(What’s Left of) Our Economy: New Productivity Data Further Debunk “Tariffs Hurt” Claims

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The Trump administration’s announcement last Friday of new tariffs on some metals-using manufactures imports was greeted with the predictable combination of chuckles and gloating from the economists, think tank hacks, and Mainstream Media journalists who keep insisting that all such trade curbs are self-destructive whenever they’re imposed.

If the critics bothered to look at the new official data on multi-factor productivity, however, they’d stop their victory laps in their tracks. For the Labor Department’s latest report on this broadest productivity measure utterly trashes their claims that the tariffs slapped on metals in early 2018 – which unofficially launched the so-called Trump trade wars – have backfired by undercutting most domestic American manufacturing.

In fairness, the Trump administration itself gave the trade and globalization cheerleaders lots of evidence for their triumphalism. Specifically, the levies were justified with statistics showing that various categories of goods made primarily of tariff-ed steel and aluminum had seen major surges of imports since the duties began. The obvious conclusion? Foreign-based producers of these products were capitalizing on their cheaper metals available to their factories to undersell their U.S.-based competition.

As a result, Mr. Trump decided to tariff some of these final products, too – to erase the advantage created for imports from less expensive steel and aluminum.

So in one sense, it’s tough to blame tariff critics for feeling vindicated about predictions that the metals levies might boost the metals-producing sectors themselves, but injure the far larger metals-using sectors. Ditto for their warnings that in an economy with so many connected industries, protection for one or a few would inevitably spur calls for such alleged favoritism by others, threatening a consequent loss of efficiency for all of manufacturing and even the entire economy.

Examine the issue in more detail, though, and you see that it’s entirely possible to arrive at radically different conclusions. For example, the new tariffs appear to be imposed on a limited set of products, and none of them (e.g., nails, tacks, wires, cables, even aluminum auto stampings) qualifies as a major industry. In other words, the chief metals-using industries, like motor vehicles and parts overall, aerospace, industrial machinery (many of which have been complaining loudly about the metals tariffs, even though their overall operational costs have been barely affected) were left out.

Finally in this vein, and as the critics imply, the new Trump tariffs also make the case for trade curbs on any final products whose significant inputs receive duties. Why indeed strap otherwise competitive domestic producers with higher prices for materials, parts, and components? This practice has been a major flaw in the U.S. trade law system, which has prioritized legal over economic and industrial considerations, since its founding. And in fact, my old organization, the U.S. Business and Industry Council, has been urging this reform since at least 2008.

Even better – to prevent cronyism from influencing such trade policy decisions, impose a uniform global tariff on all manufactures, or all non-energy goods.

But it’s just as important to point out a gaping hole in the longstanding argument that cheap imported inputs (including subsidized, and therefore artificially cheap imported inputs) are essential for the overall global competitiveness of U.S. domestic manufacturing. And the hole has been opened (or perhaps it’s more accurate to say, reopened, given this previous RealityChek analysis of earlier data) by those new multi-factor productivity statistics.

They only go through 2018 (such time lags explain why multi-factor productivity trends aren’t followed as closely as labor productivity trends). But they’re the broader of the two productivity measures, as they gauge the effect of many inputs other than hours worked. And via the table below, they make clear that even the wide open access domestic manufacturers enjoyed to artificially cheap metals and other imported inputs have played absolutely no evident role in improving industry’s health. In fact, there’s reason to conclude that the more access domestic industry had to such materials, parts, and components, the less productive it became.

                                                               Total mfg   Durable goods   fabr metals

1990s expansion (91-2000):                   +23.40%       +38.76%         +4.79%

bubble decade expansion (02-07):          +11.74%      +16.61%          +7.62%

current expansion (10-present):                -4.84%         -0.84%           -4.51%

pre-China WTO (87-2001):                   +22.18%      +37.72%           -3.32%

post-China WTO (02-present):               +6.72%      +17.17%           -2.05%

As usual, the time periods chosen to illustrate these trends consist (with one exception) of recent economic expansions (because they enable the best apples-to-apples comparisons to be made). And the 1990s expansion is the first one examined because the relevant Labor Department data only go back to 1987. The products chosen consist of all manufactured goods, durable goods industries (the super-category containing most of the big metals users), and fabricated metals products (the most metals-intensive sectors of all).

