(What’s Left of) Our Economy: The Latest Data Remain Full of Normalization Puzzles

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Biden, CCP Virus, China, construction, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, inflation, inflation adjusted wages, labor shortages, leisure and hospitality, lockdowns, manufacturing, metals, non-oil goods trade deficit, non-supervisory workers, private sector, real wages, reopening, retail, services trade, shutdowns, tariffs, Trade, Trade Deficits, transportation, wage inflation, wages, Wuhan virus, {What's Left of) Our Economy

While I was away for a few days last week, two major U.S. government reports came out both giving off conflicting signals on on whether the economy has started to return to normal in critical ways as the CCP Virus subsides and reopening, along with consequent changes in consumer behavior, proceed.

The monthly trade figures (for April) showed a sequential decline, following a record surge, in America’s chronically huge gap between exports and much larger amounts of imports. Moreover the monthly drop took place as economic growth sped along at unusual rates after being shut down by government mandates and consumer caution. So maybe they’re an early sign that a return to immediate pre-virus conditions has begun?

Or is their most important message that these deficits, and especially the import levels, are still hovering near all-time highs in (the most widely followed) pre-inflation terms even though the economy as of the latest (first quarter) numbers is still a bit smaller in (the most widely followed) inflation-adjusted terms than during the last full pre-pandemic quarter (the fourth quarter of 2019)?

Indeed, the deficits are gargantuan even though President Biden has left former President Trump’s substantial tariffs on metals and goods from China practically untouched. 

The monthly inflation numbers (for May) are similarly confusing. They revealed that consumer prices (just one inflation measure published by Washington, but an important one) rose by 4.93 percent in seasonally adjusted terms. That was their fastest annual pace since September, 2008’s 4.95 percent. Surely, as widely claimed (including by the Federal Reserve, which wields so much influence over the economy, this upswing stems from a combination of bottlenecks resulting from (1) the sudden, widespread reopening; (2) the unusually low overall inflation numbers generated a year ago, when the economy was near the depths of its viruts- and shutdown-induced slump; and (3) the immense dose of stimulus injected into the economy by both elected politicians and the unelected Fed.

At the same time, the Fed has told us that its stimulus isn’t ending anytime soon, and although the Biden administration and Congressional Democrats are displaying some cold feet about approving more such levels of economic fuel (e.g., in the form of outlays on infrastructure, and a wide variety of income supports and enhanced unemployment benefits), it’s difficult to imagine that most or even much of this spending will actually be withdrawn even once a post-virus recovery is an indisputable reality.

But the biggest surprise of all: Despite the economy-wide inflation pressures, and by-now-routine claims that employers are dealing with nearly crippling labor shortages, wages overall adjusted for inflation keep going down.

Compounding the confusion over whatever conclusions can legitimately be drawn from these two reports: They cover two different months.

But let’s begin with the most important details from the April trade report. The ambiguity embodied in the data begins with the total deficit figure. The record March result was revised up from $74.45 billion to $75.03 billion but April’s $68.90 shortfall for goods and services combined, though the second worst monthly figure ever, was 8.17 percent smaller. That’s the biggest sequential drop since February, 2020 (8.39 percent), when China’s export-heavy economy was still largely closed because of the virus.

The same holds for the goods trade gap. The record March figure was revised up, too, from $91.56 billion to $92.86 billion. But April’s $86.68 billion result represented a 6.65 percent monthly decline, and this falloff was the biggest since the 8.39 percent plunge of January, 2019 – when American businesses were still adjusting both to Trump’s tariffs and anticipated tariffs.

Also still fueling the high U.S. deficits – a worsening of services trade balances. Here, U.S. trade has long been in surplus, but the surpluses keep shrinking because service sectors like travel are still suffering from the pandemic’s arrival and the consequent decimation of travel and othe transportation in particular. In fact, the April figure of $17.78 billion was the lowest since September, 2012’s $18.62 billion.

One key set of trade flows does, however, provide some evidence of Trump tariff effectiveness – U.S. non-oil goods trade, which encompasses those exports and imports whose magnitudes are most heavily influenced by trade policy (because, as known by RealityChek regulars, trade in oil is almost never the subject of any trade policy decisions and services trade liberalization remains at very early stages). In April, the monthly shortfall retreated 4.16 percent from its March record of $90.12 billion to $86.37 billion – which is only the fourth highest such total ever.

The import figures I focused on last month exhibit the same overall patterns: April saw big drops from record levels but the absolute numbers remain distressingly high. March’s initially reported record $274.48 billion in total imports was revised up considerably – to $277.69 billion. April’s total of $273.89 billion represented a 1.37 percent drop, but nonetheless was the second worst such figure on record.

March’s record monthly goods import figure was upgraded, too – from $234.44 billion to $236.52 billion. April’s total of $231.97 billion was a 1.92 percent drop but these purchases also still represented the second highest of alll time.

As for non-oil goods imports, the $215.33 billion April total was 1.98 percent down from an upwardly revised record $219.68 billion, and also the second biggest ever. Biggest drop since last April’s 10.91

Whether normalization is returning in manufacturing is more difficult to tell. Imports in March hit a record $207.59 billion, and did drop by 4.59 percent sequentially to $198.06 billion in April. That decrease, however, was a typical monthly move for manufacturing imports, and the April figure was still the third highest ever.

Incidentally, the April manufacturing deficit of $103.60 billion was 4.64 percent lower than March’s $108.66 billion. The March total was the second highest on record, but April’s figure was only the seventh all-time worst. The record, $110.20 billion, came last October, and it’s notable that the gap has narrowed on net despite the resilience shown during the pandemic period by manufacturing output.

