(What’s Left of) Our Economy: A Curious Trade War Omission from the New York Fed

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(What's Left of) Our Economy, China, exports, Made in Washington trade flows, manufacturing, New York Fed, tariffs, Trade, trade war, Trump

If you were writing an economics blog item for a major government institution in America, and your subject was a trend that for two years now has been a major controversy in America, wouldn’t you include information on how that trend actually was affecting America?

Not apparently if you’re Hunter L. Clark, and you work for the New York branch of the Federal Reserve system – which hasn’t exactly been shy about weighing in on this controversy (President Trump’s tariffs on China) before (See, e.g., here and here.) Even more unusual: that previous New York Fed contribution to the trade war debate had emphatically concluded that the President’s policies have been an abject failure. Had this new item presented U.S.-relevant data, the clear conclusion would have been that the trade war has succeeded in at least one crucial respect.

Specifically, in a post last Friday, Clark wrote on how China’s export performance so far this year has been “supercharged” by the CCP Virus pandemic (which of course originated in one of its major cities).

Clark also noted various (convincing) reasons that this surge might be temporary, and even observed that some other counties had actually out-performed China export-wise. But China’s exports to the United States – which of course the tariffs (along with the rest of the President’s trade policies) aimed to curb and ultimately reduce) – went completely unmentioned. And that’s an awfully odd omission because combining Clark’s figures with readily available U.S. Census data shows that this wave of China export increases completely missed the United States.

According to Clark, compared with the same quarters last year, China’s overall goods exports this year “slightly increased in the second quarter and are currently forecast to grow by close to 6 percent in the third and fourth quarters of this year.” He italicized “increased” because forecasts generally expected a ten percent decline in Chinese overseas sales during these periods.

But despite that slight increase in China’s global merchandise exports between the second quarter of 2019 and the second quarter of 2020, during that year, official U.S. data show that these exports to the United States fell by 6.67 percent. And in contrast to the six percent improvement in China’s worldwide exports between the third quarter of 2019 and the third quarter of this year, its exports to the United States were down by 2.98 percent.

Also relevant to the trade war debate – did the Trump tariffs simply result in shifting the makeup of U.S. imports from China to other countries, therefore accomplishing nothing (at best) economically for the nation according to one of the Trump’s (and Trumpers’) favorite scorecards? Clark more reasonably doesn’t investigate this question, but the official American data make the Trump record look awfully good according to this standard, too.

As known by RealityChek regulars, the best global proxy for U.S.-China goods trade is U.S. non-oil China goods trade, and that’s especially true on the import side, since the United States buys no oil from China. And the numbers for this “Made in Washington” import flow (so named because commerce in these goods is strongly influenced by government trade policy) make clear that, whatever import shifting has taken place hasn’t prevented overall U.S. purchases of these foreign products from falling also.

Between the second quarter of 2019 and the second quarter of 2020, they fell by a whopping 18.92 percent. Since the U.S. September trade figures won’t be out until early next month, full third quarter results aren’t yet available. But on a July-August basis, these global Made in Washington imports were off by 2.13 percent.

These subjects, moreover, clearly are of more than academic or political score-settling interest. Despite facing the same CCP Virus-induced disruptions as the rest of the economy, domestic manufacturing – which is heavily exposed to Chinese and other foreign competition – has held up well. In inflation-adjusted terms, it’s production from its February peak through September is down just over six percent. Employment has been relatively resilient, too, along with capital spending.

Imagine how much worse its troubles would have been if it experienced the kind of Chinese export flood that’s washed over other economies. Indeed, this counter-factual seems eminently worthy of study. Including by the New York Fed.

(What’s Left of) Our Economy: Has the U.S. Seen Peak Manufacturing Output for the Virus Era?

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(What's Left of) Our Economy, appliances, automotive, capex, capital spending, CCP Virus, coronavirus, COVID 19, Federal Reserve, furniture, household appliances, housing, inflation-adjusted growth, Institute for Supply Management, machinery, manufacturing, real growth, recession, recovery, Wuhan virus

Today’s monthly Federal Reserve report on U.S. manufacturing production was full of surprises, but not enough were of the good kind. And with signs of economic slowing on the rise, the new figures – for September – could mean that, for the time being, industry’s relative out-performance during the pandemic era will begin weakening markedly as well.

The surprises start with the overall figure for the September monthly change in inflation-adjusted output for American factories. Despite an abundance of encouraging data from so-called soft surveys like those issued by the private Institute for Supply Management and the Fed system’s regional banks (see, e.g., here) real manufacturing production dropped by 0.29 percent sequentially. The decrease was the first since April, when national economic activity as a whole bottomed due to the spread of the CCP Virus and resulting shutdowns and stay-at-home orders.

The biggest bright spot in the report came from the upward nature of most revisions. August’s initially reported 0.96 percent monthly gain is now judged to have been 1.13 percent. The July result was upgraded from 3.97 percent to 4.30 percent. And June’s previous 7.64 percent improve was reduced to 3.61 percent. Further, these advances built on similar upward revisions that accompanied last month’s Fed report for August.

