(What’s Left of) Our Economy: An Epic Wall Street Journal Fail on Trump Tariffs

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aluminum, beverages, Donald Trump, tariffs, The Wall Street Journal, Trade, {What's Left of) Our Economy

The Wall Street Journal‘s recent editorial on how U.S. tariffs on aluminum imports are decimating the American American beverage industry serves at least one useful purpose: It makes clear that the newspaper’s editorial writers either don’t understand the importance of presenting data in context, or don’t care because they know the big picture would kneecap their argument.

According to this piece, these Trump-era levies show the dangers of trade barriers that “are a form of industrial policy that is really about favoring some producers at the expense of consumers,” and are fueling current inflation to boot. Their main evidence? First, that Since the tariffs were imposed in March, 2018, U.S. beverage manufacturers have “paid an equivalent of $1.4 billion in Section 232 aluminum tariffs through February 2022 [for the aluminum they use in cans”; and second, that this industry paid $463 million in tariff costs in 2021 alone.

The fueling inflatio argument can be dispensed with easily. In 2021, the U.S. economy produced just under $23 trillion worth of goods and services before factoring in inflation. (I’m using pre-inflation data throughout this post because that’s the gauge used by the Journal for tariff costs.) The non-durable goods sector (in which beverages are found) generated $3.455 trillion. As anyone can see at a glance, $463 million as a percentage of these totals is miniscule – to put it charitably. Its percentage of the non-durable goods sector alone is just 0.013. And these added costs are moving the needle on overall U.S. inflation exactly how?

But even when you look at the beverage industry by itself, the inflation and cost burdens fade into insignificance. Although official data are hard to find, this source pegs the sector’s total U.S. sales at $253.42 billion. The $463 million in tariff costs represents a grand total of 0.18 percent of that total. If the industry finds that amount crippling, or even noteworthy, it desperately needs new management.

More detailed data are available from individual corporate reports, and point to the same conclusion. This Yahoo Finance item presents the top ten beverage companies operating in the United States by revenue. Add up the figures and you get a $174.09 billion total for last year. The tariff costs as a share of that sum? A thoroughly unimpressive 0.27 percent.

But what about the all-important bottom line? The individual corporate reports of these publicly trade companies reveal this figure to have been $36.74 billion in 2021. The aluminum tariff costs come to 1.26 percent of that total. No one can blame companies for wanting to make every single dollar of profit they can (lawfully), but do the Wall Street Journal editorial writers really believe that the executives of these firms can’t compensate by increasing efficiency? If so, can them all. (Pun intended.)

Finally, the corporate reports also show the total costs incurred by these ten companies in order to produce their products. Last year, they amounted to $76.77 billion. So the tariff costs increased this amount by 0.60 percent. Again, this is worth a pity party? 

The Wall Street Journal editorial board — like everyone else — has a perfect right not to like any and all tariffs, on aluminum or anything else. It also has a perfect right (unless you don’t believe in freedom of the press) to cherry pick the facts to make its case. But readers and others also have rights — including the right to know when a publication is using Fake Commentary tactics like this to make its case, and to wonder whether, if this is the best this staff can do to discredit tariffs, any solid grounds to oppose them exist at all.

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Glad I Didn’t Say That! Most Productive 8 Hours in Trade Policy History?

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aluminum, Biden administration, Commerce Department, Donald Trump, Gina Raimondo, Glad I Didn't Say That!, metals, steel, tariffs, Trade, trade war, United Kingdom

“U.S. Commerce chief says has nothing to report on [United

Kingdom] steel talks” 

– Reuters, 22 hours ago

 

“New U.S.-U.K. trade deal cuts tariffs on British steel, American

motorcycles, bourbon”

– Reuters, 14 hours ago

 

(Sources: “U.S. Commerce chief says has nothing to report on steel talks.” by David Shephardson, Reuters, March 22, 2022, https://www.reuters.com/business/us-commerce-chief-says-has-nothing-report-steel-talks-2022-03-22/ and “New U.S.-U.K. trade deal cuts tariffs on British steel, American motorcycles, bourbon,” by Andrea Shalal and David Lawder, Reuters, March 22, 2022, https://www.reuters.com/world/uk/uk-us-trade-chiefs-meet-tuesday-steel-tariffs-source-2022-03-22/)

 

(What’s Left of) Our Economy: Biden Goes Full Trump on His New Metals Tariff Deal

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allies, aluminum, Biden, Biden administration, China, Donald Trump, EU, European Union, metals, metals tariffs, quotas, steel, steel tariffs, tariff-rate quota, tariffs, Trade, trade wars, transshipment, Trump administration, {What's Left of) Our Economy

I’m old enough to remember when Donald Trump’s decision to tariff steel and aluminum imports from many U.S. allies was almost universally condemned outside his administration as not only unimaginably stupid and economically ignorant (as the supposed case for all tariffs) but downright heinous.

After all: These were U.S. allies that would be paying the price for Trump’s troglodyte protectionism. For decades they’d stood shoulder to shoulder with America in numerous foreign policy crises and showdowns with hostile dictatorships (or at least much of the time) and served as valuable force multipliers (even though their skimpy defense budgets prevented them from providing the United States with much concrete defense help when push came to shove, and needlessly exposed Americans to nuclear war risk). How, moreover, could relying on imported metals from friendly countries endanger U.S. national security – as the Trump administration legally needed to claim in order to slap on the trade curbs. Worse, the Trump metals levies as such left China, by far the biggest metals trade offender, untouched.

Even Trump’s own first Defense Secretary agreed on the tariffs’ cockeyed targeting. So did a fellow named Joe Biden, who during his presidential campaign last year upbraided his opponent for “picking fights with our allies” vowed to “focus on the key contributor to the problem [of a global metals glut] – China’s government.”