More evidence of the Trump tariffs’ impact comes from the data on goods trade with China – whose products have attracted nearly all of these levies, and that cover hundreds of billions of dollars worth of products. The April figure of $37.59 billion was 6.56 percent lower than its March predecessor – a thoroughly unexceptional sequential decline and monthly level by historical standards. But the monthly dropoff was consideraby greater than the aforementioned 1.98 percent decrease for non-oil goods – the closest global proxy.

As a result of all these inconclusive developments, I’ll be awaiting the May trade report with even more interest than usual.

But despite all the uncertainties I mentioned at the start of this post, those May inflation figures have made me more confident than before in my previous contention that current price surges are anomalies by the extremely low inflation generated by the CCP Virus-battered economy of a year ago, and by the sudden reopening of so much of the economy following the long shutdowns and lockdowns. Even clearer, as I see it: Claims of significant, troubling wage inflation are especially weak.

After all, that 4.93 percent year-on-year May price increase followed a previous May-to-May rise that was just 0.22 percent. That was the feeblest such rise since September, 2015’s 0.13 percent. In addition, May’s month-to-month 0.64 price advance was smaller than April’s 0.77 percent. Two months do not a trend make, but these numbers certainly don’t point to raging inflation fires.

Nor do the wage data. Otherwise after-inflation total private sector wages wouldn’t be down more on-month in May (-0.18 percent) than in April (-0.09 percent). And the same couldn’t be said of constant dollar wages for non-supervisory workers (-0.20 percent in May versus flat in April).

Getting more granular, the price-adjusted wage trends are as bad or worse in construction; trade, transportation and utilities overall; retail trade; and education and health services.

The two big exceptions: the leisure and hospitality workforces that have been so decimated by the virus (and especially the non-supervisory group) and the transportation and warehousing sub-sector of the transportation and utilities industry category that contains a trucking sector unusually strained by the rapid reopening. In both cases, however, (and especially the leisure and hospitality industry), inflation-adjusted wages in absolute terms are well below the national private sector average. If anything, therefore, it seems like some wage inflation for these workers is long overdue.

Following Up: Welcome Shrinkage of China’s Ties with U.S. News Organizations

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Boston Globe, Chicago Tribune, China, China Daily, ChinaWatch, Following Up, Houston Chronicle, journalism, Mainstream Media, news media, propaganda, The Los Angeles Times, The New York Times, The Wall Street Journal, The Washington Free Beacon, The Washington Post, transparency

Since Memorial Day is – or at least should be – a remembance and tribute to what’s best about America, it seems appropriate to report some good news: Some of the nation’s leading news organizations have cut some not-at-all-trivial ties with China.

These ties concern their decision to stop distributing with their print editions and posting on their websites a Chinese government propaganda vehicle called ChinaWatch. As I wrote more than two years ago, their decision to present ChinaWatch and the form of this presentation created two problems. First, although the Constitution’s First Amendment should authorize giving even possibly genocidal, increasingly hostile dictatorships the right to present their material in the United States, journalistic ethics and (I believe) the law should require the clear labeling of any such material as foreign government products.

I argued that neither the Chinese government nor the news organization’s carrying their material met these obligations.

Second, since ChinaWatch was paid advertising, it became a source of revenue for the news organizations that featured it, and because these news organizations covered the Chinese government, its appearance raised conflict of interest questions that at least should have – but weren’t – have been forthrightly acknowledged. Importantly, some news organizations have received millions of dollars from Beijing – not decisive sums in terms of the overall finances of some of them, but not trivial, either.

Happily, these problems have now been reduced, although not eliminated. The New York Times said about a year after my post that it had stopped accepting such material from all state-run media. According to this Tibetan dissident publication, the same goes for The Wall Street Journal. The Washington Post says it has not run or distributed ChinaWatch specifically since 2019.

Official U.S. government lobbying records show, however, that multi-million dollar relationships still exist between several major U.S. news organizations and Beijing’s propaganda machine. As reported last week by the Washington Free Beacon, over the last six months,

“China Daily [the parent organization of ChinaWatch] paid more than $1.6 million for advertising in Time magazine, the Los Angeles Times, Financial Times, and Foreign Policy magazine, according to disclosures filed with the Justice Department. The Beijing-controlled news agency paid another $1 million to American newspapers, including the L.A. Times, Chicago Tribune, and Houston Chronicle, to print copies of its own publications.”

And unlike the The New York Times, the Post, and the Journal, the Free Beacon observes,

“Many of the newspapers [still] working with China Daily face severe financial problems. The Los Angeles Times furloughed workers last year as advertising revenue cratered during the coronavirus pandemic. Papers like the Chicago Tribune and Boston Globe have failed to turn a profit for years.”

The nation’s news organizations have more than enough credibility problems these days (see, e.g., here and here). Severing all official ties with Chinese and other foreign government media, or at least making every effort to publicize them to their readers, could only help them regain some of that trust.

Im-Politic: Big Neglected Questions About Washington and the Virus’ Origins

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Anthony S. Fauci, Biden administration, bio-weapons, CCP Virus, China, coronavirus, COVID 19, Francis Collins, gain-of-function research, Galveston National Laboratory, Im-Politic, Josh Rogin, National Institutes of Health, NIH, perjury, State Department, The Washington Post, Trump administration, Wuhan Institute of Virology, Wuhan virus

There’s been lots of commotion in recent weeks about the decision by chief Biden medical adviser Anthony S. Fauci and National Institutes of Health (NIH) chief Francis Collins to use federal government moneys to fund research on dangerous coronaviruses at labs in China – and that’s good. As I wrote in January, there’s enough compelling circumstantial evidence that these resources helped create the CCP Virus to warrant detailed investigations and possibly their firings.

What’s less good is that much of the commotion is missing or obscuring other problems with the Fauci-Collins approach to scientific cooperation with China that are at least equally serious, and that could constitute comparable grounds for their dismissal.

