Im-Politic: Trump Derangement Syndrome Breaking Out on the Supreme Court?

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Question: When is serving in a military unit that’s committed horrendous war crimes the legal equivalent of getting a speeding ticket? Or absentmindedly bringing a key-chain pen knife into a government office building? Or maybe even jaywalking? Answer: When the U.S. Supreme Court nowadays is evaluating an immigration case.

Think I’m kidding? Then check out this Reuters account of a hearing held by the high court that dealt with an immigrant from Bosnia who was deported and stripped of her citizenship last October. The reason? She had lied on her application to enter the country as a refugee. Now, Divna Maslenjak is seeking to restore the status quo ante. And according to the Reuters piece, several Justices are concerned that in defending the U.S. government’s previous decision (made, mind you, under the Obama administration), President Trump’s Justice Department is laying the groundwork for revoking citizenship for false statements that had no significant influence on the original refugee decision.

Nothing intrinsically wrong with that. Everyone, for example, forgets things or gets details confused. These lapses are particularly understandable in the chaotic conditions with which most refugees struggle. Nor could any reasonable person quibble with Chief Justice John Roberts concern that the Trump administration position (even though it’s drawn straight from the U.S. Citizenship and Immigration Services’ naturalization form) could enable the government to strip citizenship from naturalized Americans for lying or for omitting information about minor legal infractions that even the most scrupulously law-abiding folks everywhere are hard-pressed to avoid completely.

As Roberts noted, “in the past he has exceeded the speed limit while driving. If immigrants failed to disclose that on a citizenship application form asking them to list any instances of breaking the law, they could later lose their citizenship, the conservative chief justice said. ‘Now you say that if I answer that question ‘no,’ 20 years after I was naturalized as a citizen, you can knock on my door and say, ‘Guess what, you’re not an American citizen after all?'”

Associate Justice Stephen Breyer, who is viewed as considerably more liberal than Roberts, agreed, “noting he had once walked into a government building with a pocketknife on his key chain in violation of the law.”

Added Breyer: “It’s, to me, rather surprising that the government of the United States thinks that Congress is interpreting this statute and wanted it interpreted in a way that would throw Into doubt the citizenship of vast percentages of all naturalized citizens.”

Fair enough. But the lie in question did not concern a speeding ticket or an innocent failure to check the contents of one’s pockets. Nor did it concern an intrinsically legal but possibly questionable act that had no important bearing on Maslenjak’s application for refugee status. In fact, it concerned a subject central to her request: Despite telling the government that, as ethnic Serbs, she and her family feared ethnic persecution by Bosnia’s Muslims, she never mentioned that, as the Reuters article reports, her husband (who had received refugee status when she did) served “in a Bosnian Serb Army brigade that participated in the notorious 1995 massacre of 8,000 Muslims in the Bosnian town of Srebrenica.” And P.S.: He lied about the matter as well.

Now it’s possible that the husband was completely uninvolved in this, or any other, atrocity (another subject about which the naturalization form inquires). It’s also possible that, whether he was complicit or not, that’s what Divna, his wife, believed. Or he simply could have lied to her. If he was innocent, he might have been afraid that the relevant American authorities simply would not have believed him. Certainly, no one could blame inhabitants of countries ruled by oppressive and/or corrupt governments for not trusting U.S. officials right off the bat.

But apparently, neither spouse has offered any such excuses. Nor did any of the Justices apparently mention them. Both the Maslenjaks and Roberts and Breyer (and possibly some of their colleagues) seem to be focused on technicalities – and perhaps the former and their lawyers are counting on the Trump administration’s “anti-immigrant” reputation and the resulting backlash to help sway the Court.

The Justices’ final decision isn’t due until late June. It could be a great test of whether they, like so much of the rest of the country, have succumbed to Trump Derangement Syndrome.

Our So-Called Foreign Policy: Why Establishment Thinking About Containing China Remains Far from Serious

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Congratulations to the American Enterprise Institute’s Daniel Blumenthal for coming up with some genuinely new insights into the U.S.-China balance of power and especially its relationship with the evolving economies of the two countries. Unfortunately, Blumenthal’s new essay for RealClearPolitics.com also shows that gaping blind spots remain in establishment thinking about the China challenge its members claim to be analyzing seriously.

For the purposes of this post, let’s grant Blumenthal’s mainstream assumption that it matters greatly to the United States which great power dominates East Asia politically. I disagree, but the point here is that if America does want to fend off a China challenge, greater policy changes will be needed than Blumenthal and other conventional wisdom-mongers seem ready to contemplate.

The author’s main theme is that the United States has no legitimate reason to doubt its economic capacity to prevent China from becoming Asia’s kingpin, and his new wrinkle involves measuring economic power by looking more at national wealth, and less at national economic growth. Since the U.S. wealth levels are both much greater than China’s, and since the gap has just resumed growing according to statistics he cites, America can easily afford the military forces needed to put China back in its place. And he blames China’s recent and impressive catch-up on this score on Americans’ recent (Blumenthal doesn’t specify the time frame) political decision to skimp on military spending while continue to devote exorbitant sums to entitlement spending – which has indeed long dominated the budget outlays (along with, as he’s noted, interest payments on the resulting ballooning national debt).

According to Blumenthal, Americans and their leaders as a result have chosen to elevate “the intergenerational transfer of wealth” over national security. Strictly speaking, he’s right. But other interpretations of national priorities seem just as legitimate.

