(What’s Left of) Our Economy: No Shortage of Steel Trade Fakeonomics

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Biden, Donald Trump, free markets, free trade, IHS Markit, National Bureau of Economic Research, productivity, Rajesh Kumar Singh, Reuters, steel, steel prices, steel tariffs, steel-using industries, subsidies, tariffs, Trade, {What's Left of) Our Economy

Here’s one likely byproduct of President Biden’s unexpected decision so far to maintain most of Donald Trump’s tariff-centric trade policies – including undermining the workings of the deeply anti-American World Trade Organization (WTO): shoddy or just plain incoherent attacks on these economic nationalist measures seem certain to be just as numerous as they were during the Trump years. Indeed, two have just been released.

In the shoddy category is a Reuters article from yesterday reporting that American manufacturers are suddenly very short of steel, that prices are therefore soaring to extortionate and profit-killng levels, and that the Trump steel tariffs – among the previous administration’s measure that Mr. Biden has so far decided to keep – are largely to blame. Even worse, the piece tells us (and entirely predictable according to standard economic theory), the protected U.S. steel industry is taking full advantage by keeping its own production low, and therefore maximizing upward pricing pressures and therefore its own profits.

Yet the statistical basis for these claims falls apart on close analysis. Author Rajesh Kumar Singh starts off by writing that

“Domestic steel mills that idled furnaces last year amid fears of a prolonged pandemic-induced economic downturn have been slow in ramping up production, despite a recovery in demand for cars and trucks, appliances, and other steel products. Capacity utilization rates at steel mills – a measure of how fully production capacity is being used – has moved up to 75% after falling to 56% in the second quarter of 2020 but is still way below 82% in last February.”

That’s not, however, what’s said by the Federal Reserve, the offical source of U.S. capacity utilization data. Its tables show that for iron and steel products, capacity utilization rates stood at 76.03 percent last February, and at 77.84 percent last month. Where I learned ‘rithmetic, that’s an increase. Moreover, since bottoming last May, just after the worst of the CCP Virus and shutdowns’ first wave, it’s up 56 percent.

Indeed, steel’s capacity utilization performance is especially impressive – and especially destructive to Singh’s article – given that from last February to this past January, capacity utilization in domestic manufacturing overall is down slightly (by 0.60 percent).

And what Singh somehow left out is that during that same period, different Fed tables show, while overall manufacturing production adjusted for inflation dipped by 0.75 percent, iron and steel products output was off by just 0.71 percent.

His reporting is no more responsible on U.S. steel prices. Yes, they’ve risen strongly lately. But that’s largely because they fell so steeply almost immediately after the tariffs went on, in February, 2018. As made clear by the (chartreuse?) line from the chart below, from the respected consulting firm IHS Markit, they’re still much lower than they were three years ago. Nor, contrary to another claim of his, do they look much different from Chinese and European prices.

In the incoherent category is a study released by the National Bureau of Economic Research (NBER), widely seen as one of the gold standard for American economics, whose main theme is that, contrary to the Trump administration’s claims, American consumers and businesses, not the Chinese or any other foreign countries, paid all the costs of the Trump tariffs.

I’ve repeatedly pointed out the lack of evidence for this contention. (See, e.g., here).  Today, however, I’m more interested in a finding made along the way by the three blue-chip economist authors: When it comes to steel, “The data show that U.S. tariffs have caused foreign exporters…to substantially lower their prices into the U.S. market.”

What they didn’t do is ask themselves why and, even more important, how this could be. That’s especially puzzling because the answer obviously is that foreign steel industries are subsidized by foreign governments. Consequently, they don’t face the same earnings pressures as their U.S.-owned counterparts, and can stay in business – and even ramp up production – despite major price cuts.

So the idea that there’s now or for decades has been free trade in steel has no basis in fact, and anyone who keeps ignoring this global landscape can’t possibly place any value on America retaining a steel industry worthy of the name – or on any definition of free trade that’s remotely reciprocal and therefore sustainable, not to mention one that serves U.S. economic interests realistically defined.

At least as important, as I’ve noted before, anyone blasé about huge quantities of artificially cheap foreign steel flooding into the United States can’t be serious about ensuring that the American economy is predominantly influenced by free market forces of any kind, or about understanding the central importance of productivity gains in spurring technological progress and even durable prosperity.

For the record shows that the recent wide availability of subsidized, cut-rate steel has provided the steel-using industries generally with a crutch that’s relieved them of the need to anchor satisfactory profits in ever-improving efficiency – and kneecapped their productivity performance. And since steel is hardly the only imported product subsidized by foreign governments, there’s no reason to believe that this kind of economic damage is limited to steel-users.

All the same, a continuing flood of trade and tariff fakeonomics may produce a silver lining.  As long as the Biden administration hews to the Trump line, at least the American people will still have an Executive Branch with an interest in pushing back strongly.     

