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

Tags

CDC, Centers for Disease Control and Prevention, China, China trade deal, China virus, coronavirus, Im-Politic, National Institutes of Health, pandemics, pharmaceuticals, Phase One, Trump, Wuhan, Wuhan virus, Xi JInPing

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.

Making News: Talking China Trade Deal with Jersey Joe, John Batchelor…& More!

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AlphaWeek.com, America First, Breitbart News Tonight, Breitbart.com, China, economic nationalism, energy, enforcement, Gordon G. Chang, IndustryToday.com, Jersey Joe, Joe Piscopo, John Carney, Making News, Middle East, Phase One, Populism, RealVision.com, tariffs, The Epoch Times, The Joe Piscopo Show, The John Batchelor Show, trade deal, trade deficit, Trump

I’m pleased to announce that I was interviewed this morning on the new U.S.-China trade deal on “The Joe Piscopo Show” on New York City’s AM 970 The Answer radio station.  Sorry that I could only give limited advance notice, but the podcast is on-line already!  Special bonus:  Jersey Joe and I also dealt with the Major League Baseball cheating scandal, too!

In addition last night, I was back on John Batchelor’s nationally syndicated radio program to discuss the so-called Phase One agreement with John and co-host Gordon G. Chang.  You can listen to the podcast here.

Tuesday night, I was interviewed on a wide range of foreign and domestic issues on “Breitbart News Tonight.”  Click on this link and scroll down till you see my January 14 segment.

The Breitbart.com folks were also kind enough to write up some portions of this segment in website items here and here.

On Tuesday, meanwhile, Breitbart‘s excellent economics and finance editor John Carney quoted me in his detailed analysis of the latest U.S. government report on consumer prices – which reveals whether the Trump trade wars have sparked any meaningful inflation.  You can read it at this link.  (Spoiler alert for everyone who hasn’t been paying attention to RealityChek‘s own coverage of this issue:  They haven’t.)

Meanwhile, The Epoch Times has quoted my views recently on energy security and what it means for America’s policy in the hopelessly dysfunctional Middle East, and on the progress made in reducing the U.S. the trade deficit.

On January 6, IndustryToday.com re-published – at this link – my recent blog post on the latest data undermining the claim that President Trump has betrayed his working class and middle class voters.  (Another spoiler alert:  These data indicate that he hasn’t.)

Finally, on January 2, the popular finance website AlphaWeek.com posted the video of my December RealVision.com interview on the virtues of an America First approach to U.S. foreign and trade policy – and whether Mr. Trump’s measures fit the bill.  Catch it here.

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

 

 

 

(What’s Left of) Our Economy: The Case that Phase One Passes the Enforceability Test

Tags

China, enforcement, Phase One, tariffs, Trade, trade deal, trade talks, Trump, unilateralism, {What's Left of) Our Economy

Not only has the “Phase One” trade deal now been signed by the United States and China, but official texts have now been released. And my initial read indicates that the Trump administration just might have come up with an effective enforcement regime – though success here will depend on U.S. governments (including this one) displaying nerves of steel.

At the same time, the enforcement terms raise the question of why the President felt the need to reach this point via a treaty, rather than simply punish China unilaterally for economic transgressions – as his tariffs on hundreds of billions of dollars worth of imports from the People’s Republic (most of which remain firmly in place) already accomplish.

By way of background, from the beginning, I’ve doubted that any such agreement could be adequately verified from the U.S. standpoint. The main reasons: The bureaucracies China uses to implement the various features of its trade and broader commercial predation are too big and secretive for any outsider to monitor in any meaningful sense. (Further complicating matters – many of the worst culprits are provincial and city governments.) Therefore, documenting abuses in any kind of detail – or verifying any Chinese promises of structural change – has looked like an insurmountable obstacle to standard, legalistic dispute-resolution systems that could actually work satisfactorily for American plaintiffs.

As a result, I’ve argued that the best way to handle these transgressions is for the U.S. government to impose sweeping tariffs on China (because its predation is a systemic plan, not the product of individual entities’ decisions), and to deal with additional, individual complaints by acting as judge, jury, and court of appeals. And because of my conviction that the United States holds the clear upper hand in its relations with China, I saw no need to permit any Chinese involvement in these processes.

