Making News: On National Radio Early This Afternoon – & More!

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Cato Institute, Center for Immigration Studies, China, ChinaUSFocus.com, DACA, Deferred Action for Childhood Arrivals, Hong Kong, Immigration, John B. Judis, Making News, North Korea, Ted Galen Carpenter, The New Republic, think tanks, Thom Hartmann, ZeroHedge.com

I’m pleased to announce that I’m scheduled to appear today on Thom Hartmann’s nationally syndicated radio show today at 1:20 PM EST.  The subject:  the state of the U.S. and world economies — and specifically, is either one as healthy as the conventional wisdom seems to believe?  All the info you need to listen live is at this link.  As usual, I’ll post a podcast of the interview as soon as one’s available.

In addition, on September 26, the Hong Kong-based ChinaUSFocus.com posted a column by the Cato Institute’s Ted Galen Carpenter quoting my views on President Trump’s North Korea policies.  Truth in advertising:  Ted is a long-time and very close friend.  He’s also one of the sharpest foreign policy analysts I know.  In addition, this website’s sponsor calls itself a non-profit organization, but given that Hong Kong is under China’s thumb in most important ways, this claim should be viewed extremely skeptically.  Moreover, this “non-profit” admits that it gets “support” from a prominent Shanghai-based think tank that (like other Chinese think tanks) is an arm of the Chinese government.

In this vein, however, it’s intriguing that the point made by me and by Ted (who agrees) is manifestly not one that toes the Beijing line on the crisis.

On September 10, a blog post from the Center for Immigration Studies spotlighted my findings on the economics of repeal of the former Obama administration’s Deferred Action for Childhood Arrivals (DACA) program.

And on September 9, my post on the subject was reprinted on the popular ZeroHedge.com economics and finance website.

Finally, as previously discussed, in a September 15 New Republic article, prominent journalist and author John B. Judis quoted my views on the worsening corruption of many already corrupt, corporate-funded American think tanks.  Unfortunately, as I also specified, I don’t believe that John’s treatment of this point met basic standards of fairness.

Keep checking in at RealityChek for news of media appearances and other developments!

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(What’s Left of) Our Economy: The Latest Bogus Case for TPP Revival

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Barack Obama, Canada, China, exports, George W. Bush, Mexico, non-tariff barriers, The Wall Street Journal, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

The case for the Trans-Pacific Partnership (TPP) trade deal pushed by former Presidents George W. Bush and Barack Obama, but killed by President Trump, was never serious. For example, America’s economy represented nearly two-thirds of the vaunted new free trade zone the Pacific rim deal would have represented. Many of its largest economies (notably Canada, Mexico, and Australia) were already connected with the United States by trade liberalization agreements. These and most other TPP members have depended heavily on amassing trade surpluses to generate growth, casting major doubt as to how widely they’d open their own domestic markets. And despite being widely touted as a counter to China’s growing economic and military influence in the region, the deal contained an immense back door for Chinese products in the form of sloppy rules of origin.

Now the Wall Street Journal editorial board has taken the bogus pro-TPP case another fact-free step further. It’s claiming to have unearthed evidence that Mr. Trump’s decision is already hurting American exporters. Except the only “evidence” presented is from a single Japanese study. And its findings consist not of developments that have already taken place, but of projections of what it thinks might take place.

Everyone is of course entitled to an opinion – or a projection. And maybe Tokyo’s National Graduate Institute for Policy Studies knows something about such forecasts that has completed eluded the U.S. Government – which has a terrible record predicting the results of trade deals. But everyone is also entitled to ask why the Wall Street Journal didn’t look at what is already known about export flows between the United States and its would be TPP partners since the Trump decision.

According to the U.S. International Trade Commission’s Trade Dataweb, year-to-date 2016-2017, America’s goods sales to these countries have grown by 5.36 percent. That’s somewhat less than the 6.38 percent increase in total, global American merchandise exports during that period. But not a lot less.

Moreover, this small discrepancy is anything but unheard of. Since the current U.S. economic recovery began (a period during which the TPP was being considered in Washington and all the other capitals that sought the agreement), America’s global goods exports have topped their TPP counterparts in two years, and the reverse has been seen in three years. In two other years, merchandise exports to both groups fell – both times by greater percentages for TPP exports. Moreover, the differences in none of the seven full years for which data exist is substantial.

In other words, the numbers so far support the observations that many of the biggest TPP member economies comprising the smallish non-U.S. TPP trade area (along with smaller economies like Singapore, Chile, and Peru) already have reached trade agreements with the United States – and that optimism regarding a needle-moving U.S. export boost has never been justified.

Moreover, neither the Journal editorialists or any other TPP revivalists has grappled seriously with any of the other reasons for exports skepticism. These range from the prevalence in the non-U.S. TPP economies of the kinds of non-tariff trade barriers that American trade diplomacy has never eliminated or even significantly reduced, to the related likelihood that most of the TPP provisions concerning these barriers are unenforceable.

Nor have pro-TPP voices explained why other agreement provisions – such as a yet another dispute-resolution system that would override American trade laws, plus that back door for China and other non-TPP countries – wouldn’t have supercharged U.S. imports and further swelled an already bloated, trade deficit.

The Journal‘s editorial ends with the hope that “If the 11 remaining members hold out for a U.S. return, it’s possible that rational American self-interest will prevail over protectionist bluster.” But its fact-free missive makes clear that it’s the remaining TPP supporters in the United States that urgently need to display a learning curve.

(What’s Left of) Our Economy: U.S. Trade Deficit Falls Slightly in August as Strong Exports Outweigh Record Manufacturing Shortfall

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Canada, Census Bureau, China, European Union, exports, goods trade, imports, Japan, Made in Washington trade deficit, manufacturing, Mexico, non-oil goods trade deficit, oil, recovery, services, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

In August, the combined U.S. goods and services trade deficit declined by 2.67 percent sequentially to hit $42.40 billion – its lowest monthly level since September, 2016’s $38.47 billion. The improvement came even though several typical major engines of trade deficit growth worsened.

A new record was set for the chronic and huge manufacturing trade deficit, with its $82.15 billion August total topping the previous high (last November’s $80.75 billion) by 1.73 percent. The manufacturing-heavy China goods gap, meanwhile, grew to its highest monthly level ($34.89 billion) since September, 2015 ($36.29 billion). And the pre-inflation oil trade deficit, which has decreased dramatically in recent years, staged its strongest monthly rebound (jumping by 60.59 percent) since June, 2016 (60.84 percent). Pointing to a hurricane effect: the biggest monthly drop in current dollar oil exports (11.53 percent) since August, 2015 (12.62 percent).

Boosting the August trade performance was the new all-time high hit for services exports ($66.11 billion), the best overall monthly exports figure ($195.32 billion) since December, 2014 ($197.18 billion), and the best monthly goods exports reading ($129.21 billion) since April, 2015 ($129.72 billion). America’s goods trade deficits with Mexico and South Korea, both of which have been criticized by President Trump, increased sequentially in August (by 25.49 percent and 15.20 percent). And the longstanding Japan merchandise deficit grew by 13.49 percent on month.

But merchandise trade shortfall with Trump trade target Canada plummeted by 61.43 percent month-to-month, and the goods gap with the European Union fell by 7.92 percent. The latest figures on the growth-slowing impact of the Made in Washington trade deficit show that it’s weakened slightly (from slowing the U.S. economic recovery by 17.40 percent as of the first quarter of this year to cutting inflation-adjusted growth by 17.30 percent in the second quarter). The new August trade figures indicate that it might decline modestly again once third quarter GDP and September trade data are released.

Here are selected highlights of the latest monthly (August) trade balance figures released this morning by the Census Bureau:

>America’s combined goods and services trade deficit declined by 2.67 percent on month in August to its lowest level ($42.40 billion) since September, 2016 ($38.47 billion), as a new monthly record manufacturing trade shortfall and poor China and hurricane-related oil results were more than offset by strong export performances, including a new all-time high for services exports.

