(What’s Left of) Our Economy: No Great Reset Yet in the Makeup of U.S. Trade

Tags

aerospace, Boeing, CCP Virus, computers, coronavirus, COVID 19, exports, facemasks, Great Reset, healthcare goods, imports, jewelry, masks, personal protective equipment, phamaceuticals, pharmaceuticals, PPE, semiconductor manufacturing equipment, semiconductor shortage, semiconductors, stay at home economy, Trade, trade deficit, trade surplus, vaccines, Wuhan virus, {What's Left of) Our Economy

Throughout the CCP Virus period, I’ve refrained from posting on detailed, industry-by-industry trade figures. My reasoning? Pandemic distortions rendered them all but meaningless in terms of what they revealed about the fundamentals of U.S. trade flows and in particular the competitiveness of domestic manufacturing.

Of course, now it looks reasonable to suggest that the pandemic is ending – or at least that the end might really be in sight this time. So I spent some of my weekend comparing the trade flow details from 2019 (the last full pre-pandemic year) with those of 2021 (the last full data year, and whose figures have just been released). And the results surpised the heck out of me. Because if you look at trade deficits and surpluses and how they’ve changed, the best description seems to be surprisingly little.

To start, let’s check out the twenty sectors of the economy that have racked up the biggest trade surpluses in 2019 and 2021. They’re presented below according to the categories created by the U.S. government’s North American Industry Classification System (NAICS), which has become official Washington’s main system for slicing and dicing the U.S. economy. To the right of the actual dollar figure (in billions), you’ll find its rank for that particular year.

And for data junkies, these groupings are those at NAICS’ sixth level of disaggregation – one I like because in many cases it permits distinguishing between final products and the parts and components that make them up. Since for decades, so much U.S. and global trade today takes place in those inputs (because the manufacturing process has become so fragmented because creating complex worldwide supply chains became a premier business model), this distinction has mattered crucially in understanding trade flows.

                                                      2019                             2021

civil aircraft & parts:               $125.953   1                 $79.510   1

natural gas:                                $21.823   4                 $54.923   2

soybeans:                                   $18.493   6                 $27.110   3

other special class provns:         $24.499   3                 $27.019   4

petroleum refinery products:      $30.583  2                 $26.245   5

waste and scrap:                         $13.065  7                 $21.362   6

plastics meterials and resins:     $18.803   5                 $18.771   7

corn:                                             $7.620  11               $18.674    8

semiconductor machinery:          $1.408  43                $11.971   9

semiconductors/related devices: $5.994  14                $10.326  10

non-anthracite coal/petroleum gas:  $9.312  8              $9.250   11

used/second hand merchandise:  $8.805  10                 $8.604  12

non-poultry meat:                        $7.364  12                 $7.898  13

wheat:                                          $5.898  15                 $6.891  14

motor vehicle bodies:                  $9.201  9                   $6.886  15

cotton:                                         $6.225  13                  $5.789  16

copper, nickel, lead, zinc:           $4.402  18                 $5.471   17

tree nuts:                                     $5.096  16                 $4.712   18

prepared/preserved poultry:        $3.745  20                $4.554   19

misc basic inorganic chemicals: $4.169  19                $4.081   20

Some reshuffling of the order of these biggest trade flow winners has taken place. Most stunningly, semiconductor manufacturing equipment jumped from the industry with the forty third widest trade surplus in 2019 to number nine in 2021. Computer parts was in 17^th place in 2019 and fell all the way to 52d place (and out of the Top Twenty) in 2021. And motor vehicle bodies dropped from number nine to number 15. But otherwise, the two lists look remarkably similar. In fact, the seven biggest trade surplus industries of 2019 were also the seven biggest in 2021, though the order changed sllghtly.

What has seen much more major change during this two-year period have been the absolute numbers themselves, and these movements do seem pandemic related, though in different ways. Commodities like natural gas and corn (and to a lesser extent, wheat) appear to have been dramatically affected by inflation.

Trade in semiconductors and the machines that make them clearly reflect the increased importance of the “stay at home economy” – both in terms of leisure and the workplace. (The skyrocketing of the semiconductor machinery surplus, however, is also a reminder of how many of the world’s semiconductors are made outside the United States these days – although the microchip industry has also been decidedly cyclical for many years).