The Phase One deal certainly can’t be relied on to eliminate or even reduce Chinese opacity. But the way the treaty reads, it doesn’t need to. The key appear to be these passages (on page 7-3), which set out the procedures to be followed if the United States and China can’t, after a series of meetings and “consultations” agree on resolving a complaint. Here’s the first:

“…the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship.”

“Remedial measures” clearly means punitive tariffs, and just as clearly, they can unilaterally applied.

It’s true, as some trade policy critics have fretted, that the agreement gives the Chinese the same rights – as well as the option of retaliating if Beijing believes the United States has been acting in “bad faith.”

But here’s where the nerves of steel come in. The retaliation that’s permitted isn’t tit-for-tat – as in the case of World Trade Organization (WTO) rules. Indeed, even challenging such retaliation isn’t allowed – a right that can always frustrate justice by delaying it. Instead, the retaliation required is no less than exiting from the entire deal. The system can work in America’s favor if U.S. leaders either display confidence that China won’t take such a dramatic step (because the export-heavy Chinese economy still needs the American market much more than vice versa), or if they resolve to tariff China heavily if this U.S. bluff is called.

Incidentally, the language also makes clear that, in order to go ahead with tariffs, Washington won’t need much evidence any kind of Chinese failure to respond adequately to complaints. In fact, no meaningful evidentiary standards are specified at all. In other words, it’s entirely up to the United States to decide on the threshold for action.

Can China take advantage of the same provisions? In theory, yes. But nothing in the deal would prevent the United States from treating as treaty violations any Chinese complaints it regards as unmerited – and credibly threatening to retaliate by withdrawing unless Beijing backs down.

The deal also could well prevent a big potential problem from emerging – fear of Chinese retaliation (which itself might be tough even to identify because of Chinese bureaucratic secrecy) by U.S. victims of Chinese predation (and especially by victims that are operating in China). Such fears have prevented many of these victims from complaining publicly about Chinese abuses in the first place.

But the text on pages 7-2 and 7-3 appear to permit Washington to keep the name of the plaintiff’s business confidential. So, at least in theory, problem preempted.

As suggested above, however, the deal looks so promising, and permits so much implicit U.S. unilateralism, that it’s difficult to understand why President Trump decided to proceed bilaterally t begin with. Was he worried about being criticized for being reckless and not going the extra mile to deal with the Chinese respectfully and accommodate their legitimate concerns? Perhaps. But I strongly suspect that, at least if the agreement works out as I expect, he’ll face such accusations anyway. And by negotiating, he’s lost precious time to provide tariff relief for U.S.-based producers who need it, and to permit other companies to adjust their supply chains to a new tariff-heavier era sooner rather than later (and to make adequate progress well before November, 2020).

Clearly, however, the negotiating train has left the station. And between this effective enforcement system, Chinese promises of big import increases from the United States, and steep tariffs remaining on most imports from China (which cope with the systemic issue), it looks like a major and important economic and political win for a self-proclaimed master negotiator, and the entire domestic economy – if he makes full use of it.

(What’s Left of) Our Economy: U.S. After-Inflation Wages Could Still Use More Inflation

Tags

Barack Obama, election 2020, inflation-adjusted wages, manufacturing, private sector, real wages, recovery, Trump, wages, {What's Left of) Our Economy

This morning’s real wages figures from the Labor Department (for December) contained an unusually diverse grab bag of results, and with a presidential election year now officially underway, perhaps the most newsworthy are those that could well affect the race for the White House – and which on balance seem unfavorable to President Trump.

In addition, though, some other results undermine a major belief about how after-inflation paychecks have fared during the current (record length) economic recovery versus its two immediate predecessors.

Not that the news was all bad for the President and his supporters (and anyone else rooting for a stronger American economy). Yes, overall, inflation-adjusted wages in the private sector dipped sequentially for the second time in three months – by 0.09 percent. (The Labor Department doesn’t track real public sector wages because their trends say more about politicians’ decisions than about economic fundamentals).

But if these preliminary figures hold tightly enough, the 2019 year-on-year improvement of 0.64 percent will be higher than 2018’s 0.56 percent increase.

At the same time, wage growth decelerated throughout 2019 – from 0.37 percent between January and June to 0.27 percent between June and December.

Real manufacturing wages fared better, continuing a year-long trend. Month-to-month in December they climbed by 0.18 percent, and their year-on-year increase and improvement were stronger than that of the private sector, too. The latest annual rise was 0.74 percent – up from the previous year’s flatline. And throughout 2019, they increased at the same 0.37 percent rates during both halves of the year.