For example, as the author briefly notes, the U.S. population is aging. So a major national retirement funding challenge will face even the most defense-minded politicians. That doesn’t let American leaders or the recipients of these entitlements off the hook in terms of making sacrifices needed to safeguard national security. But it’s bound to raise the question of whether the burden of sacrifice should be limited to middle class Americans. The great increase in national wealth mentioned by Blumenthal makes clear that the nation has many other resources on which it can draw to fund a bigger military – especially since the private economy’s wealth has led the surge. In other words, why not tax the rich or corporations more heavily to pay for new personnel and weapons?

One obvious rejoinder is that modest levels of taxes on wealthy Americans and on American companies are needed to ensure the economic growth needed to keep national wealth levels robust. But even accepting the doctrinaire trickle-down economics underlying this assumption, should upper-level individual incomes and business profits be completely exempted from any responsibility to pay for the military? If so, why? And wouldn’t that policy greatly loosen the relationship between national wealth and military capability emphasized by Blumenthal?

The author also neglects another big pool of resources that can be brought to bear on countering China: the wealth of America’s regional allies. Stunningly, after decades of American pleading for greater burden-sharing, countries with a far greater stake than the United States in resisting Chinese regional domination continue free-riding on U.S. defense guarantees. Why should American entitlements recipients see any reduction in benefits before Japanese and South Koreans pay at least as much for their own security (relatively speaking) as the much more geographically distant United States does? And their contributions could be immense. Japan alone, for example, is the world’s third largest national economy (behind the United States and China, respectively). 

Finally, as with nearly all the rest of the establishment, Blumenthal completely neglects the opposite side of the U.S.-China defense resources equation: The decisive extent to which American economic policy continues enriching China, and therefore continuing to enable it to afford lots of both “guns and butter” (as economists and political scientists have dubbed military and social spending). Thanks in part to literally trillions of dollars of earnings from the trade surpluses it’s long run with the United States, the Chinese pie keeps expanding strongly (that’s the economic growth whose importance Blumenthal softpedals). As a result, more new resources are generated for whatever priorities or combination of priorities the Chinese government chooses.

Even worse, as I’ve long noted, recklessly lax tech transfer policies on America’s part have for decades given the Chinese much of the knowhow needed to turn out increasingly advanced weapons and other military systems. Some signs of official concerns about this outflow have appeared in Washington lately, but U.S. leaders (and the rest of the establishment) remain woefully behind the curve.

When America’s East Asia security strategy stops bolstering the Chinese threat it depicts as such a huge concern, when it insists that local countries act like they have at least as great a stake in remaining independent of China as does the United States, when the wealthiest Americans are required to devote more of their recent immense windfalls to the common defense, and if all of those changes still leave China closing fast on the combined forces of the United States and its neighbors, it would become legitimate to ask Main Street Americans to start shouldering greater burdens. Until then, the U.S. working and middle classes will be entirely justified in demanding that the nation’s Asia strategy pass a minimal seriousness test first.

Im-Politic: The Polls Say “Let Trump Be [Campaign-Version] Trump”

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They’re only polls and we all should remember how badly most polls blew their calls in the last presidential election. But two new surveys from the Washington Post and ABC News on the one hand, and the Wall Street Journal and NBC News on the other, are signaling to me anyway that Donald Trump has made a major mistake so far in his young presidency in tilting so markedly toward the keepers of the orthodoxy (especially the most doctrinaire versions) in his own party. Instead, he should have been focusing all along on developing a promising new American political center of gravity that he started defining (in his own imitable way) during his campaign.

As widely observed during the 2016 elections, Mr. Trump was anything but a conventional conservative – at least as the term has been understood for the last quarter century. Yes, he made frequent nods toward cutting taxes and regulations, as well as to balancing budgets (objectives that of course aren’t always consistent). He also expressed some support for social conservative positions like further restricting abortion and appointing “strict constructionists” to the Supreme Court. But as also widely observed, if that mix of views was what voters in the Republican primaries and general elections really wanted, they would have voted for an orthodox conservative.

Instead, Mr. Trump trounced his opponents even though he at least as often promised to protect massive federal entitlement programs heavily relied on by the middle class and senior citizens; to guarantee adequate healthcare for non-seniors who can’t afford it; to preserve government support for Planned Parenthood’s provision of non-abortion-related women’s health services; to uphold the rights of gay, lesbian, and transgender Americans; and of course to ignore free market dictates when they seemed to undermine public safety and prosperity by fostering unrestricted trade and immigration.

Undoubtedly, much of candidate Trump’s appeal also sprang from simple, nonpartisan voter anger at the failures and self-serving priorities of the bipartisan national political establishment. But Mr. Trump did the best job of all last year’s presidential hopefuls of identifying the combination of specific grievances that created this anger: notably, over those jobs and incomes lost to Americans Last trade and immigration policies, over those related dangers posed by terrorism and leaky borders, and over the astronomical costs and risks of fighting seemingly futile foreign wars and defending free-riding allies.

The president’s Inaugural Address – which declared his intention to fix these problems with America- and Americans’- First policies – unabashedly proclaimed that President Trump would govern like candidate Trump.

Yet although the president has by and large kept his immigration promises, and approved some (limited) measures to combat foreign trade predation, his domestic policy proposals look like they’re right out of the Chamber of Commerce and Moral Majority playbooks. Nowhere has this development been more obvious than in his endorsement of House Speaker Paul Ryan’s healthcare plan, and in his release of a budget outline that, outside of defense spending, libertarians should be swooning over.

