(What’s Left of) Our Economy: Which Sectors are America’s Biggest Trade Winners and Losers?

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Welcome to installment two of RealityChek‘s deep dive into new U.S. data that enable us to compare the economy’s merchandise trade performance during the first half of this year with that of the first half of last year. Yesterday, we reviewed America’s biggest goods exporters and importers, and trade deficit and trade surplus sectors – all on a stand-still basis. Today, we’ll look at the fastest and slowest merchandise export and import growers over the last year, and the sectors whose trade balances have improved or worsened to the greatest extents.

Because the subject today is rates of change, and in order to avoid results distorted by unusually small numbers (e.g., the ease with which big percentage changes in a given indicator are resulting from the use of unusually modest base figures), the following lists are drawn from larger lists of the top 50 goods industries in these performance categories. And fortunately, because U.S. imports and exports are relatively highly concentrated, drawing the line at the top 50 costs almost nothing in terms of creating a very representative sample.

Also, as was the case yesterday, these industry categories examined here are those drawn from the six-digit level of the North American Industry Classification System (NAICS), the federal government’s main system for slicing and dicing the economy. The one exception: aerospace. Because of data limitations in that sector, the five-digit data, which combine final products and their parts and components, are presented.

Let’s start with the ten goods industries whose exports, measured in value terms, grew fastest between the first half of last year and the first half of this year, along with the growth rates:

1. Non-anthracite coal & petroleum gases: +180.9 percent

2. Crude oil & natural gas: +109.0 percent

3. Cotton: +89.9 percent

4. LNG: +62.4 percent

5. Semiconductor manufacturing equipment: +58.2 percent

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

7. Soybeans: +27.6 percent

8. Petroleum refinery products: +26.1 percent

9. Motor vehicle engines & engine parts: +19.2 percent

10. Corn: +18.7 percent

As is clear, five of these ten sectors are commodity sectors, which add relatively little value to the economy. Two more are industries where relatively little processing, and thus value-adding, takes place (liquid natural gas and the smelted metals). Only three could be considered high value manufactures – the types of industries that historically have made outsized contributions in terms of productivity growth and innovation, and that tend to pay high wages.

Here are the ten industries with the worst export performances on a year-to-date basis:

1. Medicinal & botanical drugs & vitamins: -25.4 percent

2. Turbines & turbine generator sets: -15.1 percent

3. Computer parts: -9.4 percent

4. Autos and light trucks: -8.3 percent

5. Telecomms equipment: -6.6 percent

6. Electricity measuring & test instruments: -5.9 percent

7. Aerospace: -4.0 percent (5-digit, due to reporting limits)

7. Surgical and medical instruments: -1.1 percent

8. Electro-medical apparatus: -0.9 percent

9. Industrial valves: -0.1 percent

9. Computers: -0.1 percent

10. Surgical appliances & supplies: +0.2 percent

10. Analytical laboratory instruments: +0.2 percent

As should be obvious, every single sector here belongs in the high-value manufactures category.

Now for the industries that saw the fastest import growth between the first six months of 2016 and the first six months of this year:

1. Switchgear and switchboard apparatus: +174.3 percent

2. Crude oil and natural gas: +53.7 percent

3. Printed circuit assemblies: +44.2 percent

4. Iron and steel: +41.3 percent

5. Primary aluminum: +38.6 percent

6. Non-diagnostic biological products: +29.4 percent

7. Petroleum refinery products: +22.2 percent

8. Miscellaneous non-citrus fruits: +20.8 percent

9. Motors and generators: +13.7 percent

10. Lighting equipment: +12.7 percent

10. Surgical appliances and supplies: +12.7 percent

This group, too is dominated by high-value industries. And look at those numbers for steel and aluminum, two sectors where the Trump administration has been talking about imposing national security related tariffs

The list of sectors with the worst import growth – indeed, where imports have declined the most – is much more of a mixed bag:

1. Medicinal and botanical drugs and vitamins: -39.4 percent

2. Computer parts: -12.3 percent

3. Women’s and girl’s blouses/shirts: -12.1 percent

4. Primary smelted non-ferrous metals: -8.8 percent

5. Men’s and boys non-work shirt shirts: -8.3 percent

6. Non-costume jewelry: -6.7 percent

7. Semiconductors and related devices: -6.4 percent

8. Audio and video equipment: -5.3 percent

9. Jewelers materials/lapidary work: -4.1 percent

10. Aerospace products: -3.4 percent

Now for the trade balance figures. Remember, they’re especially important because economic theory tells us they’re strong indicators of which industries the United States trades most successfully – and therefore which industries have the brightest futures.

