(What’s Left of) Our Economy: Why the U.S. Still Holds the Winning Economic Cards Versus China

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Biden, CCP, China, Chinese Communist Party, CNBC.com, consumers, consumption, demographics, Donald Trump, export-led growth, gross domestic product, IMF, International Monetary Fund, per capita GDP, population, technology, Trade, trade wars, workforce, {What's Left of) Our Economy

Since there seems to be no end in sight to the rise in U.S.-China tensions, it’s especially interesting that two analyses of the Chinese economy and its future that challenge some widely held views on the subject have just appeared. Also noteworthy: They matter greatly for America’s perceived prospects for success, and one of them comes from the Chinese Communist Party (CCP) itself.

More important still:  When you put them both together, the implications look positively startling – and encouraging – for America’s prospects in its economic and technological struggle with the People’s Republic.

The first apparently contrarian information comes from the International Monetary Fund in the form of this chart.

It shows recent and projected trends in U.S. and Chinese gross domestic product (GDP) per capita – that is, how much economic output each country turns out adjusted for population. This statistic is a valuable gauge of economic power and affluence because it reveals which national economies (or the economies of any other political unit) are a certain size simply because their populations are a certain size (big or small), and which economies are doing a particularly good or bad job generating goods and services given how many people are doing the producing.

For example: Let’s say you have one economy with a population of 100 and one with a population of 10,000, and the latter generates twice as much economic output than the former. The more populous country would have the larger economy in absolute terms, but its performance wouldn’t be seen as especially impressive because it took so many people to achieve this result – and indeed orders of magnitude more people than the smaller population economy.

Moreover, the latter economy would have much less wealth to distribute among its own people than the former, and therefore each of its citizens would be a good deal poorer than their counterparts in the smaller economy all else being equal.

But let’s not dismiss the bigger economy’s record altogether. For if the two ever fought a war – all else equal again – the bigger economy would have much more in the way of resources to build and equip a military, and keep it fighting, than the smaller.

Throughout modern history, the U.S. economy has greatly exceeded China’s by both measures, but because of the amazing progress made in recent decades by the People’s Republic and a slowdown in U.S. growth, China has been able to close the gap in terms of the size of the two economies. In fact, many forecasters (as made clear in the CNBC.com post containing the chart), believe that the Chinese will catch up before too long. As indicated above, the implications are sobering for Americans if the two countries come to blows, and by extension for any diplomatic jockeying they engage in – for relative military power always casts a political shadow.

China’s overall catch up has been so fast that you might think that the per capita GDP gap that’s been so large because China’s population has been so much bigger than America’s might start narrowing, too. But the chart makes clear that this hasn’t been the case at all. Indeed, the gap has continued to widen, and is projected to keep widening at least for the next four years.

And this finding and prediction suggests that the unquestionable surge in living standards that China has been able to foster due to its rapid growth – which has led so many U.S. and other non-Chinese businesses to pin their future hopes largely on selling to this huge and supposedly ever-burgeoning market – won’t even come close to American living standards for many years. So if the chart is right, the purchasing power growth of the typical Chinese will stall out at pretty low levels and disappoint many of these corporate hopes.

As a result, fears that a thorough “decoupling” of the two economies resulting mainly from U.S. concerns about over-dependence on an increasingly hostile country will kneecap many U.S.-based businesses and possibly the entire American economy could be seriously overblown, at least longer term. For if the chart is right, these expectations will be revealed as unrealistic no matter what course Washington follows – and even if China displayed any willingness (which it hasn’t) to permit foreign businesses to make any more inroads into its economy than are absolutely necessary.  (See here for the latest – and an unsually explicit – official Chinese designation of “complete” economic self-reliance as a goal.)  

All of which brings us to the second contrarian take on China that’s been expressed recently – and by the Communist Party. It’s a finding from the Deputy Director of a party-run research institute that the country’s “Consumption has already past the phase of rapid increase and will only rise slowly in the future.” And his opinion deserves big-time credibility because he clearly believed that he could express such a downbeat view without getting his head chopped off, or being sent for a few decades to a reeducation camp, or risking punishment for any immediate family and relatives.

