Making News: Back on National Radio…& More!

Tags

Airbus, Biden, Biden border crisis, Boeing, Central America, China, Dominic Gates, G7 Summit, Gordon Chang, Immigration, IndustryToday.com, Iran nuclear deal, JCPOA, Jobs, Making News, Market Wrap, migrants, Moe Ansari, Seattle Times, The Epoch Times, The Hill, Trade, trade policy, wage inflation, wages

Time to catch up with the updates on recent media appearances – in reverse chronological order!

It was great to return this past Wednesday to Moe Ansari’s nationally syndicated “Market Wrap” radio program. Click here for the podcast of an exceptionally wide-ranging segment covering topics from the recent summit meeting of the world’s leading economies to the future of the Iran nuclear deal.

On June 16, leading China policy analyst Gordon Chang quoted me in an op-ed for The Epoch Times explaining how some features of President Biden’s economic proposals might backfire and promote employment in China, not the United States. Here’s the link.

On June 15, the Seattle Times‘ Dominic Gates featured my views in his coverage of the recent settlement of a long-running trade dispute between Europe’s Airbus and America’s Boeing. Incidentally, if there’s a U.S. journalist more knowledgeable than Dominic about the aerospace industry, I’ve never met him or her. So it was especially flattering that he sought out my perspective. Click here to read. In addition, the article was widely distributed throughout the country via the Tribune News Service syndicate.

On June 10, Chang again highlighted some of my opinions – this time in an op-ed for The Hill some of my thoughts on using U.S. trade policy more effectively to help foster prosperity in Central America and thereby stem the flow of migrants, and why previous such efforts have failed. Here’s the link.

Finally, on June 2, IndustryToday.com re-posted (with permission!) my RealityChek essay arguing that, despite numerous alarm bells, wage inflation overall in the United States seems pretty unexceptional. Click here to read.

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

(What’s Left of) Our Economy: Boeing’s Safety Woes are Hammering U.S. Manufacturing & Overall Trade Flows Under Trump

Tags

Airbus, Boeing, civilian aircraft, exports, imports, manufacturing, non-oil goods trade deficit, safety, services trade, tariffs, Trade, trade deficit, Trump, World Trade Organization, {What's Left of) Our Economy

When last month’s U.S. trade figures (for August) came out, I wrote about how the economic narratives about the woes of domestic manufacturing and America’s trade accounts during the Trump Tariffs Era have been turning into a story about the safety related troubles of Boeing. This morning, the September data were issued, and the Boeing drag on the trade performances of industry and the entire economy look bigger than ever. Especially interesting, the Boeing effect worsened during a data month when total U.S. trade, manufacturing trade, and civilian aircraft trade all took modest turns for the better.

Specifically, the overall U.S. trade deficit in September dropped by 4.70 percent, from an upwardly revised $55.04 billion to $52.45 billion. The total was the lowest since April’s $51.98 billion, and the sequential decrease the biggest since January’s 12.61 percent nosedive.

Partly as a result, the year-to-date trade deficit is up by 5.47 percent – a rate of increase less than half that of the previous year’s 12.68 percent.

Combined goods and services exports rose by 0.88 percent from $207.83 billion to $205.99 billion – their worst monthly performance since April’s $205.76 billion. Total imports, however, sank by nearly twice as much proportionately – 1.68 percent. And September’s $258.44 billion figure was also the lowest since April ($257.74 billion).

Services trade, however, provided an oddly glum counterpoint. It’s long been a trade surplus generator, and remained so in September. But the new monthly surplus of $19.27 billion was the lowest since December, 2012’s $18.55 billion. The main culprit? The fourth straight high for monthly services imports ($49.89 billion).

At the same time, the huge and chronic manufacturing trade deficit fell sequentially in September for the second straight month, from $92.08 billion by 4.53 percent, to $87.91 billion. That total was the best since June’s $83.63 billion. And this progress was mirrored in civilian aircraft. Their exports jumped month-to-month in September by 25 percent. Imports rose even faster – by 41.58 percent. But their amount is much smaller ($1.35 billion vs $3.29 billion). Therefore, the civilian aircraft trade surplus improved from $1.69 billion to $1.95 billion.