But the results were less encouraging for non-supervisory workers in both the private sector overall and in manufacturing. By certain measures, paychecks for the lowest paid U.S. workers have been improving faster than those for the workforce overall. And using the Labor Department’s methodology of distinguishing supervisory from non-supervisory workers provides some support for that finding.

For example, on an annual basis, in 2019 and 2018, inflation-adjusted wages increased faster for both non-supervisory manufacturing and blue-collar workers than those wages for all workers, as shown here:

                                     Total private     N/S private     Total mfg      N/S mfg

Year-on-year, 2019:         +0.64%           +0.75%          +0.74%        +0.45%

Year-on-year, 2018:        +0.56%           +1.63%                0%          +1.14%

Yet the table also shows 2018-19 deceleration for both groups.

Moreover, on month in December, real wages for these blue-collar workers performed worse in absolute terms than for all private sector and manufacturing workers – actually falling by 0.21 percent for the former (the biggest decline since October, 2018’s 0.22 percent drop) and increasing by just 0.11 percent for the latter.

And deceleration continued through the year. Between the first and second halves of 2019, constant dollar wages increases for the private sector fell from 0.53 percent to 0.21 percent, and from 0.23 percent to 0.22 percent for manufacturing.

The impact of Boeing’s safety-related woes on aircraft manufacturing per se and on the company’s huge domestic supply chain could explain some of these disappointing figures for industry. But so could the uncertainties created either by Mr. Trump’s tariff-centric trade policies, or by their ragged implementation, or both. Further, as the numbers indicate, real wage weakness isn’t simply a manufacturing problem.

Perhaps most important for Mr. Trump, real wages’ performance during the first 34 months of his term in office (starting with February, 2017, his first full month), have lagged their increases during the most comparable period in Barack Obama’s presidency – his last 34 months in office (ending in January, 2017). Here are the results:

                                       Total private      N/S private      Total mfg        N/S mfg

1^st 34 Trump months:         +2.53%           +2.72%           +0.65%          +2.77%

last 34 Obama months:      +3.50%           +3.97%          +3.05%           +2.97%

Finally, the new real wages data show that when it comes to this gauge, the current economic recovery stacks up unexpectedly well with the two previous expansions where a reasonable amount of statistics exist – for non-supervisory workers. The comparison is especially striking between the current expansion and the 1990s expansion – which is widely viewed as an excellent one for both the economy and America’s employees.

                                                               Private    N/S private    mfg     N/S mfg

1990s expansion (2Q 91-1Q 01):             n/a           +6.37%       n/a      +2.18%

bubble expansion (4Q 01-4Q 07):           n/a            +0.35%       n/a      -2.77%

current expansion (2Q 09 – present):  +6.30%        +6.79%   +1.59%   +3.01%

Unfortunately for President Trump and Trump-ers, though, this longer-term picture isn’t likely to impress voters as much as more recent developments. And when it comes to workers’ after-inflation wages, he clearly has more work to do.

Making News: Speaking at a D.C. Conference Today on Antitrust and Trade Policy

Tags

antitrust, competition, free trade, globalization, Im-Politic, monopolies, monopoly, The American Conservative, The American Prospect, Trade

I’m pleased to announce that I’m scheduled to speak this morning at a conference in Washington, D.C. on the increasingly weird relationship between American trade policy and American antitrust policy.

The overall event focuses on the troubling rise of monopolies and oligopolies in general in the U.S. economy in recent decades, and is co-sponsored by The American Conservative and The American Prospect – two magazines pretty far apart on the political spectrum.  My own presentation will draw on my article earlier this year on the subject in the summer issue of American Affairs.  (Yes, yet another political publication!).

If you live in the D.C. area, the event will be taking place at the National Press Club downtown starting at 11 AM.  If not, I haven’t yet found anywhere where the conference can be seen live on-line.  But if I do before I actually mount the rostrum, I’ll try to send it out.  And of course, once a link to any video is posted, I’ll let you know ASAP.

In the meantime, wish me luck, and keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Can Free Trade Nowadays Really Maximize Global Well-Being?

Tags

China, East Asia, economics, free markets, free trade, globalization, Trade, {What's Left of) Our Economy

As nearly every economist worth their salt can tell you, as far as their profession is concerned, the prime end goal of liberalizing global trade as completely as possible is maximizing the entire world’s economic well-being. And theoretical, purely economic criticisms of the freest possible global trade have been dominated by questioning whether efforts to achieve this goal have truly have kept this promise, or are capable of doing so.

