Our So-Called Foreign Policy: Time to Test U.S. “Allies” on China

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allies, America First, Asia-Pacific, Barack Obama, China, Emmanuel Macron, EU, European Union, France, globalism, Our So-Called Foreign Policy, RCEP, Regional Comprehensive Economic Partnership, TPP, Trade, Trans-Pacific Parternship, Trump

President Trump’s globalist critics in the foreign policy Blob (the Washington, D.C.-centered complex of former diplomats and military officers, genuine academics, think tank hacks, and their Mainstream Media mouthpieces) think they’ve uncovered major new proof that the administration’s America First-type foreign policies and trade policies are failing catastrophically. Actually, the developments they’ve seized upon make clearer than ever the dangerous folly of their own outdated strategies, and the urgent need for a Trump-ian course change.

What’s gotten the globalists excited: Reports that America’s allies the world over are turning their backs on Washington and either moving into China’s orbit or cultivating better relations with the People’s Republic.

In the Asia-Pacific region, fifteen countries, including American treaty allies Australia, Japan, and South Korea, have decided to join the Regional Comprehensive Economic Partnership (RCEP) – a Chinese spearheaded trade agreement that doesn’t include the United States. Although Washington is apparently free to join, RCEP’s progress is seen as a big defeat for the United States, and for Mr. Trump in particular, because for years Beijing has been pushing it as an alternative to the Asia-Pacific-focused Trans-Pacific Partnership (TPP) deal signed by former President Barack Obama but nixed by President Trump on his first full weekday in office.

TPP was touted as a counter to RCEP that was vastly preferable for the United States because its protections of the environment and labor rights, and its curbs on state-owned enterprises, created standards that China could not hope to meet any time soon. Therefore, the agreement allegedly represented both a means of containing Chinese power and a powerful inducement to the kinds of Chinese reform long sought by Washington (and at least nominally sought by the President).

In other words, it supposedly was a globalist masterstroke that was foolishly trashed by Mr. Trump. And he’s now getting his richly deserve comeuppance via the Chinese-developed RCEP, which, it’s said, doesn’t address the above issues nearly as effectively as TPP, but which has nonetheless attracted many other signatories also spurned by the Trump rejection.

As known by RealityChek regulars, the anti-China case for TPP was bogus from the start, along with its claims to promoting the kinds of reforms throughout the Asia-Pacific region that would benefits American exporters. For the agreement contained a wide open backdoor for numerous products with high levels of Chinese content, which would have enabled Beijing to realize many of TPP’s benefits without incurring any of its obligations. Nearly as bad, for all their lofty ambitions, those obligations would have been impossible for Washington to monitor and enforce adequately, as most signatory governments’ bureaucracies, along with their national industrial bases, were too large (and in the case of the governments, secretive) to track.

Moreover, these glaring TPP weaknesses raise questions that hardly strengthen confidence in globalist views both of the agreement and, just as important of U.S. Allies. Specifically, TPP’s China back door and verification shortcomings weren’t exactly secrets. And they surely reveal that the Australias, Japans, and South Koreas of the world were never very interested in containing China or pressuring it to reform in the first place. The decision of these countries to go along with an RCEP that doesn’t even try seriously to achieve these goals casts even deeper doubt on their reliability for any future American efforts to work multilaterally to cope with China.

And as for the inevitable counter-argument that the Trump TPP pullout gave these Asia-Pacific countries little choice but to accept a second-best deal more advantageous to Beijing, it doesn’t withstand scrutiny. After all, all these countries had years to work with the George W. Bush and Obama administrations to develop regional trade arrangements that could realistically hope to achieve their intertwined China and reform objectives. They all (along with those globalist Presidents) completely blew the opportunity.

On the other side of the world, the Associated Press has just reported on a similar shift by the European Union, that huge economic bloc that also contains many countries allied with the United States through the North Atlantic Treaty Organization. In an article titled “Europeans look to China as global partner, shun Trump’s US,” correspondent Sylvie Corbet wrote that “When France’s president wants to carry European concerns to the world stage to find solutions for climate change, trade tensions or Iran’s nuclear ambitions, he no longer calls Washington. He flies to Beijing.”

She added that on his recent visit to Beijing, Emmanuel Macron “portrayed himself as an envoy for the whole European Union, conveying the message that the bloc has largely given up on Trump, who doesn’t hide his disdain for multilateralism.”

In the process, though, the author made a powerful, if completely unwitting, case for American unilateralism. For according to Corbet, Macron and Chinese dictator Xi Jinping “issued a ‘Beijing call’…for increased global cooperation in fighting climate change and better protecting biodiversity. Both countries have deplored the U.S. withdrawal” from the Paris climate change accord.

Macron apparently stood by as Xi “said the two leaders were sending ‘a strong signal to the world about steadfastly upholding multilateralism and free trade, as well as working together to build open economies.’”

And for good measure, the French president touted China’s record of helping to reduce tensions in the Persian Gulf, and potential contributions to using diplomacy to persuade Iran to return to full compliance with the nuclear proliferation deal rejected by Mr. Trump. In addition, he touted China’s ability to help “develop stable and cooperative trade rules at the international level.”

To which the only serious reply from the American standpoint is, “If Macron and anyone else in Europe really believe this nonsense, and assume that they’re better off aligning with China than with the United States, then America is better off without them.” And this holds not only for trade but for security issues like Iran.

It’s been unconvincing enough for globalists to insist that the United States has no choice but to maintain alliances with countries famous for being defense deadbeats and free-riders, and fence-sitters in the campaign to create a truly open world economy (as opposed to one that winks at all instances of protectionism except America’s). But it’s positively goofy for globalists to claim that these countries would be strong and active supporters of security or economic goals compatible with U.S. and traditional free world interests if only President Trump showed more patience with them.

Of course, it’s possible – and perhaps likely – that these Asian and European moves are ultimately bluffs aimed at curbing Mr. Trump’s perceived worst excesses. But it’s at least as possible that these countries hope to create pressure on the President to accept their longstanding, “Heads we win, tail you lose,” strategy vis-a-vis the United States.