So although it’s been telegraphed for some weeks now, it’s still worth noting not only that since his inauguration, President Biden has kept the steel and aluminum tariffs firmly in place, but that his administration has just reached an agreement with the European Union (EU) that makes clear that the two major assumptions that drove Trump’s approach were completely correct.

First, as I’ve demonstrated repeatedly (e.g., here), the evidence is overwhelming both that global metals capacity stems not only from China’s own mammoth overproduction, but from numerous other metals manufacturing countries, and that all of these economies were working in any number of clandestine ways to make sure that most of this overcapacity was dumped into the U.S. market.

That is, they either responded to Chinese product flooding their own markets and threatening their own metals industries by ramping up their own exports to the United States; by modifying these Chinese metals slightly and then sending them state-side as their own products; or by simply permitting Chinese steel and aluminum to be transshipped through their own ports to the United States under false labels.

(This new report shows that China’s strategy of evading U.S. trade barriers has taken another mportant form”: acquiring metals production capacity in third countries – especially in the most profitable, specialty and other high-value metals segments – and using these facilities to ship to America.)

As a result, any U.S. tariffs needed to be universal to be effective – either simply to keep imports under control, or to secure foreign agreement to stop playing footsie with the Chinese. Any other approach would have left Washington continuing to play Uncle Sucker in a game of global whack-a-mole – whose latest round began when direct Chinese exports to the United States were sharply limited by tariffs put in place during the last year of the Obama administration.

Second, the Trump approach recognized that the United States boasted the leverage to achieve success, and the terms of the new agreement with the EU make clear that the former president judged the balance of economic power correctly It’s true that the deal EU saves various American industries from retaliatory tariffs. But in return for restoring these sectors largely unimpeded access to the huge total EU economy, the Europeans have accepted sharply reduced access to American customers.

A U.S. government fact sheet states that tariff-free EU steel and aluminum exports to the United States will be limited to “historically-based” volumes (which have not been specified, but which reportedly will equal only about 60 percent of the immediate pre-Trump tariff totals). Practically all attempted European shipments above that total would be subject to the exact same Trump levies that clearly kept them mostly out of the United States – at least judging from the Europeans’ fundamental complaint. (Trade mavens call such arrangements “tariff-rate quotas.”) In this respect, this EU agreement mirrors those reached by the Trump administration with countries like Canada, Mexico, Argentina, Brazil, and South Korea.

The full details of the agreement haven’t yet been released, so questions remain about enforcement mechanisms – which of course matter decisively for any effort to combat secretive activity like transshipment. But because American-owned steel companies and U.S. steel unions have endorsed the deal, chances are they’ll be effective. And that’s likely to be true for the rest of his trade agenda as long as President Biden keeps going full Trump.      

(What’s Left of) Our Economy: A Strong Fall Kickoff for U.S. Manufacturing Employment

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aircraft, aircraft engines, aircraft parts, aluminum, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Employment, fabricated metals products, health security, Jobs, machinery, manufacturing, manufacturing trade deficit, metals, metals-using industries, NFP, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, private sector, semiconductor shortage, steel, supply chains, tariffs, Trade, vaccines, Wuhan virus, {What's Left of) Our Economy

Although the disappointing official September U.S. jobs figures released this morning might have been depressed significantly by “strange [CCP Virus-related] statistical quirks around school reopening,” it’s still noteworthy that manufacturing employment rose nicely during the month – by 26,000 workers. These results are all the more impressive given all the supply chain and semiconductor shortage headwinds faced by domestic industry, especially in the automotive sector.

Moreover, revisions of the strong July and August payroll figures for U.S.-based manufacturers were only slightly negative, with the former’s upgraded 52,000 sequential gain now judged to be 57,000, and August’s initially reported 37,000 improvement downgraded to 31,000.

As a result, in September, domestic industry closed still more of the gap that had opened up in its hiring performance versus that of the total American non-farm sector (the government’s definition of the U.S. employment universe, which includes government jobs), although it lost some additional ground against the private sector.

According to this latest jobs report, manufacturing had regained 74.51 percent of the 1.385 million jobs it lost during the steep pandemic-related recession of March and April, 2020 – up from the 72.71 percent reported in the August jobs release. That’s a faster rate of improvement than for the non-farm sector (whose payroll recovery grew from 76.60 percent of jobs lost during that early spring of 2020 to 77.77 percent) but slower than that of the private sector (which has now seen an 80.71 percent employment recovery from the spring, 2020 lows – up from 78.72 percent).

It’s certainly plausible that the non-farm jobs recovery has been most recently held back by those school reopening problems, and therefore manufacturing’s laggard status will resume once they’re cleared up. At the same time, the relatively slow industry employment rebound is also explained by its superior jobs performance during the CCP Virus recession. Specifically, its payroll levels fell then by 10.82 percent, versus 16.46 percent for private employers and 17.18 percent for the non-farm sector.

And indeed, since February, 2020 (the last full data month before the pandemic and related lockdowns and behavior changes began seriously distorting the economy), manufacturing’s share of non-farm jobs has risen from 8.39 percent to 8.43 percent. In addition, it’s increased as a share of private sector jobs fromThe 9.87 percent to 9.91 percent.

Among the manufacturing sector categories broken out in the official monthly U.S. jobs reports, the biggest September employment winners were fabricated metals products (up 8,200 on month – its best performance since March’s 10,100 jump); machinery (a 6,300 sequential advance); printing and related support activities (4,200 – its best since March’s 5,300); and food products (up 3,500).

