17 Wednesday Apr 2019
Posted in Making News
I’m pleased to announce that tonight I’m scheduled to return to John Batchelor’s nationally syndicated radio show to help provide an update on the fast-moving U.S.-China trade talks – which could be entering their final stages. Click here to listen live on-line to what’s sure to be a timely segment featuring John, me, and co-host Gordon G. Chang. Air time: 10:15 PM EST.
And keep checking in with RealityChek for news of upcoming media appearances and other developments.
17 Wednesday Apr 2019
Posted in (What's Left of) Our Economy
Tags
China, economic growth, GDP, goods trade deficit, gross domestic product, Made in Washington trade deficit, manufacturing, merchandise trade deficit, non-oil goods trade deficit, Trade, trade deficit, Trump, {What's Left of) Our Economy
The most reasonable conclusion to draw from today’s new U.S. trade figures (which cover February) is that, although evidence keeps growing that President Trump’s trade policies are returning to a success track, even only a fairly clearcut verdict won’t be possible until the March numbers come in.
The reason? By then, we’ll get at least the preliminary official read on the gross domestic product (GDP) for the first quarter of this year, and that will enable some significant light to be shed on a crucial (but almost completely ignored) measure of the Trump trade record – whether on his watch so far, the economy has been able to break or at least change the relationship between the growth of various measures of the trade deficit on the one hand, and overall economic growth on the other.
The answer matters because most economists have long insisted that an expanding economy and an improving trade balance almost never coexist. That claim is belied by the data, but the belief persists.
Further, good growth accompanied by better trade numbers would be of much more than academic interest. For the weaker the relationship between the worsening of the trade deficit and the growth of the economy, the more American growth would be stemming from domestic production, rather than domestic spending and borrowing, and vice versa.
As of the middle of last year, the economy had shown signs of notable progress along these lines. But in the last few months, as serious Trump tariffs on metals and especially on goods from China came on stream, the data started being distorted by front-running – i.e., importers rushing to procure affected goods before the levies kicked in and their prices rose.
Last month’s trade statistics contained important signs that these effects were ebbing, and the trend continued this month. (A second distortion, however, is influencing these results – the China business slowdown that takes place each year with the arrival of the spring holiday.) All the same, January’s initially reported 14.61 percent monthly drop in the total trade gap (the biggest such decrease since March) was followed by a 3.43 percent decline in February (and from a January level that was revised down slightly). And at $49.38 billion, the overall trade shortfall was the smallest for a single month since last July’s $51.44 billion.
Meanwhile, the total two-month fall-off in the total trade gap (17.56 percent) was the biggest such decrease since March-May, 2015 (20.50 percent). And this is where we come to the main unknown: How do these instances of trade deficit shrinkage compare with the economy’s overall performance? Although Washington doesn’t track GDP on a monthly basis, it’s worth noting that from the second quarter of 2015 to the third quarter (the period roughly corresponding with that earlier trade deficit narrowing, growth on a pre-inflation annualized basis was 1.40 percent.
What about such growth during the first part of this year? That’s the figure we’ll need to wait for until later this month. At the same time, even then, an even more important question will remain unanswered for a while longer: Can the combination of an improved trade performance and continued growth last? In 2015, it was short-lived. Indeed, the current dollar U.S. economic growth rate in full-year, 2016 (2.44 percent) was less than half of the full-year, 2015 pace (5.07 percent). Unfortunately, the durability of this trend won’t be known for many more months at a minimum.
Nonetheless, there’s an even more rigorous test that the Trump trade policies need to pass – whether they can manage to maintain healthy overall economic growth while encourage a reduction in that portion of the U.S. trade deficit that’s strongly influenced by trade policy decisions in the first place. As known by RealityChek regulars, that Made in Washington trade deficit strips out oil (because it’s almost never the subject of trade policymaking) and services (because trade liberalization of that activity remains in its infancy). On this front, signs of Trump trade progress haven’t shown up yet.
From January-February, 2017 (a period during which the Trump presidency began) to January-February, 2018, this Made in Washington deficit rose at the considerable pace of 18.47 percent. On the imperfect first-quarter-to-first-quarter basis, pre-inflation GDP was up 4.58 percent. That ratio was actually worse than during former President Barack Obama’s last year in office. Then, GDP expanded by 4.09 percent but the Made in Washington deficit actually dipped – by 0.50 percent.
As with the overall trade deficit, the Obama years sometimes witnessed strong economic growth during which the Made in Washington trade deficit worsened only moderately. For example, between the first quarters of 2011 and 2012, current dollar GDP improved by 4.80 percent and the Made in Washington trade deficit only widened by 9.80 percent. But growth slowed sharply thereafter. The January-February, 2009 to January-February, 2010 period was another time of Made in Washington trade shortfall shrinkage – by 3.13 percent. But GDP climbed by only a weak 2.27 percent.
Between January-February 2018 and January-February 2019, the Made in Washington deficit was up by a modest 2.48 percent. Can respectable growth be maintained? Tune in.
In the meantime, legitimate encouragement from the February trade figures can be drawn from the nature of the improvement. Sequential combined goods and services import growth was just 0.23 percent, while exports rose 1.13 percent – nearly five times faster.
