(What’s Left of) Our Economy: New U.S. Jobs Data Show a Continued Trade Punch for Manufacturing – & Industry Resilience

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aircraft, aluminum, automotive, Boeing, Bureau of Labor Statistics, China, General Motors, General Motors strike, GM, manufacturing, manufacturing jobs, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

For observers of U.S. domestic manufacturing, this morning’s new jobs report (for November) could not have made clearer how the recent strike at General Motors (GM) have bollixed up the recent monthly totals for reasons having nothing to do with the underlying state of the economy or with President Trump’s trade wars. Nonetheless, even with the strike’s effects filtered out, industry’s job creation this year continues to lag behind last year’s strong pace, and damage from Mr. Trump’s metals tariffs in particular is still apparent – if anything but calamitous.

Moreover, in a continuing mystery, although Boeing’s safety woes are kneecapping domestic manufacturing’s trade performance, their impact on manufacturing employment is still nowhere to be seen.

Because of the GM strike’s impact, the overall manufacturing job figures for November (along with the revised October numbers) are pretty worthless. What does matter are the results with motor vehicles and parts stripped out (although even taking this step fails to account for the strike’s effects on all the industries making up the domestic automotive supply chain).

Ex-automotive, the previously reported October U.S. manufacturing monthly jobs change would have come to a 5,600 net monthly gain, rather than a 36,000 net loss. The revised October manufacturing jobs change reported today was somewhat better – without the GM strike, a net sequential employment loss pegged at a higher 43,000 would have been a net gain of 6,800. (And another revised October figure will come out next month, along with a new November number.)

For its first read on November’s performance, the Bureau of Labor Statistics reports that domestic industry’s payrolls rose by 54,000 on net. Removing from that total the 41,300 jump in automotive employment stemming from the return to work of GM workers and of employees at parts companies who may have been laid off, and you get a 12,700 monthly increase in manufacturing jobs.

Encouragingly, that’s the best such performance since January’s 17,000 payroll advance. But the year-on-year improvements remain humdrum even taking out the automotive distortions.

For example, without the automotive distortions, October’s stand-still manufacturing jobs total would only have been 56,000 higher than that of October, 2018. Between the previous Octobers, manufacturing employment surged by 275,000. The comparable November numbers? A 32,000 improvement between 2018 and 2019, as opposed to 228.000 between 2017 and 2018.

The November jobs report’s news for so-called trade hawks wasn’t good, either. As usual the impact of the Trump administration’s steel and aluminum tariffs are relatively easy to gauge, and it remains the case that the metals-using sectors’ employment performance has lost notable momentum versus the rest of manufacturing and the rest of the private sector overall.

Below are the latest figures for employment changes at major metals-using industries starting with the April, 2018 – the first full month in which these levies were in effect, and run through October. For comparison’s sake, the results for manufacturing overall are also included, along with those of the durable goods super-sector in which most of the big metals-users are grouped:

                                                       Old thru Oct       New thru          Thru Nov

entire private sector:                    +2.58 percent   +2.62 percent    +2.82 percent

overall manufacturing:                +1.40 percent   +1.40 percent    +1.83 percent

durable goods:                            +1.48 percent    +1.43 percent    +1.99 percent

fabricated metals products:        +1.57 percent    +1.49 percent    +1.51 percent

non-electrical machinery:          +1.74 percent    +1.65 percent    +1.26 percent

automotive vehicles & parts:      -4.89 percent    -4.60 percent      -0.45 percent

household appliances*:               not available    -6.31 percent      not available

aerospace products & parts*:     not available   +8.98 percent       not available

*data are one month behind

The end of the GM effect is clear from the big differences between the October and November overall manufacturing and durable goods jobs changes. But by the same token, November was a lousy employment month for the big machinery and fabricated metals sectors. Look at that aerospace products and parts increase, though – job creation in this Boeing-heavy sector continues to excel.

Now it’s possible that much of the damage being done to the company, and manufacturing more generally, is being done in its own vast domestic supply chain. But the employment numbers for narrower sectors like aircraft and their parts show nothing of the kind, and the effects on companies in other supplier sectors (e.g., machinery, metals, and fabricated metals products) simply can’t be teased out.

