Our So-Called Foreign Policy: The Uses and Mis-Uses of Thucydides

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balance of power, China, Destined for War, East Asia, foreign policy, geopolitics, globalism, Graham Allison, international order, internationalism, Our So-Called Foreign Policy, realism, strategy, The History of the Peloponnesian Wae, Thucydides, Thucydides Trap

It’s always great to learn that U.S. leaders are working hard to use history to inform their policy decisions – unless they’re completely misreading the relevance of lessons of the past to America’s current circumstances, as could well be the case with senior Trump administration officials and their fascination with Thucydides’ History of the Peloponnesian War.

Don’t get me wrong: This chronicle of conflicts between ancient Athens and Sparta is a genuine classic both of military history and international relations theory. I hold it in particularly high regard because it contains a seminal argument for viewing the latter through a “realist” lens, emphasizing that countries act, in the words of one recent description, “out of pragmatic self-interest, with little regard for ideology, values or morality.”

But according to an account that came out last week (and that hasn’t been denied), top Trump foreign policy and national security aides are viewing Thucydides as a valuable guide to answering the question of whether war between the United States and China is inevitable. And their interest in the History has been encouraged by the work of a leading modern scholar, Harvard University’s Graham Allison. Allison has applied what’s widely regarded as Thucydides’ main conclusion – that established powers find it intrinsically and understandably difficult to deal with rising powers peacefully – to the U.S.-China situation, and in the process, he’s drawn a lot of attention in Beijing as well as Washington.

But there’s a major problem with focusing on whether the United States and China are stuck in a “Thucydides Trap” that makes war just about inevitable (Allison is not nearly so pessimistic), and examining past international rivalries for insights (his major contribution to the debate). As with so many mainstream analyses of American foreign policy for decades, Allison – and the Trump-ers apparently paying him heed – have completely forgotten the distinctive geopolitical and economic advantages the United States brings to international relations.

As I’ve written previously, the United States enjoys the kind of geographic isolation, military power, and capacity for economic self-sufficiency that enables it to view most overseas developments with relative indifference – provided that it maintains these strengths. And for all the important nuance he brings to his treatment of U.S.-China relations, it’s clear that Allison has overlooked what’s genuinely special about the American position, too.

Although I haven’t read Allison’s full Thucydides Trap book yet, I have read this lengthy magazine version. And it shows unmistakably that his warning that “Based on the current trajectory, war between the United States and China in the decades ahead is not just possible, but much more likely than recognized at the moment” accepts the same longstanding American globalist assumptions that have led to so many costly U.S. foreign policy mistakes since the end of World War II.

For example, Allison has a great deal to teach if it’s true that the United States has an intrinsic need to worry greatly about developments or questions like

>”a rising power…threatening to displace a ruling power”:

>”a rapid shift in the balance of power between two rivals”:

>”the rising power’s growing entitlement, sense of its importance, and demand for greater say and sway”;

>the fact that “Never before in history has a nation risen so far, so fast, on so many dimensions of power”:

>whether China is “restored to its rightful place, where its power commands recognition of and respect for China’s core interests”;

>whether “the growing trend toward a multipolar [as opposed to a U.S.-led] world will not change”;

But nowhere has he made this case for these concerns. Indeed, by and large, like other mainstream analysts and leaders, he simply assumes their crucial importance, without explaining how they could affect the nation’s safety, independence, and well-being directly and decisively.

Allison (along with the rest of the foreign policy mainstream, whose dominance is as complete on the conventional American Left as on the Right) gets more specific, and his analysis becomes more useful, when he raises questions like: ”Could China become #1? In what year could China overtake the United States to become, say, the largest economy in the world, or primary engine of global growth, or biggest market for luxury goods?”

And he identifies and expresses even more concrete core mainstream worries:

>First, whether China’s “current leaders [are] serious about displacing the U.S. as the predominant power in Asia?”’

>Second, both more broadly and more centrally “the impact that China’s ascendance will have on the U.S.-led international order, which has provided unprecedented great-power peace and prosperity for the past 70 years.”

But like the first set of worries, even these concerns should be treated as first-order issues by Americans only if they assume that, as with much less secure and inherently wealthy powers, either their security, prosperity, and independence are crucially reliant on the international environment, or that these aims are much more safely and efficiently achieved through international activism than through enhancing their abilities to deal with challenges and withstand crises acceptably in a turbulent international environment.