On month, the Made in Washington deficit shrunk by 1.96 percent. That improvement combined with its 10.01 percent sequential drop in January made for the biggest such two-month decrease (11.86 percent) since that March-May period of 2015 (13.36 percent).
Good news came on the China trade front as well. February saw the biggest month-to-month reduction in the chronic, immense U.S. goods deficit with the People’s Republic (28.17 percent) since February, 2017 (36.04 percent). In addition, the resulting two-month decline in this trade gap (32.77 percent) was the biggest such figure since January-March, 2013 (36.16 percent) and the second biggest going all the way back to October-December, 2001 (39.87 percent).
An 18.21 percent surge in American merchandise exports helped (especially since it followed a 22.31 percent monthly plunge). But the 20.21 percent monthly falloff in the much greater amount of goods imports was the biggest contributor – and represented the biggest such decrease since February, 2017 as well, not to mention the second biggest since recessionary February, 2009 (23.84 percent).
February’s manufacturing trade performance was excellent as well – relatively speaking, of course, since the deficit remains enormous in absolute terms (topping $1 trillion last year).
But industry’s trade gap plummeted by 20.02 percent on month in February, as exports rose 1.85 percent and imports sank by 9.14 percent. And the gap shows signs of stabilizing on a year-on-year basis as well, as it’s up a mere 0.37 percent during the first two months of this year compared with the first two months of 2018.
16 Tuesday Apr 2019
Posted in (What's Left of) Our Economy
Tags
aluminum, China, Federal Reserve, industrial production, inflation-adjusted growth, metals, metals-using industries, real growth, steel, tariffs, Trade, Trump, {What's Left of) Our Economy
Here’s all you need to know to recognize that domestic U.S. manufacturing is experiencing some kind of slowdown: Today’s real output numbers from the Federal Reserve showed that production flat-lined on month in March. And that was a significant improvement from the comparable February figure – a 0.37 percent drop!
So do these dreary results mean that tariff fear-mongers are finally right to claim that President Trump’s levies on imports of steel and aluminum, and on a wide range of goods from China are backfiring on American industry? Not according to the internals.
As has been the case for months, the most convincing evidence comes from the metals-using industries. After all, the tariffs affecting their products have been in place longer. (April was the first full month in which they were in effect.) The most relevant industries are easy to identify. And because (with despite numerous exemptions) the tariffs have been virtually worldwide in scope, there’s no need to wonder whether how extensively the steel and aluminum in question are being supplied by an individual country or even group of countries.
The table below presents the inflation-adjusted output changes in major metals-using industries from April through each of the Fed’s last three data months. This format differs from that used in my previous industrial production-related posts because late last month the Fed released a set of revisions going back to 2015. So rather the old and new figures for the previous data month aren’t comparable anymore, and I simply decided to use the new figures going back three months.
April thru Jan. April thru Feb. April thru March
overall manufacturing: +1.20 percent +0.83 percent +0.82 percent
durables manufacturing: +2.05 percent +2.05 percent +1.96 percent
fabricated metals prods: +3.53 percent +3.08 percent +2.85 percent
machinery: +4.33 percent +2.24 percent +2.71 percent
automotive: – 2.84 percent -0.58 percent -3.06 percent
major appliances: -1.83 percent -1.30 percent -5.62 percent
aircraft and parts: +5.45 percent +6.15 percent +7.43 percent
An overall manufacturing slowdown is apparent from the February and March columns in the top line. And the second line shows that it’s impacted durable goods to a slightly greater extent – a possible signal of a tariff effect since that’s the super-category in which the main metals-using sectors are located.
But tariff-mageddon claims, as has been the case so far, falter upon looking at the details. First, they’re not very consistent with the volatility much of this data display. (E.g., automotive and appliances.) Second, over the past month, the big machinery sector (which provides equipment serving many different markets) has gained momentum. And aircraft and parts-making just keeps growing faster and faster. (Of course, its performance will likely become a drag on manufacturing output going forward because of Boeing’s 737 Max problems and the damage that will harm not only aircraft production, and possibly the industry’s entire supply chain.)
If tariffs are becoming a challenge for these industries, it’s clear that their impact is being swamped by other influences on their performance – especially the distinctive characteristics and status of their individual markets.
Unfortunately, all of the reasons for considering these metals tariffs-related conclusions compelling cut the opposite way when it comes to evaluating the China levies’ impact. The first full month when the earliest were in place was only August. And identifying industries most plausibly affected is difficult both because the tariff list and the industrial production data use different manufacturing classification schemes, and because of the challenge of figuring out where tariff-ed Chinese products play crucial roles in American industry (in the form of parts, components, materials, and other intermediate goods).
As a result, the bottom line remains that only a handful of manufacturing industries look like strong candidates for producing any kind of a China tariff effect, and most of these suffer from one of the above complications. Sharp-eyed RealityChek regulars will notice that I’ve added oil and gas drilling platform parts to the list:
Aug. thru Jan. Aug. thru Feb. Aug. thru March
overall manufacturing: +0.29 percent -0.08 percent -0.09 percent
ball bearings: +0.27 percent +0.19 percent +0.11 percent
industrial heating equip: -3.61 percent -3.39 percent -5.27 percent
farm machinery & equip: +2.22 percent -17.14 percent -11.65 percent
oil/gas drilling platfm pts: +4.74 percent +4.59 percent +4.36 percent
The overall manufacturing slowdown is apparent from these statistics, too. But so is a bewildering range of results, along with a small sample size. Whatever problems American industry might now be facing, the case that tariffs bear much, if any, blame has yet to be supported by these or any other data.
