(What’s Left of) Our Economy: Worsening Automotive Recession Drives Down Manufacturing Output

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aluminum, automotive, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, recession, steel, tariffs, Trade, Trump, vehicles, {What's Left of) Our Economy

According to the Federal Reserve’s new industrial production figures, a sharp automotive drop-off in July helped pull real U.S. domestic manufacturing output down on month (by 0.06 percent) for the third time this year. Since May, 2015, sector’s inflation-adjusted production is down 2.33 percent – a period much longer than the two-consecutive-quarter definition of recession. July’s annual automotive real output decrease (4.98 percent) was the biggest since September, 2009’s 7.21 percent. And the sector’s 3.64 percent sequential output fall was its biggest since August, 2015’s 3.82 percent.

The vehicle sector performed even worse. Its year-on-year July constant dollar production plunge (9.20 percent) was its greatest since August, 2009 (12.54 percent). And vehicles’ July monthly after-inflation production slide (5.92 percent) was the steepest since August, 2015’s 6.31 percent. Largely as a result, July’s real vehicles production was the lowest monthly total since October, 2014.

With President Trump postponing his decision on tariffs for the import-battered steel and aluminum sectors, their price-adjusted production remained weak in July. The former’s sequential real production slumped by 1.50 percent, and although the annual figure rose by a strong 5.50 percent, the sector is still nearly 20 percent smaller in real terms than at the last recession’s onset. The latter’s July monthly real output inched down while growing slightly on a year-on-year basis, but this industry remains less than half its size when the recession struck. Indeed, for the entire manufacturing sector, after-inflation production in July was down four percent from the level hit as the recession broke out – back at the end of 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on July industrial production:

>The worst U.S. real automotive production performance in many years – especially in vehicles – helped pull the nation’s after-inflation manufacturing output down 0.06 percent on month in July. Although small, the sequential decline was the third so far this year.

>Leading the way was an automotive sector that had led manufacturing’s strong rebound from a deep recessionary dive.

>Combined vehicles and parts output sank by 3.64 percent on month in July, its biggest such downturn since August, 2015’s 3.82 percent.

>Year-on-year, constant dollar total automotive output was down in July by 4.98 percent – the worst such deterioration since September, 2009’s 7.21 percent.

>Largely as a result, real automotive production in July hit its lowest level since June, 2015.

>The automotive output drop in turn was led by vehicles. Final price-adjusted production in this sector plunged by 5.92 percent sequentially in July – its worst output month since August, 2015 (6.31 percent).

>The year-on-year figures for vehicles were much worse. Compared with the previous July, they plummeted by 9.20 percent – the biggest such decline since August, 2009 (12.54 percent).

>Largely as a result, as of July, real vehicle output stood at its lowest level since October, 2014.

>The new Fed figures also show that the American steel and aluminum industries continue to pay a price for floods of imports widely thought to benefit from government subsidies – and from the Trump administration’s hesitation to impose tariffs.

>July iron and steel production decreased on month by 1.50 percent in real terms. The 5.50 percent year-on-year result was much better, but was helped by favorable comps.

>Moreover, the steel sector’s real output is still 19.70 percent smaller than at the last recession’s onset – more than eight years ago.

>July primary aluminum production declined on month by 1.02 percent, but advanced by 2.90 percent on year.

>Yet primary aluminum production is down 53.49 percent since the last recession began.

>In fact, since that December, 2007 watershed, U.S. manufacturing’s output is down by four percent – meaning that it still hasn’t recovered from the recession.

Im-Politic: Charlottesville & Trump: A Never-Ending Story?

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American South, anti-semitism, Charlottesville, Confederate monuments, free speech, hate groups, Im-Politic, neo-Nazis, racism, Trump, white supremacists

And so President Trump has stepped in it once again, and guaranteed that, unless something major changes, self-inflicted wounds will become the hallmarks of his presidency.

Of course, I’m talking about his impromptu remarks at yesterday’s press appearance, in which new, explicit denunciations of racist and anti-semitic hate groups were accompanied by descriptions of some of their individual members present in Charlottesville, Virginia as “very fine people” – along with comments that at least could reasonably be read as establishing a moral equivalence between the marchers and those who came to the region to protest their planned rally.

Among the least defensible:

>The contention that the torchlight marchers last Friday night included “people protesting very quietly the taking down the statue of Robert E. Lee”;

>The charge that supporters of removing Confederate memorials are “changing culture” – which closely resembles the specious claim that the memorials were erected to honor the American South’s distinctive “heritage.”

As per the views I expressed on Saturday, I still don’t believe that Mr. Trump is a racist or an anti-semite. I still believe that his behavior mainly reflects a “pathetically mistaken” belief that a big chunk of his largely white, working class base will take offense at overly harsh attacks on bigoted, fringe figures like David Duke and Richard Spencer.

But upon reflection, I’d add that he’s stunningly inarticulate, and terminally – and in many ways childishly – argumentative. And although I’m not concerned that his verbal indiscipline will needlessly spark a war or some other kind of domestic or global crisis, those are worrisome traits in a figure whose every syllable is (understandably) put under a microscope. Nor is much simple common sense visible on the President’s part, or at least not often enough.