To be sure, the current emphases on this matter aren’t exactly trivial. Clearly, if federal funding helped pay for research at one of the two major virology labs in the Chinese city of Wuhan, where the first virus cases have been reported, and that this research created the pathogen that has caused so much illness, death, and economic distress in America and around the world, that would represent one of the worst scandals in American history. There are also the questions of whether the feds funded what’s called gain-of-function research (which is unmistakably capable of producing such deadly pathogens) to begin with, and whether they’ve told Congress the truth about these programs in sworn testimony.

But however grave each of these potential offenses, the figurative jury is still correctly out on each. First, it’s not yet at all certain that the virus even came from either lab, as opposed to some form of natural origin. In addition, since there’s no hard-and-fast scienitific consensus on defining gain-of-function research (here’s an official federal summary of the debate), it’s not yet known whether such activity was actually financed by the federal government. It’s true that there’s a U.S. government definition that applies specifically to grants for such activity. But Washington has also given itself wiggle room in applying it.

As a result, it’s far from obvious that Fauci specifically perjured himself in telling Congress that he’s innocent of such accusations. More frustrating, because the term is so fuzzy, a fair and just conclusion may be genuinely impossible to reach. This holds in principle despite Collins’ claim (not under oath) that NIH has never “approved any grant that would have supported ‘gain-of-function’ research on coronaviruses that would have increased their transmissibility or lethality for humans” – which of course raises the question of what kind of gain-of-function work might have been approved.

Moreover, even if Fauci and Collins did actually approve gain-of-function research in China, that doesn’t necessarily mean that the particular project they subsidized produced the virus in question. And that may never be finally determined, either, because China may well have destroyed the evidence needed to provide a definitive answer.

When it comes, however, to making sure that U.S. international science cooperation policy adequately safeguards America’s health and security going forward, some crucial questions are being neglected so far.

For example, just before its term ran out, the Trump administration stated publicly that even though the Wuhan Institute of Virology (WIV – which received the controversial U.S. research grant) presents itself as a “civilian institution, the United States has determined that the WIV has collaborated on publications and secret projects with China’s military. The WIV has engaged in classified research, including laboratory animal experiments, on behalf of the Chinese military since at least 2017.” Nor has the Biden administration disputed this allegation – even when the President’s national security adviser was asked about it directly.

Further, virus research has always had obvious links to biological weapons research, and there’s no bright line in China (or anywhere in the world these days) between civilian technologies and innovation and military technologies and innovation. No one with any credibility has explicitly charged that Beijing intended the results of its virology research to be used militarily. But no one with a lick of common sense could dismiss this prospect, either. Did either Fauci or Collins consider it? If so, neither has mentioned it yet.

Then there are the secrecy and oversight issues. Fauci has claimed that “You never know” whether grant recipients are trustworthy. But even though governments in both China and the United States (and every other country) keep lots of secrets, military and otherwise, and even though all go overboard with the secrecy too often, who can doubt that China is in a class by itself for blocking transparency, and for lacking systemic means of exposing improperly kept secrets?

In other words, even assuming that the U.S. government can never completely ensure that grantees won’t lie, did Fauci or Collins ever consider that trustworthiness in China is a special problem, and required special monitoring procedures to be in place before any money was transferred – especially given the bio-weapons angle? Not only is there, again, no reason yet to believe that either of them did, Fauci has even told Congress that the Chinese recipients are in fact “trustworthy.” (See the above-linked CNBC.com post.   .

And don’t forget safety – an issue on which the available evidence indicates that lackadaisical attitudes weren’t confined to Fauci and Collins.

A Washington Post article has reported that in 2018 – that is, during the Trump administration – concerns about the WIV’s coronavirus studies led the State Department to send some of its China-based science specialists to the facility to check on its safety conditions. They found enough subpar standards and practices to warn about the risks of a leak causing a pandemic. And here’s where the story gets especially troubling, and where many more questions need to be answered.

According to the Post report, the WIV’s own officials asked for help in this regard, and the State Department inspectors concluded that the best U.S. response was providing assistance – both because they considered the work to be valuable and because the coronavirus research was being supported by “the Galveston National Laboratory at the University of Texas Medical Branch and other U.S. organizations.” That is, the NIH of Fauci and Collins wasn’t the only federal government sources of funding.

It’s not clear that they also got word of the slipshod conditions at the WIV. It’s not even clear that the Galveston lab did. But is it credible to suppose that they were left in the dark? (Its head, interestingly, gave a non-denial-type denial in this April, 2020 interview. To my knowledge, Fauci hasn’t been asked the question.)

All that’s known for sure is (1) that the Post article (and a follow-up Politico piece from the same correspondent, Josh Rogin) reported that the State Department inspectors’ request for more assistance wasn’t granted; and (2) that the NIH-funded research wasn’t suspended until April, 2020.

It’s vital that responses to all these unanswered and sometimes unasked questions be forthcoming.

At this point, therefore, it’s possible that Fauci and Collins are off the hook on the safety issue – and that others who served in the State Department during the Trump years are squarely hanging from it. Otherwise, however, it looks like this pair decided to support dangerous and potentially catastrophic biological research by a regime known for its disregard for the safety of its own people – let alone foreigners – in its pursuit of power, for its eagerness to turn scientific advances into military assets, for its obsession with secrecy and impressive capability for remaining opaque, and, last but not least, for its growing determination to challenge U.S. national security interests.

Finding out why on earth this idea ever entered or stayed in their heads seems a lot more important than haggling over whether in some technical or even legal sense they were or weren’t funding gain-of-function research.