I don’t mean to minimize the importance of this debate, or others focusing on related but distinctive issues bringing into play non-economic considerations – like whether trade and broader economic policies need to broaden their definition of well-being to include goals like increasing feelings of happiness and security, or like fighting climate change and other threats to the environment, or like preserving America’s national security, or like ensuring that the economic well-being being created is more equitably shared.

But these days, it seems that American policymakers in particular need to ask themselves a more fundamental question: Assuming the goal can be reached, is the greatest possible worldwide economic (that is, material) well-being actually a goal that the global trading system should be trying to reach? And all peoples and governments of good will, not simply the United States, have a vital stake in figuring out the right answer – especially if they place noteworthy value on free markets.

The presence of the word “governments” in the previous sentence points to a central complication that the welfare-maximizing enthusiasts seem to be missing.

Specifically, no one of good will could reasonably oppose maximizing the economic welfare of all the world’s individuals (assuming, of course, that whatever non-economic challenges caused by high growth – e.g., environmental threats – aren’t ignored).

But even leaving aside strategic and national security considerations, the organization of the world’s individuals into governments creates a big problem with this objective. Specifically, many of these governments have organized their national economies in turn around principles and practices that have nothing to do not only with free trade, but with free markets or any aspect of economic liberalism themselves – the idea that individuals and other economic actors (like businesses) have the right to make the (legal) economic choices they regard as serving their own best economic and/or non-economic interests.

China is the obvious example. Its system holds that, even though at a very local or micro level, individual and other actors (because of the point I’m about to make, I’ve always hesitated to use the word “businesses” or “companies” to describe any Chinese goods- or service-producing entities) can be permitted to act on their own impulses, any such economic decisions with broader effects should be made or be subject to the control of the state. And all resources related to the economy are ultimately accountable to the state as well.

There’s no legitimate doubt that freer trade has helped lift hundreds of millions of Chinese out of poverty, and of course contributed to the economic well-being of myriad non-Chinese individuals and businesses and other entities that sell to this huge, burgeoning market, the growing prosperity of Chinese individuals. But there can also be no legitimate doubt that this free trade has also greatly strengthened a Chinese government whose practices clearly amount to a broad rejection of free trade and the rest of free market thinking.

Until now, it’s been easy to argue that whatever Beijing’s interventionist record, freeing up trade between China and the rest of the globe has improved the world’s wealth on net, even though China may have been the greatest beneficiary, and even though workers in high-income countries (to cite one prominent example) may have paid an economic price on net. 

But all this wealth creation unquestionably has strengthened this command-and-control Chinese system, its global footprint, and its influence over the world economy. If you believe in the virtues of free markets, how can this kind of development possibly keep increasing overall world economic well-being over any significant period of time (as opposed to spurring the kinds of brief boom periods that tend to become busts)? And if it can (and statist China has been a big global economic player for many years now), then maybe it’s time to rethink faith in free markets to begin with?

Of course, it’s important to keep in mind a long-time standard explanation of how China’s economic rise can be squared with support for continual global trade liberalization. It’s the confidence that more and freer trade with China will promote a liberalization of China’s domestic economy that will inevitably loosen the state’s grip trade and other foreign economic policies. But as known to anyone who’s been following China issues in recent years, Beijing has been reasserting control over much of the paltry amount of economic activity that it had previously ceded. Moreover, this trend didn’t begin with current leader Xi Jinping. So at the very least, the optimists are now under a heavy burden of proof to show that continuing to free up trade with China, or even fighting Trump-ian American backsliding, will maximize global welfare indirectly, by fostering Chinese internal economic liberalization.

Given China’s immense size, a China exception to the trade-spurring-welfare-maximization claim would be crucial enough. But it’s not just China. Economic intervention even dwarfing that practiced by the United States (including but hardly limited to the massive response to the financial crisis by the Bush and Obama administrations, and especially the still considerable stimulus supplied by the Federal Reserve) is common the world over. Gradations vary considerably, but fascinatingly, and perhaps revealingly, its strongest in East Asia, the region that, even leaving China out, almost everyone agrees has been the biggest net winner from trade liberalization going back to the early post-World War II period.

