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(What’s Left of) Our Economy: Signs of the Wrong Kind of Inflation Progress

19 Thursday Jan 2023

Posted by Alan Tonelson in (What's Left of) Our Economy

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baseline effect, Biden administration, core PPI, cost of living, energy prices, Federal Reserve, food prices, inflation, PPI, Producer Price Index, producer prices, recession, SPR, stimulus, Strategic Petroleum Reserve, wholesale inflation, {What's Left of) Our Economy

Yesterday’s official U.S. report on wholesale price inflation (for December) finally contained some modest signs of genuine cooling, but that’s not necessarily good news. The biggest reason seems to be a significant slowing in the nation’s economic growth and further confirmation that America remains far from creating a truly healthy economy – one that can expand adequately without either racking up towering debts or, more recently, igniting decades-high price increases.

As I’ve written previously, changes in this Producer Price Index (PPI) influence changes in consumer prices, but the relationship is more complex than often thought. Because wholesale prices represent costs for producing the goods and services that businesses sell to each other and to consumers, companies understandably try to pass increases on to their final customers – but can’t always do so.

That’s because the final result depends on these customers’ buying power. If they’ve got lots of it, chances are they’ll pay up, enabling businesses to preserve and even boost profits. If they don’t, they won’t, and margins will suffer with one big caveat – the ability of the sellers to become more efficient, and generate cost-savings elsewhere.

At the same time, if final customers feel flush with cash and/or credit, the businesses that supply them won’t necessarily, or even often, cut their selling prices if their costs decrease or stabilize. Why should they? With certain exceptions (like a prioritizing gaining market share), they’ll naturally charge whatever their customers seem willing to pay. 

And because some major signs of mounting economy-wide weakness have appeared recently (especially falling consumer spending), that new evidence of softer wholesale prices seems to add to the evidence that a recession of some kind is looming.

The best wholesale inflation news came in the new monthly numbers. The headline figure actually fell by 0.50 percent between November and December. That’s the most encouraging such result since this PPI dropped 1.29 percent sequentially in April, 2020 – when the CCP Virus’ first wave plunged the economy into a short but steep slump.

The core figure (which strips out food, energy, and a category called trade services, supposedly because they’re volatile for reasons largely unrelated to the economy’s fundamental vulnerability to inflation), did rise month-to-month, but only by a tiny 0.09 percent. That was the best such result since a fractionally lower figure in November, 2020.

Almost as good, the revisions for both for recent months didn’t meaningfully change this picture – though they do remind that PPI data can change non-trivially during the several months when they’re still considered preliminary.

The annual headline and core PPI figures did exhibit something of the baseline effect that always should be kept in mind when evaluating economic trends. That is, it’s essential to know whether improvements of worsening of data merely represent returns to a longer-term norm after stretches of abnomality. In the case of post-CCP Virus inflation readings, the big spike in price increases that began in early 2021 largely reflected a (ragged) normalization of economic activity and business pricing power that followed many months in 2020 when both were unusually subdued.

But for both measures of wholesale prices, the baseline effect appeared to be fading. For headline PPI, the December annual increase was 6.22 percent – the best such result since March, 2021’s 4.06 percent, and a big decline from November’s downwardly revised 7.34 percent. The baseline figure (headline annual PPI from December, 2020 through December, 2021) was a terrible 10.18 percent. But it was only slightly higher than its November counterpart of 9.94 percent.

Since the scariest aspect of inflation is its tendency to feed on itself, and keep spiraling higher, that feeble increase in the baseline figure over the last two months could well signal a loss of momentum. 

The annual core PPI statistics tell an almost identical story. The latest annual December increase of 4.58 percent was considerably lower than November’s upwardly revised 4.91 percent, and the best such result since May, 2021’s 5.25 percent. But the December baseline increase of 7.09 percent was barely faster than November’s 7.03 percent.

At the same time, the same kinds of big questions that hang over the consumer inflation figure hang over the wholesale inflation figure. For example, the annual increase in wholesale energy prices nosedived last year from 57.05 percent in June to just 8.58 percent in December. On a monthly basis, they’ve plummeted in absolute terms since June by 21.18 percent.

But these impressive results stemmed mainly from historically large releases of oil from the nation’s Strategic Petroleum Reserve (which of course expanded supply) and the Chinese economic growth that was severely depressed by dictator Xi Jinping’s wildly over-the-top Zero Covid policy. and therefore dampened global oil demand enough to affect prices in the United States.

The petroleum reserve, however, is now down to its lowest level in 39 years, which explains why far from contemplating further sales, the Biden administration is now slowly starting to refill it. Morever, China has now decided (for now) to reopen its economy, which will again put upward pressure on energy prices.