What, then, is the problem? It becomes glaringly visible upon examining trade in civilian aircraft during the entire stretch of Boeing’s current woes (which essentially began this past March with many national aviation authorities grounding the plane in their own countries’ airlines, and/or barring it from their national air spaces), and comparing it with the aircraft trade figures for the same periods of previous years, and with the performance of overall manufacturing exports and imports.

Last month, I described how civilian aircraft’s trade performance between this past April (the first full month in which the Boeing effect could be expected to begin showing up) and August had deteriorated markedly from the same period last year. Today’s trade data show that the deterioration has grown far worse.

As made clear in last month’s post, despite its reputation as a major American trade winner, the civilian aircraft sector has experienced ever poorer results since 2017, and the new trade figures confirm this trend.

Between April and September of 2017 and April and September of 2018, civilian aircraft exports fell by 10.32 percent, even though overall U.S. manufacturing exports increased by 6.84 percent. The industry’s record on the import side was better – they dropped during this time by 13.98 percent, while manufacturing imports in total climbed by 11.64 percent.

But the comparison between the following April-to-September periods looks considerably drearier for aircraft. Between April and September of last year and the same period this year, although manufacturing exports were down by 3.82 percent, civilian aircraft foreign sales sank by 26.80 percent. And although manufacturing imports edged up only 0.27 percent between these periods, American purchases of civilian aircraft surged by just over 26 percent.

Further, the impact of aircraft’s slump on manufacturing and overall U.S. trade has been substantial and growing. As of last month’s trade report, the fall in these products’ exports between the April-August 2018 and April-August 2019 periods accounted for 30.72 percent of the decrease in total manufacturing exports during that time, and 16.81 percent of the increase in total manufacturing imports.

As of today’s figures, the civilian aircraft share of manufacturing’s total export decline is up to 31.35 percent of the total, while their share of industry’s total import increase has shot up to more than half manufacturing’s total.

Expanding the focus to all U.S. goods trade except for energy products (which to date haven’t received significant attention in free trade negotiations or any other aspects of American trade diplomacy) also reveals a sizable Boeing effect. Between the April-September 2018 and 2019 periods, civilian aircraft’s export decline accounted for fully 42.39 percent of the total U.S. non-oil goods export decrease recorded then, and 20.61 percent of the non-oil goods import increase.

In addition, to repeat a crucial point, this major Boeing effect on manufacturing and overall trade has absolutely nothing to do with the Trump trade wars, since civilian aircraft so far have not been subjected to foreign tariffs on American exports imposed in retaliation for Mr. Trump’s levies. This situation will change due to recent and upcoming rulings in the long-running World Trade Organization case between Boeing and the European Union’s Airbus. But as of now, any evaluation of the Trump effect on U.S. trade flows ignoring the powerful drag created by Boeing’s troubles deserves a grade of “incomplete” – at best.

Our So-Called Foreign Policy: At the WTO, Europe Claims a Right to Free Ride

Tags

Airbus, alliances, Boeing, Charles Dickens, Defense Department, EU, European Union, foreign policy establishment, free-riding, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, subsidies, Trade, trade law, Trump, World Trade Organization, WTO

Charles Dickens famously observed that the law can be an idiot. Last week’s World Trade Organization (WTO) ruling on U.S. and European Union (EU) aerospace subsidies reminds that American alliance policy can be idiotic – and in a key respect has been for decades. The fault here lies not with the WTO – which is hardly beyond criticism. Instead, the problem entails an American approach to international security relationships that continues a decades-long record of enabling brazen free-riding even under the current U.S. administration – which so far has decried this practice only rhetorically.

Interestingly, the WTO decision last Friday looks like a big win for American aerospace giant Boeing and a big loss for its EU rival Airbus. The trade body ruled as still illegal only one of the original 28 subsidies provided Boeing by Washington state and the federal government that were challenged by Airbus. According to Airbus, the WTO agreed with its allegation that some of the other 27 means of Boeing support were subsidies, but Boeing says that since the ruling determined that these payments had not harmed Airbus, they can remain in place. Airbus disagrees, so expect more litigation.