>The August manufacturing trade deficit of $82.15 billion was 1.73 percent greater than the previous record total of $80.75 billion, set last November.

>August manufacturing exports grew by a solid 6.82 percent on month, to $93.51 billion. But the far larger amount of imports rose by 5.07 percent, to $175.67 billion.

>Year-to-date, the manufacturing trade deficit is running 5.56 percent ahead of last year’s record pace. Manufacturing exports for the January-August period are up 4.04 percent, and imports have increased nearly as fast – 4.72 percent.

>Fueling these manufacturing trade results in August was a 3.99 percent month-to-month widening of America’s manufacturing-heavy trade deficit with China. The $34.89 billion total was the largest monthly figure since September, 2015’s $36.29 billion.

>U.S. goods exports to China improved sequentially in August by an impressive 8.75 percent, but merchandise imports, which are much greater, increased by 5.08 percent.

>Year-to-date, the merchandise deficit with China is 6.24 percent higher than last year’s total – which was the second largest annual figure ever.

>The pre-inflation U.S. oil trade deficit, which has nosedived in recent years thanks to the energy production revolution, rose in August from $3.02 billion to $4.85 billion. That 60.59 percent monthly increase was the biggest such rise since the 60.84 percent surge registered in June, 2016.

>Pointing to the effects of this year’s violent hurricane season, oil exports in August recorded their biggest monthly decrease (11.53 percent) since August, 2015 (12.62 percent).

>On a year-to-date basis, however despite the longer-term improvement, this oil shortfall is outpacing last year’s by a stunning 36.01 percent.

>The hurricane impact on oil was also suggested by the excellent export data produced by other major sectors of the economy.

>Services set a new overseas sales record in August, and reached their second all-time monthly high in the last three months. August’s $66.11 billion bested June’s $65.90 billion by 0.33 percent.

>Total U.S. exports improved by 0.42 percent, to $195.32 billion, and thereby hit their highest level since December, 2014’s $197.18 billion.

>Goods exports rose even faster sequentially in August, by 0.44 percent to $129.21 billion. The result was their strongest month since April, 2015 ($129.72 billion).

>Having set reform of the North American Free Trade Agreement (NAFTA) as a priority, President Trump no doubt noticed that the U.S. merchandise trade deficit with Mexico surged by 25.49 percent on month in August, to $6.18 billion. U.S. goods exports to Mexico were 5.73 percent higher in August than in July, but import growth was 9.68 percent.

>The year-to-date merchandise deficit with Mexico is so far 11.72 percent higher than in the first eight months of 2016.

>America’s merchandise trade deficit with South Korea, which has just this week agreed to substantive talks on modifying its bilateral trade deal with the United States, increased by 15.20 percent sequentially in August, to $2.22 billion.

>U.S. goods exports to South Korea actually sank by 8.21 percent on month – the biggest such decrease since January’s 21.51 percent. America’s merchandise imports from South Korea fell, too, and for the second straight month – but by only 0.70 percent.

>America’s merchandise trade deficit with South Korea is down so far this year by fully 28.07 percent on a year-to-date basis. But since the bilateral trade deal went into effect, in March, 2012, it’s nearly tripled.

>The U.S. merchandise trade deficit with Japan increased notably (13.49 percent) as well on month in August, to $6.55 billion.

>America’s goods exports to the world’s third biggest single national economy decreased by 5.52 percent month-to-month, while its goods imports rose by 4.02 percent.

>Year-to-date, this merchandise deficit with Japan is running 12.54 percent ahead of last year’s level.

>Better news came in merchandise trade with America’s other NAFTA partner, Canada. The U.S. deficit – which has been volatile recently – plummeted by 61.43 percent in August, to just $410 million.

>American goods exports to Canada improved by 12.50 percent. Imports climbed, too, but by only 9.06 percent.

>Year-to-date, though, the U.S. merchandise trade shortfall with Canada is running nearly three times ahead of last year’s rate.

>Improvement in August was also seen in American merchandise trade with the European Union (EU) – the world’s largest economic unit. On a monthly basis, the U.S. deficit narrowed in August by 7.92 percent, to $12.39 billion.

>U.S. goods exports to the EU advanced by 9.08 percent on month, while imports were up only 2.52 percent.

>Year-to-date, moreover, the American merchandise deficit with the EU is running 0.72 percent behind last year’s rate.

>The latest data for the growth drag on the still weak U.S. economic recovery of rising trade deficits are only from the second quarter. But by both major measures, they show that trade’s bite into the expansion is easing, but remains deep.

>Since the recovery began, in mid-2009, to the end of the second quarter of this year, the increase in the trade deficit has reduced cumulative after-inflation output during the expansion by 9.24 percent, or $247.30 billion. That’s down from the 10.04 percent, and $255.9 billion, as of the first quarter.

>The toll on the expansion attributable to U.S. trade policy is diminishing, too, but has been much higher. This Made in Washington deficit strips out of inflation-adjusted American trade flows energy and services – two sectors where trade policy and related decisions have had only marginal effects so far. The remainder of U.S. trade flows – of goods except oil – are heavily influenced by policy.

>Since the recovery’s onset, the rise of this Made in Washington deficit has cost the recovery $462.8 billion in lost growth in absolute terms – or 17.30 percent of the cumulative total. That’s down from a growth bite of 17.40 percent worth ($443.3 billion in absolute terms) for the first quarter.

(What’s Left of) Our Economy: The Case for Keeping it Simple with China Trade Just Got Stronger

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China, currency, currency manipulation, exchange rates, Great Recession, import prices, imports, Labor Department, Robert Lighthizer, Trump, U.S. Trade Representative, yuan, {What's Left of) Our Economy

I haven’t been closely following the Labor Department’s import price data lately, and that’s been an oversight. As is clear from this morning’s figures (for August), they keep telling a fascinating and important tale about China’s ongoing manipulation of its currency and how it does and doesn’t impact U.S. trade with the People’s Republic. More specifically, examining the data over time reinforces a strengthens a point I’ve posted on previously – that as important as this currency protectionism is, it’s far from the only predatory Chinese practice that’s been shafting domestic companies and workers exposed either directly or indirectly to Chinese competition.

Just as a refresher, unlike most other trading countries and regions, China prohibits the free buying and selling of its currency. For most of the previous decade, Beijing’s aim has been to keep the value of the yuan artificially low versus most other currencies and especially the U.S. dollar – in order to give its goods and services price advantages over foreign rivals in markets everywhere. As a result, China’s exports got a government-aided boost worldwide, and its domestic industry was able to undersell imports in its home market – all for reasons having nothing to do with free trade or free markets generally.

Since the latter part of that decade, and especially earlier during the current economic recovery, the story has been more complicated. The main reason: China was getting worried about wealthy Chinese concerned about political stability or the economy’s future spiriting too much of their wealth out of the country, for stashing in countries (like the United States) considered a lot safer. These capital outflows began depressing the yuan’s value much faster than Beijing wanted, and even threatened to cause a worldwide crisis of confidence in the currency – and the broader Chinese economy. So for much of this latter period, China has been trying to prop up the yuan’s value to some extent – even as its wary that an overly strong yuan would jeopardize the exports on which its growth still heavily relies.

Trade policy critics have rightly focused much and even most of their anti-China ire on currency manipulation, and that’s been understandable for two main reasons. First, this policy affects the relative prices of everything sold back and forth between the United States and China; and second, currency manipulation is one of the few protectionist practices that even some of the globalization-happy economics and business establishment (and the latter’s political hired guns), can be convinced to combat. (Much of the rest of this group, though, will simply grandstand against this form of protectionism.)

Nonetheless, the import price numbers, coupled with the oscillation in China’s currency priorities, the consequent roller-coaster ride of the yuan’s value versus the dollar, and the actual trade flows, show that the cost of Chinese goods and services aimed for the American market stems from many other causes.

The Labor Department’s import price data for China goes back to 2004, and it shows that, in the 13 years since, on an August-to-August basis, the prices of purchases from China Americans can make has fallen in eight years and risen in five. As for the yuan’s value, it’s strengthened versus the U.S. dollar in nine of those 13 years, and weakened in four.