But even worse for the metals-using industries generally, whereas most were job creation leaders last year, they’ve turned into job creation laggards this year. This deterioration is made clear from comparing the previous table with the following table, which shows their employment performance from the metals tariffs advent through the end of last year and the beginning of this year:

                                                          Thru December               Thru January

entire private sector:                         +1.36 percent                +1.60 percent

overall manufacturing:                     +1.39 percent                +1.49 percent

durable goods:                                  +1.72 percent                +1.97 percent

fabricated metals products:              +1.57 percent                +1.78 percent

non-electrical machinery:                +2.33 percent               +2.57 percent

automotive vehicles & parts:          +1.07 percent               +1.15 percent

household appliances:                     -2.05 percent                -2.52 percent

aerospace products & parts:           +5.47 percent               +5.87 percent

Of course, President Trump’s tariffs on several hundred billion dollars worth of imports heading America’s way from China are affecting domestic manufacturing as well. But because of these products ubiquity throughout domestic industry, the greatly varying levels of their U.S. market share, and the duties’ on-again-off-again nature (prominently on display in recent days), I continue to despair of quantifying the impact usefully.

And speaking of Mr. Trump, there’s no doubt that, contrary to his confidence, trade wars are not “easy to win” – and can be highly disruptive even for countries like the United States with ample leverage to prevail. That’s inevitable when you’re trying to reverse several decades of policy. All the same, U.S. domestic manufacturing’s employment performance, even in leading victim industries, has held up pretty well since the President began responding to foreign predation in earnest. Whether the manufacturing interests he’s counting on to win reelection will agree is another question entirely.

(What’s Left of) Our Economy: New Data Show Continued U.S.-China Decoupling & Broad Trade Performance Improvement

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aircraft, Boeing, China, decoupling, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, merchandise trade, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

With all the China trade war headlines in the news lately, the release this morning of the latest (for October) monthly U.S. trade data couldn’t be timelier. Indeed, one of the biggest takeaways from the results is that, as has been the case since the conflict began, the decoupling of the American and Chinese economies continues apace.

A second big takeaway: Boeing aircraft’s safety woes remain a major drag on domestic U.S. manufacturing’s trade performance and hence overall production (currently in mild recession) – and one having nothing to do with President Trump’s tariffs or foreign retaliation. 

And a third important conclusion:  Aside from the China trade account, the new report shows considerable improvement in some of the most important trade deficits run by the economy for decades.

One measure if decoupling is the humongous merchandise trade deficit the United States has run with China for so long. As of October, it’s down 14.60 percent year-to-date – even though the U.S. economy keeps growing. And in that vein, America’s overall non-oil goods trade deficit (the best global proxy for U.S.-China trade) rose by 4.04 percent during the same period.

The same trends are visible on the individual export and import sides, too. From January through October of this year, U.S. goods exports to China accounted for 7.13 percent of America’s worldwide total. For the comparable period last year, that figure was 8.22 percent. The analogous merchandise import figures were 19.78 percent and 23.28 percent.

Other highlights of the new monthly trade report:

>The combined goods and services trade deficit fell 7.63 percent sequentially in October, from a downwardly adjusted $51.10 billion to $47.20 billion. The October total is the lowest since May, 2018’s $44.35 billion. And the monthly drop was the biggest since January’s 12.61 percent.

>The downgrade of the September overall trade deficit was an unusually large 2.57 percent.

>The combined goods and services trade deficit is now running just 1.35 percent ahead of last year’s level. That’s a much slower rate of increase than the 13.89 percent rise between the two previous January-through-October periods.

>The overall trade deficit’s slower year-to-date increase was mainly the result of a dramatic decrease in the U.S. petroleum trade deficit – from $46.97 billion in the first ten months of 2018 to $13.93 billion between January and October of this year. That 70.34 percent nosedive contrasts with the aforementioned 4.04 percent increase in America’s non-oil goods trade deficit.

>At the same time, this “Made in Washington trade deficit” (so called because oil and services trade have little to do with the terms of U.S. trade agreements and other trade policy decisions) has been rising at a considerably slower pace this year (the aforementioned 4.04 percent rate) compared with last – when the January-through-October increase was 12.74 percent.

>Total U.S. exports dipped by 0.21 percent in October, from $207.55 billion to 207.12 billion – their lowest level since April’s $206.87 billion.

>Total U.S. exports are down 0.04 percent year-to-date – compared with a 7.45 percent rise between the preceding January-through-October period.

>”Made in Washington” exports are down 1.35 percent year-to-date, with October’s monthly $119.96 billion total the lowest since October, 2017’s $118.19 billion. Between the first ten months of 2017 and the first ten months of 2018, they grew by 5.98 percent.

>”Made in Washington” imports are up 0.55 percent year-to-date, with October’s monthly $187.54 billion total the lowest since November, 2017’s $186.99 billion. Between the first ten months of 2017 and the first ten months of 2018, they climbed by a much faster 8.26 percent.