Strong machinery hiring is always particularly encouraging, as the sector’s products are used so widely in the rest of manufacturing, as well as in big non-manufacturing industries like construction and agriculture. Almost as important, whereas its August monthly job creation was previously reported as having flatlined, now its estimated to have climbed by 2,600. And fabricated metals products good recent jobs increases are noteworthy given the continuing U.S. tariffs on the steel and aluminum on which they rely so heavily – which supposedly are decimating metals-using industries.

The aforementioned U.S. vehicles and parts-makers were by far the biggest monthly jobs losers recorded in the September release, shedding 6,300 positions on month. That sequential drop was their worst since semiconductor shortage-induced layoffs plunged their employment levels down by 41,600 in April. No other major manufacturing category mentioned in the September jobs report lost more than 800 jobs.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their job creation performance remained mixed in August.

In surgical appliances and supplies (the sector containing PPE – personal protective equipment – and similar goods), payrolls fell by 2,500 – their worst monthly performance since the previous August’s identical number. July’s 500 sequential jobs gain was upgraded to 900 and June’s 500 improvement remained the same, but jobs in these industries are now just 7.03 percent more numerous than in pre-pandemic February, 2020. As of last month’s jobs report, the figure was 9.22 percent.

The overall pharmaceuticals and medicines industry saw hiring dip by 400 in August – its worst monthly result since May’s 300 decrease. July’s job gains were revised up from 400 to 500, but June’s losses remained at a downgraded 2,300.

These sectors’ payrolls, therefore, have now risen by only 4.62 percent since February, 2020 – not the 4.72 percent published last month.

The pharmaceuticals subsector containing.vaccines fared better. Employment rose by 400 sequentially in August, July’s flatline was upgraded to an increase of 200, and June’s 1,000 jobs improvement remained unrevised. Whereas as of last month, this sector’s payrolls had grown by 10.21 percent since just before the pandemic hit, that figure is now 10.82 percent.

U.S. aircraft producer Boeing continues to suffer from manufacturing and quality problems, but jetliner employment inched up on month in August anyway – by 200. But July’s 1,500 sequential jobs decline was revised down to 1,600, while June’s upwardly revised 4,700 jump remained the same. All told, aircraft employment is now down by 8.04 percent since February, 2020 – a bit better than the 8.08 percent shortfall reported in last month’s jobs report.

The story was similar in aircraft engines and engine parts. These industries added 600 workers seqentially in August, and July’s previously reported payroll increase of 200 is now estimated at 300. June’s downgraded 400 jobs gain was unrevised, and so employment in these sectors is now off by 14.04 percent since February, 2020 – some progress over the 14.80 percent reported last month.

Non-engine aircraft parts and equipment are still stuck even deeper in the doldrums. August’s 500 jobs loss drove its payrolls down to 16.60 percent lower than in February, 2020, versus the 16.17 percent drop reported as of last month.

With manufacturing employment still powering ahead even with its supply chain issues (which reportedly don’t seem likely to end till sometime next year), and with the CCP Virus threat still hanging over the economy, betting against more of the same going forward seems foolish. And interestingly, industry’s jobs prospects look bright despite signs that its mammoth trade deficit is heading back up, at least in absolute terms. (We don’t yet have recent enough figures to know whether it’s rising in relation to manufacturing output, which is the much more important measure.)

As they say in the investment world, past performance is no guarantee of future results.  But domestic manufacturing’s recent employment performance has overcome so many obstacles over the past year-plus that it might be the best basis we have right now for prediction.  

(What’s Left of) Our Economy: Automotive’s Still in the U.S. Manufacturing Growth Driver’s Seat

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aircraft, aluminum, appliances, automotive, CCP Virus, China, coal, coronavirus wuhan virus, COVID 19, Delta variant, electrical equipment, facemasks, Federal Reserve, industrial production, inflation-adjusted growth, inflation-adjusted output, infrastructure, lockdowns, machinery, manufacturing, masks, medical devices, metals, petroleum refining, pharmaceuticals, PPE, real growth, recovery, reopening, steel, stimulus, tariffs, Trump, vaccines, {What's Left of) Our Economy

Talk about annoying! There I was last Thursday morning, all set to dig into the new detailed Federal Reserve U.S. manufacturing production numbers (for June) in order to write up my usual same-day report, and guess what? None of the new tables was on-line! Fast forward to this morning: They’re finally up. (And here‘s the summary release.) So here we go with our deep dive into the results, which measure changes in inflation-adjusted manufacturing output.

The big takeaway is that, as with last month’s report for May, the semiconductor shortage-plagued automotive sector was the predominant influence. But there was a big difference. In May, domestic vehicles and parts makers managed to turn out enough product to boost the overall manufacturing production increase greatly. In June, a big automotive nosedive helped turn an increase for U.S.-based industry into a decrease.

The specifics: In May, the sequential automotive output burst (which has been revised up from 6.69 percent in real terms to 7.34 percent) helped push total manufacturing production for the month to 0.92 percent after inflation (a figure that’s also been upgraded – from last month’s initially reported already strong 0.89 percent). Without automotive, manufacturing’s constant dollar growth would have been just 0.47 percent.

In June, vehicle and parts production sank by an inflation-adjusted 6.62 percent , and dragged industry’s total performance into the negative (though by just 0.05 percent). Without the automotive crash, real manufacturing output would have risen by 0.40 percent.

Counting slightly negative revisions, through June, constant dollar U.S. manufacturing production in toto was 0.60 percent less than in February, 2020 – the economy’s last full pre-pandemic month.