11 Thursday Apr 2019
Posted in Uncategorized
Tags
aluminum, Bureau of Labor Statistics, China, consumer price inflation, inflation, metals tariffs, steel, tariffs, Trade, {What's Left of) Our Economy
With inflation in the United States still running below the Federal Reserve’s target lately, it’s been difficult enough for tariff fear-mongers to claim that President Trump’s levies on metals and on many Chinese-made goods are setting prices throughout the economy – or even in directly affected sectors – on fire. Yesterday, with a new month’s worth of consumer price data from the Bureau of Labor Statistics, it’s become practically hopeless.
In fact, the big takeaway is that these March data closely resemble February’s. The only significant evidence of steel and aluminum tariffs-led inflation is found in canned fruits and vegetables – where it’s far from airtight – and in large household appliances, which include large laundry machines which have faced their own additional set of tariffs since early 2018. When it comes to products impacted notably by the China tariffs, the price changes are once more all over the board – which strongly indicates that the tariffs themselves haven’t been in the inflation driver’s seat.
As usual, the first table in these monthly consumer inflation analyses presents the price changes for metals-using products. They deserve pride of place for now because they’ve been in effect for more than a year, and because it’s easy to identify metals-using products.
Before zeroing in on the canned stuff, it’s worth mentioning that I found one more data point yesterday morning – inflation numbers for laundry equipment specifically. Some of these products could be the machines used by commercial cleaning operations as opposed to households, but they do sharpen the picture some. In addition, keep in mind that, since so many of the products affected by the metals and China tariffs are food products, the “core inflation” control group figures I’m using measure price changes minus energy – as opposed to the most widely use core data, which strip out both food and energy.
But back to the steel- and aluminum-related figures: Here they are for the February-March, 2019 period (the latest monthly numbers), and for last April to the present (the stretch during which the metals tariffs have been in place), as well as the year-on-year numbers for last April and this March (which provide some indication of trends over time). As usual, the results for tariffs-affected products (e.g., canned foods) are presented along with those of control goods (e.g., non-canned foods) to glean further insights into the tariffs’ effects.
Feb.-March Since April y/y April y/y March
core inflation: +0.17 percent +1.93 percent +2.01 percent +2.05 percent
fresh fruits +1.56 percent +3.55 percent -0.43 percent +4.25 percent
& vegs:
fresh fruits: +1.21 percent +0.65 percent +1.38 percent +1.37 percent
fresh vegetables: +1.97 percent +6.98 percent -2.50 percent +7.66 percent
processed fruits +1.57 percent +1.68 percent -0.44 percent +2.72 percent
& vegs:
canned fruits +1.74 percent +5.20 percent -0.14 percent +6.01 percent
& vegs:
canned fruits: +3.02 percent +4.99 percent -1.60 percent +8.60 percent
canned vegs: +1.26 percent +4.63 percent +1.00 percent +5.04 percent
soups: -1.33 percent -0.16 percent -0.38 percent +0.54 percent
malt beverages -0.62 percent +1.77 percent +0.84 percent +1.84 percent
at home:
alcoholic +0.20 percent +1.34 percent +2.17 percent +1.46 percent
beverages away:
non-frozen, non- -0.15 percent +3.30 percent -0.52 percent +3.03 percent
-carbonated non-
alcoholic drinks:
carbonated drinks: +0.69 percent +5.44 percent +0.04 percent +5.44 percent
juices & non- +0.02 percent +4.17 percent -0.26 percent +4.01 percent
alcoholic drinks:
new cars/trucks: +0.46 percent +1.13 percent -1.61 percent +0.74 percent
motor vehicle +0.25 percent +2.08 percent -0.74 percent +1.79 percent
parts:
appliances: -0.76 percent +2.80 percent +0.27 percent +4.83 percent
major appliances: -2.02 percent +4.59 percent +1.55 percent +8.80 percent
laundry -1.02 percent +0.65 percent +10.00 percent +2.80 percent
equipment:
non-electric -0.76 percent -0.59 percent -1.45 percent -1.56 percent
cookware & tableware:
tools, hardware, -0.63 percent +0.86 percent +0.19 percent +1.22 percent
outdoor equipment:
The various fruits and vegetables results make a reasonable case that companies in those sectors have been able to pass along some hefty price increases for canned products to consumers. Specifically, except for the April year-on-year changes, all of the figures for canned fruits and canned vegetables show considerably faster price increases than for fresh fruits and vegetables, and even for their processed counterparts (some of which go into frozen or jarred, not canned, products).
It’s true that fresh produce prices as a whole have generally been rising much faster than core prices. But in their canned form, their prices take another big jump up – strongly indicating that something about the canning matters greatly. Moreover, even though the inflation rate in fresh vegetables is leaving in the dust that for fresh fruits, the canning effect is very apparent for fruits as well, especially over time.