>The also chronic and huge U.S. manufacturing trade deficit rose by 5.45 percent between September and October – from $87.91 billion to $92.70 billion. The increase followed two straight sequential declines.

>Manufactures exports in October improved by 5.03 percent, from $91.84 billion to $96.45 billion. But the much larger amount of manufactures imports increased by a faster 5.23 percent, from $179.75 billion to $189.15 billion.

>Year-to-date, the manufacturing trade deficit is up 2.76 percent, from $847.21 billion to $870.62 billion. That’s a much slower rate of increase than the 11.26 percent rise between January-through-October, 2017 and the same 2018 period.

>Interestingly, the safety woes of longtime manufacturing export superstar didn’t weigh heavily on the industry’s latest trade figures. Exports of civilian aircraft actually edged up sequentially in October – from $3.29 billion to $3.33 billion. Imports rose more, from $1.35 to $1.60 billion, but the result contributed only $210 million to the $4.79 billion monthly rise in the total manufacturing trade deficit.

>Longer term, though, it’s a much different story. For the first ten months of this year, civilian aircraft exports have decreased from $46.03 billion to $37.21 billion. Import, however, are up from $10.06 billion to 12.16 billion.

>As a result, the civilian aircraft trade surplus is down on a year-to-date basis from $35.97 billion to $27.15 billion. And this $8.82 billion drop-off represents 37.68 percent of the $23.41 billion worsening of the overall manufacturing trade balance so far from 2018 to 2019. Moreover, it’s a far cry from the days when the civilian aircraft sector was strengthening the U.S. manufacturing trade balance.

It’s true that when examining the improvement of trade performance on an absolute or relative basis, the economy’s growth rate has to be taken into account. In this vein, though, the rates of improvement are all significantly faster than the slowdown being experienced by the wider economy. That development doesn’t lend itself to pithy headlines (or catchy campaign slogans). But by any reasonable standard, it’s solid progress.

(What’s Left of) Our Economy: Trade War(s) Update

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Argentina, Bloomberg.com, Brazil, business investment, China, CNBC, consumption, currency manipulation, debt, Democrats, digital services tax, election 2020, EU, European Union, export controls, Financial Crisis, France, Huawei, internet, investors, manufacturing, production, steel, steel tariffs, tariffs, Trade, Trade Deficits, trade enforcement, trade war, Trump, Wall Street, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

The most important takeaway from this post about the current status of U.S. trade policy, especially toward China, is that it may have already been overtaken by events since I began putting these thoughts together yesterday.

What follows is a lightly edited version of talking points I put together for staffers at CNBC in preparation for their interview with me yesterday. I thought this exercise would be useful because these appearances are always so brief (even though this one, unusually, featured me solo), and because sometimes they take unexpected detours from the main subject. .

Before presenting them, however, let’s keep in mind this new Bloomberg piece, which came on the heels of remarks yesterday by President Trump signaling that a trade deal with China may need to await next year’s U.S. Presidential election, and plunged the world’s investors into deep gloom. This morning, however, the news agency reported that considerable progress has been made despite “harsh” rhetoric lately from both countries. It seems pretty thinly sourced to me, and the supposed course of the trade talks seems to change almost daily, but stock indices are up considerably all the same.

Moreover, even leaving that proviso aside, what I wrote to the CNBC folks yesterday seems likely to hold up pretty well. And here it is:

1. The President’s latest comments on the China trade deal – which he says might take till after the presidential election to complete – seriously undermines the claim that he considers a deal crucial to his reelection chances because it’s likely to appease Wall Street and thereby prop up the economy. Of course, given Mr. Trump’s mercurial nature, and negotiating style, this latest statement could also simply amount to him playing “bad cop” for the moment.

2. His relative pessimism about a quick “Phase One” deal also seems to reinforce a suggestion implicitly made yesterday by Commerce Secretary Wilbur Ross when he listed verification and enforcement concerns as among the obstacles to signing the so-called Phase One deal. I have always argued that such concerns are likely to prevent the conclusion of any kind of trade deal acceptable to US interests. That’s both because of China’s poor record of keeping its commitments, and because the Chinese government is too secretive and too big to monitor effectively even the most promising Chinese pledges to change policies on intellectual property theft, illegal subsidies, discriminatory government procurement, and other so-called structural issues.

3. Recent reports of the United States considering tightening (or expanding) restrictions on tech exports to Chinese entities like Huawei also support my longstanding point that the US and Chinese economies will continue to decouple whatever the fate of the current or other trade talks.