The table demonstrates that multi-factor productivity growth across-the-board has weakened dramatically from the 1990s expansion through the current – ongoing – expansion. The slowdown between the 1990s expansion and the previous decade’s expansion was moderate (and multi-factor productivity actually grew faster during the second in fabricated metals, though in absolute terms its improvement lagged badly). But during the current recovery, multi-factor productivity growth has been replaced in all three instances by multi-factor productivity decline. And crucially, during none of this time did any of these manufacturing categories face any shortage of imported inputs of any kind – subsidized or not.

Indeed, one event in 2001 greatly increased the supply of subsidized inputs – China’s admission into the World Trade Organization (WTO). For once China joined, the difficulty of using U.S. trade law to keep these Chinese products out of the U.S. economy became much greater.

Yet at the same time, as shown below, productivity growth was considerably weaker after China’s WTO entry than before in manufacturing overall, and in durable goods. And although its performance actually improved in fabricated metals, that industry’s performance was much worse in absolute terms.

Nor does the inclusion of the 2007-2009 Great Recession in the post-2002 China-related data (which violates the “apples-to-apples rule”) seem to have been a game changer – because the worst performances of all in each case, and by a mile, have been registered during the current expansion. Moreover, since the data stop in 2018, those current expansion results are dominated by the period preceding both the Trump metals tariffs and the Trump China tariffs (most of which target industrial inputs, as opposed to final products).

It’s entirely possible that, for various reasons, the multi-factor productivity statistics would have been even worse if not for the widespread availability of cheap imports. Or maybe multi-factor productivity isn’t much of a measure of manufacturing’s health? Both alternative explanations, however, seem pretty far-fetched (especially given the pre- and post-China WTO results).

Much likelier – as I argued in that post linked above – the availability of cheap inputs has helped retard productivity growth by enabling businesses to achieve cost-savings without investing in research and development into new products and especially processes, and without buying more efficient equipment (including software).

Following Up: The New York Times’ Fake History of the U.S. is Spreading

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Since Americans’ mistrust of the news media keeps getting stronger, it’s a safe bet that they’d be pretty upset to find out that one major news organization is playing a bigger and bigger role in shaping their childen’s education. And they could well become livid if they learned that this media influence in the schools is growing even as scholars in the relevant field are concluding that much of the material being propagated is bunk.

Yet that’s exactly what’s been happening with The New York Times1619 Project. As I reported in a post last year, the project, named after the year the first black African slaves were brought to North America, seeks to [its words] “reframe the country’s history, understanding 1619 as our true founding, and placing the consequences of slavery and the contributions of black Americans at the very center of the story we tell ourselves about who we are.” The Times‘ reason for undertaking this effort? Its conclusion that “our story” as a nation hasn’t been told “truthfully.”

As I explained last year, the big problem with the 1619 Project isn’t that reconsideration of any aspect of U.S. history (or any history) should be beyond the pale, but that a news organization like The Times has no qualifications to undertake this task. Even more troubling: The Times lately has endorsed the view that it should act like a news organization with a substantive agenda, or several of them. And one of them is writing “about race and class in a deeper way than we have in years” because “America [has] become so divided by Donald Trump.”

Now confirmation has just emerged making clear that this bias has significantly infected the 1619 Project, and it comes not only from the ranks of America’s academic historians, but from historians with decidedly progressive views. Their case was summarized (at length) by Sean Wilentz of Princeton University, who concluded in a piece in The Atlantic (itself a pretty progressive publication) that although the role of slavery and racism in American history “remains too little understood by the general public,” The Times in many cases sought to fill the gap “through falsehoods, distortions, and significant omissions.”

What’s arguably worse, as Wilentz’ account makes clear, The Times not only blithely brushed off all of the historians’ critique. It doubled down on its propagandizing.

And here’s what’s clearly worse: The paper’s efforts to introduce this shoddy excuse for scholarship into school curricula have been succeeding. According to this report, 1619 Project materials are now being used or will soon in school systems in Chicago; Newark, New Jersey; Washington, D.C.; and Buffalo, New York. A New York City school is teaching with the Project as well, And The Times is working with an important ally – the Pulitzer Center on Crisis Reporting, which has produced a variety of “curricular resources,” including “a reading guide for the issue, activities to engage students, and more.

It’s bad enough that American journalism keeps spewing out Fake News. It now needs to be spreading Fake History? And the nation’s schools need to be swallowing it?