Here are the ten sectors where the trade balance has shown the greatest improvement from the first half of 2016 to the first half of 2017. They’re presented in percentage terms except where deficits have turned into surpluses :

1. Primary smelted non-ferrous metals: $5.00 billion deficit to $0.76 billion surplus

2. Relays and industrial controls: $1.27 billion deficit to $2.26 billion surplus

3. Semiconductors: $1.48 billion deficit to $1.01 billion surplus

4. Non-costume jewelry: +574.44 percent

5. Drawn/rolled/extruded miscellaneous non-ferrous metals: +305.69 percent

6. Miscellaneous basic inorganic chemicals: +300.00 percent

7. Non-anthracite coal and petroleum gases: +224.29 percent

8. Medicinal and botanical drugs and vitamins: +104.35 percent

9. Cotton: +91.09 percent

10. Semiconductor manufacturing equipment: +64.82 percent

Encouragingly, high value manufacturing is pretty well represented here.

And now for those sectors that experienced the worst deterioration in their trade balances.

1. Non-diagnostic biological products: +856.00 percent.

2. Switchboard and switchgear apparatus: +437.35 percent

3. Oil and gas field machinery and equipment: +130.00 percent

4. Iron and steel: +76.25 percent

5. Surgical appliances and supplies: +71.55 percent

6. Printed circuit assemblies: +47.08 percent

7. Crude oil and natural gas: +45.30 percent

8. Primary aluminum: +42.73 percent

9. Turbines and turbine generator sets: +39.46 percent

10. Copper and nickel ores: +35.96 percent

High-value manufactures are well represented here, too – and this list, too, includes steel and aluminum. At the same time, these rates of deterioration are generally smaller than the rates of improvement in the sectors where trade balances changed for the better. So that’s an encouraging development as well.

Of course, whenever “trade” comes up, the word “China” usually isn’t far behind, especially since the Trump administration just announced it was beginning a process that could lead to tariffs on Chinese goods in response to Beijing’s practice of forcing companies to hand over at least some of their best technology in exchange for the privilege of doing business in the vast Chinese market, and to the more conventional intellectual property theft that’s still SOP in the PRC. So tomorrow, RealityChek takes a deep dive into U.S.-China goods trade.

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

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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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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.

Im-Politic: First Thoughts on Charlottesville

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It’s as tempting to offer timely thoughts about today’s Charlottesville, Virginia violence and the reactions it’s generated as it is difficult – for new developments keep taking place, and incontrovertible facts are hard to come by. That said, here are what strike me as as points worth making at present.

First, as I’ve previously written, the triggering complaint of the white nationalist/neo-Nazi/confederate revivalist/call-them-what-you-wish protest and the narrowest-gauge cause it represents should be unacceptable to all Americans who truly love their country. Confederate statues and other monuments to the rebellion (e.g., street and high school names) have no place in our national life. And removing them has nothing to do with erasing history. The history of the Civil War must of course be taught in the most intellectually honest way possible. But statues and street names etc are unmistakable efforts to honor and memorialize.

And whether you view the secession as motivated by intertwined racism and slavery issues (where in my view the bulk of the evidence points) or more legitimate federalist and states rights claims, the decision to revolt violently against the federal government was a simple act of treason, which should always be condemned in the harshest possible terms.

Moreover, please don’t respond with observations that the Founding Fathers’ ranks included slave-owners (like Washington and Jefferson) or that many subsequent American leaders were racists (like Woodrow Wilson). For slavery was, tragically, legal under the Constitution until emancipation. And as I’ve written (in the post linked above), most of the historical national figures with inadequate records on race were, first, to great extents products of their time and, second, known for playing many other roles and making many other contributions to the nation and its success.

As for the protesters’ broader supposed grievances about repressed and endangered white rights and even safety, I have no doubt that economic stresses and anxieties are at work in many cases. But feeling the need, or advisability, to fly the Confederate flag or wear the swastika simply signals a form of derangement that our society has rightly decided is beyond the pale politically and morally speaking. So public figures should decry this message and reject any association with those sending them.

Which brings us to the question of the Trump response. It was, as critics have charged, far too weak. What I can’t figure out is the “why”. Is the president a racist? He’s had too many African-American friends and supporters for that charge to stick. He and his advisers and aides also have too often argued for restricting immigration by pointing to the benefits U.S. blacks would reap.