In addition, one lesson that Americans should have learned from this latest spell of inflationis that wages and other forms of income (including investment income) are hardly the only sources of consumer buying power. The government can supply oceans of it, too, and as I wrote yesterday, it’s entirely possible that U.S. politicians and Federal Reserve officials become recession-phobic that they decide to subsidize Americans’ buying power again. Hence my medium-term forecast of stagflation – a stretch of uncomfortably low growth and stubbornly high prices. 

That’s certainly better than a future of continually rising inflation. But anyone describing the current and likely economic situation facing Americans as “good” is using a depressingly low bar.

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Our So-Called Foreign Policy: China’s Not Getting Biden’s (Vague) Message

01 Sunday Jan 2023

Posted by Alan Tonelson in Our So-Called Foreign Policy

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Asia-Pacific, Biden, Biden administration, China, Indo-Pacific, Japan, national interests, Our So-Called Foreign Policy, Russia, Taiwan, Taiwan Strait, Vladimir Putin, Xi JInPing

Everyone old enough to read this post is way more than old enough to remember all the optimism that emanated from the last summit between President Biden and Chinese dictator Xi Jinping – because it took place just under two months ago.

In particular, as the White House stated, Mr. Biden

“reiterated that [the bilateral] competition should not veer into conflict and underscored that the United States and China must manage the competition responsibly and maintain open lines of communication. The two leaders discussed the importance of developing principles that would advance these goals and tasked their teams to discuss them further. “

In other words, Xi said that he bought in to this idea of a responsibly managed Great Power competition. And this conclusion quickly became the conventiona wisdom about the summit. As The New York Times argued, despite

“the deeply divergent views behind their disagreements, including over the future of Taiwan, military rivalry, technology restrictions and China’s mass detentions of its citizens….with the stakes so high, both Mr. Biden’s and Mr. Xi’s language represented a choice not to gamble on unrestricted conflict but to bet that personal diplomacy and more than a decade of contacts could stave off worsening disputes.”

And the U.S. Institute of Peace, a Congressionally-sponsored “independent” think tank, closely paraphased the President’s main claim: “Despite the differences between both countries, there appears to be a growing openness to the use of diplomacy to manage the relationship.”

Yet it’s already clear – from China – that these contentions aren’t aging so welll. Just consider what’s happened in the last month alone:

>In mid-December, China began stepping up naval and air drills near a chain of southern Japanese islands, including sending a carrier battle group that simulated an attack on this Japanese territory.

>Several days later, the Chinese teamed up with Russia’s Pacific fleet for a week of joint exercises that Moscow said [quoting Reuters here] “included practising how to capture an enemy submarine with depth charges and firing artillery at a warship.”

>On December 21, a Chinese fighter jet flew within 20 feet of a U.S. Air Force reconnaisance plane flying over the South China Sea.

>On Christmas Day, 47 Chinese military aircraft flew across the median line over the Taiwan Strait and into air space claimed by the island. Reportedly, the incursion was the largest in months.

>And on December 30, Xi and his Russian counterpart, Vladimir Putin, held a videoconference in which Xi promised “in the face of a difficult and far from straightforward international situation,” Beijing was ready “to increase strategic cooperation with Russia, provide each other with development opportunities, be global partners for the benefit of the peoples of our countries and in the interests of stability around the world.”

China predictably blamed U.S. provocations and Japan’s recently announced and dramatic military buildup for this dangerous sequence of events, but the more important point by far is this: The Biden administration continues its long-time habit (see, e.g., here) of speaking in terms of processes and procedures that can only reenforce the impression of America defining its interests in the Asia-Pacific region in dangerously vague ways, and China obviously keeps thinking of its objectives in much more specific, concrete ways. In other words, it’s time for much straighter talk from the United States.   

(What’s Left of) Our Economy: Now Biden’s Gone America First on the World Trade Organization

27 Tuesday Dec 2022

Posted by Alan Tonelson in (What's Left of) Our Economy

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America First, Biden administration, GATT, General Agreement on Tariffs and Trade, globalism, international law, national security, sovereignty, Trade, Trump administration, World Trade Organization, WTO, {What's Left of) Our Economy

If someone told you that the U.S. government has outsourced to an international organization the legal authority to decide when American national security is endangered – and inevitably how it can respond – you’d probably think they were pretty out there, or shamelessly lying.

Except that’s exactly what happened in 1947, when globalist U.S. leaders agreed to the body of rules aimed at governing international trade in the post-World War II world, and what remained the case for decades afterward. And although last week, the Biden administration moved decisively to restore sanity to U.S. trade policy in this respect, it didn’t make the complete policy about face that’s still needed.

