(What’s Left of) Our Economy: Now What in the U.S.-China Trade War?

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agriculture, allies, China, decoupling, Democrats, election 2020, forced technology transfer, Hong Kong, Huawei, impeachment, intellectual property theft, National Basketball Association, Phase One, Steven Mnuchin, subsidies, supply chains, Taiwan, tariffs, Trade, trade talks, Uighurs, verification, {What's Left of) Our Economy

This is the second working day since the United States and China reached what the Trump administration is calling a “Phase One” trade deal with Beijing last Friday, and the questions surrounding the agreement still far outweigh what’s known. That alone should tell you that towering obstacles continue blocking any confident assessment of where the President’s so-called trade war stands, much less where the conflict is likely to go. Even so, here are some observations I hope are useful.  (Teaser:  One major point concerns tonight’s Democratic presidential candidates debate.)

First, the absence of any written statements or documents from the U.S. side describing or even summarizing what’s actually in the agreement justifies big doubts that anything deserving the term “deal” has been reached at all. Further reinforcing legitimate skepticism is China’s long record of broken promises on trade.

Second, especially strong skepticism is warranted about U.S. claims that any meaningful progress has been made on the so-called structural issues focused on from the very beginning by the Trump administration. For it as I’ve long argued, China’s government is so vast and secretive, and leaves such scanty written records of key decisions, that it will simply be impossible for the United States to monitor and enforce even the most promising Chinese commitments on intellectual property theft, technology extortion, discriminatory Chinese government procurement, and Beijing subsidies that shaft U.S.-owned and other foreign businesses vis-a-vis their Chinese rivals.

Third, even if China currently means to keep its alleged promises to binge buy American agricultural products, any number of external events could upset the apple cart. They include the Hong Kong picture becoming uglier (its becoming prettier can’t be totally ruled out, but seems highly unlikely); new Chinese crackdowns on other protests that may emerge (especially among the Uighur Muslim population) or revelations of new Chinese atrocities against the Uighurs or other minorities or other protesters; more attempted Chinese bullying of high-profile U.S. businesses like the National Basketball Association; a major flare-up of tensions over Taiwan or China’s aggressive moves in the South China Sea; a step forward in the Huawei case that increases the chances that the CFO daughter of the founder of this Chinese telecommunications giant will be extradited to the United States from Canada for sanctions-busting; and Chinese moves that persuade Washington that Beijing has no intention of keeping its perceived agriculture or other promises.

Moreover, the longer China takes to ramp up its buys from American farmers, the greater the potential for these kinds of shocks to bring this “Phase One” agreement crashing down.

Fourth, the less impressive the “mini-deal” keeps looking, the more convincing my view that its apparent modesty reflects President Trump’s belief that his domestic political position has weakened significantly – both because of the new impeachment threat and signs of an economic slowdown.

It’s true that Treasury Secretary Steven Mnuchin has suggested that if the deal hasn’t been finalized by December 15, the Trump administration will go ahead with a previously vowed 15 percent increase on $156 billion worth of levies on Chinese imports. But that’s anything but a concrete threat. In addition, it’s important to note this report suggesting (the specifics are really sloppily described) that China wants the sequencing to work in the opposite way:  First, tariffs get rolled back (or frozen in place?), then the agriculture buys begin. 

Moreover, no one in the administration has said anything about reversing its Phase One-related decision to suspend a big tariff increase (to up to a formidable 30 percent on some products) previously announced to begin on October 15. So even though U.S. duties on some $360 billion worth of Chinese goods would still remain in place if China blows Mr. Trump off, there’s a real chance that Beijing won’t incur any further punishment – doubtless because the President believes that tariffs above and beyond current levels and coverage could panic investors again and further soften economic growth.

Some kind of blow-up in Hong Kong or elsewhere could yet change Mr. Trump’s calculations. But the more important point so far is that events, not the President, are now in charge of the trade talks track of his China policy.

Fifth, at the same time, none of the above means that the United States is devoid of leverage versus China and in particular the kind of clout that can keep advancing its economic as well as closely related technology and national security interests, and this is where a second, arguably more important, track of the Trump China policies needs to be remembered. As I’ve written, the President has sought not only to end the threat of China’s economic predation by forcing Chinese policy changes through tariff pressure. Although he rarely speaks of it, he’s also been trying to repel Chinese threats to U.S. security and prosperity through a series of unilateral measures aimed at decoupling the United States from China economically.

By crimping trade, investment, and technology flows, these decoupling steps are reducing America’s vulnerability to China by significantly reducing the access to the U.S. market so crucial to the success of China’s advanced industries; by shrinking the footprint of China’s state-controlled economy in America’s largely free market system; and by cutting off a Chinese tech sector that could be become highly dangerous from critical supplies of U.S. components.

Decoupling has also been advanced by those tariffs so far imposed on $360 billion worth of Chinese products (amounting to nearly 86 percent of all goods imports from China last year). They haven’t done much to achieve their stated aim of improving China’s behavior, but they have decreased China’s importance to the U.S. economy by prompting an exodus of global manufacturing supply chains out of the People’s Republic.

