Our So-Called Foreign Policy: Trump’s Acting Like Uncle Sucker on Alliance Burden-Sharing

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alliances, allies, America First, Blob, Bloomberg.com, burden sharing, Europe, globalism, Japan, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, South Korea, Trump

While much of the world is on pins and needles wondering whether President Trump will reach a big trade deal with China and how it will impact the U.S. economy and global commerce, Mr. Trump’s negotiating reputation has also been on the line on another major international front – America’s relations with its top security allies. And the latest reported developments add to the evidence that he’s going to fail miserably.

According to a March 8 Bloomberg.com article, the Trump administration is planning to insist that countries hosting American troops pay the full cost of these deployments, along with an extra 50 percent of that full cost for what’s described as the “privilege” of enjoying American protection.

Predictably, the allies, along with Washington, D.C.’s bipartisan globalist foreign policy establishment are sputtering with outrage – accusing the President of viewing these security relationships as lowly “transactional” relationships focused on enhancing purely American interests rather than as vital pillars of a global liberal, democratic order that since the end of World War II has benefited the United States more indirectly by promoting worldwide peace, prosperity, and democracy. In a journal article last year, I described at length why this quintessentially globalist approach to foreign policy and national security has long been creating many more big problems than it solves for a country as fundamentally secure and prosperous as the United States.

As a result, I strongly sympathize with any efforts to overhaul America’s alliances, however many specific criticisms I may have with the President’s tactics. But the most immediate problem with the Trump strategy is that the President keeps shooting himself in the foot. Specifically, he has repeatedly undercut U.S. leverage by proclaiming that he, too, views these arrangements as crucial for America to maintain.

For example, just two months ago, Mr. Trump insisted that “We’re gonna be with NATO [the North Atlantic Treaty Organization, which binds the United States militarily to Europe] 100 percent ….” Last July, he declared “…I believe in NATO. I think NATO is a very important — probably the greatest ever done.” And the previous year, he explicitly endorsed the alliance’s Article V, which legally commits the United States to come to the defense of any member under outside attack.

Regarding the American alliance with South Korea, Mr. Trump told that country’s National Assembly in November, 2017 that U.S. commitment to that country’s defense represented a line “between peace and war, between decency and depravity, between law and tyranny, between hope and total despair. It is a line that has been drawn many times, in many places, throughout history. To hold that line is a choice free nations have always had to make. We have learned together the high cost of weakness and the high stakes of its defense.” 

And that June he vowed at a Washington, D.C. press conference with South Korean President Moon Jae-in, “the United States will defend itself, always will defend itself, always, and we will always defend our allies.”

Meanwhile, shortly after his inauguration, Mr. Trump and Japanese Prime Minister Shinzo Abe issued a statement affirming that “The unshakable U.S.-Japan Alliance is the cornerstone of peace, prosperity, and freedom in the Asia-Pacific region. The U.S. commitment to defend Japan through the full range of U.S. military capabilities, both nuclear and conventional, is unwavering.”

It’s true that the President has spoken repeatedly, both as a candidate for the White House and as a chief executive, of his desire to withdraw American troops from these countries at some unspecified point. (This archive contains an indispensable, useful comprehensive collection.) But it’s also true that Mr. Trump has endorsed the defining globalist precept that U.S. “security and prosperity [have] depended” on “pushing back” versus threats to the allies.

During his successful White House run, candidate Trump faulted Democratic candidate Hillary Clinton – a Secretary of State under President Obama – for dooming any prospects for reforming American alliances by continually touting their paramount virtues. One of these critiques (cited in the aforementioned archive) is worth quoting at length:

“Now, Hillary Clinton said: ‘I will never leave Japan. I will never leave Japan. Will never leave any of our–‘ Well now, once you say that, guess what happens? What happens? You can’t negotiate. In a deal, you always have to be prepared to walk. Hillary Clinton has said, ‘We will never, ever walk.’ That’s a wonderful phrase, but unfortunately, if I were on Saudi Arabia’s side, Germany, Japan, South Korea and others, I would say, ‘Oh, they’re never leaving, so what do we have to pay them for?’ You always have to be prepared to walk. It doesn’t mean I want to walk. And I would prefer not to walk. You have to be prepared and our country cannot afford to do what we’re doing.”

In other words, Mr. Trump was making one of his characteristic charges that his opponent – and the establishment foreign policy “Blob” to which she’s belonged — had turned the United States into an “Uncle Sucker” who’d forgotten that Washington’s top priority is looking after the American people, not foreign populations. If he doesn’t get his alliance diplomacy act together soon, this self-described master deal-maker will start deserving the same label.