Since protecting a country’s security is by far the Number One responsibility of any national government, such governments need to be the supreme deciders of how to carry out this mission on an ongoing basis. Further, the legitimacy of this authority logically goes double when democratic national governments like the United States’ are concerned. Why should any other power or organization hold any ability to veto or even influence choices made by the American people’s duly elected representatives to ensure their system’s safety, much less survival? Indeed, on what valid basis could such an ability actually exist? The kindness of strangers? Their superior wisdom?

These maxims are so self-evident (as America’s Declaration of Independence might put it), that even the main body of international law (a system not known for its pragmatism) recognizes them as fundamental attributes of a country’s sovereignty – its bedrock right to take whatever steps it considers needed to keep itself in existence. And how can this security be maintained if its leaders lack the unfettered ability to figure out when threats are present and what they consist of, and if they constantly need to be worrying about is whether the policies they choose pass international muster or not?

But the crucial importance of national sovereignty wasn’t so self-evident to American leaders in World War II’s aftermath. For in the bylaws of the General Agreement on Tariffs and Trade (GATT) – the global trade regime that was turned into the World Trade Organization (WTO) at the beginning of 1995 – they agreed to an article that safeguarded a member state’s right to take “any action [to restrict trade] which it considers necessary for the protection of its essential security interests.” Crucially, however, this same Article XXI then proceeded to set out three criteria that such actions needed to meet in order to pass the legality test – including the specification that trade restrictions take place “in time of war or other emergency in international relations.”

These U.S. leaders might have had some decent excuses. First, this was an age when the United States bestrode the world like a titan. How could it be plausibly threatened by mere words on paper? Further, countries outside the Communist camp (none inside signed onto the new trade pact until the mid-1960s) were hardly likely to want to tie America’s military hands since most relied so heavily on U.S. protection.

Second, the GATT lacked effective procedures for enforcing its rules. And third, Washington has always assumed that the Article XXI’s reference to actions that members “consider necessary” means that the entire measure (including the insistence that trade restrictions are legal only in certain types of international conditions) is “self-judging” – i.e., that members’ have the final say over whether it can both define its security interests and the situations in which they can be invoked to override the GATT/WTO’s ban on trade curbs.

But however understandable the U.S. position might have been in 1947, dramatic changes in national and global circumstances over decades should have alerted Washington long ago that Article XXI was bound to cause trouble. Chiefly, America’s predominant global military and economic role inevitably eroded. Many of its allies became formidable economic competitors. The line between military goods and civilian goods – never completely clear – became thoroughly blurred as products incorporating “dual use” technologies proliferated. And the birth of the WTO gave the world trade system a much more effective enforcement system.

Here it’s important to be really specific. It’s not that the WTO can muster a police force, march into the District of Columbia, and compel U.S. officials to follow its dictates. The effectiveness of this dispute resolution system is based on its authority to permit countries claiming to be harmed by U.S. (or any members’) trade practices to respond with retaliatory tariffs – which can be strategically targeted on the kinds of domestic industries powerful enough to launch lobbying campaigns able to force their governments into compliance.

So it’s easy to see why many WTO members – most of which rely heavily on net exporting to the U.S. market to achieve satisfactory levels of growth and employment) would want to use Article XXI to undercut American sovereignty in order to gain advantages for their own industries – including allies who had learned that the United States would continue protecting them and tolerating their defense free-riding even after serious provocations.

Earlier this month, this gambit paid off in spades, as the WTO declared illegal the U.S. tariffs avowedly imposed on steel and aluminum imports for national security reasons by former President Trump in spring, 2018.

Fortunately, in reality, none of the plaintiff countries can legally counter-tariff these U.S. curbs – because that same former President Trump effectively neutered the WTO dispute-resolution system by leaving seats on its appeals panels empty and preventing that body from convening to handle any next legal steps. And to his credit, President Biden has declined to appoint replacements as well.

Also to its credit, though, his administration “strongly rejected” these WTO rulings, and declared that “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO Member to respond to a wide-range of threats to its security….The United States will not cede decision-making over its essential security to WTO panels.”

Unfortunately, the Biden administration didn’t take this position when it should have – once these foreign suits were filed to begin with. In fact, the administration not only (weirdly) agreed that the WTO does have jurisdiction when national security concerns come into play, but only in the sense that it was required to approve of members’ freedom to invoke these considerations to justify trade barriers. It also went to ridiculous lengths to defend the U.S. position as if WTO members were not able to self-judge their national security claims – to the point of trying to show grammatically that the plaintiffs were misreading Article XXI grammatically.

