Im-Politic: How Trump is Letting the China Virus Crisis Go to Waste

Tags

CDC, Centers for Disease Control and Prevention, China, China trade deal, China virus, coronavirus, Im-Politic, National Institutes of Health, pandemics, pharmaceuticals, Phase One, Trump, Wuhan, Wuhan virus, Xi JInPing

As tragic as the coronavirus has been for victims in China and elsewhere and their loved ones, both the humanitarian and the Machiavellian in me can’t help but think that President Trump is squandering some great and closely related opportunities being created by the outbreak.

To be sure, the President hasn’t completely ignored the disease. He tweeted yesterday that “China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!.”

He stated at a January 22 press conference at the big global economy conference in Davos, Switzerland that the U.S. government has a plan to contain the virus in the United States. The federal Centers for Disease Control and Prevention (CDC) and National Institutes of Health say they’re working on a cure – in tandem with the U.S. pharmaceutical industry.

But given that the United States is the world leader in medical research, and given that the President has just (justifiably) eaten China’s lunch with the new Phase One trade deal, it seems like much more could and should be done, and in a much higher profile way.

For example, the President, who isn’t shy about broadcasting his achievements and intentions, should announce that’s he’s directing federal research agencies to treat the coronavirus threat as a top priority, as well as seek a similar commitment from U.S. medical schools and drug companies. And how about a summit of American medical research leaders from the public and private sectors to brainstorm both on addressing the present danger and the overall growing threat of pandemics resulting from the ever smaller world being created every day by increasing worldwide commerce and travel?

In fact, why even restrict this meeting to American participants? The President should think about either inviting their foreign counterparts to the session as well, or to a follow-up meeting.

That’s what my humanitarian instincts tell me.

And my more political self? It would advise the President explicitly and publicly to offer his buddy, Chinese leader Xi Jinping, whatever assistance the Chinese need. For good measure, he should propose sending a team of American scientists and public health experts from the government and private sector to China to assess the situation first-hand (including the status of the disease and China’s progress in combating it) and develop recommendations to improve the Chinese response.

Clearly, these actions would serve humanitarian ends. But they would also put Beijing’s dictators in quite the pickle. Right after having their clocks cleaned in the trade negotiations, they’d be put in a position of accepting American help (which would involve a huge loss of the face so critical in Chinese culture), or declining assistance (which can only further anger a Chinese public that’s already not thrilled with the crisis management skills of either the central government or local officials). In other words, either way, the United States scores political points with public opinion both worldwide and in China in particular.

Meanwhile, no one could legitimately criticize Mr. Trump for declaring that all agriculture imports from China are being banned, since the CDC admits that, although it lacks “any evidence to suggest that animals or animal products imported from China pose a risk for spreading 2019-nCoV [the technical name for the virus in question] in the United States,” that “This is a rapidly evolving situation.”

It’s become a well-worn cliché that the Chinese word for “crisis” combines the characters for “danger” and “opportunity.” But even though this specific claim seems questionable at best, the underlying idea and logic are compelling, and need to be applied to U.S. coronavirus policy liji (Chinese for “immediately”).  There’s no excuse, to quote former Chicago Mayor Rahm Emanuel, for letting the opportunity go to waste.

(What’s Left of) Our Economy: U.S. Manufacturing’s Not Only Decoupling from China

Tags

737 Max, aircraft, Boeing, China, Commerce Department, decoupling, GDP-by-industry, manufacturing, output, Trade, Trade Deficits, {What's Left of) Our Economy

The Commerce Department’s GDP-by-Industry series is almost always overlooked by followers of the economy, and partly that’s the Commerce Department’s fault. Its updates are invariably a quarter behind, so it’s what analysts call a (seriously) lagging indicator that says relatively little about the more important question of what’s in store.

Nonetheless, even when they’re lagging, distinctive and detailed indicators can clarify long-term trends considerably, and that’s why I like GDP-by-Industry and track it so closely. Because it sheds lots of light on some of the most important economic and trade-related issues of the day – and especially on the impact of President Trump’s tariff-heavy policies. Specifically, the latest set of figures, which were issued January 9, reveal that during the Trump administration, the United States has continued to progress toward the worthy goal of reducing domestic manufacturing’s dependence on imports (and especially imports from increasingly hostile countries like China) for acceptable levels of growth. 

In other words, the People’s Republic isn’t the only country from which American manufacturing is decoupling. 

According to the new data, the latest year-on-quarter results show that between the third quarter of 2018 and the third quarter of 2019, U.S. manufacturing output (measured according to a gauge called gross value added) increased by 1.21 percent. That’s not much. But the manufacturing trade deficit during this period rose by only 2.55 percent. (Both figures are in pre-inflation dollars, because inflation-adjusted manufacturing trade figures aren’t available.)