Im-Politic: How Trump is Letting the China Virus Crisis Go to Waste

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As tragic as the coronavirus has been for victims in China and elsewhere and their loved ones, both the humanitarian and the Machiavellian in me can’t help but think that President Trump is squandering some great and closely related opportunities being created by the outbreak.

To be sure, the President hasn’t completely ignored the disease. He tweeted yesterday that “China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!.”

He stated at a January 22 press conference at the big global economy conference in Davos, Switzerland that the U.S. government has a plan to contain the virus in the United States. The federal Centers for Disease Control and Prevention (CDC) and National Institutes of Health say they’re working on a cure – in tandem with the U.S. pharmaceutical industry.

But given that the United States is the world leader in medical research, and given that the President has just (justifiably) eaten China’s lunch with the new Phase One trade deal, it seems like much more could and should be done, and in a much higher profile way.

For example, the President, who isn’t shy about broadcasting his achievements and intentions, should announce that’s he’s directing federal research agencies to treat the coronavirus threat as a top priority, as well as seek a similar commitment from U.S. medical schools and drug companies. And how about a summit of American medical research leaders from the public and private sectors to brainstorm both on addressing the present danger and the overall growing threat of pandemics resulting from the ever smaller world being created every day by increasing worldwide commerce and travel?

In fact, why even restrict this meeting to American participants? The President should think about either inviting their foreign counterparts to the session as well, or to a follow-up meeting.

That’s what my humanitarian instincts tell me.

And my more political self? It would advise the President explicitly and publicly to offer his buddy, Chinese leader Xi Jinping, whatever assistance the Chinese need. For good measure, he should propose sending a team of American scientists and public health experts from the government and private sector to China to assess the situation first-hand (including the status of the disease and China’s progress in combating it) and develop recommendations to improve the Chinese response.

Clearly, these actions would serve humanitarian ends. But they would also put Beijing’s dictators in quite the pickle. Right after having their clocks cleaned in the trade negotiations, they’d be put in a position of accepting American help (which would involve a huge loss of the face so critical in Chinese culture), or declining assistance (which can only further anger a Chinese public that’s already not thrilled with the crisis management skills of either the central government or local officials). In other words, either way, the United States scores political points with public opinion both worldwide and in China in particular.

Meanwhile, no one could legitimately criticize Mr. Trump for declaring that all agriculture imports from China are being banned, since the CDC admits that, although it lacks “any evidence to suggest that animals or animal products imported from China pose a risk for spreading 2019-nCoV [the technical name for the virus in question] in the United States,” that “This is a rapidly evolving situation.”

It’s become a well-worn cliché that the Chinese word for “crisis” combines the characters for “danger” and “opportunity.” But even though this specific claim seems questionable at best, the underlying idea and logic are compelling, and need to be applied to U.S. coronavirus policy liji (Chinese for “immediately”).  There’s no excuse, to quote former Chicago Mayor Rahm Emanuel, for letting the opportunity go to waste.

Our So-Called Foreign Policy: The Ukraine Mess that Really Counts

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Ever since U.S.-Ukraine relations became front-page news as Russia began its military and paramilitary campaign against the former Soviet “republic” (and cradle of Russian civilization), and especially ever since American Presidents and lawmakers have sought to help Kyiv resist, I’ve been writing that whatever emotions this struggle stirs, U.S. leaders have never viewed Ukraine’s security as a remotely vital interest of the United States – and with good reason.

Located right on Russia’s doorstep, the country is impossible to defend without using nuclear weapons (and thus running the risk of nuclear war), and its multi-decade span under the Soviet thumb never had the slightest impact on America’s safety, independence, or well-being. Indeed, even a card-carrying globalist like former President Barack Obama has stated that precisely because Ukraine is a core interest of Russia’s but not of the United States, it’s “going to be vulnerable to military domination by Russia no matter what we do.”

These observations have seemed especially important in recent months, as backers of impeaching President Trump have strenuously argued to the contrary. Indeed yesterday, in his formal presentation at Mr. Trump’s Senate trial, House Intelligence Committee and lead House Impeachment Manager Adam B. Schiff once more joined the chorus that has raised the stakes of protecting Ukraine considerably higher. The California Democrat endorsed a claim that Ukraine’s takeover by Russia would directly threaten America’s allies in the rest of Europe, and indeed, the U.S. homeland itself.

Quoting a previous impeachment witness (and eerily echoing a major argument for continuing to fight endless wars in the Middle East), Schiff declared, “The United States aids Ukraine and her people so that they can fight Russia over there, and we don’t have to fight Russia here.”