In addition, however, Xu cited two specific, interlocking reasons for this judgement: an aging population and a shrinking workforce.  And although he seemingly didn’t mention this, if China will need to temper its plans to generate more economic growth through its own domestic consumption, it will need not only to rely more on the kinds of infrastructure investment he did cite.  It will also need to keep relying heavily on exports – which should ensure that the United States will retain plenty of leverage over the People’s Republic with its tariffs as long as the Biden administration decides to leave them in place. 

None of this means that former President Trump was right in claiming that trade wars are “easy to win,” or that maintaining satisfactory technological superiority will be a piece of cake, either, or that generally the United States can stop worrying so much about China threats on these scores.  But it does mean that if American leaders have the will to prevail – and to advance and safeguard U.S. interests adequately – they’ll have plenty of wallet to use.                                    

 

(What’s Left of) Our Economy: A Labor Shortage-Spurred Tech Revolution in Construction

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3D manufacturing, 3D printing, Biden, CNBC.com, construction, Diana Olick, Donald Trump, housing, illegal aliens, Immigration, labor shortages, Open Borders, productivity, technology, {What's Left of) Our Economy

As known by RealityChek regulars, there’s abundant evidence that behind most claims of lasting labor shortages by U.S. industries, and the resulting insistence tht more immigration is urgently needed, there’s an industry that’s done almost nothing to improve its productivity. (See, e.g., here.)

In other words, precisely because they’ve been able to rely for so long on an ever expanding supply of cheap labor, these industries have had precious little need to keep costs under control by improving productivity – either by developing labor-saving technologies, or adopting more efficient management practices, or some combination of the two. And the result hurts the entire U.S. economy by retarding progress and knee-capping its best chances of fostering lasting prosperity.

That’s why it was so exciting to read a CNBC.com post yesterday describing the beginnings of a possible productivity-improving technological response to labor shortages (and therefore rising labor costs), by one of the nation’s biggest slacker industries – construction.

Correspondent Diana Olick’s report faithfully presented the residential construction sector’s claim that housing has performed well during the CCP Virus period, but that its potential to keep supporting bady needed growth was endangered by constantly rising costs. And she added that, in addition to building materials becoming ever more expensive, so were workers.

What Olick failed to mention was that housing was a quintessential industry that has long enjoyed the option of compensating by becoming more innovative, but gone down the cheap labor road instead. Indeed, an outsized share of its workforce consists of not only immigrant workers, but illegal aliens. And its labor productivity levels are actually down since 1968 – which is no coincidence.

But the Trump administration’s restrictive immigration policies may finally be forcing home-builders and other construction companies to start using their collective noggins to control costs. As Olick reports, the industry is starting to use 3-D printing technology “in a big way.” According to executives whose companies are using the new technology, it can cut costs by between 10 percent to 40 percent. And one big reason, in Olick’s words, is that “3D-printed homes require very few workers, as the printer does the bulk of the construction.”

Her post also mentions that 3-D-built homes promise to be sturdier and more energy-efficient than their conventional counterparts, and generate less construction waste, too. And business has been so good that one executive told her “The biggest challenge…is we are supply constrained. We have more people asking for us to build houses than we know what to do with now. Every construction system we have is booked up for the next 24 months.”

In fact, from an economy-wide perspective, the biggest, darkest cloud on the horizon is that President Biden’s Open Borders-friendly immigration policies will flood the labor market with low-skill workers again and take the pressure off the construction industry – and other productivity laggards. That result would richly deserve to be called “Build Back Worse.”

Im-Politic: The Stimulus Bill Math Just Got Incredibly Fuzzy

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arithmetic, CCP Virus, CNBC.com, coronavirus, COVID 19, division, Im-Politic, math, multiplication, Nancy Pelosi, recession, stimulus package, Trump, Wuhan virus

I never dreamed that RealityChek would ever function as a math tutor, but a post yesterday on CNBC.com indicates that it’s an option I should consider. Because unless my own knowledge of numbers is even less impressive than I’ve always supposed, it looks like this major news organization, or the office of House Speaker Nancy Pelosi, or both, could really use those services.