After all, how difficult would it have been to draw up sometime over the weekend and deliver on TV a statement along the lines of:

“My fellow Americans [or whatever standard presidential speech introductory wording you like]. I loathe the Charlottesville protesters and everything they represent. The neo-Nazis, the white supremacists and their ilk have deliberately associated themselves with historical atrocities and injustices that are not only appalling. They are uniquely evil in nature. It is indeed infuriating to see them openly displaying their perverse and destructive views in our streets and parks and squares. In fact, I am personally infuriated that they keep invoking my name, and portraying my efforts to reinvigorate the ideal of a practical, healthy nationalism as an endorsement of racism and anti-semitism and xenophobia.

“But we also must remember something crucial about our democratic values – which of course are values that the hate groups’ evil historical idols have tried to destroy. They demand that even loathsome figures and voices enjoy the freedom to exercise their Constitutional speech rights. So in that respect, attempts to disrupt their activities, or the First Amendment freedoms of other unpopular speakers, must be condemned, too.

“Therefore, law-breakers will be prosecuted – whatever their political views and associations.

“But much more important, I hope that the vast majority of Americans angered by the disgraceful Charlottesville marchers and their supporters understand, and take to heart, that the best way to counter, and defeat, the hatred they spew is not by joining them in the gutter and resorting to violence – unless it’s a matter of self-defense. The best way is to expose their sick lies with the power of reason. The best way is to remember our love, compassion, and respect for each other, and take every opportunity to show it. The best way is to strengthen our nation’s unity of spirit. And the best way is to fulfill our sacred duty each and every day to keep our great national experiment in self-government a beacon for all of humanity.”

Now the President is reaping the whirlwind. I have no idea whether this latest uproar will simply blow over (as with the Access Hollywood video episode), or become superseded by another headline news development, or will doom Mr. Trump to a single term, or will erode his political support so drastically that his presidency becomes impossible to continue. What does seem certain is that the prospects of a successful Trump presidency, and especially of promises kept to economically struggling middle class and working class Americans, have taken a body blow, and that something on the order of a dramatic display of executive competence, an equally dramatic display of contrition and/or explanatory eloquence – plus a tidal wave of dumb luck – will be needed for even a partial recovery.

Our So-Called Foreign Policy: Why Kissinger Comes Up Short on North Korea

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alliances, China, East Asia-Pacific, foreign policy establishment, Henry Kissinger, Japan, missiles, North Korea, nuclear war, nuclear weapons, Our So-Called Foreign Policy, realism, South Korea, The Wall Street Journal

Henry Kissinger’s plan – or at least outline of a plan – to resolve the North Korea crisis is out. And even though the 94 (94!)-year old former Secretary of State and presidential national security adviser has not held public office in decades, you should pay attention because you can bet American leaders in the Executive Branch and Congress are. So are foreign governments (many of which, including China, Kissinger has made millions – at least – “consulting”for).

Kissinger’s approach, laid out in a Wall Street Journal op-ed last Friday, is definitely a cut above the usual (often dangerously misleading) drivel that most commentators have been issuing since North Korea recently demonstrated dramatic and unexpected progress toward being able to hit the U.S. homeland with a nuclear-armed missile. But since Kissinger is a creature of the foreign policy establishment that keeps clinging to an obsolete Korea strategy that is now needlessly exposing the United States to nuclear attack, his proposals ultimately fail to promote and defend America’s interests first, or even to acknowledge the deep splits that must no longer be papered over between U.S. needs and South Korean needs.

The strongest argument Kissinger makes, as I see it, is the suggestion that there’s only one way of persuading China to exert enough pressure on North Korea to achieve Pyongyang’s de-nuclearization, or to start its regime down that road. It’s emphasizing to Beijing that an increasingly powerful nuclear North Korea will inevitably lead other countries to follow suit, and place China in the middle of a ring of nuclear-armed neighbors – many of which are hardly friendly. In other words, Kissinger is identifying an especially compelling reason for China to conclude (finally) that its Korea bottom line must include defanging the North – and quickly, not one of these days.

A public statement of this reasoning also matters because it signals Kissinger’s agreement that preventing nuclear proliferation in Asia may need to take a back seat in U.S. Korea policy to the status quo/establishment position that the United States must bear the main costs and risks (including nuclear risks) of handling North Korea. Not that I doubt the dangers of a regional nuclear arms race. But if that’s the price to be paid for minimizing and possibly eliminating a nuclear to the United States itself, it’s a price that’s a clear bargain. So it’s gratifying to read that Kissinger looks to be in agreement. 

But Kissinger never explains why North Korea would relent absent the kinds of truly comprehensive and strictly enforced economic sanctions whose importance he appears to belittle or dismiss altogether. Instead, he appears to believe that a joint Sino-American statement conveying strong bilateral agreement on the peninsula’s future “would bring home to Pyongyang its isolation and provide a basis for the international guarantee essential to safeguard its outcome.” Unfortunately, nothing publicly known about the North Korean regime indicates that it’s prepared to substitute paper guarantees of its survival for the protection provided by a nuclear arsenal.

Similarly, Kissinger signals support for a solution that would leave Korea divided as at present, but that would trade off de-nuclearization in the North for a permanent ban on reintroducing American nuclear weapons to South Korea (which were removed by former President George H.W. Bush in 1991) and an international agreement prohibiting Seoul from developing its own nuclear arms. But in addition to the “paper promises” problem, Kissinger’s proposal appears to forget that nuclear weapons from anywhere have been included in strategies to defend South Korea in the first place stem from the need to offset the belligerent North’s conventional superiority – which it presumably would still enjoy. So a dangerous military imbalance would be left on the peninsula.