Not that Schiff nor any impeachment supporters my research has come across has ever called for the logical – indeed, the essential – follow-on to their Ukraine analyses (urging the permanent stationing of major American military units on Ukraine soil to deter the Russians.  And not that they’ve supported the Pentagon budget increases needed to deploy these forces without cannibalizing other missions). So it’s reasonable to conclude that their words amount to just so much bluster (and possibly Trump Derangement Syndrome).

At the same time, it’s important to note that there’s been no shortage of statements by Mr. Trump’s predecessors (including Obama) that draw connections between Ukraine’s fate and America’s.

For example, George W. Bush was a strong supporter of bringing Ukraine into the North Atlantic Treaty Organization (NATO). This step would legally commit Washington to come to Ukraine’s defense against outside aggression just as strongly as the United States is committed to come to the defense of France, Germany, the United Kingdom, and other European allies whose security has long been deemed vital. And in 2008, the alliance officially endorsed this goal – though without any timetable or specific plan for achieving it.

In the context of endorsing greater efforts to help Ukraine strengthen its defenses, Obama himself in 2014 emphasized the importance of keeping NATO “open” to “countries that meet our standards and that can make meaningful contributions to allied security.” And in the same speech, he vowed, “we will not accept Russia’s occupation and illegal annexation of Crimea or any part of Ukraine.”

Further, although President Trump hasn’t been the biggest fan of Ukraine or NATO, his administration officially has kept the membership door open to Kyiv. Just as officially, and more diisturbingly, the United States still considers Ukraine a “strategic partner” and indeed actually calls “a strong, independent, and democratic Ukraine” a “vital interest.”

The big takeaway isn’t that my prior descriptions of U.S. policy toward Ukraine were flawed. (Although they were.) Instead, it’s that support for bringing Ukraine into NATO and saddling the United States with yet another security commitment it can’t meet without incurring the risk of nuclear attack is strong in both the Democratic and Republican wings of the intervention-happy, globalist foreign policy establishment. And unless the presidency continues to be held by leaders with powerful America First-type instincts, this Blob’s dangerous ambitions could well become reality.

Im-Politic: Media Bias Even in Impeachment Trial Basics

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Charges of media bias are so common nowadays that their simple volume can undercut their credibility. But at least from time to time some such instances are so flagrant that they should generate condemnation across the political or ideological spectra, and the latest came yesterday on the Washington Post website’s home page.

It’s no longer on-line (and didn’t appear in print), but it consisted of capsule descriptions of the House’s impeachment managers and Trump legal team, and I was so offended that I made sure to copy them as soon as I saw them. Here they are, starting with the managers (and they are indeed worth presenting in full):

Rep. Adam B. Schiff: “The California Democrat is known for distilling complicated subjects clearly and having a willingness to go after Trump’s soft spots.”

Rep. Jerry Nadler: “The New York Democrat leads the committee traditionally in charge of impeachment and shepherded the articles through Congress.”

Rep. Zoe Lofgren: “The California Democrat, who is serving her 13th term, is one of the most experienced members of Congress on impeachment.”

Rep. Hakeem Jeffries: “House Speaker Pelosi described the New York Democrat as ‘an accomplished litigator in private practice’ before seeking office.”

Rep. Val Demings: “The Florida Democrat was the first female police chief in Orlando, and Pelosi cited her law enforcement background as a strength.”

Rep. Jason Crow: “The Democrat from Colorado served as an Army Ranger and was partner in a law firm in Colorado.”

Rep. Sylvia Garcia: “The first-term Texas Democrat was a municipal judge in Houston and was one of the first Latinas elected to Congress from Texas.”

And here are the descriptions of the Trump team:

Pat Cipollone: “Republican lawmakers have described Cipollone as the ‘quarterback’ for Trump’s: legal strategy.”

Jay Sekulow: “Sekulow is the leader of the president’s personal legal team and he represented Trump during special counsel Robert S. Mueller III’s Russia investigation.”

Ken Starr: “Starr is the independent counsel who investigated President Bill Clinton.”

Alan Dershowitz: “Dershowitz is the Harvard Law emeritus professor who advised the defense team in football star O.J. Simpson’s murder trial.”

Pam Bondi: “Bondi was the attorney general in Florida for eight years and has a number of ties to Trump.”