In fact, the revisions effect was strong enough to leave domestic industry’s cumulative after-inflation production performance during the virus-induced downturn better than the Fed’s estimate from last month. As of that industrial production report (for August), manufacturing constant dollar production had fallen 6.39 percent from its levels in February – the final month before the pandemic began impacting the economy. Today’s new September release now pegs that decline at only 5.81 percent, and even the monthly September decrease left it at 6.08 percent.

Nevertheless, the breadth of the September monthly decrease in overall price-adjusted manufacturing output unmistakably disappointed. Yes, the automotive sector (vehicles and parts combined) saw its on-month production tumble by 4.01 percent. But in contrast to most of the manufacturing data during the CCP Virus period, automotive didn’t move the overall manufacturing needle much, as real output ex-auto rose only fractionally in September.

Also discouraging –and unexpected, considering the good recent capital spending data reported by the Census Bureau (see, e.g., the “nondefense capital goods excluding aircraft” numbers for new orders in Table 5 in this latest release) – was the 0.41 inflation-adjusted production decline in the big machinery sector following five months of growth.

And even though the U.S. housing sector has been booming during the recession, real output of furniture also slumped for the first time in six months (by 0.96 percent), while price-adjusted household appliances production was down 4.99 percent after its own good five-month run.

As indicated by today’s revisions, these glum September manufacturing output figures could be upgraded in the coming months. Yet given the CCP Virus’ return – which will at best greatly complicate the challenge of maintaining recovery momentum for industry and the entire national economy – no one can reasonably rule out the possibility that, for now, Americans have seen peak post-virus manufacturing production.

(What’s Left of) Our Economy: The Public Outscores the Experts on China Trade Policy

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(What's Left of) Our Economy, allies, America First, Blob, Center for Strategic and International Studies, China, CSIS, elites, globalism, multilateralism, tariffs, Trade, trade war, Trump, World Trade Organization, WTO

So many big takeaways from a new poll on U.S. and global attitudes toward China and U.S. China policy (both the economic and national security dimensions), I hardly know where to begin! But if I could only write a lede paragraph for a single news article (or blog item), here’s what I’d say: The American public is a great deal more sensible on how to deal with the People’s Republic than so-called “thought leaders.” And what I mean by “more sensible” is more “America First-y” and less globalist.

The survey was conducted by the Center for Strategic and International Studies (CSIS), a Washington, D.C.-based think tank not only squarely in the globalist camp, but a charter member of the globalist, bipartisan U.S. foreign policy “Blob” (which includes a sizable trade and economic sub-Blob) that exerted dominant influence over America’s course in world affairs until Donald Trump came along, and whose supposed expertise still mesmerizes the Mainstream Media.

Of special interest, CSIS sampled opinion from everyday Americans, those so-called thought leaders (whose follower-ship, as implied above, is greatly diminished), and thought leaders from countries that are U.S. allies or “partners.”

The gap between public and elites on China policy views seems widest on the economic and trade issues that President Trump has made so central to his approach towards the People’s Republic, and the CSIS survey contains decidedly good news for him and his fans in this area: The general public is much more supportive of the “go-it-alone,” unilateral sanctions and tariffs imposed by Mr. Trump to combat and/or eliminate Chinese transgressions in this area than the Blob-ers.

Although a multilateral approach (using “international agreements and rules to change China” economically) won plurality backing among the general public (34.8 percent), fully 69 percent of the U.S. thought leaders favored this route. Yet nearly a third of the U.S. public (32.8 percent) endorsed employing “U.S. government tools like sanctions and tariffs”, versus only three percent of the deep thinkers.

As I’ve written repeatedly, (e.g., here and here) a multilateral China trade strategy is bound to fail because international institutions (like the World Trade Organization) are too completely filled by countries that either rely heavily on China-style predation to compete in the global economy, and because even (or especially?) longstanding U.S. treaty allies had been doing business so profitably with the People’s Republic that the last development they wanted to see was a disruption of the pre-Trump status quo. So support for multilateralism in this case can legitimately be taken as support for do-nothing-ism – especially since the vast majority of these elites so enthusiastically pushed for the reckless U.S. expansion of commerce with China that’s lined many of their pockets, but that’s undermined American prosperity and national security.

The CSIS poll, moreover, provides some indirect evidence for this argument: Nearly as high a share of the foreign thought leaders backed a multilateral approach for dealing with China economically (65 percent) as their U.S. counterparts. And their support of U.S.-only approaches (seven percent) was only slightly higher than that of the U.S. thought leaders’ three percent. (The foreign thought leaders may be slightly more gung ho for America going it alone due to confidence that their own products will fill any gaps in the China market left by U.S. producers shut out by the trade wars. On a net basis, though, their countries are coming out losers this year.)

At the same time, one surprising (at least to me) economics-related finding emerged from the survey: Whether we’re talking about the American people generally, or thought leaders at home or abroad, just under 20 percent favor substantial decoupling from China as the best economic approach for the United States.

When it comes to messaging, however, the survey isn’t such great news for Mr. Trump – and Trumpers – on China trade issues. On the one hand, answers to the question on evaluating his performance in this area can – although with a stretch – be interpreted to show majority support for the view that his record has achieved noteworthy gains. Principally, 27.8 percent of U.S. public respondents agreed that the President’s China measures have “been effective in producing some tactical changes in Chinese economic policy” and 9.9 percent believe they have “been effective in forcing long-term changes.” Those groups add up to 37.7 percent of the sample.