Further, the Trump decoupling campaign has also helped awaken many foreign governments to the China tech and broader economic threat – though because so many other countries (including major American treaty allies), were profiting so handsomely from the pre-Trump globalization status quo, progress on this front has been uneven and disappointing. (See here for why Germany, for example is so conflicted.) 

Sixth and finally, one major set of actors in this drama, though, hasn’t been very woke on China issues:  most of the Democratic presidential candidates. Sure, many have supported a policy of “doing something” on China (though rarely involving tariffs – or any other concrete measures). But so far, none seems to view China’s multi-dimensional challenge to America as a major concern – and all the top-tier contenders and most others now support impeaching the President. 

Consequently, they could greatly strengthen not only Mr. Trump’s position, but the American position, with firm declarations in tonight’s debate that China will stay squarely in Washington’s cross-hairs if they win the White House, and that therefore there’s no point in stonewalling in hopes of easier post-2020 U.S. policies. Not that any confidence looks well founded that any of them will.        

(What’s Left of) Our Economy: What the Mini-Deal Says About Trump’s China Policy

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agriculture, business investment, censorship, China, decoupling, democracy, Democrats, election 2020, Elizabeth Warren, Hong Kong, Hong Kong protests, human rights, impeachment, Populism, Republicans, tariffs, Trade, trade talks, trade war, Trump, Uighurs, Ukraine, Ukraine Scandal, {What's Left of) Our Economy

The “Phase One” min-deal reached by the United States and China tamping down bilateral trade tensions for the moment, speaks volumes about the three major forces that are now driving President Trump’s China policy, and that will keep shaping it through the next U.S. election – though not always in consistent ways. They are:

>the President’s evident belief that his reelection hopes are being threatened mainly by revived impeachment threats but also by an economic slowdown that has unmistakably been influenced by the so-called trade war with China;

>his consequently increased need for political support from the establishment Republicans so numerous in Congress who have never boarded the Trump Tariff Train and who are worried about their own reelection chances next year; and

>Mr. Trump’s consistent (though generally unstated) belief that no matter how the formal trade talks proceed, America’s national security as well as economic interests require the U.S. economy to continue steadily decoupling from China’s.

The strength of the impeachment drive faced by the president is now indisputable. Some polls are even showing growing Republican support for not only impeachment by the House but removal by the Senate. Moreover, this political challenge comes at a time when the President’s strongest suit by far (at least according to polls) – his economic policy record – is looking somewhat weaker.

Few signs point to a recession breaking out by Election Day, much less during the preceding weeks or months. But growth has been slowing to levels that Mr. Trump himself has deemed unacceptable – in no small measure because they were the rates that prevailed for most of the Obama administration.

The tariff-heavy Trump trade policies hardly deserve all the blame. (See, e.g., this recent post.) But the failure of business investment to stay elevated following passage of major tax cuts for business is especially telling. It buttresses claims that both the President’s various sets of tariffs and the inconsistency with which they’ve been both threatened and applied have inhibited companies from approving big new expenditures on new factories and other facilities.

As a result, nothing that can reasonably be expected from Washington (in other words, ruling out a big infrastructure spending bill) is likelier to boost the economy more than a nerve-calming trade truce with China mainly featuring some Chinese market opening or re-opening (especially for agricultural products) in return for some U.S. tariff cuts, promises to refrain from new levies, or some some combination of such moves. At the least, such an agreement would in theory help growth maintain the momentum it has remaining.

A mini-deal along these lines would also please the Senate Republicans who might ultimately judge the President’s fate, and who generally have lagged far behind the GOP base in turning against pre-Trump China and broader trade policies. Moreover, as I’ve written, impeachment politics have greatly magnified their sway over Mr. Trump before. Despite his sky-high popularity with Republican voters, the President was heavily dependent on their political backing until this spring in order to neutralize any impeachment chances while his Russia ties were being investigated. That’s surely why his early policy initiatives were dominated by traditional Republican priorities, like tax cuts and repeal of former President Barack Obama’s healthcare overhaul, rather than by populist priorities like an infrastructure bill and the prompt imposition to tariffs.

Once the Special Counsel and other investigations flopped for various reasons, Mr. Trump had a much freer hand. But because of the emergence of “UkraineGate,” for now, those days are over. Probes growing out of those events are certain to last for months. Therefore, continued, much less higher, tariffs on China that could further drag on the economy and further frustrate the rural constituencies so crucial to the President and many other Republicans seem out of the question.

The President is so hamstrung that he’s been unable to marshal greater public support for staying the tariff course even though China is antagonizing American public opinion with its harsh suppression of the Hong Kong protests and the Muslim Uighur minority, and with its heavy handed efforts to extend its censorship practices to the National Basketball Association and other U.S. businesses. And don’t forget: These developments have placed China in a much weaker position, too.  

One reason that the President hasn’t been able to capitalize could well be his reluctance to declare publicly the functional equivalent of economic war, or his intent to decouple – presumably because any such statements would prompt the Chinese to crack down even further on American companies even doing business in the PRC that have nothing to do with job and production offshoring aimed at serving the U.S. market from super-cheap and highly subsidized Chinese facilities, as opposed to serving Chinese customers. And that reasoning has been entirely understandable.