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Our So-Called Foreign Policy: U.S. Companies Keep Feeding the China Tech Beast

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AI, artificial intelligence, Bloomberg.com, China, hacking, Karen Weise, Microsoft, national security, Our So-Called Foreign Policy, Paul Mozur, technology, technology transfer, The New York Times, Trump

Wow! This was quite the revealing – and disturbing – nugget buried in a recent New York Times article about American tech companies’ trials and tribulations in China! According to reporters Paul Mozur and Karen Weise, Microsoft’s “long-established research and development center has turned out valuable products and launched the careers of a generation of artificial-intelligence experts who have started important new companies in China.”

Mozur and Weise mentioned this Microsoft activity in order to make the important point that even companies, like the Seattle software giant, that have bent over backwards to remain viable in China by keeping Beijing happy in various ways seem to be fighting a losing battle. For even these firms are falling victim to China’s persistent desire to replace them in the country’s huge market with Chinese rivals.

But the reference to Microsoft’s artificial intelligence operations could well matter more to the United States because it underscores a point I made several years ago in a Bloomberg.com op-ed that bears on American national security: For decades, U.S. tech companies have been transferring to Chinese entities cutting edge knowhow that has greatly strengthened Beijing’s ability to endanger key American interests. It’s the price they need to pay to keep playing in the Chinese market. But whatever the commercial justification, and whether these transfers are voluntary, coerced, or somewhere in between (including the training of China’s tech workforce), they’ve too long been neglected by American policymakers.

My Bloomberg piece focused on technologies related to cyberhacking – where transfers ironically were coming back to bite the U.S. tech firms themselves. Since then, in several posts for RealityChek, I’ve covered tech transfer that’s handing China more conventional advanced defense-related knowhow. (See, e.g., here and here.)

But artificial intelligence-related operations push the threat to an entirely new level. For these capabilities will likely be the biggest game-changers in national security for decades, and Washington is already so alarmed by the progress China has made that many specialists worry that Beijing could soon forge ahead. Nearly as troubling: The more such tech American companies keep handing over to the Chinese, the closer China gets to self-sufficiency – the point at which it won’t need American assistance anymore.

The Trump administration rightly keeps calling attention to China’s growing technological prowess and the resulting dangers to the United States, and even many long-time supporters of the reckless pre-Trump China engagement policies are starting to agree.

But tariffs to punish predatory Chinese policies aimed at building tech dominance, and curbs on Chinese tech investments in the U.S. economy are necessary, not sufficient responses. The above linked Financial Times article indicates the administration now recognizes need to staunch the flow of advanced knowhow to China by American companies. But every minute new curbs are delayed, the United States will keep feeding the beast.

(What’s Left of) Our Economy: Why Trump Should Have Hung Tough with China

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Applied Materials, ASM Lithography, Bloomberg, Bloomberg.com, China, electronics, forced technology transfer, Fujian Jinhua, G20 Summit, information technology hardware, intellectual property theft, KLA-Tencor, Lam Research, Made in China 2025, Micron Technology, Netherlands, semiconductors, Taiwan, technology, Trade, trade war, Trump, United Microelectronics Corporation, Xi JInPing, ZTE, {What's Left of) Our Economy

A U.S.-China summit on the sidelines of the global economic conference in Buenos Aires has produced what amounts to a three-month truce in the trade conflict the two countries have been waging since the early months of the Trump administration. I’ll have a detailed reaction coming out in a major newspaper op-ed piece tomorrow, so I don’t want to steal my own thunder here.

For now, it’s worth spotlighting a recent Bloomberg.com piece on America’s latest efforts to fight China’s intellectual property theft, and the dangerous progress and ambitions it’s been largely fueling. It’s so good, and so important, that it illustrates exactly why the President should have hung tough in his China trade diplomacy – and how much more thoroughly America’s China policies need overhauling before they can adequately serve U.S. national interests than even the Trump administration has been indicating.

Just to review, the Trump administration has imposed several rounds of tariffs on literally hundreds of billions of Chinese products typically headed for the American market, largely in response to China’s newly explicit ambition to achieve worldwide technological supremacy – and in the process become the world’s strongest economy and military power.

This Chinese goal – made clear in a program called Made in China 2025 – is anything but entirely new. Indeed, much of the blueprint has been in effect literally for many years, and certainly once Chinese leaders realized that the United States, Japan, South Korea, Taiwan, and Western Europe seemed happy enough to foster their country’s economic development by supplying in various ways the knowhow to make major tech catch-up a realistic goal. So China has long sought to secure such technology as fast as possible, by whatever means were needed – including those that violated various trade commitments it had made.