Think I’m kidding? Here’s how the one of the WTO reports presenting the anti-U.S. ruling described the U.S. effort, including direct quotes from the American brief:

“A premise of the United States’ characterization of Article XXI (b) as ‘self-judging’ is that, based on ‘the text and grammatical structure’ of the provision, ‘the phrase ‘which it considers’ qualifies all of the terms in the single relative clause that follows the word ‘action’. According to the United States, this ‘single relative clause’ in Article XXI(b) ‘begins with ‘which it considers necessary’ and ends at the end of each subparagraph’ and ‘describes the situation which the Member ‘considers’ to be present when it takes such ‘action’. The United States argues from this premise that, ‘[b]ecause the relative clause describing the action begins with ‘which it considers’, the other elements of this clause are committed to the judgment of the Member taking the action.’ The United States thus posits an ‘overall grammatical structure’ of Article XXI(b) according to which a panel may not ‘determine, for itself, whether a security interest is ‘essential’ to the Member in question, or whether the circumstances described in one of the subparagraphs exists'”.

For their part, the plaintiff countries, along with the WTO tribunals, dredged up copies of The Shorter Oxford English Dictionary, Strunk and White’s classic The Elements of Style, and Merriam-Webster’s Guide to Punctuation and Style, among other such sources, to undercut such claims.

But even though the plaintiffs’ complaints are stuck in international legal limbo, the U.S. decision to legitimize and play this game has resulted in an international organization still proclaiming, without challenge, its absolute right to tell American leaders when they are or are not in a war (dictionary definitions are used as the ultimate standard), and even when they or any part of their national economy do and do not face an “international emergency” (a decision the panel specifically arrogates to WTO judges).

Dispositive substantive arguments can be raised against all the WTO tribunals’ conclusions. For example, as stated above, ensuring a nation’s security adequately is a challenge that doesn’t only arise during especially fraught times in international politics. It typically requires steps taken during more tranquil periods to ensure that military capabilities are adequate the moment trouble starts. WTO rules that prevent these measures from being taken until crises break out could simply ensure that they’re not in effect in time for the United States to prevail.

Yet making these points amounts to falling into the same trap into which the Biden administration’s trade litigators ensnared themselves and the country. Instead, Washington should both make emphatically clear that once U.S. authorities justify a trade-restricting measure, the WTO is irrelevant (as the Biden administration eventually declared) and then boycott whatever proceedings are convened.

Plaintiff countries would still be free to try to address these problems either through standard bilateral diplomacy, or counter-measures of their own, or some combination of the two, and let the party with the most leverage come out on top. Trade purists dismiss these practices as descending into a dangerous economic “law of the jungle,” but the United States and the European Union resorted to just this approach to resolve a long dispute about aircraft production subsidies outside WTO auspices. And freed of the cumbersome and inflexible adversarial framework imposed by the trade body’s legalistic procedures, they reached an agreement that satisfied all major stakeholders – including U.S. unions.

Handling these disputes bilaterally will strongly tend to produce lasting results and work in the U.S.’ favor because (a) agreements will reflect real world power balances – not the rulings of a system whose only raison d’etre is to define power out of existence in favor of an abstract equitism that’s completely divorced from global circumstances on the ground – and (b) because the United States enjoys an abundance of such power.

That the globalist Biden administration is acting as willing as the America First-y Trump administration to recognize that, at least when it comes to national security, tinternational trade law is “an idiot” (to quote Dickens) signals an encouragingly fundamental turn in America’s approach to the global economy. Even better would be for the President to make the break as clean and unmistakable as possible.

Im-Politic: It’s Not Just the Twitter files.

20 Tuesday Dec 2022

Posted by Alan Tonelson in Im-Politic

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ABC News, Alejandro Mayorkas, asylum seekers, Biden administration, Biden border crisis, border security, Department of Homeland Security, DHS, Gregg Abbott, Im-Politic, Immigration, Karin Jean-Pierre, Mainstream Media, Martha Raddatz, migrants, Regime Media, This Week, Title 42

Although understandably overshadowed by all the Twitter Files releases, another likely example has appeared lately of how thoroughly the nation’s most important news organizations have collectively turned into a “Regime Media” in service of mainstream Democrats (as represented nowadays mainly by the Biden administration) and their Republican partners in globalism.

I say “likely” because I don’t have a smoking gun. But the following sure would be a startling coincidence.

In late October, Department of Homeland Security (DHS) Secretary Alejandro Mayorkas, who’s been under fire throughout the Biden years for insisting in the face of overwhelming evidence that the United States’ border with Mexico is secure, tried to turn the tables on his assailants.

In an interview with the Dallas [Texas] Morning News, Mayrokas charged that “the political cry that the border is open is music to the smugglers’ ears, because they take that political rhetoric and they market it” to desperate migrants.