Domestic industry’s big production winners in June were primary metals (a category that includes heavily tariffed steel and aluminum), which soared by 4.02 percent after inflation; the broad aerospace and miscellaneous transportation sector, which of course contains troubled Boeing aircraft, (more on which later), and which turned in 3.75 percent growth, its best such performance since January’s 5.62 percent pop; petroleum and coal products (up 1.36 percent); and miscellaneous durable goods, which includes but is far from limited to CCP Virus-related medical supplies (up 1.21 percent).

The biggest losers other than automotive? Inflation-adjusted production of electrical equipment, appliances, and components, which dropped sequentially by 1.73 percent in real terms; the tiny, remaining apparel and leather goods industry (1.44 percent); and the non-metallic minerals sector (1.07 percent).

Especially disappointing was the 0.55 percent monthly dip in machinery production, since this sector’s products are used so widely throughout the rest of manufacturing and in major parts of the economy outside manufacturing like construction and agriculture.

But in one of the biggest surprises of the June Fed data (though entirely consistent with the aforementioned broad aerospace sector), real output of aircraft and parts shot up by 5.24 percent – its best such performance since January’s 6.79 percent. It’s true that the May production decrease was revised from 1.47 percent to 2.61 percent. But with Boeing’s related and manufacturing and safety-related woes continuing to multiply, who would have expected that outcome?

And partly as a result of this two-month net gain, after-inflation aircraft and parts output as of June is 7.83 percent higher in real terms than in pre-pandemicky February, 2020 – a much faster growth rate than for manufacturing as a whole.

The big pharmaceuticals and medicines sector (which includes vaccines) registered a similar pattern of results, although with much smaller swings. May’s originally reported 0.22 percent constant dollar output improvement was revised down to 0.15 percent. But June saw a 0.89 percent rise, which brought price-adjusted production in this group of industries to 9.33 percent greater than just before the pandemic.

Some good news was also generated by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Its monthly May growth was upgraded all the way up from the initially reported 0.19 percent to 1.18 percent. And that little spurt was followed by 0.99 percent growth in June.

Yet despite this acceleration, this sector is still a mere 2.27 percent bigger in real terms than in February, 2020, meaning that Americans had better hope that new pandemic isn’t right around the corner, that the Delta variant of the CCP Virus doesn’t result in a near-equivalent, or that foreign suppliers of such gear will be a lot more generous than in 2020.

As for manufacturing as a whole, the outlook seems as cloudy as ever to me. Vast amounts of stimulus are still being pumped into the U.S. economy, which continues to reopen and overwhelmingly stay open. That should translate into strong growth and robust demand for manufactured goods. The Trump tariffs are still pricing huge numbers of Chinese goods out of the U.S. market. And the shortage of automotive semiconductors may actually be easing.

But the spread of the Delta variant has spurred fears of a new wave of local and even wider American lockdowns. This CCP Virus mutation is already spurring sweeping economic curbs in many key U.S. export markets. Progress in Washington on an infrastructure bill seems stalled. And for what they’re worth (often hard to know), estimates of U.S. growth rates keep coming down, and were falling even before Delta emerged as a major potential problem. (See, e.g., here.)

I’m still most impressed, though, by the still lofty levels of optimism (see, e.g., here)  expressed by U.S. manufacturers themselves when they respond to surveys such as those sent out by the regional Federal Reserve banks (which give us the most recent looks). Since they’re playing with their own, rather than “other people’s money,” keep counting me as a domestic manufacturing bull.

(What’s Left of) Our Economy: It’s an Autos Story Again for U.S. Manufacturing Production

Tags

aerospace, aircraft, aluminum, apparel, automotive, Boeing, CCP Virus, chemicals, China, computers, coronavirus, COVID 19, Donald Trump, electronics, facemasks, Federal Reserve, health security, inflation-adjusted output, machinery, manufacturing, medical supplies, paper, pharmaceuticals, PPE, printing, real growth, semiconductor shortage, semiconductors, shutdowns, steel, stimulus, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Earlier in the CCP Virus era, the U.S. manufacturing production story was largely an automotive production story – because the industry shut down so suddenly and completely during the pandemic’s first wave and the deep economic downturn it triggered, and then began reopening at a record pace. And today’s Federal Reserve figures show that domestic industry’s growth is being driven by dramatically fluctuating vehicles and parts output once again – but this time it seems due significantly to the global semiconductor shortage that’s deprived the sector of critical parts.

Also noteworthy about today’s Fed manufacturing release (which covers May): It incorporates the results of the benchmark revision of these data for the 2017-19 period. As explained in yesterday’s post on the subject, the new numbers create a new baseline for pre-pandemic manufacturing growth, and therefore a new picture of how big the virus-induced downturn was, and how strong the recovery has been – at least until the next benchmark revision. And of course, the new figures therefore supersede those in the April Fed release I reported on last month.

Automotive’s influence on the May numbers is clear from the following: Total inflation-adjusted sequential growth for U.S.-based manufacturing hit a strong 0.89 percent last month. Without automotive (whose 6.69 percent monthly output pop followed a 5.57 percent April drop), the increase would have been just over half that – a still solid 0.50 percent. Don’t be surprised if the microchip shortage keeps these results on a roller coaster.

Its May increase brought total real domestic manufacturing output back within 0.31 percent of its last pre-pandemic level, in February, 2020. In March and April, such production plummeted by 19.41 percent. Since then, it’s surged by 23.90 percent. For the record, as I wrote yesterday, the pandemic-spurred Spring, 2020 nosedive was slightly shallower (0.92 percent) than judged before the revisions (1.42 percent) but the comeback through this past April was a bit weaker (22.81 percent versus 23.27 percent).