All of which reminds me of episodes when I was little, and blurted out remarks like, “I’m going to run away.” My parents often replied, “Is that a promise or a threat?” That sounds to me like a necessary and indeed long overdue U.S. response to its worrisomely feckless allies.

(What’s Left of) Our Economy: New Data but Cloudier Skies on Trump’s Trade Policies and Manufacturing

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Barack Obama, China, Commerce Department, exports, GDP-by-industry, imports, manufacturing, manufacturing output, manufacturing trade deficit, tariff front-running, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

If only the Commerce Department’s data on gross domestic product (GDP) by industry didn’t come out on a basis timelier than once a quarter. For they’ve provided uniquely valuable information on how well the Trump administration is faring in its efforts to (1) reduce the humongous U.S. manufacturing trade deficit, and (2) reduce domestic industry’s reliance on imported parts, components, and materials, and boost total output and employment over the long-term by ensuring that more of the value in these manufactured products are Made in the USA.

More specifically, the data (whose latest edition came out this morning) shed light on the crucial question over whether the best business model for domestic manufacturing is that recommended by traditional trade theory, or whether an America First-type approach is more effective. The former, of course, holds that output of any kind is maximized by capitalizing on the principle of comparative advantage, and encouraging U.S.-based companies to use whatever inputs are made more efficiently abroad. The latter insists that such reliance on foreign inputs deprives the economy of the enormous output gains that are possible by encouraging growth in these very inputs.

Sadly, however, the reasonably clear analytical skies that permitted a reasonably clear verdict to be returned during the first two years of the Trump era in trade are rapidly clouding up, for a variety of reasons. And much of the growing confusion has been created by the President himself. 

During Mr. Trump’s first two (nearly) full years of the Trump administration (keeping in mind that the President didn’t take office until late January, 2017), his America First-style policies were looking pretty impressive. (It’s true that no new tariffs came on during the President’s first year. But he did put the kibosh on a major trade agreement signed by his predecessor, the Trans-Pacific Partnership, and made clear that levies were on the way.)

Since Mr. Trump actually began imposing tariffs in early 2018, however, the results have been harder to interpret for two main and related reasons. First, the administration’s tariff decisions have oscillated pretty dramatically, featuring not only steps to put in place, threaten, suspend, and remove such levies, but actual and threatened tariff rate changes on big chunks of imports (especially from China). Second, these policy swings have produced lots of “tariff front-running” – that is, U.S. importers speeding up their foreign purchases in order to avoid paying higher tariff-ed costs.

And this overall picture is exactly what’s been borne out by today’s figures (which incorporate revisions going back to 2014). The table below shows the new annual totals from 2011 (when the current economic recovery finished its early rapid bounce-back phase and settled into a more durable pattern) to 2018, The (slightly) revised numbers make clear that during the first two Trump years, domestic manufacturing did a much better job of generating healthy growth without ballooning manufacturing trade deficits (which reflect in part growing industry dependence on imported inputs) than during the previous Obama administration years.

The figure in the left-hand column represents U.S.-based manufacturing’s growth during the year in question (according to a gauge called “value added), the middle column represents the growth that year of the manufacturing trade deficit, and the right-hand column shows the ratio between the two growth rates (with the trade gap’s growth coming first). The higher the ratio, more closely linked manufacturing output growth is to the expansion of the manufacturing trade deficit. All figures are in pre-inflation dollars.

2011:             +3.93 percent           +8.39 percent            2.13:1

2012:             +3.19 percent           +6.27 percent            1.97:1

2013:             +3.36 percent          +0.77 percent             0.23:1

2014:             +2.93 percent        +11.78 percent            4.02:1

2015:             +3.72 percent       +13.65 percent             3.67:1

2016:              -1.19 percent         +4.66 percent                —

2017:             +3.99 percent         +3.16 percent            0.79:1

2018:             +6.23 percent         +3.96 percent            0.64:1

In other words, whereas during the Obama years, the manufacturing trade deficit nearly always expanded considerably faster than manufacturing output (and 3.67 and 4.02 times faster in 2014 and 2015), the first two Trump years saw both significantly higher output growth per se, and output growth that topped trade deficit growth. During 2018, moreover, numerous tariff were imposed, and not merely threatened.

This year, however, saw a major change. As shown below, the ratio of manufacturing output growth to manufacturing trade deficit growth returned to levels resembling the worst of the Obama years. And overall growth itself was feeble in comparison.

2Q 2017 – 2Q 2018:           +7.00 percent        +7.83 percent         1.12:1

2Q 2018 – 2Q 2019:           +2.03 percent        +7.27 percent         3.58:1

But here’s where the tariff front-running comes in, especially in the huge volume of trade with China – as made clear here. Unfortunately for trend-spotters, however, the administration’s success in fostering strong manufacturing output performance while weaning industry from imports won’t become any easier to identify anytime soon. The President’s China trade policies, after all, are likely to remain mercurial.  Further, the General Motors strike and Boeing’s safety problems are sure to distort the production numbers for at least the next quarter or two. Add a still-sluggish world economy that, along with foreign retaliatory tariffs, will keep weighing on U.S. exports, and you get uncertainty that could even dwarf that supposedly paralyzing American business investment.

(What’s Left of) Our Economy: The Case for Confidence in the Consumer Confidence Surveys May be Weakening

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Barack Obama, confidence, consumers, Democrats, George H.W. Bush, George W. Bush, independents, Republicans, Ronald Reagan, Trump, University of Michigan Surveys of Consumers, {What's Left of) Our Economy

Since psychology and emotions can affect how much individuals and companies spend and invest, and since U.S. economic growth does show signs of slowing from a solid but less-than-torrid pace, surveys purporting to track levels of consumer and business confidence understandably have attracted much more attention than usual.

One big possible problem, though: This era’s white hot political partisanship may be undercutting the usefulness of these soundings. The evidence comes from the widely followed University of Michigan survey of consumer sentiment, and it indicates both that such partisanship has greatly increased and influenced the results since the 1980s administration of President Ronald Reagan, and that most recently, more of this bias has been demonstrated by Democrats than Republicans.