It’s also true that the canning effect is much less pronounced for other food groups – like soups and beverages. But here the data is less definitive, largely because these inflation figures also include products sold in forms other than metal cans. And as observed in previous posts, the markets for these products tend to differ significantly as well – which inevitably impacts pricing power.
Yet this March, a generalized “metals-effect” argument once more falls apart upon examining the price trends in non-food products, whether for motor vehicles and their parts; household cookware and tableware; and tools, hardware, and outdoor equipment. Obviously other developments, and perhaps many other developments are playing bigger roles.
The glaring exception is in those double-tariffed laundry machines. Even here, however, that new laundry equipment category I just found reveals major year-on-year price deceleration between last April (ten percent) and this March (2.80 percent). And the March monthly prices were weak across the board in appliances.
The China tariffs continue to present an even more complicated picture for at least three reasons. First, for the following consumer products, last October was the first full month they were in effect. Second, the goods on the U.S. Trade Representative’s list for those levies are categorized using the different classification system than that used by the Bureau of Labor Statistics to gauge prices. As a result, the match-ups are far from exact. And third, the China-specific price effects for different products can be differ dramatically – according to the scale of the Chinese presence in a particular product market.
Nonetheless, here’s the China data for February-March, since last October, and for October and March year-on-year.
Feb.-March Since Oct. Oct. y/y March y/y
core inflation: +0.17 percent +0.99 percent +2.02 percent +2.05 percent
food: +0.28 percent +1.45 percent +1.21 percent +2.12 percent
frozen/freeze- +1.18 percent -0.72 percent -0.46 percent -0.59 percent
dried prepared foods:
fish/seafood: -1.04 percent +0.79 percent +2.82 percent +2.70 percent
processed fish/ -0.51 percent +0.40 percent +1.46 percent +2.76 percent
seafood:
frozen fish/seafood: -0.46 percent +0.78 percent -0.15 percent +3.29 percent
fruits/vegs: +1.57 percent +3.43 percent -0.32 percent +3.91 percent
fresh fruits/ +1.56 percent +3.71 percent -0.38 percent +4.25 percent
vegetables:
fresh fruits: +1.21 percent +2.51 percent -1.40 percent +1.37 percent
fresh vegs: +1.97 percent +5.07 percent +0.81 percent +7.66 percent
processed +1.57 percent +2.37 percent -0.06 percent +2.72 percent
fruits/vegs:
frozen fruits/vegs: +0.76 percent +0.25 percent -2.72 percent -1.26 percent
non-carbonated/ -0.15 percent +1.91 percent +1.23 percent +3.03 percent
non-frozen juices/drinks:
personal care -0.27 percent +0.64 percent +1.52 percent +1.25 percent
products:
household -0.04 percent +0.74 percent +0.69 percent +1.46 percent
furnishings:
recreation goods: -0.74 percent -1.55 percent -3.51 percent -7.28 percent
men’s sportswear: -1.04 percent -2.54 percent +1.47 percent +1.98 percent
women’s +2.90 percent +0.35 percent -5.08 percent -1.55 percent
sportswear:
computers, +0.54 percent -1.17 percent -4.09 percent -3.30 percent
peripherals, etc.:
window/floor +0.44 percent -1.96 percent +0.74 percent -1.83 percent
coverings:
furniture & +0.17 percent +1.38 percent +1.26 percent +3.27 percent
bedding:
appliances: -0.76 percent -0.58 percent +4.82 percent +4.83 percent
major appliances: -2.02 percent -0.34 percent +8.08 percent +8.80 percent
laundry equipmt: -1.02 percent -5.05 percent +10.00 percent +8.76 percent
misc appliances: -0.29 percent -1.33 percent +3.25 percent +2.56 percent
non-electric -0.76 percent -0.49 percent -0.51 percent -1.56 percent
cookware/tableware
tools/hardware -0.63 percent +1.27 percent +0.39 percent +1.22 percent
& outdoor equipment:
household +0.83 percent +1.24 percent +1.79 percent +3.33 percent
cleaning products:
televisions: -4.20 percent -10.91 percent -17.95 percent -19.28 percent
misc video equip: -0.03 percent +4.41 percent -3.87 percent +1.79 percent
pets & pet +0.26 percent +1.76 percent +0.91 percent +2.81 percent
products:
sporting goods: +1.00 percent +3.04 percent +1.71 percent +0.25 percent
photo equipment -0.05 percent -1.29 percent -4.94 percent -5.70 percent
& supplies
sewing machines/ +2.51 percent +12.51 percent -2.08 percent +10.32 percent
fabrics:
motor vehicle +0.25 percent +1.27 percent +1.25 percent +1.79 percent
parts:
tires: +0.15 percent +2.28 percent +0.03 percent +1.08 percent
stationery/ +0.28 percent +4.53 percent -6.48 percent -0.01 percent
gift wrap:
Even in sectors with a prominent Chinese presence, like apparel of consumer electronics, any kind of price-hiking tariff effect is elusive, at very best. In fact, in virtually all the products below, inflation has been decidedly weaker than in the core control group, and deflation is apparent in many.