But here’s what’s completely outrageous. Some of the subsidies Airbus successfully challenged – at least on paper so far – were U.S. Defense Department subsidies. It’s jaw-dropping enough to recognize that Airbus gets military support, too. What’s worse is that so much of the Pentagon money handed over to Boeing (and other defense contractors) has been spent on weapons and other military systems that the United States would not need at all or in such quantity either if Washington hadn’t taken on any role in protecting Europe for decades, or if the Europeans bore anything like an appropriate burden for the own defense.

And don’t forget: For decades, even most U.S. Presidents and other foreign policy establishmentarians who have assign supreme value to continuing current transatlantic security arrangements agree that too many European members of the North Atlantic Treaty Organization (NATO) have been shirking. Talk about biting the hand that shields you.

It’s important, however, to keep in mind who’s mainly to blame. It’s clear that the Europeans deserve no high marks for either gratitude or loyalty. But it’s also clear that their actions can be reasonably portrayed as legitimate efforts to maximize their own self interests – reflecting the equally reasonable judgment that these gambits long have been good bets to succeed.

What the American public needs to ask is (a) why their leaders have handled alliance relationships so ineptly as to have created expectations of free-riding that the WTO case shows are now seen as nothing less than a right to free-ride; and (b) whether the avowedly transactional Trump administration will view the EU defense subsidy charges as a long overdue opportunity to say enough’s enough.

(What’s Left of) Our Economy: Competitiveness Hasn’t Always Required Trade

Tags

Airbus, aircraft, anti-trust, Boeing, Bollywood, competitiveness, entertainment, finance, Hollywood, software, Trade, trade Deals, {What's Left of) Our Economy

Because the Mainstream Media consistently fronts for the economics establishment on the big issues, the appearance of this (evidence-free) post on The New York Times website Thursday indicates that a big official theme of upcoming months will be the inability of the United States to withstand a global slowdown.

This narrative is likely to be put in service of two related sets of policies that would unnecessarily slow an already woefully subpar U.S. recovery, and worsen the global trade and investment imbalances that helped trigger the financial crisis and all the misery that’s followed it.

The first, which I wrote about recently, is the reported decision to open American markets unilaterally in order to boost growth rates overseas in the mistaken belief that the U.S. economy is strong enough to afford this handout. The second is the continuing push to conclude huge trade deals with Europe and Pacific Rim countries that would produce the same harmful results because they’re modeled after a long string of agreements that have supercharged U.S. deficits.

So it seems timely to present some new reasons for concluding that America is amply capable of prospering amid global stagnation – and even worse – and that Washington should be seeking to enhance this capacity for self-reliance, not further degrade it.

A while back, I asked why the economics conventional wisdom – and the chattering class that parrots its every claim – assumes that the enormous U.S. economy couldn’t generate an adequate level of efficiency-enhancing competition all by itself, and that its integration with the larger (but not stupendously larger) world economy is needed to achieve this important goal. I’m still waiting for an answer.

Here’s some new evidence for doubting that international competition is crucial for ensuring satisfactory product quality, consumer choice, innovation, and the like – at least where American industries are concerned: Several major sectors of the U.S. economy that easily come to mind have risen to (deserved) world-leading status while facing virtually no foreign competition at all.

The first example: long-haul commercial aircraft. Boeing today is one of only two serious global players (the other being Airbus), but before the European Union’s heavily subsidized products appeared on the market, American-made long-distance craft were the only game in town. Yes, Britain produced the first commercial jet, which came into service in 1952. But a series of accidents effectively killed the Comet, and Britain’s civilian aircraft industry, and by 1958 Boeing entered the business never to look back. It would be joined by Lockheed and Douglas, but the Americans had the field completely to themselves until Airbus’ entry in 1972,  Among them, the U.S. firms manufactured generations of excellent products, along with some troubled jets like the DC-10.