The Michigan findings – which break out results according to whether respondent “usually think” of themselves as Republicans, Democrats, Independents, “or what?” – don’t permit conclusions on longer term trends to be drawn with great confidence. That’s mainly because the university’s Survey Research Center presents only five months worth of results for the Reagan administration, which lasted for eight years, and only twelve months worth for George W. Bush’s similar two-term presidency. Nonetheless, the data for those two periods do contrast significantly with those for the Obama and Trump administrations, which are complete (and bring the story up through this month).

My measure of partisanship compares the degree to which the results for Republican and Democratic identifiers (for the headline Michigan number) diverge from the results for Independent identifiers – which I use as a proxy for non-partisanship, based on the assumption that such Americans don’t permit politics to impact their views on the economy. For example, if during a given month, Independents’ assessment of the economy registers as a 50, Democrats’ as a 20, and Republicans as a 60, the Democrats’ views would be judged to be more partisan. In order to produce figures for each presidency, I calculated the average monthly totals for each of the three political groups for the duration of that President’s administration.

This method shows, not surprisingly, that partisanship has always influenced assessments of confidence. That is, when Democratic Presidents hold office, Democrats’ confidence levels are invariably higher than Republicans’, and vice versa. But during the Reagan years, the average monthly ratings for the economy found by the Michigan researchers were Democrats, 87.66; Independents, 98.14; and Republicans, 108.12.

So the partisan effect clearly was present, but the Democrats’ and Republicans’ perceptions diverged from those of the Independents by about the same degree.

No results are presented for either George H.W. Bush’s nor Bill Clinton’s administrations, but the results for George W. Bush’s presidency were Democrats, 63.48; Independents, 66.04; and Republicans, 78.38. That is, Democrats were only slightly more downbeat. More specifically, their ratings of the economy were 96.12 percent as good as the Independents’, while the Republicans’ was 118.69 percent of the Independents’.

During the Obama years, these results were almost exactly reversed: The average confidence level recorded for Democrats was 84.61; for Independents, 72.67; and for Republicans, 69.63. In this case, the Republican ratings were 95.12 percent as good as the Independents’, while the Democrats’ were 116.43 percent of the Independent’ score. But the partisanship showed by the Democrats under President Obama was still almost exactly as great as that showed by the Republicans when George W. Bush served in the Oval Office.

This pattern has continued through Donald Trump’s presidency so far, but Democratic partisanship looks somewhat stronger compared with the results for the Obama years. During the 32 Trump months, the average Democrat’s rating for the economy has been 76.61, the average Independent’s was 96.37, and the average Republican’s was 120.14. As a result, the Democrats’ judgments on the economy have been only 79.50 percent as positive as the Independents,’ but the Republicans’ has been 124.67 percent the size of the Independent score.

Put differently, during the Obama years, the Republicans’ judgments about the economy nearly matched the Independents’ (being 96.12 percent of the Independents’ average), but during the Trump years, the Democrats’ judgments came to only 79.50 percent of the Independents’ average. Both Democrats and Republicans were much more bullish on the economy under their respective Presidents than were Independents, but the Republicans’ “over-optimism” under Mr. Trump hasn’t been dramatically greater than the Democrats’ “over-optimism” under Mr. Obama.

Another sign of relatively great Democratic partisanship:  According to the Michigan research, Democrats’ optimism about the economy so far this year has weakened much faster than Republicans’.  And Independents’ confidence is actually up slightly so far. 

One cause for optimism about assessing consumer confidence stems from the divergence between the results for the Trump presidency and those for his predecessors recorded by the Michigan researchers. They could suggest that the Trump years are outliers, and that if he’s defeated in 2020, partisanship will remain significant, but will return to normal levels – at least for recent decades. Pessimists, however, can just as reasonably argue that the Trump years might represent a decisive break from the recent past. If the latter group is right, assessing the economy’s prospects by using consumer sentiment surveys – already a challenging task –will become more difficult than ever.

Im-Politic: Has Trump’s Record on Real Wages Been Good Enough Politically?

Tags

Barack Obama, China, Im-Politic, inflation-adjusted wages, Labor Department, manufacturing, private sector, real wages, tariffs, Trade, trade war, Trump, wages

Given the on-again-off-again nature of President Trump’s tariff policies (which against China went partly off again yesterday in the form of an announced short delay in the imposition of $250 billion worth of levies originally set for October 1), I figured there was no sense in performing my now-standard analysis of this morning’s new monthly U.S. consumer price inflation figures (for August).

Instead, I’ll focus on today’s inflation-adjusted wage data – which is always released by the Labor Department in tandem with the consumer inflation report –  and here there’s definitely some good news for President Trump, his supporters, and for manufacturing workers. One notable qualification: The shorter the memories of Trump working class voters, the better for his political future.

The table below makes clear what I mean. It shows the price-adjusted wage changes for the last three January-thru-August periods for private sector workers overall, for “blue-collar” private sector workers (that is, those not in management or supervisory positions), for manufacturing workers overall, and for blue-collar workers in general and their manufacturing counterparts. (To remind:  The Labor Department doesn’t track wages for public sector employees, since their pay stems mainly from politicians’ decisions, not economic fundamentals.) 

January thru Aug. real wages                  2019                2018                 2017

private sector:                                 +0.55 percent   +0.75 percent    +0.94 percent

private sector blue-collar:               +1.27 percent   +0.76 percent   +0.76 percent

manufacturing:                               +0.65 percent     -0.19 percent   +0.46 percent

manufacturing blue-collar:            +0.23 percent         0 percent      +1.15 percent

As you can see, manufacturing workers in particular have seen January-through-August constant-dollar wage gains in 2019 that were much better than in the comparable last year – but largely because the 2018 results were terrible. Moreover, for blue-collar manufacturing workers, the 2019 improvement was still much weaker than the 2017 increase. Private sector blue-collar after-inflation hourly wages accelerated year-on-year in 2019 as well, but the 2018 gain was at least identical to 2017’s.

Short blue-collar worker memories will also help Trumpworld if the Obama administration’s real wage record is forgotten. For Mr. Trump’s record trails that of his predecessor for all of these major worker categories (although the advance in inflation-adjusted manufacturing blue-collar wages under both Presidents during comparable periods of their terms in office is pretty similar).