Much less understandable – the President’s insistence that a trade war with China would be easy to win and inflict no economic harm on Americans, rather than choosing to challenge his compatriots to endure some sacrifices in order to beat back a mortal threat to their national security as well as prosperity. No wonder public support for so-called hard-line policies remotely strong enough to offset the opposition and reservations of the Congressional Republicans and most Democratic politicians is nowhere to be seen.

And don’t doubt that the Chinese fully understand. Whatever problems they initially experienced in figuring Mr. Trump out, they surely have concluded that they’re best advised to play the waiting game on the broader and deeper so-called structural issues dividing the two countries (e.g., intellectual property theft, technology extortion, massive subsidies) until the President is replaced by a Democrat who’s much easier to deal with.

Indeed, the evidence for this conclusion is abundant. China issues have played a small role in the Democratic primary campaign so far – even when it comes to long-time critics of pre-Trump trade policies like Democratic Socialist Vermont Senator Bernie Sanders, and Massachusetts Senator Elizabeth Warren. One likely explanation: In recent years, Democratic voters and leaners have markedly flipped on those pre-Trump approaches, from deep dislike to general approval. This shift in public opinion (matched in part by a trade flip in the other direction among Republicans and leaners) may also warrant some Chinese confidence that even a President Warren might prove a more acceptable interlocutor than Mr. Trump.

Nonetheless, the formal talks are not the only track on which the Trump administration’s China trade policies are running. And the other track – featuring unilateral U.S. moves to restrict Chinese involvement in the American economy, and thereby foster decoupling – is much less controversial than the trade talks and especially the tariffs and tariff threats clearly required to spur any meaningful progress.

Highly revealing on this score (in terms of the importance attached in Washington to decoupling): Even as a high level Chinese delegation was jetting to Washington, the President approved actions against Chinese tech companies and Chinese officials that were justified by human rights concerns, but that in the first case clearly advanced decoupling. Just as revealing (in terms of possible Chinese acceptance of a more skeptical new bipartisan U.S. consensus on China policy): Despite the provocative timing, the Chinese didn’t turn around and head back home once they heard the announcement.

Reinforcing the new American consensus on decoupling has unmistakably been the growing realization by the U.S. corporate sector that its heavy bets on China have dangerously increased its vulnerability not only to the whims of American politics, but to a Chinese regime that’s turned out to be much less hospitable than expected. As a result, “Phase One” is not only a suspiciously convenient-looking term being used by the President to describe his new deal. It also looks suitable for describing where his administration’s overall China policy stands right now.     

(What’s Left of) Our Economy: Why Trump’s Not Down on the Farm

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agriculture, Alan Rappeport, American Farm Bureau Federation, election 2020, farmers, Greg Sargent, Mainstream Media, regulation, tariffs, taxes, The New York Times, Trade, trade war, Trump, Washington Post, {What's Left of) Our Economy

For anyone with any sympathy for President Trump’s China and other trade policies (like yours truly), one of the great pleasures of following the news coverage has been reading the bushel of stories that conform to the following pattern: a Mainstream Media reporter jets out to farm country expecting to find the nation’s agricultural community – which voted strongly for Mr. Trump in 2016 – up in arms about lost export sales due to foreign tariffs and other restrictions imposed in retaliation to new U.S. levies. And selfsame reporter winds up grudgingly writing that farmers and ranchers are by and large sticking with the President.  (See this classic example.)

This morning, such coverage took a turn that’s new and especially important given the approach of the next presidential election. In the process, the journalists involved unwittingly demonstrated how ignorant they continue to be about the full relationship between Trump administration policies and American agriculture.

The new turn was made clear by this claim today in a New York Times report: After “remaining resolute” in support of Mr. Trump, the difficulties faced by U.S. Farmers is finally “becoming a political problem” for the President. Indeed, wrote correspondent Alan Rappeport, “as the trade fight gets uglier, farmers are beginning to panic.”

And following a recent, increasingly incestuous trend in which reporters and pundits from one news organization breathlessly (and often instantly) hype the findings of a rival, a Never Trump-er Washington Post columnist based an entire essay today on the Times piece, declaring “There are indications that they are now getting genuinely angry over Trump’s efforts to gaslight them so shamelessly over the impact of his trade war with China.”

Or are they?

The original (long) Times article – in the next to last paragraph – informed readers that

“many farmers continue to support Mr. Trump and express hope that the president knows what he is doing in his dealings with China. A July survey from Farm Journal found that 79 percent of 1,100 farmers still back Mr. Trump despite the lack of progress in negotiations with China.”

Similarly, Post columnist Greg Sargent wrote: “Let’s stipulate up front [actually, this insight didn’t come until the middle of the article] that there is zero chance that farmers — or rural voters — break with Trump in 2020.”

At the same time, there’s no doubt that American farm exports, especially to China, are down this year. So what gives? Two major developments, both of which have been almost completely neglected:

First, the Trump administration has done very well by American farmers and ranchers by way of tax policy. And second, it’s done just as well by them by way of regulatory policy. At least, that’s what the biggest U.S. agricultural lobbying group has said, in reports here and here. P.S. The American Farm Bureau Federation is no fan of the Trump tariffs.