Although this growth rate is lower than that achieved between the second quarter of 2018 and the second quarter of 2019 (2.03 percent), that figure was accompanied by a much faster increase in the manufacturing trade deficit (7.83 percent). The first quarter to first quarter results? Manufacturing production growth of 2.76 percent, and manufacturing trade deficit increase of 1.29 percent. That is, manufacturing output actually grew faster than the trade deficit. So from that standpoint, the third quarter result are disappointing.

They look even more disappointing when compared with the results from the first two years of the Trump administration. In 2017, manufacturing production also grew somewhat faster (3.99 percent) than the increase in manufacturing’s trade gap (3.16 percent), and in 2018, output grew much faster (6.23 percent to 3.96 percent).

These Trump presidency figures, in turn, have been much better than those reported for President Obama’s administration. Once the current economic recovery entered a normal phase (2011), the manufacturing trade deficit grew much faster than output ever year except for 2013.

So what’s the case for the latest third quarter 2018-third quarter 2019 figures representing continued progress? And why should anyone be happy with 1.21 percent annual manufacturing output growth no matter what’s happening on the trade deficit side?

Two answers suggest themselves. First, since the President began imposing tariffs in earnest (essentially, in April, 2018), importers have been “front-running” their purchases from abroad.  Their efforts to secure these deals before various sets of tariffs kicked in has produced several short-term distortions in the trade deficit in particular. Second, since the spring, Boeing’s safety woes have exerted a major drag both on domestic manufacturing output and on industry’s trade performance – since the aircraft giant has long been America’s leading exporting company.

Just one example of the difference Boeing has made: Between the third quarters of 2018 and 2019, the U.S. civilian aircraft trade surplus dropped from just under $10 billion to just under $6.5 billion. Civilian aircraft is of course the product category containing Boeing’s troubled 737 Max jet, and the plane was grounded worldwide, or banned from many national airspaces, starting in March.

The relationship between trade balances and production is never one-to-one, especially over relatively short time frames. And the matter becomes more complicated in sectors like aircraft, with its long lead times and generally large backlogs. But it’s difficult to believe that the 737 Max crisis and the narrowing of the aircraft trade surplus hasn’t impacted American civilian aircraft production and exports at all. (In fact, between those two quarters civilian aircraft exports, which are strongly related to output levels, sank by $2.75 billion, or nearly 22 percent.)

Moreover, for the purposes of comparing manufacturing output growth and the manufacturing’s trade deficit growth, the aircraft troubles are significant. Had the category’s trade performance simply remained the same between the third quarters of 2018 and 2019, the trade shortfall would have increased not by 2.55 percent, but 1.25 percent – less than half the rate. As result, during that period, manufacturing’s output (1.21 percent) and trade deficit would have grown at very nearly the same pace.

What does the future hold for this key ratio? On the one hand, civilian aircraft production is bound to decrease for the foreseeable future due to the 737 Max production halt announced by Boeing in mid-December. On the other, numerous signs indicate that industry overall has come out of the recession that dogged it for much of the last year and a half (and that by some output measures, never happened at all). Moreover, the Phase One trade deal signed by the United States and China last week could well reduce at least some of the tariff-related uncertainty that’s clearly slowed manufacturing-heavy capital spending decisions by American business in general, and certainly in manufacturing itself.

That looks like a modest case for domestic manufacturing continuing its longer term trend of becoming more self-sufficient while growing adequately – a development that makes major sense in a world that’s far more uncertain.

(What’s Left of) Our Economy: Let’s Get Real When Criticizing Trump’s China Trade Deal

Tags

Charles Schumer, China, dispute resolution, enforcement, Made in China 2025, Phase One, rule of law, tariffs, Trade, trade deal, {What's Left of) Our Economy

Of all the desperation- and Trump Derangement Syndrome-fueled arguments used to disparage the President’s new “Phase One” trade deal with China, one stands out as especially silly. It’s the complaint that the agreement hasn’t secured Beijing’s agreement to change its laws permitting the various predatory trade and broader predatory commercial practices that China is using to seize world leadership in key advanced industries and technologies, or otherwise promise verifiably to halt them. (Senate Democratic leader Charles Schumer of New York has been particularly outspoken on this point.)

And the complaint isn’t silly simply because the very title of the deal – Phase One – makes completely clear that it was never meant to once and for all solve all the grave problems that Chinese predation has created. It’s mainly silly for two reasons. First, the absence of anything remotely resembling rule of law in China means that Chinese promises to change laws and regulations and even actions to change what’s on paper could not be less important.

For China’s system is based on the arbitrary exercise of power  That is, by definition, its dictators and the bureaucracies they run feel absolutely no obligation to adhere to whatever text happens to be on paper at a given moment. In fact, one of the main purposes of publishing these fake measures is to keep outsiders ignorant of the practices both of the central government and of the various layers of sub-national government – i.e., the situation on the ground, and what needs to be done to become or remain viable in China.