Meanwhile, the nosedive in the aerospace surplus has of course resulted from the woes of Boeing, both because of the CCP Virus-related global slump in air travel, and the company’s own manufacturing and safety problems.

Did this pattern repeat for the twenty sectors that ran the biggest trade deficits in those two years? Here are those lists, with the actual figures again in the billions of dollars:

autos & light duty vehicles:    -$126.272  1                -$96.250   1

goods returned from Canada:    -$91.240  2               -$96.124   2

broadcast & wireless comms equip:  -$72.231  3       -$80.075   3

computers:                                 -$59.443  6                -$79.209   4

crude petroleum:                        -$62.006  5                -$63.495  5

pharmaceutical preparations:     -$62.236  4                -$63.477  6

female cut & sew apparel:         -$42.088  7                -$41.028  7

audio & video equipment:         -$22.184  12               -$34.349   8

male cut & sew apparel:            -$30.889   8                 -$29.851  9

misc motor vehicle parts:           -$23.242  11               -$29.055  10

dolls, toys & games:                  -$17.285   14              -$26.789   11

printed circuit assemblies:         -$16.709   16              -$26.588   12

iron & steel & ferroalloy:          -$16.954   15              -$26.294   13

footwear:                                    -$25.597  10              -$26.037   14

major household appliances:      -$14.128  19              -$20.849   15

misc plastics products:                -$12.886 20              -$20.566   16

jewelry & silverware:                   -$3.476  68             -$17.819   17

motor vehicle electrical equip:   -$14.418  17             -$16.151   18

curtains & linens:                       -$12.134   22             -$15.256   19

aircraft engines & engine parts: -$25.670   9               -$14.070   20

The patterns revealed on this list closely resemble those made clear from the Top Twenty surplus list – some reshuffling but – with just a few exceptions like jewelry and silverware, (Home Shopping Network lines burning up?), and aircraft engines and engine parts – little major change. Indeed, the order of the top three hasn’t changed a bit, and as with the biggest trade surplus sectors, the makeup of the top seven is identical (though the order has been slightly modified).

As with the big surplus winners (though on the consumption side, not the production side), the advent of the “stay at home economy” is evident from the large increases in the absolute trade deficits for computers and audio and video equipment (though not so much for the broadcast and wireless gear category, which contains cell phones).

The damage done by the worldwide semiconductor shortage can be seen in the dramatically lower motor vehicle trade deficit. And aerospace woes come through loud and clear from the even steeper drop in the aircraft engines deficit.

Another take on the trade balance figures is provided by examining the sectors where trade balances have improved the most (either because surpluses have expanded or because deficits have shrunk), and worsened the most (either because surpluses have shrunk or deficits expanded). Below are the biggest trade balance “improvers” by percentage change among the sectors that have either run the fifty biggest trade surpluses or the fifty biggest trade deficits. The sectors with “deficit” to the right of the percentage change are those where trade shortfalls declined.

miscellaneous grains:                                     +1,021.72 percent

semiconductor manufacturing equipment:        +750.18 percent

Jewelry and silverware:                                     +412.65 percent   deficit

sawmill products:                                               +270.45 percent   deficit

storage batteries:                                                +168.67 percent   deficit

natural gas:                                                         +151.67 percent

corn:                                                                   +145.07 percent

surgical appliances & supplies:                          +134.60 percent   deficit

sporting & athletic goods:                                    +86.13 percent   deficit

artificial/synthetic fibers/filaments:                     +74.73 percent   deficit

semiconductors/related devices:                          +72.28 percent

small electrical appliances:                                  +71.87 percent   deficit

waste and scrap:                                                    +65.50 percent

animal fats/oils/byproducts :                                 +63.15 percent

motor vehicle steering &suspension & parts:       +60.49 percent   deficit

misc plastics products:                                          +59.60 percent   deficit

printed circuit assemblies:                                    +59.13 percent   deficit

cooling, heating, & ventilation equipment:          +55.91 percent   deficit

dolls, toys, & games:                                            +54.86 percent   deficit

audio & video equipment:                                    +54.84 percent   deficit

One trend that should jump out right away: Thirteen of the twenty sectors that have improved their trade balances the most are still in deficit – which reflects the nation’s continuing huge trade gap.