If the long-held globalist views stressing America’s relative vulnerability or dependence are accepted, then all of Allison’s questions remain vital – from the least tangible (like whether China wins more influence overall) to the most (whether China wants to replace the United States as Asia’s kingpin). And the fate of that “U.S.-led international order” (including preserving American primacy in Asia) ultimately matters most of all because it’s seen to be the only acceptable or only feasible guarantor of a satisfactory national future.

If, however, that assumption about the present international order is fatally flawed, then even subjects like the relative overall balance of power between the United States and China become secondary. They would logically cede pride of place to the issue of whether America’s power (in any dimension) is adequate to achieve specific national objectives or maintain valued national advantages. For even though relative power will of course influence success or failure, in the final analysis, the decisive consideration is whether that power is sufficient to achieve those particular successes and maintain those particular advantages, not whether America in some general sense “matches up” with other countries.

As always with these posts on overall foreign policy strategy, the main takeaway here isn’t that Allison and the other globalists are wrong and that I’m right. The main point is that the globalist school has – wittingly or not – long not only opposed, but defined out of existence, alternative approaches to security and prosperity that dovetail well with many of the nation’s most conspicuous strengths.

Here’s another way to put it: In his article, Allison expressly states that his detailed look at “16 cases over the last 500 years in which there was a rapid shift in the relative power of a rising nation that threatened to displace a ruling state….” But all entailed “the struggle for mastery in Europe and Asia over the past half millennium….” When globalists like him can explain why the geopolitical and economic similarities between the United States and these historic powers – or between ancient Athens and Sparta – count much more than the differences, they’ll be entitled to claim victory in their on-again-off-again debate with those favoring less ambitious over America’s foreign policy strategy. Until then, however, their opponents will be entitled to claim that they’ve managed to avoid the biggest questions.

Our So-Called Foreign Policy: Trump’s China Strategy Seems Troublingly Silo-ed

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CFIUS, China, Committee on Foreign Investment in the United States, Diplomatic and Security Dialogue, foreign direct investment, industrial policy, James Mathis, mercantilism, national security, Our So-Called Foreign Policy, Rex Tillerson, semiconductors, Steven Mnuchin, super-computing, technology transfer, Trump, Wilbur Ross

Secretary of State Rex Tillerson and Secretary of Defense James Mathis are meeting with Chinese counterparts today in Washington, D.C. to conduct a “Diplomatic and Security Dialogue” – a stripped down Trump administration version of some of the ginormous official bilateral sessions the two countries have held periodically in recent years.

It’s unclear whether these talks will turn out to be more than the elaborate gabfests their predecessors quickly became. But it’s much clearer that their potential to contribute significantly to America’s security will be limited unless the administration starts taking many more urgently needed steps to move the nation’s Asia grand strategy into the twenty first century. And the major missing piece of this effort continues to be a serious effort to deny China the advanced technologies it will need to continue becoming a more formidable military competitor.

Some promising decisions have been taken, or are being considered. For example, Commerce Secretary Wilbur Ross is thinking of launching a national security review of U.S. trade in semiconductors with an eye toward fending off what he describes as an increasingly dangerous Chinese challenge in this defense-critical sector. Mathis and Treasury Secretary Steven Mnuchin have both publicly called for updating the interagency U.S. government process for screening prospective Chinese and other foreign investments in all defense-related companies (the Committee on Foreign Investment in the United States, or CFIUS). And they along with Ross have strongly suggested that they’re thinking of redefining the relevant statute’s mandate to include economic dimensions of national security. Just as encouraging, prominent members of Congress are drafting legislation along these lines.

And most recently, the administration has announced a big new effort to ensure continued American leadership over China in super-computing (although the semiconductor industry isn’t happy with some other features of Mr. Trump’s stance on federally sponsored research and development).

Moreover, the Trump administration is responding to the Chinese challenge much more promptly than its predecessor, which prioritized this cluster of problems very late in its tenure. Its proposed responses to mercantile Chinese industrial policies in technology industries were especially weak beer.

But as with the Obama administration, Team Trump seems to be paying little attention to the continued outflow of cutting-edge defense-related American knowhow to China – including to entities that are unquestionably controlled by the Chinese government. It’s unmistakably paying much less attention to these investments than to spending billions more to upgrade American military forces in East Asia – which of course could wind up facing Chinese weapons based on U.S. tech advances.

Today’s U.S.-China talks in Washington are due to be followed up later this summer by a session devoted to economics. Maybe by then, President Trump and his advisers will be pursuing the comprehensive, integrated approach that meeting the China challenge adequately requires?

(What’s Left of) Our Economy: Will Trump Take Ford’s New China Trade Hint?