I could add that American farm prices and incomes began falling years before Mr. Trump’s inauguration – and have actually been leveling off recently. And that, when it comes to trade, farmers are strongly in favor of the U.S.-Mexico-Canada-Agreement – the Trump administration’s rewrite of the North American Free Trade Agreement (NAFTA). But that would be piling on.

It’s not that everyone shouldn’t be heartened by the upsurge in national press corps interest in American agriculture. But that’s only Step One in generating accurate coverage. Step Two is actually learning something.

(What’s Left of) Our Economy? Did Trump Trade National Security for Soybeans with China?

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agriculture, China, election 2016, election 2020, export controls, extradition, farmers, G20, G20 Summit, Huawei, Meng Wangzhou, national security, Osaka G20 Summit, rural areas, soybeans, tariffs, technology, telecommunications, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Did President Trump sell U.S. national security down the river at his meeting with Chinese dictator Xi Jinping in order to make American farmers happy and, he hopes, ensure his reelection? Could be – even though there’s still much that’s not known about the U.S.-China deal reached between the two leaders on the sideline of a big international economic summit meeting in Osaka. In fact, I haven’t even seen any official U.S. government documents describing the agreement in detail. (A further complication: Whatever official Chinese documents come out describing the deal could differ significantly from the American portrayal.)

At the same time, I’ll venture that the major, and from the U.S. standpoint, urgently, needed course change in China policy begun by Mr. Trump hasn’t yet been altered fundamentally. And I still don’t consider that outcome likely, even though events of the last few days reveal that some important loopholes in America’s approach need to be closed, pronto. 

From what I can glean from the just-released official White House transcript of the President’s Osaka press conference is that (as I predicted), Mr. Trump and Xi agreed to resume formally negotiations that fell apart in early May, apparently because China began reneging on commitments it had already made. The quid pro quo that seems to have revived the talks evidently comes down to this:

The President agreed to refrain from imposing threatened tariffs on U.S. imports from China that don’t already face duties or new duties (a little more than half of Chinese goods entering the American market fall into this category), and to make it easier for American tech companies to sell, seemingly on an ongoing basis, parts and components vitally needed by Chinese telecommunications giant Huawei.

In return, China agreed to boost greatly purchases of agricultural products that it had all but shut out of its own large market to retaliate for Trump tariffs, thereby denying U.S. farmers major rivers (not just streams) of revenue. Since rural America went so notably for Mr. Trump in 2016, the political appeal of that approach is easy to see.

The chief uncertainty remaining: What exactly will Huawei be able to buy from U.S. firms? The issue is crucially important to China because, notwithstanding its commanding position in many global markets for advanced telecommunications systems, these Huawei products still depend vitally on information technology hardware and software from American-owned tech companies that have no adequate (if any) substitutes from other suppliers. And if, as was likely, Huawei suffered major damage because these U.S.-origin goods and services weren’t available, a major blow would be dealt to China’s ambitions to gain preeminence in a wide range of advanced technologies – and turn itself into a military superpower in the process.

Factors contributing to the uncertainty? To start, the so-called U.S. ban on selling to Huawei wasn’t technically a ban. It was an announcement that any proposed U.S. sales to Huawei needed to be approved by the American government because Huawei had been placed on a list of “entities” deemed dangerous to U.S. national security. So in principle, some American firms’ products and services could still be sold to Huawei (and several dozen affiliated entities also added to the list). But presumably, the truly valuable inputs would be denied.

Second, President Trump told the Osaka press conference that Huawei would only be permitted to buy from American-owned business “equipment where there’s not a great national-emergency problem with it.” That’s somewhat comforting, but only somewhat. The reasons? First, there’s reason to believe that, even before the Trump-Xi agreement, Huawei could have bought even equipment that did raise national security concerns as long as those computer chips or whatever else consisted mainly of foreign content (which is often the case because production of these goods has become so globalized, and because – irony alert! – some of the non-U.S. content now comes from China itself).

That qualification was shaping up as a huge problem because, if it’s present, then Huawei would still retain access to many of the high tech products it needs; and because the result could be even stronger incentives for American high tech companies to manufacture and develop even more of their most sophisticated offering offshore, including in China.

Third, as Mr. Trump specified, Huawei has not been taken off the “bad entities” list. Nor has there been any change in the U.S. extradition request to Canada for Meng Wangzhou, the CFO of Huawei (and daughter of its founder) to enable her trial for violating America’s export control laws. Why, then, do anything to make life easier for this entity?

Fourth, the Huawei-centric nature of this policy could signal that the President is falling into a China policy trap: Assuming that measures focused on specific entities (remember: nothing in China that’s routinely called a “business” or “company” deserves that label, in terms of how they’re used in most of the rest of the world, because China’s economy is so thoroughly controlled by the state) are adequate to cope with the intertwined China tech and national security challenge.