Since some of the greatest changes in the order of sectors with the biggest trade deficits and surpluses have come in pandemic-related sectors, it’s not surprising that such industries are prominent on the list of improvers. Hence the appearance of semiconductors and their manufacturing equipment, and commodities like miscellaneous grains, corn, and natural gas.

As for sawmill products, their results owe largely to U.S. lumber tariffs. In sporting and athletic goods, can the deficit’s shrinkage be due to a pandemic-y dropoff in physical activity?

Totally puzzling, though – the improvement in electrical appliances and audio and video equipment, where so much production has migrated overseas in recent decades, and because imports of the latter would seem to have jumped to serve so much of the stay-at-home demand.

But on the encouraging side – the big decrease in the trade deficit in surgical appliances and supplies, which includes all the personal protective equipment (like facemasks, gloves, and medical gowns) that have figured so prominently in the nation’s pandemic response, along with ventilators.

Now the twenty major sectors whose trade balances have worsened the most:

oil & gasfield machinery:                                  +54.65 percent

aircraft engines & engine parts:                         +45.23 percent   deficit

civilian aircraft, engines, & parts:                      +36.87 percent

railroad rolling stock:                                         +35.04 percent

turbines & turbine generator sets:                      +33.09 percent

non-diagnostic biological products:                   +31.84 percent   deficit

in-vitro diagnostic substances:                           +31.10 percent

cyclic crude & other intermediate chemicals:    +31.05 percent

guided missiles & space vehicles:                      +30.07 percent

fibers, yarns, & threads:                                     +29.32 percent

motor vehicle bodies:                                          +25.16 percent

paper bags/coated & treated paper:                    +23.26 percent

autos & light duty vehicles:                               +23.78 percent   deficit

petroleum refinery products:                              +14.19 percent

misc animal foods:                                              +10.35 percent

aircraft:                                                                  +9.98 percent   deficit

paints & coatings:                                                  +9.07 percent

tree nuts:                                                                +7.54 percent

cotton:                                                                    +7.00 percent

male cut & sew apparel:                                        +3.36 percent   deficit

Interestingly, although the nation’s huge and chronic trade deficits means that many more industries run them than surpluses, fifteen of the twenty sectors listed above as leading trade deficit losers are surplus industries. So during the pandemic period so far, their surpluses have shrunk. Moreover, the degree of shrinkage has only been kept relatively low because the surpluses weren’t that big to begin with.

For the aforementioned reasons, the aerospace cluster is well-represented among the big deficit losers. But it’s strange that, during the pandemic so far, the U.S. trade shortfall in the non-diagnostic biologic products category that contains vaccines has gone way up.

Overall, however, the weaker export performance even among big U.S. net export winners points to the global economic slump that’s been created by the CCP Virus and the curbs on business and personal activity it’s spawned – which have combined to drag down growth abroad, in U.S. export markets, more than at home. But the remarkably stable makeup of U.S. surpluses and deficits strongly suggests that any new post-virus normal in American trade will strongly resemble the old one.

Advertisement

(What’s Left of) Our Economy: It’s an Autos Story Again for U.S. Manufacturing Production

Tags

aerospace, aircraft, aluminum, apparel, automotive, Boeing, CCP Virus, chemicals, China, computers, coronavirus, COVID 19, Donald Trump, electronics, facemasks, Federal Reserve, health security, inflation-adjusted output, machinery, manufacturing, medical supplies, paper, pharmaceuticals, PPE, printing, real growth, semiconductor shortage, semiconductors, shutdowns, steel, stimulus, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Earlier in the CCP Virus era, the U.S. manufacturing production story was largely an automotive production story – because the industry shut down so suddenly and completely during the pandemic’s first wave and the deep economic downturn it triggered, and then began reopening at a record pace. And today’s Federal Reserve figures show that domestic industry’s growth is being driven by dramatically fluctuating vehicles and parts output once again – but this time it seems due significantly to the global semiconductor shortage that’s deprived the sector of critical parts.