Second, thanks to Phase One’s actual terms, whether the Chinese do or don’t change their laws, and even their practices, matters little now. That’s because the stiff remaining tariffs on massive amounts of Chinese goods intended for American customers effectively deny Beijing the ability to turn its technology extortion into advantages in the U.S. market – the market it needs to access and dominate in order to realize its ambitions. Indeed, the highest remaining tariffs (25 percent) penalize the very high value products targeted by the Made in China 2025 program that’s carrying out Beijing’s plans.

Moreover Phase One’s dispute-resolution and enforcement system – which ingeniously and crucially establishes a de facto American last word – goes far toward preventing China from using Made in China 2025 to turn its predation into advantages in the China’s own large market, either. If it makes the attempt, American victims can take their cases to the Washington, which enjoys broad authority under the deal to hike duties on key Chinese products even higher – and without fear of tit-for-tat Chinese retaliation. China’s only legal option is pulling out of agreement entirely – which given its continuing heavy reliance on accessing the American market, would amount to cutting off more than its nose to spite its face.

Thoughtful criticisms of Phase One have come from some quarters. Further, as I wrote in my initial assessment of the dispute-resolution system, realizing its benefits for the United States will require American leaders to show major poker-playing skills – which shouldn’t be taken for granted under the Trump administration, let alone under future Presidents. Neither development is guaranteed. But Phase One critics genuinely seeking to make certain that it works for the United States should focus on identifying actual weaknesses rather than trying to portray successes as failures.

Im-Politic: A Billionaire Candidate’s Massive Climate Change Blind Spot

Tags

China, climate change, Democratic debate, Democrats, election 2020, Im-Politic, tariffs, Tom Steyer, Trump

It’s now been five days since I first heard it, but I still can hardly believe my ears because this utterance might have been the single dumbest and/or most ignorant combination of positions I’ve ever heard a leading political figure make. It came from Tom Steyer during the Democratic presidential debate last Tuesday night, and even though the California billionaire’s campaign seems to be going nowhere fast as the 2020 campaign nears its primary phase, it deserves to be spotlighted.

The first of the two statements in question? Steyer’s declaration that “On the first day [of his presidency], I would undo Mr. Trump’s [China] tariffs.” The second? “…I would declare a state of emergency on day one on climate.”

Why is this so mind-boggingly idiotic? Because as should be known by anyone who thinks he or she is qualified to be President, not only has China become by far the world’s largest emitter of the greenhouse gases held to be responsible for climate change, but as shown in the left-hand chart below, it started becoming an emitter in a class by itself at the turn of the century – i.e., right about the time when it was admitted into the World Trade Organization (WTO). And the most important effect of WTO admission was greatly complicating the challenge faced by all the world’s economies – including America’s – in using tariffs to curb the growth of China’s subsidy-fueled carbon-belching export-heavy industries. 

We don’t yet have data for 2019, but the chart also shows that the growth of China’s emissions began to slow (though they’re still growing faster than anyone else’s except India’s) as China’s economic growth (which has always been export-heavy) began slowing. Moreover, over the last year, as literally hundreds of billions of dollars worth of Chinese goods intended for U.S. markets have been hit by President Trump with stiff tariffs, China’s growth hit a 29-year low. Think that’s a coincidence? Think again, as between 2018 and 2019, China’s annual export growth crash dove from 9.9 percent to 0.5 percent in U.S. dollar terms. (The right-hand chart, which measures emissions on a per capital basis, displays similar trends.) 

There’s nothing of course intrinsically wrong with Steyer’s passionate belief in the need to combat climate change. But his utter failure to recognize China’s immense contribution to the danger he sees makes embarrassingly clear – to put the kindest interpretation on the matter – that his knowledge base lags far behind his emotions. To the extent that other high profile climate activists repeatedly let China off the hook as well, they deserve the same criticism. And if this massive blind spot (or delusion) casts big-time doubt on Steyer’s qualifications to be President (which it should), it should have the same effect on all the other climate change resisters who display this shortcoming, too.

Making News: A Washington Post Cite on Manufacturing, China Trade Deal Interviews…& More!

Tags

Breitbart.com, China, Heather Long, i24News, John Carney, Making News, manufacturing, Market Wrap with Moe Ansari, Phase One, tariffs, trade deal, Trump, Washington Post

I’m pleased to report that I got quoted in this morning’s Washington Post on the new Federal Reserve industrial production figures (released yesterday).  Reporter Heather Long mentioned my observation that U.S. domestic manufacturing’s recent recession seems to be over.  She could have also noted the evidence I’d presented indicating that this slump never even happened, but what the heck.

Also yesterday, I was interviewed on “Market Wrap with Moe Ansari” on the new trade deal President Trump has signed with China.  You can listen to the podcast at this link;  my segment begins just after the 27-minute mark.

That same day, Breitbart.com‘s John Carney gave me a very nice shout-out in his very important piece noting new research showing that he (and I) have been right all along about the Trump trade wars having minimal-at-best effects on prices for consumer goods.  Incidentally, Post reporter Heather Long also deserves much credit for first reporting these academic findings.  Read the piece here.