Glad I Didn’t Say That! Biden’s Losing North Korea Bet

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Antony J. Blinken, Asia-Pacific, Biden, CCP Virus, China, coronavirus, COVID 19, Glad I Didn't Say That!, Indo-Pacific, Kim Jong Un, North Korea, nuclear weapons, sanctions, Wuhan virus

Secretary of State Antony J. Blinken “suggested China was also concerned about North Korea’s nuclear and missile programs. ‘China has a real interest in helping to deal with this,’ [he] said. ‘So we look to Beijing to play a role in advancing what is in, I think, everyone’s interest.’”

– The New York Times, March 18, 2021

 

“North Korean trade with China is springing back to life, easing pressure on Kim Jong Un whose economy has been battered by sanctions and border closures owing to the coronavirus pandemic.”

– Financial Times, May 26, 2021

 

(Sources: “North Korean Threat Forces Biden Into Balancing Act With China,” by Lara Jakes and Choe Sang-Hun, The New York Times, March 18, 2021, North Korean Threat Forces Biden Into Balancing Act With China – The New York Times (nytimes.com) and “Chinese trade provides boost to North Korea’s battered economy,” by Edward White, Financial Times, May 26, 2021, Chinese trade provides boost to North Korea’s battered economy | Financial Times (ft.com))

Our So-Called Foreign Policy: Biden’s Latest Nod to Trump-ism – Israel-Palestinians Policy?

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Abraham Accords, Antony J. Blinken, Biden, Binyamin Netanyahu, Blob, China, diplomacy, Donald Trump, Gaza, globalism, Hamas, Israel, Jared Kushner, Middle East, North Korea, occupied territories, Our So-Called Foreign Policy, Palestinians, tariffs, Trade, two-state solution, West Bank

As known by RealityChek regulars, one of the leading – and most surprising – features of the Biden administration is a tendency to continue certain Trump administration policies that the current President, and much of the globalist bipartisan policy Blob decried as dangerously naive, xenophobic, short-sighted, isolationist, protectionist [feel free at this point to insert your own scornful epithet].

Now on top of tariffs, China trade and economic strategy, and North Korea policy, there’s a sign that the Biden approach to the Israel-Palestinian conflict can be added to the list. My evidence? Secretary of State Antony J. Blinken’s remarks this morning on the latest eruption after a meeting in Jerusalem with the Jewish state’s prime minister, Binyamin Netanyahu.

The most specific policy statements Blinken made focused tightly on the need for reconstruction aid for Gaza – where Israeli military strikes aimed at stopping Hamas rocket attacks inflicted serious damage – as well as the need “to work to expand opportunity for Palestinians in Gaza and in the West Bank, including by strengthening the private sector, expanding trade and investment, and other means. Assistance and investment like these will help foster a more stable environment that benefits Palestinians and also benefits Israelis.”

By contrast, there were only the most glancing references to resuming diplomatic efforts to bring lasting peace to the region – principally, Blinken’s report that he and Netanyahu discssed “other steps that need to be taken by leaders on both sides to set a better course for their shared future. As President Biden has said, we believe that Palestinians and Israelis equally deserve to live safely and securely; to enjoy equal measures of freedom, opportunity, and democracy; to be treated with dignity.”

And beyond that – nothing. Not even a mention of a negotiated two-state solution that President Biden continues to support as the end goal of U.S. diplomacy.

That looks awfully Trump-y because a focus on economic development in Israel’s occupied territories to ameliorate their populations’ pressing day-to-day needs and create credible hopes for decent living standards and further progress, and an unmistakable deemphasis on returning Israeli and Palestinian leaders to some kind of bargaining table, was a definite hallmark of the former President’s approach to dealing with the conflict. The idea was that the promise and growing reality of prosperity on the West Bank and in Gaza was the best hope for reducing the appeal of violence and creating the conditions in which realistic compromises could – some day – be accepted.

Indeed, Trump’s peace plan conspicuously began with a purely economic proposal – a fund raised from private investors in the Persian Gulf states and other countries that would spend $50 billion over ten years on infrastructure and development projects in the occupied territories. As the plan’s main author, Trump son-in-law and White House advisor Jared Kushner explicitly stated upon its unveiling, “Today is not about political solutions — we will get to them later.”

And although Mr. Biden just issued a re-endorsement of two-state, it’s more than a little interesting that during his Senate confirmation hearings, Blinken acknowledged that “Realistically it’s hard to see near-term prospects for moving forward on that.” That’s hardly a sign of perceived urgency. Perhaps more revealing: The numerous recent articles (all pre-dating the latest Middle East fighting) reporting Mr. Biden’s determination to deemphasize the Middle East as a U.S. foreign priority to begin with – and evidence the administration was following through in official policy declarations and staffing decisions.

Not that this relative indifference marked a significant change in candidate Biden’s campaign positions. In fact, he praised the Trump “Abraham Accords” that normalized relations between Israel and several Arab countries. And although Mr. Biden did charge that Trump’s strong pro-Israel tilt had made a negotiated Israel-Palestinian settlement “even more difficult,” his campaign’s main foreign policy statement didn’t even mention the issue. (Perhaps that’s because he reserved his more detailed – and somewhat more critical – verdict for his campaign’s articulation of a policy toward “the Jewish community.”)

But the foreign policy Blob’s judgement were much harsher – largely because Trump was seen to be recklessly ignoring the Palestinians’ legitimate aspirations and the supposedly obvious reality that not only was peace between Israel and the Palestinians was impossible without taking the latter’s interests seriously, but that meaningful progress toward pacifying and even stabilizing the entire Middle East was as well. (See, e.g., here and here).

It’s an exaggeration to say that the President has now repudiated this pre-Trump conventional wisdom on the Israel-Palestinian conflict. But he’s clearly in no rush to embrace it. And given his other adoptions of Trump-ian stances, it strikes me as evidence that not only is Mr. Biden moving away from pre-Trump globalism, but that the days of this strategy dominating American foreign policymaking writ large are numbered themselves.    