In fact, such episodic approaches seem doomed to fail because the China challenge is a systemic challenge. The exact names of specific instruments comprising this China challenge don’t matter in the slightest. For instance – let’s say that a truly total Huawei ban did sink this organization. In time, what’s to stop Beijing from simply slapping another name on the same units, facilities, and employees? Would Americans really want their government to have to wait to impose an embargo on this new entity until it began endangering their national security? Wouldn’t it be much better to understand that every Chinese entity big enough to be permitted by the Chinese government to play in global markets is by definition an agent of Beijing’s and of its (distinctly dangerous) ambitions? And to treat the Chinese high tech sector – for starters – accordingly?

As for the Chinese promises of greater imports of U.S. farm products, they’re problematic, too, even if Beijing does keep its promises. Hopefully, American farmers will be smart enough to respond in a measured way, not by simply assuming that they’ve won a free pass back into China forever, and recklessly supercharging and distorting their planting patterns to satisfy this new demand (as was the case especially for soybeans). Instead, hopefully, they’ve learned that Beijing can close the doors whenever it wants to – and that President Trump is kind of mercurial itself.

The President also could well be selling his agricultural record short. For although farmers clearly don’t like the Chinese tariffs on their exports prompted by the Trump levies, they also no doubt recognize how they’ve benefited from his tax and regulatory policies. And those that are culturally and socially conservative probably like what they hear from the President on those subjects – and/or don’t like many Democrats’ statements. Finally, the passage of the Trump administration’s revamp of the North American Free Trade Agreement (NAFTA) – the U.S.-Mexico-Canada (USMCA) deal could ease many farmers’ trade worries. 

In fact, the volatile Trump temperament – and his reelection hopes – look like the best guarantors that this shortsighted high-tech-for-soybeans trade-off won’t last long. Because the main obstacle to the kind of overarching trade deal the President still talks about still remains – the impossibility of verifying China’s compliance adequately. So the longer the Chinese hold out, and deny the President the chance he so clearly covets to claim a big victory, the more irritated with them he’s likely to become, and the greater the odds that some hammer comes down again.

Moreover, if the overall American economy and especially its manufacturing sector wind up slowing down, as some key indicators already suggest they are, increases in tariffs on Chinese manufactures could be the difference between Trump victories in the manufacturing-heavy Midwest states that (narrowly) helped key his 2016 triumph, and defeats.

In addition, it’s critically important to note that the Chinese products still facing tariffs are much more important to China’s economic future than the products that remain entirely or largely duty-free. That’s because the first group overwhelmingly consists of parts and components of industrial products that in turn are pretty advanced goods themselves. They’re the kinds of products that matter crucially to America’s industrial future as well.

So, as observed by this perceptive New York Times article, the China-links to the global supply chains that face such mortal threats from these tariffs still remain endangered, and the more-than-decent odds that these levies will remain in place, and even get raised further, will surely keep prompting multinational companies the world over to move at least partly out of China. And any developments that weaken China economically are by definition good for the United States.

Moreover, despite widespread predictions that Trump tariffs on these so-called intermediate goods would wind up raising consumer prices because their corporate buyers would need to pass along the tariffs’ cost to their final customers, little of such inflation has emerged, for numerous reasons I’ve written on previously.

By contrast, the still un-tariffed goods are consumer goods – like shoes and toys and apparel and consumer electronics products. For various reasons I’ve written about, their prices weren’t likely to budge much even with new Trump tariffs. But for now, the President has foreclosed any such possibility completely. The only drawback for the United States to leaving these goods largely duty-free – because they’re generally very labor-intensive products, they employ unusually large numbers of Chinese workers – is that any movement of production from China to anywhere else (even even it’s Chinese companies themselves doing the moving) would result in greatly increased Chinese unemployment. The regime has long viewed high joblessness as a mortal threat to its survival. So China’s labor-intensive industries, and by extension China’s dictators, have been let off the hook, too.

In all, then, so far it seems fair to conclude that President Trump handed the Chinese some genuinely important concessions in exchange for precious little from Beijing. But it’s also distinctly possible that this trade-off makes so little sense economically, national security-wise, and politically, that it will badly flunk the test of time. And at least as important, nothing in its seems capable of stopping or even greatly slowing the U.S.-China economic disengagement that, as I’ve written, is bound to serve America’s long-term interests, and that’s already underway.

(What’s Left of) Our Economy: Krugman’s (Embarrassingly) Phony Tariff History

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1920s, agriculture, Economic History Association, history, Paul M. Krugman, protectionism, tariffs, The New York Times, Trade, Trump, World War I, {What's Left of) Our Economy

To the many reasons I have to envy Paul M. Krugman (his high profile perch as a New York Times pundit, his Nobel Prize in economics, his surely stratospheric income), one more can now be added:  As strongly indicated by his latest column for The Times, he works for folks who allow him to publish any claim he’d like without being fact-checked or even questioned in any way.

In that piece, Krugman sought to debunk President Trump’s recently tweeted claim that “TARIFF is a beautiful word indeed” by showing that “the actual history of U.S. tariffs isn’t pretty.”  One major example he used:  Because America “took a sharply protectionist turn before the infamous 1930 Smoot-Hawley Act,” the country’s farmers “spent the 1920s suffering from low prices for their products and high prices for farm equipment, leading to a surge in foreclosures.”