Comparing the two year-on-year figures does reveal some accelerating inflation (or weakening deflation). This is especially clear in the food-related categories (including the broad food control group) and in some non-food segments (like household furnishings, men’s and women’s sportswear, computers and peripherals, furniture and bedding, stationery, sewing machines and fabrics). But softening prices can be seen in recreational goods, sporting goods, personal care products, window and floor coverings, televisions, miscellaneous appliances, and several others.
Since these tariffs-related price data began coming in, I’ve been saying that although inflationary effects haven’t yet shown up, they could always appear in the coming months. Roughly a year after the metals tariffs have been in place, it’s now time to start suggesting that the no tariff-led inflation situation is becoming the New Norm.
06 Saturday Apr 2019
Posted in Making News, Uncategorized
Tags
China, Gordon G. Chang, IndustryToday.com, Making News, The John Batchelor Show, TheDailyBeast.com, Trade, Trade Deficits, trade talks, trade wars, Trump
I’m pleased to announce that the podcast of my Thursday night interview on John Batchelor’s nationally syndicated radio show is now on-line. Click here for a timely update on the fast-moving U.S.-China trade talks provided by John, me, and co-host Gordon G. Chang.
And to follow up, yesterday, the Daily Beast website posted Gordon’s column on the somewhat surprising result of these talks’ latest round – which ended with no announcement that a deal has been concluded or is close enough to warrant scheduling a U.S.-China signing summit. Here’s the link.
Also, it was great to see IndustryToday.com last week reprint my recent post on the encouraging latest set of monthly U.S. trade figures released by the Census Bureau. Click here to see it.
And keep checking in with RealityChek for news of upcoming media appearances and other developments.
05 Friday Apr 2019
Posted in (What's Left of) Our Economy
Tags
aluminum, China, Jobs, manufacturing, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy
Even though today’s March U.S. jobs figures overall improved dramatically on their February counterparts, the employment story in domestic manufacturing remained remarkably similar: Generally speaking the results were dismal. But the internals still don’t reveal any connection with President Trump’s tariff-heavy trade policies.
Let’s start by reviewing the manufacturing-wide March jobs performance. Industry’s payrolls dropped by 6,000 month-to-month – their first such decrease since July, 2017’s 3,000 dip. At least as bad, the weak 4,000 sequential jobs gain initially reported for February was revised down to 1,000.
As a result, March’s 209,000 year-on-year employment increase in manufacturing was the sector’s worst annual advance since February, 2018’s 206,000 net drop.
But the tariff-test effect can only be seen upon examining the results for the manufacturing sectors most heavily affected. The best evidence comes in metals-using industries. That’s partly because Mr. Trump’s steel and aluminum tariffs marked their first birthday in March and now we have data (though still preliminary) for eleven months of their first year in effect. But it’s also because the jobs data so precisely tracks trends in those sectors.
The first table below presents the results since last April – the first full month during which the tariffs were imposed – for leading metals-using sector. As has been the case consistently during the metals tariffs era, the latest figures show that most of the metals-using industries (three out of five) have out-hired the manufacturing as a whole (non-electrical machinery, fabricated metals products, and aerospace through February) and two (non-electrical machinery and aerospace through March) have created jobs at a faster pace even than the entire private sector.
The big automotive sector, of course, is a noteworthy laggard on both scores, and suffered an especially bad March. Appliances are dealing with not only metals tariffs, but separate levies on household washing machines. But in terms of momentum, fabricated metals products (whose payrolls exceed automotive’s) have held their own, and non-electrical machinery (which also employs more than motor vehicles and parts makers) has actually picked up the pace.
So because the industries most seriously affected by metals tariffs have generated such disparate employment results, blaming the metals tariffs for whatever problems they’ve been displaying seems unjustified. Clearly, their performance is explained by many other, including many other more important, factors.
Old thru Feb New thru Feb Thru March
entire private sector: +1.64 percent +1.64 percent +1.78 percent
overall manufacturing: +1.58 percent +1.53 percent +1.48 percent
durable goods: +2.04 percent +1.94 percent +1.85 percent
fabricated metals products: +1.60 percent +1.60 percent +1.60 percent
non-electrical machinery: +2.82 percent +2.71 percent +2.76 percent
automotive vehicles & parts: +1.11 percent +1.04 percent +0.40 percent
household appliances: not available -3.63 percent not available
aerospace products & parts: not available +6.40 percent not available
The same range of employment results emerges from the manufacturing sectors that seem to be most seriously impacted by the Trump administration’s tariffs on imports from China. But much less confidence should be placed in these figures for three reasons. The first levies imposed have only been in place since last July. The match-ups between the products on that first tariff list and the categories tracked by the Bureau of Labor statistics are much less exact. And statistics for many of these categories are available only through February.
Nonetheless, here’s the best I could come up with. And this month, I’ve added overall private sector data, plus two more items I could identify from that first tariff list, to provide one more point of comparison.