Also noteworthy about today’s Fed manufacturing release (which covers May): It incorporates the results of the benchmark revision of these data for the 2017-19 period. As explained in yesterday’s post on the subject, the new numbers create a new baseline for pre-pandemic manufacturing growth, and therefore a new picture of how big the virus-induced downturn was, and how strong the recovery has been – at least until the next benchmark revision. And of course, the new figures therefore supersede those in the April Fed release I reported on last month.

Automotive’s influence on the May numbers is clear from the following: Total inflation-adjusted sequential growth for U.S.-based manufacturing hit a strong 0.89 percent last month. Without automotive (whose 6.69 percent monthly output pop followed a 5.57 percent April drop), the increase would have been just over half that – a still solid 0.50 percent. Don’t be surprised if the microchip shortage keeps these results on a roller coaster.

Its May increase brought total real domestic manufacturing output back within 0.31 percent of its last pre-pandemic level, in February, 2020. In March and April, such production plummeted by 19.41 percent. Since then, it’s surged by 23.90 percent. For the record, as I wrote yesterday, the pandemic-spurred Spring, 2020 nosedive was slightly shallower (0.92 percent) than judged before the revisions (1.42 percent) but the comeback through this past April was a bit weaker (22.81 percent versus 23.27 percent).

Machinery making enjoyed a good month in May, and as known by RealityChek regulars, that’s good news for all domestic manufacturing and the rest of the economy, since its products are so widely used. Constant dollar output improved by 0.78 percent last month, and consequently, the sector is now 2.35 percent bigger in these terms than just before the virus started depressing the economy. One downside should be noted, though: The new revision indicates that the machinery recovery has actually be significantly slower than previously estimated.

Manufacturing’s list of other big inflation-adjusted production winners in May featured some real surprises. The apparel and leather goods industries remain shadows of their historic selves, but their real output last month jumped 2.59 percent – their best such result since January’s 2.06 percent. Moreover, this sector has grown in real terms by 6.74 percent since just before the pandemic – much faster than manufacturing as a whole.

After-inflation production in the small printing and related activities industry grew by 2.59 percent – also its best result since January (3.99 percent).

But some big sectors saw healthy gains in May, too – notably chemicals (whose products are also used throughout the economy) and computer and electrnics products. The former saw real production advance by 2.19 percent sequentially last month – its best such result since March’s weather-aided 4.08 percent. And the latter grew in May by 1.60 percent.

The biggest losers? Paper led this pack by far, with May constant dollar production sinking by 1.59 percent on month – its worst such showing since January’s 1.78 percent decrease.

Likely due to Boeing’s continuing production and safety problems (more on which later), the aerospace and miscellaneous transportation sector’s after inflation production sank by 0.95 percent sequentially in May – and that followed a 2.55 percent nosedive (no pun intended) in April. And wood products real output fell by 0.82 percent.

But the losers’ list contains a big surprise, too. Complaints keep coming that that the domestic steel and aluminum industries (and especially the steel-makers) have responded to tariffs simply by enjoying the higher resulting prices and sitting on these winnings. So it’s noteworthy that even after a 0.82 percent monthly real output decline in May, primary metals production after inflation is slightly (0.15 percent) higher than in immediate pre-pandemic-y February, 2020 – another such performance that’s bested that for all manufacturing.

The aforementioned problems suffered by Boeing keep coming through in the real output data for the aircraft and parts sub-sector of the aerospace and miscellaneous transportation industry. In May, inflation-adjusted output was down 1.47 percent on month – much bigger than the larger industry fall-off. And that came on the heels of April’s 2.21 percent decrease. Real aircraft and parts production is still 4.36 percent above its immediate pre-pandemic level, but given the ongoing post-CCP Virus worldwide rebound in air travel, these figures are definitely disappointing – and moving in the wrong direction.

By contrast, the big pharmaceuticals and medicines sector is still benefitting from reopening headwinds. May’s 0.22 percent monthly real output increase was admittedly modest, especially since this sector includes vaccine production. But it’s grown by 8.44 percent since the virus began spreading rapidly in the United States. on g – also delivered a disappointing performance in April, especially since it includes vaccines.