“Part of the problem was that U.S. tariffs were met with retaliation; even before the Depression struck, the world was engaged in a gradually escalating trade war.”

Sounds pretty convincing, right? In fact, not even close. And not least of which because the only two sources cited by Krugman contain absolutely no mention of low farm prices or foreclosures or unaffordable farm equipment stemming from any trade-related developments. In fact, there’s not even a mention of “high prices for farm equipment” at all.

The sources – articles on the Economic History Association’s website on the 1920s tariffs, and on the U.S. economy in the 1920s (you can read them here and here) – demonstrate that agriculture’s woes during this period (not surprisingly) resulted from many cases. But tariffs don’t make the list. 

Simply put, the main culprits were excessive borrowing by American farmers late in the previous decade based on the assumption that agricultural output in war-torn Europe would remain long depressed, and that this market would for many years be importing ever greater amounts of U.S. farm products; and a subsequent price-depressing glut in American supply when European output recovered faster than expected once World War I ended.

A a result, U.S. farmers were left with lots of new acreage and machinery that suddenly became superfluous even though their new owners still needed to pay off the debts they incurred to buy them.  No wonder so many weren’t able to meet their mortgage payments.

Adding to American agriculture’s problems during this period were a productivity boom triggered by surging mechanization and other advances that permitted agricultural production to rise much faster than domestic (and foreign) consumption; and an economy-wide depression in 1920 and 1921 that primarily resulted from excessive monetary tightening by the Federal Reserve. Again, nothing about tariffs.

Importantly, the 1920s economic history article in particular is a gold mine of information about many developments of that time that shed considerable light on today’s major economic challenges – as I’ll be describing in some future posts.  In the meantime, I’d strongly recommend that anyone with an interest in the American economic invest the time needed to read it – starting with Paul Krugman.

Glad I Didn’t Say That! A Mixed Media Message on U.S. Farm Labor Shortages

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agriculture, automation, farm workers, Glad I Didn't Say That!, illegal aliens, Immigration, Jobs, labor shortages, Mainstream Media, robots

“With fewer undocumented workers to hire, U.S. farmers are fueling a surge in the number of legal guest workers”

– The Washington Post, February 21, 2019

 

“One February afternoon, they work about an acre apart on a farm the size of 454 football fields: dozens of pickers collecting produce the way people have for centuries — and a robot that engineers say could replace most of them as soon as next year.”

– The Washington Post, February 17, 2019

 

(Sources: “With fewer undocumented workers to hire, U.S. farmers are fueling a surve in the number of legal guest workers,” by Kevin Sieff and Annie Gowen, The Washington Post, February 21, 2019, https://www.washingtonpost.com/world/the_americas/with-fewer-undocumented-workers-to-hire-us-farmers-are-fueling-a-surge-in-the-number-of-legal-guest-workers/2019/02/21/2b066876-1e5f-11e9-a759-2b8541bbbe20_story.html?utm_term=.225cc2cc55fe; and “Farmworker vs Robot,” by Danielle Paquette, The Washington Post, February 17, 2019, https://www.washingtonpost.com/news/national/wp/2019/02/17/feature/inside-the-race-to-replace-farmworkers-with-robots/?utm_term=.24166019b5dc)

(What’s Left of) Our Economy: America’s Persistent China Delusion Syndrome

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agriculture, China, comparative advantage, establishment, Made in China 2025, Mainstream Media, offshoring lobby, private sector, tariffs, The New York Times, The Wall Street Journal, Trade, {What's Left of) Our Economy

The week has barely started and already the Mainstream Media have delivered some genuinely bizarre – indeed seemingly clueless – China-related moments.

There’s the big New York Times series titled “China Rules.” It usefully describes how the People’s Republic has completely confounded the bipartisan American political and policy establishment’s confidence that its growing integration into the global economy would turn it into more cooperative, more economically and politically open power. And thankfully, the series does point out this mistaken official U.S. optimism – which it notes spanned fully eight presidencies. But it says nothing about the massive amounts of money spent by offshoring multinational corporations in Washington, D.C. and the rest of the country’s political and policy communities (encompassing academia and think tanks alike) to foster China myth-making and spoon-feed it to the national media, which overwhelmingly swallowed it hook, line, and sinker.

Given that this self-interested myth-making bears so much blame for China’s emergence as a major threat to America’s national security and prosperity, it’s imperative that The Times (and the rest of the Mainstream Media) start telling this story in detail – both to reveal how active and influential the myth-makers remain, and to reduce the odds that they’ll stage a comeback down the road.

The Times itself just provided one clear example of such influence in a tweet this morning about a piece on the just-concluded summit of Asia Pacific countries in Papua New Guinea – which tells readers that “The Chinese delegation sought to reaffirm its opposition to the protectionism and unilateralism that have been a focal point for criticism of the United States.” Honestly. “Reaffirm”? Like China’s (stated) opposition to protectionism as such is something to be taken seriously? Or that even China takes seriously?

Are such longstanding journalistic conventions the product of simple laziness? Or of literally decades of media reliance for information and analysis on myth-makers with strong vested stakes in portraying China as a steadily reforming economy? The answer, of course, is “both” – and that the latter fosters the former.