Another 20.5 percent checked the box stating that Trump policies have “hurt U.S. consumers and exporters but protected important U.S. industries.” A case can be made that at least some members of this group would give these policies good grades, or that many would give them partly good grades, possibly bringing the total for positive views somewhere in the mid-40 percent neighborhood.

Much more certain, however, is that the most popular single answer (with 41.8 percent support) was that the trade war “has damaged U.S. economic interests without achieving positive change in China.”

Also signaling a Trump China messaging problem – as with much other commentary, the CSIS survey mostly measures China policy success as changing Chinese behavior. In my view, that goal is much less important – because it’s much less realistic, at least in terms of producing verifiable reform – than protecting U.S.-based producers from China’s economic predation. The relative resilience shown by domestic industry both throughout the trade war and into the CCP Virus-induced recession indicate that this goal is being achieved. But neither the President nor his economic nor his campaign team mentions it much, if at all.

CSIS’ polling also found that fully 71 percent of U.S. thought leaders gave Trump’s China economic policies the big thumbs down – and although they don’t vote, their aforementioned influence in the Mainstream Media could partly explain why broader American opinion on the Trump record seems so divided. (For the record, foreign thought leaders weren’t asked to rate the Trump strategy.)

But having established that everyday Americans have a good deal to teach the experts on China trade and economic policy, how do the two compare on China-related national security policies? As indicated above, the gap here isn’t nearly so wide, but worth exploring in some detail – as I’ll do in a forthcoming post!

(What’s Left of) Our Economy: The Trade Wars Would’ve Been Much Easier to Win if Not for Boeing

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(What's Left of) Our Economy, aerospace, aircraft, aircraft parts, Boeing, manufacturing, metals tariffs, tariffs, Trade, trade wars, Trump

Today’s grim news about recent Boeing aircraft orders and deliveries is just the latest valuable reminder that any evaluation of the Trump record on manufacturing and trade policy has to take into account the entire aircraft and parts industry’s transformation from a slight to a bigtime industrial laggard. Moreover, Boeing’s weakness – which has nothing to do with the President’s trade or any other policies — seems likely to continue for the foreseeable future, at least according to Boeing. The company’s latest long-term forecast for the global aircraft market affirms that it will take years for aviation worldwide to return to pre-CCP Virus levels.

The degree of the pain inflicted by Boeing’s troubles – which also include major safety woes that started making headlines in early 2019 – on the whole of domestic industry, and how unrelated manufacturing’s overall Trump era performance has been to the President’s tariff-heavy trade policies, becomes clear from diving into the most detailed U.S. manufacturing output figures available: the Federal Reserve’s industrial production data.

For example, the Fed numbers show that, during the Obama administration, adjusting for inflation, manufacturing output increased by 14.65 percent. Real aircraft and parts production output growth was just slightly slower: 12.39 percent.

But from the start of the Trump years until the arrival of the pandemic (February, 2017 through February, 2020), whereas the manufacturing sector as a whole expanded by 3.60 percent in price-adjusted terms, the aircraft and parts industry shrank by 13.10 percent.

Since the virus struck (from February through the latest available – August – numbers)? Manufacturing output is down by 6.39 percent after inflation, and aircraft and parts production is off by 10.81 percent.

As for the trade war impact, from March, 2018 (the first full month of President Trump’s metals tariffs and a good place for marking the start of the broader trade wars) until February, 2020 (the last month before the virus began significantly affecting manufacturing and the entire domestic economy), overall manufacturing production grew by a bare 0.83 percent. But that poor performance was clearly dragged down by the nation’s aircraft and parts factories – which turned out 10.74 percent less in terms of constant dollar product value.

Aircraft and parts were major industrial also-rans, too, during the comparable 23-month period preceding the first full month of the Trump metals tariffs. Their real production slumped by 4.11 percent, as manufacturing’s overall production rose by 4.07 percent.

The bottom line, then, couldn’t be clearer. The President was wrong in insisting that trade wars for big deficit countries like the United States are “easy to win.” But the facts also demonstrate that the victories the nation has won in these conflicts – which have been significant – would have been come much easier had the aerospace sector and its long-time leader Boeing not turned into such major losers.

(What’s Left of) Our Economy: Restaurant Nation and its Consequences

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(What's Left of) Our Economy, CCP Virus, coronavirus, drinking places, food services, Jobs, Manhattan Institute, New York City, private sector, private sector jobs, recession, restaurants, The New York Daily News, wages, Wuhan virus

If you’re interested in New York City and its economy, and how it’s been affected by the CCP Virus, and major changes in the nation’s economy and family life, Howard Husock’s op-ed piece in The New York Daily News last month dealing with all these subjects is a must-read. In fact, it’s so interesting and important that it led me to investigate how the rise of the restaurant sector in the City – his prime focus – has played out nationally.

As shown by the author, a researcher at the Manhattan Institute, the restaurant industry has become nothing less than vital to the city’s economy. The wallop it’s taken from the virus and resulting shutdowns has thrown its full recovery – at least for the foreseeable future – into serious doubt. And therefore its sagging fortunes and seemingly gloomy prospects are strongly influencing the debate over how fast the City should return to business-as-usual.