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(What's Left of) Our Economy Trump, automotive, border adjustment tax, China, Ford Motor Company, imports, Jobs, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, offshoring, tariffs, trade agreements, trade balances, Trade Deficits

President Trump and his administration have certainly been active on the trade front in their first months in office, both in word and deed. The question remains whether they’ve been effective, and a breaking news story has just added powerfully to the doubters’ case.

The news has to do with Ford Motor Company’s announcement that it will scrap plans to relocate its remaining small car production from the United States to Mexico and supply the American market from an existing plant in Hermosillo, and instead import the vehicles from a retooled factory in China. The initial Ford production decision came under fire from Mr. Trump, and the company’s reaction – a rejiggered Mexico plan – looked chancy for two main reasons:

First, the president had declared his intention to renegotiate the North American Free Trade Agreement (NAFTA) in large measure to stop such production offshoring. Second, the staunchly pro-trade Republican leaders of the GOP-controlled House of Representatives had been pushing a border adjustment tax proposal that would have imposed new costs on imports from anywhere.

Ford has now underscored why both opponents and supporters of a transformed, less import-friendly U.S. trade policy have been right in one of their major criticisms of Mr. Trump’s emerging strategy: A tight focus on bilateral trade issues and balances overlooks the ability of multinational companies to shift export-oriented production in order to evade country-specific tariffs or other trade curbs.

Not that business’ ability to hopscotch is unlimited. The massive level of sunk corporate costs in export-focused production in China, for example, won’t always be easy to walk away from. And not all countries offer comparable advantages to manufacturers. So given, for example, that China accounts for more than 43 percent of the American merchandise trade deficit, or that Mexico’s geography makes it such an unusually attractive base for selling to U.S. customers, focusing on individual-country or regional priorities often makes good sense.

It’s also legitimate in principle to base trade preferences on non-economic aims, like national security (e.g., rewarding allies or strengthening third world economies against the appeal of terrorism) – though Mr. Trump has expressed strong skepticism for this approach, notably in his Inaugural Address. And of course, prioritization is often the key to any successful public policy.

But what’s especially strange about the Trump trade strategy so far is the president’s indifference – at best – to the border adjustment tax idea. On top of undercutting corporate tariff arbitrage strategies by levying a tax on all imports (and encouraging exports), the measure would also bring in revenue needed to finance crucial domestic needs like infrastructure and healthcare reform without completely busting the federal budget. And its passage would by no means preclude addressing special trade priorities of all kinds with additional restrictions.

Ford’s new production announcement is just the latest in a series of comments from Corporate America that bear out one of President Trump’s central insights: that trade policy changes can decisively influence corporate sourcing decisions to America’s benefit. Now, however, he needs to recognize that his essential goal of using trade restrictions to lure valuable manufacturing production and jobs back to the United States requires policies with global scope. The half- (at best) measures he’s favored so far are just too easily gamed.

(What’s Left of) Our Economy: U.S. Productivity Remains in the Doldrums

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China, Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, offshoring, productivity, reshoring, World Trade Organization, WTO, {What's Left of) Our Economy

The Labor Department reported earlier this week that America’s labor productivity flat-lined at an annual rate between the last quarter of last year and the first quarter of this year. And relatively speaking, that was good news. The initial study of this measure of economic efficiency – and key determinant of the nation’s living standards – estimated that business labor productivity in the non-farm business sector (the government’s main proxy for the entire economy) fell at an annualized 0.6 percent.

Labor productivity, you may recall, is the narrowest of two measures of productivity. It gauges how much in the way of stuff or services Americans produce per hour of work from each worker. So the resulting picture isn’t as complete as that provided by multi-factor productivity – which as the name suggests looks at production per man or woman hour generated by many different inputs. But the labor numbers come out on a much timelier basis (each quarter), and for all the unusual amount of uncertainty that economists admit when they analyze productivity, they’re viewed as being reasonably reliable.

One small consolation, especially if you value manufacturing highly (as you should): Industry’s labor productivity not only grew quarter-to-quarter during the first three months of 2017 (by 0.50 percent annualized). It grew faster than the original estimate of 0.40 percent.

Manufacturing’s role as the economy’s productivity leader is also crystal clear upon reviewing the longer-term trends. During the 1990s expansion (as known by RealityChek regulars, comparing similar phases of the business cycle produces the most informative data), non-farm business labor productivity increased by 23.25 percent, while manufacturing labor productivity improved by 46.18 percent.