Here’s the passage that sent my head reeling. It deals with the negotiations between Congress’ Democrats and the Trump administration about the latest legislation intended to offer Americans aid during this deep CCP Virus-induced economic downturn:

“Democratic leaders and the Trump administration have not restarted relief talks since they collapsed earlier this month. Pelosi has put forward a more than $3 trillion rescue package, but Republicans have proposed a roughly $1 trillion plan.

“The sides have failed to find common ground.

“‘We have to try to come to that agreement now,’ Pelosi told Politico on Tuesday. She said Democrats are ‘willing to cut our bill in half to meet the needs right now.’”

“Her spokesman Drew Hammill clarified to CNBC that she was reiterating her previous stance. She has said she would start discussions again if Republicans doubled their roughly $1 trillion relief offer.”

In case you’re still wondering about the problem I’ve detected, let’s take it step-by step:

>The House Democrats approved more than $3 trillion in stimulus spending.

>The administration and Republicans in Congress want $1 trillion.

>The House Democrats have offered to settle for half of their original $3 trillion proposal, which would be $1.5 trillion

>But Pelosi says she won’t resume negotiations until the Republicans double their offer.

>Which would result in the Republicans coming back to the talks supporting $2 trillion.

>Which is $500 billion more than what the House Democrats say they’re willing to accept.

I don’t doubt that Pelosi and her office have razor-sharp political skills, and I rely on CNBC for lots of economic and especially financial news. I also know that the differences between the two parties on the stimulus package involve more than just the totals to be spent. But unless I’ve completely forgotten simple division and multiplication, regardless of what anyone thinks about the merits of this debate, it’s tough to figure out what the Democrats are trying to accomplish here, and why no one working for the Speaker or at CNBC caught a blooper that should be obvious to a third grader.

So I’d be happy to share my knowledge of elementary school arithmetic with anyone at the Speaker’s office or with the network. And because I’m well aware how smart lots of you RealityChek readers are, I’d be happy to find out whether and how I might have messed up myself.

(What’s Left of) Our Economy: The Offshoring Lobby Admits Americans are Standing Tall in the China Trade War

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2020 elections, capex, Charles Koch, China, CNBC.com, consumers, Democrats, inflation, manufacturing, national security, recession, slowdown, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Another trade war myth bites the dust! And its demise is especially big news, given that its killers are some of the leading myth-makers.

Specifically, as reported by CNBC,com, top officials of a major lobbying campaign aimed at forcing President Trump to overturn his tariff-heavy trade policies, and in particular, to make nice with China, have openly admitted that the ace-in-the-hole they thought they held turned out to be joker. According to a CNBC posting yesterday, the political network funded partly by billionaire libertarian Charles Koch has concluded that their efforts to restore the pre-Trump, offshoring-happy, U.S. trade policy status quo have failed because it completely misread the American public’s willingness to pay an economic price for combating China’s trade predation.

This news comes on the heels of ongoing evidence that, contrary to widespread predictions from economists, think tank hacks, globalist politicians, and the Mainstream Media reporters who keep taking their cues from all these trade zealots, raging American inflation has not been ignited, business investment has not been paralyzed, domestic manufacturing has not suffered a death blow (though it’s been in a shallow recession for a year), and the economy has not plunged into recession (though growth has slowed).

The advertising-focused Koch drive sought to convince President Trump to back off his strategy of trade pressure by exploiting the selfishness of U.S. consumers in particular and the supposed vulnerabilities of the U.S. political system. The apparent central assumptions (and they’ll be familiar to anyone who’s been following Mainstream Media coverage of trade issues): Affluent, and indeed spoiled, Americans have much less tolerance for economic pain than their long impoverished Chinese counterparts; and China’s dictators will find it much easier to resist any public pressure that did develop than American leaders. Therefore, the Koch operatives reasoned, stoking fears that Mr. Trump’s tariffs would supercharge retail prices in particular and kill jobs by prompting retaliatory Chinese measures and slumping American capital spending would set off a political firestorm that the President would need to extinguish if he hoped to win reelection.