What happens when the two indicators are paired? The numbers reveal that in five of the 13 years, the prices of imports from China in the American market have fallen while the yuan has strengthened – which isn’t supposed to happen if you believe in currency uber alles. In another year, the prices of those imports rose while the yuan weakened – another counterintuitive result. In seven of the thirteen years, in other words, currency values and import prices seem to have behaved as they should have, but in six (nearly half the time), they didn’t.

Also important : In three of the four years when both import prices and the yuan went up, the yuan’s rise was much greater, most often by a factor of two to one. And in two of the three years when both indicators fell, the change in the yuan again was much greater. So at the very least, even when the relationship is looking like economists tell us it should, it takes a lot of yuan movement to generate significant import price changes. Clearly, therefore, other factors must be at work.

In this vein, the yuan’s value and the changes it undergoes doesn’t seem to have an especially strong relationship with the amount of goods that American imports from China. Of course, they have some effect. After all, all else equal, if U.S. customers buy a certain quantity of items and services from China one year, and the same quantity the next, and the price of those goods and services falls (for whatever reason), the value of those purchases will go down. And naturally, the converse is true as well.

This point matters because purchasing patterns rarely respond to price changes right away, and the lag can mean that the impact of currency changes on import values can take some time to materialize – and often more than a year. But even taking this reality into account produces a fuzzy picture. For example, between August, 2004 and August, 2005, U.S. goods imports from China (which make up the vast majority of American purchases from China) jumped by more than 24 percent even though import prices fell (by 1.10 percent) and the yuan rose versus the dollar (by 2.13 percent). The next year, Americans bought 19.14 percent more products from China, despite their prices falling yet again (by nearly as much – 1.01 percent), and the yuan rising again (also by nearly as much – 1.80 percent).

Between August, 2007 and August, 2008, import prices rose by a very large 4.95 percent and the yuan strengthened by an even greater 9.55 percent. Yet U.S. goods imports from the People’s Republic increased by double digits again (11.96 percent). The following year, however, import prices plummeted (by 3.08 percent), and the yuan weakened by 0.70 percent. And did American imports surge again? Not even close. They nosedived by 18.93 percent.

Sharp-eyed RealityChek readers will realize why: The Great Recession was intensifying in 2008 and lingered well into 2009. So Americans’ consumption of just about everything fell off a cliff for a while. Between the following Augusts, neither the prices of imports from China nor the yuan’s value moved much, and America’s goods imports from China nonetheless soared by more than 37 percent.

Yet you don’t need these kinds of extreme economic events for import prices, import amounts, and yuan movements to confound expectations, lag or not. From August, 2011 to August, 2012, both the prices of Chinese imports and the value of the yuan were up (both by a bit) and American imports from China dipped by 0.25 percent. Even stranger, the American economy grew by a pretty decent 2.39 percent (in inflation-adjusted terms) during that period.

The following year, U.S. growth was down to 1.69 percent, prices of imports from China dropped (by a meaningful 1.24 percent), the yuan rose (by a much greater 3.61 percent), and American purchases from China jumped from a small dip to more than five percent growth.

The point here is not that China’s currency policies don’t matter, but that the prices of Chinese goods and services, and therefore America’s trade performance with the People’s Republic, are influenced by a wide array of factors. Some are legitimate – for instance, if China keeps selling Americans greater amounts of relatively pricey advanced goods (like industrial machinery and high tech products), and less in the way of cheaper, simpler products (like clothing and toys), as has been the case, the price of the average import from China is going to rise. But many reasons are much less legitimate (e.g., changing levels of subsidies like value-added tax rates), and these can be so numerous, so fungible, and therefore so difficult to document that trying to isolate them and attack them piecemeal is a fool’s quest.

Far better is to decouple American tariff policy completely from specific items of evidence of individual predatory trade practices and impose these levies proactively, until they produce the desired effects on bilateral trade flows. In fact, the case for such a sweeping approach was made just yesterday, and is worth quoting at length:

“[T]here is one challenge on the current [trade] scene. It is substantially more difficult than those faced in the past, and that is China. The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer and to distort markets, in China and throughout the world, is a threat to the world trading system that is unprecedented.”

This speaker also argued that “The years of talking about these problems has not worked, and we must use all instruments we have to make it expensive to engage in non-economic behavior.”

His name is Robert Lighthizer, he’s President Trump’s chief trade negotiator, and the devilishly complex relationships between currency values, import prices, and trade flows just add to the case for the administration to start following this advice pronto.

Our So-Called Foreign Policy: A Narrow-Minded Wake-Up Call on China’s Tech Drive

Tags

artificial intelligence, Barack Obama, budget, China, mercantilism, National Science Foundation, Our So-Called Foreign Policy, research and development, technology, technology transfer, Trade, trade surpluses, Trump

“#SMH” (Shaking My Head) is one of my favorite Twitter hashtags, and it’s the perfect reaction to a new post on FOREIGNPOLICY.com on the growing technological challenge being posed to the United States by China, and on its frightening national security implications. The post has me shaking my head, and should have you shaking yours, because for all the useful information it contains on this critical subject, it completely misses the much bigger, much more important picture. And it misses it because the authors are so transparently determined to lionize former President Obama’s record in this regard, and vilify President Trump’s – though few of the facts warrant this conclusion.

The post is useful mainly for calling attention to China’s intensifying effort to establish global superiority in artificial intelligence, and to the Trump administration’s budget policies, which look oblivious to China’s efforts because they don’t provide adequate resources for federal research efforts capable of keeping the United States ahead.

I say “look” because the budget situation may not be as dire as strongly suggested by the authors. Specifically, it’s true that the administration has proposed cutting funding for the National Science Foundation’s artificial intelligence programs by 10 percent. At the same time, as made clear by the source they relied on, “the proposed budget does call for more spending on defense research and some supercomputing.”

Much more misleading is the post’s portrayal of the Obama administration as nothing less than Churchillian in sounding the tocsin. After all, the Obama reports the authors cite as evidence of his foresight on the subject came out at the very end of his presidency. At least as important, they gloss over major non-budgetary developments crucial to understanding China’s progress.

As they themselves admit, for instance, Chinese tech companies have established presences in Silicon Valley because they believe that “by rotating Chinese staff to Silicon Valley and American staff to Chinese campuses, they can accelerate the timeline for reaching parity with the United States in AI technology and depth of talent.” Under whose administration do the authors believe this practice started? And why do they think the Chinese were confident they were so free to proceed?

Also completely ignored: Throughout his presidency, Mr. Obama did absolutely nothing as American companies continued their longstanding efforts to transfer advanced technologies to Chinese partners voluntarily, or were forced to share this knowhow due to Chinese threats to shut them out of its market. Nor did he move to prevent these firms from investing in Chinese companies working on tech products and services with clear defense implications, or to help them cope with Beijing’s demands that they pony up or else.

And let’s not forget: The Obama administration made only the most token efforts to combat the predatory Chinese practices that enabled Beijing to amass immense trade surpluses with the United States; therefore to further fuel the growth of its market and make it that much more difficult for American companies to resist tech extortion demands; and to finance its own multi-billion technology development efforts with these handsome trade profits. Indeed, Mr. Obama staunchly opposed Congressional efforts to punish China for its most important mercantile policy:  currency manipulation.  

So I share the authors’ view that federal research and development efforts have been crucial to establishing America’s intertwined global technology and military leadership, and their hope that President Trump will reject the conservative anti-government dogma that justifies virtually every type of budget cut outside traditional defense or law enforcement spending. But the idea that America’s approach to the Chinese tech challenged was remotely up to snuff before Mr. Trump’s election not only fails the test of historical accuracy. It has blinded them to all the other policy changes needed to ensure that the United States stays Number One.