Following Up: A New Warning on U.S. Allies’ Reliability

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alliances, allies, Asia, Asia-Pacific, Biden, China, deterrence, Following Up, Indo-Pacific, infotech, multilateralism, national security, Nonproliferation Policy Education Center, semiconductors, Sheena Greitens, Taiwan, Taiwan Semiconductor Manufacturing Company, tech, TSMC, Xi JInPing, Zack Cooper

Well isn’t this a kick in the pants for the Biden administration – and by extension for all Americans?. No sooner did the President give a major speech to U.S. allies on his plans to return them to the center of American foreign policy-making because they’ll be such crucial assets in vital efforts to achieve essential goals like coping with China’s rise, than a new study comes out reporting that these hopes could be in vain. 

Specifically, the United States’ allies in Asia could well stay on the sidelines in what’s arguably become the most important potential showdown with China of all: ensuring Taiwan’s independence.

As known by RealityChek regulars, keeping Taiwan free of Beijing’s control has become so pressing for two reasons. First, Chinese dictator Xi Jinping is sounding and acting more determined than ever to “reunify” what he and his predecessors have regarded as a breakaway province by whatever means necessary – including using force. And second, a Taiwanese firm, Taiwan Semiconductor Manufacturing Corporation (TSMC), has recently grabbed the global lead in actually producing (as opposed to designing) the world’s most advanced semiconductors. If China manages to control TSMC’s capabilities, it could use them to build the electronic devices and defense systems that would secure substantial technological and military superiority over the United States.

President Biden is of course correct in arguing that the more allies the United States can mobilize, the easier it will be to handle China’s increased aggression and economic predation. But that claim inevitably assumes that these allies will actually join with America to push back against China, and especially that Washington can count on their assistance if heaven forbid the missiles and bullets start flying.

And this assumption is exactly what’s questioned in a paper recently published by the Washington, D.C.-based Nonproliferation Policy Education Center. According to authors Zack Cooper and Sheena Greitens, there’s not a single country in the Asia-Pacific (or, as it’s now officially called by the U.S. government, the Indo-Pacific) region that’s sure to stand shoulder to shoulder with American forces as they seek to actually repel either a Chinese attack on Taiwan, or an effort by Beijing to turn the island into a satellite through coercive means short of full invasion, like limited military strikes, cyber-attacks, or an embargo.

In fact, write Cooper and Greitens, these allies not only would likely balk at sending their own ships, plans, and troops to buttress American forces. To varying degrees, they’d be reluctant to allow the United States the kind of access to their military bases needed to prevail over China in any of the above contingencies.

The authors believe that sufficient allied cooperation can be generated if the United States begins (ASAP!) “a series of detailed discussions with key allies about their roles in different contingency scenarios involving China and Taiwan (and for some, the South China Sea).” That advice sounds fine as far as it goes.

But the need in the first place for “detailed discussions” on such dangerous and perhaps rapidly growing threats – which would leave all countries in the region far less prosperous and prosperous if not deterred or beaten back – makes appallingly clear just how dysfunctional these alliance relationships have become. Moreover, you can be sure that the longer and more detailed these discussions become, the more allied doubts they’ll reflect, and the less likely they’ll be to produce the kind of certainty when push comes to shove that the United States or Taiwan will need.

I don’t view Cooper and Greitens analysis as gospel. But in my experience, the Nonproliferation Policy Education Center has done serious work on Asian security issues in the past, and the larger project of which this essay is a part has had support from sponsors across the political spectrum. So its warning is worth taking seriously, and if its arguments are on target, the problem they describe will resist easy solution – and not just because truly worthwhile agreements with the allies could take years to negotiate, but because the U.S.-based semiconductor production capacity needed to reduce Taiwan’s importance will take just as long to create.

Luckily, as indicated in the piece linked just above, both Congress and the new administration claim to recognize the need – at least rhetorically – to restore cutting-edge U.S. competitiveness in this and other information technology manufacturing. In the meantime, the Biden administration should of course try maintaining enough of a semblance of allied unity vis-a-vis China to give Beijing pause over Taiwan. Hopefully, Washington  can even inspire some genuine support for preserving the island’s independence.

But as I’ve written previously (in the afore-linked National Interest piece), the greater the emphasis placed on resolving the semiconductor challenge via the homegrown solution of reviving the domestic industry, instead of relying mainly on protecting Taiwan’s security militarily, the better the odds of maintaining American security and prosperity. And in any necessary negotiations with the allies, the sooner President Biden abandons his globalist faith in apologetics and gauzy preaching, and acknowledges the need for at least some of the hard-bargaining Trump-ian “transactionalism” he’s decried, the better.  

Our So-Called Foreign Policy: It’s Official. Uncle Sucker is Back

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alliances, allies NATO, America First, Biden, deterrence, Donald Trump, Japan, North Atlantic treaty Organization, Our So-Called Foreign Policy, South Korea

If you think this title is too harsh, and especially if you agree with his view that maintaining U.S. alliances must be central to American foreign policy-making, you need to ask yourself this: How can some of the major points President Biden made in his speech Friday to an audience containing heads of major allied governments accomplish anything but keep the United States needlessly paying outsized costs for these arrangements and even worse, running major risks that include nuclear attack, for no good reason whatever?