But both the May real production numbers and the benchmark revision left the vital medical equipment and supplies sector a conspicuous production laggard. This industry – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – grew in real tems by just 0.19 percent sequentially in May, and April’s after inflation output was down 1.66 percent. As a result, this sector is turning out only 0.35 percent more product than just before the pandemic’s arrival – which doesn’t seem to augur well for national preparedness for the next pandemic.

If I was a betting person (I’m not), I’d still wager on better days ahead for U.S. domestic manufacturing – because so many powerful supportive trends and developments remain in place, ranging from massive government spending and other forms of stimulus to the virus’ continuing retreat to waning consumer caution to huge amounts of pandemic-era consumer savings to ongoing Trump tariffs that keep pricing huge numbers of Chinese goods out of the U.S. market.

But no one should forget about a list of threats to the pace of manufacturing growth, if not growth itself – like the prospect of higher taxes and more regulations, and the possibility that consumer demand will keep growing but switch away from goods to the hard-hit but quickly reopening service sectors (which of course do buy manufactures). Inflation isn’t good for strong (real) growth, either, though I’m an optimist on this front.

Ultimately, though, I’m most struck by evidence of domestic manufacturers’ continuing optimism about the prospects of their businesses. If they’re still confident about their futures, that remains good enough for me.

(What’s Left of) Our Economy: The Latest U.S. Trade Data Start Bringing Trump Achievements into Focus

Tags

aerospace, CCP Virus, China, computers, coronavirus, COVID 19, Donald Trump. Biden, exports, imports, infotech, lockdowns, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

With the release yesterday morning of the U.S. government’s trade report for December (the same morning, frustratingly for me, that the official January jobs figures came out), the final scorecard on former President Trump’s trade policy record is sort of in.

I say “sort of” because (1) these numbers will be revised several times; (2) the full impact of Trump’s tariff-centric policies on the economy won’t be apparent for many years (especially since President Biden has decided to keep in place for te time being all of the steep and sweeping Trump China levies); and (3) the powerfully distorting effects of the CCP Virus will be with us for at least many more months.

Keeping all these caveats in mind, let’s focus on the annual rather than the monthly figures, since they cover a much longer time frame, and see how even this preliminary 2020 data points to some important conclusions about what was and wasn’t accomplished under Trump.  And the accomplishments were anything but negligible.

As widely reported (see, e.g., here and here), the combined goods and services deficit hit $678.74 billion last year – the highest annual figure since 2008. So given Trump’s emphasis on narrowing the gap, and given the annual increase of 17.42 percent (far from a record) during the worst recessionary year since 1946, the result looks like a major Trump failure.

At the same time, RealityChek regulars know that economic data presented in isolation rarely prove informative. So in this vein, it’s important to note that the 2020 overall trade deficit as a share of the entire economy (gross domestic product, or GDP) was much lower than in 2008 – 3.24 percent versus 4.84 percent. P.S. 2008 was a recession year, too. And though it wasn’t nearly as deep as last year’s downturn, it still saw a slight increase in the trade shortfall. Finally, let’s remember that the previous Great Recession resulted from failures in the economy’s fundamentals that were permitted to reach crisis proportions.

This latest downturn has stemmed largely from government decisions literally to shut down much of the nation’s economic activity due to a pandemic coming from China, and created deficit-boosting problems having little to do with U.S. trade policy.

For example, $50.41 billion of the $101.56 billion annual increase in the deficit in absolute terms came from a shrinkage in the services trade surplus that was by far a record in absolute terms and the second greatest relatively speaking (17.54 percent) since recessionary 2001 (19.58 percent).

Another $36.01 billion of the increase in the overall 2020 deficit came from a drop in the civilian aviation sector surplus that had nothing to do with Trump tariffs or retaliation and everything to do with Boeing’s safety woes and the pandemic-induced nosedive in domestic and global air travel.

And another $20.92 billion of the deficit increase came from the computer and computer accessories sectors, where imports surged due to the growth of working, schooling, and otherwise Zooming from home prompted by the pandemic.

These shifts had an especially marked effect on that portion of U.S. trade flows deeply influenced by trade policy decisions like the Trump tariffs. As known by RealityChek regulars, I call the huge deficit still run in these sectors collectively the “Made in Washington” trade deficit, because it strips out two parts of the economy (services and energy) that are rarely the focus of trade agreements or related policies.