Old July-Feb New July-Feb July-March
entire private sector +1.10 percent +1.10 percent +1.24 percent
overall manufacturing +1.00 percent +0.94 percent +0.90 percent
aircraft engines and engine parts: not available +0.93 percent not available
industrial heating equipment: not available +2.35 percent not available
oil and gas drilling platform parts: not available +5.97 percent not available
farm machinery and equipment: not available +1.83 percent not available
ball bearings: not available +1.54 percent not available
med/surgical/personal aid devices: not available +1.34 percent not available
X-ray & electro-medical equip: not available +2.91 percent not available
If anything, when it comes to employment, the China-affected sectors have outperformed the rest of manufacturing and the overall private sector to an even greater extent than the metals-using sectors. (Interestingly, moreover, all these China-affected sectors are heavy metals users as well – so like appliances, they’re impacted by two sets of tariffs.)
So it’s starting to look like President Trump, and the economy as a whole, are looking at diminishing domestic manufacturing jobs mojo. But so far, his trade policy doesn’t belong on the list of culprits.
03 Wednesday Apr 2019
Posted in (What's Left of) Our Economy, Making News
Tags
border security, China, Gordon G. Chang, i24News, Immigration, Making News, Mexico, The John Batchelor Show, Trade, trade talks, Trump
I’m pleased to announce that I’m scheduled to appear twice tonight on the broadcast media on trade-related issues.
At 8:10 PM EST, I’m slated to be interviewed on Israel’s i24News on President Trump’s recent threat to close the U.S.-Mexico border (or at least parts of it) in response to the immigration-related emergency situation he sees there. This TV network is available on-line only via subscription, but it does offer free trials that would enable you to watch tonight’s segment if you register on time. Click here to sign up.
At 10 PM EST, I’ll be returning to John Batchelor’s nationally syndicated radio show to help provide an update on the (reportedly) fast-moving U.S.-China trade talks. Click here to listen on-line to the segment, which will also feature co-host Gordon G. Chang. As usual, I’ll post a link to the podcast as soon as one’s available.
And keep checking in with RealityChek for news of upcoming media appearances and other developments!
03 Wednesday Apr 2019
Posted in (What's Left of) Our Economy
Tags
China, enforcement, Liu He, Robert Lighthizer, Trade, trade talks, Trump, {What's Left of) Our Economy
Yesterday’s Financial Times contained the latest in a long string of press reports – often coming after similar administration pronouncements – that the United States and China are close to concluding a deal that will resolve much and even most of their current trade conflict.
Even with Chinese Vice Premier Liu He currently in Washington, D.C. for the second round of high level talks within a week, heaven only knows if it’s true, given President Trump’s unpredictability; given the repeated (but again, only reported) postponements of a summit between Mr. Trump and his Chinese counterpart, Xi Jinping; and given how fundamental disagreements about enforcement seem to be among the final remaining obstacles.
Nonetheless, this most recent news provides as convenient an opportunity as any to review why enforcement will be not only difficult, but so difficult that it’s tough to see how a system satisfactory form the U.S. standpoint can be created.
In the first place, problems I’ve identified from the start (see, e.g., most recently, this op-ed) remain firmly in place. Chiefly, the Chinese regime has always prioritized keeping its own people in the dark about its policies and practices. That’s why it not only has never created any means of providing transparency and accountability to the Chinese public. Because they understand that knowledge is power, and because maintaining power is its paramount goal, Chinese leaders emphatically reject such principles. And if Beijing is so determined to keep secrets from its own compatriots, why would it share such knowledge with foreigners?
China’s secretiveness and equally strong rejection of Western-style rule of law also mean that the regime’s most important decisions aren’t written down even for most Chinese to see, much less foreigners. And what is written down is typically too vague to be informative. So good luck trying to document Chinese violations of any agreement.
To its credit, the Trump administration appears aware of these difficulties – which is why what it’s divulged about its enforcement proposals depart from the standard American approach of relying on the World Trade Organization (WTO) to resolve disputes and, more important, insist on some degree of American unilateral authority to punish transgressions with tariffs (rather than giving China any authority to block such moves).
Unfortunately, the Trump enforcement approach still looks incapable of promoting and defending American interests adequately. Take the new wrinkle mentioned in the Financial Times piece: “One possible [enforcement] compromise could involve a gradual lifting of US tariffs [imposed in recent months by President Trump] based on specific triggers and implementation dates….” China’s aforementioned secrecy raises major questions concerning how those triggers (presumably Chinese steps to come into compliance) would be identified. And it’s clear that, so far, Beijing isn’t on board even with this questionable idea.
Congressional testimony by the chief U.S. trade negotiator, Robert Lighthizer, revealed similarly flawed American ideas. According to this summary, Lighthizer told the House Ways and Means Committee in late February that “The US and China have agreed to an enforcement mechanism” that “would consist of monthly meetings at the office director level, quarterly meetings at the vice-ministerial level and semi-annual gatherings at the ministerial level, with these last meetings convened by Lighthizer and…Liu He, the top US trade negotiator testified….
“Lighthizer said the deal-enforcement meetings would allow government representatives from both sides to raise concerns and get them addressed. The meetings would be a chance for Washington to air complaints about any systemic problems, and to pass on any specific grievances issued to the US administration from American companies, he said….If the problems ended up at the ministerial level and could not be resolved there, then the US ‘would expect to act unilaterally’, he said. ‘Proportionally, but unilaterally.’”
But the very complexity of this structure indicates that China is going to enjoy substantial opportunities to haggle for months over any accusations – and possibly long enough for circumstances to change enough to render eventual American tariffs moot.