                                                   Last 30 Obama months       First 30 Trump months

private sector:                                  +3.39 percent                      +2.62 percent

private sector blue-collar:               +3.97 percent                      +2.72 percent

manufacturing:                                +3.25 percent                     +0.37 percent

manufacturing blue-collar:              +3.22 percent                     +3.11 percent

Let’s end on a fairly positive note for Mr. Trump and his backers: The table below shows that overall, price-adjusted wages in manufacturing fared better after his tariffs’ advent in March, 2018 (for the most part) than during the pre-tariff phrase of his presidency. Because the two time periods have been of different lengths, I’m presenting the results in terms of average monthly changes in absolute dollars and cents terms.

                                                         Pre-tariffs                            Post-tariffs

Manufacturing:                               -0.31 cents                           +0.50 cents

Blue-collar manufacturing:           +0.85 cents                            +0.75 cents

Again, what these statistics mean for the future of American workers is anyone’s guess, especially in trade-heavy manufacturing, since trade policy decisions seem so ragged. And politically, the key question remains: Have times been good enough for working class and other voters during the Trump era to offset other concerns about his leadership sufficiently to bring him a second term?

Our So-Called Foreign Policy: Trump’s Record and the Bolton Effect

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Afghanistan, alliances, America First, Asia-Pacific, Barack Obama, China, Europe, extended deterrence, globalism, Iran, Iran deal, Iraq, Israel, Japan, John Bolton, Joint Comprehensive Plan of Action, Kim Jong Un, Middle East, neoconservatives, North Korea, Our So-Called Foreign Policy, Palestinians, Republicans, South Korea, Syria, Trump

With John Bolton now out as President Trump’s national security adviser, it’s a great time to review the Trump foreign policy record so far. My grade? Though disappointing in some important respects, it’s been pretty good. Moreover, Bolton’s departure signals that performance could improve significantly, at least from the kind of America First perspective on which Mr. Trump ran during his 2016 campaign. That’s less because of Bolton’s individual influence than because what his (clearly forced) exist tells us about the President’s relationship with the Republican Party and conservative establishment.

There’s no doubt that the Trump foreign policy record is seriously lacking in major, game-changing accomplishments. But that’s a globalist, and in my view, wholly misleading standard for judging foreign policy effectiveness. As I’ve written previously, the idea that U.S. foreign policy is most effective when it’s winning wars and creating alliances and ending crises and creating new international regimes and the like makes sense only for those completely unaware – or refusing to recognize – that its high degrees of geopolitical security and economic self-reliance greatly undercut the need for most American international activism. Much more appropriate measures of success include more passive goals like avoiding blunders, building further strength and wealth (mainly through domestic measures), and reducing vulnerabilities. (Interestingly, former President Obama, a left-of-center globalist, saltily endorsed the first objective by emphasizing – privately, to be sure – how his top foreign policy priority was “Don’t do stupid s–t.”)     

And on this score, the President can take credit for keeping campaign promises and enhancing national security. He’s resisted pressure from Bolton and other right-of-center globalists to plunge the country much more deeply militarily into the wars that have long convulsed Afghanistan, Syria, and Iraq, and seems determined to slash the scale of U.S. involvement in the former – after nineteen years.

He’s exposed the folly of Obama’s approach to preventing Iran from acquiring nuclear weapons. Although Tehran has threatening to resume several operations needed to create nuclear explosives material since Mr. Trump pulled the United States out of the previous administration’s multilateral Iran deal, it’s entirely possible that the agreement contained enough loopholes to permit such progress anyway. Moreover, the President’s new sanctions, their devastating impact on Iran’s economy, and the inability of the other signatories of Obama’s multilateral Joint Comprehensive Plan of Action to circumvent them have both debunked the former President’s assumption that the United States lacked the unilateral power to punish Iran severely for its nuclear program and ambitions, and deprived Tehran of valuable resources for causing other forms of trouble throughout the Middle East.

Mr. Trump taught most of the rest of the world another valuable lesson about the Middle East when he not only recognized the contested city of Jerusalem as Israel’s capital, but actually moved the U.S. Embassy there. For decades, American presidential contenders from both parties had promised to endorse what many of Israel’s supporters called its sovereign right to choose its own capital, but ultimately backed down in the face of warnings that opinion throughout the Arab world would be explosively inflamed, that American influence in the Middle East would be destroyed, and U.S. allies in the region and around the world antagonized and even fatally alienated.

But because the President recognized how sadly outdated this conventional wisdom had become (for reasons I first explained here), he defied the Cassandras, and valuably spotlighted how utterly powerless and friendless that Palestinians had become. That they’re no closer to signing a peace agreement with Israel hardly reflects an American diplomatic failure. It simply reveals how delusional they and especially their leaders remain.

Nonetheless, Mr. Trump’s Middle East strategy does deserve criticism on one critical ground: missing an opportunity. That is, even though he’s overcome much Congressional and even judicial opposition and made some progress on strengthening American border security, he’s shown no sign of recognizing the vital America First-type insight holding that the nation’s best hope for preventing terrorist attacks emanating from the Middle East is not “fighting them over there” – that is, ever more engagement with a terminally dysfunctional region bound to spawn new violent extremist groups as fast as they can be crushed militarily. Instead, the best hope continues to be preventing the terrorists from coming “over here” – by redoubling border security.

The Trump record on North Korea is less impressive – but not solely or even partly because even after two summits with North Korean dictator Kim Jong Un, no progress has been made toward eliminating the North’s nuclear weapons or even dismantling the research program that’s created them, or toward objectives such as signing a formal peace treaty to end the Korean War formally that allegedly would pave the way for a nuclear deal. (Incidentally, I’m willing to grant that the peninsula is quieter today in terms of major – meaning long-range – North Korean weapons tests than when the President took office – and that ain’t beanbag.)

Still, the main – and decisive – Trump failure entails refusing to act on his declared instincts (during his presidential campaign) and bolstering American security against nuclear attack from North Korea by withdrawing from the peninsula the tens of thousands of U.S. troops who served as a “tripwire” force. As I’ve explained previously, this globalist strategy aimed at deterring North Korean aggression in the first place by leaving an American president no choice except nuclear weapons use to save American servicemen and women from annihilation by superior North Korean forces.