Late last month, I ventured that the president’s support for the “Ryan Care” proposal was a head fake: He had knowingly backed a measure so draconian that he knew it would fail, in order to establish some orthodox conservative street cred with Congressional Republicans and thus enlist their support for the pivot to greater moderation he had planned all along. Something like this scenario could still unfold; according to press reports, even the hard-core anti-government House Freedom Caucus members are growing more amenable to a compromise proposal that would preserve many of the more popular provisions of President Obama’s healthcare reforms.

But Mr. Trump’s continuing insistence on a federal spending blueprint that either eliminates or greatly slashes funding for medical and other scientific research, Chesapeake Bay cleanup, and food and heating aid for the poor, is not only plain bizarre, especially since the dollars involved are trivially small. It’s also politically inexplicable, because there’s absolutely no evidence that these are viewed as priority savings among any important Trump constituencies.

And that’s where the new polls come in. As per the headline results, Mr. Trump’s popularity at this point in his presidency is much lower than the ratings of most of his predecessors early in their first terms. In fairness, the Post-ABC survey also shows that the president would beat his chief 2016 rival, Hillary Clinton, in the popular vote if a new election was held – showing that he’s even more popular versus the Democratic nominee than on election day.

But the both polls showed the president’s support tightly concentrated among his own core voters and Republicans generally. Even accepting the claim that rapid partisanship by Democratic party leaders is proving effective in limiting Mr. Trump’s appeal to their rank and file, it’s still a sign of trouble for the president that his ratings among self-described political independents is markedly on the wane according to the Journal-NBC findings (falling to 30 percent) and low (38 percent) according to the Post-ABC survey.

One main reason: The Washington Republicans President Trump is apparently still courting are even less popular than he is. The Journal-NBC poll reports that many more Americans are dissatisfied with the Republican-led Congress nowadays than in February, and Ryan’s approval ratings are even lower. Moreover, the Republican-led Congress and the Speaker, in turn, are less popular than the president even among voters identifying as Republicans.

None of these results necessarily bodes ill for the Freedom Caucus. Its members don’t care for Ryan, either – allegedly for being too moderate. But many of the latest measures of Americans’ views of major policy issues do. For example, the Journal-NBC poll found that, since February, the share of respondents agreeing that “Government should do more to solve problems and help meet people’s needs” shot up to 57 percent. Even more independents (59 percent) endorsed this position. The share of total respondents believing that “Government is doing too many things better left to businesses and individuals plummeted to 39 percent.

More pointedly, the Post-ABC poll showed Americans opposing the Trump budget proposals by 50 percent to 37 percent overall, and independents disapproving by an even wider 52 percent to 35 percent margin.

The Journal-NBC survey also found record shares of Americans viewing “free trade” and “immigration” positively – at 57 percent and 60 percent, respectively. But the abstract nature of these questions could well have tilted these answers. One reason for supposing so: The Post-ABC poll reporting that, by a strong 73 percent to 22 percent, Americans favor “Trump pressuring companies to keep jobs in the United States.” Among independents, the results are an even better 75 percent to 19 percent.

So the recipe for Trump political success seems pretty clear: Dump the Freedom Caucus under the Trump Train on the budget and healthcare; preserve (and even boost to some extent) discretionary spending programs that strengthen the economy’s foundations and provide for the needy; keep the campaign promises on entitlements so highly prized by the middle class; and take bolder measures to Buy American and Hire American (as one new set of trade-related Trump jobs programs is called).

Keeping the focus on these priorities, along with a well thought out infrastructure program, should attract and keep enough backing among Republicans and independents to offset any losses in Freedom Caucus ranks, both in Congress and at the grassroots level (where they seem modest in number). Adding new policies to combat predatory foreign trade practices, moreover, should please organized labor enough to bring into the fold many union members and leaders plus the Congressional Democrats they strongly influence. An extra bonus – this program could well give President Trump the political leeway he needs to stay his course on immigration (which of course has seen a softening of his views on the so-called Dreamers).

Often in American history, calls to “Let [name your favorite politician] be [name that same politician]” have reflected core supporters’ naive beliefs that campaign promises can easily be turned into policy by the office-seekers they elect. But as is so often the case with the current president, Letting Trump be Trump, could confound the political conventional wisdom.

Making News: Interviewed on Buy American and Trade-Related Infrastructure Issues

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I’m pleased to announce that the video is now on-line of an interview I gave last week on the intersection between infrastructure and trade policy issues – and specifically, on the future of the Buy American programs governing the public sector’s multi-billion dollar purchases of goods and services.

The session was sponsored by the Asset Leadership Network, an organization of professionals in engineering, architecture, construction, land-use planning, and related fields. One of their highest priorities: making sure that whatever infrastructure build-out and repair efforts the nation launches results in the best quality systems that create the biggest growth and employment bangs for taxpayers’ bucks.

It was gratifying to learn of the Network’s interest in my research into whether recent trade agreements covering government procurement – which affect the extent to which infrastructure systems are made out of American-produced manufactures and materials – are leveling global playing field as promised, and giving a fair-shake to U.S.-based businesses and their employees.

As RealityChek regulars know, the answer – according to a recent report from the Government Accountability Office (GAO) – is an emphatic “No.” And in this video, I describe the GAO’s main findings, as well as what they tell us about U.S. trade policy’s broader failures.

And keep checking in with RealityChek for news of upcoming media appearances and other events.