But my biggest complaint about Kissinger’s ideas is the apparent refusal to consider my own favored option – a U.S. military pullout from South Korea (and possibly Japan) that would deny the North any plausible reason to attack the American homeland, and that would force the powerful and wealthy countries of Northeast Asia, which have the greatest stakes by far in a viable North Korea strategy, to take on this responsibility themselves.

The risk? An entire East Asia-Pacific region that’s profoundly destabilized, and even plunged into conflict. The benefit? A dramatic reduction in the odds that a North Korean nuclear weapon would decimate an American city. Or two. Or three. This is even a close call?

Moreover, a U.S. pullout seems to be taboo to Kissinger because he, along with most of the rest of the foreign policy establishment, perversely appears to view protecting allies as being just as important as protecting the United States. What else could be mean when he warns that certain American policies “may be perceived as concentrating on protecting its own territory, while leaving the rest of Asia exposed to nuclear blackmail….”?

Not to put to fine a point on it, but when the stakes involve preventing nuclear warheads from killing possibly tens of millions of Americans, why on earth shouldn’t the United States be “perceived as concentrating on protecting its own territory”? In fact, any American leader with different priorities should be immediately removed from office and banned for life.

So I continue to admire the force of Henry Kissinger’s intellect, his mastery of a wide range of international issues (except economics), and his command of history. Yet I also continue to view him as a paragon of a peculiarly American species: a so-called diplomatic realist who is anything but.

(What’s Left of) Our Economy: Into the (Crucial!) Weeds on America’s Trade Performance

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comparative advantage, exports, imports, manufacturing, Trade, trade balances, Trade Deficits, trade surpluses, {What's Left of) Our Economy

The U.S. International Trade Commission has finally added the June American trade statistics to its wonderful Trade Dataweb, an invaluable database and search engine. So now it’s possible to view in needed detail the nation’s trade performance for the first half of 2017, and the first groups of these figures is presented below.

Just so you’ll know exactly what you’re seeing, these are results according to the most granular level of the North American Industry Classification System (NAICS), the federal government’s main system for slicing and dicing industry-specific economic data. I like this six-digit level because it draws the greatest number of distinctions between final manufactured products and the parts and components of these products. This distinction is critical because the rapid growth in recent decades of global supply chains (i.e., the rapid growth of American production offshoring) means that a large percentage of U.S. and global trade consists of trade in these manufacturing inputs.

Another technical note: Because trade data for major aerospace products aren’t made public in order to protect corporate information considered proprietary, the six-digit NAICS results in this sector are unreliable, and the five-digit level data are being used.

So here are the nation’s top ten goods exports for the first half of this year, and how their performance has changed in dollar terms since the first half of 2016:

1. Aerospace: -4.0 percent

2. Petroleum refinery products: +26.1 percent

3. Autos & light trucks: -8.5 percent

4. Special classification provisions: +9.7 percent

5. Semiconductors & related devices: +4.7 percent

6. Miscellaneous auto parts: +1.4 percent

7. Miscellaneous basic organic chemicals: +3.7 percent

8. Pharmaceuticals: +3.9 percent

9. Plastics materials & resins: +6.3 percent

10. Primary smelted non-ferrous metals: +54.0 percent

It’s an encouraging list because most of these products are high-value manufactures, which historically have been very productive, still create lots of high-wage jobs, and incorporate lots of innovation. At the same time, these export growth rates seem pretty meh.

Here is a similar list of the top ten goods import categories and how their levels have changed on a year-to-date basis:

1. Autos & light trucks: +4.5 percent

2. Crude oil & natural gas: +53.7 percent

3. Pharmaceuticals: +2.3 percent

4. Goods returned from Canada: +4.3 percent

5. Broadcast & wireless communications equipment: +10.3 percent

6. Computers: +6.2 percent

7. Telecomms equip: +8.2 percent

8. Aerospace products: -3.4 percent

9. Petroleum refinery products: +22.2 percent

10. Semiconductors & related devices: -6.4 percent

This looks like a higher value list, and the growth rates seem somewhat higher. So that appears less bullish.

The real test of trade performance, though, has to do with trade balances. For the theory of comparative advantage that’s at the heart of modern thinking and policy in the trade field tells us that economies that trade goods and services most successfully (as indicated by surpluses) will wind up as the most successful producers of those goods. Conversely, economies that trade goods and services least successfully will wind up as the least successful producers of those goods. How else could unfettered trade flows create an optimal global division of labor – which is supposed to be their prime economic virtue according to mainstream economics?

So here are the ten goods sectors that wracked up the biggest trade surpluses in the first half of this year, and how those balances compare with the first-half 2016 figures:

1. Aerospace products: -2.03 percent

2. Petroleum refinery products: +33.11 percent

3. Plastics materials & resins: +4.73 percent

4. Soybeans: +28.21 percent

5. Other special classification provns: +7.13 percent

6. Corn: +20.26 percent

7. Waste & scrap: -7.82 percent

8. LNG: +56.54 percent

9. Semiconductor machinery: +64.73 percent

10. Non-anthracite coal & natural gases: +223.22 percent

If you recognize the outsize economic value of manufacturing, this is a less encouraging list, since fully half the products are commodities. Nor is the growth rate of the surpluses in these manufacturing sectors impressive except for semiconductor production equipment and petroleum refinery products.