As known by RealityChek regulars, downsides of American security alliances both in Europe and Asia that arguably were acceptable during much of the Cold War period have become terrifying and – because stemming from stubbornly hidebound thinking and consequent policy inertia – downright inexcusable more recently. That’s because physically devastated allies literally helpless against aggression in the earliest post-World War II decades, but nonetheless retaining vital economic and therefore military potential, had fully recovered by the mid-1970s, and because their continued defense free-riding led Washington to station sizable military units (and their dependents) directly in harm’s way.

The idea was that this U.S. presence’s very vulnerability to superior conventional forces from the Soviet Union and North Korea would deter aggression to begin with. Forit would all but force a U.S. President to approve saving these American lives with nuclear weapons – whose use could trigger an all-out mutually devastating conflict.

This gamble could be defended when the United States enjoyed clearcut nuclear superiority over the Soviets, a nuclear monopoly and near-monopoly over the North Koreans and Chinese, respectively – and when allies and their potentially crucial assets were still down and out. But for many years, the nuclear gap has  closed in Europe and the the monopoly and near-monopoly in Asia vanished, and all allies in question have been amply wealthy enough to defend themselves. So Washington’s refusal to adjust means that the nation could well see nuclear warheads land on its soil because the Europeans, Japanese, and South Koreans have been permitted to be military deadbeats. Could any policy be more recklessly perverse, or determined to reward irresponsibility and cynicism?

Despite loudly griping about allied defense free-riding, raising the temperature in periodic defense burden-sharing negotiations, and rearranging some troop deployments in Europe, Donald Trump never frontally and comprehensively challenged the status quo, at least while President. Would a second term have been different? Who knows?

What is clear, especially from this latest speech by Mr. Biden, is that the United States will now be doubling down on this entire literal Americans Last strategy.

For not only did the President repeated the pre-Trump standard Washington endorsement of the core principle of the North Atlantic Treaty Organization (NATO) that “An attack on one is an attack on all. That is our unshakable vow” – which inevitably tells the allies that they can continue free-riding militarily to their heart’s content and count on American protection no matter how potentially disastrous the consequences for the American people.

He actually praised “Europe’s growing investment in the military capabilities that enable our shared defense” even though these expenditure will be definition be utterly inadequate as long as their level leaves a military gap that American conventional and nuclear forces still need to fill.

Further, in declaring that he would not view U.S. alliances as “transactional” he assured America’s so-called partners that their relationships with Washington need involve no give and take whatever, thereby guaranteeing that these opportunistic governments would raise their chronic free-riding to much loftier levels, and that Americans would bear more of the costs and risks of these arrangements than ever.

And most foolishly of all, Mr. Biden explicitly told the Europeans (and consequently the Asians) that, after the stormy Trump years, it was up to the United States “to earn back our position of trusted leadership.” That is, the kinds (long overdue) burden- and therefore risk-sharing criticisms made by the former President were completely illegitimate, and that whatever ailed the alliances resulted from Trump’s America First words and (much more modest) deeds, not from decades of allied risk- and burden-shirking.

Of course, Mr. Biden’s words were actual U.S. policy for decades before the Trump years. That’s why these arrangements became so dysfunctional from any sensible American standpoint in the first place. But by making this approach explicit, and giving the Europeans and Asians official license for their longstanding “heads we win, tails America loses” priorities, the President has not only gravely weakened his own country’s safety and prosperity. He’s destroyed whatever legitimate hopes ever existed that multilateralism and collective security could ever adequately serve any reasonable definition of American interests.

Our So-Called Foreign Policy: Mr. President, U.S. Dealings with China are No Game

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alliances, allies, Antony Blinken, Asia-Pacific, Biden, China, Cold War, democracy, Donald Trump, Indo-Pacific, Jake Sullivan, Kurt M. Campbell, national interests, Our So-Called Foreign Policy, Soviet Union

For literally decades, American foreign policy makers, and especially the pre-Trump globalists, fell into the dangerous habit of obsessing about second-order questions (like whether the old Soviet Union was a fundamentally aggressive or defensively-oriented power, whether military force or diplomacy was the nation’s most effective foreign policy tool, whether unilateral or multilateral actions were most likely to succeed, and whether a more or less involvement in world affairs was preferable).

As a result, they typically neglected the paramount first-order questions: Principally, what overseas goals does the United States need to achieve to secure adequate levels of safety and well-being? In other words, which foreign objectives matter decisively for the United States in and of themselves, and which don’t? And those are first-order question because assessing others’ intentions is much more guesswork than science, and because no one can sensibly choose tools for a job without knowing what job they want to do.

(See this 1985 FOREIGN POLICY essay and this 1991 Atlantic Monthly article on the general failure of not only American leaders but of presumed foreign policy experts to think rigorously about national interests. See this 1991 New York Times piece about the hazards of divining intentions as opposed to capabilities. Apologies if the first two are no longer available for free on-line.)