That recovery was America’s longest on record – just under ten years. The next expansion, during the bubble decade that preceded the financial crisis, lasted only six years. Non-farm business labor productivity rose by about the same annual pace as during the 1990s – 16.03 percent. But manufacturing labor productivity grew even faster year-by-year, advancing by 41.22 percent during the entire period.

The story is as different during this recovery as it is depressing. Although it’s so far been nearly as long as the 1990s recovery (having started nine years ago), the improvement in non-farm business labor productivity has been just 8.05 percent overall. For manufacturing, it’s been much higher – 21.55 percent – but relatively speaking, it’s a big fall-off.

Incidentally, undoubtedly one big reason for manufacturing’s excellent productivity performance during that bubble decade has to do with production offshoring. As I’ve written repeatedly, the way labor productivity is calculated results in productivity gains being recorded when businesses send jobs overseas, as well as when they use other techniques for saving labor or using their employees more effectively. And because the United States helped China enter the World Trade Organization at the start of that decade, and thus assured multinational companies that they’d remain overwhelmingly free to supply the American market from Chinese factories, that bubble decade was a major manufacturing offshoring decade.

The fall in productivity growth could indicate that, as widely claimed, manufacturing offshoring has dropped off significantly. But the evidence is mixed at best. What’s much more apparent is that, if Americans want their country’s productivity performance to rebound, they’ll press their leaders to make robust growth in domestic manufacturing a much higher priority.

(What’s Left of) Our Economy: Being Tom Friedman Means Never Having to Say You’re Sorry About China Trade

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China, Mainstream Media, protectionism, pundits, The New York Times, Thomas Friedman, Trade, World Trade Organization, WTO, {What's Left of) Our Economy

Uber-pundit Thomas Friedman’s New York Times column this week about China demonstrated both that “better late than never” may not always be true, and that there’s precious little accountability in the Mainstream Media. Too bad he performed both vital tasks completely unwittingly?

As he traveled through China recently, Friedman told us, his conviction grew that, as President Trump has been charging, “China is not playing fair on trade and has grown in some areas at the expense of U.S. and European workers….” Moreover, he adds, this China challenge “needs to be addressed — now.”

Continued Friedman: “The core problem, U.S. and European business leaders based in China explained, is that when the U.S. allowed China to join the World Trade Organization in 2001 and gain much less restricted access to our markets, we gave China the right to keep protecting parts of its market — because it was a ‘developing economy.’ The assumption was that as China reformed and become more of our equal, its trade barriers and government aid to Chinese companies would melt away.

“They did not.”

And Friedman did a pretty good job of summarizing what RealityChek regulars and so many others have known for years – that China’s mercantilism became considerably worse.

The author ended his piece with a (sort of) ringing call for action: “China needs to know that some people who disagree with everything else Trump stands for — and who value a strong U.S.-China relationship — might just support Trump’s idea for a border-adjustment tax on imports to level the playing field.”

But Friedman also included this kicker: According to someone he called “the smartest person I know inside China on trade (who will have to go nameless),” such actions “if anything… may be too late.”

As the author’s reaction – “Ouch!” – suggests, there’s a distinct possibility that his source is right about the consequences of waiting sixteen years to grapple seriously with China’s predatory practices.

But here’s what Friedman didn’t tell you: One of the folks who pushed vigorously for the boneheaded American WTO decision was none other than Thomas Friedman! As he wrote in 2000, opponents of China’s admission, like U.S. labor unions, were “head-in-the-sand” protectionists. Nor did Friedman seem to think much of fears that “China’s entry into the WTO will make it a more formidable geopolitical rival to the United States.”

Instead, he confidently wrote that “to say that [admission] will hurt the cause of democratization in China or that it won’t help create more islands from which Chinese democrats can operate and more tools by which they can communicate, is to speak utter nonsense.”

Interestingly, by 2011, Friedman seemed to be having important second thoughts about China’s reformist intentions. But he still doggedly opposed meaningful actions to neutralize Beijing’s currency manipulation, for example, with tariffs.

Since no one likes to admit mistakes – especially whoppers – I can certainly understand Friedman’s failure to report his enthusiasm for a China trade strategy he now recognizes as a titanic failure. Much less clear is why so much of the rest of the Mainstream Media – and especially news talk shows who view him as a globalization oracle – keep giving him a pass.