(What’s Left of) Our Economy: Laughable NAFTA Defenses from the New York Fed

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Although the Federal Reserve Bank of New York says that posts on its Liberty Street Economics blog “do not necessarily reflect the position” of either this branch of the federal reserve system or the system itself, it’s hard to avoid the conclusion that the bank has gone to war against President Trump’s announced plans to renegotiate NAFTA (the North American Free Trade Agreement). Why else would it have run items critical of these plans on consecutive days last week?

Even more important, it’s hard to avoid the conclusion that these posts aren’t vetted seriously for basic knowledge of America’s international trade situation, or even common sense. Key examples from each of these posts should suffice to establish the New York Fed’s combination of bias and ineptitude here.

The first post, by a New York Fed official and an economist from the offshoring interests-funded Institute for International Economics, purported to show that “An underappreciated benefit of … (NAFTA) is the protection it offers U.S. exporters from extreme tariff uncertainty in Mexico….Without NAFTA, there is a risk that tariffs on U.S. exports to Mexico could reach their bound rates, which average 35 percent. In contrast, U.S. bound rates average only 4 percent. At the very least, U.S. exporters would be subject to a higher level of policy uncertainty without the trade agreement.”

But it quickly becomes clear that even the authors are skeptical about this outcome. Their main stated reason hints at one main reason: “”Given the large and well-documented benefits from low trade barriers, particularly those stemming from access to a wider variety of imported intermediate inputs and lower prices of intermediate inputs, it would not be in Mexico’s interest to raise all of its MFN tariffs to their bound rates.”

This argument is only a hint, however, because it jaw-droppingly softpedals some of the main characteristics of U.S.-Mexico trade – specifically, the hugely outsized role played in this commerce by intra-industry trade. As I first described at length in The Race to the Bottom, a large share of U.S.-Mexico trade has little to do with the exchange of finished goods that dominates the textbook models. Instead, it consists of parts and components and other inputs of finished goods that travel through international production chains until they’re turned into final products.

And because there’s so little consumer purchasing power in Mexico, and so much in the United States, the lion’s share of this bilateral intra-industry trade in turn consists of intermediates being sent from U.S. factories to Mexican facilities, where they’re assembled into final products for export back to America.

Sure, in principle, a U.S. scrapping of NAFTA (which of course is not the Trump administration’s stated intention) could enable Mexico to substitute non-U.S. parts and components etc for the American-made intermediates that current make up so many of its exports. But without NAFTA, Mexico would also lose much and probably most of its current, unconditional access to the U.S. market. And since that market currently buys nearly 80 percent of Mexico’s exports, and since Mexico’s economy relies so heavily on those exports, it should quickly becomes obvious how self-defeating such a Mexican effort at hardball playing would be.

How bizarre that neither the article’s authors, nor anyone else involved in producing Liberty Street Economics, recognized these longstanding realities. Even weirder: The importance of this intra-industry trade in U.S.-Mexico trade was the major theme of another post from the same authors (plus a third) on this same blog that appeared the very next day.

Yet the NAFTA-related follies of the authors and of Liberty Street Economics hardly end there. In that second post, readers are warned that stricter rules of origin (ROO) for NAFTA could “disrupt supply chains” and in particular backfire on U.S.-based businesses by increasing the costs of their imported inputs and undermining the competitiveness of their exports outside North America.

To which someone who actually knows something current U.S. NAFTA renegotiating plans can only reply, “Seriously?”

For what the authors and the rest of the Liberty Street crowd seem to miss is that the only ROO revamping that would make any sense from a U.S. standpoint is also precisely the kind of revamping that the Trump administration seems to be considering: not only tightening the ROO (to confine duty-free treatment for goods traded inside the NAFTA zone to goods with higher levels of content produced inside the zone), but increasing the tariff penalties imposed on goods with relatively low levels of non-North American content.

In other words, the North American supply chains created by NAFTA wouldn’t be weakened. They’d be strengthened and greatly expanded.

Now the authors could still be right in arguing that such measures would raise the prices of goods made inside North America and thereby undermine their competitiveness outside North America. But they completely neglect two counter-arguments.

First, because the (U.S.-dominated) North American market is already so vast, and because intermediate goods industries in the three NAFTA countries are already so enormous, external tariffs that encourage North American businesses to use even more North American content could well bring gains inside the NAFTA zone that exceed whatever non-NAFTA losses are incurred.

Second, NAFTA as it currently exists was touted as a major boost to U.S. and North American global competitiveness, but there’s no evidence that this goal was achieved. Quite the contrary, at least according to World Trade Organization data.

They show that in 1993, the year before NAFTA went into effect, North America’s share of global goods exports was 17.9 percent. By 2015, it had shrunk to 14.4 percent. The U.S. share during this period fell from 12.6 percent to 9.4 percent, and the Canadian share decreased even faster – from 3.9 percent to 2.6 percent (no doubt, however, largely due to falling prices for the oil it exports so abundantly).

Mexico’s share of global exports did increase – from 1.4 percent to 2.4 percent. But surely that improvement stemmed mainly from selling to the United States, not to any non-North American customers.

The North American share of world merchandise imports did decrease during this period as well. But the decline was much smaller, and one quick look at the U.S. trend makes clear that the lion’s share of this improvement has resulted from the recent, dramatic turnaround in American energy trade patterns – which have nothing to do with NAFTA or any other supply chains.

The Federal Reserve system, and especially its crucially important New York branch, have long been renowned for employing premier economists and sponsoring first-rate economic analysis. But these Liberty Street Economics posts indicate that, at least when it comes to NAFTA, the New York Fed is better described as the Gang that Can’t Shoot Straight.