Robert Ray: “Ray is the former independent counsel, replacing Starr in October 1999, who oversaw the agreement with Clinton that averted a possible criminal trial.”

Pat Philbin: “Philbin is Cipollone’s right-hand man, his most senior deputy in the White House’s legal office.”

Michael Purpora: “Purpura took the lead on battling to prevent White House grand jury testimony from the Mueller investigation from being made public.”

You see the pattern here? Of the Post‘s seven House manager blurbs, four (those for Schiff, Lofgren, Jeffries, and Crow) contained flattering value judgments. And the favorable Crow description included experience that’s of course impressive militarily, but completely irrelevant to the impeachment trial, or any legal matters.

Of the seven Trump lawyer blurbs, none contained a flattering value judgment and three contained references arguably aimed at sliming their subjects (the link drawn between Dershowitz and O.J. Simpson; the observation of Bondi’s (unspecified) “ties to Trump”; and Purpura’s role in what’s all but dismissed as a cover-up.

As for Cipollone and Purpora and Philbin, it would be easy for Post readers to conclude from these otherwise straight factual portrayals that their careers have included no positions of consequence other than their Trump White House jobs – even though the first served as a senior aide to then Attorney General William P. Barr during the administration of George H.W. Bush (no fan of Mr. Trump’s); the second worked as a senior Justice Department official during the administration of George W. Bush (no Trump enthusiast, either), as well as a federal prosecutor in New York; and the third held jobs in Justice’s chain of command under Bush 43.

Everyone should be free to believe that the House managers are mainly legal eagles and/or paragons of virtue and even heroism, and that the Trump legal team is dominated by mere Trump flunkies. But such views don’t bear the slightest resemblance to facts, and if a newspaper fails to  keep this distinction straight for what should be a relatively uncontroversial informational feature, why should anyone trust it on anything less cut and dried?

(What’s Left of) Our Economy: U.S. Manufacturing’s Not Only Decoupling from China

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The Commerce Department’s GDP-by-Industry series is almost always overlooked by followers of the economy, and partly that’s the Commerce Department’s fault. Its updates are invariably a quarter behind, so it’s what analysts call a (seriously) lagging indicator that says relatively little about the more important question of what’s in store.

Nonetheless, even when they’re lagging, distinctive and detailed indicators can clarify long-term trends considerably, and that’s why I like GDP-by-Industry and track it so closely. Because it sheds lots of light on some of the most important economic and trade-related issues of the day – and especially on the impact of President Trump’s tariff-heavy policies. Specifically, the latest set of figures, which were issued January 9, reveal that during the Trump administration, the United States has continued to progress toward the worthy goal of reducing domestic manufacturing’s dependence on imports (and especially imports from increasingly hostile countries like China) for acceptable levels of growth. 

In other words, the People’s Republic isn’t the only country from which American manufacturing is decoupling. 

According to the new data, the latest year-on-quarter results show that between the third quarter of 2018 and the third quarter of 2019, U.S. manufacturing output (measured according to a gauge called gross value added) increased by 1.21 percent. That’s not much. But the manufacturing trade deficit during this period rose by only 2.55 percent. (Both figures are in pre-inflation dollars, because inflation-adjusted manufacturing trade figures aren’t available.)

Although this growth rate is lower than that achieved between the second quarter of 2018 and the second quarter of 2019 (2.03 percent), that figure was accompanied by a much faster increase in the manufacturing trade deficit (7.83 percent). The first quarter to first quarter results? Manufacturing production growth of 2.76 percent, and manufacturing trade deficit increase of 1.29 percent. That is, manufacturing output actually grew faster than the trade deficit. So from that standpoint, the third quarter result are disappointing.

They look even more disappointing when compared with the results from the first two years of the Trump administration. In 2017, manufacturing production also grew somewhat faster (3.99 percent) than the increase in manufacturing’s trade gap (3.16 percent), and in 2018, output grew much faster (6.23 percent to 3.96 percent).

These Trump presidency figures, in turn, have been much better than those reported for President Obama’s administration. Once the current economic recovery entered a normal phase (2011), the manufacturing trade deficit grew much faster than output ever year except for 2013.

So what’s the case for the latest third quarter 2018-third quarter 2019 figures representing continued progress? And why should anyone be happy with 1.21 percent annual manufacturing output growth no matter what’s happening on the trade deficit side?