Related anti-semitism make even less sense, given that Mr. Trump’s daughter married an orthodox Jew (who he has anointed as a top White House aide) and then converted herself to Judaism. I know that the “some of my best friends are….” argument can be and has been abused by anti-semites (as well as racists). But insisting that “some of my children and grandkids….” is much harder to dismiss.

The only explanation that makes even some sense to me (meaning of course that I’m not totally convinced) is that the president worries that a substantial part of his (largely white) base either covertly or (much likelier) subconsciously sees itself as racially repressed or marginalized, too, and would suddenly desert him if he went after the David Dukes and Richard Spencers of this country. In other words, Mr. Trump’s troubling words reflect a political calculation, not a shared bigotry.

If so, his position is not only timorous, but pathetically mistaken. Because for every hater he retains by his silence or anodyne words at times like this weekend, he risks losing many more moderates and independents who have no use for the identity-politics obsessed, and therefore intrinsically divisive, Democrats but who are disgusted by overt racists – much less neo-Nazis. In fact, Duke’s tweets today show that this arch-racist and anti-semite is infuriated by the president’s Charlottesville remarks.

More important, the president will earn much more durable support from independents and moderates – especially those who have actually lost economic ground or fear such losses – by keeping the campaign promises he made to restore living wage jobs than by even minimal pandering to prejudice.

Finally, the role of the Charlottesville police and any other law enforcement authorities tasked with handling the protests needs to be scrutinized thoroughly – along with our notions of protesters’ rights. I’m pretty certain that most Americans would agree with the right of Nazis and the like to stage a protest over the treatment of Confederate memorials (or any other reprehensible) cause, and to display symbols that should disgust all people of good will. And of course, these are Constitutionally protected rights.

But I’ve long thought that the right to protest also entails the right of protesters to be protected from those seeking to disrupt their events. In other words, once counter-protesters started physically interfering with the Nazis, the police force present should have stepped in and started making arrests. Even better, they should have taken much more effective measures to keep the counter-protesters physically apart from the protesters, to reduce the odds of violence breaking out to begin with. To my knowledge, law enforcement authorities have never been sued for such failures (not even by the American Civil Liberties Union, which admirably supported the Nazis’ etc right to demonstrate in Charlottesville). I hope the organization will consider bringing such a case in the wake of Charlottesville, if the circumstances merit this action.

For failing to establish protesters’ right to security could easily turn into an open invitation for harassment that could crimp free speech rights yet further. And what would induce the Nazis – and violence-prone lefties – to start licking their chops more eagerly?

(What’s Left of) Our Economy: Smile When You Say “Wage Inflation”

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If you’re really determined to make the case that wage inflation is (finally) taking hold in the U.S. economy, you can find some supporting evidence in the government’s new report on the subject. But you need to look awfully hard, and you also have to ignore other data suggesting that this proposition is still pretty far-fetched.

First the new (July) numbers. (They’re still preliminary, like the June results, which are unchanged.)

For the private sector overall, real wages rose by 0.19 percent month-to-month – lower than June’s 0.28 percent increase. Year-on-year, real wage improvements decelerated, too – from 0.94 percent in June to 0.75 percent in July.

Manufacturing’s results were more robust, with inflation-adjusted wages advancing faster on month in July (0.46 percent) than in June (0.18 percent). Acceleration was evidence on an annual basis, too, with the July year-on-year growth of 0.83 percent besting June’s 0.55 percent. In fact, the July annual increase was the greatest since December (1.03 percent).

The annual constant-dollar statistics contain the strongest signs of vibrant life on the wages front. In particular, year-on-year increases this year have strengthened from 0.09 percent in January to 0.75 percent in July, and in manufacturing from 0.28 percent to 0.83 percent during this period. And that manufacturing figure was the year’s best. As reported above, however, the best annual private sector real wage growth of this year came in June.

In addition, if you more than a year back, you can see that annual real wage growth has slowed considerably after a notable speed-up earlier in the current economic recovery.

For example, for the private sector, after improving by 0.59 percent total between July, 2011 and July, 2014, real wages jumped 2.04 percent between 2014 and 2015, and by 1.90 percent between 2015 and 2016, before the latest, much slower, 0.75 percent rise.