Following Up: Healthcare’s Outsized Job Creation Reported in The New York Times

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Well this is pretty cool! A new New York Times op-ed piece has spotlighted a trend that RealityChek has long covered: how strongly the creation of healthcare services employment has dominated recent American job creation, and how this trend has been especially noteworthy since the financial crisis and Great Recession broke out nearly a decade ago.

At the same time, author Chad Terhune, who reports on the healthcare industry for Kaiser Health News and the California Health Care Foundation, explains a major dilemma being created by outsized healthcare job creation for the Trump administration: Because so many of the new jobs in the sector have been driven by the build-out of Obamacare, the president’ promise to abolish this vast new structure could endanger his broader promise to jump-start feeble U.S. economic growth and stagnating incomes.

Even worse, according to Terhune, any effort to make healthcare more affordable, or even keep it at its current affordability levels, will significantly weaken the healthcare job-creation engine.

As the author sees it, healthcare hiring got a major boost “as coverage expanded in 2014 under the [Affordable Care Act] and new federal dollars flowed in. The law gave hospitals, universities and companies even more reason to invest in new facilities and staff. Training programs sprang up to fill the growing job pool. Cities welcomed the development — and the revenue.”

Sharpening the healthcare jobs conundrum faced by the president: “rising health spending has been good for some economically distressed parts of the country, many of which voted for Mr. Trump last year.” And Terhune cites specific examples from West Virginia to Pennsylvania to Ohio and Missouri.

Just as important, the author convincingly shows that American healthcare’s success in creating employment – which clearly predates Obamacare’s passage – also largely explains its inefficiency. In Terhune’s words, because of the system’s

redundancy, inefficiency and a growing number of jobs far removed from patient care….[l]abor accounts for more than half of the $3.4 trillion spent on American health care, and medical professionals like health aides and nurse practitioners are in high demand. But the sheer complexity of the system has also spawned jobs for legions of data-entry clerks, revenue-cycle analysts and medical billing coders who must decipher arcane rules to mine money from human ills.”

And although Terhune doesn’t make the point explicitly, this labor-intensivity means that the sector of the economy fueling so much of its output and hiring is pathetically unproductive. In other words, the more outsized growth and employment healthcare creates, the less able the entire economy will be to raise living standards on a sustainable basis.

Moreover, one big reason for this low productivity is a feature of the healthcare system – both under Obamacare and before it – not mentioned by Terhune, either, but that’s vital to recognize: As I’ve observed, although this gigantic industry is officially (and no doubt popularly) considered a part of the private sector, its scale owes largely to subsidies from the public sector, which is renowned for low productivity.

As always, RealityChek readers – and others – need to understand that placing healthcare (and similar industries, like the for-profit educational system and social assistance agencies) outside the “real private sector” is not the same as questioning its fundamental value. After all, no truly civilized society would ever reduce public policy to a quest for productivity to the exclusion of all other goals, whether economic or non-economic. Moreover, as some readers have alertly pointed out, the steady aging of the American population is bound to mean continued healthcare sector growth.

But Terhune’s article is a badly needed reminder that the economy’s heavy reliance on the current healthcare system’s employment power has major downsides. As its title indicates, it’s a “costly addiction,” and its price is bound to rise without a major overhaul of some kind.

Our So-Called Foreign Policy: U.S. North Korea Policy Remains Dangerously Behind the Curve Despite Signs of Progress

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As I explained last week (not that it’s my insight alone!), America’s leading political pundits enjoy much of their fame (and consequent incomes) to their access to power. Close relations with American and other leaders can turn them into craven establishment mouthpieces when they express their own opinions. But they also enable these commentators to serve as reliable carriers of messages being sent quite deliberately by decision-makers, and by the policy specialists who advise them.

That’s why the latest column from the Washington Post’s Charles Krauthammer was both encouraging and discouraging when it comes to dealing with the growing nuclear weapons threat from North Korea. The good news, if Krauthammer’s piece is any guide, is that the policy community is finally starting to consider some desperately needed outside-the-box ideas for making sure that U.S. policy doesn’t wind up with Pyongyang destroying an American city or two. The bad news is that these same policy specialists and political leaders still don’t have their arms completely around this intensifying crisis.

Krauthammer’s main point seems to be that the United States still has “major cards” to play both against North Korea and against China, whose help President Trump says he’s counting on heavily to either de-nuclearize the North or somehow contain its weapons program to an acceptable degree. Some of them are pretty innovative and constructive, and per my analysis above, if he’s mentioning them, that’s a strong indication that important conventional thinkers and policymakers are mulling them, too.

For example, Krauthammer observes that Washington could ease many of China’s fears about the consequences of regime change in North Korea (which he describes nicely), and spur decisive pressures by Beijing, by “abjuring Korean reunification. This would not be Germany, where the communist state was absorbed into the West. We would accept an independent, but Finlandized, North Korea.

During the Cold War, Finland was, by agreement, independent but always pro-Russian in foreign policy. Here we would guarantee that a new North Korea would be independent but always oriented toward China. For example, the new regime would forswear ever joining any hostile alliance.”

For my part, I agree that no significant American interests would be compromised or even affected by such a deal.

Maybe even more significantly, Krauthammer seems to be recommending that the United States suggest to China that, if it doesn’t get on the North Korea stick, South Korea and Japan would likely develop nuclear weapons themselves. As he notes, because of the history of brutal conflicts “The latter is the ultimate Chinese nightmare.”