On Thursday night, the U.S.-Israeli TV network i24News also interviewed me on that “Phase One” China trade deal.  To watch the interview, click here and download the file.  As usual with i24News, be sure to download the link within a week, because after that, your freebie access will be gond.

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

 

(What’s Left of) Our Economy: Manufacturing’s (Latest) Recession Looks Like It’s Over

Tags

aluminum, China, Commerce Department, Federal Reserve, Great Recession, industrial production, inflation-adjusted output, manufacturing, manufacturing production, metals tariffs, recession, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Let’s do something a little different this time in RealityChek‘s monthly examination of the Federal Reserve’s latest domestic U.S. manufacturing output figures – which came out this morning and bring the story through December and therefore through full-year 2019 (at least preliminarily).

Instead of focusing on the industries most seriously affected by President Trump’s tariff-heavy trade policies (mainly the metals tariffs, given big measurement problems with the China duties), let’s look at the question of whether manufacturing remains in recession – which has big, trade war-related implications because this Trump campaign is widely blamed for many of manufacturing’s recent weakness.

There’s considerable evidence that the answer is “Yes” – that industry’s inflation-adjusted production (the measure used by the Fed) is back in growth mode, though just barely.

But the question remains an open one. That’s partly because the answer depends on which baseline date you use for the start of the manufacturing recession, which unit of time you use (along with which particular manufacturing output gauge you favor).

Among that evidence tilting toward “Yes” – today’s Fed data.  Specifically, December’s 0.16 percent monthly increase in constant dollar manufacturing output means that, since June, such production is up. Now it’s only up by 0.04 percent. But since that’s a cumulative increase over the last six months (i.e., two consecutive quarters), the technical definition of recession no longer applies.

Or does it? The same Fed figures show that, between December, 2018 and December, 2019, after-inflation manufacturing output was down – by 1.26 percent. So the recession is still on, right?

Maybe. But use another baseline – April, 2018. As RealityChek regulars know, that’s the first full month in which significant Trump tariffs went into effect (on imports of aluminum and steel). Since then, though, price-adjusted manufacturing production has grown by 0.38 percent. This result, therefore, indicates that, although the President’s trade policies seem to have delivered a hit to domestic manufacturing, it was pretty negligible, and it’s already over (at least for now).

To complicate matters still further, as RealityChek reported last July, according to the Fed’s figures, manufacturing has suffered several recessions since the current economic recovery began (in the middle of 2009).  Indeed, as of this morning, it  still hasn’t recovered from the Great Recession that began at the end of 2007!

At the same time, another set of U.S. government data support the conclusion that there has been no trade war-related manufacturing recession during the Trump years – or manufacturing recession of any kind.

These statistics come from the Commerce Department’s “GDP [Gross Domestic Output] by Industry” reports. They use the same measure used by the Fed for tracking manufacturing growth (or contraction), but they’re kept on a quarterly, not monthly, basis. As a result, these numbers aren’t issued as frequently.

Yet the latest results came out January 9, and although they stop at the third quarter of last year, they show that in real terms, domestic manufacturing under Mr. Trump never shrank on net for two straight quarters, much less over any longer time frame. Here are the quarterly change figures:

2Q 16-1Q 17 :+0.32%

1Q 17-2Q 17: -0.7%

2Q 17-3Q 17: +0.35%

3Q 17-4Q 17: +1.22%

4Q 17-1Q 18: +0.38%

1Q 18-2Q 18: +0.09%

2Q 18-3Q 18: +1.38%*

3Q 18-4Q 18: +0.38%

4Q 18-1Q 19: +0.43%

1Q 19-2Q 19: -0.38%

2Q 19-3Q 19: +0.67%

*those Trump metals tariffs began in this quarter

Indeed, what comes through loud and clear from them is that not only has there been no manufacturing recession on President Trump’s watch, but there hasn’t even been an output slowdown.

It’s always possible to point to the counter-factual – that is, in this instance, to try to figure out how matters would look without any Trump tariffs, or similar Trump efforts to transform U.S. trade policy. And it’s certainly conceivable that domestic industry would have fared even better had Trump abjured all tariffs.

But that’s not the only counter-factual. For example, what if the rest of the world had been able to deal with the pressure created by China’s steel dumping by dumping its own steel into the United States (which hasn’t happened because the Trump metal tariffs were global)? What if China itself had remained completely free to send artificially low-priced (because heavily subsidized) product into the US market? What if President Trump had kept the United States in the Trans-Pacific Partnership trade agreement (TPP), with its wide open back door for imports with lots of Chinese content, while China remained under no obligation whatever to open its market to U.S. products? It’s easy to see that U.S.-based manufacturing could have gone on the critical list.