Another example of these habits’ persistence: today’s Wall Street Journal article describing how China’s central government and major local governments are now trying to support a “private sector” that “has become a weak link in a slowing economy.” Yes, there are entities in China that are now customarily called “private sector.” But in a command economy like China’s, where the state wields power in a wide variety of direct and indirect ways, they have about as much in common with genuine private sector companies as fool’s gold has with the real thing.

But perhaps the week’s most important China media reference – at least so far – appeared in a Journal article on how the country’s farm sector is coping with the advent of high tariffs on many U.S. agricultural products. It came in the form of some statements made by China’s President, Xi Jinping that deserve major coverage on their own, but that were presented as little more than boilerplate:

“Unilateralism and trade protectionism are rising, forcing us to take the road of self reliance. This is not a bad thing. China ultimately depends on itself.”

Xi was speaking specifically about agriculture, and can’t reasonably be criticized for wanting his country to be more self-sufficient in this sector. After all, what national leader could genuinely be happy about depending on other countries for food?

But there are two glaring problems brought up by his remarks. First, as I’ve written frequently, the contemporary global trading system, and the conventional economics underlying it, condemn the quest for self-sufficiency in any part of a country’s economy as a No-No. Trade (and therefore production) patterns are supposed to help develop the most efficient global division of labor possible. In plain English, this means that countries are supposed to specialize in what they make best, and to remain satisfied with importing most of the rest. And if food production isn’t their strong suit, they should be confident that they’ll always be able to buy from abroad all that they need.

Second, as I’ve also written, China’s quest for self-sufficiency is hardly confined to food. The country’s policy record makes clear that it’s the goal for its entire economy. The regime’s Made in China 2025 manufacturing and technology program is only the latest example. Among its objectives is reducing the country’s dependence on foreign-made parts, components, and materials for a wide range of manufactures. In other words, China’s leaders aren’t satisfied with importing goods and services where it currently lacks what economists call “comparative advantage.” They want to create this advantage for China – and according to a very specific schedule of highly concrete goals.

Whether dealing with another party, it’s crucial to define it correctly, and doubly so when that party is a “competitor” or a “rival” or outright enemy. Thanks to articles like those above, Americans have just been reminded vividly how far much of their leadership class remains from achieving this objective when it comes to China.

Making News: Economic Hits During a Political Week

Tags

agriculture, Breitbart.com, Cleveland Plain Dealer, John Carney, Making News, manufacturing, midterms 2018, Ohio

I’m pleased to announce two recent economics-focused media hits that were especially gratifying given the (understandable) dominance of political news last week.

The first came in the Cleveland Plain Dealer, which quoted me in a terrific investigative piece on the stunningly different stories of manufacturing strength and overall prosperity in two different counties in Ohio.  The article has also been syndicated in smaller papers all across the state.

The second came on Breitbart.com.  Its economics editor, John Carney, cited my post on the midterm elections and results in the trade-dependent U.S. farm belt in a same-day (November 7) article on the same subject.  OK, so this piece was kind of political.

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

Im-Politic: So Farmers (Especially Soybeans Growers) Were Going to Punish Trump on Trade?

Tags

2018 elections, agriculture, China, farmers, Im-Politics, midterms 2018, soybeans, tariffs, Trade, trade war, Trump

Since I’ve long followed U.S. trade policy, since it’s long been one of President Trump’s signature issues, and since for months the President’s tariffs had been widely described as a major danger to the coalition that carried him and other Republicans to victory in 2016, I thought one of the most useful post-midterms exercises I could conduct would be to see if these analyses held up. The verdict: Anything but.

At the heart of this narrative were America’s farmers, and especially its soybean growers. In brief, the Trump China tariffs sparked retaliatory Chinese levies on a wide range of U.S. exports, including soybeans. Soybeans had become the nation’s leading agricultural export to China, and China exports represented a large share of total American soybean production. And since those soybean exports to the People’s Republic were endangered (and have in fact plummeted), the soybean farmers (along with the rest of U.S. agriculture, since its exports were threatened by various foreign retaliatory tariffs, too) were likely to take their anger out on Republican candidates for the House and Senate this year, and reward Democrats with significant wins.  (See here, here, and here for some examples.)

Last night’s midterm results, however, make clear that nothing of the kind happened. To see how off-base the “Republican Soy-Mageddon” (“Soy-Pocalypse”?) predictions were, let’s first look at the returns from the Top Twenty districts in the House of Representatives in terms of total agricultural output. Republicans held sixteen and Democrats four when the evening began.

When it ended, the number of those seats flipped by the Democrats (i.e., where one of their candidates beat a Republican incumbent) totaled one: the First District of Iowa. The other three Democratic victories were scored by Democratic incumbents.

Republicans flipped none of these 20 seats. But they held on to 15. Moreover, three of these seats were open seats – that is, a Republican incumbent had retired. So all else equal, the Democratic candidate’s chances of winning were increased.

The race for the twentieth seat on this list – Minnesota’s First District – was too close to call at the time of this writing. It’s an open seat also, but the previous incumbent was a Democrat. So no sign of any blue wave, or any notable Democratic strength in this group of Districts, whatever.