I’ll be briefer on the other examples, just to get this post up sooner rather than later. But they are:

> computer software. As with commercial jets, American companies totally dominated the field for decades. Although significant foreign competition was absent, domestic competition was fierce;

> finance: Although individual European and Japanese banks and other financial institutions often dwarf their individual U.S. counterparts by various measures, collectively the American finance industry has long towered over all national rivals, and it’s the same situation for financial markets. When it comes to innovation (a mixed blessing, as the financial crisis should teach), the gap has been even wider. And again, fierce domestic competition has been the key – especially after post-1970s waves of deregulation; and

> motion pictures: Whether or not you prefer American to foreign films as a rule, there’s no doubt that the former have long ruled commercially all around the world. In fact, common features of recent and proposed trade agreements have been provisions permitting foreign governments to maintain various types of limitations on U.S. Films’ access to their domestic markets, for fear that the homegrown industry will be overwhelmed. Yes, I know there’s been a huge Bollywood industry in India for roughly 100 years. But with exceptions like Slumdog Millionaire, its offerings have limited appeal globally and simply have never come close to the box office racked up by American blockbusters.

It’s easy to explain all the above narratives with “special circumstances.” For example, American finance has reigned supreme for so long largely because the United States began the post-World War II era with nearly all of the world’s available liquidity. It also began that period with one of only three major aircraft industries not bombed out of existence (along with Britain’s and the Soviet Union’s). But these sectors maintained predominance long after postwar recovery began around the world. And the U.S. software edge, which initially benefited from military investment, grew much bigger once the largely civilian personal computing and internet revolutions took off.

Moreover, the role of special circumstances strengthens rather than undermines this post’s main argument: Foreign competition’s role has been anything but all-important. And as I’d written bein that previous post, America’s immense economy could easily generate more domestic competition – and all its benefits – with serious enforcement of anti-trust and anti-monopoly laws. Could more trade strengthen the U.S. economy still further? Absolutely. But the acid test of new agreements now needs to be not simply how their net gains compare with the situation in the absence of such deals, but how they compare with alternatives within Washington’s grasp that are entirely domestic.

(What’s Left of) Our Economy: Delta’s Exim Bank Hypocrisy

Tags

Airbus, airlines, Boeing, Delta, Exim, Export-Import Bank, subsidies

It’s no accident that I’ve been ignoring the raging Washington debate over reauthorizing the Export-Import bank – which will determine whether the official trade financing agency lives on or dies. I sympathize with the idea that the U.S. government should fight foreign subsidies with subsidies of its own. Unfortunately, the overall scale of foreign subsidies (especially from competitors whose national finances are much stronger than America’s) renders this option completely unaffordable; therefore, the best U.S. response is imposing tariffs. (The widely supported belief that the nation can offset foreign tax breaks and lower corporate rates with comparable measures suffers similarly fatal flaws.)

Then there’s the actual magnitude of Exim’s operations – they facilitate only a small fraction of U.S. export sales. If supporters like President Obama were really interested in addressing trade market rigging by foreign governments, they’d be thinking way beyond Exim. Ditto for major beneficiaries of the Bank, like Boeing and General Electric. But these multinational firms strongly back the U.S. trade policy status quo mainly because they benefit hugely from foreign subsidies and other predatory practices like currency manipulation when they manufacture abroad or procure foreign parts and components. Of course, these practices are now central to multinationals’ business models.

Still, one aspect of the Exim debate is so hypocritical that it cries out for spotlighting: the claim by U.S. airlines that Exim subsidies for Boeing disadvantage them versus their foreign competitors by enabling these rival carriers to buy new jets from Boeing for a song. This complaint is hypocritical because U.S. airlines get the same kind of price break when they buy from Boeing’s European rival, Airbus.

Despite numerous trade cases filed by Washington in the World Trade Organization and its predecessor global trade body. Airbus has continued to enjoy major European government support. In fact, it wouldn’t exist in the first place if not for an official European decision to create a viable commercial aircraft industry practically from scratch.

But Delta, which has spearheaded the corporate anti-Exim lobbying drive in Washington, has been happy to free ride off of European taxpayers, as the company’s own data shows. All those jets whose model names start with “A” come from Airbus. Obviously, the same is true for other U.S. carriers.

Tea Party-oriented Republicans and other conservative reformers in particular have portrayed the Exim fight both as a battle over principle, and as a great political opportunity to show voters that they’re much more strongly opposed to crony capitalism than Democrats. In fact, the Exim controversy is best explained as a clash of opposing business lobbies. And if reform conservatives want to establish truly impressive anti-cronyism bona fides, they’ll need to take on much more important targets than the Exim Bank.