If I’m right, this Krauthammer point signals that American policy toward Asian security (and possibly European security) could be headed for a highly welcome sea change. After all, as I’ve explained, preventing Japan’s nuclearization in particular has been a central goal of U.S. strategy in Asia since the end of World War II. Because a nuclear Japan, or even a conventionally mighty Japan, was thought too likely to return to its warlike ways, American leaders for decades have insisted on handling the job of defending Japan, and incurring many of the greatest risks – including triggering nuclear conflict.

And as you may remember, when candidate Trump suggested during his campaign for the White House that this approach be rethought, he was hammered by the bipartisan foreign policy establishment – including former President Obama – as a dangerous know-nothing.

So the change Krauthammer could be foreshadowing would represent nothing less than a U.S. foreign policy revolution.  It would mean that Washington at long last recognizes that the favorable nuclear balance that for so many years arguably made this policy of “extended deterrence” a reasonable risk is now rapidly changing for the worse. Specifically, as I’ve written, North Korea’s progress toward developing a secure retaliatory force now could be exposing the American homeland to risk that is by definition unacceptable because it’s being borne in order to protect other countries, not the United States itself.

Unfortunately, Krauthammer’s column also may add to the evidence that official and quasi-official thinking on North Korea remains way behind the curve. For example, he seems to recommend that Washington at least implicitly threaten China with the return of American nuclear weapons to South Korea if Beijing doesn’t raise its North Korea game.

Actually, this move would reduce the nuclear threat posed to the United States by war in Korea – by increasing the odds that such a conflict’s nuclear dimension would be confined to the exchange of short-or medium-range weapons whose destructive effects would be limited to the Korean peninsula. North Korea, according to the conventional and, to me, reasonable, wisdom, would continue to be deterred from launching nukes at the United States itself for fear that America would retaliate by using much more powerful intercontinental weapons that could completely annihilate the North (as well as the South).

So what’s the problem? Precisely because it alone would suffer the greatest damage, and precisely because that knowledge would make America likelier to use those short-range weapons in response to an invasion from the North, this strategy has surely become completely unacceptable to South Korea. And you can bet that neighboring Japan isn’t a big fan, either.

The Asian allies would greatly prefer that, if U.S. nuclear weapons are used in a Korean conflict, they be the weapons that shift as many risks as possible to the United States itself – and create the chance that the nuclear dimension of any Korean conflict would be fought literally over their heads. South Korea would also (legitimately) tell the United States that threatening North Korea with instantaneous nuclear destruction if it invades the South is the best way to reduce the chances of that invasion taking place to begin with. In other words, it’s the best way to strengthen deterrence and therefore preserve peace.

I know that for those outside the foreign policy community, these ideas sound completely loony. But they’re exactly the kinds of ideas that had roiled relations between the United States and its allies in Europe for decades, too.

Krauthammer also endorses, at least in principle, the notion of conveying American resolve to the North by shooting down “a North Korean missile in mid-flight to demonstrate both our capacity to defend ourselves and the futility of a North Korean missile force that can be neutralized technologically.”

He’s correct in writing that this option would be safer than a “preemptive attack on North Korea’s nuclear facilities and missile sites [which] would almost surely precipitate an invasion of South Korea with untold millions of casualties.” But what if the shoot-down attempt fails? Wouldn’t that further embolden the North? I sure as heck wouldn’t want to take that chance.

So despite the encouraging signs in Krauthammer’s column, I remain convinced that the Korean crisis is a situation where the only choices for the United States are not between good and bad, or even between bad and worse, but (because of the nuclear dimension) between perversely reckless and downright suicidal. Therefore, U.S. leaders need to capitalize on the only truly decisive asset working on their country’s behalf –America’s great distance from the peninsula – and withdraw as soon as possible the military forces still stationed in South Korea. They have no ability to advance or defend important U.S. interests at acceptable risk, but they have greatly and rapidly increasing ability to drag the nation needlessly into a potentially disastrous conflagration.

(What’s Left of) Our Economy: So U.S. Manufacturing’s Never Produced More, Huh?

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Even though (thankfully) few claims have been heard lately that American domestic manufacturing is either enjoying a renaissance or on the verge of one, it’s still commonplace to insist that the sector’s output is at an all-time high. Invariably, the purpose is to argue that U.S. industry is in perfectly acceptable shape, and that anyone believing the contrary is mistakenly obsessing about the industry’s long years of job losses – which are attributed to its ever faster adoption of labor-saving technologies that are encouragingly boosting productivity.

Let’s (charitably) leave aside the reality that manufacturing’s productivity performance lately has been historically feeble. Instead, let’s express thanks to the Commerce Department, which has just published its latest reminder of how complicated – and uninspiring – manufacturing output has been lately.

As known by RealityChek regulars, the Federal Reserve’s monthly industrial production numbers have made sadly clear that, when adjusted for inflation, American manufacturing output is anything but at an all-time high. Indeed, its peak came at the very end of 2007, just as the Great Recession was beginning according to the quasi-official scorekeepers at the National Bureau of Economic Research. Since then, real manufacturing production has shrunk by 4.43 percent.

But as the Commerce Department’s new quarterly report on gross domestic product (GDP) by industry once again describe in detail, the U.S. government measures manufacturing output in several different ways. Unfortunately, however, none of them tell a story especially flattering to the sector.

Commerce gives pride of place to a gauge called real value-added – which tries to eliminate the double-counting that often marks the simpler production numbers mentioned above. In other words, real value-added (along with value-added that’s not adjusted for inflation) tries to ensure that the government isn’t counting an auto part once when it comes out of a parts factory and again when it comes out of a vehicle factory as one piece of a finished good.