But although this approach could confidently be counted on to cow the North before Pyongyang developed nuclear weapons of its own capable of striking the United States, and therefore arguably made strategic sense, now that the North has such capabilities or is frighteningly close, such “extended deterrence” is a recipe for exposing major American cities to nuclear devastation. And if that situation isn’t inexcusable enough, the United States is playing such a dominant role in South Korea’s defense largely because the South has failed to field sufficient forces of its own, even though its wealthier and more technologically advanced than the North by orders of magnitude. (Seoul’s military spending is finally rising rapidly, though – surely due at least in part to Trump pressure.) 

Nonetheless, far from taking an America First approach and letting its entirely capable Asian allies defend themselves and incentivizing them plus the Chinese and Russians to deal as they see fit with North Korean nuclear ambitions that are most threatening to these locals, the President seems to be happy to continue allowing the United States to take the diplomatic lead, bear much heavier defense spending burdens than necessary, and incurring wholly needless nuclear risk. Even worse, his strategy toward Russia and America’s European allies suffers the exact same weakness – at best.

Finally (for now), the President has bolstered national security by taken urgently needed steps to fight the Chinese trade and tech predation that has gutted so much of the American economy’s productive sectors that undergird its military power, and that his predecessors either actively encouraged, coddled, or ignored – thereby helping China greatly increase its own strength.

In this vein, it’s important to underscore that these national security concerns of mine don’t stem from a belief that China must be contained militarily in the Asia-Pacific region, or globally, as many globalists-turned-China economic hawks are maintaining. Of course, as long as the United States remains committed to at least counterbalancing China in this part of the world, it’s nothing less than insane to persist in policies that help Beijing keep building the capabilities that American soldiers, sailors, and airmen may one day need to fight.

I’ll be writing more about this shortly, but my main national security concerns reflect my belief that a world in which China has taken the military and especially technological need may not directly threaten U.S. security. But it will surely be a world in which America will become far less able to defend its interest in keeping the Western Hemisphere free of excessive foreign influence, a la the Monroe Doctrine, and in which American national finances and living standards will erode alarmingly.

The question remains, however, of whether a Bolton-less administration’s foreign policy will tilt significantly further toward America First-ism. President Trump remains mercurial enough to make any such forecasting hazardous. And even if he wasn’t, strategic transitions can be so disruptive, and create such short-term costs and even risks, that they’re bound to take place more unevenly than bloggers and think tankers and other scribblers would like to see.

But I see a case for modest optimism: Just as the end of Trump-Russia scandal-mongering and consequent impeachment threat has greatly reduced the President’s need to court the orthodox Republicans and overall conservative community that remain so influential in and with Congress in particular, and throw them some big bones on domestic policy (e.g., prioritizing cutting taxes and ending Obamacare), it’s greatly reduced his need to cater to the legacy Republicans and conservatives on foreign policy.

Not that Mr. Trump has shown many signs of shifting his domestic priorities yet. But I’m still hoping that he learns the (screamingly obvious) lessons of the Republicans’ 2018 midterms losses (e.g., don’t try to take an entitlement like Obamacare away from Americans until you’re sure you can replace it with something better; don’t endorse racist sexual predators like Alabama Republican Senatorial candidate Roy Moore simply for partisan reasons). It’s still entirely possible that the growing dangers of his remaining globalist policies will start teaching the President similar lessons on the foreign policy front.

(What’s Left of) Our Economy: Manufactured Bad News About Trump’s Manufacturing Record

Tags

Barack Obama, Financial Times, Great Recession, manufacturing, real value-added, recovery, Trump, {What's Left of) Our Economy

So here I was, planning to spend a nice, quiet, blogging-free day on this Fourth of July, when some casual web surfing revealed that the Financial Times, a newspaper I genuinely respect, runs an article besmirching President Trump’s record on reviving manufacturing. And it did so in an unusually intellectually dishonest way.

The Times‘ news coverage usually plays it straight on Trump-ian issues like trade and manufacturing, however vehemently its editorial page opposes the President’s stances. But in its review today of the current U.S. economic recovery (which this month became the longest in American history), it claimed that “The relative weakness of the current economic expansion is owing to the underperformance of the manufacturing sector.”

Fair enough. But then came this contention:

“Despite Mr Trump’s rhetoric in the 2016 election campaign about sparking a revival in the traditional industrial regions of the US, this expansion has been overwhelmingly based on services, which were responsible for two-thirds of the increase in value added from 2009 to 2018.”

And that swipe was completely inexcusable. Perhaps worse – it’s transparently and incompetently inexcusable. Because Donald J. Trump wasn’t President for most of the current recovery, which began in the middle of 2009.

In fact, when you look at the relative performance of manufacturing under Mr. Trump, and under his predecessor, Barack Obama, it becomes embarrassingly clear that industry through 2018 (the latest data year examined by the Times – and naturally so, since it’s the last full year for which statistics are available) has fared much better in the Trump years, and made a far greater growth contribution. Here are the numbers.

Between 2009 and 2018, in terms of real value-added (the measure of output properly used in the Times article), the U.S. economy grew by $3.3576 trillion. Manufacturing production increased by just over $300 billion. So industry only contributed 8.94 percent of the growth during this period.

But then break down these developments by administration, and…what a difference! Under President Trump, starting in 2017 and running through 2018, the total economy in real value-added terms expanded by $907.2 billion. Manufacturing’s contribution totaled $140.5 billion – or 15.49 percent.

During the 2009 through 2016 Obama period, total real value-added increased by $2.4504 trillion. Manufacturing’s contribution was $159.7 billion – or 6.52 percent. That’s way less than half of its contribution during the Trump years.

Moreover, nearly 61 percent of manufacturing’s growth during the Obama administration took place in a single year – 2009-10. That’s when industry engineered a strong comeback from a near-death experience during the Great Recession. In other words, once the economy regained something like a normal footing, annual manufacturing growth slowed practically to a standstill.