And here’s the trade balance flip side: the sectors with the top ten U.S. goods trade deficits and their rates of change:

1. Autos & light trucks: +10.64 percent

2. Crude oil & nat gas: +45.31 percent

3. Goods returned from Canada: +4.25 percent

4. Computers: +1.16 percent

5. Broadcast & wireless communications equip.: +11.06 percent

6. Telecomms equipment: +19.10 percent

7. Printed circuit assemblies: +47.12 percent

8. Audio & video equipment: -11.50 percent

9. Institutional furniture: +8.56 percent

10. Iron & steel: +76.28 percent

This list is full of high-value manufactures – so that should be a concern. Ditto for the growth rates, which are mainly well into the double-digits. And check out the number for steel — a sector that’s been making headlines because of the Trump administration’s consideration of national security-related tariffs.  

Coming up tomorrow: the best and worst export and import growers, and the sectors with the most rapidly improving and the most rapidly worsening trade balances.

Our So-Called Foreign Policy: So JFK on Cuba Should be Trump’s North Korea Model?

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Bay of Pigs, Cold War, Cuba, Cuban Missile Crisis, Fidel Castro, John F. Kennedy, Kim Jong Un, Michael Dobbs, Nikita Khrushchev, North Korea, Our So-Called Foreign Policy, Robert E. Kelly, Soviet Union, The National Interest, Trump, Turkey, Vienna summit

The race for this year’s foreign policy chutzpah award couldn’t be tighter. Just when I thought political scientist Robert E. Kelly had grabbed an insurmountable lead with his new National Interest article downplaying the horror of a possible North Korean nuclear strike on the United States, along came Michael Dobbs with a jaw-dropping venture into fake history-land masquerading as an op-ed in yesterday’s Washington Post.

Dobbs’ achievement? An article comparing President Trump’s performance in the North Korea crisis so far with former President John F. Kennedy’s in the 1962 Cuban Missile Crisis that failed to mention either the April, 1961 Bay of Pigs invasion: the June, 1961 U.S.-Soviet summit in Vienna: or the way in which the October, 1962 U.S.-Soviet showdown in the Caribbean actually ended.

According to Dobbs, a former Post correspondent turned historian (chiefly of the Cuban crisis), Kennedy was a model of reasonableness and restraint whose unique, “overarching sense of history” led him “to consider the interests of future generations of Americans, and ultimately all of humanity” and thus deserves much credit for preventing the showdown from turning into an apocalyptic nuclear war.

As Dobbs put it (employing terminology used in a contemporary letter from Kennedy’s wife, Jackie), the former president acted like a “big man” who knows “the needs for self-control and restraint.” Mr. Trump, however, has “indulgently” decided to “play chicken” and respond in kind to North Korean dictator Kim Jong Un’s “explosive rhetoric” – a dangerous effort to “out-crazy” Pyongyang that reflects a “little man” outlook “moved more by fear and pride.”

But the Bay of Pigs invasion is kind of important because Kennedy’s support for this disastrously failed attempt by CIA-supported Cuban exiles to overthrow Fidel Castro persuaded Soviet leader Nikita Khrushchev to reach a secret deal with Havana to deploy medium-range missiles in Cuba in the first place – in part to deter another attack either by Cubans or by the United States. So the former President’s actions (which, to be sure, continued a policy of his predecessor, Dwight D. Eisenhower) were largely responsible for creating the Soviet gambit in the first place.

Just as bad, as Kennedy admitted, his failure to order nearby American forces to come to the overwhelmed exile army’s rescue “no doubt” convinced “his superpower rival…that ‘I’m inexperienced. Probably thinks I’m stupid. Maybe most important, he thinks that I had no guts.'” The source for this passage? Dobbs’ own missile crisis history.

Has President Trump approved any similarly reckless blunders that sent such dangerous messages? No.

The Vienna conference is kind of important because this first meeting between the American and Soviet leaders reinforced Khrushchev’s impression of his Cold War counterpart as a weakling. According to one account of the summit and its aftermath:

“‘Roughest thing in my life,’ Kennedy had told James Reston of The New York Times, after it was all over. ‘He just beat the hell out of me.’ Vice President Lyndon B. Johnson was contemptuous of his boss’s performance. ‘Khrushchev scared the poor little fellow dead,’ he told his cronies. British prime minister Harold Macmillan, who met with Kennedy shortly after he left Vienna, was only slightly more sympathetic. He thought that the president had been ‘completely overwhelmed by the ruthlessness and barbarity of the Russian Chairman.'”

The source for this passage? That same Dobbs missile crisis history.

Have any of President Trump’s exercise in personal diplomacy failed so utterly? No.

Finally, the Cuban crisis’ resolution is kind of important because Kennedy had a relatively easy out: an offer to remove U.S. missiles stationed in neighboring Turkey that Moscow (understandably) viewed as too close for comfort. This central element of crisis-ending deal struck by Kennedy and Khrushchev was kept secret (at Washington’s insistence), but it’s importance is now recognized by the historical community – including Dobbs.