At least as consequential, Husock argues convincingly that the burgeoning importance of the broad food service industry in recent decades reflects a major New York economic and social trend: Restaurants “can no longer be understood as the luxury it once was but, rather, as both a prerequisite for a successful economic recovery and an indicator that one is underway.”

When I looked into the national data (some of which Husock presents), I found that something like this conclusion is warranted for the country as a whole as well – and that it’s worrisome news at best economically.

Husock’s national data goes way back to the early 20^th century, and it looks at the U.S. labor market measured in terms of the types of occupations Americans hold. I’ve looked at the data measuring employment by sector of the economy, and although the restaurant figures only begin with 1990, they picture they draw looks comparable. (RealityChek regulars will note that I’m not using my usual method of comparing economic expansions to economic expansions, or recessions to recessions. My reason: the trends described here seem to hold during all kinds of economies – as I’ll indicate below.)

Chiefly, the numbers make clear that from 1990 to the end of 2019 (just before the virus struck), on a December-to-December basis, total U.S. employment in the private sector grew by 42.58 percent. But in the food services and drinking places category, the increase was 86.48 percent – more than twice as great. In food service businesses alone (excluding bars), the growth was 89.52 percent. That is, the workforces in these sectors, white- and blue-collar employees combined, nearly doubled during this period.

Particularly noteworthy – during the 2000s (which include the 2007-09 Great Recession), total private sector jobs fell by 2.99 percent. For the food service and drinking places, they increased by 14.44 percent, and for eating places alone, by 16.24 percent. So as I just stated, these trends seem to have unfolded during booms and bust alike.

Viewed through another statistical lens, in 1990, food services and drinking places employees represented 7.22 percent of all private sector workers. In December, 2019, this share was 9.44 percent. For eating places alone, the 1990-2019 rise was from 6.44 percent to 8.56 percent.

Also crucial to note: However, increasingly convenient dining or taking out has become for Americans, the rapid relative growth of restaurant-type jobs doesn’t look like a plus for their economy. The main reason? Restaurant industry jobs really do pay poorly.

In December, 2019, the average hourly wage in the private sector was $28.37 before adjusting for inflation. For food services and drinking places in toto, it was $15.34 (not much more than half the private sector average) and for eating places alone, only $15.09.

The only real bright spot in this picture: wages in restaurant-type jobs have been rising faster lately than those for the private sector overall. The data here only date from 2006, but during the 2010-2019 period examined above, on a December-to-December basis, pre-inflation-dollar hourly wages in the private sector advanced by 24.65 percent. For all food service and drinking places, the improvement was 32.12 percent, and for eating places, 31.68 percent.

So the wages gap is closing, but not dramatically.

Precisely because the U.S. workforce was steadily turning into Restaurant Nation until the CCP Virus arrived, as with the New York City economy (though not quite so heavily), the entire economy’s return to a pre-virus normal will depend on financing that will enable a critical mass of this sector to survive. But someone needs to ask whether whether Restaurant Nation is a healthy and sustainable structure for the national economy over the longer haul

(What’s Left of) Our Economy: So Much for That Pre-Virus Trump Manufacturing Recession?

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(What's Left of) Our Economy, Barack Obama, election 2020, Federal Reserve, GDP, gross domestic product, gross output, industrial production, Joe Biden, manufacturing, manufacturing recession, real GDP, real value added, tariffs, Trade, Trump, value added

A funny thing happened when the U.S. Commerce Department released its latest report on gross domestic product (GDP) by industry last Wednesday: Most of the evidence that American domestic manufacturing suffered a recession – even a mild one, as widely reported – before the CCP Virus struck disappeared.

The new figures also reveal that President Trump’s manufacturing record before most of the U.S. economy was literally ordered closed due to virus-related fears looks even better than previously thought in comparison with that of the Obama administration – in which the President’s Democratic rival for the White House, Joe Biden, served as vice president.

Focusing on this pre-virus data is anything but grasping at straws – unless you think the CCP Virus and its impact will last forever. For manufacturing’s fortunes have been closely connected to President Trump’s tariff-centric trade policies throughout his time in office because manufacturing is so thoroughly exposed to foreign competition both at home and abroad. And as this article (which featured unusual balance) made clear, recent evidence that industry had slumped last year – even before the virus’ arrival and the deep downturn it caused – was widely viewed as a major sign not only that the “trade war” was failing, and undermining Mr. Trump’s .broader determination to revive the sector.

Yet the new GDP by Industry numbers (which take the story through the second quarter of this year, and incorporate revisions going back to the first quarter of 2015 and which were part of a broader release of four different measures of manufacturing production) generally revised that recession away. So presumably, judgments about the effectiveness and impact of the Trump tariffs and similar trade decisions during normal economic times should turn much more positive.

Understanding that the federal government uses four different measures of manufacturing production is the key to understanding why those manufacturing recession claims now look largely mistaken, and why some uncertainty remains. The four measures are: gross output and inflation-adjusted (real) gross output, and value added and real value added. The latter two measures try to eliminate the double-counting in the gross output numbers that economists generally agree results from including in its results both the parts and components and other manufactured inputs of final products, along with the final products themselves.