(What’s Left of) Our Economy: Biden’s Now a Full-Throated “Tariff Man” on Metals

Tags

aluminum, Biden, China, dumping, EU, European Union, Katherine Tai, metals tariffs, overcapacity, steel, subsidies, tariffs, trade war, U.S. Trade Representative, World Steel Association, {What's Left of) Our Economy

There’s now a good case to be made that the trade curbs originally called the “Trump metals tariffs” should be called the “Trump-Biden metals tariffs” (and even vice versa). For on Monday, the Biden administration reached a “truce” in the trade dispute they touched off with the European Union (EU – whose member countries’ steel exports are among those hit with these levies). And this agreement kept the U.S. curbs – originally imposed by the former President in early 2018 – firmly in place.

Arguably even more important, U.S. Trade Representative Katherine Tai fully endorsed Trump’s rationale for the global scope of these tariffs (which eventually exempted some countries – including Canada and Mexico, which joined with Trump in signing a  revamp of the North American Free Trade Agreement). At a Senate hearing last week, she noted that they were needed “to address a global overcapacity problem driven largely but not solely by China.”

In other words, Tai – and her boss in the White House – were acknowledging that massive and government-subsidized excess global steel output in particular was being dumped into the U.S. market, often indirectly, by many countries other than China. They’d either been permitting Chinese product to come into their import doors and go out their export doors to America (after being re-labeled); compensating for their own steel industries’ losses at the hands of dumped Chinese steel by ramping up their own exports of subsidized metal to the United States; or engaging some combination of the two.

Although President Biden has also decided to retain Trump’s China tariffs, the metals position deserves special attention. After all, a broad consensus has developed in U.S. policy and (to a lesser extent) business circles on the need for responding strongly to China’s systemic trade predation. But the metals tariffs have consistently been widely condemned as needless Trump slaps at many staunch U.S. security allies (like many EU members that also belong to NATO – the North Atlantic Treaty Organization).

The Economic Policy Institute released a report in March documenting how well the tariffs have worked to help revitalize the U.S. steel industry, and how scant their damage has been to American steel-using industries. (My case for the latter proposition includes this post.)

But the American industry’s need for worldwide tariffs until the overcapacity problem is (somehow) solved also keeps emerging from the data on global steel markets that I first highlighted shortly after Trump’s announcement.

This post showed that before the tariffs were imposed, the American domestic steel industry was far and away the biggest global loser from the China steel glut – and that most other big steel-producing countries escaped anything close to comparable damage. Here’s how the percentages of global steel output of leading producers changed between 2010 and 2018.  (Note that some of the original 2018 numbers have been revised.)

US:                        -35.79

China:                   +20.44

EU 27:                   -23.73

Japan:                    -25.36

South Korea:           -2.67

India:                    +22.20

Turkey:                          0

Brazil:                   -17.24

Russia:                  -11.61

Logically, these figures can lead to only one of two conclusions: Either the U.S. steel industry had become the world’s least competitive by a mile (and very suddenly), or virtually the entire steel-producing world was exporting many of its own China steel problems to the United States.

And since U.S. productivity statistics reveal that the American primary metals sector (including steel and aluminum) had been a national productivity leader during that period, and was suffering major import-related production losses that were dwarfed by those of much less productive manufacturing industries, there can be no legitimate doubt that it faced a trade problem urgently needing fixing. (Here‘s the evidence.)

So what’s happened to the U.S. share of world steel production since the tariffs’ onset? The World Steel Association, source of the above figures, makes clear that the American relative performance has been much better. Here are the percentage changes in woldwide output between 2018, and the first quarter of this year:

US:                           -12.53

China:                       +8.44

EU 27:                     -16.45

Japan:                      -15.60

South Korea:           -12.47

India:                        +3.23

Turkey:                      -2.43

Brazil:                       -6.77

Russia:                      -2.02

These numbers show that China continues to increase its global production market share (to fully 55.66 percent as of this year’s first quarter) and that the United States has continued to lose share. But they also show that much of the rest of the steel-producing world is no longer able to gain so dramatically at America’s expense. Indeed, major producers like the European Union and Japan have fared worse than the United States, and the gap between American performance and that of the rest of these economies has closed substantially. And as the aforementioned Economic Policy Institute report has demonstrated, the U.S.-based steel sector’s fortunes in absolute terms have turned up as a result.

The lesson here is that the metals tariffs haven’t been a cure-all either to the U.S. steel industry’s troubles or even its trade-specific troubles. But they’ve undeniably helped – while leaving the rest of American manufacturing and the economy doing just fine. And because other global steel players are now taking it on the chin from China’s overcapacity, maybe the continued U.S. levies will finally help convince them to stop paying lip service to the goal of dealing with global – and especially Chinese – steel overcapacity, and join Washington in serious efforts to end it.

(What’s Left of) Our Economy: Normalizing Signals from the New U.S. Manufacturing Growth Data?

Tags

aerospace, aircraft, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Covid relief, Federal Reserve, inflation-adjusted growth, infrastructure, machinery, manufacturing, pharmaceuticals, real growth, semiconductor shortage, stimulus package, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Do the April data just released by the Federal Reserve show that U.S. manufacturing output is settling into a post-CCP Virus normal? Despite achieving solid (0.42 percent) month-to-month growth in real terms, I’m not so sure. That’s mainly because although one of the big drags on domestic industry’s recent performance that resulted from weather rather than economic fundamentals is clearly past us, the impact continues of similar, likely temporary, developments that economists call “exogenous shocks.” And although plainly temporary, they may turn out to be pretty long-lasting.