But what about the soybeans-dominated Districts? The results from this Top Twenty show nothing like a Republican Soy-Mageddon, either.

During the previous Congressional session, Republicans held 16 of these seats as well, and the Democrats four. The Democrats flipped two of these Districts – that First in Iowa, along with that state’s Third. The Democrats’ four other victories in this group were by incumbents.

The Republicans, again, didn’t flip any Democratic soybeans seats. But they held onto 15 of their original 16 seats. In addition, three of those seats were open, so again, the GOP candidates’ advantage was smaller than it would have been had the incumbent run. The election in the twentieth District in this soybeans group – Minnesota’s First – is that still-undecided race.

Again no Soy-Mageddon for Republicans.

These developments won’t come as a major surprise to careful news buffs. Several reports (see, e.g., here, here, and here) have been published in recent weeks containing evidence that, however worried they were about their own individual prospects, many American farmers continued to support Mr. Trump – and in principle even his efforts to use pressure to extract more equitable terms of trade from China and other foreign economies. But you had to be quite the careful news buff.

At the same time, last night’s results by no means give Mr. Trump a free pass on trade policy from American agriculture. Before too long, unless his efforts start delivering results for U.S. farmers, or removing the trade threats they still face, or unless other administration policies open up new opportunities (at home or abroad), their patience could well run out. For now, however, ag is hanging tough with an America First trade approach at the grassroots level.  It’s high time that its whiny Inside the Beltway spokespeople start paying attention. 

(What’s Left of) Our Economy: The August U.S. Trade Report – All Soybeans Edition!

Tags

agriculture, Census Bureau, China, exports, farming, intellectual property theft, soybeans, tech, Trade, trade war, Trump, U.S. Department of Agriculture, U.S. International Trade Commission, USDA, USITC, {What's Left of) Our Economy

This belated report on last Friday’s U.S. trade figures (for August) focuses on soybeans for what should be glaringly obvious reasons. They make up by far the most important sector of the American economy, and any President, like Donald Trump, who risks its well-being for a trifling objective like preventing China’s domination of the world’s industries of the future – via rampant intellectual property theft, extortion, and other predatory practices – must have rocks in his head.

OK, I’m now pulling my tongue from my cheek. But given the massive coverage of U.S. soybean farmers’ woes resulting from Chinese retaliatory tariffs that are ruining their sales in their biggest foreign market by far, it seems appropriate to see what the numbers say. Especially because so far, they’re showing nothing close to a trade-led Soy-Mageddon for American growers.

The latest Census report pegs the August year-to-date current dollar soybeans exports increase at a robust 39.16 percent (from $13.10 billion to $18.75 billion). I’d like to provide the comps for the previous years, but they don’t seem to be terribly consistent with each other.

This rapid growth could well reflect the export front-loading in advance of expected tariffs that’s been widely reported. (For a compelling contrarian view, see here.) As a result, it could disappear completely, or even shift into reverse during the rest of the year. But if soybeans exports do tank between now and year-end, no one would be more surprised than the analysts at the U.S. Department of Agriculture (USDA). They keep raising their full-year 2018 export forecasts (measured in quantity, not value, terms). So why are prices so weak? Largely because even though they professed to be worried about China tariffs, America’s farmers just kept planting ever more soybeans. And planting. And planting. In fact, this year’s harvest is expected to be the biggest ever.

And speaking of the Agriculture Department, the soybeans story doesn’t end with the Census reports data. Why not? Because they differ dramatically from those calculable from the U.S. International Trade Commission’s (USITC) interactive Trade Dataweb search engine. And since the USITC statistics are the ones used by USDA, they’re worth looking at, too.

These year-to-date figures only go up to July so far, but they don’t point to any tariffs-led Soy-Mageddon, either. As with the Census data, the numbers are in current dollars, and rates of change are to their right:

2016:  $10.062 billion (+25.67 percent)

2017:  $9.076 billion (-10.86 percent)

2018:  $8.452 billion (-6.87 percent)

So yes, soybeans exports are down this year, according to the USITC. But they fell during the same period last year too – at a faster rate, even though no China tariffs or threats thereof were on the horizon. Moreover, prices this year have been falling faster than in years past for various reasons – including the actual and threatened tariffs, but as made clear above, not solely because of them.

As mentioned, these USITC figures don’t adjust for these changing prices. But the Commission helpfully provides quantity numbers as well. Here they are for the same seven-month time period, in metric tons, along with the percentage changes:

2016:  20,113 (+9.96 percent)

2017:  22,366 (+11.20 percent)

2018:  24,635 (+10.14 percent)

That is, adjusted for falling prices, soybeans exports have been rising a little more slowly this year than last, but faster than in 2016. And the rates of increase haven’t changed markedly. 

Farming is a tough business, and with a genuine U.S.-China trade war having broken out, with no end in sight, no one can legitimately blame American soybean producers for feeling nervous about the fallout.  But the evidence keeps getting clearer and clearer that, even in the mixed U.S. economy, supply and demand still play a big role in determining prices, and that soybean growers jacked up the supply enormously in recent years. If they want to get out of their current fix, they’d do well to stop complaining so much about the Trump tariffs and start getting that message.