(What’s Left of) Our Economy: A Great Oil Month and Still the July Trade Deficit Worsened

Tags

Canada, China, EU, European Union, exports, high tech goods trade, imports, Made in Washington trade deficit, manufacturing, merchandise trade, NAFTA, North American Free Trade Agreement, oil, recovery, South Korea, Trade, trade deficit, trade surplus, Trump, {What's Left of) Our Economy

The combined U.S. goods and services rose sequentially in July (by just 0.33 percent) for the first time in three months even though America’s oil trade improved so much that in inflation-adjusted terms, oil exports set a new record high ($10.87 billion), and the oil trade deficit set a new record low ($6.80 billion). Moreover, in current-dollar terms, July’s $3.09 billion oil trade deficit was a 30.78 percent drop from June and the smallest since May, 2016’s $3.03 billion.

Nonetheless, not only did the monthly overall trade deficit worsen slightly; the seven-month year-to-date total ($319.10 billion) is up 9.60 percent from last year’s level, and the highest such figure since 2012 ($324.83 billion). Moreover, most of the bilateral goods shortfalls with countries that have drawn President Trump’s ire on trade rose on month, including Canada (where it more than doubled), South Korea (up 4.26 percent, partly on a 3.71 percent U.S. exports drop), and China (up 2.99 percent to a post-August, 2016 high). In addition, America’s goods sales to Canada sank on month in July by 13.85 percent – their biggest such decline since July, 2006’s 20.38 percent. The merchandise deficit with Mexico, however, fell steeply for the second straight month.

The huge, chronic manufacturing trade deficit rebounded sequentially by 4.61 percent as both exports and imports fell, but stayed 6.19 percent ahead of last year’s record pace, and although the volatile high tech goods gap tra and the volatile high tech goods trade gap dropped on month by 7.51 percent, it’s running 31.12 percent of last year’s rate and looks poised to reach an all-time annual high as well. The trade drag on the current, still sluggish American economic recovery dipped through the second quarter of this year, but has still cut its cumulative real growth by 17.31 percent, or nearly $463 billion.

Here are selected highlights of the latest monthly (July) trade balance figures released this morning by the Census Bureau:

>July saw record U.S. monthly real high oil exports ($10.87 billion), a record low real oil trade deficit ($6.80 billion), and the smallest current-dollar oil trade deficit ($3.09 billion) since last August ($3.03 billion). But none were enough to prevent the combined July goods and services trade deficit from rising slightly on month – by 0.33 percent, to $43.69 billion, from a downwardly revised $43.54 billion.

>The new inflation-adjusted oil exports record represented their second straight all-time high, beating June’s $10.35 billion mark by 4.95 percent.

>The new record low monthly after-inflation oil deficit bested the previous low of $7.56 billion, set in May, 2016, by 9.98 percent. It also represented a 14.10 percent drop from the June total.

>The July current-dollar oil deficit was 30.78 percent lower than June’s $4.47 billion level.

>July current-dollar oil exports rose 4.45 percent on month, to $10.24 billion. That was their highest level since November, 2014 ($11.14 billion).

>July current-dollar oil imports fell 6.58 percent, to $13.33 billion. That was their lowest level since last December ($13.82 billion).

>July also generally saw rising sequential trade deficits with countries identified by President Trump as difficult U.S. trade partners.

>As the second round of talks to redo the North American Free Trade Agreement (NAFTA) concluded, the U.S. merchandise trade deficit with Canada more than doubled on month, from $461 million to $1.01 billion. This represented the biggest percentage worsening of the deficit since July, 2016 – when a $25 million U.S. surplus turned into a $716 million shortfall.

>U.S. goods exports to Canada sank sequentially by 13.85 percent, to $21.88 billion – the biggest such decrease since July, 2006 (20.38 percent).

>It’s true that the July monthly surge in the merchandise trade deficit Canada followed a June plunge of 66.29 percent. But on a year-to-date basis, the American shortfall has nearly quadrupled, to $11.35 billion.

>A contrast was provided by the American trade ledger with Mexico, where the goods trade deficit fell significantly on month for the second straight month. The 17.37 percent sequential decrease drove the shortfall down to $4.92 billion – its lowest level since January’s $3.95 billion.

>U.S. goods exports to Mexico fell by 7.55 percent, to $19.74 billion, from a June level of $21.35 billion that was the second highest ever. But imports fell even faster – by 9.70 percent, to $24.66 billion. That was the biggest such drop since November, 2015’s 15.06 percent.

>All the same, the on a year-to-date basis, the U.S. merchandise trade deficit with Mexico is 11.94 percent higher than last year’s figure.

>All told, the total U.S. merchandise deficit with its NAFTA partners is 32.30 percent higher over the first seven months of this year than during the first seven months of last year.

>President Trump is also seeking to revise the 2012 U.S. bilateral trade agreement with South Korea, where the American merchandise deficit expanded by 4.26 percent on month in July, to $1.93 billion.

>U.S. goods exports to South Korea dropped by 3.71 percent sequentially, to $4.07 billion, and imports fell by 1.29 percent, to $6.00 billion.

>Year-to-date, the merchandise trade shortfall with South Korea is down by an impressive 30.31 percent so far in 2017. But on a monthly basis, it’s nearly 3.5 times greater than in March, 2012, when the trade agreement went into effect.

>Despite the rise of the yuan in recent months, the American merchandise trade deficit with China continued on its long-time upward track. In July, the shortfall set its second straight post-August, 2016 high – $33.56 billion – as it grew 2.99 percent on month.

>U.S. merchandise exports to China increased by 3.45 percent in July, to $10.05 billion. Goods imports from China rose by 3.10 percent, to $43.60 billion. That figure represented the highest such level since October, 2016’s $43.79 billion.

>Year-to-date, the U.S. merchandise deficit with China is up 6.80 percent as of July.

>More bad July trade news came from America’s commerce with the European Union (EU). The U.S. merchandise trade deficit rose by 7.90 percent on month to $13.45 billion – its highest monthly level since last November ($14.80 billion).

>U.S. goods exports to the EU tumbled by 9.80 percent, to $21.44 billion. That’s the lowest such total since January’s $21.29 billion, and the biggest decrease in these sales since July, 2016 (10.01 percent).

>America’s merchandise imports from the EU were off on month by only 3.71 percent. The resulting $34.89 billion total was the lowest since February’s $32.39 billion, and the biggest such drop since January’s 6.68 percent.

>At the same time, on a year-to-date basis, the U.S. merchandise trade deficit with the EU is only 0.95 percent higher than its comparable 2016 level.

>American manufacturing had another poor month in July as well. Its massive and chronic trade deficit rebounded sequentially by 4.61 percent to $79.64 billion.

>Manufacturing exports plummeted by 8.24 percent on month, from $95.41 billion to $87.54 billion. But imports were off only 2.54 percent, from $171.54 billion to $167.18 billion.

>Year-to-date, the manufacturing trade shortfall has widened by 6.19 percent, from $482.13 billion to $512 billion – indicating that it will set yet another annual record. (Last year’s was $853.07 billion.)

>High tech merchandise trade generated some goods news for the United States in July, at least over the short term. The deficit – which can be volatile on month – fell sequentially by 7.50 percent, from $8.82 billion to $8.16 billion.

>High tech goods exports fell by 5.13 percent, to $29.23 billion, while imports decreased by 5.66 percent, to $37.38 billion.

>Year-to-date, however, the high tech goods trade shortfall is up by 31.12 percent, and seems headed for a new annual record of its own.

>Thanks to revisions in a separate data series kept by the Census Bureau, the drag on U.S. growth during this so-far weak recovery created by the Made in Washington portion of the U.S. trade deficit dipped as of the second quarter of 2017.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the second quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.31 percent, or $462.82 billion out of $2.6744 billion in real GDP expansion.

>The previous calculable trade drag figure was $463.97 billion (17.47 percent) cut from $2.6551 trillion in cumulative real recovery era growth.