Between 2019 and 2020, this trade gap expanded by $83.03 billion, to an all-time high of $923.03 billion. But as just made clear, the non-trade policy growth in the civilian aviation and computer-related sectors made up $56.93 billion (or 68.57 percent) of the difference. And even counting these one-off developments, the Made in Washington trade deficit during the Trump years grew much more slowly as a share of GDP (by 22.16 percent) than during the second term of Barack Obama’s presidency (33.21 percent).

Similar trends can be seen in the manufacturing sector. Its deficit worsened in 2020 by $79.63 billion, to a record $1.1128 trillion. But without the bigger deficits in aviation and computers, it would have fallen year-on-year. That hasn’t happened since recession-y 2009. As a share of GDP, the manufacturing trade deficit also rose more slowly during Trump’s term (13.70 percent) than during Obama’s second term (14.14 percent).

Much of this progress, in turn, owed to the substantial reduction in the huge, chronic, U.S. manufacturing-dominated goods trade deficit with China. Even though the $83.03 billion widening of the comparable Made in Washington trade deficit gap in 2020 represented a 9.88 percent rise, the China goods deficit dropped by $34.04 billion, or 9.97 percent. And at $310.80 billion, the goods trade deficit with China was America’s smallest since 2011 ($295.25 billion). Surely Trump’s tariffs on $360 billion worth of Chinese imports (in pre-tariff times), and his Phase One trade deal, which required increased imports from the United States by Beijing, deserve considerable credit.

Further, as a share of U.S. GDP, the goods gap with China sank all the way to 1.48 percent in 2020. During Obama’s last year in office, that figure stood at 1.85 percent – a modest decrease from 1.95 percent in the last year of his first term. But even if you take away the deeply recessed U.S. economy of 2020 and look at only the first three Trump years, you see that the China goods deficit stood at only 1.61 percent of GDP – meaning it had still fallen considerably faster under his presidency.

What happens with U.S. trade flows – and all the sectors of the economy they profoundly affect – though, will remain unclear for the foreseeable future. For not only is the direction of Biden administration policy substantially up in the air. So is the future course of the pandemic, including whether vaccines can be rolled out fast enough to stem its tide, and whether they can keep up with mutations. And all of the CCP Virus-related uncertainties will of course largely determine how fast the economies of America’s trade partners recover, how much they export, and how much they import.

But even though the results of upcoming official trade reports will need to be taken with several boulders of salt, it’s nonethless clear that if the main policy-fostered Trump trends continue under the Biden administration, American workers and producers of all kinds will have reason to be grateful.

Our So-Called Foreign Policy: Evidence that the Multinationals Really Did Sell the U.S. Out to China

Tags

capital spending, chemicals, China, computers, electronics, health security, healthcare goods, information technology, investment, Lenin, manufacturing, multinational companies, national security, offshoring, offshoring lobby, Our So-Called Foreign Policy, pharmaceuticals, research and development, supply chains, tech, tech transfer, U.S-China Economic and Security Review Commission, USCC, World Trade Organization, WTO

RealityChek readers and anyone who’s familiar with my work over many years know that I’ve often lambasted U.S. multinational companies for powerfully aiding and abetting China’s rise to the status of economic great power status – and of surging threat to U.S. national security and prosperity. In fact, the dangers posed by China’s activities and goals have become so obvious that even the American political and policy establishments that on the whole actively supported the policies – and that permitted money from this corporate Offshoring Lobby to drive their decisions – are paying attention.

If you still doubt how these big U.S. corporations have sold China much of the rope with which it’s determined to hang their own companies and all of America (paraphrasing Lenin’s vivid supposed description of and prediction about the perilously shortsighted greed of capitalists), you should check out the latest report of the U.S-China Economic and Security Review Commission (USCC). As made clear by this study from an organization set up by Congress to monitor the China threat, not only have the multinationals’ investments in China figured “prominently in China’s national development ambitions.” They also “may indirectly erode the United States’ domestic industrial competitiveness and technological leadership relative to China.”