As of now, the only one of these gauges that still shows a pre-virus Trump-era manufacturing recession (defined as two straight quarters of declining output) is current dollar (pre-inflation) gross output. According to these data, this downturn began in the second quarter of 2019 and continued through the end of the year – and of course into this year. But a recession doesn’t show up in any of the other measures, and its absence in the new real gross output figures is especially important, since that’s the measure that the Federal Reserve uses to measure manufacturing production in its closely followed monthly industrial production reports.

At the same time, those real gross output figures still leave one manufacturing production uncertainty remaining. For even though the Commerce Department’s tables, and their quarterly numbers, show no pre-virus Trump era recession by this measure, the Fed’s monthly numbers do. Specifically, they report three consecutive quarters of manufacturing production decrease last year – from the first through the third.

Yet the quarterly figures reported by the Commerce Department show that real gross output in manufacturing fell between the first and second quarters of 2019, but rose between the second and third before dropping again between the third and fourth. Even odder: Although these Commerce numbers show a weakening manufacturing output picture for the fourth quarter of last year, the Fed figures show a brighter one.

As for the comparison between administrations, here’s what the new numbers show for the two most comparable pre-virus periods (because they’re closest together in the same business cycle) – the last three years of the Obama administration and the first three years of the Trump administration. And they demonstrate that, whether due to Mr. Trump’s policies or not, industry performed considerably better during his watch. The Trump numbers are all the more impressive since 2019 was marked in part by major production woes at Boeing that greatly undercut the output numbers for the huge U.S. aerospace industry and its vast domestic supply chain.

last 3 Obama years first 3 Trump years

Gross output: -6.50 percent +12.71 percent

Real gross output: +1.40 percent +4.63 percent

Value added: +5.41 percent +11.72 percent

Real value-added: +2.33 percent +9.00 percent

This year, of course, has been terrible for domestic U.S. manufacturing. Between the first and second quarters, in real gross output terms it decreased by 1.03 percent at an annual rate between the fourth quarter of 2019 and the first quarter of 2020, and by 9.47 percent between the first and second quarters.

Interestingly, put together, those are about the same as the declines suffered by the entire U.S. private sector (1.11 percent and 9.14 percent, respectively), even though manufacturing employment during this that period held up notably better than its overall private sector counterpart. During the first and second quarters of this year, the private sector lost 9.92 percent of its jobs, compared with 6.25 percent for manufacturing.

The GDP by Industry figures for the third quarter won’t be out until well after the election (December 22), so voters won’t be able to judge the full Trump manufacturing output record during the CCP Virus period. But from what’s known so far, it looks like something the President can point to during the rest of the campaign as a promise kept.

(What’s Left of) Our Economy: The New U.S. Jobs Report Underscores Manufacturing’s Resilience – & Possibly Tariffs’ Value

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automotive, China, Jobs, machinery, manufacturing, manufacturing jobs, non-farm jobs, non-farm payrolls, private sector jobs, tariffs, Trade, Trump

The headline figure for today’s September U.S. jobs report might have been lousy, but America’s manufacturers delivered excellent results, continuing a show of resilience that’s lasted throughout the CCP Virus era, and that could be closely connected with President Trump’s tariff-heavy trade policies.

Industry added 66,000 net new jobs from month to month – its best totally since June (now confirmed for the time being at a 333,000 gain. And revisions overall were positive.

August’s previously reported manufacturing jobs increase of 29,000 is now estimated to have been 36,000. And July’s results held at 41,000.

Moreover, although the automotive sector’s payroll improvements once more dominated the manufacturing results, the dominance was, as with the data since June, much less pronounced than during the spring. Combined vehicle and parts payrolls rose by 14,300.

Another encouraging development – the broad machinery sector, which is so closely connected with other segments of manufacturing as well as with much of the non-manufacturing economy (e.g., construction and agriculture) – added 13,800 new jobs on net. That’s a major acceleration from previous months’ results.

The other significant manufacturing monthly jobs winners in September included non-metallic mineral products (+6,200), the continually strong food products sector (+5,000), printing and related activities (+4,700), and fabricated metals products (4,200).

By far the the worst September sequential manufacturing jobs performance came in primary metals (-3,400), followed by the huge chemicals sector (-2,000).

September’s advances mean that manufacturing has now regained 716,000 (52.53 percent) of the 1.363 million jobs it lost in March and April, as the CCP Virus was peaking. (Those earlier job losses represented 10.61 percent of the last pre-virus – February – manufacturing employment level.)

The total decrease in nonfarm payrolls (NFP – the U.S. government’s definition of the nation’s jobs universe) in March and April was 22.16 milion – 14.53 percent of the February total and thus a steeper drop than suffered in manufacturing. Since then, 11.417 million, or 51.52 percent, of those jobs have been recovered.

As for private sector employment (which, unlike non-farm jobs, omits public sector employement, which is affected far more by government decisions rather than economic fundamentals), its levels fell by 21.191 million, or 16.34 percent , during the worst of the pandemic. Since April, 11.39 million, or 53.75 percent, of these jobs have been regained.