The drag that’s out of the way is the amazingly harsh winter weather that crippled state economies in the south central states. Even so, the Fed now estimates the damage produced on a nation-wide basis as having been even worse than initially judged. The monthly plunge in February after-inflation manufacturing production keyed by the blizzards and power outages is now pegged at 4.12 percent – down from the original -3.12 percent and last month’s -3.72 percent. That’s still the wors monthly performance since April’s 15.83 percent nosedive, during the height of the pandemic and the depths of the recession.

The silver lining is that the March rebound first judged to be 2.79 percent is now believed to have been 3.22 percent.

So that 0.42 percent sequential increase in price-adjusted manufacturing production for April could be interpreted as an end to the winter aftershocks period. Except the Fed is now telling us that a new problem – the recent global semiconductor shortage – depressed U.S. automotive output so greatly last month (by 4.28 percent), that without such disruption, total constant dollar factory production would have been nearly twice as strong (0.75 percent). Moreover, the microchip shortage shows no sign of ending any time soon. And don’t forget about those still congested West Coast ports! 

According to the Fed, moreover, U.S.-based industry seems to be dealing with another distinctly non-normal situation – those “supply chain difficulties” generated by the same dramatic reopening of the economy that are distorting the inflation figures. Much more government money is bound to be injected into the economy on top of the already enormous virus relief and stimulus funds that have already been provided (and are still working their way through the system), So manufacturers and other businesses will surely continue facing various bottlenecks as they all try to keep up with the new customer demand all at once. Of course, complicating matters still further – and prolonging the return to normality – is that very massive government spending, which all else equal will keep propping up that demand and manufacturing and other output.

Thanks to the April advance and the cumulative impact of the revisions, domestic manufacturing production is now up 23.27 percent after inflation from its low last April, and is now back to within 1.42 percent of its last pre-pandemic reading in February, 2020.

One sign for manufacturing and the rest of the economy that remained genuinely bullish in April was the 0.65 percent sequential output growth of the big machinery sector – whose products are used extensively not only throughout the rest of manufacturing, but in big non-manufacturing sectors like construction and agriculture. That April increase was much smaller than March’s 3.55 percent surge – the best such performance since July’s 5.56 percent jump. But the March result was upgraded from an initially eported 2.87 percent. And in inflation-adjusted terms, the machinery sector is now 3.72 percent bigger than in February, 2020, just before the pandemic arrived.

Other significant April manufacturing production winners were the big chemical industry (up 3.17 percent on month, but still recovering from the huge 8.64 percent sequential output drop resulting mainly from those winter storms), primary metals (whose 1.68 percent monthly improvement followed a 2.20 percent rise that’s still left the sector 3.11 percent smaller in real terms than just before the pandemic), and petroleum and coal products (1.57 percent – but in a chemicals-like recovery situation).

The biggest losers were miscellaneous non-durable goods (off 1.08 percent) and plastics and rubber products (down 0.83 percent).

Although reopening measures in the United States and around the world are reviving air travel, the April Fed report shows that Boeing’s continuing production troubles may have again undercut growth in the big American aerospace industry. Price-adjusted output in aircraft and parts dipped by 0.23 sequentially last month – the first such decrease since December’s 1.43 percent. And March’s initially reported 4.09 percent increase has been downwardly revised all the way to 1.92 percent. Nonetheless, after inflation, aircraft and parts production is still up 4.98 percent from its final pre-CCP Virus levels.

Another big industry that should be benefitting from reopening-related headwinds – pharmaceuticals and medicines – also delivered a disappointing performance in April, especially since it includes vaccines. Real output rose by just 0.33 percent on month, and March’s initially reported 2.90 percent rise was trimmed back to 2.87 percent. In addition, previous and dramatic downward revisions for January and February were downgraded on net yet again – though modestly. Consequently, inflation-adjusted production in the sector has grown by 5.95 percent during the pandemic.

Growth in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – remained nothing to write about either. April’s real growth was a so-so (0.42 percent). And although March’s initially estimated 0.61 percent constant dollar output increase got a nice upgrade to 1.11 percent, February’s results – which had been revised up from a 0.56 percent decline to a 0.44 percent drop – was revised back down to a 0.64 percent decrease. Consequently, real output here is just 0.56 percent higher than in that final pre-CCP Virus month of February, 2020, despite all the national talk of the need to improve America’s health security.

An optimistic outlook for domestic manufacturing still seems justified for me, if only because government-fueled growth and reopening still seem to be the most powerful influences on the entire economy, and President Biden has still kept in place the sweeping Trump tariffs are still pricing hundreds of billions of dollars of manufactured goods from China out of the U.S. market. That latest Boeing glitch seems to have been resolved. The need for more protective medical equipment and more vaccines (especially abroad) certainly haven’t gone away for good . And maybe a serious infrastructure rebuild and expansion is on the way. 

But just as a big enough number of anecdotes can deserve being seen as a trend, a big enough number of temporary disruptions can deserve being seen as a new, and more difficult, normal.

Our So-Called Foreign Policy: More Reasons to Doubt Those “China Century” Predictions

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China, GDP, gross domestic product, Our So-Called Foreign Policy, per capita GDP, population, Taiwan, The Lancet

Predictions that China will soon overtake the United States as the world’s largest economy are now commonplace (see, e.g. here) – and understandably so given how much faster than America the People’s Republic has been growing in recent decades. As a result, I was startled six weeks ago when I came across data punching lots of holes in this forecast, and called attention to them in this post.

Still, as I explained, the implications were mainly economic – indicating that Americans and their businesses had much less to fear than widely supposed from a substantial U.S. decoupling from China because the Chinese people’s overall purchasing power would be hard-pressed to keep growing nearly as fast as generally assumed. That was because China’s gross domestic product (GDP) per capita – the amount of wealth it was creating for each of its huge, one billion-plus population – was growing at distinctly unimpressive levels. In fact, it was 

In terms of overall national power, however, and China’s consequent ability to threaten American national security, I noted that plenty of reasons for worry remained – because the narrowing of the U.S.-China gap in terms of the actual sizes of their economies meant that China’s ability to pour resources into its military and its security-related tech industries continued to threaten to surpass America’s.