The real value-added data certainly make manufacturing’s recent production growth look better than the real output figures. But that’s not to say they make this performance look good, for they show that from its 2007 peak through the end of last year, domestic manufacturing has shrunk by 0.81 percent.

It’s only when you don’t adjust for inflation that you start getting genuinely encouraging manufacturing output numbers. According to the pre-inflation value-added data, American manufacturing production was indeed at an all-time high as of the end of 2016. In fact, it’s 17.31 percent higher than the 2007 level.

Don’t get too excited by this number, however. If we switch time-frames and just look at the current economic recovery, we see that from the time the economy resumed growing in 2009 (and unfortunately, this data set doesn’t contain quarterly figures, so we have to use full years) through the end of 2016, current dollar manufacturing value-added advanced by 25.97 percent. That’s only a little faster than manufacturing’s 25.42 percent value-added growth during the previous (2001-2007) expansion – which was a year shorter. Moreover, no one ever considered those years a manufacturing golden age – or even close.

Yet another version of the manufacturing story is told by the gross output numbers compiled by the Commerce Department. They show that manufacturing production rose after the last recession began – by 12.94 percent. But that growth ended in 2014. Over the next two years, it dropped back – by 4.41 percent. So record manufacturing output came – and then went.

Adjusting gross output for inflation serves up a less volatile picture of manufacturing production, but it’s not much of an improvement. According to this measure, output peaked in 2007, and since then has dipped by 0.27 percent. That’s not much. But it doesn’t mark 2016 as an all-time high, either.

To me, a reasonable bottom line is this: The U.S. government uses five different measures of manufacturing output. Both its timeliest (the Fed industrial production figures) and arguably the one it likes best (real value-added) show that real manufacturing production is off its recent records. So do two other measures. The only data set that tells a reasonably good story is one that’s doesn’t take inflation into account. That’s a pretty flimsy reed on which to base claims that domestic manufacturing output has never been stronger.

Following Up: Why Buy American Reform is More Urgent – & Feasible – Than Ever

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Although it doubtless wasn’t an intention of Wall Street Journal reporters Coulter Jones and Shane Shifflett, their article this morning on President Trump’s recent efforts to strengthen the U.S. government’s Buy America regulations considerably bolstered the case that overhaul is indeed vital – and within reach politically.

As I reported last month, a February Government Accountability Office (GAO) study showed that the United States is getting completely fleeced by its adherence to provisions in various bilateral or regional trade deals (like the North American Free Trade Agreement), along with a worldwide plurilateral agreement, that aim at eliminating domestic preference programs like Buy American regs.

The two main problems, according to the GAO? First, the best available data reveals that the United States has opened up its government purchases to foreign competition much wider than the nearly 50 other signatories of the Government Procurement Agreement (GPA) sponsored by the World Trade Organization (WTO). Second, Washington’s implementation of this arrangement and of similar provisions in other trade deals has been so negligent that the U.S. government never bothered even to find out how well the GPA, or any of the similar agreements, was working until two Democratic Senators commissioned the GAO study – more than twenty years after the global agreement was signed.

Journal correspondents Jones and Shifflett spent most of their article purporting to explain that any administration efforts to boost Washington’s purchases of U.S.-origin goods and services would amount to “swimming against the tide.” After all, as they documented, “For the current fiscal year beginning in October, foreign businesses have received a bigger share of federal contract dollars than in any other year since at least 2009.” In fact, “foreign-owned companies already hauled in more money from federal contracts in the past three months [i.e, during the Trump presidency] than in any corresponding period in a decade.”

Moreover, any changes to procurement policy made by President Trump “would likely face legal challenges….Additionally, any executive order Mr. Trump may issue requiring the government to buy exclusively American-made products has the potential to be challenged in court, or overturned by Congress or a future administration” – because of trade treaties that aimed “to make it easier for U.S. companies to compete overseas by mutually easing trade restrictions with other countries.”

But the recent rise in federal contracts for foreign-made goods, according to the article, has nothing to do with either Trump administration negligence or uncontrollable forces. As the authors point out, “Much of the payout to foreign-owned firms in the first quarter of this calendar year was set in motion by the Obama administration.” Of course, that was the same Obama administration that came into office in 2009 and oversaw that previously noted longer-term surge in contracts awarded to foreign goods and services providers.

Further, those trade treaties described by the Journal piece as such towering obstacles to a Buy American overhaul are the same trade treaties that the GAO has strongly indicated are utter failures.

The administration knows about the unacceptable record of these arrangements, as do the Democratic Senators who requested the GAO study. How difficult, then, would it really be for the president to muster bipartisan Congressional support for declaring these deals null and void – at least pending convincing evidence that they’re working after all? And given the pervasive discrimination U.S.-based goods and service providers clearly face in most foreign government markets, how difficult would it be for Mr. Trump to win similar legislative backing for narrowing the loopholes and waivers contained in the current Buy American regulations – and monitoring and enforcing tighter rules much more effectively?

In other words, how many American lawmakers would insist on continuing to obey broken treaties and on refusing to re-level the procurement playing field unilaterally for domestic businesses and their employers? The answers may not be obvious to Mainstream Media journalists. They’re surely more obvious to politicians accountable to American voters.

(What’s Left of) Our Economy: How Trump Can Get His Trade Chops Back

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Comments made by Vice President Pence on his Asia trip concerning America’s trade relations with Japan and South Korea show both the promise and peril of the Trump administration’s approach to international commerce and globalization. Major gains for the economy are possible from negotiating a bilateral trade agreement with Japan and revamping what Mr. Pence described as a failed deal with South Korea. But first, the president and his aides must show more awareness than to date of why accords with countries like these keep failing.