In the last few years, however, China’s often startling resulting advances, its reversion to a national economic strategy ever more reliant on government dictates and strong-arming and discriminating against foreign investors, and its mounting belligerence in world affairs, have woken up even many pillars of America’s free trade-happy establishment to the threat they’d been creating. And crucially, the crestfallen included many of the very companies that were handing over their crown jewels to China, along with the politicians and think tank shills they funded.

The Bloomberg article is so valuable because in one fell swoop, it illustrates how deeply involved American companies have been involved – and remain – in strengthening China’s tech capabilities, how consequently vulnerable China remains to American inputs of various kinds, and therefore why there is absolutely no reason for the Trump administration to relieve its tariffs’ pressures on China’s economy without major – and completely verifiable – concessions from Beijing.

In the piece, a team of Bloomberg reporters make all these points with a detailed account of a Chinese (government-supported, of course) entity that sought to produce advanced versions of critical pieces of the semiconductors used in smartphones. The explicit goal: Reduce the Chinese electronics’ industry’s dependence on foreign semiconductors.

That objective per se is highly objectionable – that is, for anyone who takes seriously the supposed main purpose of the global trade system, which is to foster the most efficient possible global division of labor by freeing up trade flows to ensure that the output and provision of various products and services is concentrated in those countries that do these jobs best. But defenders of the global trade status quo never seemed to notice that China demonstrated no interest in passively accepting the verdict of market forces.

In fact, as the Bloomberg team makes clear, American technology companies have been all too ready to aid this Chinese ambition, even with Beijing’s ambitions ringing more and more alarm bells. Specifically, this Chinese entity (as usual, I refuse to call these outfits “companies” or “businesses” because Beijing’s effective control over them sharply distinguishes them from groupings in largely free market economy that actually deserve those labels), was being supplied by U.S. semiconductor manufacturing equipment firms KLA-Tencor, Applied Materials, and Lam Research – along with foreign counterparts like the Netherlands’ ASM Lithography and Taiwan’s United Microelectronics Corp.

But at the end of October, the U.S. government placed the Chinese entity – called Fujian Jinhua Integrated Circuits – on a list of economic actors whose operations are just to pose “significant risk of becoming involved in activities that are contrary to the national interest of the United States.” Several days later, Washington also indicted the entity for stealing the intellectual property of American semiconductor firm Micron Technology of stealing its intellectual property. As a result of the national security finding, American companies are in effect prohibited from supplying Fujian Jinhua. And since Fujian’s non-U.S. suppliers sell it goods that contain American-made parts, the restrictions cover them, too.

The result of the ban announcement? According to the Bloomberg article, Fujian Jinhua’s “dream is now in tatters with consultants from American suppliers gone, the factories silent and workers rattled.” And lest you think this is just one anecdote, recall that a similar American export ban on selling to Chinese telecommunications manufacturer ZTE would have doomed that entity had President Trump not let it off the hook in hopes of currying some valuable favor and negotiating leverage (so far, in vain) with Chinese leader Xi Jinping.

In other words, the United States enjoys decisive leverage over China in the struggle for technological, economic, and military power, and should continue ramping it up to extract whatever concessions it can get from Beijing. In this vein, it’s as shocking as it is disturbing that U.S. tech firms like those mentioned above are still allowed to contribute to China’s technological development months after the Trump administration has literally designated China as a power (along with Russia) that is challenging “American power, influence, and interests, [and] attempting to erode American security and prosperity.” Further, the same national security strategy document declared, more specifically, that “Part of China’s military modernization and economic expansion is due to its access to the U.S. innovation economy, including America’s world-class universities.”

But more important, as I’ve written, since verifiable concessions are so unlikely, this pressure should form one major element of a larger strategy that to disengage America from China economically, and this goal, and the stakes that justify it, should be declared by President Trump soon after his return from Buenos Aires.

(What’s Left of) Our Economy: Unexpected Support for the Trump China Tariffs

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Benedikt Zoller-Ryzdek, Bloomberg.com, capital equipment, capital goods, China, consumer goods, consumers, European Network for Economic and Fiscal Policy Research, Gabriel Felbermayr, inflation, producer goods, tariffs, Trade, trade wars, Trump, Xiaoqing Pi, {What's Left of) Our Economy

As I live and breathe! A pair of economists has just issued a report contending that China, not the United States, so far will be the big loser in the current trade confrontation between the two countries! In the process, they offer a badly needed explanation of why, in a real sense, exporters in China – not importers and therefore, presumably, consumers in the United States – will pay by far the highest price imposed by President Trump’s tariffs.

According to Benedikt Zoller-Ryzdek and Gabriel Felbermayr of the European Network for Economic and Fiscal Policy Research, Americans (whether households or business customers) certainly won’t get away scot free in the trade war as it’s been conducted so far. The authors calculate that the U.S. levies imposed so far by President Trump on imports of Chinese goods will boost the price of these products by an average of 4.5 percent.