But this week, new figures – on China’s population – have called these concerns into question, too, at least over the long run.

The data – China’s own new census – revealed that the People’s Republic’s population growth has slowed to a crawl. The numbers bested some forecasts – which anticipated Beijing reporting an actual population decline. But because this near-population stagnation has resulted largely from trends unlikely to be reversed any time soon (mainly the regime’s draconian multi-decade population control policies and the major rise in living standards that China unquestionably has achieved), they also add to the evidence that the People’s Republic is heading into a period of long-term population shrinkage. In turn, this fall-off – coupled with the weak China per capita GDP growth mentioned above – indicates that its world’s biggest economy status could be surprisingly short-lived.

The math underlying this analysis is pretty simple – and since the time frames are long, the specific results should by no means be taken literally. But the story they tell differs so dramatically from the current conventional wisdom, and because one of the key assumptions looks conservative, they deserve to be taken seriously.

Let’s begin with those per capita GDP figures. According to the World Bank, in 2019, it was $65,298 for the United States, and $10,217 for China. And let’s look at recent population predictions that have attracted considerable attention. They come from the prominent medical journal The Lancet, and peg the U.S. population growing by some three percent between 2017 and 2100, and hitting 335.81 million, but China’s population falling during the same period to just 732.89 million – a nosedive of nearly 50 percent.

That’s stunning enough by itself, but take a look at what these numbers would do to the two countries’ GDPs. Let’s assume that America’s GDP per capita in 2100 stays at its 2019 level of $65,298. Multiply that by the 335.81 million U.S. population, and you get an economy whose total output is $21.93 trillion (before accounting for inflation). If China’s GDP per capita stays the same, this calculation produces a GDP for the People’s Republic of just $7.48 trillion before inflation That is, its economy would be just a third the size of America’s. Moreover, this means that the economy gap will have doubled, since China’s $14.280 trillion GDP as of 2019 was two-thirds the size of America’s $21.433 trillion (again, according to the World Bank).

Granted any number of non-economic and economic developments over the next eight decades could make this scenario completely meaningless. But leaving out those utter unknowables, it’s significsnt that one plausible knowable suggests that the U.S.-China economy gap may become even bigger in 2100. And that’s the fact that the data I cited in March (from the International Monetary Fund) show that since 1980, that U.S.-China per capita GDP gap has widened substantially. If that trend continues (as opposed to per capita GDP differences staying exactly where they are now, as my scenario assumes), then by the turn of the next century, the United States would stand even further ahead of China. In principle, the military potential gap would widen strongly as well.

And just as crucial to keep in mind: If China’s population plummets by nearly half by 2100, big time decline will have to have begun long before, which translates into a relatively brief spell of Chinese superiority in terms of that military potential. Further, this Chinese edge may be even more fleeting than these dry numbers indicate, since the United States by all accounts maintains Number One in that regard now, and military potential doesn’t turn into military strength overnight.

Nonetheless, there’s still a worrisome paradox to keep in mind. Precisely because China’s long-term prospects aren’t terrific, some leading strategists (see, e.g., here and here) argue that Beijing will be sorely tempted to capitalize on its relative gains to date and momentum to achieve high priority goals in the short-term – like taking over Taiwan.

I personally have no idea. And I’m the last person to preach complacency in China policy. In fact, I’m glad to see that the American political system has begun wakening to the dangers posed by China’s economic, technological, and military advances. But excessive pessimism has never led to any victories in any kind of struggle or competition, either, and hopefully The Lancet data will reinforce U.S. leaders’ confidence that if success in handling China isn’t guaranteed, it’s entirely achievable.

Our So-Called Foreign Policy: The Unanswerable Question Driving Biden’s China Policy

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Antony J. Blinken, Asia-Pacific, China, foreign policy, globalism, Indo-Pacific, liberal global order, national security, Our So-Called Foreign Policy, rules-based global order, strategy, Taiwan, Xi JInPing

Two of the first maxims of strategy in world affairs (and probably in some other realms, too) are that (a) intentions and capabilities are fundamentally different and that (b) the former are much harder to gauge than the latter. These rules of the road in turn lead promptly to a key lesson: The greater the extent to which plans are based on intentions, the likelier they are to produce failure.  

The difference between measuring intentions and capabilities and the resulting policy implications matters crucially these days. For the evidence keeps mounting that the Biden administration is relying more on gauging China’s intentions in formulating its approach to the People’s Republic (PRC) and less on the much sounder foundations of assessing Beijing’s wherewithal and, most important, how this capacity’s dangers to specific U.S. interests are evolving – including over Taiwan, the newest and scariest bilateral flashpoint.  . 

The reason for focusing on capabilities is no great mystery. Figuring out how strong or weak a country’s military and economy are entails dealing with matters that are readily measurable to begin with. Although dictatorships like China’s in particular often go to great lengths to present misleading economic data, and misinformation about the state of their armed forces, the PRC’s competitiveness can be judged pretty dependably by tracking its interactions with other economies – e.g., its export performance, its attractiveness as a magnet for foreign investment. And U.S. intelligence is good enough to determine roughly how many soldiers and weapons, and the quality of the latter, that China could bring to bear in various contingencies.

Even more obvious – and important – is the case for deciding on U.S. interests. For whatever a potential adversary’s overall capabilities, why should Americans care about those that can’t plausibly affect whatever goals and missions that the United States decides it values?