Does President Trump have a comparable option? Evidently not – unless you count my proposal to pull American troops out of South Korea, which would remove any remotely plausible reason for North Korea to threaten U.S. territory, and turn the problem of handling North Korea’s nuclear forces over to its powerful and wealthy neighbors. Yet no American political leaders on any point on the political spectrum have expressed any support.

Dobbs of course has every right to idolize Kennedy and slight Trump. What he has no right to do after this piece of propaganda is to present himself as anything but a hack.

Our So-Called Foreign Policy: That North Korea Nuclear Threat? Time to Buck Up!

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deterrence, foreign policy establishment, missile defense, national security, North Korea, nuclear weapons, Our So-Called Foreign Policy, Robert E. Kelly, South Korea, The National Interest

Yesterday, I wrote (again) about how America’s foreign policy establishment continues trying to keep the wool over their compatriots’ eyes about how the main U.S. security alliances (especially with South Korea) are exposing the nation to the threat of nuclear attack (in this case, from North Korea). Now I’m wondering if this same (bipartisan) group may start to change tactics. The evidence? An absolutely stupefying post in The National Interest that tries to assure Americans that such an attack wouldn’t really be so bad.

Let me repeat that: A (rightly) respected foreign policy journal has just posted an essay arguing that it’s “risky threat inflation” to believe that North Korea’s nuclear weapons represent an “existential” danger to the United States – i.e., one that could destroy it as a functioning society.

In a literal sense, the author, political scientist Robert E. Kelly, is right. Even when the North Korean dictatorship builds nuclear-tipped missiles capable of hitting the American homeland, the United States would probably survive as a political entity. The main reason, as the author notes, is that for the time being, the North’s arsenal will almost certainly remain too small to land on more than a few targets inside the geographically vast continental 48 states and their “widely dispersed population.” So just as Manhattan withstood the September 11 attack, the nation in more or less its current form could probably withstand a North Korean strike.

But this kind of literalness, of course, is the literalness of children. And nothing makes the terrible truth clearer than Kelly’s own words. For example, he writes that

>“The humanitarian costs of even one nuclear detonation would be enormous, of course, and the national psychological shock would be akin to nothing in U.S. history, bar perhaps the Civil War. But this is not the same thing as hitting the United States hard enough that its society begins to fragment and its government collapse.”

>“Large numbers of civilian casualties, even in the millions, and the loss of several American cities is not existential. Horrible, yes. A dramatic reorientation of American life, absolutely. But not the end of America.”

>“Even Imperial Japan in 1945, after months of punishing U.S. bombing, managed to ride out the nuclear detonations in Hiroshima and Nagasaki without a national breakdown.”

>“Assuming…that North Korea strikes Washington and America’s other large cities, it is not obvious that the United States would then fall into some manner of political anarchy or revolution.”

There is, to be sure, a weird twist to Kelly’s analysis. The “threat inflation” risk that’s principally troubling this South Korea-based analyst is not the kind that would cow Washington enough to prevent U.S. nuclear retaliation against North Korea following an unprovoked Northern strike against American territory. Instead, what he’s worried about is that American leaders could grow so (mistakenly) terrified of the North Korean nukes’ destructive capability that the Trump administration would try to take them out with preemptive airstrikes and thus “ignite a disastrous regional conflict.”

Which means that he’s worried mainly that South Korea and its neighbors would come under destructive attack, not the United States. But the arguments he marshals could certainly be used, at least in theory, to stiffen allegedly flaccid public spines in the event of any kind of U.S.-North Korea showdown. And as I have written repeatedly, such a confrontation would be practically unthinkable were the United States not committed to protect the militarily free-riding South, and worse, were tens of thousands of American troops and their families not deployed right in the line of Korean fire, expressly to deny a President any real choice about using nuclear weapons (and invite retaliation) once they were attacked.

Kelly’s article, however, does have one (unwitting) virtue. His description of the likely devastation from even a smallish North Korea-scale attack should be enough to make any reader wonder what possible upside to defending South Korea could come close to justifying this completely unprecedented kind of downside. The question holds even for those who insist that such an attack is unlikely (because North Korea must know that the United States would respond with an annihilating all-out retaliatory strike) and that therefore the risk is worth running in order to maintain deterrence on the peninsula. And it especially holds for missile defense optimists. For if all of them are wrong, America will suffer literally millions of deaths, countless wounded, long-term radiation poisoning of survivors and the environment, and gargantuan material losses. Even a single warhead penetrating anti-missile systems would wreak virtually unimaginable physical and psychological havoc.

Whether running such risks to deter attack – nuclear or not – on the United States itself is debatable, and although I disagree with them, pacifists and anti-nuclear activists have long made counter-arguments that deserve consideration.

But running such risks to deter attack on another country, whose loss, however terrible, Americans unmistakably could withstand (in spades) strikes me, anyway, as lying far outside the bounds of rationality. At the very least, it demands the type of open, explicit debate that the foreign policy establishment remains determined to avoid. If Kelly’s post brings this debate closer, however unintentionally, I’ll be the first one to thank him.