Therefore, it’s awfully depressing to see the Biden administration staging its own version of backwards strategizing. It’s evidently determined to base its China policy on figuring out what kind of relationship it wants with the People’s Republic, and paying much less attention to identifying specific actions the United States wants China to take, stop, and refrain from in the first place.

The Biden approach is completely mistaken for two main reasons. First, whenever relationships are pursued regardless of their impact on particular, concrete interests, these national needs and wants inevitably become subordinated to atmospherics and abstractions and processes – a decidedly unpromising recipe for national success.

Second, the particular relationship on which President Biden and his top aides are focusing – one marked by competition – is so intrinsically ambivalent (especially in the realm of world affairs) that its much likelier to confuse than to provide useful policy guidance. In addition, competition is a concept that evokes the playing field, where both victory and defeat have ultimately trivial consequences, rather than the fundamentally anarchic and much more dangerous international landscape. Consequently, its use tends to downplay even stakes otherwise defined more threateningly.

These obstacles to clear foreign policy thinking and numerous others all rear their heads in statements the new President and his leading advisers have made during the campaign and transition, and since Inauguration Day.

For instance, Jake Sullivan and Kurt M. Campbell, who have become, respectively, Mr. Biden’s White House national security adviser and National Security Council “czar” for the Asia-Pacific region, perceptively noted in a prominent 2019 article that terms used by the Trump administration like “strategic competition,” unless elaborated on, can’t help but connote “uncertainty about what that competition is over and what it means to win.”

They did write of the need to decide what “kinds of interests the United States wants to secure.” And they do dance around some specific objectives, like maintaining unimpeded navigation in Asia-Pacific (or, to use a term more expanive and popular lately because it includes India – “Indo-Pacific”) waters, and preventing China from taking over Taiwan, and safeguarding America’s global technology leadership. 

But the authors also drone on and on about achieving a state of coexistence that “would involve elements of competition and cooperation, with the United States’ competitive efforts geared toward securing those favorable terms” (but never absolutely committed to securing them); and about “accepting competition as a condition to be managed rather than a problem to be solved”; and about how the Chinese competitive challenge differs from its Cold War-era Soviet counterpart; and about how China has become an “essential partner” as well as a formidable competitor with the United States because of the appearance of shared global dangers like climate change and pandemics; and about an “emerging” global contest of social and economic models; and about how to “get the balance between competition and cooperation right.” Indeed, the piece is titled “Competition Without Catastrophe.”

In addition, last year, new Secretary of State Antony Blinken took pains in a lengthy interview to emphasize that although “we are in competition with China,” there’s “nothing wrong with competition if it’s fair” That point is entirely valid in the context of a sporting event, a spelling bee, or other forms of competition with relatively trivial consequences.

At best, however, it’s deeply puzzling when dealing with decisions that can bring either great benefit or harm to an entire nation, and that can create major risks and require massive expenditures of national blood and treasure. In cases where winning and losing matter considerably and even vitally, it should be obvious, that prevailing or figuring out how to cope with defeat are worth the candle. Yet if and when it’s the fairness of the outcome that matters most rather than the outcome itself, why bother competing at all? Worse, these efforts can produce inexcusable wastes of resources that will surely be invaluable in the more important situations sure to come somewhere down the line.

In one instance reminiscent of the Cold War thinking they generally criticize in the China context, Campbell and Sullivan write that winning that competition of social and economic models with Beijing counts significantly because the United States (in unspecified ways to be sure) will be much better off in a world mainly made up of free market democracies than in one dominated by countries that try to emulate China’s totalitarianism.

Their point is fortified by the leading role advanced surveillance systems play in China, which additionally means that the United States must stay ahead in these fields both in order to ensure military superiority when push comes to shove, and to defend itself against Chinese cyber-aggression. Moreover, intuition and common decency lead all Americans to root for the widest possible global triumph of political and economic freedom (realizing of course that the latter can be defined in many different ways).

Even here, though, the framing U.S. strategy as a competition with China can complicate as many choices as it clarifies. For example, a defining principle of Biden foreign policy is that, in the President’s words, “America’s alliances are our greatest asset” in world affairs. Yet if so, then the new administration, as with its Cold War predecessors, will need to recognize that many of its current and desired partners won’t be either political or economic democracies or even close (in Asia, Communist-ruled Vietnam and the quasi-at-best democracies of Thailand and the Philippines come to mind), and that today’s genuine democracies often feel free – as during the Cold War – to ignore or actually undermine U.S. interests (like Germany nowadays regarding both China and Russia).

Finally, it’s all too easy to conclude that the Biden-ites’ focus on second-order questions first and foremost represents a series of word games aimed at masking their inability or unwillingness to identify first-order issues. Take the President’s insistence that he’ll carry out an “extreme competition” with China. Even leaving aside that he immediately proceeded to trivialize the term by declaring that his approach will differ from Donald Trump’s by focusing on “international rules of the road” (another second-order priority), what exactly will be “extreme”? And how does his definition of extreme competition compare with the other varieties of competition detailed by Sullivan and Campbell?