4. In my opinion, the President is absolutely right to play hard-to-get on China trade, because Chinese dictator Xi Jinping is under so much pressure due to his own weakening economy, and because of the still-explosive Hong Kong situation.

5. I’ll be especially interested to learn of the Democratic presidential candidates’ reactions to Mr. Trump’s latest China statement, as well as the announcement of the reimposed steel tariffs on Argentina and Brazil, and the threatened tariffs on French “digital services” [internet] taxes. With the exception of Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders, the candidates’ China policies seem to boil down to “Yes, we need to get tough with China, but tariffs are the worst possible response.” None of them has adequately described an alternative approach. The reactions of Democratic Congress leaders Nancy Pelosi in the House and Charles Schumer will be worth noting, too. The latter has been strongly supportive of the Trump approach in general.

6. The new steel tariffs, as widely noted, are especially interesting because they were justified for currency devaluation reasons, with no mention made of the alleged national security threats originally cited as the rationale. Nonetheless, I don’t believe that they represent a significant change in the Trump approach to metals trade, because the administration has always emphasized the need for the duties to be global in scope – to prevent China from transshipping its overcapacity to the US through third countries, and to prevent third countries to relieve the pressures felt by their steel sectors from Chinese product by ramping up their own exports to the US. Obviously, all else equal, countries with weakening currencies (for whatever reason) will realize big advantages in steel trade, as the prices of their output will fall way below those of competitors’ steel industries.

7. Regarding the tariffs threatened in retaliation for France’s digital services tax, they’re consistent with Trump’s longstanding contention that the US-European Union (EU) trade relationship has been lopsidedly in favor of the Europeans for too long, and that tariff pressure is needed to restore some sustainable balance. In this vein, I don’t take seriously the French claim that the tax isn’t targeting U.S. companies specifically. After all, those firms are the dominant players in the field. Second, senior EU officials have started talking openly about strengthening Europe’s “technological sovereignty” – making sure that the continent eliminates its dependence on non-European entities in the sector (including China’s as well as America’s). The digital tax would certainly further the aim of building up European champions – and if need be, at the expense of US-owned companies.

By the way, this position of mine in no way reflects a view that more taxation and more regulation of these companies isn’t warranted. But it’s my belief that these issues should be handled by the American political system.

Also of note: Trump’s suggestion this morning that the French tax isn’t a big deal, and that negotiations look like a promising way to resolve the disagreement.

Finally, here are two more points I wound up making. First, I expressed agreement that the President’s tariff-centric trade policies have created significant uncertainties in the economy’s trade-heavy manufacturing sector in particular – stalling some of the planned business investment that’s essential for healthy growth. But I also noted that much of this uncertainty surely stems from the on-again-off-again nature of the tariffs’ actual and threatened imposition.

As a result, I argued, uncertainty could be significantly reduced if Mr. Trump made much clearer that, whatever the trade talks’ fate, the days of Washington trying to maximize unfettered bilateral trade and investment are over, and a new era marked by much more caution and many more restrictions (including tighter export controls and investment restrictions, as well as tariffs), is at hand.

Second, at the very end, I contended that President Trump deserves great credit for focusing public attention on the country’s massive trade deficits in general. For notwithstanding the standard economists’ view that they don’t matter, reducing them is essential if Americans want their economy’s growth to become healthy, and more sustainable. For as the last financial crisis should have taught the nation, when consumption exceeds production by too great a margin, debts and consequent economic bubbles get inflated – and tend to burst disastrously.

Making News: A New China (and Basketball!) Op-Ed, and Back on CNBC Today!

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China, CNBC, European Union, Hong Kong, human rights, Making News, National Basketball Association, NBA, The American Conservative, Trade, Trump

I’m pleased to announce that a new op-ed article of mine was posted last night.  Appearing on the website of The American Conservative, it explains why the National Basketball Association and its often politically outspoken players and coaches can easily afford to lead a global campaign to press China to clean up at least some of its human right act in Hong Kong and elsewhere.  Click here to read.

Also, I’m scheduled to return to CNBC this afternoon to discuss all the fast-breaking developments in U.S. trade policy across the board – including with China and the European Union.  The segment is slated to begin at 2 PM EST and, as usual, if you can’t tune in (or if you’re dying to see it again), I’ll be posting a link to the streaming video as soon as one’s available.