Our So-Called Foreign Policy: The Establishment’s Korea Nuclear Cover-Up Continues

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alliances, allies, Chicago Council on Global Affairs, East Asia, free-riding, missiles, North Korea, nuclear war, nuclear weapons, Our So-Called Foreign Policy, polls, South Korea

If a pollster asked respondents a question on the order of “Would you favor the government handing Americans unlimited amounts of money?” without specifying that “it might destroy the economy,” you wouldn’t take it very seriously, would you? In fact, you’d probably (and rightly) condemn the survey as a con job.

And that’s exactly the reaction you should have to a new “finding” by the Chicago Council on Global Affairs that this year, for the first time [since 1990, when the organization began asking the question], “a majority of Americans express support for using US forces to defend South Korea” if it was attacked by North Korea. According to the Council, moreover, this figure has risen sharply since 2015 – from 47 percent to 62 percent.

If you’re a RealityChek regular, you know why this question is fraudulent. It doesn’t tell respondents that North Korea is terrifyingly close to being able to retaliate against such U.S. military involvement by destroying an American city or two with nuclear-tipped intercontinental ballistic missiles.

In fact, the question doesn’t mention anything about specific consequences for riding militarily to South Korea’s rescue. Even granting that the public realizes that wars are not picnics, the Council’s full phrasing was inexcusably anodyne:

“There has been some discussion about the circumstances that might justify using US troops in other parts of the world. Please give your opinion about some situations. Would you favor or oppose the use of US troops if North Korea invaded South Korea?”

Like the issue was simply being debated in a seminar.

Nor did the Council tell Americans why their country would need to risk blood and treasure to aid South Korea. It’s because, even though the South’s economy is vastly larger than the North’s, and even though the North actions have been threatening for decades, this long-time U.S. protectorate spends a negligible fraction of its wealth on its own defense.

So here’s what the Council should have asked:

“For nearly seventy years, the United States has pledged to defend South Korea militarily from attack by communist North Korea. But this promise was made when it created no risk for the American homeland, when the South was dirt poor, and when Washington feared that communism was on the march worldwide. Now it’s clear the North will very soon be able to launch a successful nuclear attack on the United States if it keeps its promise to the South. Since the alliance was formed, South Korea has skimped on its own defense spending even though it’s become one of the world’s richest countries. And communism is dead as a global military menace. Would you favor or oppose using U.S. troops to defend a free-riding South Korea if the result could be the nuclear destruction of an American city?”

Of course, my phrasing could be toned down. It could also add the argument American trade and other forms of business with economically dynamic East Asia would suffer if major war broke out anywhere in the region (although it’s easy to argue that business with the region has been a big net loser for the American economy), and that so far, the U.S. military presence and commitment have helped keep the peace. And to be fair, the Council didn’t mention any pro-interventionist arguments, either.

But the main point is that it’s hard to imagine any consideration surrounding the decision to intervene in a Korean war remotely comparing with this development: Until recently, Americans could be certain that their own territory would remain unscathed. Now such involvement could kill and maim millions of their compatriots, and turn important metropolitan areas into radioactive wastelands.

As I’ve long written (along with others), the American foreign policy establishment has been so irrationally wed to the country’s alliances that it’s concealed the catastrophic, and sometimes suicidal, (in the case of Europe, where the antagonist has been the Soviet Union and now Russia) dangers they have inevitably created. The only useful information contained in this Chicago Council on Global Affairs Korea finding is that, wittingly or not, this group is participating in the cover-up.

Making News: CNBC Video of Trump Trade War Interview Now On-Line!

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Cato Institute, China, CNBC, Dan Ikenson, Making News, Melissa Lee, Michele Caruso-Cabrera, North Korea, nuclear weapons, Power Lunch, Trade, trade wars, Trump, Tyler Mathisen

I’m pleased to report that the video of my CNBC interview today on President Trump’s China trade policies is now on-line. Click here for a great discussion among CNBC anchors Tyler Mathisen, Michele Caruso-Cabrera, Melissa Lee, the Cato Institute’s Dan Ikenson, and me on the prospects of a U.S.-China trade war and on the wisdom of linking these trade policies to Beijing’s effectiveness in helping to curb North Korea’s nuclear weapons program.

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

 

(What’s Left of) Our Economy: A Decent Month & a Long Way to Go for US Trade

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Canada, Census Bureau, China, exports, Germany, imports, Made in Washington trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit decreased by 5.93 percent in June – a second straight sequential decline that resulted in its lowest level ($43.64 billion) since last October. Highlighting the month’s results was an all-time high services exports figure ($65.37 billion). In addition, total exports hit their highest level ($194.37 billion) since the end of 2014, and June goods exports to Mexico ($21.35 billion) were the second greatest total on record, and the merchandise deficit fell on month at its fastest pace (18.28 percent) since July, 2015.

Yet despite these milestones, the total trade deficit for the first half of the year ($276.60 billion) was the highest six-month total since the first six months of 2012. Further, goods exports to China – which accounts for roughly half of the total American merchandise trade deficit – fell in June at their fastest rate (4.74 percent) since January, 2016 (18.41 percent). And although the China-heavy manufacturing and high tech trade deficits fell on month, they are running ahead of last year’s totals as well. Indeed, the latter’s six-month total ($43.40 billion) represents an all-time high. Year-to-date merchandise shortfalls have risen – including a quadrupling of the Canada shortfall – with many of the foreign economies whose trade policies have been criticized by President Trump. (Germany and South Korea were important exceptions).