Ironically, moreover, the Chinese are also likely to take advantage of an American attempt to overcome one of the longest standing hurdles to enforcing deals with Beijing effectively: U.S. companies’ well-founded fear of facing Chinese retaliation if they accuse China of predatory practices publicly. On the one hand, the Trump administration’s stated willingness to bring anonymous corporate complaints would appear to solve the problem by shielding these firms. On the other, what could be easier than for Beijing to respond that it can’t fix a specific problem that an accuser’s anonymity prevents it from identifying precisely?
Finally, Lighthizer’s emphasis on proportional responses both makes any punishments eminently bearable by the Chinese economy, and belies his (accurate) description of many predatory Chinese practices as “systemic.” After all, precisely because they’re systemic, by definition they’re both widespread and approved by the Chinese government. Responding in a limited, indeed tit-for-tat, manner will almost certainly be seen by Beijing as a green light to continue violations of the agreement provisions in question everywhere else possible.
As a result, nothing known about the Trump administration’s enforcement strategy should give anyone confidence that satisfactory enforcement is possible. Which should be no surprise to anyone who’s been monitoring U.S.-China trade and commerce in general dispassionately. Decades of experience should by now have clearly taught the lesson that, at least under the present Chinese regime, mutually beneficial economic ties were never possible. It makes just as little sense to suppose that Beijing will agree to a mutually beneficial enforcement system, either.
02 Tuesday Apr 2019
Posted in (What's Left of) Our Economy
Tags
aluminum, China, metals, overcapacity, steel, tariffs, Trade, transshipment, Trump, World Steel Association, {What's Left of) Our Economy
As known by readers of RealityChek, President Trump’s tariffs on metals have worked out impressively since their imposition in March, 2018. Specifically, domestic output in tariff-ed steel and aluminum has rebounded impressively, and employment has increased, too. Price inflation has been contained. And partly as a result, production and hiring in the metals-using sectors widely predicted to become major victims of these levies generally have outperformed that of the rest of American industry.
But looking at steel production around the world provides additional evidence of the tariffs’ success – and especially of the administration’s widely assailed decision to apply them across-the-board (which numerous product-specific exemptions to be sure) rather than confine them to China. President Trump’s critics argued (correctly) that it was China whose bloated, government-subsidized output was mainly responsible for distorting global steel trade flows and output patterns.
But the Trump administration and domestic steel producers justified the comprehensive approach by claiming that many other steel-making countries were compensating for Chinese pressure on their own steel sectors by ramping up their exports to the wide open U.S. market, or permitting Chinese steel to be sent to the United States after passing through their ports, or some combination of the two (a practice known as transshipment).
The evidence for success on this crucial front comes from the World Steel Association (WSA), an international industry group that claims its members combine to turn out 85 percent of global output. (So there’s no reason to suppose that its findings are unduly influenced by the tariff-supporting domestic U.S. steel sector.)
Each month, the WSA releases steel output data (in volume terms) for 64 countries that it claims account for 99 percent of world production. And as you can see from the table below (calculated from the statistics found here), a stunning change has taken place in global output patterns since the American tariffs’ onset.
Chiefly, the month before the tariffs began, both Chinese steel production and global steel production were both growing considerably faster than America’s on a year-on-year basis. This past February (the last month for which data is available), Chinese output was still outgrowing the world’s as a whole – but so was U.S. steel production.
And as is evident, the American industry has consistently outperformed its collective global counterpart – as well as Chinese steel-makers for the most part – for several months. The clear implication: Because the tariffs have been worldwide in scope, they’ve shut down opportunities for other countries to cope with the China problem at America’s expense.
The figures also demonstrate that Chinese steel output remains feverish despite Beijing’s numerous promises of restraint and capacity cuts. But as long as the other steel-producing countries – many of which are clearly getting squeezed as a result – keep foot-dragging on cooperative efforts to end the Chinese world steel glut, the universal Trump tariffs will keep the United States in the enviable position of being able to say, “Not our problem,” and “mission accomplished.”
Steel output y/y Feb. Jan. Dec. Nov. Oct. Sept Feb. 18
World +4.1% +1.0% +4.2% +5.8% +5.8% +4.4% +3.5%
China +9.2% +4.3% +8.2% +10.8% +9.1% +7.5% +5.9%
US +4.6% +11.0% +12.4% +11.8% +10.5% +9.0% +0.4%
27 Wednesday Mar 2019
Posted in (What's Left of) Our Economy
Tags
Census Bureau, China, exports, imports, manufacturing, real trade deficit, tariffs, Trade, trade deficit, trade war, Trump, {What's Left of) Our Economy
Of course it’s a coincidence – but what a coincidence! The same week that the Special Counsel and the Attorney General have issued highly favorable reports about President Trump’s alleged campaign collusion with Russia and related obstruction of justice charges, the Census Bureau has issued a monthly U.S. trade figures report full of evidence that the President’s tariff-centric policies have resumed making progress toward one of his major promises to voters: bringing America’s chronic, gargantuan, and growth- and jobs-killing trade deficits under control.
Even better, this trade deficit progress has come as the economy continues to grow – once again contradicting the economic conventional wisdom that trade deficits only shrink when the economy weakens and even falls into recession.