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

 

 

(What’s Left of) Our Economy: Mainstream Media Never Trump-ism on Trade Gets Weirder and Weirder

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China, consumers, inflation, Mainstream Media, retail, Reuters, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

It’s like they can’t help themselves. Even when Mainstream Media organizations and reporters conduct detailed research showing that President Trump’s tariffs-heavy China trade policies aren’t hurting U.S. consumers in the slightest, they feel compelled to issue dire warnings about the possibility. If you doubt me, check out this Reuters piece from the day before Thanksgiving on how the levies are affecting America’s major retailers.

Reuters, to its credit, actually took the trouble to look at prices to gauge the impact of the Trump levies by examining actual prices – as opposed to economists and to analysts from think tanks and other groups bought and paid for by the corporate offshoring lobby, who toss out apocalyptic numbers based on bogus-at-best methodologies.

The findings, “based on a pricing study conducted for Reuters by retail analytics firm Profitero, which examined online prices from seven large retailers for 21,000 products”?

From the October and November, 2018 to the same months this year, for goods “in key holiday categories including appliances, electronics, toys and video games,” leading big box and other retailers overall have held prices “lower than the average rate of inflation during the same period….”

More specifically, at “Walmart, Walmart-owned Jet.com, Amazon, Target Corp, Best Buy, GameStop, and Staples,” electronics prices rose somewhat more than prices in the U.S. economy across the board, but prices for the other products rose at much lower rates, and toys and video games actually became less expensive in absolute terms.

Nor did Reuters try to hide these results, as the headline reads “Top U.S. retailers absorb tariff pressure ahead of holiday shopping season,” and the same point was made in the lead paragraph.

Nonetheless, the report felt compelled to warn that “America’s trade war with China threatens to push up product prices, which could hurt consumer spending this holiday season, a period which makes up nearly 40% of annual revenue for many retailers.”

Sure that’s true in a technical sense. But this sentence is also about as responsible and accurate as one stating that “disciplining a child threatens to alienate him or her” when there’s no sign of that outcome developing, and when in fact all the evidence shows the discipline working. And as for hurting consumer sales, that currently seems far-fetched as well, based on what’s known about the current holiday shopping season. How do I know this? I read it in another Reuters article.

Moreover, it’s legitimate to ask why Reuters didn’t draw the opposite conclusion from its research: The Trump administration and tariff supporters so far have been right in insisting that consumers could be shielded from tariff-induced inflation, and in fact would be, because retailers know full well that they lack the leverage needed to force prices up, and would need to offset them themselves – by eating the extra costs, offsetting them by becoming more efficient, or some combination of the two.

Yes, this would have entailed writing something positive about the President and his trade policies.  But noxious as that might seem to the Mainstream Media, it would have gad the added virtue of being true. 

(What’s Left of) Our Economy: Globalization and Butter Cookies

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China, consumers, country of origin labels, food, free trade, globalization, Indonesia, Netherlands, Trade, {What's Left of) Our Economy

So there I was sitting on the living room couch watching some TV after the big Thanksgiving meal with my some of my wife’s family, and of course I was eating again – this time some “premium butter cookies” from a big, brightly colored tin container. Why should that be remotely blog-worthy?

Here’s why. If you’re a cookie aficionado like me, when you read terms like “butter cookies” and “big, brightly colored tin container” chances are you think the product comes from Denmark. And in fact, you’d be even more likely to come to that conclusion upon seeing that the brand is “Danisa” and that the cookies come from an “original recipe of Danish Specialty Foods APS.” The cover is topped by a European-type monarch’s crown, too.

Imagine my wife’s surprise, then, when she found out (after she came home with them from the supermarket thinking that they’d be a terrific gift for the relatives of Danish descent we saw today) that they’re a “Product of Indonesia.” And despite my decades of work studying the globalization of production (including food manufacturing) and other economic activity, the cookies’ origins threw me for a loop, too – for two reasons. First, I wasn’t aware that Indonesia was such a center of cookie production excellence. And second, Indonesia (as opposed to other very low-cost countries) might have made some sense had this enormous Asian archipelago country ever been controlled by Denmark. But it wasn’t. Its former colonial masters were the Dutch – who are known for some pretty terrific cookies themselves (but unfortunately were notably cruel imperialists).

Upon further investigation, however, I discovered that Indonesia has formidable cookie-making capabilities. Indeed, although Danish Specialty Foods APS is indeed a Copenhagen-based business whose website says it “specializes in Danish butter cookies and owns the right to the brand, Danisa, worldwide,” it also operates an Indonesian facility owned by PT Mayora Indah Tbk.