Similarly, Blinken has just ventured that the U.S. relationship with China entails “adversarial,” “competitive,” and “cooperative” aspects. The last category is no mystery. But what’s the difference between the first and the second? Does the first refer to American interests that must be advanced or defended at all costs and risks, or at least major costs and risks? Does the second refer to those situations and interactions where fairness is overriding? 

Sullivan and Blinken in particular admit that they used to belong to the dangerously naive China engagement mainstream of the U.S. foreign and economic policy communities.  But until they, their colleagues, and the President stop talking about the China challenge as if it was a game, ample doubt will be justified as to whether they’ve yet become China realists.           

Making News: Podcast Now On-Line of New National Radio Interview on Biden & China

Tags

Biden, China, Donald Trump, Gordon G. Chang, Making News, Phase One, tariffs, The John Batchelor Show, Trade

I’m pleased to announce that the podcast is now on-line of my interview last night on John Batchelor’s nationally syndicated radio show on U.S. China trade policy. Click here for a timely discussion with John and co-host Gordon G. Chang on the outlook for America’s approach to the People’s Republic as the Biden administration settles into office.

One especially interesting point: Although John seemed to focus on how China fell well short of meeting its commitments under Donald Trump’s Phase One trade deal to boost its purchases of American-origin goods and services, I pointed to some data indicating that the agreement produced some important achievements on this front.

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

Im-Politic: For Biden, It’s Americans Last on Migrants and the Virus

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asylum seekers, Biden, CBP, CCP Virus, coronavirus, COVID 19, detention, Donald Trump, El Salvador, Guatemala, Honduras, ICE, Im-Politic, immigrants, Immigration, Immigration and Customs Enforcement, Journal of the American Medical Association, lockdowns, Mexico, migrants, Remain in Mexico, stay-at-home, testing, U.S. Customs and Border Patrol, Worldometers.info, Wuhan virus

Some of you might have heard and been concerned about reports that President Biden’s new policies will result in migrants caught by U.S. border authorities being released into the United States without being tested for the CCP Virus. If you knew how much potential for superspread these policies hold, you’d be even more concerned.

Under President Trump, the problem appeared under control because Washington ended the policy of processing migrants who crossed the southern border illegally and then releasing them into the United States to await future hearings on their requests for permanent residency. Instead, apprehended migrants claiming to be asylum seekers, were returned to Mexico (whatever their nationality) until their cases could be brought up. And last March, these policies were extended to all would-be border crossers due to pandemic concerns.

Yet due at least partly to the Biden administration’s immigration-welcoming statements and actions (including during the campaign), migrant flows northward have surged, and current U.S. detention centers have been filling to overflowing despite American court orders preventing them from holding detainees for more than 72 hours in certain facilities in Texas. Worsening the situation has been Mexico’s new refusal in some instances to accept migrants expelled from U.S. territory. (See here for details.) And the new U.S. President seems determined to facilitate immigration inflows generally.

Therefore, the U.S. Customs and Border Enforcement (CBP) agency publicly acknowledged last week that “some migrants will be processed for removal, provided a Notice to Appear, and released into the U.S. to await a future immigration hearing.” Crucially, this practice is proceeding even though CBP doesn’t test arrivals for the CCP Virus unless symptoms are visible. (See the previously linked article for the statement.) 

Which is where the public health threat comes in. Because data from the virus has seemed to be unusually prevalent among these migrants. To begin with, although figures only go through August, a paper published by the Journal of the American Medical Association (JAMA) found that the monthly rate of cases in detention centers was more than 13 times that for the U.S. population as a whole.

Although the JAMA authors wrote that increased testing at the centers only partly explains these high numbers, it also points out that they may also stem from “challenges faced implementing the Pandemic Response Requirements” – like overcrowding. At the same time, they confirm that because asymptomatic detainee testing has been “limited,” even these case numbers could be underestimates. And since migrants tend to be relatively young, asymptomatic cases are surely more common than among legal U.S. residents generally.

The total number of virus cases found among migrants in the detention centers since February has been small – just over 9,300. But the real measure of the danger comes from the incidence of the CCP Virus in the migrants’ main native countries – which look to be sources of large and ever greater greater supply going forward.

Yes, their overall case rates are much lower than their U.S. counterparts, as these data from the Worldometers.info website show:

cases per million

U.S.:                  83,687

Mexico:            14,920

Guatemala:         9,052

Honduras:         15,573

El Salvador:        8,708

One big reason, however, is that they’ve done so little testing, as these numbers from the same source make clear:

tests per million

U.S.:               984,900

Mexico:            37,781

Guatemala:      45,624

Honduras:        39,569

El Salvador:   110,338

Given the immense virus-related uncertainties revealed by these statistics, any measures that increase the numbers of untested migrants in the United States are simply incomprehensible for any government taking seriously the obligation to protect its own population. And given the tight controls already restricting individual, group, and business activities in the United States, these Biden decisions seem even less defensible.

It’s one thing for the new President to reject an America First framework for public policy. It’s quite another to adopt positions that merit the bizarre and perverse label “Americans Last.”