Worst of all, “as U.S. MNE (“multinational enterprise) activity in China increasingly focuses on the production of high-end technologies, the risk that U.S. firms are unwittingly enabling China to achieve its industrial policy and military development objectives rises.”

And a special bonus – these companies’ offshoring has greatly increased America’s dependence on China for supplies of crucial healthcare goods.

Here’s just a sampling of the evidence presented (and taken directly by the Commission from U.S. government reports):

> U.S. multinationals “employ more people in China than in any other country outside of the United States, primarily in the assembly of computers and electronic products.” Moreover, this employment skyrocketed by 574.6 percent from 2000 to 2017.

> “China is the fourth-largest destination for U.S. MNE research and development (R&D) expenditure and increasingly competes with advanced economies in serving as a key research hub for U.S. MNEs. The growth of U.S. MNE R&D expenditure in China is also comparatively accelerated, averaging 13.6 percent yearon-year since 2003 compared with 7.1 percent for all U.S. MNE foreign affiliates in the same period. This expenditure is highest in manufacturing, particularly in the production of computers and electronic products.”

> “U.S. MNE capital expenditure in China has focused on the creation of production sites for technology products. This development is aided by the Chinese government’s extensive policy support to develop China.”

> The multinationals’ capital spending on semiconductor manufacturing assets “has jumped 166.7 percent from $1.2 billion in 2010 (the earliest year for which complete [U.S government] data is available) to $3.2 billion in 2017, accounting for 90 percent of all U.S. MNE expenditure on computers and electronic products manufacturing assets in China.”

> “China has grown from the 20th-highest source of U.S. MNE affiliate value added in 2000 ($5.5 billion) to the fifth highest in 2017 ($71.5 billion), driven primarily by the manufacture of computers and electronic products as well as chemicals. The surge is especially notable in semiconductors and other electronic components.”

> “[P]harmaceutical manufacturing serves as the largest chemical sector in terms of value-added [a measure of manufacturing output that seeks to eliminate double-counting of output by stripping out the contribution of intermediate goods used in final products]…” And chemicals – the manufacturing category that include pharmaceuticals – has become the second largest U.S-owned industry in China measured by the value of its assets (after computers and electronic products).

Incidentally, the report’s tendency to use 2000 as a baseline year for examining trends is no accident. That’s the year before China was admitted into the World Trade Organization (WTO) – and the numbers strongly reenforce the argument that the multinationals so avidly sought this objective in order to make sure that the value of their huge planned investments in China wouldn’t be kneecapped by any unilateral U.S. tariffs on imports from China (including those from their factories). For the WTO’s combination of consensus decision-making plus the protectionist natures of most of its members’ economies created a towering obstacle to Washington acting on its own to safeguard legitimate American domestic economic interests from Chinese and other foreign predatory trade and broader economic activity.

At the same time, despite the WTO’s key role in preserving the value of the multinationals’ export-focused China investments, the USCC study underestimates how notably such investment remains geared toward exporting, including to the United States. This issue matters greatly because chances are high that this kind of investment (in China or anywhere else abroad) has replaced the multinationals’ factories and workers in the United States. By contrast, multinational investment in China (or anywhere else abroad) that’s supplying the China market almost never harms the U.S. domestic economy and in fact can help it, certainly in early stages, by providing foreign customers that add to the domestic customers of U.S.-based manufacturers.

There’s no doubt that the phenomenal growth of China’s own consumer class in recent decades has, as the China Commission report observes, generated more and more American business decisions to supply those customers from China. In other words, the days when critical masses of Chinese couldn’t possibly afford to buy the goods they made in U.S.- and other foreign-owned factories are long gone.

But the data presented by the USCC does nothing to support this claim, and the key to understanding why is the central role played by computer, electronics, and other information technology-related manufacturing in the U.S. corporate presence in China. For when the Commission (and others) report that large shares of the output of these factories are now sold to Chinese customers, they overlook the fact that many of these other customers are their fellow entities comprising links of China-centric corporate supply chains. These sales, however, don’t mean that the final customers for these products are located in China.