That Indonesian food conglomerate says its founder “started baking its first biscuits out of a home kitchen in 1948” and has since “grown to become a recognized global company in the Fast Moving Consumer Goods Industry.” And it’s big into the “biscuit, candy, wafer, chocolate, coffee, instant food, beverage and cereal” spaces.

More surprising still: Indonesia has quite the reputation, at least in Asia, for butter cookies in particular. And I’ve got to tell you – these cookies taste just as good as any I’ve had (most of which I assume have come from Denmark, but now I can’t really be sure).

So maybe the doctrine of comparative advantage – the principal economic theory supposedly explaining the superiority of the freest possible global trade over all other trade alternatives – is at work here after all? I suppose. At the same time, the same discipline of mainstream economics that lauds free trade also holds that economies at all levels work best when consumers have the most information available about the products and services they’re examining.

To be clear, American law requires no country-of-origin labels for processed food products like cookies.  So the two above companies deserve some credit for offering any “Product of Indonesia” identification at all.  At the same time, this label is found on the bottom of the butter cookie tin in type tinier than I’ve ever seen aside from some jewelry inscriptions.

Would my wife have bought the cookies had the brand been “Mayora” rather than “Danisa”? Had the tin cover pictured, say, a Sumatran rhino? Had “Product of Indonesia” been displayed prominently on the lid? Probably not, since she was looking for a gift from Denmark. Might she have picked some up if she just had a hankering for butter cookies, or thought I might? Maybe.

I’m still left

>wondering whether and if so why Denmark itself has lost its butter cookie-making chops – or at least its ability to make the products competitively;

>and thinking that if a company is willing to make a product associated with a country in a country that’s not associated with that country, it shouldn’t make that product’s real origin as inconspicuous as the law allows.

And let’s not forget a final twist to the story: Danish Specialty Foods announced on its website that it was planning to open a factory in China. Of course, it turns out there’s a long butter cookie-making tradition there, too.

(What’s Left of) Our Economy: The New York Fed’s Unseemly Rush to Judgment on Trump’s China Tariffs

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Breitbart.com, China, consumers, deadweight loss, importers, John Carney, multinational companies, New York Fed, supply chain, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

When a senior researcher from the New York branch of the Federal Reserve System and two academic colleagues came out in May with a blog post on the Bank’s website reporting on who really pays the cost of President Trump’s tariffs on huge amounts of U.S. imports from China, they were hardly short of confidence in their answer. And Mr. Trump’s critics eagerly jumped on the emphatic contention that the main victims of the China trade war would be American households, who would get hit with a triple whammy.

Higher consumer prices could result from (1) the levies themselves simply being on to American customers by importers, (2) businesses switching from selling Chinese products to selling more expensive but non-tariff-ed foreign counterparts, and (3) businesses substituting more expensive domestic counterparts for the tariff-ed Chinese goods.

John Carney of Breitbart.com has both done a terrific job of explaining the gaping holes and other flaws in that first New York Fed post (in this piece about the longer work on which it was based), and of reporting that yesterday, the Bank published a follow-on post (by a different team of authors but also bearing the imprimateur of the New York Fed’s Research and Statistics Group) implicitly admitting many of the initial effort’s weaknesses.

Rather than me reproducing or summarizing John’s work (which you can read at the above links), I’d like to try adding some value – by using it and the New York Fed’s own material to show what an unseemly rush to judgment the initial study represented in a clear effort to slime the Trump tariff policies.

Here’s the unequivocal conclusion of that first New York Fed post:

“Studies, including our own, have found that the tariffs that the United States imposed in 2018 have had complete passthrough into domestic prices of imports, which means that Chinese exporters did not reduce their prices. Hence, U.S. domestic prices at the border have risen one for-one with the tariffs levied in that year. Our study also found that a 10 percent tariff reduced import demand by 43 percent. ”

On top of these come the losses of businesses switching to non-Chinese suppliers. This supply chain reorganization produces what economists call “deadweight losses” and these New York Fed authors insisted that they arise “regardless of whether consumers switch to more expensive foreign sources or to a more expensive domestic source.”

The total damage to American households, according to the study? An impressive $831 for each American household each year. So much for President Trump’s claim that his trade war is only hurting China, right?

Well, as a used-car company ad has famously said, “Not exactly.” And the evidence comes from the second New York Fed post – which makes clear just how many uncertainties the first team needed to ignore in order to generate its headline-grabbing claim. Among them:

>”Who pays the tariff tax depends on how it is split between lower profit margins (for wholesalers, retailers, and manufacturers) and higher prices for consumers. Estimating this split is difficult since the distribution of any tax increase on profit margins and prices depends on the details of market structure, such as the number and size of competing firms.”