What’s certain, however, is that according to the most authoritative data available, claims of tariffs-led disaster for U.S. manufacturing have been either much ado about nothing, or much ado about very little. Could the coming months finally bear out the worst fears of cheerleaders for pre-Trump trade policies and other globalists? Of course. But that’s simply speculation, which counts much less than facts.

Making News: Talking China Trade Deal with Jersey Joe, John Batchelor…& More!

Tags

AlphaWeek.com, America First, Breitbart News Tonight, Breitbart.com, China, economic nationalism, energy, enforcement, Gordon G. Chang, IndustryToday.com, Jersey Joe, Joe Piscopo, John Carney, Making News, Middle East, Phase One, Populism, RealVision.com, tariffs, The Epoch Times, The Joe Piscopo Show, The John Batchelor Show, trade deal, trade deficit, Trump

I’m pleased to announce that I was interviewed this morning on the new U.S.-China trade deal on “The Joe Piscopo Show” on New York City’s AM 970 The Answer radio station.  Sorry that I could only give limited advance notice, but the podcast is on-line already!  Special bonus:  Jersey Joe and I also dealt with the Major League Baseball cheating scandal, too!

In addition last night, I was back on John Batchelor’s nationally syndicated radio program to discuss the so-called Phase One agreement with John and co-host Gordon G. Chang.  You can listen to the podcast here.

Tuesday night, I was interviewed on a wide range of foreign and domestic issues on “Breitbart News Tonight.”  Click on this link and scroll down till you see my January 14 segment.

The Breitbart.com folks were also kind enough to write up some portions of this segment in website items here and here.

On Tuesday, meanwhile, Breitbart‘s excellent economics and finance editor John Carney quoted me in his detailed analysis of the latest U.S. government report on consumer prices – which reveals whether the Trump trade wars have sparked any meaningful inflation.  You can read it at this link.  (Spoiler alert for everyone who hasn’t been paying attention to RealityChek‘s own coverage of this issue:  They haven’t.)

Meanwhile, The Epoch Times has quoted my views recently on energy security and what it means for America’s policy in the hopelessly dysfunctional Middle East, and on the progress made in reducing the U.S. the trade deficit.

On January 6, IndustryToday.com re-published – at this link – my recent blog post on the latest data undermining the claim that President Trump has betrayed his working class and middle class voters.  (Another spoiler alert:  These data indicate that he hasn’t.)

Finally, on January 2, the popular finance website AlphaWeek.com posted the video of my December RealVision.com interview on the virtues of an America First approach to U.S. foreign and trade policy – and whether Mr. Trump’s measures fit the bill.  Catch it here.

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

 

 

 

(What’s Left of) Our Economy: The Case that Phase One Passes the Enforceability Test

Tags

China, enforcement, Phase One, tariffs, Trade, trade deal, trade talks, Trump, unilateralism, {What's Left of) Our Economy

Not only has the “Phase One” trade deal now been signed by the United States and China, but official texts have now been released. And my initial read indicates that the Trump administration just might have come up with an effective enforcement regime – though success here will depend on U.S. governments (including this one) displaying nerves of steel.

At the same time, the enforcement terms raise the question of why the President felt the need to reach this point via a treaty, rather than simply punish China unilaterally for economic transgressions – as his tariffs on hundreds of billions of dollars worth of imports from the People’s Republic (most of which remain firmly in place) already accomplish.

By way of background, from the beginning, I’ve doubted that any such agreement could be adequately verified from the U.S. standpoint. The main reasons: The bureaucracies China uses to implement the various features of its trade and broader commercial predation are too big and secretive for any outsider to monitor in any meaningful sense. (Further complicating matters – many of the worst culprits are provincial and city governments.) Therefore, documenting abuses in any kind of detail – or verifying any Chinese promises of structural change – has looked like an insurmountable obstacle to standard, legalistic dispute-resolution systems that could actually work satisfactorily for American plaintiffs.

As a result, I’ve argued that the best way to handle these transgressions is for the U.S. government to impose sweeping tariffs on China (because its predation is a systemic plan, not the product of individual entities’ decisions), and to deal with additional, individual complaints by acting as judge, jury, and court of appeals. And because of my conviction that the United States holds the clear upper hand in its relations with China, I saw no need to permit any Chinese involvement in these processes.

The Phase One deal certainly can’t be relied on to eliminate or even reduce Chinese opacity. But the way the treaty reads, it doesn’t need to. The key appear to be these passages (on page 7-3), which set out the procedures to be followed if the United States and China can’t, after a series of meetings and “consultations” agree on resolving a complaint. Here’s the first:

“…the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship.”

“Remedial measures” clearly means punitive tariffs, and just as clearly, they can unilaterally applied.

It’s true, as some trade policy critics have fretted, that the agreement gives the Chinese the same rights – as well as the option of retaliating if Beijing believes the United States has been acting in “bad faith.”