The amount is pretty small, they contend, because American demand for these products is pretty elastic, as economists say. That is, it varies considerably depending on the price, and principally, if U.S. consumers find the post-tariff prices too expensive, they can switch fairly easily to alternatives – and even do without these products at all. Since these options are well known to Chinese producers and all the U.S. middlemen involved in making sure that Chinese-made goods reach their intended customers, they’ll know better than to practice much price-gouging.

Interestingly, the biggest hit to the nation is projected to come from consumer goods tariffs – the authors calculate that they’ll raise the prices of these products by 6.5 percent on average. In addition, they note that low-income Americans will bear the brunt of these higher prices, since they do buy more than their share of low-cost Chinese goods.

But the price increases for the Chinese capital equipment and various inputs used by American domestic companies (materials, parts, components, etc.) will be lower – only two percent for the former and 5.2 percent for the latter. So if the Zoller-Ryzdek and Felbermayr are right, the widely feared hit to U.S. industrial competitiveness resulting from the Trump tariffs should be eminently manageable for American domestic manufacturers – especially if they improve their chronically lagging productivity performances.

Chinese exporters, however, will far far worse, according to the study. The reason isn’t the one that President Trump has advanced – that they’ll need to pay ten and 25 percent tariffs they’re currently and might be charged all into the U.S. Treasury. Instead, these exporters will have to accept much lower prices for these exports if they want to keep selling to Americans – which will slash their profits, force them to withdraw from the U.S. market, and threaten their very viability if they do pull out, since alternatives in a slow-growing global economy won’t be abundant. The authors estimate the average price decline for Chinese exports at more than twenty percent, with makers of the most sophisticated such products (investment goods like capital equipment) suffering the steepest declines. Incidentally, those are the Chinese products and exports that the Trump trade team is most worried about.

And indeed, Zoller-Ryzdek and Felbermayr specify that this result was no accident: It stemmed from the administration’s “strategic choice of Chinese products.”

The European Network study doesn’t mean that the U.S. economy faces nothing but smooth sailing in the trade conflict. The authors note that the benefits of strategically picking and choosing Chinese products to tariff will fall significantly if the levies eventually extend to all U.S. imports from China. I also wonder if they’ve underestimated the resilience of Chinese exporters – because even a heavily indebted Chinese economy can employ so many means of subsidizing their losses. That’s also one big reason I’m skeptical that the current tariffs will decrease the mammoth bilateral merchandise trade deficit run by the United Stated with China by as much as the authors believe (nearly 17 percent).

Nonetheless, Zoller-Ryzdek and Felbermayr also anticipate a benefit from the Trump strategy that substantially undercuts the conventional wisdom among trade mavens in the United States. They observe that the increased tariff payments forced on Chinese exporters could, at least for a while, be used to compensate the low-income American consumers facing higher prices for Chinese-made garments and other everyday goods.

So although this study isn’t the last word on the U.S.-China trade wars, it provides important support for the Trump approach purely in economic terms. Coupled with America’s vital strategic stake in preventing China from stealing and subsidizing its way to greater global competitiveness in the high tech and advanced manufacturing industries crucial both to U.S. national security and prosperity, it’s a strong signal for the President to stay his current China course – and even to move more explicitly to disengage America from what clearly has been a losing and increasingly dangerous relationship.

Incidentally, I first got word of this report from Bloomberg.com reporter Xiaoqing Pi – who deserves credit for summarizing it in a brief item yesterday.   

Making News: Tariffs and Jobs Research Covered by Bloomberg…& More!

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aluminum, Bloomberg.com, Brendan Kirby, Jobs, Lifezette.com, Mainstream Media, Making News, metals tariffs, steel, tariffs, Trade, Trump

I’m pleased to report that Bloomberg.com has just come out with a post featuring my findings that, despite endless doomsaying claims in the Mainstream Media, there’s absolutely no evidence showing that President Trump’s steel and aluminum tariffs are already devastating America’s metals-using industries.  Author Peter Coy focuses on my research on employment in these sectors, but I hope his piece will stimulate more coverage of tariffs-related reporting that’s just as wildly off-base when it comes to other economic indicators.

In addition, last Friday, Brendan Kirby of Lifezette.com quoted my views in his post on that morning’s monthly U.S. jobs figures and what they reveal about the future.  Brendan also spotlighted my work showing outsized job-creation in metals-using industries.