Our So-Called Foreign Policy: What to do about North Korea

Tags

China, embargo, Japan, Kim Jong Un, missile defense, missiles, Nikki Haley, North Korea, nuclear weapons, Our So-Called Foreign Policy, sanctions, Shinzo Abe, South Korea, Trade, Trump, United Nations

Tuesday’s post explained my reasons for concluding that, contrary to the emerging conventional wisdom in the U.S. foreign policy establishment that North Korea’s use of its growing and increasingly powerful arsenal of nuclear weapons can be deterred with the same kind of policies that the United States used to keep the nuclear peace during the Cold War.

As I’ve argued, the resulting dangers mean that the best way to serve America’s paramount interest (by a long shot) of preventing a nuclear attack on its own territory is to pull U.S. forces out of the immediate area, and letting Northeast Asia’s powerful, wealthy countries deal with dictator Kim Jong Un as they see fit. This move would both ensure that the governments with the greatest stake in keeping North Korea’s missiles in their silos, and even eliminated, bear the costs and risks of handling the problem, and that the only plausible pretext for Pyongyang attacking the United States itself is eliminated.

Of course, Washington has chosen not to take this route. But America’s response so far to the escalating North Korea threat is turning into a major failure based even on its own criteria for success. After all, the latest North Korean missile overflew Japanese territory. Although the overflight was brief, the combined U.S. and Japanese response could not help but send a message of weakness and egg on Kim further.

According to Japan’s defense minister, Tokyo decided not to shoot down the missile because the government determined it wasn’t intended to land on Japanese territory. I don’t know how to say “Baloney!” in Japanese, but complete contempt is the only justifiable reaction. For despite this stated confidence, as the missile approached, Prime Minister Shinzo Abe’s government sent out regular early morning alerts to the public – including in far off Tokyo – warning it to “seek cover” and describing the situation as “very dangerous.”

Another nonsensical rationale for the inaction from both Japanese and U.S. forces, this from a staunch defender of America’s Asia policy status quo: “If we shoot and miss, it would hand Kim Jong-Un an incalculable propaganda victory.” That’s of course true – because as this former official has noted, anti-missile technology is anything but proven. But of course, keeping the defensive missiles in their launchers also winds up telling North Korea that the United States and its allies have little faith in their systems.

Moreover, the Pentagon and its foreign counterparts can conduct all the tests they want, but adequate confidence in missile defenses won’t be legitimately justified until they’ve shown they can work in real-world situations. And better to try shoot-downs sooner rather than later – both because North Korea’s offensive capabilities will only improve as time passes, and because its better to find out about the real-world shortcomings of allied systems ASAP.

So if I’m Kim Jong Un, I’m looking at the U.S. and Japanese failure even to try a shoot-down and asking myself, “Let’s see what else I can get away with?” And when he develops reasonably reliable intercontinental missiles capable of hitting American territory and destroying American cities, he could easily conclude that the “what else” includes major threats against South Korea that would be entirely credible, and that could move him closer to effective mastery over the entire peninsula.

How, then, can Washington and its regional allies send some credible messages themselves? The following list is meant to start a (long overdue) serious discussion:

>First, the allies can actually try to shoot down North Korean missiles judged on a flight path anywhere near some of their territories. Again, even if they miss, they’ll at least get some truly reliable data on their systems’ capabilities.

>Second, they could urge the United Nations to authorize a total ban on trade and commerce with North Korea. The United States, Japan, and South Korea could also announce that they will enforce the ban with punitive measures against violators. The North’s business partners would then face a clear – and no-brainer – choice: They can continue trading with economically miniscule North Korea or they can continue trading with three of the world’s largest economies, but they can’t do both.

It’s true that North Korea’s biggest trade partner is China, that all three allies have extensive economic ties with the PRC, and that even the United States – a clear loser in China trade – has been reluctant to disrupt these relations significantly. But now the subject is war and peace and the core security of Japan and South Korea. If this reluctance continues even after North Korea has sent missiles over Japanese territory, Kim will inevitably conclude that his main adversaries lack the stomach to resist further provocations.

>The United States, Japan, and South Korea could blockade air and sea trade with North Korea. China’s overland trade would continue – but ever-stronger economic sanctions on China finally could persuade Beijing to halt this commerce once and for all.

>The United States could further pressure China by deciding to sell all of its neighbors – including Taiwan – any conventional weapons they wanted, and to provide whatever training they needed to operate them effectively. (President Trump is thinking along these lines regarding South Korea, but the new policy should go much further.) This step of course would also help deal with China’s aggressiveness in the South China and East China Seas, and boost America’s own production and export of these advanced manufactures. So Beijing would need to decide whether coddling North Korea was worth seeing Asia’s other countries – including many bearing major historic and/or current grudges against China – become much stronger militarily

>Finally – for now – the United States could announce a full-scale review of its nuclear non-proliferation policies in Asia, with a special focus on whether it would continue opposing the acquisition of nuclear weapons by Japan and South Korea. As with the previous proposal, China would need to decide whether coddling North Korea was worth seeing one of its major national security nightmares – nuclear arms possessed by the same Japan that launched devastating attacks against it in 1894 and 1937 – come to life.

Shortly after the latest North Korea launch, American envoy to the United Nations, Nikki Haley, declared, “No country should have missiles flying over them like those 130 million people in Japan. It is unacceptable. They (North Korea) have violated every single UN Security Council Resolution that we’ve had. So I think something serious has to happen.”

She’s absolutely right in implying that neither the United States nor the so-called world community has done anything “serious” yet regarding the threat posed by North Korea. Options like the above would qualify. If Washington genuinely wants to maintain its current North Korea and broader East Asia strategies, they need to be actively, and urgently, considered.

Our So-Called Foreign Policy: Can North Korea Really be Deterred?

Tags

alliances, allies, Berlin crises, China, Cold War, communism, cruise missiles, de-Stalinization, deterrence, Great Cultural Revolution, ICBM, Japan, Kim Jong Un, Nikita Khrushchev, North Korea, nuclear weapons, Our So-Called Foreign Policy, South Korea, Soviet Union, strategic bombers, USSR

North Korea has just thrown down a major gauntlet to President Trump, escalating the crisis caused by its nuclear weapons program by launching missiles that briefly overflew Japanese territory. This provocation of course follows Mr. Trump’s August 11 warning to the North Korean dictator Kim Jong Un, “If he does anything with respect to Guam or anyplace else that’s an American territory or an American ally, he will truly regret it and regret it fast.”

Since Japan is a U.S. treaty ally, Pyongyang’s newest missile action clearly crosses one of those red lines. And obviously it puts the onus on the President to either retaliate in some meaningful way – with all the possible risks to Asia and to American territory, including the risk of nuclear attack – or implicitly acknowledge that the credibility of U.S. defense commitments to Japan and South Korea has been severely compromised. That second development wouldn’t be risk free either, as it’s likely to increase pressure on those and other allies (or protectorates, a word more suitable for Japan) to strengthen their security by building their own nuclear weapons.

Although the American foreign policy establishment views that as a nightmare scenario, I disagree – and in fact have argued for pulling U.S. forces out of the area completely and letting Northeast Asia’s strong, wealthy countries (which include China and Russia) deal with North Korea however they see fit. As I’ve explained, that’s the best way to minimize the danger of a North Korean nuclear weapon taking out an American city, or two or three – which should be Washington’s overriding priority in a situation in which core U.S. security is not inherently threatened.

But rather than restate this argument, today I’d like to deal with one of the most serious claims made in favor of maintaining the American policy status quo on the Korean peninsula. It’s the contention that despite the North’s new, growing ability to hit the U.S. homeland with nuclear weapons, Washington should continue running this risk to defend its allies, help keep the peace in economically dynamic East Asia, and preserve America’s overall influence in the region because it’s dealt successfully with much greater nuclear threats before. As argued in this typical post, during the Cold War, the United States deterred aggression from the Soviet Union and China even though they (and especially the USSR) long had vastly larger and more sophisticated nuclear forces than North Korea either has today or will have for the foreseeable future.