Two answers suggest themselves. First, since the President began imposing tariffs in earnest (essentially, in April, 2018), importers have been “front-running” their purchases from abroad.  Their efforts to secure these deals before various sets of tariffs kicked in has produced several short-term distortions in the trade deficit in particular. Second, since the spring, Boeing’s safety woes have exerted a major drag both on domestic manufacturing output and on industry’s trade performance – since the aircraft giant has long been America’s leading exporting company.

Just one example of the difference Boeing has made: Between the third quarters of 2018 and 2019, the U.S. civilian aircraft trade surplus dropped from just under $10 billion to just under $6.5 billion. Civilian aircraft is of course the product category containing Boeing’s troubled 737 Max jet, and the plane was grounded worldwide, or banned from many national airspaces, starting in March.

The relationship between trade balances and production is never one-to-one, especially over relatively short time frames. And the matter becomes more complicated in sectors like aircraft, with its long lead times and generally large backlogs. But it’s difficult to believe that the 737 Max crisis and the narrowing of the aircraft trade surplus hasn’t impacted American civilian aircraft production and exports at all. (In fact, between those two quarters civilian aircraft exports, which are strongly related to output levels, sank by $2.75 billion, or nearly 22 percent.)

Moreover, for the purposes of comparing manufacturing output growth and the manufacturing’s trade deficit growth, the aircraft troubles are significant. Had the category’s trade performance simply remained the same between the third quarters of 2018 and 2019, the trade shortfall would have increased not by 2.55 percent, but 1.25 percent – less than half the rate. As result, during that period, manufacturing’s output (1.21 percent) and trade deficit would have grown at very nearly the same pace.

What does the future hold for this key ratio? On the one hand, civilian aircraft production is bound to decrease for the foreseeable future due to the 737 Max production halt announced by Boeing in mid-December. On the other, numerous signs indicate that industry overall has come out of the recession that dogged it for much of the last year and a half (and that by some output measures, never happened at all). Moreover, the Phase One trade deal signed by the United States and China last week could well reduce at least some of the tariff-related uncertainty that’s clearly slowed manufacturing-heavy capital spending decisions by American business in general, and certainly in manufacturing itself.

That looks like a modest case for domestic manufacturing continuing its longer term trend of becoming more self-sufficient while growing adequately – a development that makes major sense in a world that’s far more uncertain.

(What’s Left of) Our Economy: Let’s Get Real When Criticizing Trump’s China Trade Deal

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Of all the desperation- and Trump Derangement Syndrome-fueled arguments used to disparage the President’s new “Phase One” trade deal with China, one stands out as especially silly. It’s the complaint that the agreement hasn’t secured Beijing’s agreement to change its laws permitting the various predatory trade and broader predatory commercial practices that China is using to seize world leadership in key advanced industries and technologies, or otherwise promise verifiably to halt them. (Senate Democratic leader Charles Schumer of New York has been particularly outspoken on this point.)

And the complaint isn’t silly simply because the very title of the deal – Phase One – makes completely clear that it was never meant to once and for all solve all the grave problems that Chinese predation has created. It’s mainly silly for two reasons. First, the absence of anything remotely resembling rule of law in China means that Chinese promises to change laws and regulations and even actions to change what’s on paper could not be less important.

For China’s system is based on the arbitrary exercise of power  That is, by definition, its dictators and the bureaucracies they run feel absolutely no obligation to adhere to whatever text happens to be on paper at a given moment. In fact, one of the main purposes of publishing these fake measures is to keep outsiders ignorant of the practices both of the central government and of the various layers of sub-national government – i.e., the situation on the ground, and what needs to be done to become or remain viable in China.

Second, thanks to Phase One’s actual terms, whether the Chinese do or don’t change their laws, and even their practices, matters little now. That’s because the stiff remaining tariffs on massive amounts of Chinese goods intended for American customers effectively deny Beijing the ability to turn its technology extortion into advantages in the U.S. market – the market it needs to access and dominate in order to realize its ambitions. Indeed, the highest remaining tariffs (25 percent) penalize the very high value products targeted by the Made in China 2025 program that’s carrying out Beijing’s plans.

Moreover Phase One’s dispute-resolution and enforcement system – which ingeniously and crucially establishes a de facto American last word – goes far toward preventing China from using Made in China 2025 to turn its predation into advantages in the China’s own large market, either. If it makes the attempt, American victims can take their cases to the Washington, which enjoys broad authority under the deal to hike duties on key Chinese products even higher – and without fear of tit-for-tat Chinese retaliation. China’s only legal option is pulling out of agreement entirely – which given its continuing heavy reliance on accessing the American market, would amount to cutting off more than its nose to spite its face.

