peaking around twelve percent this
year before sliding to seven percent in November. Compare that to twenty twenty four highs of around sixteen percent for the financial industry and over twenty four percent for big tech One factor constraining profit margins for insurers beyond the claims they're paying out, has been the rising cost of insurance that they themselves have to pay one more step up the latter of risk.
Swissree is a global reinsurance company and our clients are insurance companies. We partner with insurance companies to protect their balance sheets.
Monica Ningen is CEO of US Property and Casualty Reinsurance at Swiss Reed, one of the largest reinsurers in the world.
When it comes to reinsurance rates, there is an impact from climate change, but it's relatively small. The other factors being economic inflation, wage inflation. Inflation of construction plays a big factor, especially in the last few years, but you also have things like urbanization and people moving into areas that are more susceptible to catastrophes.
Each of those factors helped push reinsurance rates higher every year since twenty seventeen. Within especialist sharp rise in twenty twenty three, but early figures for this year suggest the trend might finally be leveling off. And even though we're closing the books on one of the worst hurricane seasons on record, signs are that this year's natural catastrophes haven't led to financial ones.
It's a chain there that spreads the risk around so that when you have a catastrophic event like Hurricane Helene, it didn't hurt the third quarter earnings. A remarkable thing that happened at the end of September. Helene went up to North Carolina. But the insurance companies, they just reported the third quarter earnings last few weeks and they were pretty upbeat. Didn't lose a lot because very sound prudent
use of reinsurance. And there's also private investors that want a piece of the action in the form of insurance linked securities also called catastrophe bonds. So there's a lot of capital. So whereas people are talking about, oh, this is going to be a forty billion dollar, fifty billion dollar event, insurance companies can handle that. They're built to do that, that's what they do. So we're seeing some positive, some tailwinds that are really worth watching.
Despite all the factors driving insurance costs up. Those who know the industry well see cause for hope. At least in Florida, where the government has worked to reduce lawsuits that have cost a good deal to insurance companies.
The good news is about a year and a half ago, the Governor of Florida as signed into law some comprehensive Tart reforms that really cut the feed out from the or cut the legs off from some of these excesses of litigation. After the Tart reforms went into effect last year in March, we've seen that the number of lawsuits in the first three quarters of the year, because we just saw of the Q three numbers went down by twenty four percent.
We hit one point four to one million policies in October of twenty twenty three. We're a little over a million now we should end the year at around a little over nine hundred thousand policies. That means that private carriers are coming in, they're taking policies out of citizens, They're willing to write more risk. So I mean that is evidence that the market's getting healthier.
Recently, one of the publicly traded insurance companies in Florida said that we're not doing more rate increases. So it appears as if the insurance industry has caught up with lost magnitude.
Whether or not lower insurance rates find their way to businesses and homeowners in Florida and across the country. In the short term, we do know that climate risk and development in risky areas isn't going away. Monica and Ningen says, what happens next will come down in part to those of us at the bottom of the chain.
So when you look to the future, I think there's a few things that will change. I think that consumers were still to better understand their own risk exposure and what their own resiliency looks like. As events impact our lives every day, whether it's snow impacting your commute to work, or it's a flood that's imposing on you returning back to your home, consumers are being more aware than they ever have been on the risks that their homes face.
Back in Boca Grande, Glenn Scarpas says he's very aware of the risk of another hurricane, but he's hoping to manage with a little bit of luck and insurance.
I mean, you've got to anticipate that it's probably going to happen again. Who knows it could happen next year, could be thirty years, it could be one hundred years, but it's going to happen. Again at some point.
Having a business on the island Scarpus says is still worth the risk, But after moving there five years ago and seeing the destruction to both his restaurant and his home, he's decided to sell his condo and move inland onto greener and he hopes drier pastures. That does it for us. On Wall Street Week, I'm David Weston. We'll see you again next week for more stories of capitalism.