According to candidate Trump, and President Trump, the main problems with such measures have been, variously, incompetent U.S. negotiators, dominance of the policy process by offshoring and similar interests, and a mistaken preference for multilateral arrangements over bilateral deals where America’s leverage is less likely to be watered down.

The second reason for failure cited above has certainly shaped U.S. trade agreements with super low-cost countries that have been tempting locations for production and job offshoring, and that have revealingly comprised the vast majority of trade deals initiated and signed by Washington since the early 1990s. But footloose multinationals have played a much smaller role when it comes to higher income countries like Japan and South Korea. There, achieving better results for the American domestic economy has faced two leading obstacles.

The first has been widely noted: the longstanding tendency of the U.S. leaders to elevate geopolitical aims like strengthening security alliances over economic aims like removing distortions to trade flows. Here, strangely, the administration has been giving off mixed signals lately. The president is now clearly treating the security-related objective of gaining more Chinese cooperation in resolving the North Korea nuclear weapons crisis as a higher priority than combating the numerous predatory Chinese trade policies that have hurt domestic employers and their workers. But he blasted such priorities as recently as last month. And the Pence statements indicate that trade and security issues will be handled on separate tracks for Japan and South Korea.

The second obstacle has been less widely noted – although it’s been a major theme of mine: Opening markets in highly protectionist countries like those Asian powers is fiendishly difficult, at best. As I’ve written, these economies are most accurately seen as nation-wide systems of protection and mercantilism. The particular form taken by any of their trade barriers or subsidies at any given moment matters much less than the underlying intent to manage trade flows to their advantage. In addition, these protectionist systems are run by powerful bureaucracies whose secretiveness and agility makes even identifying problematic practices – much less combating them – excruciatingly difficult.

The bottom line is that trade agreements with such countries are virtually impossible to monitor and enforce effectively, and because their governments know this, the provisions are violated routinely.

By contrast, because the U.S. government is so transparent, almost of America’s trade barriers and subsidies are easy to identify and attack, and American compliance with trade agreements is easy to measure. So it’s easy to see how these agreements strongly tend to create more (and more strongly guaranteed) access to the U.S. market than vice versa. This new report from the U.S. Government Accountability Office shows how these damaging results can stem from multilateral agreements, but the Korea deal spotlighted by Spence and a long string of agreements with Japan show the similarly dismal record of bilateral arrangements.

That’s not to say that worthwhile trade deals with Japan and South Korea are impossible. But they’ll require thinking that’s much further outside the box than the administration seems to be engaged in. The best possibility would be going the managed trade route. That is, rather than accept unverifiable promises to dismantle trade barriers or end subsidies, America’s interlocutors would commit to allot specific shares of their domestic markets to specific U.S.-origin goods and services. There’s even a precedent for this practice – the 1986 semiconductor trade agreement reached between Washington and Tokyo.

Managed trade of course isn’t free trade. But little about Japanese and South Korean policies fits the definition, either. And the history of the semiconductor deal is well known by President Trump’s choice to head the U.S. Trade Representative’s office, Robert Lighthizer, because he was personally and deeply involved.

Another possibility would be to expand one of the few modestly worthwhile leafs from former President Obama’s 2012 trade agreement with South Korea. Precisely because Seoul’s predatory practices in the automobile sector specifically were so difficult to combat via the standard, legalistic procedures used in the dispute-resolution systems in most American free trade agreements (and the international counterpart run by the World Trade Organization), Mr. Obama secured South Korean acceptance of provisions that are especially appropriate in dealings with opaque bureaucracies that prevent significant evidence gathering.

Specifically, if a dispute-resolution panel convened under the agreement decides that Seoul is violating the auto provisions, and the United States restores pre-agreement tariffs on Korean products, it’s up to the Koreans to prove that they’re back in compliance with the treaty before the new tariffs are removed. Even better, however, would be to impose the burden of proof on South Korea, Japan, and similar countries as soon as a complaint is filed.

Yet there’s a strong argument that the very structure of dispute-resolution mechanisms is fatally flawed. Whether the trade agreement in question is bilateral or multilateral, these arrangements treat the United States as an equal party. But given the huge size of the U.S. economy relative to any other trade agreement signatories, and therefore given its status as the paramount prize in any such agreement, this “one country-one vote” set-up is as absurd as it is detrimental to American interests.

Rather than agree to such standard dispute-resolution systems – which invariably result in deadlocks that penalize open economies like America’s – Washington should insist that dispute-resolution votes be allotted more realistically. Basing them on the sizes of the various signatory economies is one obvious formula.

And don’t forget the ultimate America-First trade policy: Dispense with negotiations altogether, or for the most part, and start imposing tariffs on the imports of predatory trading powers, or on all imports (in order to prevent offshore exporters from switching production sites). Of course, that universalism is a big virtue of the border adjustment tax proposed by the House’s Republican leaders. In return, Mr. Trump could offer greater U.S. market access to those countries that prove (after years of good behavior according to exclusively American judgments) that they’re giving American exports a fair shake. This form of unilateralism should have special political appeal for an administration that’s increasingly in need of some big early economic wins.

President Trump (at least the pre-China currency version) has been termed a trade policy disrupter. If he wants to re-earn that label, getting the nation’s Japan and South Korea trade right after decades of frightful losses would be a great place to start.