Unlike China, some of the leading East Asian beneficiaries of freer global trade, like Japan and South Korea, are U.S. security allies. But they conform with no reasonable definitions of free market systems, either. Should American policy, and the policies of other more market-oriented economies, support making these countries and their highly interventionist systems stronger, richer, and more influential as well?

China’s rise and increasingly anti-American actions on many fronts have prompted speculation that current bilateral tensions might eventually split today’s highly integrated global economy into separate, Cold War-like U.S.- and Chinese-dominated spheres. In fact, this may be a Trump administration goal. So far, this talk has emphasized the intertwined technology and national security reasons for pursuing this goal. But if free markets are all they’re cracked up to be, it may also be warranted for solely economic reasons.

(What’s Left of) Our Economy: Were the US Washing Machine Tariffs Really Failures?

Tags

consumers, Federal Reserve, General Electric, imports, jobs multiplier, large residential washers, LRWs, manufacturing jobs, metals tariffs, safeguard tariffs, South Korea, tariff-rate quota, tariffs, U.S. International Trade Commission, University of Chicago, USITC, washing machines, Whirlpool, {What's Left of) Our Economy

It’s as close to a slam dunk conclusion as can be – at least according to economists, think tank hacks, and Mainstream Media journalists: The early 2018 U.S. tariffs on large household laundry machines have been a dismal failure.

Or have they been?

The levies belong in a category different from those of the main Trump administration trade-limiting measures because they were first mandated by an independent federal agency (the U.S. International Trade Commission, or USITC) via a long-standing legal process.  And they’ve been panned for supercharging costs for consumers, and padding the profits of the domestic industry to extents that dwarfed the new production and jobs they fostered. (Here’s a typical example of the press’ evaluation, drawing on equally typical research from the venerable University of Chicago and the even venerable-er Federal Reserve.)

What has gone oddly unreported has been the verdict rendered by the USITC – which came out in August. Sure, the agency is grading itself. At the same time, it’s privy to the most authoritative data (taken from the domestic and foreign companies involved themselves), and it’s surely worth noting that the Commission paints a significantly different , and brighter, picture.

The tariffs, put in place in February, 2018, affected the nation’s total global imports of these products, but mainly impacted such “large residential washers” (LRWs) from China, Mexico, South Korea, Thailand, and Vietnam – the biggest foreign suppliers to the U.S. market. The duties’ aim: stemming a sudden surge of LRWs that injure U.S.-based manufacturers. But they don’t shelter the domestic industry forever.

After three years – the amount of time the Commission has determined these domestic manufacturers need to adjust – they’re phased out for both the final products and many of the parts covered in the “safeguard order.” In addition, consistent with their surge focus, they only apply to imports above a certain level of units – a trade curb known as a “tariff-rate quota.” In all, moreover, the ultimate objective is to give victim industries time to adjust and then stand on their own two feet. That’s why detailed adjustment plans are a condition of receiving tariff relief.

To some extent, the USITC’s judgment doesn’t contrast dramatically different from that of the tariffs’ critics. Both noted (in the Commission’s words) “generally increased prices” and “decreased imports.” The Commission, though reported some developments generally missed by the critics (especially “some improvement in the financial performance of continuously operating [domestic] producers,” and market share gains for these companies) and some given decidedly short shrift (“increased production by two new U.S. producers” – both of whose owners come from South Korea, undoubtedly because the option of supplying the American market through exports was sharply limited).

The Commission didn’t address one of the critics’ most compelling points – that the new U.S. jobs were created at a cost to consumers (via the higher prices they’ve paid) of a whopping $817,000 per job. But the University of Chicago/Federal Reserve study actually conceded that this number might be an exaggeration, since manufacturing jobs (like all jobs) create a “multiplier effect” – that is, they foster additional employment in related industries ranging from suppliers of inputs to transportation, packaging, and warehousing services. What these researchers didn’t mention is that manufacturing’s jobs multiplier is unusually high.

Moreover, like virtually all scholars of trade, tariffs, and employment, the Chicago/Fed team neglected other benefits of manufacturing job creation (and prevention of further manufacturing job loss). These include:

>avoiding the wage losses suffered by displaced manufacturing workers who find work in lower-paid industries (an especially important consideration given today’s very low overall unemployment rates)

>avoiding the revenue losses incurred by these workers’ communities and the economy as a whole due to reductions in their taxable income;

>avoiding the increased pressure on social programs required to serve employees who can’t find new jobs – which encompass not only unemployment compensation but spending that seeks to address the pathologies that often follow working class Americans’ deteriorating personal finances, like divorce, delinquency, alcoholism, and opioid and other drug use, not to mention higher mortality;

>and the costs incurred by local businesses because of worker-customers who can no longer afford as many of their products and services, which of course reduces business’ own taxable income and additionally crimps public finance at all levels. (See, e.g., this highly cited study.)