Given U.S. manufacturing’s extensive exposure to foreign competition, this relative strength is difficult to imagine absent Mr. Trump’s tariffs, especially the high levies remaining on most imports of goods from China. Without the tariffs, it’s easy to imagine a much greater flood of Chinese manufactures into the U.S. market once the People’s Republic and its factories emerged from their own pandemic shutdown, and depressing demand for domestic U.S. produced manufactures – as well as for the employees that make them.

(What’s Left of) Our Economy: Some Fishy New Official U.S. Trade Figures

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{What's Left of) Our Economy, Trade, trade deficit, GDP, exports, gross domestic product, imports, goods trade, services trade, Commerce Department, real GDP

Life as a blogger just gets more unpredictable all the time. Here I was this morning all set to try to figure out whether I’d write about the presidential debate last night or about the official new overall U.S. economic growth (actually contraction) numbers or about the official new figures for how domestic manufacturing fared. And I find my interest most piqued by apparent mistakes in those overall data on the shrinkage of the gross domestic product (GDP) in the second quarter.

As RealityChek regulars know, when I cover the GDP figures (which tell us how much in the way of goods and services the U.S. economy has turned out in a given time period, and how it’s changed over time), I tend to focus on the trade numbers that help make up these total figures. And I like to look at revisions, because the U.S. Commerce Department, which tracks these trends, doesn’t get it right the first time, or even the second time (because new information is being constantly received), and because it’s right up front about making these imperfections clear. (That’s why several revisions of these data are issued in the first place.)

Today’s report on the economy’s performance in the second quarter of this year was the third such report, and the final verdict for the time being. (So-called “benchmark” revisions will be coming down the road, going back several years, which speaks volumes about Commerce’s determination to get it right.)

And the “headline” trade number showed that between the first quarter and the second quarter, the total U.S. trade deficit declined from $788.0 billion to $775.1 billion. (All these trade figures are adjusted for inflation and presented at annual rates.) That’s an improvement. But it’s not as much of an improvement as the previous GDP report showed. According to that release, which came out about a month ago, the total second quarter real annualized trade deficit was $760.9 billion.

Or was it?

I can’t recount exactly what spurred me to look into the underlying figures, as opposed to taking the data’s accuracy for granted, as I normally do. But I began to check them out. And here’s what I found for that previous set of second quarter figures.

Last month’s GDP report judged that after-inflation U.S. goods exports for the second quarter totaled $1.3519 trillion annualized and U.S. goods imports were $2.3487 trillion. To get the balance, subtract second number from the first and you get a deficit of $996.8 billion.

For services, the second quarter results were previously reported as price-adjusted exports of $591.5 billion and imports of $372.8 billion. Doing the arithmetic produces a real services trade surplus of $218.7 billion.

To get the total trade deficit, the $218.7 billion services surplus has to be subtracted from the $996.8 billion goods deficit. And that number comes out to -$778.1 billion – not -$760.9 billion.

This difference is by no means major. But if my math is accurate, it reveals a final (for now) inflation-adjusted second quarter trade deficit that improved sligthly over the previously reported figure, rather than worsened.

In other words, the previous GDP report estimated that the second quarter real trade deficit improved on the first quarter’s results by a margin of $788 billion to $760.9 billion. But it looks like it should have reported a much less impressive narrowing – to just $778.1 billion. As a result, the $775.1 billion second quarter trade deficit figure reported this morning is a slightly better number than the incorrect previous estimate – not a worse result, as that incorrectly reported previous number indicated.

But guess what? That latest second quarter figure doesn’t add up, either. Specifically, today’s report pegs combined U.S. goods and services exports at $1.9274 trillion in real terms on an annual basis, with goods exports judged to be $1.3472 trillion and services exports reported as $582.1 billion. Add them up and you get $1.9293 trillion, not $1.9274 trillion.

On the import side, the Commerce Department now says that the second quarter total is $2.7025 trillion annualized, and that it’s comprised of $2.3480 trillion worth of goods imports and $372.1 billion worth of services imports. That adds up to $2.7201 trillion, not $2.7025 trillion. As a result, the total trade deficit was actually $790.8 billion annualized, not $775.1 billion (the difference between the new $2.7201 trillion total import figure and the $1.9293 trillion total export number).

Therefore, not only did the real trade deficit total worsen over the figure reported last month (from $778.1 billion to $790.8 billion, not to the $775.1 billion reported today). It also worsened from the first quarter’s $788.0 billion number.

At which point, it pains me to report that that first quarter total doesn’t add up, either.

The bottom line for me is that I’ll keep reporting the headline trade figures as they’re presented in the GDP reports by the Commerce Department. But I’ll be even more cautious than usual about assuming that they’re even accurate in measuring changes of direction, much less precise amounts. And I’ll be wondering if the rest of the federal government’s economic data is any better – at least until I can figure out what’s going on here.

(What’s Left of) Our Economy: Why China Trade Will Long Remain a Loser for Americans

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China, export-led growth, The Wall Street Journal, Trade, trade surpluses, Trefor Moss, Trump, {What's Left of) Our Economy

Since the United States decided to expand trade and commerce with China as fast as possible, numerous books and studies (including mine – see here and here) have tried to make the case first that this approach was certain to work out disastrously for the domestic economy, and later, that this scenario was actually unfolding.