(What’s Left of) Our Economy: April’s U.S. Trade Figures Sure Weren’t Winners

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China, economic growth, exports, GDP, Germany, gross domestic product, high tech goods, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, Trade, trade deficit, {What's Left of) Our Economy

Since last Friday was one of those days when both the U.S. jobs figures and trade figures were released the same morning, and since I was traveling that day, I didn’t get a chance to report on the latter as promptly as usual. But that doesn’t mean the trade figures should be overlooked! Here’s a quick rundown of the high- (or low-) lights, which cover the month of April:

>The combined goods and services U.S. trade deficit rose by 5.15 percent on month, from $45.28 billion to $47.62 billion. But for a change, the big news in this total trade shortfall category was in the revision for the March gap – it was upgraded from an initially reported $43.71 billion. That’s a ginormous 3.61 percent.

>Total exports fell sequentially in April by 0.25 percent, from $191.46 billion to $190.98 billion, and total imports increased from $236.74 billion to $238.59 billion, or 0.78 percent.

>And quite naturally, the March revisions were substantial, too. That month’s combined export total was upgraded by 0.25 percent, and the much larger combined import total revised up by 0.87 percent.

>Also disturbing about the new trade figures: They show that for the first four months of this year, the total trade deficit is up by 13.43 percent on a year-to-date basis. That’s more than four times as fast as the total economy grew between the first quarter of last year and the first quarter of this year (4.08 percent – both these figures are in pre-inflation dollars).

>With Germany’s trade policies in the Trump administration’s cross-hairs and therefore in the news, it’s noteworthy that the U.S. merchandise shortfall with Germany grew sequentially by 5.43 percent, to $5.48 billion in April. That’s the highest monthly total since last August’s $6.05 billion.

>U.S. goods imports from Germany fell by 4.11 percent sequentially, but America’s goods exports sank on month by 15.34 percent.

> At the same time, the Germany goods deficit is down by 5.24 percent year-to-date.

>Of America’s other major trade partners, only the merchandise deficit with China increased significantly on month – from $24.58 billion to $27.63 billion, or 12.42 percent.

>U.S. goods exports to China advanced by 2.22 percent, but imports rose by 9.55 percent.

>The U.S. merchandise trade deficit with China is 4.21 percent larger in the first four months of this year than it was the first four months of last year.

>The April manufacturing trade deficit of $70.31 billion was just 0.79 percent higher than March’s $69.76 billion. Manufactures exports were off by 7.91 percent sequentially, while the much greater amount of imports fell by just 4.27 percent.

>Year to date, the manufacturing trade deficit looks set to establish yet another annual record. At $276.12 billion, it’s already running 6.20 percent ahead of last year’s pace.

>For the first four months of this year, manufacturing exports are up by 3.44 percent, but imports are 4.64 percent higher.

>The story is even worse in high tech goods. The trade shortfall actual dipped by 0.49 percent on month in April – from $6.07 to $6.04 billion. Exports were 8.28 percent lower than in March, and imports were off by 7.01 percent.

>Year-to-date, however, the high tech trade gap is up by 36.69 percent – from $18.37 billion to $25.11 billion. Exports have inched up by 0.25 percent, but imports are 5.42 percent higher.

>The U.S. trade deficit in oil fell by a sharp 35.56 percent sequentially in April, from $8.43 billion to $5.43 billion – the lowest monthly total since last September ($5.13 billion).

>But the April non-oil goods deficit of $61.71 billion was 9.22 percent higher than March’s $56.50 billion. It was also the highest monthly total for this shortfall – which is heavily influenced by U.S. trade agreements and other trade policy decisions – since March, 2015’s $61.74 billion (the highest monthly figure in a data series that goes back to 1992).

>Moreover, in real terms, the April non-oil goods deficit climbed 7.62 percent on month, to $62.04 billion. That’s also the highest total since March, 2015’s $62.80 billion (which was another all-time high).

>Since the headline U.S. government data on changes in the gross domestic product (GDP) are adjusted for inflation, this lofty figure for the real non-oil goods deficit indicates that this Made in Washington shortfall’s growth will drag on economic growth in the second quarter of this year.

Our So-Called Foreign Policy: An Asia Grand Strategy that Still Looks Like America Last

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Asia, Barack Obama, China, Defense Department, export controls, John McCain, military spending, neoconservatives, Our So-Called Foreign Policy, pivot, technology transfer, The Wall Street Journal, Trump

It looks like the Trump administration is going All Neocon on its Asia grand strategy. Or is it All Obama? Interestingly, both approaches have shared the same main features, and depressingly, both are dangerously incoherent and disturbingly resemble the course that Mr. Trump apparently has chosen to follow. .