But at a briefing it held in New York City yesterday, a Koch official told reporters that “The argument that, you know, the tariffs are adding a couple thousand dollars to the pickup truck that you’re buying is not persuasive. It doesn’t penetrate with the people that are willing to go along with the argument that you have to punish China.”

Nor did the Koch campaign make this decision lightly. The CNBC.com piece noted that “the network came to this conclusion after conducting weekly focus groups on trade policies.” Also cited in the post was a recent national poll showing that “63% of registered voters believe tariffs will ultimately hurt the United States more than China, but 67% of the electorate is convinced it’s necessary to confront China over its trade practices.”

In other words, the American public is wiser and more farsighted than the U.S-owned businesses that have worked overtime to help strengthen the Chinese economy – including by voluntarily transferring to the Chinese the technology they need to upgrade their mechanisms of repression and modernize their military. And everyday Americans are much smarter than those companies that China has begun victimizing once Beijing concluded they’d outlived their usefulness, but that keep hoping against hope that enough boot-licking will save their corporate skins in the Chinese market. Because the American public evidently understands that U.S. prosperity and national security alike require reversing these China-enabling policies, and that slightly more expensive imports from China are a small price to pay for preserving and achieving these goals.

Ironically, the poll indicates that the Koch campaign (along with similar efforts) has succeeded in one respect: It represents some evidence that Americans believe that their country is more vulnerable to a trade war than China – even though the Chinese economy is much more trade dependent, and even though, as noted above, the United States keeps growing (albeit more slowly), and its overall inflation remains subdued by any reasonable standard.

Maybe that’s why the Koch network says it’s far from giving up, and is considering delivering the same message with different tactics. Two seem especially promising to these Friends of China:

>“putting together a team of almost 100 business leaders to call on the Trump administration and lawmakers to end the trade war with China”; and

>educating “100,000 activists in at least 35 states about the potential negative impact of using tariffs to battle China. Those volunteers will then be expected to start reaching out to their congressional leaders. The network hopes these activists can convince lawmakers on Capitol Hill to stand up against the administration’s current trade policy. The latest phase of the Koch campaign is expected to cost the network millions of dollars.”

Of course, short of a major economic downturn, if the Koch network has already established that the public is rejecting its advertising-carried China fear-mongering, it’s unclear why President Trump would be more responsive to the 100 business leaders than he’s been to date? And why would most Members of Congress not already backing China coddling pay more much attention to the 100,000 activists?

That’s a question that also needs to be asked by some other major actors in the U.S.-China trade war: the majority of current Democratic presidential candidates, who clearly believe that there’s lots of voter China-related trade whining that they can turn into votes, and ultimately into victory over Mr. Trump; and Chinese dictator Xi Jinping himself, who just as clearly believes that if the President is defeated, he’ll be back to dealing with Uncle Sucker on trade – and so many other fronts.

Making News: A National Radio Update of the Trade War…& More!

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China, Clare Goldsberry, CNBC.com, Gordon G. Chang, IndustryToday.com, Jake Novak, Jobs, Making News, manufacturing, Plastics Today, tariffs, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that last night, I was interviewed on John Batchelor’s nationally syndicated radio show, where John, co-host Gordon G. Chang, and I updated the U.S.-China conflict – which now includes not only a trade war and a tech war, but a currency war (all closely related of course).

As usual, if you couldn’t tune in (and apologies for not being able to post a heads up last night), I’ll put up a link to the podcast as soon as one’s available.

In addition this morning, Industrytoday.com republished my post from August 2 detailing the mixed trade war-related results from the latest (July) U.S. jobs report.  Here’s the link.

Also, it was great to see economic analyst Jake Novak’s Monday column for CNBC.com reference my views on Trump tariffs’ (so far marginal) impact on the U.S. economy.  You can access it here.

That same day, a piece by Plastic Today‘s Clare Goldsberry spotlighted more evidence from RealityChek showing that America’s manufacturers are withstanding the trade conflict just fine.  Click here to read.