There’s a seemingly obvious retort: Kim Jong Un is literally nuts and the Soviet and Chinese Cold War leaders weren’t. But I don’t buy this point for two reasons. First, for all his apparent erratic-ness, no one can confidently assess the North Korean leader’s mental state. And it’s entirely possible for individuals to me hot-headed and megalomaniacal without being suicidal – which Kim would have to be by definition if he thought that even in the worst case for the United States (some of his missiles land on American territory after whatever sequence of events triggers this catastrophe), Washington wouldn’t retaliate by rendering North Korea practically uninhabitable.

Second, not only did the Cold War witness terrifying moments arguably due to reckless behavior from the Communist world (like the 1958-61 Berlin crises). It also featured lots of bombastic rhetoric from Moscow and Beijing (like “We will bury you” — a boast from Soviet leader Nikita Khrushchev that may or may not have deserved to be taken at face value). In fact, Khrushchev’s “shoe-banging” at the United Nations — another episode surrounded by some uncertainty nowadays — suggested to many Americans at the time that the Soviet leader was unstable, and the Great Cultural Revolution convinced much of the world that the Chinese leadership collectively had gone off its rocker.

But I do think that Kim Jong Un is different, and more dangerous, for several reasons. For all the saber-rattling even during the Cold War’s most dangerous days, from the mid-1950s on, when the Soviet Union had developed intercontinental nuclear striking power, the two superpowers had also established an impressive record of working together to defuse tensions and even solve problems in several key areas.

Not only did Soviet leaders change their rhetorical tune almost immediately following Stalin’s death in 1953, but cease-fires were negotiated in the East-West proxy wars in Korea itself along with Indochina, the two superpowers also and Washington and Moscow agreed to eliminate an important central European bone of contention by agreeing on neutral status for Austria. This anthology contains a good summary. In addition, Khrushchev’s de-Stalinization program entailed a series of liberalizing economic and even political reforms, however unsuccessful or inadequate most clearly were.

So although the Soviets never stopped probing and seeking advantage – sometimes, as in Berlin, to the point of challenging major declared Western interests – by the end of the 1950s, American leaders had ample reason to conclude that other impulses were also at work that were more reasonable and more compatible with an acceptable version of “peaceful coexistence.” It’s true that domestic Soviet reforms were abruptly halted and in some instances reversed following Khrushchev’s ouster. But in an apparent paradox, Moscow’s foreign policy began displaying more caution, too – and in fact, prompted angry accusations from China that Soviet “revisionists” had betrayed Communism’s revolutionary heritage and ambitions.

As indicated above, China’s foreign policy rhetoric and domestic behavior displayed no shortage of Kim Jong Un-like characteristics during the 1960s. But the argument that the United States successfully deterred this Communist power as well suffers a fatal flaw: Beijing wasn’t able even to reach the United States with a missile of any kind until 1981. Its power to use long-range bombers to deliver nuclear-armed cruise missiles to U.S. targets only dates back to the 1990s at the earliest. And of course, by the first of those dates, China had entered into a quasi-alliance with the United States against the Soviet Union, and by the second, it was well into one of history’s great market-oriented economic development drives, and was rapidly expanding its economic ties with the United States.

By contrast, North Korea can nuke American targets now, has shown its neighbors (especially South Korea) the most belligerent possible face on an almost nonstop basis, and Kim Jong Un has displayed absolutely no interest in the kind of meaningful domestic reform that would indicate he values preventing his country’s near or utter destruction over dreams of conquest.

I’m certainly not ruling out some kind of negotiated solution to the North Korea nuclear crisis – at some point. But because we know so little about Kim and his regime, and because it’s behaved so aggressively for so long, I remain convinced that it would be nothing less than deranged for the United States to keep its forces so directly in harm’s way in Asia, and thus run a growing risk of nuclear attack, on the mere hope that he either can be deterred in ways that worked in the past in dramatically different circumstances, or that he eventually comes to his senses

(What’s Left of) Our Economy: Mixed Results from a Deep, Dynamic Dive into U.S.-China Trade Figures

Tags

advanced manufacturing, China, commodities, exports, high value manufacturing, imports, manufacturing, Trade, trade balances, Trade Deficits, trade surpluses, {What's Left of) Our Economy

On Tuesday, RealityChek performed its first deep dive into the U.S.-China trade figures for the first half of 2017, and how they compare with the performance of the January-to-June, 2016 period. Today. It goes dynamic, looking through that same, detailed industry-by-industry lens which sectors have seen the biggest improvements and worst deteriorations in their exports to and imports from China, and in their trade balances with the PRC.

The same technical considerations that applied to Tuesday’s static figures apply to those below. The categories presented are from the federal government’s prime system for slicing and dicing the U.S. economy: the North American Industry Classification System (NAICS). And the level of detail is NAICS’ most granular – the six-digit level. It’s especially revealing because it does the best job of distinguishing between finished goods and parts and components and other inputs for these goods – which matters greatly because so much international trade is conducted in these intermediates. Because of data limitations, however, the aerospace results shown below are five-digit statistics, which combine finished goods and their parts and components.

In addition, because services trade statistics come out so much later than goods trade statistics, only the latter are presented here.

Finally, because today’s emphasis is on rates of change, I’ve confined my research to the top 50 industries for all the metrics examined below, in order to prevent the results from being distorted by big percentage increases or decreases for sectors with very low export, import, and trade balance numbers. Fortunately, because U.S. trade is so highly concentrated, the top 50 lists are highly representative of the nation’s trade as a whole.

To begin, here are the fastest growing U.S. merchandise exports to China between the first half of last year and the first half of this year:

1. Crude oil & natural gas: +3,250.25 percent

2. Wheat: +251.29 percent

3. Primary smelted non-ferrous metals: +194.76 percent

4. Cotton: +149.26 percent

5. Miscellaneous engine equipment: +72.10 percent

6. Liquid natural gas: +66.23 percent

7. Petroleum refinery products: +58.41 percent

8. Motor vehicle transmission & power train parts: +52.84

9. Plastics and rubber industry machinery: +45.41 percent

10. Pharmaceuticals: +45.25 percent

Although four of the ten items are high-value manufactures, which generate outsized benefits for the American economy in terms of high wage job creation, productivity growth, and innovation, they dominate the bottom of this list. And their growth rates are considerably lower than those for the commodities and low-value products so prominent at the top of the list.

Encouragingly, though, the China list is a higher-value list than that for U.S. merchandise exports as a whole (presented right below). And by and large, the advance manufactures sectors above are increasing their exports to China much faster than the leaders worldwide are increasing their exports globally.

1. Non-anthracite coal & petroleum gases: +180.9 percent

2. Crude oil & natural gas: +109.0 percent

3. Cotton: +89.9 percent

4. Liquid natural gas: +62.4 percent

5. Semiconductor manufacturing equipment: +58.2 percent

6. Primary smelted non-ferrous metals: +54.0 percent

7. Soybeans: +27.6 percent

8. Petroleum refinery products: +26.1 percent

9. Motor vehicle engines & engine parts: +19.2 percent

10. Corn: +18.7 percent

Now for the goods categories that performed worst in boosting their exports to China:

1. Industrial valves: -32.46 percent

2. Miscellaneous grains: -30.76 percent

3. Broadcast & wireless communications equipment: -20.89 percent

4. Electricity measuring & testing instruments: -20.48 percent

5. Telecomms equipment: -17.58 percent

7. Aerospace: -10.74 percent

8. Photo films, plates, paper & chemicals: -7.9 percent

9. Irradiation apparatus: -4.87 percent

10. Semiconductors & related devices: -2.67 percent

Worrisomely, this list is completely dominated by advanced manufactures. What about the worst performing U.S. global export sectors?  Here they are:

1. Medicinal & botanical drugs & vitamins: -25.4 percent

2. Turbines & turbine generator sets: -15.1 percent

3. Computer parts: -9.4 percent

4. Autos and light trucks: -8.3 percent

5. Telecomms equipment: -6.6 percent

6. Electricity measuring & test instruments: -5.9 percent

7. Aerospace: -4.0 percent (5-digit, due to reporting limits)

7. Surgical and medical instruments: -1.1 percent

8. Electro-medical apparatus: -0.9 percent

9. Industrial valves: -0.1 percent

9. Computers: -0.1 percent

10. Surgical appliances & supplies: +0.2 percent

10. Analytical laboratory instruments: +0.2 percent

There’s considerable overlap between this list and the China list. But whereas the China export winners generally are increasing their sales to China much faster than the best global export performers are increasing their worldwide sales, the biggest China export losers are seeing bigger sales declines than the biggest worldwide export losers.