Identifying what China’s leaders want is a qualitatively different and more formidable challenge. Good intelligence can provide some valuable information, as can face-to-face dealings with Beijing’s representatives. But ultimately, measuring intentions is an exercise in mind-reading, and it’s rendered all the tougher because of the secretiveness of China’s political system and the cultural gaps dividing East Asian countries like China’s and their western counterparts like the United States.

Which is exactly why the Biden administration’s strategy toward the PRC is so troubling. A heavy emphasis on intentions is clear from at least two of its features.

The first is its obsession with playing word games to define how it wants the relationship with China to develop, which in turn faithfully reflects the globalist position that achieving various types of relationships with allies, adversaries, and countries in between should be a high foreign policy priority. As I’ve written previously, that’s a great way to substitute form for substance, and to rationalize failure to achieve or preserve particular valued objectives in the here and now for the sake of payoffs stemming from a sense of mutual obligation that could be entirely unilateral and imaginary, over a time frame that tends to keep lengthening. Think of it this way – it’s easy to avoid rocking the boat if you don’t care who owns or controls the vessel.

The Biden administration, however, has taken relationship fetishizing to a whole new level. How else could one reasonably characterize all the time and effort it’s devoted to terming U.S. dealings with Beijing as a “competition,” or an “extreme competition,” or “a steep competition,” or a “stiff competition” (see here for the last two) or a relationship that will be, in Secretary of State Antony J. Blinken’s words, “competitive when it should be, collaborative when it can be, adversarial when it must be.”

Why do the Biden-ites think anyone cares or should care? In particular, why do they think China cares or should care? Do they have any evidence of much thinking in Beijing along these lines? Or that any Chinese definition of a desirable relationship relationship would be remotely acceptable to the United States?

If anything, the President’s declaration that Chinese dictator Xi Jinping “is deadly earnest on [China] becoming the most significant, consequential nation in the world. He and others, autocrats, think that democracy can’t compete in the 21st century” can only mean he thinks that win-win ties are the last things on Beijing’s mind. Unless Mr. Biden believes that Xi is just interested in purely verbal bragging rights?

The second feature of Biden foreign policy that reveals a potentially dangerous emphasis on intentions is the refusal of the President and his top aides to define U.S. interests with any specificity – or even to speak concretely about the very idea of purely U.S. interests.

Their rhetoric is peppered with phrases like Mr. Biden’s claim that during his first phone call with Xi, “I made absolutely clear that I will defend American interests across the board.” But you’ll search in vain for meaningful elaborations beyond “I also told President Xi that we’ll maintain a strong military presence in the Indo-Pacific, just as we do with NATO in Europe — not to start a conflict, but to prevent one” – which of course refers to American commitments that have been in place for decades, not to anything new, much less that reflects concerns heightened for any reason.

What you will find – ad nauseam – are statements like Blinken’s declaration that the United States is “committed to leading with diplomacy to advance the interests of the United States and to strengthen the rules-based international order. “That system is not an abstraction. It helps countries resolve differences peacefully, coordinate multilateral efforts effectively, and participate in global commerce with the assurance that everyone is following the same rules. The alternative to a rules-based order is a world in which might makes right and winners take all, and that would be a far more violent and unstable world for all of us.”

Blinken of course might be entirely right on the merits. But it was more than a little interesting that the Chinese response to his remarks – which took place at that confrontational bilateral March meeting in Anchorage, Alaska – emphasized that the rules-based order is nothing more than a system selfishly “advocated by a small number of countries”; that “The United States itself does not represent international public opinion, and neither does the Western world;” and no doubt most important, “the United States does not have the qualification to say that it wants to speak to China from a position of strength.”

In other words, as the Chinese see it, whatever Washington’s view of “right,” what matters is that it lacks the might to create or maintain it over China’s objections – which evidently are legion.

None of this is to say that specifying concrete interests is a guarantee of foreign policy success. But how else can that goal be achieved without setting out objectives considered vital to the nation’s security and prosperity, communicating them abroad in no uncertain terms, and ensuring that enough power is available to prevail when they’re threatened whether Americans guess correctly about potential adversaries’ intentions or not?

And these questions have moved to the forefront lately because Sino-American tensions are rising steadily over Taiwan – the world’s new leader in semiconductor manufacturing technology, which near neighbor China views as a renegade province. Worries are understandably rising that Washington and Beijing might stumble into a conflict that neither truly seeks. If the Biden administration could straighten out its own thinking about Taiwan and other U.S. interests in the Indo-Pacific region, the odds of such an unnecessary catastrophe could at least be considerably reduced.    

 

Glad I Didn’t Say That! Biden Keeps Following The Trump on China Trade

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Biden, China, Donald Trump, Glad I Didn't Say That!, Katherine Tai, Phase One, tariffs, Trade, trade war

“China is the big winner of Trump’s ‘phase-one’ trade deal with Beijing. True to form, [then President Donald] Trump is getting precious little in return for the significant pain and uncertainty he has imposed on our economy, farmers, and workers.”

– Candidate Joe Biden, January 15, 2020

 

“President Joe Biden’s chief trade negotiator pledged to build off the deal with China reached under Donald Trump and said that….[the] Biden administration respects the continuity of the so-called phase-one agreement….”

– Bloomberg.com, May 5, 2021

 

(Sources: “Biden Slams Trump-China Trade Deal as Lacking on Key Disputes,” by Jennifer Epstein, Bloomberg.com, January 15, 2020, Joe Biden Blasts Trump Phase One U.S.-China Trade Deal – Bloomberg & “Biden Trade Chief Pledges to Build Off Trump’s China Agreement, by Eric Martin, Ibid., May 5, 2021, https://www.bloomberg.com/news/articles/2021-05-05/biden-trade-chief-pledges-to-build-off-trump-s-china-agreement?srnd=economics-vp)