The USITC report, moreover, shed light on another big reason that the costs-per-manufacturing-job-saved might be exaggerated: Not all of the increased costs of the tariff-ed products are due to the tariffs. In particular, the Commission listed no less than 14 factors other than import competition (and the tariffs placed on these goods) that affect the prices of LRWs. They range from raw materials, transportation, and energy costs to competition levels from substitute and between domestic producers, U.S.-based production capacity, productivity changes, labor contracts, and state and local government incentives, and demand levels at home and abroad (because all the U.S.- and foreign-owned manufacturers sell all over the world). The USITC then proceeded to ask producers, importers, and purchasers (retailers) to rate the importance of these factors on prices since the tariffs’ imposition in February, 2018.

The answers were reported in table III-26, and import competition levels were anything but dominant. Indeed, their importance consistently was rated by all three stakeholder as lower or no greater than that not only of raw materials costs (higher due to entirely separate tariffs on metals that were imposed by the Trump administration) but of energy costs, domestic production capacity (surely limited over time by the previous import flood), the allocation of this production capacity to other products, productivity levels, labor agreements, transportation and delivery costs, and domestic demand levels.

And adding to the case for reducing the costs per job figure: According to the official U.S. Bureau of Labor Statistics figures, after jumping by 16.31 percent from the February, 2018 onset of the tariffs through that November, they’ve since fallen by 9.73 percent (through September).

In fact, this development leads to a major point completely missed by the tariffs’ critics. As also indicated by the phaseout schedule and the linkage of the tariffs to the submission of adjustment blueprints, the levies were never intended to produce instant results, or to furnish crutches forever. The USITC describes the implementation of these plans starting on p. IV-5 and, more revealing, presents the evaluations of the retailers – who are bound to be the most demanding judges.

The reviews are mixed, but varying numbers of these companies stated that the two domestic recipients of the tariff relief – Whirlpool and General Electric – introduced new products (the most commonly cited improvement), upgraded product quality, expanded marketing campaigns, bettered their customer service, and taken other positive steps (Table IV-2).

Will these measures prove sufficient? Even after the tariffs come off, definitive answers will prove elusive, because as made clear, the LRW trade policy picture contains so many moving parts. What does look definitive, however, is that so far, the critics have engaged in a flawed rush to judgment.

 

 

(What’s Left of) Our Economy: How Many Strikes Does Paul Krugman Get on Trade?

Tags

automation, China, China shock, globalization, hyperglobalization, Jobs, manufacturing, manufacturing employment, offshoring, Paul M. Krugman, protectionism, tariffs, The New York Times, Trade, Trade Deficits, World Trade Organization, WTO, {What's Left of) Our Economy

Contrary to what many trade mavens must think, Paul Krugman’s recent confession that he (and nearly all of his economics colleagues) have seriously misjudged the impact of international trade on America’s manufacturing workers isn’t his first. At least twice before (see here and here), this Nobel Prize-winning economist and New York Times columnist has admitted in print that the economics profession’s consensus was wrong to brush off (and often scorn) claims that post-Cold War trade agreements and similar trade policy decisions would foster a combination of wholly new and unbeatable (but economically unsustainable) forms of import competition for domestic industry, and related job and production offshoring. (I’m among those he’s mauled in print.) And he’s granted that trade policy critics who predicted these consequences and kept pointing to evidence of their emergence were right. (See here and here.)

Still, Krugman’s latest mea culpa is noteworthy for two reasons. First, it undercuts another tenet of trade economics dogma held almost as strongly believed as the belief that trade expansion in all circumstances is a net contributor to human welfare – the related conviction that imbalances like trade deficits don’t matter (at worst).

In particular, the author acknowledges that the rapid and massive increase in America’s manufacturing-dominated goods trade deficit – especially from super-low cost economies (and offshoring destinations) like Mexico and especially China – occurred at exactly the same time that U.S. industrial employment cratered. And not coincidentally, the destruction began right about when China was admitted into the World Trade Organization (WTO). That mattered greatly because the Beijing subsidies and other predatory trade practices that benefited both foreign- and Chinese-owned producers in the PRC gained invaluable protection from unilateral U.S. responses.