In other words, those calling attention to a problem – as opposed to the reality of the problem itself – deserve the blame for the problem’s continuation and even worsening.

What could be more transparently and self-servingly ludicrous? Well according to Martha Raddatz, ABC News correspondent and sometime anchor of the network’s Sunday morning talk show This Week, plenty. Because in the program’s latest edition, Raddatz chided Texas Republican Governor Gregg Abott, a leading critic of Biden border policy with this claim:

“You talk about the border wall, you talk about open borders, I don’t think I’ve ever heard President Biden say, we have an open border, come on over. But people I have heard say it are you, are former president Trump, Ron DeSantis, that message reverberates in Mexico and beyond. So they do get the message that it’s an open border and smugglers use all those kind of statements.”

Actually, candidate Biden said exactly this during his victorious presidential campaign: “All those people who are seeking asylum, they deserve to be heard. That’s who we are. We’re a nation who says, if you want to flee, and you’re freeing oppression, you should come.”

Indeed, candidate Biden also declared that

“We could afford to take in a heartbeat another two million [migrants]. The idea that a country of 330 million cannot afford people, who are in desperate need and who are justifiably weak, and fleeing depression is absolutely bizarre….I would also move to increase the number of immigrants able to come but also to deal with all those migrants.”

And although he wasn’t President then, soon after he became President, his chief White House press spokesperson said that “he still believes that he wants our country to be a place that there is asylum processing at the border.” That’s not an invitation?

Indeed, she made this remark in order to explain what the President supposedly really meant when, a week earlier, he told asylum seekers “don’t come over” because he aimed to set up a system enabling them to apply in their home countries – and because the southern border was rapidly crowding, at least partly due to his welcoming campaign rhetoric.

But for the purposes of this post, more important than documenting Raddatz’ (willful?) ignorance is noting how her accusation resembled DHS chief Mayorkas’ nearly verbatim.

Further, almost on cue, the very next day, current White House press spokesperson Karin Jean-Pierre told reporters at the daily briefing that

“The fact is that the removal of Title 42 [the pandemic-period Trump administration directive permitting the United States to bar individuals from entering the United States to protect public health] does not mean the border is open. Anyone who suggests otherwise is simply doing the work of these smugglers who, again, are spreading misinformation, and which are — which is very dangerous.”

In fact, she resorted to this tactic twice.

Later yesterday, moreover, one of her assistants said in another interview:

“To be clear: the lifting of the Title 42 public health order does not mean the border is open. Anyone who suggests otherwise is doing the work of smugglers spreading misinformation to make a quick buck off of vulnerable migrants,”

I don’t know if Biden administration officials have been whispering into Raddatz’ ear or vice versa. But these remarks would definitely have problems facing the “duck test.” They look like collusion an sound like collusion, and unless and until this mutual support system is dismantled and the Mainstream Media stops serving as the Regime Media, I for one will be hard-pressed to be optimistic about American democracy’s future.

Glad I Didn’t Say That! A New Low Point for Biden Energy Policy

11 Sunday Dec 2022

Posted by Alan Tonelson in Glad I Didn't Say That!

≈ 1 Comment

Tags

Amos Hochstein, Biden administration, clean energy, climate change, energy, fossil fuels, Glad I Didn't Say That!, green energy, natural gas, oil, Russia, sanctions, shale, Ukraine, Ukraine War

“The White House’s chief energy adviser has described as ‘un-American’ the refusal of US shale investors to ramp up drilling, even as Moscow’s invasion of Ukraine causes havoc on global oil and gas markets.”                                                      – — — —

Financial Times, December 11, 2022

 

“The longer-term solution, [he said] was not to invest in more natural gas supply but to cut consumption of fossil fuels themselves….”             

Financial Times, December 11, 2022

 

(Source: “Biden adviser calls Wall Street opposition to shale drilling ‘un-American’,” by Derek Brower, Financial Times, December 11, 2022, Biden adviser calls Wall Street opposition to shale drilling ‘un-American’ | Financial Times (ft.com))

Im-Politic: So Fauci Finally Gets It on Lockdowns?

28 Monday Nov 2022

Posted by Alan Tonelson in Im-Politic

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Anthony S. Fauci, Biden administration, CCP Virus, China, coronavirus, COVID 19, facemasks, Im-Politic, lockdowns, social distancing, Wuhan virus, Xi JInPing, Zero Covid

Retiring U.S. chief infectious disease specialist Dr. Anthony S. Fauci told us over the weekend that he’s just shocked by what he calls China’s pointlessly “draconian” Zero Covid policy to defeat the CCP Virus. And the Biden administration has been critical, too. To which the only reasonable response is, “Seriously?”