But here’s where the nerves of steel come in. The retaliation that’s permitted isn’t tit-for-tat – as in the case of World Trade Organization (WTO) rules. Indeed, even challenging such retaliation isn’t allowed – a right that can always frustrate justice by delaying it. Instead, the retaliation required is no less than exiting from the entire deal. The system can work in America’s favor if U.S. leaders either display confidence that China won’t take such a dramatic step (because the export-heavy Chinese economy still needs the American market much more than vice versa), or if they resolve to tariff China heavily if this U.S. bluff is called.

Incidentally, the language also makes clear that, in order to go ahead with tariffs, Washington won’t need much evidence any kind of Chinese failure to respond adequately to complaints. In fact, no meaningful evidentiary standards are specified at all. In other words, it’s entirely up to the United States to decide on the threshold for action.

Can China take advantage of the same provisions? In theory, yes. But nothing in the deal would prevent the United States from treating as treaty violations any Chinese complaints it regards as unmerited – and credibly threatening to retaliate by withdrawing unless Beijing backs down.

The deal also could well prevent a big potential problem from emerging – fear of Chinese retaliation (which itself might be tough even to identify because of Chinese bureaucratic secrecy) by U.S. victims of Chinese predation (and especially by victims that are operating in China). Such fears have prevented many of these victims from complaining publicly about Chinese abuses in the first place.

But the text on pages 7-2 and 7-3 appear to permit Washington to keep the name of the plaintiff’s business confidential. So, at least in theory, problem preempted.

As suggested above, however, the deal looks so promising, and permits so much implicit U.S. unilateralism, that it’s difficult to understand why President Trump decided to proceed bilaterally t begin with. Was he worried about being criticized for being reckless and not going the extra mile to deal with the Chinese respectfully and accommodate their legitimate concerns? Perhaps. But I strongly suspect that, at least if the agreement works out as I expect, he’ll face such accusations anyway. And by negotiating, he’s lost precious time to provide tariff relief for U.S.-based producers who need it, and to permit other companies to adjust their supply chains to a new tariff-heavier era sooner rather than later (and to make adequate progress well before November, 2020).

Clearly, however, the negotiating train has left the station. And between this effective enforcement system, Chinese promises of big import increases from the United States, and steep tariffs remaining on most imports from China (which cope with the systemic issue), it looks like a major and important economic and political win for a self-proclaimed master negotiator, and the entire domestic economy – if he makes full use of it.

(What’s Left of) Our Economy: Is Manufacturing Employment Being Undercut by Boeing Along with Trade Wars?

Tags

737 Max, aerospace, aircraft, aluminum, Boeing, China, Jobs, manufacturing, metals, metals tariffs, metals-using industries, steel, supply chain, tariffs, trade war, {What's Left of) Our Economy

One of the biggest questions raised by the new (lousy) manufacturing results of this morning’s monthly U.S. jobs report concerns whether industry’s dismal recent performance is being impacted more by President Trump’s tariff-heavy trade policies or by Boeing’s aircraft safety woes. The bulk of the evidence released this morning seems to point to the trade wars as the continuing main culprit, but also to some Boeing-related puzzles. 

Overall, the sector lost 12,000 jobs on month in December – its worst such result (excluding October, whose figures were distorted by the General Motors strike) since August, 2016’s 23,000 decrease).  Moreover, the year-end annual manufacturing jobs gain of 46,000 was the lowest such figure since 2016’s 7,000 loss.  (For comparison’s sake, 2018’s annual manufacturing employment increase of 264,000 was the best such result since 1997’s 304,000.  

The trade wars evidence for the recent deterioration comes in the form of comparisons between the major metals-using industries during the early months following the imposition of tariffs on steel and aluminum, and afterwards (when many Trump critics argue that the trade curbs’ impact began sinking in). As always, the impact of Mr. Trump’s levies on imports from China remain too diffused throughout the manufacturing sector – and too unevenly so – to be gauged reliably. For good measure, they’ve also been threatened and applied in a confusing, on-and-off manner, and the recent Phase One trade deal and announcement of follow-on negotiations looks unlikely to end much of the measurement uncertainty.

First, here are the data on employment changes in those metals-using sectors from April, 2018 (the first full month during which the tariffs were in effect) through last month. Figures for the U.S. private sector overall, manufacturing overall, and manufacturing’s durable goods super-sector (in which most of the main metals users are classified) are included for comparison’s sake. Keep in mind that the results for household appliances also reflect a separate set of tariffs for large household laundry machines that have been in place since February, 2018.