Another way to illustrate manufacturing’s out-performance during the Trump years. In 2016, in standstill terms, manufacturing real value-added represented 11.29 percent of after-inflation gross domestic product. Fueling 15.49 percent of the economy’s overall inflation-adjusted growth over the next two years is what’s known as “punching above your weight.”

In 2008, manufacturing real value-added accounted for 12.94 percent of the total economy in constant dollar terms on a standstill basis. And from then through 2016, it fueled 6.52 percent of total price-adjusted growth. That’s known as “punching below your weight.:

Is American manufacturing today “Great Again?” In my view, it’s clear it’s got a long way to go (and no more so than in reducing its gargantuan, chronic trade deficit, a key measure of global competitiveness). Moreover, so far this year, domestic industry has gone through a tougher slog. In fact, since July, 2017, after-inflation domestic manufacturing production has been down on net – which means that it’s been in recession. (And which also means I should have caught that development when the last Federal Reserve industrial production figures – for May – came out. So apologies for that oversight.)

But even a poor full 2019 for manufacturing could still leave the Trump record considerably better than Obama’s. And for the time period examined by the Times, despite the impression it tried to leave, there’s simply no contest. In fact, you could call the report manufactured news.

And before I forget:  Happy Birthday, America!

Im-Politic: On the Democrats’ Debates

Tags

African Americans, Amy Klobuchar, Barack Obama, Bernie Sanders, Beto O'Rourke, China, Cory Booker, debates, Democratic Party, Democrats, Democrats debates, economy, election 2020, Elizabeth Warren, Im-Politic, Joe Biden, Kamala Harris, Michael Bennet, Pete Buttigieg, race relations, tariffs, Trade, Trump

So thanks to last week’s two debates, we’ve now seen most of the Democratic presidential candidates in, as sportscasters like to say, “limited action,” and have had some time to ruminate about the results. Here’s my sense of some of the biggest takeaways.

>The Democrats generally are in denial about the health of the economy. This problem became clear immediately, as the first question on Night One, posed to Massachusetts U.S. Senator Elizabeth Warren, noted that her “many plans” for the economy come “at a time when 71 percent of Americans say the economy is doing well, including 60 percent of Democrats. What do you say to those who worry this kind of significant change could be risky to the economy?”

Warren’s response? Ignore the cited polling data and claim – presenting no evidence – that “Who is this economy really working for? It’s doing great for a thinner and thinner slice at the top.” For good measure, sharing her fact-free perspective at the outset were her Minnesota Senate colleague Amy Klobuchar, and former Texas Congressman Beto O’Rourke. And don’t forget former Vice President Joe Biden’s charge on Night Two that “Donald Trump has put us in a horrible situation” economically. Or California Senator Kamala Harris’ view that the economy is great only for those who own stocks.

No one is saying that too many Americans aren’t still being left behind in an economy that’s unmistakably shifted into a somewhat higher gear under President Trump. No one is saying that the economy hasn’t shown some signs of slowing. (See, e.g., this recent post.) No one is saying that the economy is going to be a decisively winning Trump issue in 2020. (This new poll throws lots of cold water on that proposition.) And no one is saying that because the economy is so far performing pretty well, Americans are especially happy about the overall state of the union. (Survey results like these make clear that they’re not.)

But no one should be feeling too great about so many politicians remaining so deeply in denial (or at least pontificating as if they are) about a state of affairs that is so easy to document.

>Kamala Harris is simply race-baiting. Let’s assume that all of the California U.S. Senator’s allegations about former Vice President Joe Biden’s record on school busing decades ago are completely accurate. How can the conclusion be avoided that she’s trying to portray Biden as remaining deficient as racial issues today, and in the process, stir up the worst kinds of national divisions? After all, he served as the second-in-command to the nation’s first African-American president. Black politicians, and especially long-serving black politicians, have publicly praised him as a long-time trusted ally.

In other words, whatever Biden’s past shortcomings on race, nothing could be more obvious than that they’ve vanished in every meaningful way, and in every way relevant to policymaking. It’s no longer possible accurately and responsibly to depict him as a problem for the African-American community. Harris’ indictment also indicates a refusal to acknowledge that individuals can learn, evolve, and grow, and to give them any credit when they do.

I recently spoke about this privately with an African-American friend who argued that the real Biden race problem that’s emerged recently stemmed from his indignant response to similar allegations and insinuations by New Jersey Senator Cory Booker, another 2020 African-American Democratic hopeful. In other words, Biden’s refusal to apologize for comments about racist southern Senators signaled an insensitivity to racial slurs (like describing African-American men as “boys”) that could well prompt younger blacks to stay at home in the fall of 2020, and boost Mr. Trump’s odds of reelection.

I don’t disagree with that political analysis at all (though I don’t consider it a foregone conclusion, either). But politics aside, that would point to the same type of intolerance, censoriousness, and sanctimony being displayed by Harris. More of this, America these days clearly doesn’t need.

>Biden performed better than I expected. The former Vice President and still 2020 Democratic front-runner has widely been declared a major loser in his debate exchange with Harris, and poll results reinforce that conclusion. I agree that Biden was poorly prepared for attacks on racial issues that he must have known would come that evening from someone. In particular, his substantive defense of his busing record – that he only opposed a sweeping federal mandate – did indeed (as Harris charged) ignore the decisive role that the Federal government has regularly needed to play in advancing civil rights when state government were either hostile or indifferent to the cause.

Nevertheless, Biden certainly didn’t act like the “Sleepy Joe” he’s been labeled as by President Trump, and that seemed like an apt description for some of his more disjoint moments in these early phases of the 2020 election (for example, this rambling discussion of the China challenge). He flashed temper (or at least indignation), he sounded articulate, he stood tall, his energy level didn’t notably flag. In fact, assuming that his health holds up (he turns 77 in November), Biden looked like a candidate who could mix it up with Trump on a debate stage. As demonstrated by the race relations storm he’s kicked up, however, he’s as gaffe-prone as ever.

>The Democrats have no grip on China issues. Sure, they generally acknowledge that China poses problems for the United States (but there’s some disagreement as to what they are). But few so far have offered realistic solutions to these problems.