Not that Zero Covid hasn’t been an epic fail by Chinese dictator Xi Jinping. But the criticism from Fauci and the Biden presidency sure looks like the pot calling the kettle black.

If you’re skeptical, here’s Fauci’s response to a question noting perceptively that “you’re seeing things that we saw in this country when people didn’t like how Covid response — What is going on in China, and why do they seem to be in a worse place than anyone else in the world?”

“[T]heir approach has been very, very severe and rather draconian in the kinds of shutdowns without a seeming purpose. I mean, if you’re having a situation, if you can recall, you know, almost three years ago when we were having our hospitals overrun, you remember the situation in New York City, you had to do something immediately to shut down that flow. So remember we were talking about flattening the curve and the social distancing and restrictions and shutdown, which was never really complete, is done for a temporary period of time for the purpose of regrouping, getting more personal protective equipment, getting people vaccinated. It seems that in China it was just a very, very strict extraordinary lockdown where you lock people in the house but without any seemingly endgame to it.”

No one can reasonably criticize any public official for urging extreme and sweeping anti-virus measures during the pandemic’s early days – before its nature and especially its highly granular lethality (overwhelmingly concentrated in seniors and others with major health problems) were understood. For it could have been like the Black Death.

But of course Fauci, the rest of the official public health establishment, and left-of-center leaders like Biden, were championing these policies long after these patterns became known.

And more important, when it comes to comparing U.S. policies during his tenure with Chinese policies today, Fauci’s claim that he was only urging “social distancing and restrictions and shutdown” essentially until vaccination was widespread ignores his stated belief in March, 2020 that “It will take at least a year to a year in a half to have a vaccine we can use.” And of course getting enough arms jabbed to turn the CCP Virus tide was always going to take months more even if the rollout went perfectly (which was far from the case). And what if the vaccines were major flops?

So Fauci himself clearly felt that pretty draconian policies – despite their devastating impact on the economy, on education, and on Americans’ mental health – would be needed over a very long haul. Therefore, when it counted, his differences with the approach taken recently by China (which lacks vaccines even as effective as America’s imperfect – especially against transmission – versions) was one of degree, not of kind.

Just as bad, as with Xi Jinping, this conviction of Fauci’s didn’t seem to be greatly affected by the proven potential of natural immunity per se to help end the pandemic (especially as variants, predictably, became more infectious but less lethal), or by the emerging evidence of sharp limits (to put it diplomatically) to the utility of social distancing in and of itself, and masking – and even of widespread lockdowns themselves.

Fauci’s declaration that “a prolonged lockdown without any seeming purpose or end game to it…really doesn’t make public health sense” comes way too late to impact America’s strategy during the pandemic era.  But hopefully it will dissuade both politicians and the public health establishment from repeating these grave mistakes when the next pandemic – inevitably – comes the nation’s way.

Making News: Back on National Radio Talking Big Changes in U.S. China Trade Policy

16 Wednesday Nov 2022

Posted by Alan Tonelson in Making News

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Biden administration, CBS Eye on the World with John Batchelor, China, decoupling, Making News, Trade, U.S-China Economic and Security Review Commission, World Trade Organization, WTO

I’m pleased to announce that I’m scheduled to be back tonight to the nationally syndicated “CBS Eye on the World with John Batchelor.” Our subject: a major new sign of bipartisan consensus in Washington that America’s China trade policy needs to get back to Square One.

The segment is scheduled to to start at 10:30 PM EST, but John’s entire show – on between 9 PM and midnight EST – is always a great listen, and you can tune in live at links like this. As always, moreover, I’ll post a link to the podcast as soon as one’s available.

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

Following Up: Podcast Now On-Line of National Radio Interview on U.S.-China Economic & Tech Relations

27 Thursday Oct 2022

Posted by Alan Tonelson in Following Up

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Biden administration, CBS Eye on the World with John Batchelor, China, export controls, Following Up, Gordon G. Chang, microchips, nationalsecurity, Party Congress, tech, Trade, Xi JInPing

I’m pleased to announce that the podcast of my interview last night on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line.

Click here for a timely discussion, with co-host Gordon G. Chang, of how the results of the just-concluded Chinese Communist Party’s annual congress will impact U.S. trade with the People’s Republic, and whether the Biden administration’s major new measures will adequately slow China’s drive to achieve global technology leadership..