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

(What’s Left of) Our Economy: Trump Tariffs Would Supercharge U.S. Auto Prices…Not

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auto dealers, auto parts, auto-makers, automotive, autos, Bloomberg.com, Kyle Stock, tariffs, think tanks, Trade, Trump, {What's Left of) Our Economy

If President Trump imposes steep tariffs on U.S. automobile and auto parts imports, the prices of the vehicles we all drive will go through the roof, right? After all, everyone in the know says so. Like the auto-makers. And the dealers. And the leading think tanks.

As known by RealityChek regulars, though, logic alone – along with even a rudimentary knowledge of business practices – warrant deep skepticism. After all, if the auto industry believes that, once the tariffs are in place, the market for their products will be able to support vehicle prices thousands of dollars higher than what their customers pay today, why aren’t they raising prices to these levels right now? And why haven’t they been charging more all along? The only possible answers are that (a) they really don’t believe the higher prices would stick or (b) they’ve been accepting less revenue in order to give consumers a break. You tell me which is even remotely plausible.

And just last week came new evidence showing how phony these forecasts appear: As reported by Bloomberg.com‘s Kyle Stock, there’s a huge glut of vehicles on the U.S. market for several intertwined reasons. Inventories are way too high because auto-makers produced too much (and probably imported too much). Higher and higher shares of auto purchases each year consist of previously owned, not new vehicles. And demand for new models in absolute terms seems set to dip for the first time in ten years.

Moreover, Stock’s article makes clear why the auto-makers and dealers really oppose the tariffs: Precisely because they know they’ll never be able to push through significant price increases, the levies will force them to accept lower profits. Another point worth contemplating – the industry’s pleas for tariff forebearance reveal how unwilling or unable they are to improve productivity in order to absorb the added costs without hurting their bottom lines.

That still leaves the question of why thinktankers – who aren’t supposed to have vested stakes in the automotive industry’s profitability – are peddling this nonsense. And the likely answers here aren’t flattering, either. First, many of them (like the Peterson Institute, whose tariff warnings are featured in the USAToday article linked above) get big bucks from the industry. Peterson’s latest list of donors prominently features Toyota, Ford, GM, Mitsubishi, and the governments of many of the foreign auto-makers who rely so heavily on exports to the American market. Nor are the numbers involved trivial; Toyota, for example, is listed in the $100,000-$999,000 per year category.

Second, analysts at Peterson or elsewhere could be so devoted ideologically to the pro-free trade stance of mainstream economics that they simply don’t want to present or even consider contrary evidence.

Whichever is the explanation, one conclusion comes through loud and clear: As long as the U.S. automotive market remains glutted, the price increase warnings of such experts deserve no more credibility than the pitches of used car salesman.

(What’s Left of) Our Economy: The Case that Trump Has Blown a Big NAFTA Opportunity

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autos, Bloomberg.com, Canada, domestic content, Mexico, NAFTA, North American Free Trade Agreement, rules of origin, Trade, Trump, U.S. Transportation Department, World Trade Organization, WTO, {What's Left of) Our Economy

Suppose the U.S. government punished certain types of tax cheating with the financial equivalent of a wrist slap (and no reimbursement requirement), and then announced that some more types of tax cheating would be punished with that same wrist slap. Chances are, unless you had moral qualms about any kind of tax cheating, you’d keep on cheating because even if you were caught every year, your gains would be well worth a marginal fine.

Now let’s suppose that Washington announced that all tax cheating would result in a truly massive and mandatory fine. Chances are you’d become a model taxpayer, or close to it, if your chances of being caught were relatively small.

If this makes sense to you, then you understand one of the main problems that’s plagued the United States since the advent of the North American Free Trade Agreement (NAFTA), and chances are you recognize why what we know of President Trump’s new NAFTA revamp agreement with Mexico leaves that problem almost fully intact.

Although it seems like a big deal that the revised terms require that 75 percent of an automobile be made within the NAFTA free trade zone to qualify for duty-free treatment rather than the current 62.5 percent, as I’ve repeatedly explained, the decision to keep the tariff punishment for noncompliance at 2.5 percent still renders these “rules of origin” toothless. For any automaker whose home base is either inside of outside North America and that’s worth his or her salt should be able to find 2.5 percent cost-savings to offset the levy, or remain plenty profitable even without such offsets. And the high levels of non-North American content that continue to characterize so many vehicles sold inside North America make clear these companies have succeeded in one or both respects.

In other words, because non-compliance is so relatively painless, the existing rules of origin were not stringent or smart enough to achieve their stated aim of luring much automotive production and employment from outside North America to inside North America, and the new rules are no likelier to work any better.

P.S. – the national governments of these non-North American auto producers have always been able easily to help their companies cope with the NAFTA content requirements through a variety of policies – e.g., providing them with new or bigger tax breaks or subsidies, or devaluing their currencies. And because the external NAFTA tariff remains so low, these tactics, too, remain as capable as ever of frustrating the intent of the origin rules.