The essence of neoconservative strategy in Asia consists of bloviating about the risks to America’s national security from China in particular, pushing for a stronger American military response, and with equal vigor backing economic policies that inevitably boost China’s military strength. And the quintessential example is Republican Senator John McCain of Arizona.

McCain has voted for his entire career in favor of the U.S. trade policy decisions that have enabled China to amass literally trillions of dollars worth of trade surpluses with the United States, and therefore finance an enormous military buildup that he himself has warned directly threatens American interests in Asia. He’s periodically voiced concerns about the lax U.S. export controls that have enabled China to secure some of America’s best defense-related technology. But he’s never sponsored any steps capable of solving this problem.

What McCain has focused on has been boosting military spending and stationing more of these forces, in large part to counter burgeoning Chinese ambitions. And recent Trump administration moves make clear that the president and his top advisers have been listening. As The Wall Street Journal reported earlier this month:

“The Pentagon has endorsed a plan to invest nearly $8 billion to bulk up the U.S. presence in the Asia-Pacific region over the next five years by upgrading military infrastructure, conducting additional exercises and deploying more forces and ships….The proposal, dubbed the Asia-Pacific Stability Initiative, was first floated by Sen. John McCain (R., Ariz.) and has been embraced by other lawmakers and, in principle, by Defense Secretary Jim Mattis and the head of U.S. Pacific Command, Adm. Harry Harris. Proponents haven’t developed details of the $7.5 billion plan.”

The Journal account goes on to remind readers that the Obama administration had pursued its own military “pivot” to Asia, but that it was “disparaged by critics as thin on resources and military muscle.” And of course, the former president refused to respond effectively to China’s predatory trade practices, and only very late in his second term began rethinking flood of advanced defense-related knowhow to the PRC.

President Trump has of course spoken repeatedly of acting forcefully to overhaul America’s China trade policies. But his administration’s actions so far have fallen far short of this mark.

The mind-blowing upshot: In a military conflict with China, the United States forces could find themselves fighting against, and taking casualties from, Chinese units and weapons that have been paid for and researched by their enemy. Is that the kind of first so many Americans voted for?

(What’s Left of) Our Economy: The Alternative Facts Behind America’s China Trade Policy

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alternative facts, Bill Clinton, Charlene Barshefsky, China, exports, imports, Long Yongtu, manufacturing, offshoring, services, The Wall Street Journal, Trade, trade law, U.S. Trade Representative, USTR, World Trade Organization, WTO, {What's Left of) Our Economy

After reading her interview with The Wall Street Journal, it’s hard to tell whether Clinton-era chief U.S. negotiator Charlene Barshefsky is mainly clueless or mainly arrogant. In other words, is Barshefsky oblivious to how badly she (and colleagues) botched the challenge of admitting China into the World Trade Organization (WTO)? Or is she confident that the bipartisan American economic policy establishment remains so strongly wed to this epic failure that her reputation and current cushy job as a leading trade lawyer won’t suffer in the slightest even when it’s scope is made unmistakable?

Most disturbing, nothing could be clearer from the interview – in which she was joined by one of her former top Chinese counterparts – that her views on the WTO deal and those of Beijing are as close, as the Chinese like to say, “as lips and teeth.” The only significant difference: then Chinese vice commerce minister Long Yongtu denies that his country’s economic reform efforts have gone off the rails in recent years. Barshefsky insists that China “has stopped the process of economic reform and opening and that, instead, has put in place a spate of measures that are zero sum. They’re highly mercantilist and discriminate against U.S. and foreign companies.”

That’s nice to hear. But this claim also underscores how completely blindsided Barshefsky, the rest of the Clinton administration, and the rest of the powers-that-be in American government, business, and academe were by an about-face in a country with a recent history of political instability and course changes, and no record of viewing trade as a positive-sum game or economic openness as a crucial objective in and of itself.

Barshefsky also demonstrates her belief that the phony promises that fueled the Clinton administration’s successful drive to secure China’s WTO entry still hold water – at least with the high and mighty. For example, according to Barshefksy, “The U.S. didn’t alter its trade regime, nor did any other country alter its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.” But as she surely knows, WTO membership won for China substantial immunity from the national trade law system the United States historically had used to safeguard its legitimate trade interests unilaterally. Once China entered the WTO, Washington’s internationally recognized responses to China’s predatory trade practices largely depended on the assent of the WTO membership – which has been numerically dominated by economies that were major users of Chinese style protectionism.