For example, Senator Michael Bennet of Colorado, “I think the president’s been right to push back on China but he’s done it in completely the wrong way. We should mobilize the entire rest of the world who all have a shared interest in pushing back on China’s mercantilist trade policies and I think we can do that.”

What a shame that he was never asked why countries like Germany, Japan, and South Korea, which profit enormously from selling sophisticated industrial machinery to China, would want to see any slowing in U.S.-China trade when so many of those machines are used in factories that supply the American market?

Mayor Pete Buttigieg of South Bend, Indiana agrees that the China challenge “is a really serious one,” but seemed most concerned that the Chinese are “using technology for the perfection of dictatorship.” He endorsed the stale and misleading “tariffs are taxes” trope, and insisted that “the biggest thing we’ve got to do is invest in our own domestic competitiveness.” He never explained if he’s OK with the infrastructure the nation unmistakably needs being manufactured in China and elsewhere abroad, or why “education” is so critical when children in China and everywhere else have the same capacity to capitalize on their learning as children in America – even though population considerations will long ensure that their wages stay orders of magnitude lower no matter how advanced the work they do.

Interestingly, Sanders is the only Democratic hopeful with a lengthy record of voting in Congress on China trade and related economic issues – always correctly (in my view) opposing reckless expansion. That explains CNBC’s ironic but on-target recent observation that “Sanders in particular has targeted Trump because his trade views overlap with the president’s.” And hence mushy Sanders statements like “I think we do need new trade policies that are fair to the working people of this country not just to the CEOs, but as usual, I think Trump gets it wrong in terms of implementation,”

Warren seems equally conflicted, agreeing with Mr. Trump that “tariffs are one part of reworking our trade policy overall” but lamely chiding him for engaging in “tariff negotiation by tweet” instead of “fighting back” with “strength and a coherent plan, not with chaos.”

Indeed, Warren has a detailed-looking plan for implementing a strategy of “economic patriotism.” It contains some good features, like what seem to be industrial policy proposals (with no real specifics), tightening up Buy American government procurement policies, and requirements that production that results from (amped up) taxpayer-funded research and development programs take place in the United States. But it’s unclear whether she realizes that tariffs are going to be central to their success. In addition, she appears quite enamored with devaluing the dollar as a trade policy panacea. And she puts considerable stock in government-run training and reeducation programs that, to date, have been proven failures and that have long (as noted above) evidently assume that Americans are the most educable and train-able people on earth.

If you’re a Democrat, or any American who wants to see elections held between the most qualified candidates possible, the good news is that the party’s hopefuls will have eleven more debate chances to up their games. Unfortunately, it might also turn out that the nation will simply witness eleven more events marked by hollow, and too often angry, grandstanding.

Our So-Called Foreign Policy: The Iran Crisis’ Real Lessons on Multilateralism

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allies, America First, Barack Obama, foreign policy, globalism, Iran, Iran deal, Iran nuclear deal, Iran sanctions, JCPOA, Joint Comprehensive Plan of Action, multilateralism, Our So-Called Foreign Policy, sanctions, Trump, unilateralism

If you think about it seriously, the main sequence of events that’s led up to the latest surge in U.S.-Iran tensions has dealt a hammer blow to the mainstream U.S. foreign policy idea that going it more or less alone is a formula for failure in world affairs, and that closely cooperating with allies is one of the biggest keys to success.

To remind: The mainstream (in the case of Iran, overwhelmingly its left-of-center wing) has been charging that the two countries have moved close to major conflict because, over allies’ objections, an America First-oriented President Trump pulled out of the deal negotiated during President Barack Obama’s administration with the European Union (EU), the United Kingdom, Russia, and China and Iran to restrain Tehran’s nuclear weapons development. And Washington then proceeded to antagonize Iran gratuitously by ramping up its own economic sanctions. As a result, Iranian leaders have threatened to start violating some of its nuclear agreement commitments, and has further protested these actions by lashing out regionally – including (as seems to be the case) attacking tankers transporting vital oil supplies through the Persian Gulf and its narrow Straits of Hormuz.

So if only Mr. Trump had listened to the allies and stayed in the agreement – i.e., if he followed an approach called multilateralism – all would be (reasonably) well in the volatile and oil-rich Gulf region. And to be fair, I myself initially bought the multilateralist reasoning when the nuclear deal (officially known as the Joint Comprehensive Plan of Action, or JCPOA) was finally reached, agreeing that without allied buy-in, the United States could never create enough pressure on Iran on its own (i.e., “unilaterally”) to prevent Tehran from going nuclear for any length of time.

And yet, as I eventually realized, this narrative held no water whatever. For the United States has proved eminently capable of inflicting major pain on Iran’s economy all by itself – by dint of its ability to deny companies that do business with Iran (including companies from allied and other foreign countries) access to the U.S. dollar-dominated global banking and payments system. America’s unilateral power, in turn, strongly reinforces the argument that the Obama administration (and the allies) could have secured much better terms from Iran than the deal currently contains.

It’s true that weakening Iran economically is no guarantee that it will turn from the nuclear weapons path. But neither is the agreement. The strongest argument made on its behalf is that it pushes back any possible nuclear-ization by roughly fifteen years. Even strong supporters, though, acknowledge it contains important verification loopholes. And had the United States remained in the JCPOA, and imposed none or few of its own sanctions, when Iran did “break out,” it would have surely been much stronger economically than otherwise – which couldn’t serve the interests of anyone worried about the Islamic Republic.       

Even more important than my own evolving views: Iran itself clearly understands the United States’ matchless leverage, too. That’s why it’s been so enraged by the American withdrawal from the nuclear agreement – even though all the other signatories remain part of the pact. Its leaders apparently understand that, in this instance, U.S. allies’ words and even deeds don’t matter much.

And as for the allies augmenting American power and influence in this episode – because their top priority (rightly or wrongly) is preserving the nuclear deal, they’re trying to frustrate American aims nowadays, not support them.