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

Our So-Called Foreign Policy: For Banning All U.S. High Tech Sales to China

24 Monday Oct 2022

Posted by Alan Tonelson in Our So-Called Foreign Policy

≈ 1 Comment

Tags

Biden administration, China, Chips Act, Defense Department, export controls, national security, Our So-Called Foreign Policy, semiconductor manufacturing equipment, semiconductors, tech

Just as my good buddy Ace recently gave me a great idea for a post on U.S. Ukraine policy, my equally good buddy Swifty (a finance guy) yesterday gave me an equally great idea – about how to ensure that U.S. curbs on sales of high tech equipment to China really put the hammer on the semiconductor industry being built in the People’s Republic. And interestingly, it mirrors an idea that I proposed many years ago for America’s human rights policy – government compensation for American-owned firms that lose business due to such limits.

In recent months, Washington has made major – albeit incredibly belated – progress in cutting off such American aid to Chinese tech manufacturers, whose burgeoning capabilities of course will boost China’s military power and potential. Important restrictions on what U.S.- and foreign-owned businesses can supply to China’s microchip entities are contained both in the bill signed by President Biden to boost semiconductor manufacturing in the United States, and in a sweeping set of restrictions on what both U.S.- and foreign-owned firms can supply to China’s microchip entities.

But even if these new policies are adequately enforced – always a big question surrounding American efforts slow China’s tech progress – they suffer two related weaknesses stemming from their tight focus on the highest end semiconductors and the equipment needed to make them. First, the vast majority of chips in use today – including in military systems – are lower-tech, so-called “legacy” chips, and China’s growing presence in the global market for these devices can create dangerous vulnerabilities itself.

Second, any sales of the machinery and software needed to make these legacy chips is bound to wind up helping teach Chinese scientists and engineers how to make their more advanced counterparts.

And this is where Swifty’s idea comes in. As he noted, it needs to be America’s goal to cripple China’s ability to make any type of semiconductor, and to completely shut down its learning opportunities. The big obstacle to imposing the broader controls needed to achieve this goal? The fact that this step would drive U.S.-owned companies that make semiconductor manufacturing equipment out of one of their biggest markets.

Swifty’s recommendation? Compensate them for these losses – at least until they can recoup them by selling to friendly countries to which chip production that’s under pressure from U.S. restrictions moves from China. He adds that such payments would be eminently affordable.

After all, even though the China market is enormously important to these firms, the China revenues they say they’ll lose are drops in the bucket compared with the mammoth scale of overall U.S. government spending, and even of the U.S. defense budget. (For some company-specific figures, see, e.g., here and here.)

That last point is particularly critical. For knee-capping China’s tech prowess is vital to U.S. national security. So think of these payments as defense spending – since it’s at least as important to prevent China from deploying lots of high tech weapons on the battlefield in the first place as to develop ways to fight them on the battlefield.

This national security perspective also matters greatly for dealing with another possible outcome of this greatly escalated U.S. strategy of denial – sabotage by American allies whose tech companies try to take advantage of U.S.-owned firms’ exit from China. Although the Biden administration has given some of them temporary exemptions, so far, the rest seem to be abiding by the new Biden administration rules – even in one case in which a loophole may well exist. But if they balk at wider restrictions, they should be told that their actions could wind up enabling Chinese forces to kill Americans in combat, and that they can’t expect continued U.S. protection if they persist. 

Way back in the early 1980s, I wrote that if the United States was serious about human rights policy, compensation should be paid to American-owned companies that lose foreign business in dictator-ruled countries subjected to U.S. economic sanctions. If Swifty’s similar approach isn’t used for China tech policy, it’ll be difficult to claim that the nation is serious about its national security.        

Our So-Called Foreign Policy: Is Biden Learning the Limits of Multilateralism?

22 Saturday Oct 2022

Posted by Alan Tonelson in Our So-Called Foreign Policy

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Afghanistan, alliances, allies, America First, ASML, Biden, Biden administration, Blob, China, Chips Act, Europe, export controls, Japan, multilateralism, NATO, North Atlantic treaty Organization, oil, oil price, OPEC, Our So-Called Foreign Policy, Saudi Arabia, semiconductors, South Korea, Taiwan, Ukraine War

Remember the buzz worldwide and among the bipartisan globalist U.S. foreign policy Blob that Donald Trump’s defeat in the 2020 presidential election heralded the start of a new golden age of America’s relations with its longstanding security allies?

Remember how President Biden himself pushed this line with his claim that “America is back” and that Washington would end the supposed Trump practice of denigrating and even rupturing these relationships, and resume its post-World War II strategy of capitalizing on these countries’ strengths and fundamental agreement with vital American interests to advance mutually beneficial goals?

Fast forward to the present, and it’s stunning how thoroughly these American globalist hopes – and the assumptions behind them – have been dashed.