Thoughtful criticisms of Phase One have come from some quarters. Further, as I wrote in my initial assessment of the dispute-resolution system, realizing its benefits for the United States will require American leaders to show major poker-playing skills – which shouldn’t be taken for granted under the Trump administration, let alone under future Presidents. Neither development is guaranteed. But Phase One critics genuinely seeking to make certain that it works for the United States should focus on identifying actual weaknesses rather than trying to portray successes as failures.

Im-Politic: A Billionaire Candidate’s Massive Climate Change Blind Spot

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It’s now been five days since I first heard it, but I still can hardly believe my ears because this utterance might have been the single dumbest and/or most ignorant combination of positions I’ve ever heard a leading political figure make. It came from Tom Steyer during the Democratic presidential debate last Tuesday night, and even though the California billionaire’s campaign seems to be going nowhere fast as the 2020 campaign nears its primary phase, it deserves to be spotlighted.

The first of the two statements in question? Steyer’s declaration that “On the first day [of his presidency], I would undo Mr. Trump’s [China] tariffs.” The second? “…I would declare a state of emergency on day one on climate.”

Why is this so mind-boggingly idiotic? Because as should be known by anyone who thinks he or she is qualified to be President, not only has China become by far the world’s largest emitter of the greenhouse gases held to be responsible for climate change, but as shown in the left-hand chart below, it started becoming an emitter in a class by itself at the turn of the century – i.e., right about the time when it was admitted into the World Trade Organization (WTO). And the most important effect of WTO admission was greatly complicating the challenge faced by all the world’s economies – including America’s – in using tariffs to curb the growth of China’s subsidy-fueled carbon-belching export-heavy industries. 

We don’t yet have data for 2019, but the chart also shows that the growth of China’s emissions began to slow (though they’re still growing faster than anyone else’s except India’s) as China’s economic growth (which has always been export-heavy) began slowing. Moreover, over the last year, as literally hundreds of billions of dollars worth of Chinese goods intended for U.S. markets have been hit by President Trump with stiff tariffs, China’s growth hit a 29-year low. Think that’s a coincidence? Think again, as between 2018 and 2019, China’s annual export growth crash dove from 9.9 percent to 0.5 percent in U.S. dollar terms. (The right-hand chart, which measures emissions on a per capital basis, displays similar trends.) 

There’s nothing of course intrinsically wrong with Steyer’s passionate belief in the need to combat climate change. But his utter failure to recognize China’s immense contribution to the danger he sees makes embarrassingly clear – to put the kindest interpretation on the matter – that his knowledge base lags far behind his emotions. To the extent that other high profile climate activists repeatedly let China off the hook as well, they deserve the same criticism. And if this massive blind spot (or delusion) casts big-time doubt on Steyer’s qualifications to be President (which it should), it should have the same effect on all the other climate change resisters who display this shortcoming, too.

Making News: A Washington Post Cite on Manufacturing, China Trade Deal Interviews…& More!

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I’m pleased to report that I got quoted in this morning’s Washington Post on the new Federal Reserve industrial production figures (released yesterday).  Reporter Heather Long mentioned my observation that U.S. domestic manufacturing’s recent recession seems to be over.  She could have also noted the evidence I’d presented indicating that this slump never even happened, but what the heck.

Also yesterday, I was interviewed on “Market Wrap with Moe Ansari” on the new trade deal President Trump has signed with China.  You can listen to the podcast at this link;  my segment begins just after the 27-minute mark.

That same day, Breitbart.com‘s John Carney gave me a very nice shout-out in his very important piece noting new research showing that he (and I) have been right all along about the Trump trade wars having minimal-at-best effects on prices for consumer goods.  Incidentally, Post reporter Heather Long also deserves much credit for first reporting these academic findings.  Read the piece here.

On Thursday night, the U.S.-Israeli TV network i24News also interviewed me on that “Phase One” China trade deal.  To watch the interview, click here and download the file.  As usual with i24News, be sure to download the link within a week, because after that, your freebie access will be gond.

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

 

(What’s Left of) Our Economy: Manufacturing’s (Latest) Recession Looks Like It’s Over

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Let’s do something a little different this time in RealityChek‘s monthly examination of the Federal Reserve’s latest domestic U.S. manufacturing output figures – which came out this morning and bring the story through December and therefore through full-year 2019 (at least preliminarily).