Machinery making enjoyed a good month in May, and as known by RealityChek regulars, that’s good news for all domestic manufacturing and the rest of the economy, since its products are so widely used. Constant dollar output improved by 0.78 percent last month, and consequently, the sector is now 2.35 percent bigger in these terms than just before the virus started depressing the economy. One downside should be noted, though: The new revision indicates that the machinery recovery has actually be significantly slower than previously estimated.

Manufacturing’s list of other big inflation-adjusted production winners in May featured some real surprises. The apparel and leather goods industries remain shadows of their historic selves, but their real output last month jumped 2.59 percent – their best such result since January’s 2.06 percent. Moreover, this sector has grown in real terms by 6.74 percent since just before the pandemic – much faster than manufacturing as a whole.

After-inflation production in the small printing and related activities industry grew by 2.59 percent – also its best result since January (3.99 percent).

But some big sectors saw healthy gains in May, too – notably chemicals (whose products are also used throughout the economy) and computer and electrnics products. The former saw real production advance by 2.19 percent sequentially last month – its best such result since March’s weather-aided 4.08 percent. And the latter grew in May by 1.60 percent.

The biggest losers? Paper led this pack by far, with May constant dollar production sinking by 1.59 percent on month – its worst such showing since January’s 1.78 percent decrease.

Likely due to Boeing’s continuing production and safety problems (more on which later), the aerospace and miscellaneous transportation sector’s after inflation production sank by 0.95 percent sequentially in May – and that followed a 2.55 percent nosedive (no pun intended) in April. And wood products real output fell by 0.82 percent.

But the losers’ list contains a big surprise, too. Complaints keep coming that that the domestic steel and aluminum industries (and especially the steel-makers) have responded to tariffs simply by enjoying the higher resulting prices and sitting on these winnings. So it’s noteworthy that even after a 0.82 percent monthly real output decline in May, primary metals production after inflation is slightly (0.15 percent) higher than in immediate pre-pandemic-y February, 2020 – another such performance that’s bested that for all manufacturing.

The aforementioned problems suffered by Boeing keep coming through in the real output data for the aircraft and parts sub-sector of the aerospace and miscellaneous transportation industry. In May, inflation-adjusted output was down 1.47 percent on month – much bigger than the larger industry fall-off. And that came on the heels of April’s 2.21 percent decrease. Real aircraft and parts production is still 4.36 percent above its immediate pre-pandemic level, but given the ongoing post-CCP Virus worldwide rebound in air travel, these figures are definitely disappointing – and moving in the wrong direction.

By contrast, the big pharmaceuticals and medicines sector is still benefitting from reopening headwinds. May’s 0.22 percent monthly real output increase was admittedly modest, especially since this sector includes vaccine production. But it’s grown by 8.44 percent since the virus began spreading rapidly in the United States. on g – also delivered a disappointing performance in April, especially since it includes vaccines.

But both the May real production numbers and the benchmark revision left the vital medical equipment and supplies sector a conspicuous production laggard. This industry – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – grew in real tems by just 0.19 percent sequentially in May, and April’s after inflation output was down 1.66 percent. As a result, this sector is turning out only 0.35 percent more product than just before the pandemic’s arrival – which doesn’t seem to augur well for national preparedness for the next pandemic.

If I was a betting person (I’m not), I’d still wager on better days ahead for U.S. domestic manufacturing – because so many powerful supportive trends and developments remain in place, ranging from massive government spending and other forms of stimulus to the virus’ continuing retreat to waning consumer caution to huge amounts of pandemic-era consumer savings to ongoing Trump tariffs that keep pricing huge numbers of Chinese goods out of the U.S. market.

But no one should forget about a list of threats to the pace of manufacturing growth, if not growth itself – like the prospect of higher taxes and more regulations, and the possibility that consumer demand will keep growing but switch away from goods to the hard-hit but quickly reopening service sectors (which of course do buy manufactures). Inflation isn’t good for strong (real) growth, either, though I’m an optimist on this front.

Ultimately, though, I’m most struck by evidence of domestic manufacturers’ continuing optimism about the prospects of their businesses. If they’re still confident about their futures, that remains good enough for me.

(What’s Left of) Our Economy: Biden’s Now a Full-Throated “Tariff Man” on Metals

Tags

aluminum, Biden, China, dumping, EU, European Union, Katherine Tai, metals tariffs, overcapacity, steel, subsidies, tariffs, trade war, U.S. Trade Representative, World Steel Association, {What's Left of) Our Economy

There’s now a good case to be made that the trade curbs originally called the “Trump metals tariffs” should be called the “Trump-Biden metals tariffs” (and even vice versa). For on Monday, the Biden administration reached a “truce” in the trade dispute they touched off with the European Union (EU – whose member countries’ steel exports are among those hit with these levies). And this agreement kept the U.S. curbs – originally imposed by the former President in early 2018 – firmly in place.

Arguably even more important, U.S. Trade Representative Katherine Tai fully endorsed Trump’s rationale for the global scope of these tariffs (which eventually exempted some countries – including Canada and Mexico, which joined with Trump in signing a  revamp of the North American Free Trade Agreement). At a Senate hearing last week, she noted that they were needed “to address a global overcapacity problem driven largely but not solely by China.”

In other words, Tai – and her boss in the White House – were acknowledging that massive and government-subsidized excess global steel output in particular was being dumped into the U.S. market, often indirectly, by many countries other than China. They’d either been permitting Chinese product to come into their import doors and go out their export doors to America (after being re-labeled); compensating for their own steel industries’ losses at the hands of dumped Chinese steel by ramping up their own exports of subsidized metal to the United States; or engaging some combination of the two.