Even more frustrating for those who hoped for a game-changing NAFTA rewrite, the exact same flaw sandbags the Trump administration’s win with Mexico concerning its separate proposal that duty-free treatment inside North America apply only to vehicles containing 40-45 percent content from factories paying hourly wages greater than $16.

A new piece on Bloomberg.com helpfully confirms the general point about the pointlessness of such a low external tariff, but even more helpfully (if less wittingly) underscores what an immense opportunity has been missed by the administration’s failure to boost these levies.

The article uses U.S. Transportation Department data to show that only three vehicle models currently assembled in Mexico of the 39 sold to Americans would be tariff-ed under the new origin rules regime – and that only one of these is a significant seller in the American market. For Canadian-assembled vehicles, the number that would be affected by the new origin rules is higher – but it’s still only six of the 19 total.

But these Transportation Department data also make clear how likely a much higher tariff would be to shift automotive output and employment to North America. The key is how many of those Mexico-and Canada-assembled vehicles exported to the United States would fall below the 75 percent threshold. and therefore would cost lots more to sell to Americans (say, the 25 percent suggested by Mr. Trump for proposed national security-based automotive tariffs). For Mexico, the number would be 25, or some 64 percent of the number of models its assemblers send to the United States. For Canada, it’s twelve of the 19, or 63 percent.

These numbers as such don’t tell us how many actual vehicles exported from both countries would face these much higher tariffs. But according to the authors, although that figure is a significantly lower than the model percentage number would indicate, it would still represent nearly a third of U.S. vehicle imports from Mexico. Therefore, the costs of noncompliance with the origin rules would be far from chump change for the non-North American producers. (This one-third number also counts cars that would be affected by a separate requirement that 40 to 45 percent of the content of an vehicle come from factories paying at least $16 per hour in order to avoid tariffs.) Exact statistics for Canadian exports aren’t provided, but the authors describe it as “likely” to be similar.

None of the above contradicts the observation that NAFTA external tariffs greater than 2.5 percent would violate America’s World Trade Organization (WTO) commitments. But since when has the Trump administration had use for that regime – or for the previous U.S. trade policies that spearheaded its creation? In addition, why has President Trump not recognized that much higher NAFTA external tariffs – applied, along with universal rules of origin – would solve most of the biggest and chronic U.S. trade problems he’s complained about with foreign rivals like China, Germany and the European Union, Japan, and South Korea.

The answers to date remain unclear at best. What’s perfectly clear, though, is that although President Trump is often portrayed as a disrupter, his new NAFTA deal with Mexico is anything but.

(What’s Left of) Our Economy: China Trade Derangement Syndrome Strikes Again

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Bloomberg.com, China, Mainstream Media, Michael Schuman, tariffs, Trade, Trade Derangement Syndrome, Trump, {What's Left of) Our Economy

I’m sure that there have been more stunning examples than provided by Michael Schuman yesterday on Bloomberg.com of a writer unwittingly devastating the very argument he’s seeking to make. But even in the fields of trade and globalization policy analysis, which have demonstrated an unusual power to turn otherwise working brains into neural oatmeal, I’m equally sure they’d be hard to find.

Schuman, a well regarded Beijing-based journalist and student of China and its relations with the United States, sought to show that both Americans and Chinese could come to regret deeply any policy or policies that produce a result he views as alarmingly likely – an unwinding of the thick web of economic ties created in recent decades between them.

Strangely, the author does a good job of explaining why the bilateral relationship has benefited China, correctly observing that “Open access to the U.S. market has been a cornerstone of China’s growth since the 1980s.”

Indeed, he goes on to point out that: “No ambitious Chinese company could claim to be truly global without a U.S. presence”;

>that “Restricted access to the U.S. would force Chinese and foreign companies to reorder their supply chains in a host of sectors, from electronics to clothing to toys, dealing a serious blow to Chinese manufacturing”;

>and that losing share of the U.S. market “would also dent China’s hopes of becoming a global hub for cutting-edge products. Without competitive access to the American market, at least some of the capacity that could’ve been built in China would have to be located elsewhere.”

But it’s precisely because the costs to China would be so great that his claim of comparable losses for the United States is so weird. Specifically, if China can’t rely on selling much to Americans, is it really reasonable to expect its share of global middle class spending to surge, as Schuman expects, and to become a titanic new market that could be denied to U.S. business?

If American trade restrictions prevent Chinese entities (I resist calling them “companies” or “businesses” because they have nothing in common with commercial organizations originating in national economies dominated by market forces) from becoming genuinely global players, including in high tech sectors; if they cause worldwide supply chains to start leaving or skipping China; and if China’s growth therefore is seriously slowed, where are all those new Chinese middle class consumers supposed to come from?