Multilateralism certainly can be a useful, effective U.S. approach to various international challenges. But contrary to the impression created by its staunchest champions, allies need to do their part, too. If consensus among all parties is lacking, multilateralism can too easily become a recipe for paralysis and inaction. In other words, like all other tools or tactics, it’s simply a tool or tactic. It mustn’t be treated as an end in and of itself.

And this caveat, of course, goes double for the United States. For as the Iran situation shows, it’s unique among the world’s major powers in having many, and robust, unilateral options.

Our So-Called Foreign Policy: Time to “Lead from Behind” on the Gulf?

Tags

allies, America First, Barack Obama, Iran, oil, Our So-Called Foreign Policy, Persian Gulf, Straits of Hormuz

It sounds like a global nightmare scenario like those described in Cold War thrillers like “Fail Safe” – Middle East militants from someplace start attacking shipping in the Persian Gulf, through which a third of the world’s oil supplies flow, and the international economy teeters on the brink of total collapse. Except such attacks are happening right now.

So the Trump administration’s counter-moves – sounding alarms, blaming Iran, and seeking to rally global support for some kind of forceful response – seem to make perfect sense.

Actually, however, there’s every reason to think that the global economy can ride out this apparent crisis just fine, and that as a result, the President is missing an opportunity to display the virtues of a genuine America First foreign policy.

Not that the Gulf doesn’t matter for global oil trade. An estimated 30 percent of the globe’s oil exports travel through it, and out to markets the world over through its narrow Straits of Hormuz. Moreover, many of the world’s leading economies depend on such oil for big (though significantly varying) shares of their total energy use.

But these countries so far have displayed no interest in taking military steps to protect the oil flow. Indeed, many have focused their efforts instead on questioning the U.S. claims about Iran’s responsibility.

It’s tempting to view these actions as simply the latest example of such American allies counting on the United States to pull their fat from the fire – and/or a worrisome sign that the Trump administration’s alleged “bullying” on issues ranging from China trade to sharing the burden for the supposedly common defense to dealing with Iran and its nuclear weapons ambitions and other aggressive policies has cost it precious credibility with America’s best foreign friends.

Yet there’s also a strong case to be made that in this case, the allies’ apparent dithering (a charge that would be justified by either of the above narratives) makes perfect sense. The reason? The world literally has been here before – in spades. That is, in recent memory, the Gulf has been a much more violent place, and a much more threatening environment for oil tankers specifically. And as described in this useful Washington Post review, most of the global economic consequences were pretty minor. Those that weren’t – mainly entailing oil price hikes – didn’t last especially long in part because, quite naturally, the higher prices generated more supply, which brought the prices back down after a few years.   

Moreover, even if “this time it’s different” in the Gulf, there’s an equally strong case that the United States should be following the allies’ lead. After all, they’re potentially the countries that are most seriously affected. Therefore, at least theoretically speaking, they have the greatest incentives to behave responsibly. If their economies do run into trouble, the U.S. economy certainly wouldn’t escape unscathed, given its extensive trade and investment with Europe and Asia.

But because thanks to its fracking-led energy production revolution, the United States no longer imports much oil from anywhere any more, the impact would be much less important. Chances are, moreover, that this impact would be far below a level that would warrant military action, much less taking charge of such operations.  And since the allies’ ambivalence indicates that their aid couldn’t be counted on, a major American-dominated military initiative seems even more foolhardy.  

Several years ago, an anonymous Obama administration official created a stir when he described the President’s approach for intervening in the Libya civil war as “leading from behind.” Critics definitely had a point when they charged that such strategies were difficult at best to reconcile with the then prevailing globalist foreign policy strategy that defined vital U.S. interests in sweeping, near-universal terms and emphasized the need for active, practically ceaseless American global engagement. But following the allies’ lead in the current Persian Gulf crisis seems like just the ticket.

(What’s Left of) Our Economy: Real Wages Remain a Trump Economy Weakness

Tags

Barack Obama, blue-collar workers, Employment-Population ratio, inflation adjusted wages, Labor Force Participation Rate, manufacturing, non-supervisory workers, private sector, production workers, real wages, slack, Trump, wages, {What's Left of) Our Economy

As I’ve written repeatedly, I’m convinced that the economic data conclusively show that the U.S. economy on numerous fronts has kicked into a higher gear during the Trump years. But last week’s inflation-adjusted wage figures are an important reminder of one big exception: American workers’ price-adjusted take- home hourly pay.

Indeed, by every relevant measure, these real wages during Mr. Trump’s first 27 months as President have been rising at a pace slower than that during his predecessor Barack Obama’s final 27 months in office. Ditto for manufacturing workers, whose fortunes have been such a Trump focus.

And the comparison flatters Obama even when the data for blue-collar workers – generally the lowest paid members of the American workforce – are stripped out, although in absolute terms the Trump-era performance here has been somewhat better.

Here are the percentage changes through May. (In the lingo of the Bureau of Labor Statistics, which tracks these numbers, blue-collar workers are “production and non-supervisory workers.”  And as usual, public sector workers are excluded because their pay levels are overwhelmingly determined by politicians’ decisions, and thus say little about the fundamentals of the economy or the job market.)

                                     m/m        y/y   1^st 27 Trump months  last 27 Obama months

private sector:            +0.18     +1.30              +2.06                         +3.00

manufacturing:          +0.28     +0.46               -0.09                         +2.96

private production:    +0.32     +1.73              +2.29                         +3.27

mfg production:        +0.23     +1.03              +2.08                          +2.73

These results continue to be especially surprising given overall unemployment rates that have been at multi-decade lows – which should be forcing wages up, as employers find themselves forced to offer higher pay in order to compete for increasingly scarce workers. And although, as I’ve written, it’s possible that manufacturers in particular have held the line on wages because they’re not able to find workers with anything close to the skills they need, I wonder how understanding such workers will be about this explanation when it comes time to vote for President in 2020.

At the same time, here’s what’s not open to debate: Despite the plunge in the unemployment rate, other measures – notably the Employment-Population ratio and the Labor Force Participation Rate – show that there’s plenty of slack left in the U.S. labor market. If politicians and business leaders really want to see real wages rise healthily again, they’ll need to figure out how to lure able-bodied Americans still on the sidelines back to work.