Although President Biden has also decided to retain Trump’s China tariffs, the metals position deserves special attention. After all, a broad consensus has developed in U.S. policy and (to a lesser extent) business circles on the need for responding strongly to China’s systemic trade predation. But the metals tariffs have consistently been widely condemned as needless Trump slaps at many staunch U.S. security allies (like many EU members that also belong to NATO – the North Atlantic Treaty Organization).

The Economic Policy Institute released a report in March documenting how well the tariffs have worked to help revitalize the U.S. steel industry, and how scant their damage has been to American steel-using industries. (My case for the latter proposition includes this post.)

But the American industry’s need for worldwide tariffs until the overcapacity problem is (somehow) solved also keeps emerging from the data on global steel markets that I first highlighted shortly after Trump’s announcement.

This post showed that before the tariffs were imposed, the American domestic steel industry was far and away the biggest global loser from the China steel glut – and that most other big steel-producing countries escaped anything close to comparable damage. Here’s how the percentages of global steel output of leading producers changed between 2010 and 2018.  (Note that some of the original 2018 numbers have been revised.)

US:                        -35.79

China:                   +20.44

EU 27:                   -23.73

Japan:                    -25.36

South Korea:           -2.67

India:                    +22.20

Turkey:                          0

Brazil:                   -17.24

Russia:                  -11.61

Logically, these figures can lead to only one of two conclusions: Either the U.S. steel industry had become the world’s least competitive by a mile (and very suddenly), or virtually the entire steel-producing world was exporting many of its own China steel problems to the United States.

And since U.S. productivity statistics reveal that the American primary metals sector (including steel and aluminum) had been a national productivity leader during that period, and was suffering major import-related production losses that were dwarfed by those of much less productive manufacturing industries, there can be no legitimate doubt that it faced a trade problem urgently needing fixing. (Here‘s the evidence.)

So what’s happened to the U.S. share of world steel production since the tariffs’ onset? The World Steel Association, source of the above figures, makes clear that the American relative performance has been much better. Here are the percentage changes in woldwide output between 2018, and the first quarter of this year:

US:                           -12.53

China:                       +8.44

EU 27:                     -16.45

Japan:                      -15.60

South Korea:           -12.47

India:                        +3.23

Turkey:                      -2.43

Brazil:                       -6.77

Russia:                      -2.02

These numbers show that China continues to increase its global production market share (to fully 55.66 percent as of this year’s first quarter) and that the United States has continued to lose share. But they also show that much of the rest of the steel-producing world is no longer able to gain so dramatically at America’s expense. Indeed, major producers like the European Union and Japan have fared worse than the United States, and the gap between American performance and that of the rest of these economies has closed substantially. And as the aforementioned Economic Policy Institute report has demonstrated, the U.S.-based steel sector’s fortunes in absolute terms have turned up as a result.

The lesson here is that the metals tariffs haven’t been a cure-all either to the U.S. steel industry’s troubles or even its trade-specific troubles. But they’ve undeniably helped – while leaving the rest of American manufacturing and the economy doing just fine. And because other global steel players are now taking it on the chin from China’s overcapacity, maybe the continued U.S. levies will finally help convince them to stop paying lip service to the goal of dealing with global – and especially Chinese – steel overcapacity, and join Washington in serious efforts to end it.

(What’s Left of) Our Economy: Why Today’s Fed U.S. Manufacturing Report is So Bullish

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737 Max, aircraft, aluminum, automotive, Boeing, China, Federal Reserve, inflation-adjusted growth, Joe Biden, machinery, manufacturing, medical supplies, metals, pharmaceuticals, PPE, real output, steel, tariffs, Trade, vaccines, {What's Left of) Our Economy

Think for a moment about this morning’s very good manufacturing production figures from the Federal Reserve (for December) and a case for major optimism about U.S. industry’s foreseeable future is easy to make. Not only has the advent of highly effective vaccines greatly boosted hopes for a return to normality sooner rather than later. But much of the underlying data was collected before the vaccine production surge began.

Moreover, although Boeing aircraft is still dealing with manufacturing problems, its popular 737 Max model is being recertified or nearly recertified for flight by numerous countries (including the United States) and any continued significant rebound in air travel levels is sure to help the company’s order book for all of its jets.

And again, the data themselves were strong. According to this first Fed read for the month, American inflation-adjusted manufacturing output rose by 0.95 percent sequentially. Moreover, November’s initially reported 0.79 percent improvement was upgraded to 0.83 percent, and October’s results were revised upward for a second time – to 1.34 percent.

These noteworthy advances – which add up to eight straight months of increases – brought price-adjusted U.S. manufacturing production to 22.05 percent above the levels it hit during its CCP Virus-induced nadir in April, and to within 2.40 percent of its last monthly pre-pandemic numbers (for February).

Especially interesting, and another cause for optimism: The December manufacturing growth was so broad-based that it was achieved despite a 1.60 percent monthly drop in constant dollar automotive production. Combined vehicle and parts output has rebounded so vigorously since its near-evaporation last spring (by just under six-fold) that on a year-on-year basis, it’s actually grown by 3.64 percent. But today’s Fed report represents evidence that many other sectors are now catching up.

The crucial (because its products are used so widely throughout the entire economy) machinery sector enjoyed a good December, too, with after-inflation production increasing by 2.07 percent sequentially. That welcome news more than offset a downward revision in the November results, from a 0.51 percent to 0.99 percent shrinkage. Due to this growth, this real domestic machinery output is now just 1.53 percent off its pre-pandemic level.

As for the pharmaceutical industry, its price-adjusted output expanded by a solid 2.12 percent sequentially in December, but November’s disappointing initially reported 0.76 percent fall-off was downgraded to a 0.84 percent decrease, and October’s results stayed at minus 1.01 percent.