Similarly, if such trade curbs can crimp Chinese entities’ ambitions to invest in the United States and elsewhere abroad, then it’s implausible to think that the American economy could lose out to other economic competitors on much in the way of new capital inflows from China. (And that’s of course assuming that Americans should even want China’s state-controlled economy to create a major footprint in their own.)

This latest version of Trade Derangement Syndrome doesn’t stop with these internally contradictory claims. For example, Schuman also speculates that, if U.S.-China economic ties wither, the PRC’s continued rise to major power status might not remain so peaceful, and that “outright conflict could become more likely.” Evidently, he’s unaware that it burgeoning integration with the American economy has not only made China more prosperous, but strong enough militarily to start challenging the U.S. position in the East Asia-Pacific region.

But the author’s inability even to recognize these clashing positions, much less attempt to reconcile them, deserves special attention because they show how little genuine scrutiny trade and globalization cheerleading receives either from the policy community that generates it, or the mainstream media that showcases so much of it.

Democracy, one of America’s leading newspapers has taken to warning, “dies in darkness.” But given the importance of a truly free marketplace of ideas, and the central role that the mainstream media is supposed to play in fostering such exchange, it’s also clear that democracy can die from intolerance and groupthink, and from the intellectual arrogance and laziness it encourages.

Following Up: Vital Background on “Idea Laundering” — and Washington Corruption

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Bloomberg.com, conflicts of interest, corruption, hedge funds, idea laundering, Im-Politic, James K. Glassman, journalism, lobbying, Mainstream Media, Nick Confessore, special interests, The Washington Monthly, think tanks

Since I’m a great believer in giving credit where it’s due, I feel honor-bound to report that I just learned that a development I thought I first identified (along with a catchy name) wasn’t spotted first by me after all. At the same time, it’s also a pleasure to make this confession, because it creates a golden opportunity to recommend two excellent pieces of journalism that shine much needed additional light on this development – which has tremendously deepened corruption in American policymaking.

The development? “Idea laundering” – which I’ve defined as the now widespread practice of special interests (like corporations) using think tanks to issue materials that push the particular agendas of these funders while garbing them in quasi-academic raiment to create the impressions of objectivity and intellectual respectability. In other words, it’s become practically standard operating procedure in the policy world for outfits with scholarly-sounding names like “The Brookings Institution” to put out reports and articles that flack for the companies and other donors (now including foreign governments) that pay the rent without disclosing the hand that’s feeding them. Just as bad, journalists almost never reveal these conflicts of interest – or even ask about them.

I thought that I was the first to spotlight and name this deception, in 2006 testimony before Congress on Chinese influence-peddling operations in America. But yesterday, while reading a terrific piece on Bloomberg.com on how hedge funds have been using an especially insidious variant of the practice, I learned that it was first described in a 2003 Washington Monthly article by Nick Confessore, who is now a reporter for The New York Times. Interestingly, the individual at the center of both articles is James K. Glassman, a long-time fixture in the Washington, D.C. chattering class scene who Confessore credited with pioneering this deceitful new version of lobbying.

I do believe that I’ve been writing and warning about idea laundering more than anyone else. But I’m glad to acknowledge publicly that I was beaten to the punch when it comes to parenthood. It’s also great to see that more and more journalists are looking underneath the hood of the writings and Congressional and media appearances that so profoundly shape America’s approach to virtually all foreign and domestic issues.

Unfortunately, as made clear by this recent post, we’re a long way from the point at which reporters name the donors routinely, and when editors demand this vital information just as often. Until they do, the idea launderers and their paymasters will keep winning far too many victories at the expense of Main Street Americans.

Our So-Called Foreign Policy: Still on Globalist Auto-Pilot

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Bloomberg.com, China, foreign policy establishment, globalism, internationalism, Iran, Islamic terrorism, Israel, Middle East, Noah Feldman, North Korea, nuclear weapons, Our So-Called Foreign Policy, Rex Tillerson, Russia, Trump, Trump administration, Ukraine

Clearly, the holiday week between Christmas and New Year’s has brought Americans no respite from transparently witless foreign policy-related Trump-bashing by the Mainstream Media. Hot on the heels of The New York Times‘ classic of fake history spotlighted yesterday in RealityChek came this Bloomberg.com piece accusing Secretary of State Rex Tillerson (and by extension the entire Trump administration) with two of the worst diplomatic sins imaginable – not recognizing instances where the United States lacks the leverage to achieve its goals, and lacking a strategy to solve this problem.