Our So-Called Foreign Policy: Globalists Keep Rejecting Key Tenets of Globalism

Tags

America First, Biden, Council on Foreign Relations, Donald Trump, foreign policy establishment, globalism, international institutions, Our So-Called Foreign Policy, Richard N. Haass

As well known by RealityChek regulars, there’s not much I enjoy more professionally speaking than finding figures with whom I normally strongly disagree on key economic and foreign policy issues unwittingly agreeing with me on the concepts at the heart of these disagreements. (See, e.g., here and here.)

So imagine how pleased I was to see this paragraph in a recent opinion column by Richard N. Haass – a foreign policy establishmentarian if ever there was one, and therefore a leading advocate of the globalist approach to world affairs that I and Donald Trump (in his typically ragged way) believe has been needlessly and indeed recklessly risky and costly for Americans:

“The US will…encounter difficulty in realizing its goal of organizing the world to meet global challenges, from infectious disease and climate change to nuclear proliferation and conduct in cyberspace. There is no consensus and no international community, and the US can neither compel others to act as it wants nor succeed on its own.”

It’s a statement that’s noteworthy not only because it recognizes the fatal flaw of one of globalism’s central pillars – fetishizing international cooperation and therefore striving to systematize and formalize such multilateralism by building strong global institutions. For the point being made by Haass – a former official in the pre-Trump Republican presidencies and now President of the Council on Foreign Relations, often described as the foreign policy establishment’s epicenter – is that creating organizations can’t be equated with solving even problems shared by the entire world because – across the board – so many different countries disagree on the best solutions.

It’s also statement that’s noteworthy because Haass had previously called the rejection of multilateralism and its constituent institutions a defining and especially wrongheaded feature of Trump’s America First-ism. Withdrawal from such arrangements, Haass wrote just last May, has been

“central to the Trump presidency. He has pulled the country out of every manner of multilateral agreement and institution overseas in the name of going it alone. Going it alone, though, makes little sense in a world increasingly defined by global challenges that can best be met through collective, not individual, action.”

But Haass’ new about-face is consequential as welI because it’s essence’ is identical with my own previously stated (anti-globalist) view that

“Precisely because…domestic [political] systems are characterized by a common acceptance of legitimate authority, and by a broader sense of mutual obligation, a true [foreign policy] realist would never disagree that their possibilities for ‘trust, cooperation and growth’ are often encouraging. It is precisely because the international system possesses none of these features that realists’ expectations of achieving such advances abroad are so low.”

P.S. I wrote the above in 2002.

Unfortunately, Haass’ latest makes painfully clear that he has no useful policy advice for President Biden – another multilateralism and international institution fan boy – in a world in which their foreign policy lodestars have become so useless (and in my view have never been essential). I’ve written that recognizing the shortcomings and limitations of international institutions doesn’t require simply abandoning them.

Instead, because cooperation inevitably sometimes be worth seeking, it means recognizing the hard-ball politicking typically needed to prevail; and amassing the power (in all dimensions) needed both to succeed, and to survive and prosper through America’s own devices if others prove recalcitrant. 

In fact, the virtues of this foreign policy strategy seem so obvious that I’ve got the sneaking suspicion that a big reason they became controversial was because they were championed by Trump.  Which raises the intriguing possibility that the Biden administration could wind up adopting an America First-type foreign policy, but in the worst conceivable manner – unwittingly, and even kicking and screaming all the way.      

Making News: China Policy Blueprints Critique Re-Posted in The National Interest

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alliances, allies, Asia, Biden, CCP, China, China Strategy Group, Chinese Communist Party, decoupling, Donald Trump, Making News, multilateralism, NationalInterest.org, sanctions, semiconductors, Silicon Valley, supply chain, tariffs, Trade, trade war, XiJinping

I’m pleased to announce that The National Interest has republished as a single article my recent blog posts detailing the major flaws of two blueprints for China policy that have just been offered to the Biden administration from establishment thinkers. In case you missed them the first time around, or want to re-read, here’s the link.

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

(What’s Left of) Our Economy: A Winning Streak Broken But a Still Encouraging Outlook for Manufacturing Jobs

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aerospace, Biden, CCP Virus, China, coronavirus, COVID 19, Donald Trump, Employment, healthcare goods, Jobs, Labor Department, machinery, manufacturing, NFP, non-farm payrolls, pharmaceuticals, PPE, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

U.S. manufacturing’s eight-month streak of hiring gains ended in January, with industry shedding 10,000 jobs from December’s levels. Also dimming the results reported for the sector in this morning’s offiical employment figures were moderately negative revisions. Moreover, despite the CCP Virus emergency, and the vaccine production ramp up, job creation in health care-related manufacturing (where the most detailed figures only go up to December) remained disappointing.

Although the manufacturing jobs revisions for November and December weren’t nearly as great as the unusually large changes for the Labor Department’s overall U.S. jobs universe (called “non-farm payrolls”), they still weakened the employment outperformance recorded by the sector since job levels bottomed out in April.