In manufacturing, between July, 2011 and July, 2014, real wages actually dropped by 0.66 percent. The following Julys saw a 1.34 percent increase that nearly doubled to 2.26 percent over the next year before settling back to 0.83 percent during the latest July-July period.

But for me, the most revealing real wage numbers are those measuring its change throughout the current economic recovery. Since it began, in mid-2009, after-inflation private sector wages have risen only by 4.75 percent, and real manufacturing wages are up a mere 2.05 percent. Until those increases get much bigger, warnings of wage inflation understandably will be seen as sick jokes by most American workers.

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

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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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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.

(What’s Left of) Our Economy: Still Desperately Seeking Decent Productivity Growth

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The good news about America’s productivity growth that came out this morning is that new Labor Department figures showed it’s gotten a little bit better lately. The bad news is that it needs to get a lot better if the nation is going to achieve the economic goals everyone says they want: economic growth that’s healthy, and wages rising satisfactorily.

Today’s data, which report the results on a relatively narrow but timely measure of productivity growth, also furnish a handy opportunity to review recently released productivity measures that are broader but not quite so up to date.

According to the Labor Department’s preliminary read, U.S. labor productivity for non-farm businesses (the standard definition of the American economic universe) rose in the second quarter of this year at a 0.99 percent annual rate. The first quarter’s advance (feel free to make the “air quotes” gesture) was revised up from literally nothing to next-to-nothing. As RealityChek regulars know, labor productivity measures how much output is generated by each hour worked by each worker.

And that’s where the good news stops. The new Labor Department release also revised these labor productivity figures going back to 2014. These updates left the dismal recent productivity picture little changed, with one noteworthy exception: On an annual basis, labor productivity last year is now judged to have fallen (by 0.1 percent) for the first time since 1982.

Just how gloomy the labor productivity picture has gotten becomes clear when comparing its performance during the last few U.S. economic expansions (a methodology that gives us the best apples-to-apples growth). Note: Because of the new revisions, these figures supersede those contained in RealityChek’s past posts on labor productivity.

2Q 1991 to 1Q 2001: +23.25 percent

4Q 2001 to 4Q 2007: +16.03 percent

2Q 2009 to present: +8.49 percent

Manufacturing’s labor productivity performance shows this kind of deterioration, too. It’s second quarter rise was judged preliminarily to have been 2.44 percent annualized – much better (as has usually been the case) than the increase for the rest of the economy. But the first quarter figure was revised down to 0.29 percent.

And here are the figures for the current economic recovery and its two predecessors:

2Q 1991 to 1Q 2001: +46.81 percent

4Q 2001 to 4Q 2007: +41.23 percent

2Q 2009 to present: +22.25 percent

So manufacturing has seen a big labor productivity slowdown during this expansion, but it’s still leading the economy in this form of productivity growth by far.

But there’s one fly in the ointment here. As previously reported, the way the Labor Department measures labor productivity throughout the economy results in the offshoring of work generating better productivity. And of course nothing’s been offshored in recent decades like manufacturing work. Since offshoring-produced productivity gains aren’t the kind any thinking person would want, this means that the improvements seen in industry lately aren’t quite so impressive as they look. In fact, according to the Department between 1997 and 2006, offshoring accounted for 23 percent of the sector’s labor productivity gains.

At the same time, labor productivity isn’t the only kind of productivity. Multi-factor productivity is a broader, and more reliable measure; it tells us how much output is generated from the use of a wide variety of inputs, like technology, materials, capital, and energy as well as labor. The problem is that the multi-factor productivity data don’t come out nearly as often, and the latest take us only through 2015.

Still, that’s what we have, and what’s striking is that they reveal that, at least for “now,” manufacturing has lost its productivity growth lead. Here are the annual changes reported by the Labor Department for manufacturing in a July 12 release, combined with the latest such figures for the non-farm business sector as a whole:

non-farm business +0.61 percent

manufacturing -2.80 percent

Nor are the longer-term results any better for industry during the last three expansions:

                                        1991-2001          2001-2007           2009-2015

non-farm business       +11.51 percent     +9.91 percent      +5.52 percent

manufacturing             +13.98 percent   +14.66 percent       -2.17 percent

Although honest economists will admit that productivity is one of the most mysterious subjects they study, they’ll also insist that the official statistics provide a reasonably accurate picture about how the nation is using this crucial “secret sauce” for sustainable prosperity. These new Labor Department reports once again remind that the U.S. economy urgently needs to get its productivity culinary skills back up to snuff.

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

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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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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.