Barshefsky continues to claim that the safeguards she negotiated with China were adequate to protect domestic industries – at least temporarily – from surges of Chinese imports. The only problem, she contends, is that these mechanisms were “”almost never used.” What Barshefksy omitted, however, was that the big U.S.-based multinational manufacturers that lobbied so lavishly and successfully on behalf of China’s entry were also offshoring production and jobs like crazy to China largely to supply the America market much more cheaply. Limiting America’s imports from China, especially from factories with which they were linked, was the last thing they wanted.

According to Barshefsky, the post-WTO ballooning of the U.S. goods trade deficit with China can be brushed aside because “we have a substantial services surplus with China.” It’s too bad she didn’t provide any numbers, but not at all surprising – since that surplus last year was only about a tenth as big ($37.4 billion) as the merchandise shortfall ($347 billion). Moreover, the manufacturing-heavy nature of this merchandise deficit – which is increasingly comprised of advanced manufactures – should concern all Americans.

And finally, Barshefsky repeated the widely expressed canard that “the trade deficit is a function of macroeconomic factors. Principally, the difference between what Americans save, which is nada, and investment, which is plentiful.” But the relationship between national trade balances and savings rates is simply a mathematical identity – which by definition says “nada” about causation. Indeed, there are plenty of reasons to suppose that, the more the trade deficit grows, the lower the savings rate is bound to become.

Yet interviewing Barshefsky has at least performed one public service. It reminds Americans that alternative facts began shaping the nation’s politics and policy long before the last presidential election.

Im-Politic: Trump’s Accusers on Mishandling Intelligence Have Lots to Explain Themselves

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China, Im-Politic, intelligence, James Clapper, leaks, Russia, Stephen A. Hall, The New York Times, Trump, Washington Post

There was a funny article in today’s Washington Post Outlook section – not “ha ha” funny but funny in the sense that life serves up some coincidences that the adjective “embarrassing” doesn’t come close to covering.

The piece in question came from Stephen A. Hall, described as a 30-year veteran of the CIA’s Russia (and presumably Soviet) operations, and it went after President Trump for sharing intelligence information irresponsibly with Russia and thereby going far toward convincing valuable U.S. allies that his administration can’t be trusted with crucial strategic secrets.

Let’s leave aside the indisputable reality that the Soviet operations “run and managed” by Mr. Hall were completely blindsided by the fall of the Soviet Union – arguably the most important geopolitical development of the final half of the twentieth century. Let’s also leave aside that its Soviet operations were the scene of some of America’s most damaging intelligence failures when Hall was around. (Although I’m sure he wasn’t solely or even largely to blame.)

Let’s focus instead on an article that ran the very same day in The New York Times. It reported that “The Chinese government systematically dismantled C.I.A.spying operations in the country starting in 2010, killing or imprisoning more than a dozen sources over two years and crippling intelligence gathering there for years afterward.”

The reason? An “intelligence breach” that according to The Times was “one of the worst in decades.” Indeed, the article continues, “The number of American assets lost in China, officials said, rivaled those lost in the Soviet Union and Russia during the betrayals of both Aldrich Ames and Robert Hanssen, formerly of the C.I.A. and the F.B.I., who divulged intelligence operations to Moscow for years.”

And when did Beijing manage in effect to destroy the American spy network in China? Reported The Times, “From the final weeks of 2010 through the end of 2012, according to former American officials….” Further, the article adds, this “previously unreported episode shows how successful the Chinese were in disrupting American spying efforts and stealing secrets years before a well-publicized breach in 2015 gave Beijing access to thousands of government personnel records, including intelligence contractors.”

Anyone remember who was in charge of the U.S. government and its intelligence community during those years? Aside from Barack Obama, there was also one James R. Clapper, Jr., who was named Director of National Intelligence in August, 2010, and who of course has emerged as one of President Trump’s chief critics. For good measure, Clapper was promoted to that position from the top intelligence job in the Pentagon.

More important: During his tenure as head of the nation’s espionage establishment – and during Mr. Obama’s in the Oval Office – evidently zero progress was made in identifying the moles and plugging the breach. To add possible insult to injury, Clapper also could well be one of the apparent scores of former intelligence officials who have been leaking oceans of highly classified information intended to damage the Trump administration.

Like most reporting about intelligence matters, The Times account of the CIA’s China disaster may be completely or largely or partly wrong. As a result, it will be interesting to see if there’s any pushback over the next few days. But if and until there is, Americans will be entitled to ask whether anything that the president has shared with the Russians has or is likely to damage the nation’s security or its relations with other intelligence services as the disasters associated with many of his leading attackers.