Next let’s look at those merchandise sectors whose trade balances with China improved the most from January-June, 2016 to January-June, 2017. These trade balance figures matter decisively, of course, because standard economic theory holds that countries that trade products most successfully will become the countries that make these products most successfully. That’s how trade is supposed to create the most efficient possible global patterns of production. In this list, the industries marked with asterisks are those whose trade deficit with China decreased:

1. Semiconductors & related devices: $190 million deficit to $615 million surplus

2. Crude oil & natural gas: +3,250.38 percent

3. Non-anthracite coal & petroleum gases: 1,537.71 percent

4. Niscellaneous metal ores: +807.54 percent

5. Smelted non-ferrous metals: +519.07 percent

6. Wheat: +251.43 percent

7. Cotton: +149.26 percent

8. Treated wood products: +139.62 percent

9. Miscellaneous women & girls’ outerwear: +131.72 percent*

10. Heavy-duty trucks & chassis: +105.11 percent

Here are the goods sectors that have improved their global trade balances the most on a year-to-date basis:

1. Primary smelted non-ferrous metals: $5.00 billion deficit to $0.76 billion surplus

2. Relays and industrial controls: $1.27 billion deficit to $2.26 billion surplus

3. Semiconductors: $1.48 billion deficit to $1.01 billion surplus

4. Non-costume jewelry: +574.44 percent

5. Drawn/rolled/extruded miscellaneous non-ferrous metals: +305.69 percent

6. Miscellaneous basic inorganic chemicals: +300.00 percent

7. Non-anthracite coal and petroleum gases: +224.29 percent

8. Medicinal and botanical drugs and vitamins: +104.35 percent

9. Cotton: +91.09 percent

10. Semiconductor manufacturing equipment: +64.82 percent

Both lists are pretty evenly split between higher value and lower value sectors, which looks like a wash for America’s global competitiveness.

The list of America’s fastest growing goods imports from China features mostly manufactured products as well, but few would be characterized as cutting edge:

1. Switchgear & switchboard apparatus: +278.27 percent

2. Printed circuit assemblies: +49.98 percent

3. Aluminum sheet, plates, and foils: +39.64 percent

4. Goods returned from Canada: +28.75 percent

5. Broadcast & wireless communications equipment: +26.74 percent

6. Miscellaneous basic organic chemicals: +23.42 percent

7. Miscellaneous special classification provisions: +22.62 percent

8. Lighting equipment: +18.83 percent

9. Telecomms equipment: +18.20 percent

10. Miscellaneous manufactures: +16.85 percent

And here’s the global counterpart of this list:

1. Switchgear and switchboard apparatus: +174.3 percent

2. Crude oil and natural gas: +53.7 percent

3. Printed circuit assemblies: +44.2 percent

4. Iron and steel: +41.3 percent

5. Primary aluminum: +38.6 percent

6. Non-diagnostic biological products: +29.4 percent

7. Petroleum refinery products: +22.2 percent

8. Miscellaneous non-citrus fruits: +20.8 percent

9. Motors and generators: +13.7 percent

10. Lighting equipment: +12.7 percent

10. Surgical appliances and supplies: +12.7 percent

According to my count, both lists are comprised mainly of high-value products (six for the China imports and seven for the global imports). More important, both import lists contain more high value products than the lists of fastest-growing American exports to China and worldwide.

Interestingly, the list of sectors where imports from China have fallen fastest contains lots of low-value goods, along with electronics ranging from consumer sectors to semiconductors. Moreover, in every one of the sectors, these imports from China have fallen faster than U.S. imports worldwide (indicated inside parentheses), strongly indicating that America-based businesses have been changing their sourcing practices.:

1. Miscellaneous women & girls’ outerwear: -56.72 percent (-51.5 percent)

2. Tires & tire parts: -30.04 percent (-0.9 percent)

3. Semiconductors & related devices: -29.28 percent (-6.4 percent)

4. Computer parts: -19.17 percent (-12.3 percent)

5. Women & girls blouses & shirts: -19.02 percent (-12.1 percent)

6. Audio & video equipment: -14.95 percent (-5.3 percent)

7. Computer storage devices: -12.31 percent (-3.1 percent)

8. Miscellaneous footwear: -8.24 percent (-4.9 percent)

9. Women & girls’ dresses: -6.71 percent (-1.9 percent)

10. Men’s footwear (non-athletic): -4.45 percent (-0.5 percent)

How does this list compare with that of those U.S. global goods imports with the slowest growth rates between the first six months of last year and the first six months of this year? Here’s that list:

1. Medicinal and botanical drugs and vitamins: -39.4 percent

2. Computer parts: -12.3 percent

3. Women’s and girls’ blouses/shirts: -12.1 percent

4. Primary smelted non-ferrous metals: -8.8 percent

5. Men’s and boys non-work shirt shirts: -8.3 percent

6. Non-costume jewelry: -6.7 percent

7. Semiconductors and related devices: -6.4 percent

8. Audio and video equipment: -5.3 percent

9. Jewelers materials/lapidary work: -4.1 percent

10. Aerospace products: -3.4 percent

Both lists look like oddly mixed bags. But whereas the China list contains just one industry widely considered to be crucial to America’s economic future, along with its national security (semiconductors), the global list includes aerospace along with semiconductors.

Finally, where have America’s fastest-growing merchandise trade deficits with China been? The list below shows a highly diverse mix of industries. The asterisked sectors are those in which trade surpluses have decreased:

1. Switchgear & switchboard apparatus: +365.30 percent

2. Malt & beer: +80.29 percent*

3. Electricity measuring & testing instruments: +71.39 percent*

4. Primary smelted & refined copper: +56.71 percent*

5. Printed circuit assemblies: +49.75 percent

6. Industrial valves: +43.72 percent

7. Plastic floor coverings: +42.55 percent

8. Miscellaneous grains: +30.82 percent

9. Broadcast & wireless communications equipment: +29.14 percent

10. Goods returned from Canada: +28.75 percent

In terms of manufacturing, and advanced manufacturing, sectors versus lower-value sectors, this China list looks slightly less worrisome in competitiveness terms than the global list below:

1. Non-diagnostic biological products: +856.00 percent.

2. Switchboard and switchgear apparatus: +437.35 percent

3. Oil and gas field machinery and equipment: +130.00 percent

4. Iron and steel: +76.25 percent

5. Surgical appliances and supplies: +71.55 percent

6. Printed circuit assemblies: +47.08 percent

7. Crude oil and natural gas: +45.30 percent

8. Primary aluminum: +42.73 percent

9. Turbines and turbine generator sets: +39.46 percent

10. Copper and nickel ores: +35.96 percent

Needless to say, over longer periods of time, China has significantly closed the competitiveness gap with the United States, and has done so faster than the rest of the world. Over the last year, however, these trade data indicate that China has gained little, if any, ground, by either measure. Holding the competitiveness line, vis-a-vis China or vis-a-vis other trade competitors, is certainly a better performance than the United States generally has registered recently. But it’s doubtful whether many Americans would agree that it’s good enough.    

(What’s Left of) Our Economy: America’s China Trade by the (Industry-Specific) Numbers

Tags

China, commodities, energy, exports, imports, manufacturing, Trade, trade deficit, trade surplus, {What's Left of) Our Economy

Last week, RealityChek analyzed in great industry-by-industry detail new government data illuminating U.S. trade trends for the first half of this year. This week, we’ll see how leading sectors of the American economy have fared versus Chinese competition during that period, and how it compares with their performance during the first half of last year. And we’ll also examine how America’s China trade in these respects compare with the nation’s global trade performance.