                                                  Old thru Nov      New thru Nov       Thru Dec

entire private sector:                +2.82 percent      +2.81 percent    +2.92 percent

overall manufacturing:            +1.83 percent      +1.84 percent    +1.75 percent

durable goods:                         +1.99 percent      +2.02 percent    +1.94 percent

fabricated metals products:     +1.51 percent       +1.45 percent   +0.96 percent

non-electrical machinery:       +1.26 percent       +1.56 percent   +1.37 percent

automotive vehicles & parts:   -0.45 percent        -0.73 percent    -0.81 percent

household appliances*:            not available        -5.84 percent     not available

aerospace products & parts*:  not available        +9.02 percent     not available

*data are one month behind

There’s no mistaking that net new hiring in the metals-using sectors has been slower than in the rest of manufacturing and the private sector. As is clear from the table below, that’s a substantial change from the early post-metals tariffs period (presented here as April, 2018 through December, 2018 and January, 2019), when most metals-users were leaders in boosting payrolls:

                                                                Thru December           Thru January

entire private sector:                                +1.36 percent            +1.60 percent

overall manufacturing:                            +1.39 percent            +1.49 percent

durable goods:                                         +1.72 percent            +1.97 percent

fabricated metals products:                     +1.57 percent            +1.78 percent

non-electrical machinery:                        +2.33 percent           +2.57 percent

automotive vehicles & parts:                   +1.07 percent           +1.15 percent

household appliances:                              -2.05 percent –           2.52 percent

aerospace products & parts:                    +5.47 percent           +5.87 percent

But what about the Boeing effect – which figures to be considerable given the major role played by the aircraft and aerospace giant not only in American industry but the entire economy? As the data below show, the impact of the company’s production slowdown and more recent suspension of the previously best-selling but flawed 737 Max model (not to mention worldwide groundings) is anything but clear-cut. Presented here are the job change figures for aircraft and related parts industries, along with the numbers for other major supplier industries and the usual comparison sectors for the eight months preceding and following the announcement of global 737 Max groundings last March. The latest available data for the aerospace-specific industries only go through November, so that’s the final month used for the entire table.

                                                 July, 2018 thru March           March thru Nov

entire private sector:                     +1.38 percent                    +1.03 percent

overall manufacturing:                 +0.98 percent                    +0.28 percent

durable goods:                              +1.17 percent                    +0.11 percent

fabricated metals products:          +0.89 percent                     -0.31 percent

non-electrical machinery:            +1.38 percent                     -1.16 percent

aerospace products & parts:        +4.34 percent                    +2.27 percent

aircraft:                                        +6.59 percent                    +2.09 percent

aircraft engines & engine parts:  +1.04 percent                    +3.67 percent

non-engine aircraft parts/equip: +3.06 percent                     +1.22 percent

The pattern seems to show employment slowdowns nearly across the board. But the two non-aerospace-specific supplier industries – fabricated metals and non-electrical machinery – saw net hiring increases turn into net hiring decreases. Moreover, in aircraft engines and engine parts, payroll improvements actually accelerated.

At least some of this apparent paradox might result from the November end date used here. Boeing didn’t decide to suspend outright production of the troubled model until December 16, and the decision won’t even go into effect until sometime this month. Indeed, the company initially announced that no layoffs were accompanying the halt, although significant workforce reduction plans were finally made public yesterday. In this vein, reports of actual supply chain employment effects didn’t begin appearing until mid-December. Moreover, it’s possible that employment pain has been felt by the non-aerospace-specific companies in Boeing’s vast domestic supply chain before it spread to the aerospace-related firms.

So the safest bottom line so far seems to be this: Contributors to manufacturing’s recent jobs slump might now include both trade war- and non trade war-related developments. And anyone singling out one or the other deserves considerable skepticism.

(What’s Left of) Our Economy: The New U.S. Trade Figures Validate Trump’s (Previous?) Hard Line

Tags

aircraft, Boeing, China, civilian aircraft, goods exports, goods imports, goods trade, manufacturing, merchandise exports, merchandise imports, merchandise trade, Mexico, North America, services trade, soybeans, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

The new U.S. monthly trade data, which bring the story up through November, are teaching President Trump and the rest of the country a crucial lesson about his total trade strategy and his approach to China trade, along with their impact on the economy as a whole. Specifically, the hard line he was pursuing with the People’s Republic before the announcement of the “Phase One” trade agreement was working like a charm.

The new numbers also make clear that many of U.S. domestic manufacturing’s troubles this year, including its mediocre trade performance, have had nothing to do with the Trump tariffs whatever – whether on Chinese products or foreign aluminum and steel. Instead, they owe to the (apparently mounting) safety woes of aircraft giant Boeing.        

The initial Phase One announcement (on October 11) revealed that the United States would hold off on an increase of tariffs from 25 percent to 30 percent on $250 billion worth of goods imports from China (largely advanced manufactures inputs) that was scheduled to go into effect on October 15. On December 13, Mr. Trump added that new levies scheduled to go into effect on December 15 on an additional $160 billion worth of merchandise imports would be canceled as well.

In return, according to the President, Beijing has agreed to “many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more.” Moreover, 7.5 percent tariffs would remain on most of the rest of China’s imports along with the two governments agreeing to follow-on negotiations to address further China’s wide range of predatory trade and broader economic practices.