How greatly? According to Krugman, the worsening of the trade deficit “reduced the share of manufacturing in GDP by around 1.5 percentage points, or more than 10%, which means that it explains more than half the roughly 20% decline in manufacturing employment between 1997 and 2005.” In other words, most of the manufacturing job loss during this crucial period – which is a particularly important one because that’s when critical masses of recently offshored factories got up and running and began exporting to the American market – should be blamed not on supposedly impersonal and clearly positive forces of progress like containerization in global shipping, and automation generally, but on actions by American leaders.

Not that Krugman abandons conventional trade economics completely. Specifically, he contends that trade deficits generally speaking are still ultimately unimportant, partly because countries can’t grow indefinitely indebted to the rest of the world and “must pay their way eventually.” The post mid-nineties surge in the manufacturing trade shortfall hammered domestic American manufacturing, he explains, only because it skyrocketed so suddenly.

Readers, however, will ask themselves how the United States can pay its way in the foreseeable future when manufacturing still dominates its lopsided goods trade flows. And they should note that although the damage to manufacturing could still prove temporary, it’s already lasted nearly twenty years, with no imminent end in sight until the past year. (See this post for one of my recent claims that President Trump’s trade policies are starting to bend the curve.)

Second, and following logically from the first point, Krugman continues to insist that protective tariffs should be avoided. Now his opposition focuses on his contention that the trade-related danger to U.S. manufacturing is coming to an end. The China shock in particular, which spearheaded the recent period of “hyperglobalization,” was “a one-time event” that’s already showing signs of ebbing.

But if Krugman was so offbase in evaluating trade’s economic effects, why should such predictions deserve any credibility? Off the top of my head, I can think of several reasons for ongoing concern. For example, China still has massive reserves of super cheap, U.S. wage-depressing labor in its interior and, counter-intuitively, in its national student body. In addition, the progress Beijing has fostered in capital- and technology-intensive industries means that these sectors of American manufacturing will keep facing the same kinds of low-wage (but high productivity) challenges that decimated less advanced, more labor-intensive U.S.-based sectors in previous decades. Moreover, if China does lose competitiveness even in these portions of manufacturing, there’s no shortage of bargain basement third world population giants – like India, Indonesia, and Brazil – that would be more than happy to receive more manufacturing investment from the United States and other high-income countries.

Everyone’s entitled to make mistakes – even know-it-alls like Krugman, who’s known for torching those disagreeing with him as know-nothings and liars. And Krugman deserves praise for owning up to his own mistakes. But it’s also appropriate to ask this question: Since Krugman first established his economic chops as a trade expert, and since he’s clearly been proven wrong about the leading trade-related controversy of our time, how many more strikes does he get?

Making News: CNBC China Trade Talks Video Now On-Line; Piscopo Show Appearance Tomorrow Morning

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AM 970 The Answer, China, CNBC, Making News, Power Lunch, The Joe Piscopo Show, Trade, trade talks, trade war

I’m pleased to report that the video is now on-line of my interview today on CNBC’s “Power Lunch” program on the fast-moving U.S.-China trade talks currently taking place in Washington, D.C.  Click on this link to see a great discussion of the state of the negotiations – along with an examination of the key question of whether the two national economies are compatible to begin with.

In addition, tomorrow morning at 7:25 AM EST I’ll be appearing on The Joe Piscopo Show on New York City’s AM 970 The Answer radio station to update the state of the trade talks.  Listen live on-line here, and if you can’t tune in, I’ll post a link to the podcast as soon as one’s available.

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

Making News: Breitbart Podcast of Recession Gloom-Mongering Interview Now On-Line…& More!

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Breitbart News Tonight, IndustryToday.com, Making News, productivity, recession, Trump

I’m pleased to announce that the podcast is now on-line of my Tuesday night interview on Breitbart News Tonight on evidence that many of President Trump’s opponents have launched a politically inspired campaign to talk the U.S. economy into a recession.  To listen, click here and scroll all the way down until you see the September 10 interviews – since for some reason, the podcasts aren’t arranged in chronological order.

Also, IndustryToday.com has re-posted two RealityChek columns this week – the first was the offering originally documenting recession gloom-mongering claims, and the second was the item on puzzling trends in productivity growth in America.

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