(What’s Left of) Our Economy: New Peterson Pro-Globalization Study Only Deserves a “Nice Try”

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China, Financial Crisis, Gary C. Hufbauer, Global Imbalances, globalization, Great Recession, Larry Summers, manufacturing, Peterson Institute for International Economics, productivity, secular stagnation, technology, Trade, trade agreements, trade liberalization, trade policy, World Trade Organization, {What's Left of) Our Economy

The Peterson Institute’s new study of the benefits to Americans of globalization apparently leaves no doubt that the nation should promptly forget about any retreat from conventional trade liberalization policies and resume its aggressive pursuit of new trade agreements like the Trans-Pacific Partnership (TPP). Or does it? A close reading of the report reveals gaping holes in these claims.

According to authors Gary C. Hufbauer and Zhiyao Lu, between 1950 and 2016, “trade expansion” has enriched the overall U.S. economy by $2.1 trillion, and boosted America’s output per head and per household by just over $7,000 and $18,000, respectively. Even better, lower-income households probably gained the most (since the greatest trade liberalization progress has been made in the goods that comprise so much of their consumption).

Yet the phrase quoted in that previous paragraph points to the first big hole in the Peterson findings. “Trade expansion’s” benefits, the authors specify, entails much more than either signing new trade deals or otherwise reducing trade barriers. It also includes “technological advances in transportation and communications [that] have drastically slashed the economic distance between countries.”

Of course, there’s been a lot of the latter over the last 66 years. What share of expanded trade’s benefits has come from trade liberalization policy decisions and what share from that technological progress? Darned if the authors know.

The long time frame, in turn, reveals a second major problem with the central argument. Obviously over that last two-thirds of a century, the world economy, and America’s position in it, have changed in numerous and fundamental ways. One prominent example: For the first roughly three post-World War II decades, the United States was the only fully intact developed country. How could trade liberalization not have been a major net benefit? America produced countless products that the rest of the world desperately needed. And none of its important industries faced significant import competition until the 1970s. That doesn’t sound much like current circumstances.

And in fact, Hufbauer and Lu acknowledge this problem, noting, for example, that “compared to previous decades, increased trade since 2003 has not delivered substantial gains.” At this point, however, their analysis gets dicey. For example, they speculate that that low recent payoff resulted partly from “the lack of fresh policy liberalization on a large scale (the failure of the Doha Round)….” But that period actually saw a hugely important liberalization initiative completed – China’s accession to the World Trade Organization. And don’t forget the numerous free trade deals signed by the George W. Bush and Obama administrations, including with South Korea’s very large economy.

Moreover, although Hufbauer and Lu rightly note that the financial crisis and Great Recession also have marked the post-2003 period, they claim that “The decade that experienced the greatest gains from increased trade was 1970 to 1980.” That decade witnessed no less than two recessions (three if you count the 1980 downturn).

Undaunted, the authors contend that returning to the trade liberalization policy course will result in even more American wealth creation. But here’s where their discussion of the post-2003 period fails badly – and unmistakably. They never mention that, thanks largely to that aforementioned boost to incredibly lopsided U.S.-China the first decade of this century produced the greatest U.S. trade deficits and associated global economic imbalances in world history. They ended in the financial crisis and the nation’s worst economic downturn since the Great Recession.

Since America’s main trade partners – including China – seem either just as export-dependent, and/or just as import-and consumption-phobic as ever, it’s difficult to understand why a return to conventional trade diplomacy, combined with the cumulative and often lagged impact of past deals (as noted by Hufbauer and Zu) wouldn’t end in near-catastrophe again.

Another big problem: Former Treasury Secretary and chief Obama economic adviser Larry Summers, along with many others, worry that the United States has fallen into an economic trap they call “secular stagnation.” They speculate that the nation has become so incapable of generating healthy growth that it’s grown dependent on blowing up credit and consumption bubbles to at least produce (misleading) signs of economic life – and that these bubble’s inevitable bursting keeps creating financial crises and serious slumps. Do Hufbauer and Zu believe that the sandbagging of domestic manufacturing (which hasn’t grown in real terms since 2006) due to import competition and offshoring isn’t partly to blame? 

Finally, and similarly, American leaders have finally recognized that the economy is experiencing a major productivity growth slowdown. Can trade liberalization’s real economic impact be measured without considering the effect on productivity of allowing all that trade damage to manufacturing, which historically has led the nation in productivity growth?  

It’s definitely encouraging that a major think tank like the Peterson Institute is looking in detail at globalization’s impact on America’s economy.  Let’s hope that its next effort reflects some actual thinking.