>”Policy efforts since World War II have been focused on lowering trade barriers. As a result, economists don’t have much data from which to glean insights into how firms respond to tariff hikes.”

>”Affiliates of multinational corporations may be leaving reported import prices unchanged for accounting reasons. In doing so, the multinational would be letting higher tariffs reduce the reported profits of its U.S. operation (rather than those of its Chinese operation).”

These cautionary notes are all entirely valid, but they add up to confessing that economists – including at the New York Fed – don’t have much basis for drawing any firm conclusions about the China tariffs’ impact on American consumers at all. As a result, they raise questions about why the first team never mentioned them, and why no one else at the Bank seems to have brought them up before posting, either.

Just as important, the second New York Fed post mentions several major ways in which China’s economy is taking major body blows from the trade war:

>Chinese entities with narrow profit margins may not be able to lower them further in order to prevent the prices they charge from increasing due to U.S. tariffs, and therefore “may be dropping out of the U.S. market.”

>Many Chinese entities have taken advantage of the post-tariff devaluation of China’s currency and have been able to accept this “loss in competitiveness” in the U.S. market by padding profits on their sales – which should strike everyone as awfully gimmicky.  (The latter point is my own conclusion.)

>China has indeed lost market share in the United States, including in sectors that the Chinese government has sought at great expense to promote – like machinery and electronics.

Because the New York Fed is, well, the New York Fed, and its studies are supposed to represent the gold standard of economic research, Googling that first study with “‘New York Fed’ China tariffs consumers May” produces some 79,000 results. It’s true that some of these mention the second study, too – and even note the costs to China. But I can’t help but share Carney’s concern that the first report’s troubling shortcomings won’t attract remotely as much attention.

Those Stubborn Facts: Trade Deal or Not, U.S.-China Decoupling Continues

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CFIUS, China, Committee on Foreign Investment in the United States, decoupling, FDI, foreign direct investment, national security, technology, Those Stubborn Facts

“The data [do] not identify the origin of the buyers who abandoned their investments. But attorneys who handle CFIUS [the U.S. inter-agency Committee on Foreign Investment in the United States] cases said many are probably Chinese companies caught in a Trump administration campaign to stymie their efforts to acquire sensitive U.S. technology.”

Share of proposed foreign buys of U.S. assets abandoned due to U.S. government “national security concerns,” recent years:

2014-16: 4-5 percent annually

2017: 14 percent

2018: 11 percent

(Source: “More foreign firms halted U.S. deals amid Trump administration scrutiny: report,” by Alexandra Alper, Reuters, November 22, 2019, https://www.reuters.com/article/us-usa-investment-trump/more-foreign-firms-halted-u-s-deals-amid-trump-administration-scrutiny-report-idUSKBN1XW1VJ)

Our So-Called Foreign Policy: Signing the Hong Kong Democracy Bill Should be a No-Brainer for Trump

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China, Congress, democracy, Hong Kong, Hong Kong protests, human rights, Our So-Called Foreign Policy, sanctions, trade deal, trade talks, Xi JInPing

Full disclosure: I don’t believe that promoting human rights and democracy abroad should be a high priority for U.S. foreign policymakers. (My most detailed explanation comes in this late-1994 article in FOREIGN POLICY magazine, which is available on-line here and here.) All the same, there’s no doubt in my mind that President Trump would be making a big political and substantive mistake if he, as he’s (very obliquely, to be sure) hinted that he might veto the Hong Kong Human Rights and Democracy Act of 2019 just passed overwhelmingly by both the House and Senate.

Don’t get me wrong: I’m under no illusion that the legislation will do anything in the foreseeable future to promote human rights and democracy in Hong Kong – and you shouldn’t be, either. In fact, there’s every reason to believe that it’s a classic example of political virtue-signaling. For example, even the sponsors of the bill don’t seem to believe that any plausible official American words or deeds can affect the fate either of Hong Kong generally or of the huge numbers of protesters who have been challenging China’s determination to keep eating away at the special freedoms enjoyed by its residents since its hand over by the United Kingdom to Beijing in 1997.

If they did, you’d think that they’d have included in the bill some economic sanctions against the Chinese economy. But not only are such provisions entirely missing. The only measures resembling economic sanctions or potential sanctions are directed against the economy of Hong Kong – in the form of requirements that the various ways in which U.S. policies and other laws that treat Hong Kong differently from China (based on the assumption that this “Special Autonomous Region,” as Beijing calls it) really still is autonomous – remain justified by the facts on the ground in Hong Kong.