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

 

Making News: Talking Trump and China Tariffs on CNBC this Afternoon…& Latest Batchelor Podcast Now On-Line!

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China, CNBC.com, Gordon G. Chang, Making News, tariffs, The John Batchelor Show, Trade, Trump

I’m pleased to announce that I am scheduled to be back on CNBC today to talk Trump, trade, and China tariffs.  The segment is slated to start at 4:40 PM EST, and you can watch it live on your cable/satellite system, or at CNBC.com. As usual, if you can’t make it this afternoon, I’ll post a link to the streaming video as soon as one’s available.

Also, the podcast is now on-line of my interview on the same subject last night on John Batchelor’s nationally syndicated radio show. Click here for a great discussion among John, co-host Gordon G. Chang, and me.

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

Making News: New NAFTA Column on Marketwatch.com – & More!

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Brendan Kirby, Canada, CNBC.com, Crain's Cleveland Business, Lifezette.com, Making News, manufacturing, Marketwatch.com, Mexico, NAFTA. North American Free Trade Agreement, tax reform, think tanks, Trade, Trump

I’m pleased to announce that an op-ed column of mine was published (yesterday afternoon) on Marketwatch.com. The piece explains how the North American Free Trade Agreement (NAFTA) can be rewritten to serve the interests of all three signatory countries (the United States, Canada, and Mexico) by turning the current continental trade zone into a genuine trade bloc.  Click here to read it.

In addition, on October 18, it was great to see Lifezette.com‘s Brendan Kirby spotlight my research and analysis of the mounting intellectual dishonesty and outright corruption at the nation’s major think tanks – and how they regularly hoodwink the media. Here’s the link.

On October 14, Crain’s Cleveland Business featured my views of President Trump’s manufacturing and trade policies – which I said so far have produced some positive and negative surprises.  You can access the article at this link.

On October 12, this Lifezette piece quoted me on Mr. Trump’s emerging NAFTA revamp strategy.

Finally, for now, this October 11 CNBC.com summarized my appearance that day in a segment that I thought would deal with NAFTA and trade, but instead – strangely – wound up focusing on tax reform.

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

Making News: On CNBC at 1 PM EST Today!

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Canada, CNBC, CNBC.com, Making News, Mexico, NAFTA, North American Free Trade Agreement, Power Lunch, Trade, Trump

I’m pleased to announce that I am scheduled to appear on CNBC’s “Power Lunch” show today at 1 PM EST to discuss the negotiations to revamp the North American Free Trade Agreement (NAFTA) taking place in Washington, D.C. this week.  You can watch live on-line at cnbc.com or on most home cable/satellite systems.

Also, I’m still hoping to post a podcast of yesterday’s interview on Thom Hartmann’s nationally syndicated radio program, but I need to get the show’s permission first.  Stay tuned (figuratively)!

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

 

(What’s Left of) Our Economy: More Signs that US Trade Policy Needs a Total Rethink

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anti-trust policy, Bloomberg, China, CNBC.com, competition, economic concentration, innovation, monopolies, Noah Smith, oligopolies, Peter Thiel, The Wall Street Journal, Trade, trade policy, Trump, White House Council of Economic Advisers, {What's Left of) Our Economy

It’s obviously just a coincidence, but it was a heartening development anyway. Soon after I made an unconventional (but urgently needed!) observation about the relationship between trade policy and domestic anti-trust policy, two items came out in the news showing that some big shots in the economics and business world – including a key adviser to Donald Trump – have been thinking about the same subjects.

My point, made briefly in my recent op-ed for CNBC.com, noted that backers of current trade policies seemed much more concerned with maximizing economic competition and its benefits by opening the U.S. market to more foreign entrants than by countering the rise of monopolies and oligopolies at home. For centuries, of course, economic thinkers have been telling us that the more producers of goods and services enter a market, the more fiercely they need to vie with each other for sales, and the more pressure they feel to innovate, to raise quality, and to lower prices. Therefore, creating the greatest possible levels of competition has long been a main objective and rationale for seeking the freest possible international trade flows.