The June figures also showed a quarterly uptick in the drag on the current recovery of the Made in Washington portion of the U.S. trade deficit from an already lofty level – cutting 17.47 percent from cumulative growth since the expansion began in mid-2009, or just under $464 billion.

Here are selected highlights of the latest monthly (June) trade balance figures released yesterday morning by the Census Bureau:

>In June, the combined U.S. goods and services trade deficit dropped for its second straight month, from a downwardly revised $46.39 billion to $43.64 billion. The new total brought the shortfall to its lowest level since last October ($43.07 billion).

>Leading this progress were U.S. services exports, which rose on month by 0.94 percent to a a second straight new all-time high: $65.37 billion.

>Total exports hit something of a milestone, too, increasing by 1.23 percent sequentially to their highest level ($194.37 billion) since December, 2014 ($197.18 billion).

>Moreover, on the eve of the renegotiation of the North American Free Trade Agreement, the June data show that U.S. goods exports to NAFTA partner Mexico improved by 7.42 percent over May’s figure, to hit their second highest total ($21.35 billion) on record. (The all-time high of $22.35 billion was set in August, 2014).

>Yet in contrast to this good news, the combined American trade deficit for the first six months of the year ($276.60 billion) was the worst January-June total since 2012’s $281.46 billion – when economic growth was somewhat faster.

>Another June low-light: China, which may face punitive unilateral U.S. tariffs, bought 4.74 percent few goods from the United State than in May – the steepest such drop since January, 2016’s 18.41 percent.

>U.S. merchandise imports from China, however, rose by 1.17 percent, to $42.29 billion, and helped push the June American deficit up 3.08 percent, to $32.58 billion – the highest since last August’s $33.86 billion.

>Year-to-date, the U.S. goods deficit with China is running 6.08 percent ahead of last year’s pace, even though exports have risen nearly twice as fast (up 15.63 percent) than imports (8.39 percent).

>Although it fell on month in June (by 6.83 percent, to $8.82 billion), on a year-to-date basis, the trade deficit for high tech goods for the first half of this year set its own new record for the January-June period – $43.40 billion.

>In fact, this shortfall is up 33.37 percent from the previous January-June period.

>Between the first half of last year and the first half of this year, U.S. High tech exports inched up by only 0.36 percent, but imports have climbed 5.66 percent.

>A similar story unfolded in manufacturing. The trade gap fell 4.93 percent on a monthly basis, from $80.10 billion in May (the second highest total ever) to $76.13 billion.

>Manufacturing exports rose 2.98 percent on month, while imports dipped by 0.70 percent.

>Year-to-date, however, the manufacturing trade deficit is running 6.19 percent ahead of last year’s record pace, which resulted in an $853.07 billion 12-month total.

>Manufacturing exports are up 3.86 percent for the January-June period, but imports have grown by 4.98 percent.

>Mexico represents another example of a country criticized by President Trump whose merchandise trade surplus with the United States shrunk sequentially but has risen on a year-to-date basis.

>Thanks largely to those robust American goods export figures, the U.S. goods deficit with Mexico sank by fully 18.28 percent month-to-month – the fastest rate since July, 2015 (43.12 percent). American goods purchases from Mexico rose by only 0.52 percent over June’s levels.

>Year-to-date, however, the U.S. merchandise shortfall with Mexico is up by 13.26 percent, as goods exports have risen by 5.04 percent, but imports have grown by a faster 6.86 percent.

>An even more extreme example is provided by Canada, with which U.S. goods trade flows have been exceptionally volatile, albeit in the context of a balance that has become notably modest.

>In June, the American merchandise deficit with Canada nosedived by 54.42 percent. The decrease was only from $1.37 billion to $624 million in absolute terms, but that’s still the lowest Canadian goods surplus since June, 2016.

>On a monthly basis, U.S. goods exports to Canada improved by 1.11 percent, and imports fell by 1.77 percent.

>Between the first six months of this last year and this year, however, the U.S. goods deficit with Canada has more than quadrupled, from $2.20 billion to $10.51 billion. American merchandise exports have advanced by 3.94 percent, but imports rose by nearly twice as fast – 9.95 percent.

>Indeed, the American goods shortfall with its partners in NAFTA (the North American Free Trade Agreement), which will soon be renegotiated by the three signatories, dropped by 24 percent month-to-month in June, from $8.66 billion to $6.58 billion, on an export increase of 3.91 percent and an import dip of 0.61 percent.

>Year-to-date, however, this deficit has surged by 36.68 percent, from $34.24 billion to $46.79 billion, as U.S. goods sales to Mexico and Canada combined have improved by 4.44 percent, but purchases from the two grew by 8.36 percent.

>Yet U.S. goods trade with Germany has shown a reversal of this pattern. In June, the American merchandise deficit rose by 10.03 percent, from $4.99 billion to $5.49 billion. U.S. exports increased by a mere 0.18 percent, while imports were up by 5.36 percent.

>The American goods deficit with Germany on a year-to-date basis, however, has decreased by 5.48 percent, as U.S. merchandise sales to Germany have advanced by 7.04 percent, while purchases from Germany have slipped by 0.1 percent.

>U.S. goods trade with South Korea followed this pattern, but with bigger disparities between the on-month and on-year data. Sequentially in June, the American merchandise deficit jumped by 26.23 percent, from $1.46 billion to $1.85 billion. U.S. merchandise sales to South Korea were off 5.96 percent, but American goods imports increased by 1.95 percent.