The bill does contain some sanctions instructions directed at China – but not at any sectors of its economy. Instead, they’re to be applied against “foreign persons” determined to be “knowingly responsible” for any “gross violations of internationally recognized human rights in Hong Kong.”

To which the only serious response is “So what?” The Hong Kong officials who give the specific orders to the police to fire tear gas or crack some heads or shoot rubber bullets into crowds are nothing more than tools of the dictators in Beijing. Concentrating punishment on them amounts – knowingly – to punishing the little fish and letting the prize catches get away. And P.S. – they’re as easily replaceable and interchangeable as any ordinary functionary.

Unless you can think of many U.S. politicians in either party who would back imposing sanctions on Chinese kingpin Xi Jinping or any of his senior cronies? Fat chance – assuming you could even locate any of their assets vulnerable to America’s reach. After all, how many American elected officials genuinely doubt that China’s top leaders are ultimately responsible for the harsh repression of the Hong Kong protests – or for the extradition law that triggered this uprising?

Nonetheless, the politics alone argue compellingly for presidential signing of the Hong Kong measure. It attracted nearly unanimous support on Capitol Hill, so a veto override is likely. And although the President won’t win much praise for enacting the bill into law, he’ll generate a hail of brickbats for any opposition.

And for what? As I argued in the article cited at the beginning, human rights interests generally should take a back seat in U.S. foreign policy for any number of reasons, but chiefly because other interests are usually more important for America’s security or prosperity (since foreign governments’ human rights practices as are almost completely incapable of undermining these objectives). Moreover, American actions can sometimes backfire, and it’s far from far-fetched to worry that a Trump approval of the Hong Kong bill and more frequent and stronger expressions of official outrage will only further convince China’s dictators (and much of the nationalistic Chinese public) that the unrest in Hong Kong stems from foreign meddling, not legitimate concerns.

Yet U.S.-China relations these days are so bad that it’s difficult to imagine a Trump signature on the Hong Kong legislation significantly worsening them. It’s possible that Beijing could retaliate with still higher tariffs or other curbs on American exports, especially farm products, but China remains much more vulnerable to U.S. economic pressure than vice versa. Nor is the President likely to suffer much politically from such measures during the upcoming election year, since nearly all of his political opponents have spoken out much more emphatically against China’s record in Hong Kong than he has. As for “outside agitator” claims – the Chinese are already making them, including against the United States.

Which leaves us with the one stated presidential reason for considering a veto of the Hong Kong bill – that an obstacle could be created to reaching a trade deal. The problem here is that a trade deal that serves U.S. interests (as opposed to a cosmetic deal that, e.g., results in increased American exports to China in exchange for American tariff reductions with no commitments from Beijing to end its most important predatory trade practices) simply isn’t possible. As I’ve written repeatedly, even a complete Chinese cave-in on paper to every demand the administration has ever made can’t possibly be verified adequately – because the Chinese government is so big and so secretive.

In fact, if there’s any relationship between trade policy and Hong Kong policy, it surely works the other way: More human rights pressure from Mr. Trump would be added to the economic pressure that’s already making Xi’s life hard enough. And whatever throws the Chinese off balance by definition helps the United States. For it would force Beijing to spend more time putting out fires and playing defense generally across the board, and leaves less time for pursuing offensive economic and geopolitical goals that undermine American interests.

As I’ve always seen it, claims that these interests (properly defined, of course) and ideals are always ultimately compatible are among the most fatuous made by practitioners, scholars, and historians of American foreign policy. But especially for a country with America’s range of geopolitical and economic choice (by dint of its high degree of built-in security and economic self-sufficiency, and potential for even more), there’s also no question that the United States can afford to promote its admirable values on a regular basis.

Hong Kongers’ struggle for more freedom and democracy represents one such case, meaning that a Trump-ian failure to sign the Hong Kong bill would call into question not only his support for these ideals, but his pragmatic instincts as well.

Making News: Podcast On-Line of Radio Interview on the China Trade Deal (Or No Deal?)

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China, Making News, Market Wrap with Moe Ansari, Phase One, trade talks

I’m pleased to announce that the podcast is now available of a short-notice interview I did yesterday Moe Ansari’s syndicated Market Wrap radio program on the U.S.-China trade conflict.  To access this timely update on the on-again-off-again reports of a “Phase One” trade deal, click on this link.  Scroll down till you see “Listen to Market Wrap Online”  the left-hand column, and you’ll see a recording of the show.  My segment comes in a little after the halfway mark.

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