But last spring, as I wrote, the White House Council of Economic Advisers came out with a study reporting that American levels of business concentration in many sectors of the economy have become worrisomely high. In other words, too many monopolies and oligopolies have emerged lately, slashing the number of businesses competing for customers and threatening to boost prices and depress quality and innovation more than would otherwise be the case.

The result, I argued, was a downright weird, and logically indefensible situation: Washington has been working overtime, in recent decades in particular, to promote competition by bringing more foreign entrants into the U.S. economy. But it’s also largely turned a blind eye to (and arguably at times encouraged) business deals inside that same U.S. economy that lowered the numbers of domestic participants and therefore weakened competition.

Given all the other problems I’ve linked to current trade policies, I suggested that these priorities have been completely backward. More competition is definitely a benefit. But why such apparent doubt by supporters of these trade policies that the gargantuan American economy can create adequate levels all by itself if government pursues vigorous anti-trust policies? Why such apparent determination to ignore how focusing on maximizing domestic competition ensures that the main corporate benefits – more competitive companies and all the jobs and production they’d be able to generate – remain in the United States? And why the great reluctance to acknowledge that much of the foreign competition admitted into the U.S. economy is either owned, controlled, or heavily subsidized (or some combination of the three) by foreign governments? Their successes clearly distort economic activity in the United States and abroad, and longer term, undermine free markets and the gains they can produce everywhere.

That’s why I was so interested to read this week of new academic findings that American companies that have faced greater Chinese competition lately have cut all kinds of new investment – including on research and development. In other words, they’ve became less innovative. As explained by Bloomberg columnist Noah Smith, economists have never ruled out the chance that greater foreign competition could undermine corporate innovation – e.g., because firms suffering consequently lower profits would have fewer resources available to pay for laboratories and tech workers. But scholars much more often assumed that greater trade competition would produce the opposite results.

Of course, the new research could mean that fostering greater domestic competition could produce the same innovation-curbing results. But perhaps it’s also reasonable to suppose that removing or reducing the foreign competitive pressures and increasing the domestic pressures could strike the best possible combination of benefits. I’ll be watching this front closely for answers to these crucial questions.

Another fascinating take on these issues is coming from Peter Thiel, the noted Silicon Valley magnate and adviser to President-elect Trump. According to a December 13 Wall Street Journal article:

“Mr. Thiel has spoken out against free trade and remains skeptical of globalization—worrisome for a tech industry that gets most of its revenue overseas. He wrote in his 2014 book, ‘Zero to One,’ that globalization enables the developing world to copy existing technologies, which he says is unsustainable and inferior to finding new technology solutions.”

So Thiel, too, seems to be saying that freer trade undermines innovation. But his solution – or rather, the combination of solutions he’s recommended – is novel to say the least:

“Mr. Thiel says government can play a central role supporting big tech projects such as the Apollo space program. He views monopolies as a positive force for the economy, which could portend weaker antitrust enforcement.”

To complicate matters further, Thiel describes himself as a libertarian.

It would be tempting to conclude from these items that no one with any standing in economics and business knows anything definitive or even useful about the relationship between trade and competition anymore. But let’s not forget the potential bright side. For decades, trade theory has been one of the most stagnant, encrusted area of economics (and the punditry and chattering class conventional wisdom it’s spawned). Clashing findings could signal that obsolete sacred cows are finally starting to be challenged. For me, few developments could be more hopeful.

Making News: CNBC Op-Ed and Appearance Tomorrow Morning

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CNBC, CNBC.com, Making News, TPP, Trade, Trump, Worldwide Exchange

I’m pleased to announce the publication of my latest op-ed article, a piece on CNBC.com explaining why President-elect Trump will find that keeping his promises to overhaul American trade policy is not only good politics, but good economics.  Click on this link to read it.

In addition, as mentioned in the article, I am scheduled appear on CNBC’s “Worldwide Exchange” program tomorrow morning at 5:15 AM EST to discuss the piece and the outlook for the new administration’s approach to trade.  As always, if you can’t tune in, I’ll post a link to the streaming video as soon as one is available.

And keep checking back at RealityChek for news of future media appearances and other developments.