If only when the major decisions were being made, or when they still could have been reversed relatively painlessly, could something like this new Wall Street Journal article have been published. For Trefor Moss’ report on China’s struggling export industries makes unusually clear that if pre-Trump presidents and Congresses (representing both Democrats and Republicans) truly tried to use trade policy to strengthen America’s productive core and its workers, facilitating business with China would have been one of their lowest priorities.

The reason, as Moss indicates: China’s economic strategy has always been so dependent on boosting exports much more than imports – in the words, on generating and increasing trade surpluses – that ever greater bilateral economic ties were never capable of creating more opportunities for domestic companies and workers than they wiped out.

Indeed, decades after Washington bipartisanly began to champion “coupling” the two countries, and throughout which Americans were constantly promised that China’s was going to become an economy driven more by domestic rather than by U.S. and other overseas demand, and therefore a huge winner for America on balance, Moss’ piece shows that these promises look more specious than ever. For even today, entire geographic regions of the People’s Republic and entire Chinese industries literally have nothing to do with supplying the needs and desires of Chinese customers, and everything to do with servicing foreign – and especially U.S. – markets.

Four particularly revealing observations in Moss’ article:

“Many of the products made [in the huge export hub of Yiwu], such as Christmas decorations and other low-cost, labor-intensive commodities, simply aren’t needed domestically in significant quantities. Only a small percentage of China’s 1.4 billion people are openly Christian, according to the U.S. human-rights group Freedom House.”

>”’Yiwu’s challenge is that the domestic market doesn’t have the stomach to consume all these products,’ said Dan Wang, chief economist at Hang Seng Bank China. ‘They’re not really suitable for domestic use.'”

>”Even getting products that Chinese people do want into domestic circulation will take time since Yiwu’s merchants lack local distribution connections, according to Andrew Batson, director of China research for Gavekal, a Hong Kong-based research firm.”

>”While consumption as a share of gross domestic product has risen over time in the U.S., reaching 68% in 2018, China’s has steadily declined to just 39%.”

Not explained by Moss, however, (and I’m not being critical here) is the fundamental explanation for this Chinese export orientation – and throughout the countries’ leading production cities and regions, not just Yiwu: It’s not simply a preference of the Chinese regime’s. It’s an iron necessity for achieving the country’s ambitious economic development goals, and as a result, for safeguarding China’s rulers paramount priority – keeping the populace happy enough to keep this dictatorship in power.

For as I pointed out most recently in this post, however much wealth it’s gained in recent decades, China’s population collectively still remains too poor by itself to fuel the growth needed to continue raising living standards robustly. Indeed, Chinese incomes have long remained so low in absolute terms that even after its lengthy run of spectacular progress, China still needs foreign incomes to fill the demand gap left by its inability to consume adequately.

In recent years, much of official Washington, and even the Swamp full of hangers on and consultants and lobbyists that surrounds it, have become aware that national security worries call for rethinking longstanding U.S. trade policies with China.  Moss’ article is a valuable reminder that the purely economic case for a trade policy reversal remain compelling, too.

(What’s Left of) Our Economy: Trump is Winning the Trade and Decoupling Wars

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CCP Virus, China, coronavirus, COVID 19, decoupling, FDI, foreign direct investment, goods trade, merchandise trade, MSCI, non-oil goods trade deficit, pension funds, Rhodium Group, Securities and Exchange Commission, tariffs, Trade, Trade Deficits, trade war, Trump, Wuhan virus, {What's Left of) Our Economy

It’s become increasingly clear in the last few days that President Trump’s trade war with China and his apparent efforts to decouple the U.S. and Chinese economies have achieved real successes. Just why exactly? Because of a recent flurry of claims in the Mainstream Media that the trade war has been an ignominious defeat for the President and his tariffs, and that decoupling can only backfire on America if it’s taken too far (an outcome that’s supposedly imminent). (See here, here, and here in particular.)

As RealityChek regulars know, such media doom- and fear-mongering – spread both by journalists and by the purported experts they keep quoting who have been disastrously wrong literally for decades about trade and broader economic expansion with China – are now well established contrarian indicators. And here’s some of the key data that these proven failures have overlooked.

Let’s start with the least controversial measure of decoupling – two-way trade. Let’s generally use the end of the previous administration as our baseline, since decoupling really is a Trump-specific priority. And let’s generally end with the end of 2019, not only because it’s our last full data year, but because the coronavirus pandemic clearly is distorting the data, and won’t be with us forever (although some of its effects on supply chains and the like might – also because of reinforcement from the trade war). We’ll also stick with goods trade, since detailed service trade figures are always late to come out, and because they’re rarely major subjects of trade policy.

Between 2016 and 2019, combined US goods imports from and goods exports to China actually grew by 2.92 percent. So where’s the decoupling, you might ask? It becomes clear from using economic analysis best practices and putting these figures into context – mainly, the performance of the entire economy.

And in this case and many of those below, it’s crucial to know that the economy grew during this period, too. As a result, in 2016, this two-way goods trade (also called merchandise trade) amounted to 3.08 percent gross domestic product (GDP) – the nation’s total output of goods and services. In 2019, it was down to 2.60 percent. That is, like a supertanker, this trade doen’t turn around right away.