Instead of focusing on the industries most seriously affected by President Trump’s tariff-heavy trade policies (mainly the metals tariffs, given big measurement problems with the China duties), let’s look at the question of whether manufacturing remains in recession – which has big, trade war-related implications because this Trump campaign is widely blamed for many of manufacturing’s recent weakness.

There’s considerable evidence that the answer is “Yes” – that industry’s inflation-adjusted production (the measure used by the Fed) is back in growth mode, though just barely.

But the question remains an open one. That’s partly because the answer depends on which baseline date you use for the start of the manufacturing recession, which unit of time you use (along with which particular manufacturing output gauge you favor).

Among that evidence tilting toward “Yes” – today’s Fed data.  Specifically, December’s 0.16 percent monthly increase in constant dollar manufacturing output means that, since June, such production is up. Now it’s only up by 0.04 percent. But since that’s a cumulative increase over the last six months (i.e., two consecutive quarters), the technical definition of recession no longer applies.

Or does it? The same Fed figures show that, between December, 2018 and December, 2019, after-inflation manufacturing output was down – by 1.26 percent. So the recession is still on, right?

Maybe. But use another baseline – April, 2018. As RealityChek regulars know, that’s the first full month in which significant Trump tariffs went into effect (on imports of aluminum and steel). Since then, though, price-adjusted manufacturing production has grown by 0.38 percent. This result, therefore, indicates that, although the President’s trade policies seem to have delivered a hit to domestic manufacturing, it was pretty negligible, and it’s already over (at least for now).

To complicate matters still further, as RealityChek reported last July, according to the Fed’s figures, manufacturing has suffered several recessions since the current economic recovery began (in the middle of 2009).  Indeed, as of this morning, it  still hasn’t recovered from the Great Recession that began at the end of 2007!

At the same time, another set of U.S. government data support the conclusion that there has been no trade war-related manufacturing recession during the Trump years – or manufacturing recession of any kind.

These statistics come from the Commerce Department’s “GDP [Gross Domestic Output] by Industry” reports. They use the same measure used by the Fed for tracking manufacturing growth (or contraction), but they’re kept on a quarterly, not monthly, basis. As a result, these numbers aren’t issued as frequently.

Yet the latest results came out January 9, and although they stop at the third quarter of last year, they show that in real terms, domestic manufacturing under Mr. Trump never shrank on net for two straight quarters, much less over any longer time frame. Here are the quarterly change figures:

2Q 16-1Q 17 :+0.32%

1Q 17-2Q 17: -0.7%

2Q 17-3Q 17: +0.35%

3Q 17-4Q 17: +1.22%

4Q 17-1Q 18: +0.38%

1Q 18-2Q 18: +0.09%

2Q 18-3Q 18: +1.38%*

3Q 18-4Q 18: +0.38%

4Q 18-1Q 19: +0.43%

1Q 19-2Q 19: -0.38%

2Q 19-3Q 19: +0.67%

*those Trump metals tariffs began in this quarter

Indeed, what comes through loud and clear from them is that not only has there been no manufacturing recession on President Trump’s watch, but there hasn’t even been an output slowdown.

It’s always possible to point to the counter-factual – that is, in this instance, to try to figure out how matters would look without any Trump tariffs, or similar Trump efforts to transform U.S. trade policy. And it’s certainly conceivable that domestic industry would have fared even better had Trump abjured all tariffs.

But that’s not the only counter-factual. For example, what if the rest of the world had been able to deal with the pressure created by China’s steel dumping by dumping its own steel into the United States (which hasn’t happened because the Trump metal tariffs were global)? What if China itself had remained completely free to send artificially low-priced (because heavily subsidized) product into the US market? What if President Trump had kept the United States in the Trans-Pacific Partnership trade agreement (TPP), with its wide open back door for imports with lots of Chinese content, while China remained under no obligation whatever to open its market to U.S. products? It’s easy to see that U.S.-based manufacturing could have gone on the critical list.

What’s certain, however, is that according to the most authoritative data available, claims of tariffs-led disaster for U.S. manufacturing have been either much ado about nothing, or much ado about very little. Could the coming months finally bear out the worst fears of cheerleaders for pre-Trump trade policies and other globalists? Of course. But that’s simply speculation, which counts much less than facts.