The new trade figures show that U.S. merchandise exports to China have indeed risen since October – by 13.69 percent month-to-month. Also up sequentially (by 21.89 percent) are total worldwide U.S. exports of soybeans – a crop whose trade performance was damaged severely by Chinese retaliatory tariffs since the latest phase of the bilateral trade war broke out.

But whether the Phase One deal and the related prospects for an enduring U.S.-China trade truce deserve much, if any, credit is open to serious doubt. For example, American goods exports to China rose sequentially four times in 2018 through September – before even the initial Phase One announcement. And two of these increases (in March and May) were bigger in percentage terms than the November improvement.

Moreover, although the November monthly shrinkage of the China’s huge bilateral goods trade surplus with the United States was substantial (15.65 percent), the surplus fell at faster rates in February and March.

Yet the cumulative success of Mr. Trump’s tariff-centric policies are clear from the new year-to-date results. On a January-through-November basis, U.S merchandise exports to China are indeed off 11.94 percent. But the much larger amount of American goods imports from China have fallen by 15.22 percent. As a result, the year-to-date merchandise trade deficit is down 16.17 percent.

Further, this progress has been made as the growth of the American global goods deficit has actually been reversed – indicating that attacking the prime source of the U.S. worldwide goods deficit is indeed helping address the global shortfall effectively.

On a year-to-date basis, the global goods deficit is down fractionally. If the trend continues for a month more, the merchandise trade gap will have narrowed on an annual basis for the first time since 2013 – a year during which the overall economy grew at a considerably slower pace (1.8 percent after inflation) than it’s been growing this year (well in excess of two percent so far in real terms).

Much of this improvement is due to America’s emergence as an oil trade surplus country (which has almost nothing to do with trade deals or other elements of trade policy, since oil trade is rarely directly affected by trade policy decisions). Yet the massive U.S. global deficits in goods other than oil have been shrinking steadily since August – from $72.75 billion that month to $63.82 billion in November, the lowest monthly total since June, 2018).

Just as important, the makeup of the remaining American merchandise deficit is becoming concentrated in North America – which benefits the United States significantly, since Mexico’s economic problems in particular often become America’s problems. And year-to-date, the total U.S. goods deficit with North America (Canada and Mexico), widened by 27.05 percent, led by a 27.64 percent rise in the Mexico gap.

Nonetheless, the merchandise deficit with Pacific Rim countries excluding China has grown by 22.47 percent year-to-date, so much more regionalization progress can clearly be made.

In other important developments revealed by today’s November trade report, the monthly U.S. combined goods and services deficit shrank sequentially by 8.31 percent to $43.09 billion from a downwardly adjusted $46.94 billion. The November figure was the lowest monthly total since October, 2016 ($42.00 billion).

November’s $63.90 billion global goods deficit (which includes oil) also represented its lowest level since October, 2016 ($62.02 billion).

Yet U.S. services trade continued to experience a weak year, as the surplus decreased sequentially in November (by 0.19 percent) and is running 4.72 below 2018’s total so far.

Total U.S. exports advanced by 0.66 percent on month in November, but are so far down fractionally on a year-to-date basis. (During the previous January-through-November period, they’d risen by 6.98 percent.)

Total U.S. imports dropped by 0.98 percent sequentially in November, and so far are down 0.14 percent year-to-date. (During the previous January-through-November period, they’d increased by 8.20 percent.)

Encouraging news came on the manufacturing trade front, too, as this sector’s enormous, longstanding deficit fell on month by 12.70 percent, to $80.93 billion. That was the lowest monthly level since March’s $76.96 billion and the biggest monthly percentage drop since February’s 20.00 percent.

U.S. manufactures exports declined by 3.81 percent on month in November, but the much greater amount of imports sank by 8.16 percent.

Year-to-date through November, the manufacturing trade deficit is up 1.69 percent – from $935.74 billion to $951.55 billion. In other words, another $1 trillion annual trade deficit is almost certainly in store for U.S. domestic manufacturing.

At the same time, this rate of increase is much slower than that from the same period in the year before: 10.98 percent.

In addition, this manufacturing progress has been recorded despite a major deterioration in U.S. civilian aircraft trade fueled undoubtedly and largely by the safety problems experienced by Boeing. 

The company – America’s only producer of wide-body civilian jetliners – has long been a major export and trade surplus champion.  But U.S. exports of civilian aircraft dropped by 5.77 percent on month in November, and have nosedived by fully 21.77 percent year-to-date.  Civilian craft imports declined at an even faster rate sequentially in November – fully 39.59 percent.  But the numbers are much smaller, and year-to-date through November, they’ve soared by 19.39 percent.

As a result, the U.S. civilian aircraft trade surplus last year through November stood at only $27.22 billion.  That’s a 33.02 percent plunge from 2018’s comparable total of  $40.64 billion.  And it means that, all else equal, if this sector’s 2019 trade performance simply equalled that of the year before, the overall manufacturing trade deficit would have barely grown at all.