Therefore, it is indeed legitimate to fault Mr. Trump for claiming that trade wars are easy to win. But the supertanker is turning. And the impact on the economy? In 2016, it expanded by 2.78 percent. In 2019? 3.98 percent. So not much damage evident there. (All these figures are pre-inflation figures, because detailed inflation-adjusted trade figures aren’t available.)

Similar trends hold for the U.S.-China goods trade deficit, which the President views as the most important scorecard for his China trade policy success. Between 2016 and 2019 in absolute terms, it barely budged – dipping by just 0.47 percent. That could be a rounding error.

But viewed in the proper context, this trade deficit fell from 1.85 percent of GDP to 1.61 percent. And again, the economy grew much faster in 2019 than in 2016.

It’s still possible to ask what any of the trade decoupling had to do with the President’s ballyhooed tariffs. But the only reasonble answer? “A lot.” That’s because even after the signing of the so-called Phase One U.S.-China trade deal in January, levies of 7.5 percent remain on categories of imports from China that have been totalling about $120 billion annually lately, and tariffs of 25 percent remain on $250 billion more. (That’s most of the $451.65 billion in total goods imported by the United States from China in 2019.)

For comparison’s sake, between 2016 and 2019, the U.S. worldwide non-oil goods trade deficit – that’s the deficit that’s most impacted by trade policy decisions like tariffs, and the portion of the deficit that’s most like US-China trade – rose by 24 percent. That’s more than 50 times faster than the increase in the China goods deficit.

So there can’t be any serious doubt that the Trump China tariffs have worked both directly (by keeping Chinese goods out of the U.S. market) and indirectly (by encouraging companies that had been producing in China for export to the United States to move elsewhere). Moreover, since that “elsewhere” is always to much friendlier countries, that’s a plus for Americans even though the decoupling by most accounts has only returned modest amounts of jobs stateside.

Moreover, there’s a strong case to be made that the Trump tariffs on China have prevented the U.S. economy’s CCP Virus-induced recession from being much worse. That contention is borne out by the fact that, as RealityChek reported earlier this month, the latest available apples-to-apples statistics show that China’s goods trade surplus with the world as a whole had increased by some 25 percent between July, 2019 and July, 2020. But during that period, the China goods surplus with the United State fell by about 18 percent.

As a result, according to the standard way of measuring the economy and how developments in areas like trade affect its growth or shrinkage, China over roughly the last year has been growing at the expense of the world as a whole, but not at America’s. Indeed, quite the opposite. After decades of trade with China slowing U.S. growth, such commerce is now supporting growth.

The decoupling picture, however, wouldn’t be complete without investment flows. Here, on one front, the disengagement has been even more extensive. The consulting firm Rhodium Group does a good job of crunching the numbers on foreign direct investment (FDI) – those transactions that involve so-called hard assets, like real estate and factories and warehouses and entire companies, as opposed to portfolio investment, which involves stocks, bonds, and other financial instruments.

By a happy coincidence, Rhodium has just issued its latest report, which takes us through the first half of 2020. Yes, that covers the virus era, when it’s natural to expect all kind of economic and commercial activity to decline. But the pre-virus era trends will become clear enough, too.

According to Rhodium, two-way FDI flows between the United States and China in the first six months of this year (measured by the value of completed deals) hit their lowest level since the second half of 2011. And the peak came during comparable periods between early 2016 and late 2017 – when these investments were running nearly four times their current levels. Moreover that peak, not so coincidentally, bridged the Obama-Trump transition.

Chinese FDI into the US during that first half of this year actually rose a great deal – from $1.3 to $4.7 billion. But this increase resulted entirely – and then some – from a single purchase by the big Chinese social media company WeChat of a 10 percent stake in the U.S. company Universal Music. Without that transaction, Chinese flows into the US would have dropped, and even the current somewhat artificially high level is only about a fifth as high as its peak – hit in late 2016. So you can see a decided Trump effect here, too.

U.S. FDI flows into China have held up better, if that’s the term you want to use. But they were off 31 percent between the second half of 2019 and the first halfof this year – to $4.1b. And their peak level – hit in 2014 – was $8.5b. So that’s another big Trump-related drop.

One disturbing counter-trend that the Trump administration has been too slow to address: There’s abundant evidence that U.S. financial investment into China – buys of assets like stocks and bonds – keeps surging.

One indication: According to the Financial Times earlier this month, since the Wall Street firm MSCI in June, 2017, first announced plans to include Chinese domestically listed “A-share” companies into one of its widely followed indices, “roughly $875bn in foreign investment has flowed into Chinese equities through stock connect programmes linking Hong Kong with onshore bourses in Shanghai and Shenzhen.”

And although the U.S. share is difficult to quantify, between private investors and state-level government workers’ pension funds, this analysis from the U.S. Securities and Exchange Commission makes clear that it’s considerable.  (Due to Trump administration pressure, the body overseeing federal pension plans’ investments has delayed a decision to channel funds into the aforementioned MSCI index.)   

So can anyone reasonably claim “Mission accomplished” for the Trump trade and decoupling policies? Not yet. But is a “job well done so far” conclusion merited? Certainly for anyone who’s not Trump-ly Deranged.