Moreover, year-on-year constant dollar pharmaceutical production is up only 0.18 percent – anything but what you’d expect for a country suffering through an historic pandemic.

But the first batch of Pfizer anti-CCP Virus vaccines didn’t leave the factory until December 13, and key data behind this first read on the month’s performance were gathered beforehand. So it’s likely that the huge ramp in vaccine out could start showing up in the revised December results in next month’s Fed manufacturing report (for January), which will reflect more relevant statistics.

Similar optimism seems warranted for the U.S. civilian aerospace industry and especially its beleaguered collosus, Boeing. Despite the safety woes of the popular 737 Max model and its consequent production suspension, the domestic aircraft and parts sectors have actually staged a powerful real output recovery since a 32.85 percent nosedive in February and March. Since then, inflation-adjusted production has boomed by 52.30 percent, fueled in part by December’s 2.78 percent sequential jump and November’s upwardly revised 2.39 percent growth.

In fact, constant dollar output in civilian aerospace is now actually 2.27 percent higher than its last pre-CCP Virus level. The 737 effect isn’t over yet, as made clear by the 11.49 percent real production decline since last December. But it seems evident that the industry is and will remain on the upswing barring any new seriously bad news.

Unfortunately, little such optimism appears justified in the case of medical equipment and supplies – including face masks, protective gowns, ventilators, and the like. Inflation-adjusted production in their larger subsector sank in December by 0.36 percent on month, and although the November increase has been revised up from 1.56 percent to 1.60 percent, October’s growth has been downgraded again – from an initially judged 3.54 percent all the way down to a decidedly non-pandemic-y 1.75 percent.

And since April, the after-inflation production recovery has been only 21.02 percent – still less than that for all of manufacturing. The year-on-year December result is no better, as it’s down 5.44 percent. And of course, those 2019 levels were revealed by the pandemic to have been dangerously inadequate.

But before ending, I couldn’t forgive myself if I didn’t say something about tariffs, and as with last month’s Fed manufacturing figures, the performance of the primary metals sectors for December is sending this loud and clear message to President-Elect Joe Biden: Keep them on.

For in constant dollar terms, these protected industries have recorded strong monthly growth since June, and November’s upwardly revised sequential 3.98 percent pop has now been followed by a 2.51 percent increase in December.

All told, since the April bottom, price-adjusted production has risen by 29.01 percent – expansion that looks inconceivable without the trade curbs preventing the U.S. market from being flooded with Chinese steel and aluminum along with product transshipped through the ports of those U.S. allies with whom Biden is so keen on repairing tattered Trump era ties, and greater metals shipments they often send America’s way to offset their own China-related losses.

(What’s Left of) Our Economy: New Evidence that Trump’s Tariffs Have Bolstered U.S. Manufacturers

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aluminum, CCP Virus, China, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, manufacturing, metals, metals tariffs, real GDP, real value-added, recession, steel, tariffs, Trade, trade war, Trump, value added, Wuhan virus, {What's Left of) Our Economy

As everyone knows, at least as of the final (for now) official third quarter growth figures just released, the entire U.S. economy remains in a severe recession thanks to the arrival of the CCP Virus and the subsequent tight curbs on business activity.

Less widely known:  A separate set of official figures released along with yesterday’s government release on third quarter gross domestic product (GDP) shows that, by the measures most closely watched (i.e, inflation-adjusted), domestic manufacturing never suffered a recession by one crucial definition – a cumulative downturn lasting at least two quarters. And can it be mere coincidence that the entire time, President Trump’s sweeping and steep tariffs on hundreds of billions of dollars worth of Chinese goods, and of steel and aluminum from most major foreign producers, have remained in place?

Below are the growth (and contraction) figures for the entire U.S. economy and for the manufacturing sector for the entire CCP Virus period so far – the first quarter through the third quarter of this year. They come from the Commerce Department’s data on four measures of output tracked by the folks who look at “GDP by Industry” and consist of gross output both pre-inflation and adjusted for price changes, and value-added (a gauge of production that tries to remove the double-counting that results from gross output’s inclusion of both inputs for products and services and the final products and services themselves) in pre-inflation and price-adjusted terms. All the non-percentage numbers are in trillions of dollars at annual rates.

                                                      1Q                2Q                3Q            1Q-3Q

v/a whole economy:                 21.5611        19.5201        21.1703    -1.81 percent

v/a manufacturing:                     2.3643          2.0537          2.3291    -1.49 percent

real v/a whole economy           19.0108        17.3025        18.5965    -2.18 percent

real v/a manufacturing:              2.1999          1.9629          2.2132   +0.60 percent

gross output whole econ          37.8268        34.2600         36.9425    -2.34 percent

gross output mfg                        6.1163          5.3334           6.0134    -1.68 percent

real g/o whole economy           34.2613        31.3989         33.4440    -2.39 percent

real g/o manufacturing               6.2038          5.6162           6.2089    +0.08 percent

Probably the most important of these results is real value-added, since its topline economy-wide numbers are identical to the inflation-adjusted GDP figures regarded as the most important measures of economic growth. And in real value-added terms, manufacturing output in the third quarter was actually slightly (0.60 percent) higher than in the first quarter. Manufacturing expansion has also taken place according to the real gross output figures, though it’s been marginal.

Also crucial to note although both pre-inflation measures show first-third quarter cumulative manufacturing downturns, they’ve been shallower in both cases than the economy-wide slumps.

It’s true that the virus and related shutdowns have more dramatically impacted the service sector when it comes to first-order effects – because so many service industries entail personal contact. But the case for the tariffs’ benefits for manufacturing looks compelling upon realizing that U.S. services companies are major customers of domestic manufacturers. So although the virus obviously crimped these markets, it seems that the tariffs preserved a good many of them by pricing out much Chinese and foreign metals competition.