>Yet between January-June, 2016 and January-June, 2017, this American merchandise deficit cratered by 31.91 percent, from $16.46 billion to $11.20 billion. U.S. goods exports to South Korea surged by 21.82 percent during this period, while imports slid by 2.38 percent.

>At the same time, on a monthly basis, the American merchandise trade deficit with South Korea has more than tripled (from $561.4 billion) since the bilateral trade agreement went into effect in March, 2012.

>The June trade figures make clear that the drag on American growth exerted by the Made in Washington portion of the U.S. trade deficit grew slightly between the first and second quarters of this year – from an already considerable level.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the first quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.40 percent, or $443.24 billion out of $2.5476 billion in real GDP expansion.

>As of the second quarter of 2017, this drag effect increased to 17.47 percent, or $463.97 billion out of $2.6551 billion in real GDP expansion.

(What’s Left of) Our Economy: Manufacturing’s Out of its (Short Term) Jobs and Wages Doldrums

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Bureau of Labor Statistics, Employment, inflation adjusted wages, Jobs, manufacturing, non-farm payrolls, recession, recovery, wages, {What's Left of) Our Economy

American domestic manufacturing created 16,000 net new jobs in July on month, its best such performance since February’s 22,000. Coupled with a major (11,000) upward revision for June, the figures demonstrated that U.S. industry has for now emerged from a springtime slump. On an annual basis, manufacturing’s July 66,000 employment improvement was its strongest since February, 2016’s 69,000.

But since the current recovery began, private net job creation has topped manufacturing’s by a factor of nearly 2.5. The same story characterized pre-inflation manufacturing wages. In July, they improved sequentially faster than the private sector’s (0.53 percent to 0.34 percent) but lagged year-on-year (2.42 percent to 2.53 percent) and trailed the previous Julys’ 3.13 percent. And during the current recovery, the private sector’s current dollar wages have increased nearly 20 percent faster than manufacturing’s, although the gap has narrowed year-on-year. But despite its good last two months, manufacturing’s share of total nonfarm employment remained at a record low of 8.47 percent.

Here’s my analysis of the latest monthly (July) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>U.S. domestic manufacturing net new job creation and wage gains both accelerated sequentially in July, pulling the sector out of a sluggish spring on both fronts.

>Industry’s monthly July jobs gain of 16,000 was its best such performance by far since the 22,000 payrolls improvement in February. Moreover, June’s initially reported 1,000 employment increase is is now judged to have been more than ten times greater (12,000).

>Fiurther, the July figures showed that manufacturing payrolls swelled by 66,000 year-on-year in July – the best annual gains since February, 2016’s 69,000.

>Monthly pre-inflation manufacturing wages growth picked up notably as well in July, from an upwardly revised 0.19 percent in June to 0.53 percent. In May, manufacturing paychecks actually fell on a current dollar basis – by an upwardly revised 0.26 percent.

>Manufacturing’s June sequential pre-inflation wage gains equaled those of the overall private sector, and beat the private sector’s 0.34 percent performance in July.

>Over the longer term, however, manufacturing lagged the overall private sector in both respects, although the paycheck gap has been narrowing slightly recently.

>During the current economic recovery, which began in mid-2009, manufacturing employment is now up by 5.96 percent. Private sector jobs as a whole are up by 14.58 percent during this period.

>Since the late-2007 onset of the last recession, manufacturing’s performance is equally poor. From that time to the early 2010 troughs, manufacturing lost 2.293 million jobs and private sector payrolls shrank by 8.801 million.

>Since then, manufacturing has regained just 42.39 percent of those lost jobs (a total of 972,000). The private sector as a whole has boosted employment by 17 million.

>As a result, total private sector employment is now 7.08 percent higher than at the recession’s late-2007 onset, but manufacturing employment is still 9.61 percent lower.

>Therefore, it’s no surprise that manufacturing’s share of total nonfarm employment in July stayed stuck at its all-time low level of 8.47 percent.

>Wage trends reveal the same manufacturing relative weakness. Industry’s July annual current dollar wage gains of 2.42 percent were lower than the overall private sector’s 2.53 percent. They were also much lower than the 3.13 percent increase recorded for manufacturing during the previous Julys.

>Manufacturing wages before inflation have fared little better during the recovery. As of July, they were up by 15.99 percent since the economy resumed expanding in mid-2009. But overall private sector wage increased by 19.06 percent – 19.20 percent faster.

>Last July, though, the gap was bigger – 23.24 percent.

>Manufacturing generally performs even worse on an inflation-adjusted basis. The latest figures are for June, and show a sequential manufacturing gain of 0.18 percent versus a 0.28 percent read for the private sector overall.

>Year-on-year, real manufacturing wages have risen by only 0.55 percent. That’s both slower than the private sector’s 0.94 percent and manufacturing’s own 2.46 percent constant dollar rise between July, 2015 and July, 2016.

>During the entire recovery, overall private sector real wages are up 4.56 percent as of June – 2.87 times faster than the manufacturing real wage improvement (1.59 percent).

>As bad as that comparison looks, it’s actually narrower than the gap last year – when overall private sector wages had increased 3.48 times faster after inflation than manufacturing wages.