(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.

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(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.

Im-Politic: An Old Year Rung Out with Fake News

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ABC News, Barack Obama, Bloomberg.com, CNN.com, Gallup, Hillary Clinton, Im-Politic, Mainstream Media, Marketwatch.com, NBC News, Newsday, Politico.com, The New York Times, Trump, USAToday, Washington Post

Whatever you think of Donald Trump, his presidential campaign, and his first year in office, you can be sure of this: His charges that too much of the Mainstream Media publishes and broadcasts too much fake news will continue – and continue to resonate – as long as their performance in covering a new Gallup survey of the most admired men and women in America keeps typifying their output.

Gallup has asked Americans who they look up to most since the 1940s (for male figures) and since the 1950s (for female figures). As I see it, the 2017 poll’s results were a fascinating mix. They showed that former President Barack Obama and last year’s Democratic presidential nominee Hillary Clinton continued their long strings at the top of their heaps. President Trump came in second on the men’s list – as he has since 2015.

In my view, Gallup played it right in its report on the survey, noting the winners in its lead paragraph and then immediately observing that the Obama and Clinton margins were “much narrower…than in the past.” The firm didn’t highlight that both Democrats’ edge fell at a faster rate than President Trump, but at least its tables made that trend clear.

Few major news organizations followed suit.

USAToday‘s headline, for example, blared, “Barack Obama beats Donald Trump for most admired man, Hillary Clinton tops list again in Gallup poll.” Reporter Ashley May never mentioned their diminishing leads.

CNN.com did better. Its header announced “Gallup: Obama, Hillary Clinton remain most admired” and noted the Obama dip in the second paragraph. But the Clinton fall-off wasn’t reported until the fifth (of ten) paragraphs.

The ABC News headline – “President Trump is America’s second-most admired man, poll finds” – at least accurately reflected the disparaging tone of the full article. “Digital reporter” Karma Allen led off by observing that “President Donald Trump snagged a major legislative victory with the signing of his landmark tax reform bill last week, but he’s still living in his predecessor’s shadow when it comes to public admiration, according to a new poll.”

He continued with the factoid that the results marked “one of the very few times in recent history that an incumbent president hasn’t taken the top spot.” (It’s actually 13 out of 71 times.) And he simply ignored the declining Obama and Clinton numbers.

Bloomberg,com chose as its headline a reasonable “Obama Tops Trump as Most Admired, Gallup Poll of Americans Finds,” but although specifying that the margin was “close,” never mentioned the weakening Obama or Clinton ratings, either. The same held for the article run in Politico.com. The New York Times headline was a similarly accurate “Clinton and Obama Top U.S. Poll on Most Admired People” but the article neglected to include the trend over time as well.

The two worst performances? The Washington Post‘s headline was a gratuitously snarky “Obama beats Trump where it will sting: He’s the most admired man in America.” A graphic made clear the closing Trump-Obama gap, but this development never made it into the article itself. However reporter Philip Bump did consider it important to write that the overall results “coming at this moment, will probably be somewhat galling to Trump.”

Whoever wrote the headlines for the coverage by Long Island’s Newsday seemed like he or she was auditioning for a job at the higher profile Post. “Gallup ‘most admired’ poll is an ‘Obamanation’ for Trump,” was the first description of the survey the paper’s readers saw. The second description, in a subhead? “He just can’t win the popular vote.” The article itself, by William Goldschlag, simply continued in this vein.

But I’d be just as remiss as much of the Mainstream Media by failing to mention journalists who recognized the deteriorating relative Obama and Clinton ratings. So Rachel Koning Beals of Marketwatch.com and Phil Helsel of NBC News, please take richly deserved bows. Let’s all hope your news judgment spreads to many more of your colleagues in the New Year!

(What’s Left of) Our Economy: How BMW Just Snookered Bloomberg – and the American Public – on Trade

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assembly, Bloomberg.com, BMW, Department of Transportation, domestic content, Harald Krueger, imports, manufacturing, media, National Highway Transportation Administration, NHTSA, Trade, {What's Left of) Our Economy

Poor Harald Krueger! The CEO of German auto giant BMW has been such an important contributor to American manufacturing and therefore to the whole U.S. economy! And that awful President Trump is determined to respond by imposing tariffs that could wreck the global free trade regime (as it’s called) responsible for the company’s valuable U.S. presence.

At least that’s the message yesterday’s Bloomberg article on the subject tried to send. Here’s what it really demonstrated: First, Krueger misled Bloomberg’s reporter.  Second, the author was too lazy or ignorant to do even the most basic research that could have solved this apparent mystery.

Not that his piece was devoid of interesting information – though most of it seems to come straight from BMW press releases. Yes, the company’s Spartanburg, South Carolina factory is its largest on the planet. And I’m happy to take BMW at its word that 70 percent of its U.S.-made vehicles are exported – although some way to confirm this figure independently would be awfully nice. Equally welcome would be a way to verify that the company is America’s largest net exporter.

But these very facts should raise the obvious question: If BMW is such a thoroughly American manufacturer, why is its CEO so worried about higher prices for imports? Luckily, in this case, it couldn’t be easier to find statistics to provide the answer – even though the Bloomberg reporter either didn’t know this or didn’t care.

All he needed to do was to visit the website of the National Highway Transportation Safety Administration (NHTSA — an agency of the U.S. Department of Transportation) and look through the information presented in its annual American Automobile Labeling Act reports. The title refers to a law requiring all companies that sell passenger vehicles in the United States to tell consumers the percentage of their products that are manufactured domestically.

The system isn’t perfect. Notably, it considers parts and components and other inputs supplied from Canada as “domestic.” But it’s a lot better than nothing. Nor is this mandate brand new. It’s been on the books since late 1992.

And the conclusions it points to couldn’t be clearer: BMW doesn’t so much manufacture vehicles in the United States as screw them together – which adds relatively little to the American economy. And the vast majority of the parts etc that get screwed together in South Carolina come from abroad – mainly Germany. That is, they’re imported.

Further, the company has made precious little progress localizing its supply chains in recent years – that is, adding more U.S. content. And the highest value, most technologically advanced parts of its vehicles, the engines and transmissions, are still 100 percent produced overseas – again, mainly in Germany.

So tariffs would make all these imported parts more expensive, and force BMW either to raise its own vehicle prices and risk lower sales, swallow the price increases and accept lower profits, or move more of its supply chain stateside from its home country. Here are the specifics:

In 2011 – the first year in which NHTSA used its current reporting system – BMW sold 26 models in the United States. Three of them had U.S. and Canadian content levels in the double-digits. (They were between 20 and 30 percent.) And all three were the models that were assembled in South Carolina.

This year’s numbers show 24 BMW models sold in America. The number assembled here rose – to four. And each of them had some more “domestic” content – between 30 and 35 percent.

Just as revealing – in 2011, none of the engines and transmissions in these BMW vehicles was American-made. And as of 2017, this number remained completely unchanged.

But although it’s encouraging that corporate dissemblers like BMW’s Krueger (and gullible, incompetent journalists) can be exposed with the auto content data, it’s discouraging that no such corporate analyses based on legally mandated figures are possible outside the automotive sector. So here’s hoping (once again) that the Trump administration and Congress move promptly to impose similar (or better) content and other reporting requirements throughout American manufacturing. Otherwise, the nation and its leaders will continue flying blind when it comes to trade and globalization – and much of the economy’s future.