One way to test this proposition, of course, would be for apparent President-elect Joe Biden to lift the levies while the pandemic keeps spreading. Unless powerful evidence comes in to the contrary, manufacturers, their employees, and indeed all Americans should be hoping this is a bet Biden won’t make.

(What’s Left of) Our Economy: A Fed Snapshot of U.S. Manufacturing at the CCP Virus Turning Point?

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737 Max, aircraft, aircraft parts, aluminum, Boeing, capital goods, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, industrial production, Joe Biden, machinery, manufacturing, medical devices, metals, pharmaceuticals, PPE, safety, steel, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

If the Federal Reserve’s monthly industrial production report for February (released in March) was the last such data set assessing domestic U.S. manufacturing’s health before the full force of the CCP Virus pandemic struck the American economy, today’s release (covering November) might be viewed in retrospect as marking the close of the industry’s virus-induced slump – or at least the beginning of the end.

Clearly, the entire U.S. economy remains far from fully recovered from the pandemic and the shutdowns and lockdowns and behavioral changes it produced. Moreover, the virus’ second wave could well prompt renewed restrictions – though lockdown fatigue will probably keep them more limited than their springtime predecessors.

But shortly after the Fed compiled the figures for November came two developments capable of boosting domestic manufacturing output considerably – Washington’s certification clearing Boeing’s troubled 737 Max model jetliner for flight once again, and the announcements that large-scale final-phase clinical trials for two anti-CCP Virus vaccines revealed amazing efficacy rates and reassuring safety results.

At the same time, these last pre-737 and vaccine manufacturing production numbers showed once again how relatively well domestic industry has held up during the CCP Virus period so far, and how strong its post-April recovery has been. By the same token, the data once more make clear the benefits of the Trump administration’s sweeping tariffs on products from China and its levies on steel and aluminum imports – which sharply limited the extent to which U.S. demand for these goods could be met from abroad.

The 0.79 percent November monthly increase in after-inflation manufacturing output recorded by the Fed was weaker than the October figure. But that month’s increases was revised up from a strong 1.04 percent to an even better 1.19 percent. September’s previously reported fractional increase remained basically the same.

As of November, therefore, real manufacturing production has improved by 20.67 percent above its April pandemic-induced trough and, just as important, stands just 3.50 percent lower than its final pre-CCP Virus level in February.

The November numbers are also notable for the outsized role played once again by the automotive sector. Although its October sequential inflation-adjusted output performance has been revised from a virtual “no change” to a 1.14 percent drop, these first November results show a 5.32 percent surge. More important than this volatility, though, is that combined vehicle and parts output is now just 0.38 percent lower than its final pre-pandemic level in February.

One indication of at least short-term concern from the November results: Constant-dollar production in the big machinery sector slipped by 0.51 percent on month. This industry matters greatly because its products are used so widely throughout the economy (e.g., construction, agriculture), and because it contains the capital goods products on which manufacturers themselves rely so heavily to turn out their own goods.

Longer term, the machinery picture looks better, though, as in line with the generally strong capital investment data kept by Washington, its price-adjusted output is now off by just 3.52 percent since February.

As for the tariff angle mentioned above, its importance is evident not simply from the strong overall manufacturing recovery, but from the performance of the primary metals sector, whose performance since March, 2018 has been profoundly affected by levies on steel and aluminum from most major exporting countries.

Constant dollar output of primary metals plunged by 25.46 percent during the peak pandemic months of March and April – a rate faster than that of manufacturing’s total 20.03 percent. Since then, however, its grown in real terms by 25.63 percent (faster than manufacturing’s total 20.67 percent advance).

November, moreover, was no exception, as primary metals’ inflation-adjusted production rose by a robust 3.75 percent. These numbers might give apparent President-elect Joe Biden pause if he’s thinking of lifting the steel and aluminum levies as part of his announced goal of repairing U.S. alliance relations he believes have been gravely damaged by President Trump.

If the beginning of the end of pandemic really is at hand, the November Fed figures show that it can’t come soon enough for the nation’s beleaguered aircraft industry as well as for its pharmaceutical sector. The latter’s after-inflation output remained steady last month, but the levels themselves remained remarkably subdued. November’s 0.76 percent monthly constant dollar production decline followed a downwardly revised 1.01 percent October decrease, and year-on-year, inflation-adjusted output is off by 2.37 percent.

Despite Boeing- and travel-related woes, the aerospace industry has fared considerably better. After a real output nosedive of 32.85 percent in February and March, such production is up by a spectacular 47.75 percent since. And thanks partly to the 2.07 percent on-month improvement in November, real output is down just 3.77 percent since the last pre-pandemic figure in February.

Nonetheless, the 737 Max news and any sign a significant air travel comeback will be welcome for civilian aircraft and parts makers, as after-inflation production is still 15.40 percent less than it was last November.

But despite the number of inspiring anecdotal accounts of medical equipment and supplies manufacturers boosting production of face masks, protective gowns, ventilators, and the like in response to the medical emergency, overall real production of these vital products remained uninspiring in November. Real output rose on-month by 1.56 percent, but the October’s initially reported 3.54 percent after-inflation sequential production increase has now been downgraded to 2.04 percent.

Since April, moreover, the price-adjusted production rebound has been a mere 21.75 percent – not much stronger than that for the total manufacturing recovery. Perhaps most discouraging: Real output in this sector is actually down 5.60 percent – from levels revealed by major continuing reliance on imports to have been dangerously inadequate.