But Noah Feldman’s December 28 column at least boasted one (unintended) virtue: If the president and his top aides read it intelligently, they’ll realize that in many cases, they’re making an even more fundamental, but eminently correctable, mistake. Just like Feldman – and the internationalist/globalist (choose your adjective) foreign policy establishment he’s part of – they keep failing to ask first-order and even second-order questions about America’s role in the world. And strangely, these are exactly the kinds of questions that President Trump often asked when he was candidate Trump.

Feldman, an international law professor at Harvard, correctly observes that the Trump administration has taken on the tasks of ending the North Korean nuclear weapons program, pressuring China to help out in a significant way, persuading Russia to back off in some unspecified way from its campaign to control neighboring Ukraine, weakening Iran’s ability to boost its influence throughout the Middle East, and pushing Pakistan to stop supporting Islamic radicals in the region.

The author also mentions that “Neither [Tillerson] nor Trump is responsible for limits to U.S. leverage” – though maybe he could have made this crucial point before the next-to-last sentence in his article?.

But like the Trump administration, Feldman never bothers to ask exactly why the United States needs to seek these objectives (the first-order question) or whether, if they are essential or desirable, the standard forms of international engagement chosen by the Trump administration (and all of its predecessors as long as they were faced with these issues) are the best responses.

Ukraine policy is the most glaring example of neglecting first-order questions. Whatever you think of Russian revanchism or Putin, it’s inexcusable to overlook that American leaders have never considered Ukraine’s independence to be anything close to a vital or even important interest for two very good reasons. First, it was actually part of the old Soviet Union from 1924 until the end of the Cold War, with absolutely no impact on U.S. security, independence, or welfare. Second, it is located so close to Russia, and so far from the United States, that there is absolutely no prospect that American or NATO military actions could defend or liberate it without resorting to the (possibly suicidal) use of nuclear weapons.

So however tragic that country’s fate has been, the only sane conclusion possible from the standpoint of U.S. interests is that the best Ukraine policy is no Ukraine policy at all. And given this structural American inability to do Ukraine much good, steps like the recent Trump administration decision to supply defensive weapons to the Ukrainians sound like suspiciously like an American decision to fight to the last Ukrainian.

The other three foreign policy challenges obviously can’t be ignored. But the common assumption – especially in the ranks of the country’s bipartisan foreign policy establishment – that the answer involves some mixture of more military pressure or smarter diplomacy (more foreign aid is usually included as well, though it hasn’t figured very prominently in the North Korea, Iran, or Pakistan debates) urgently needs reexamination.

For as I’ve often written, in many cases, Americans could well find it much less dangerous, much cheaper, and much more effective to capitalize on the country’s matchless combination of military strength and geographic isolation to neutralize these particular threats.

To summarize briefly, if Washington pulls U.S. troops out of South Korea, it would eliminate any rational need for North Korea to strike U.S. territory with nuclear weapons (which is all too likely to result from a new Korean war that engulfs those units), and with its own massive nuclear forces, the United States could credibly threaten to obliterate the North if it sent its missiles against America for any other reason. North Korea’s nuclear weapons would still be a problem for its immediate neighbors. But all those countries (including South Korea) are more than powerful and wealthy enough to deal successfully with the North on their own and even singly.

Re Middle Eastern threats, the United States should focus much more on securing its own borders to keep terrorists and much less on defeating them on foreign battlefields – let alone on “fighting their ideology” by encouraging economic development and democracy. The region’s massive dysfunction on every conceivable level (including the cultural) will keep practically guaranteeing that new jihadist or other extremist forces will replace any that are crushed militarily, and that reform efforts will go exactly nowhere.

Further, by now it should be clear to any fair-minded person that the United States has more than enough energy to marginalize the power of Middle East oil producers over its economy and the world economy. And if you don’t like fossil fuels, let’s work harder to boost the use of alternatives. Finally, as with North Korea, America’s own deterrent is the best counter to any Iranian nuclear threat to the U.S. territory.  (And for those concerned with Israel’s security, the Jewish state of course has its own nuclear capabilities.)

The point here is not that any of these more domestic focused substitute strategies will be easy to put into effect or accelerate. The point is that they will be far easier to put into effect or accelerate than their more traditional counterparts, principally because America’s government, society, business community etc will have much more control over these measures than over events abroad.

During this first year of the Trump administration, no one should be the slightest bit surprised that establishmentarians like Feldman (and The New York Times‘ Landler) can’t even conceive that America’s foreign policy is stuck in a box, much less that it’s increasingly and dangerously obsolete. But President Trump ran in large measure as a foreign policy disrupter, and on many critical issues displayed impressive iconoclastic instincts. Why he hasn’t acted on more of them is one of the biggest mysteries of his presidencies so far. It could also be one of his biggest regrets.