As with the global trade data presented last week, the industry categories used are those of the most granular level of the North American Industry Classification System (NAICS), the federal government’s main system for slicing and dicing industry-specific economic data. I like this six-digit level because it draws the greatest number of distinctions between final manufactured products and the parts and components of these products. This distinction is critical because the rapid growth in recent decades of global supply chains (i.e., the rapid growth of American production offshoring) means that a large percentage of U.S. and global trade consists of trade in these manufacturing inputs.

Two other technical notes: First, because trade data for major aerospace products aren’t made public in order to protect corporate information considered proprietary, the six-digit NAICS results in this sector are unreliable, and the five-digit level data are being used. Second, because the release of services trade data lags considerably, these RealityChek reports cover only goods trade (which still comprises the vast majority of U.S. trade flows).

Let’s start with a list of the nation’s top ten goods exports to China for the first half of this year, and how their performance has changed in dollar terms since the first half of 2016:

1. Aerospace: -10.7 percent

2. Autos & light trucks: +26.0 percent

3. Soybeans: +30.6 percent

4. Waste & scrap: +19.2 percent

5. Semiconductors & related devices: -2.7 percent

6. Crude oil & natural gas: +3,250.2 %

7. Plastics materials & resins: +32.3%

8. Semiconductor production machinery: +7.1 percent

9. Pharmaceuticals: +45.2 percent

10. Miscellaneous basic organic chems: +15.7 %

And here’s the list of America’s top ten worldwide goods exports, and how these levels have changed since the first half of 2016:

1. Aerospace: -4.0 percent

2. Petroleum refinery products: +26.1 percent

3. Autos & light trucks: -8.5 percent

4. Special classification provisions: +9.7 percent

5. Semiconductors & related devices: +4.7 percent

6. Miscellaneous auto parts: +1.4 percent

7. Miscellaneous basic organic chemicals: +3.7 percent

8. Pharmaceuticals: +3.9 percent

9. Plastics materials & resins: +6.3 percent

10. Primary smelted non-ferrous metals: +54.0 percent

Both lists contain mainly advanced manufactured products, which is good for the U.S. economy because these sectors are great performers in terms of high wage job creation, innovation, and (historically, anyway) productivity growth. But some important differences between the lists can be seen, too. For example, the year-to-date swings in the China trade flows generally are much greater – both where American exports have risen and where they’ve fallen.

And then there’s the rocket ride taken by American crude oil and gas exports to China. These shipments alone accounted for more than 22 percent of the period’s increase in total U.S. goods exports to China. But how can that pace possibly continue?

Also noteworthy: The big increase in American car and light truck exports to China. Given the PRC’s ambitious plans to become a major automotive production power, (though one whose own output is still dominated by foreign- brand products) how much longer will Beijing remain content to import so many vehicles from abroad?

Speaking of imports, here’s the list of the top ten U.S. goods purchases from China and how they’ve changed between January-to-June, 2016 and January-to-June this year:

1. Broadcast & wireless comm: +26.4%

2. Computers: +7.9 percent

3. Telecomms equipment: +18.2 percent

4. Computer parts: -19.2 percent

5. Games, toys, childrens’ vehicles: +7.1%

6. Printed circuit assemblies: +50.0 percent

7. Audio & video equipment: -15.0 percent

8. Miscellaneous plastics products: +7.1%

9. Institutional furniture: +8.5 percent

10. Metal household furniture: +10.3 percent

And for comparison’s sake, here’s the corresponding list of America’s leading global goods imports:

1. Autos & light trucks: +4.5 percent

2. Crude oil & natural gas: +53.7 percent

3. Pharmaceuticals: +2.3 percent

4. Goods returned from Canada: +4.3 percent

5. Broadcast & wireless communications equipment: +10.3 percent

6. Computers: +6.2 percent

7. Telecomms equip: +8.2 percent

8. Aerospace products: -3.4 percent

9. Petroleum refinery products: +22.2 percent

10. Semiconductors & related devices: -6.4 percent

Unlike the global imports list, the China imports list is entirely comprised of manufactured goods. But they’re hardly all high-value manufactures. Indeed, four of the ten categories consist of relatively simple consumer goods, and three more fall into the consumer electronics area (including that leading broadcast and wireless communications sector, which contains smartphones). The only entry that qualifies as capital- and technology-intensive is telecomms equipment (although the Chinese content of consumer electronics products, and indeed of China’s exports generally, is rising strongly by all accounts).

As with U.S. worldwide trade, however, the big test of America’s competitiveness in China trade consists of the trade balance figures. For mainstream trade theory teaches that products that countries trade most successfully will turn out to be products that countries make most successfully.

So here are the U.S. goods categories running the biggest trade surpluses with China, and how these surpluses have changed between the first six months of last year and the first six months of this year:

1. Aerospace products: -11.58 percent

2. Autos & light trucks: +14.46 percent

3. Waste & scrap: +17.92 percent

4. Crude oil & nat gas: +3,228.07%

5. Plastics materials & resins: +29.94%

6. Semiconductor production machinery: -1.91%

7. Liquid natural gas: +66.25 percent

8. Sawmill products: +24.96 percent

9. Non-poultry meat products: +2.83%

10. Pulp mill products: +6.09 percent

If you agree that advanced manufacturing’s fortunes are central to the U.S. economy’s fortunes, this list is only mildly encouraging, at very best. Yes, the top two categories merit that label, along with plastics materials and resins and semiconductor machinery. But two of those surpluses have shrunk over the past year. And all the other categories are commodities or low-value products. They’re also the categories that saw the greatest trade surplus improvements.

Here are the biggest surplus sectors in America’s worldwide trade:

1. Aerospace products: -2.03 percent

2. Petroleum refinery products: +33.11 percent

3. Plastics materials & resins: +4.73 percent

4. Soybeans: +28.21 percent

5. Other special classification provns: +7.13 percent

6. Corn: +20.26 percent

7. Waste & scrap: -7.82 percent

8. Liquid natural gas: +56.54 percent

9. Semiconductor production machinery: +64.73 percent

10. Non-anthracite coal & natural gases: +223.22 percent

Interestingly, this global list is even more low-value and commodity-heavy than the list of the biggest bilateral China deficit categories. Moreover, here, too, it’s mainly the commodity and lower value products that have seen the biggest improvements in these surpluses.

Finally, let’s examine the biggest deficit categories in America’s trade with China, and how they compare with the global results. First, the China figures and how they’ve changed on a year-to-date basis:

1. Broadcast & wireless communications equipment: +29.14%

2. Computers: +7.56 percent

3. Telecomms equipment: +19.46 percent

4. Computer parts: -20.75 percent

5. Games, toys, children’s vehicles: +7.05%

6. Printed circuit assemblies: +49.77%

7. Audio & video equipment: -15.52%

8. Miscellaneous plastic products: +6.88%

9. Institutional furniture: +8.61 percent

10. Metal household furniture: +10.28%

The biggest total U.S. goods trade deficit categories and their similar increases and decreases?

1. Autos & light trucks: +10.64 percent

2. Crude oil & natural gas: +45.31 percent

3. Goods returned from Canada: +4.25 percent

4. Computers: +1.16 percent

5. Broadcast & wireless communications equipment.: +11.06 percent

6. Telecomms equipment: +19.10 percent

7. Printed circuit assemblies: +47.12 percent

8. Audio & video equipment: -11.50 percent

9. Institutional furniture: +8.56 percent

10. Iron & steel: +76.28 percent

On the value-added scale, the two sets of figures look pretty comparable. But here’s something revealing: Six of the categories appear on both lists, which certainly squares with the idea that the U.S. trade deficit problem is largely a China trade deficit problem. Something else revealing: Tariffs work. Just look at how important iron and steel are on the worldwide deficit list, but don’t even appear on the China deficit. That’s largely because of the steep punitive duties slapped on Chinese steel starting in 2015.

Next up: Which major sectors of America’s goods economy have seen the biggest year-to-date improvement and deterioration on the China goods front, and what do those figures augur for the nation’s economic, industrial, and technological future?