Today’s trade figures (for January) revealed monthly improvements in the combined goods and services and China trade flows big enough to establish numerous multi-year bests and even a new all-time record. Moreover, they cleaned up some (but not all) of the short-term statistical noise created by Mr. Trump’s recent levies on imports from China. This conclusion is clear from the large number of trade flows in which much better results in trade balances, and in exports and imports, followed comparably dismal results in December.
Let’s start with the overall figures. In January, the nation’s total trade gap narrowed month-to-month by the greatest extent (14.61 percent) since last March (14.84 percent). This drop-off came right after the biggest such increase in the trade shortfall (18.55 percent) since March, 2015’s 35.63 percent nosedive.
The deficit in goods – which represent the vast majority of U.S. two-way trade, and which has attracted special attention from President Trump – experienced its biggest sequential decrease in January (10.10 percent) since March, 2016’s 11.82 percent decline. And this plunge again followed an unusually big monthly increase in December – 12.30 percent, the largest since March, 2015’s 21.35 percent.
At least as interesting, given the seasonality of much U.S. trade: The combined goods and services trade gap narrowed on a January-January basis for the first time (3.66 percent) since 2014 (5.27 percent). As for the goods deficit, its drop between the last two Januarys was only the first since 2016. But the magnitude was much bigger (2.77 percent versus 0.83 percent).
Also important: The January trade deficit progress came partly from stronger exports, not simply falling imports.
The January on-month export rise (0.95 percent) was the strongest since September’s 1.52 percent. The increase in merchandise exports (1.31 percent) was also the biggest since September (when they advanced by 2.02 percent sequentially).
Yet the same kind of possible mean reversion was visible in these accounts as well. For the new export gains came right after the biggest goods and services export decline (1.88 percent) since January, 2016’s 1.98 percent. And the merchandise exports increase also followed their biggest decrease (2.87 percent) since January, 2016 (4.11 percent).
As for imports, in January, the overall total sank sequentially by its greatest extent (2.56 percent) since November’s 2.76 percent. And the goods imports monthly fall-off (2.97 percent) was the biggest since February’s 2.38 percent.
Here, too, however, the January results amounted to sharp reversals of the December figures. For overall trade, December saw the biggest monthly import rise (2.36 percent) since February’s 2.49 percent. For goods trade alone, the comparable drop was bigger (2.97 percent), but that result in turn directly followed a 3.45 percent sequential decline November.
The impact of Mr. Trump’s trade policies is even more apparent from examining trade flows minus oil and services. Since the former is rarely the subject of trade diplomacy or policymaking, and liberalization in the latter is still in early stages, the remaining trade in non-oil goods represents the U.S. foreign commerce most directly influenced by trade policy decisions.
In January, the non-oil goods deficit (which RealityChek regulars know can be called the Made in Washington trade deficit) recorded its biggest month-to-month decrease (10.01 percent) since March, 2016’s 10.93 percent. And revealingly, the improvement followed the biggest sequential widening of the non-oil goods trade gap (12.03 percent) since March, 2015 (27.52 percent).
Adjusting non-oil goods trade flows for inflation matters greatly, because these so-called real results are used to calculate the most widely followed statistics tracking the growth (or shrinkage) of the entire economy – the after-inflation gross domestic product (GDP). But the adjustment doesn’t change the story significantly.
As with the non-price-adjusted data, the January drop in the real non-oil goods deficit (also 10.01 percent) was the biggest sequential decrease since March, 2016 (10.85 percent). But December’s 12.40 percent monthly increase was the biggest since March, 2015’s 29.55 percent.
America’s bilateral goods trade deficit with China – its largest bilateral merchandise shortfall by far – in January hit its lowest monthly level ($34.47 billion) since June ($33.48 billion). In addition, on a January-January basis, this trade gap recorded its first decline (4.13 percent) since 2016’s 0.64 percent. In addition, the January-January decrease in strongly seasonal U.S.-China goods trade was only the second since 2010.
This China deficit improvement came despite the lowest monthly level of American goods exports to China ($7.13 billion) since September, 2010’s $7.11 billion. In addition, the scale of the January sequential export decrease (22.31 percent) was the biggest since last January’s 27.92 percent.
Nonetheless, blaming the trade war and China’s retaliatory tariffs on U.S. goods probably doesn’t tell the entire story. After all, between the previous two Januarys – well before Mr. Trump’s initial tariffs – U.S. goods sales to the PRC plummeted by 32.70 percent on month.
The China goods import figures do seem strongly trade war-related. American merchandise purchases from China in January ($41.60 billion) were the lowest since April ($38.23 billion). Much more revealing: The January-January shrinkage in goods imports from China (9.14 percent) was the biggest reported since 1985, when this data series began. Moreover, it was only the second such decrease since recessionary 2009 – when the fall-off was only 5.53 percent. (Between January, 2015 and January, 2016, such imports also fell – but by a much smaller 3.74 percent.)
Oddly, since manufacturing dominates U.S.-China trade, the huge global American manufacturing trade deficit actually rose on month in January – from $87.35 billion to $89.13 billion, or 2.04 percent. U.S. manufactures exports were down 5.10 percent sequentially in January, while imports were off by only 1.59 percent.
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