December’s originally reported on-month manufacturing jobs increase was downgraded from 38,000 to 31,000. And although the November data saw their second upward revision (from 27,000 to 35,000 and now to 41,000), the findings for October fell all the way from 43,000 to 32,000. (They were originally reported as 33,000.)

The January numbers mean that manufacturing has regained 58.91 percent (803,000) of the 1.363 million jobs it lost during the pandemic’s first wave and resulting sweeping lockdowns in March and April.

That pace is now slightly behind that of the total private sector, which since April has recovered 60.34 percent (12.788 million) of the 21.191 million jobs lost last spring.

But manufacturing’s employment is still faring better than the total non-farm sector (which includes hard hit state and local governments). Overall, as of January, the economy has regained just 56.27 percent (12.47 million) of the 12.321 million jobs lost in March and April.

Despite decreasing in toto in January, employment in some manufacturing sectors nonetheless improved. These winners were led by the big chemicals industry (up 10,500), food products (2,200), and miscellaneous durable goods, computer and electronics products, and wood products (up 1,300 each). Within the computer sector, payrolls in semiconductors and related devices rose by 1,800.

January’s biggest losers were non-metallic mineral products (down 6,400), automotive (off by 5,300), fabricated metals products (a 4,100 loss), and electrical equipment and appliances (down 3,200).

Unfortunately, given its importance as an equipment supplier to the manufacturing sector and other important U.S. industries, employment in machinery declined by 700 on month in January, and revisions were deeply negative.

Also discouraging were the most recent jobs figures for healthcare-related manufacturing, especially given the vaccine progress and months of national alarm about dangerously inadequate domestic production of these critical goods.

Generally, employment increases continued, but the pace remains sluggish. For example, the broad pharmaceuticals and medicines sector added 2,200 jobs in December, and revisions were slightly positive. But payrolls here have grown by a mere 2.09 percent since February – the last month before the virus’ health and economic impact began to be fully felt.

Employment advanced again in December in the sub-sector containing vaccines. But about half of the sequential increase of 1,100 was offset by downward revisions for October and November. And this sub-sector’s total headcount is up just 4.35 percent since February.

The opposite pattern was seen in the manufacturing category containing personal healthcare-related protection devices (PPE) like facemasks, gloves, and medical gowns. Its payrolls rose fell by 400 sequentially from November to December, but revisions for the previous two months rose by the same miniscule total. Still, this industry’s 8.08 percent job growth since February led healthcare manufacturing by a wide margin.

Despite January’s setback, a reasonable case can be made that manufacturing’s employment prospects still look bright for several reasons. Progress will surely keep being made on the PPE front. Vaccine production is set to surge. A large aerospace sector long hobbled by Boeing’s safety woes is seeing the company’s troubled 737 Max model being recertified for flight by more and more countries. Any national and global recovery will see demand for air travel revive.  And because President Biden has decided to keep Donald Trump’s steep, sweeping tariffs on imports from China in place for the time being. Consequently, industry can be expected to supply more U.S. demand than usual as the economy returns to normal however quickly or slowly.

Our So-Called Foreign Policy: Why Scalpels Won’t Cut it Against China

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Biden, China, China Strategy Group, decoupling, Donald Trump, Eric Schmidt, EU, European Union, FDI, foreign direct investment, Germany, Google, health security, Made in America, manufacturing, multilateralism, national security, Our So-Called Foreign Policy, semiconductors, Silicon Valley, supply chain, Taiwan, technology

Yesterday’s RealityChek post argued made clear that one of the two recent blueprints for China policy offered to President Biden from the foreign policy and technology establishments suffered from crippling internal contradictions.

The second effort, from the Silicon Valley-dominated “China Strategy Group,” can be read more profitably by the President, because popping up here and there are some insights that are genuinely valuable especially since they come from analysts once strongly supportive of what they themselves call the pre-Trump strategy of “near-unbounded integration.”

Principally, the group, which notably is co-chaired by Google co-founder Eric Schmidt, calls for recognizing that “some degree of [U.S.-China] disentangling is both inevitable and preferable. In fact, trends in both countries—and many of the tools at our disposal—inherently and necessarily push toward some degree of bifurcation.” In other words, it’s endorsed a limited version of what’s now commonly called economic and technological decoupling.

In addition, it argues that both this decoupling, along with tariffs that it acknowledges may be needed to push back against certain Chinese offenses and provocations, should be pursued even though they will entail costs – a refreshing and crucially important departure from the long-time pre- and post-Trump consensus in the mainstream American political, business and policy communities that any increased consumer or producer price, or loss of even a smidgeon of market share in China resulting from retaliation from Beijing, proves conclusively the folly of placin any significant curbs on doing business with the People’s Republic.

Finally, the group points out that efforts to rebuild domestic supply chains to reduce reliance on China for critical goods must involve “more than a focus on the end products. Safeguarding key technologies requires the United States to define and secure the entire ecosystem of production, from fabrication to supply to talent to cutting-edge innovation.” In other words, Washington can’t simply seek to become self-sufficient, or largely so, in face masks or ventilators or semiconductors. It needs to become self-sufficient or largely so in all the materials, parts, and components required to make these products.