In other words, when a facility in China that, for example, performs final assembly activities on semiconductors sells those chips to another factory in China that sticks them into computers or cell phones or HDTV sets, the sale is regarded as one made to a Chinese customer. But that customer in turn surely sells much of its own production overseas. As the USCC documents, China’s consumer market for these goods has grown tremendously, too. But China’s continually surging share of total global production of these electronics products (also documented in the Commission report) indicates that lots of this output continues to be sold overseas.

Also overlooked by the USCC – two other disturbing apects of the multinationals’ activities in China.

First, it fails to mention that all the computer and electronics-related investment in China – which presumably includes a great deal of software-related investment – has contributed to China’s economic and military ambitions not only by transferring knowhow to Chinese partners, but by teaching huge numbers of Chinese science and technology workers how to generate their technology advances. The companies’ own (often glowing) descriptions of these training activities – which have often taken the form of dedicated training programs and academies – were revealed in this 2013 article of mine.

Second, the Commission’s report doesn’t seem to include U.S. multinationals’ growing investments not simply in high tech facilities in China that they partly or wholly own, but in Chinese-owned entities. As I’ve reported here on RealityChek, these capital flows are helping China develop and produce high tech goods with numerous critical defense-related applications, and the scale has grown so large that some elements of the U.S. national security community had been taking notice as early as 2015. And President Trump seems to be just as oblivious to these investments as globalist former President Barack Obama was.

These criticisms aside, though, the USCC has performed a major public service with this survey of the multinationals’ China activities. It should be must reading in particular for anyone who still believes that these companies – whose China operations have so greatly enriched and therefore strengthened the People’s Republic at America’s expense – deserve much influence over the U.S. China policy debate going forward.

Following Up: Inside April’s U.S. Manufacturing Crash II

Tags

aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: Intel – & Often China – Inside Your Hackable Electronics

Tags

China, computers, counterfeits, cyber-security, Defense Department, electronics, globalization, hacking, Intel, microchips, semiconductors, smart phones, technology, Trade, {What's Left of) Our Economy

OK, who out there has an electronic device like a computer or a smartphone? I thought so. And who uses them like…nearly all the time? And engages in lots of financially or personally sensitive activity on-line? Thought so again. And you no doubt weren’t thrilled to find out yesterday that the computer chips vital to the operations of virtually all of these devices have some big security flaws that make them eminently hackable.

Well, here’s worse news: There’s an excellent chance that the hackers could be working for the Chinese government. And for that, you can thank decades of stupefyingly boneheaded American trade and globalization policies.

I can’t tell you how excellent the chances are, because one of the completely unnecessary failures of these policies has been pre-Trump Washington’s complete lack of interest, from either major political party, in tracking and letting the American public know how dependent they and their economy have become on products from potentially dangerous countries.

But I feel confident in claiming that the chances are at least pretty excellent. The reason? Private sector specialists have published detailed studies on subjects like the Chinese electronics industry. Thanks to them, it’s well established that, although China has yet to become a top global player in manufacturing semiconductors, and especially cutting-edge microchips, it’s a powerhouse in what’s known as “back end” semiconductor production – relatively low-tech phases of the process that involve activities like packaging, assembling, and testing.

So many U.S. and other non-Chinese information technology companies do so much of this activity in China that, according to a report from the consulting firm PwC, in 2015 (the latest available data) China-based facilities accounted for 44.6 percent of total global revenues from these back end operations. That’s up from just 20.3 percent in 2009. In other words, Chinese employees of these companies have ample opportunity to insert all sorts of bugs in them, and these opportunities have been growing rapidly.

Think I’m paranoid? Or just anti-Chinese? Then you need to learn that the Defense Department had admitted that, over a recent two-year period, its weapons systems had been studded with some 1 million counterfeit electronics parts and components – some 70 percent traceable to China. DoD now claims it’s solved much of the problem with a “trusted supplier” program. But good luck reliably inspecting the gargantuan Chinese electronics production complex over any serious length of time.

Longstanding American trade and globalization policies deserve most of the blame because, through priorities like indiscriminately expanding U.S. commerce with and export-oriented investment in China, they actively encouraged much of the world’s electronics industry to migrate to the People’s Republic.

The world’s current Number Two semiconductor producer, likes to tout “Intel Inside” a huge share of the world’s electronics devices. Maybe it, and others, should start to advertise “China Inside”?