The latest example has been Saudi Arabia’s rejection of Mr. Biden’s request to delay an increase in oil prices announced by Riyadh and other members of the OPEC-Plus petroleum producers cartel. It’s true that few Americans currently view the Saudis as ideal allies. Continuing human rights abuses and especially evidence that its leaders ordered the assassination of a dissident Saudi-American journalist – and coming on top of revelations of Saudi support for the September 11 terrorists and Islamic extremism more broadly – will do that. Indeed, candidate Biden had even promised to make Saudi Arabia as a “pariah.”

But follow-through? Forget it – largely for fear of antagonizing the Saudis precisely because of their huge oil production and reserves, and because the President evidently still viewed them as a key to countering Iran’s hegemonic ambitions in the energy-rich region.

As for Saudi Arabia, it and much closer allies (including in Europe) were far from enthralled with how Mr. Biden pulled U.S. forces out of Afghanistan – which they charge took them by surprise and seemed pretty America First-y.

Under President Biden, the United States appears to have performed better in mustering allied support for helping Ukraine beat back Russia’s invasion. But look beneath the surface, and the European contribution has been unimpressive at best, especially considering that Ukraine is located much closer to the European members of the North Atlantic Treaty Organization (NATO) than is the United States.

In particular, according to Germany’s Kiel Institute for the World Economy, which has been tracking these developments since the war began, to date,

 “The U.S. is now committing nearly twice as much as all EU countries and institutions combined. This is a meagre showing for the bigger European countries, especially since many of their pledges are arriving in Ukraine with long delays. The low volume of new commitments in the summer now appears to be continuing systematically.”

In fact, European foot-dragging has reached the point at which even Mr. Biden’s Treasury Secretary, Janet Yellen, has just told them (in diplospeak of course) to get on the stick.

Apparently, America’s allies in Asia as well as Europe have hesitated to get behind another key initiative as well: Slowing China’s growing technological progress in order to limit its potential militar power.

In a September 16 speech, White House national security advisor Jake Sullivan confirmed that the United States had officially doubled down on this objective:

“On export controls, we have to revisit the longstanding premise of maintaining “relative” advantages over competitors in certain key technologies.  We previously maintained a “sliding scale” approach that said we need to stay only a couple of generations ahead. 

“That is not the strategic environment we are in today. 

“Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”

And on October 7, the United States followed up by announcing the stiffest controls to date on doing business with Chinese tech entities – controls that will apply not only to U.S.-owned companies, but to other countries’ companies that use U.S.-owned firms technology in high tech products they sell and high tech services they provide to China.

Including these foreign-owned businesses in the U.S. sanctions regime – as well as in parallel efforts to rebuild American domestic capacity and marginalize China’s role in these sectors – is unavoidable for the time being, since the domestic economy long ago lost its monopoly and in some cases even its presence in the numerous products vital to semiconductor manufacturing in particular.

But as the Financial Times reported last month, a year after Washington drew up plans to create a “Chip 4” initiative to work with Taiwan, Japan, and South Korea to achieve these goals, “the four countries have yet to finalise plans even for a preliminary meeting.”

The prime foot-dragger has been South Korea, which fears Chinese retaliation that could jeopardize its massive and lucrative trade with the People’s Republic. But the same article makes clear that Japan harbors similar concerns.

Also unenthusiastic about the U.S. campaign is the Dutch manufacturer of semiconductor production equipment ASM Lithography (ASML). ASML’s cooperation is crucial to America’s anti-China ambitions because it’s the sole global supplier of machines essential for making the world’s most advanced microchips.

So far it’s been playing along. But similar complants about possibly losing business opportunities in China – which may account for nearly half of the world’s output of electronics products along with much of its production of less advanced semiconductors – have already persuaded the Biden administration to give some South Korean and Taiwanese microchip manufacturers a one-year exemption from the new export curbs. Could ASML try to win similar leniency?

In fairness, the Biden administration hasn’t wound up placing all its foreign policy bets on alliances and securing multilateral cooperation. Indeed, its new National Security Strategy re-states the importance of rebuilding American economic strength as a foundation of foreign policy success; the legislation it successfully sponsored to bolster the United States’ semiconductor and other high tech capabilities put considerable money behind that approach; and to its credit, it announced the new China tech curbs even after it couldn’t initially secure adequate allied cooperation – assuming, correctly, that an act of U.S. leadership could bring start bringing them in line.

Hopefully, a combination of these rifts with allies and its recognition of the importance of maintaining and augmenting national power mean that President Biden at least is learning a crucial lesson: that supporting multilateralism and alliances can’t be ends of a sensible U.S. foreign policy in and of themselves. They can only be means to ends. And although they can obviously be valuable in many instances, the best ultimate guarantor of the nation’s security, independence, and prosperity are its own devices.       

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