Yet many of these important insights (and useful recommendations for restructuring the U.S. government to foster the competition with China more effectively) are kneecapped by equivocation and a resulting failure to understand that sometimes policy scalpels cut too finely, and some policy needles are too small to be threaded – especially considering the “all of society” drive China’s totalitarian system is making to gain global technology leadership, and the dangers to America’s “security, prosperity, and way of life” Chinese success would create.

For example, the group emphasizes that decoupling policy mustn’t invite “escalatory cycles of confrontation, retaliation, or unintended conflict” or overlook those areas “where cooperation, collaboration, and exchange with China is in our interest, as severing ties and closing off the United States to the ideas, people, technologies, and supply chains necessary to compete effectively will undermine U.S. innovation.” At the same time, the authors acknowledge that China will respond to any further U.S. decoupling moves “more aggressively” precisely because “China’s leaders understand U.S. dependency as an important source of leverage.”

So although in principle, this omelet can be made without breaking many eggs, Beijing won’t be cooperating in fact. And the circle can’t be squared with clever phrase-making like “navigating the asymmetric competition” that look satisfactorily reassuring on paper and in speeches to conferences but that need to survive the body blows that will inevitably be delivered by reality.

The group’s approach to Chinese investment in the United States (whether in the form of creating new businesses or taking over or contributing capital to existing firms) illustrates the other big drawback of granular approaches when it comes to China: They ignore how any Chinese entity big enough to play in any foreign market, and especially America’s, is under Beijing’s thumb in every important respect.

As a result, there’s no point in taking the time and expending the resources to follow the group’s recommendations to figure out which Chinese tech platforms (whose importance it emphasizes) are and are not violating American privacy standards or conducting misinformation campaigns dangerous to democracy, or censoring content Chinese authorities don’t like, or helping suppress human rights in China or anywherer else, or stealing valuable data, or helping terrorists and criminals launder money; or whether these activities matter enough to merit official U.S. attention, or whether troublesome practices can be negotiated away through talks with Beijing on technical and other fixes.

In this instance, Washington should stay out of the black holes of setting priorities and especially monitoring and enforcing agreements, and assume that by simply banning these platforms from operating in the United States and in fact prohibiting all Chinese entities from owning U.S. hard assets. The latter step would add the benefit of shielding participants in America’s economy from competition with subsidized, market-distorting outfits from China. At the very least, Chinese entities should be required to prove that they’re not controlled or subsidized in any way by Beijing, or engaged in the above malign activities, before gaining entry.

In addition, despite the group’s understanding that entire manufacturing eco-systems, not just final products, need to be rebuilt and nurtured to ensure supply chain security, it appears to underestimate just how widely these relationships extend. After all, most of the numerous inputs to goods like mechanical ventilators (like its controls, power sources, monitors, and alarm systems) depend on big and complex supply chain and manufacturing eco-systems themselves.

Further, just as before the pandemic, few expected face masks and surgical gloves to become products vitally important to the nation’s well-being, the list of critical goods is likely to change and grow over time as new threats emerge. Therefore, the group is correct in warning that “any product or service could be termed essential to national security in an extreme hypothetical.” But what’s the basis for confidence that many products or services can safely be ruled out, and that such hypotheticals will always remain extreme?

At least as important, like the Biden administration, the group’s determination not to ruffle too many international feathers has also clearly led it to back the notion that the definition of “Made in America” for supply chain purposes should actually mean, “Also Made in Lots of Other Countries” that it considers trusted suppliers. Unfortunately, many of the countries so classified imposed export controls on critical medical goods during the pandemic’s first wave last spring. That is, when cooperation was most needed, they built walls – meaning that their trustworthiness isn’t exactly ironclad.

And as then President-elect Biden learned when the European Union rebuffed his entreaty to consult with Washington before signing an investment agreement with China, the allies remain determined to fence sit in the U.S.-China technology competition. The group acknowledges that the list of anti-China partners “may include all of the [European Union], though in some cases EU position/member states’ positions are too ambiguous today with respect to China for inclusion in all instances, and members may need to be considered on an individual basis.” But simply stating this position and its EU-splitting ambitions is enough to make clear its absurdity – especially since the EU country most reluctant to cooperate against China is economic kingpin Germany.

None of this is to say that all trade with (as opposed to investment in hard assets from) China should be cut off completely, or that international cooperation can be of no use to the United States in its struggle versus the People’s Republic. In particular, (and due largely to recklessly indiscriminate free trade policies), America urgently needs products and knowhow now dominated by foreign producers (notably Taiwan’s semiconductor manufacturing industry, and Japanese and Dutch suppliers of key microchip production equipment and materials). And if other countries are willing to cooperate with Washington on various China containing initiatives at acceptable prices, more help is indeed better than less. But the United States will never safeguard its interests adequately without realizing that multilateralism can’t be an end in and of itself, and that against monumental threats, axes are usually more effective than scalpels.