Making News: National Radio Podcast on Trump, China, and Currency Now On-Line

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China, currency, currency manipulation, electronics, Gordon G. Chang, supply chains, tariffs, The John Batchelor Show, Trade, {What's Left of) Our Economy

I’m pleased to report that I was interviewed on John Batchelor’s nationally syndicated radio show last night on the Trump administration’s decision yesterday to absolve China of charges of manipulating its currency to gain trade advantages.

The opportunity (as is often the case lately) came up too late to preview last night, but fortunately, the podcast is available, and you can access it at this link.  The conversation – which also included co-host Gordon G. Chang – also covered the crucial question of whether companies can and will move their supply chains out of China in response to the Trump tariffs.

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

(What’s Left of) Our Economy: More Trade Derangement Syndrome – on China & Currency Wars

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China, currency, currency manipulation, currency wars, Financial Times, Martin Wolf, Paola Subacchi, Project Syndicate, renminbi, Trade, Trump, yuan, {What's Left of) Our Economy

Trade issues’ ability to completely muddle the thinking of supposed experts has never been more prominently displayed than in this recent column, from a leading European economist, on China’s manipulated currency.

Writing for the Project Syndicate website (which bills itself as “the world’s opinion page”), Paola Subacchi insists that China is not likely to turn the recent slide in the value of its renminbi (also called the yuan) into an “’engineered’ competitive devaluation” because “a weak renminbi has more costs than benefits” for the People’s Republic.

Of course, the case for worrying about a Chinese drive to weaken its currency stems from fears that a cheaper renminbi/yuan would give Chinese goods wholly artificial price advantages over U.S. and other foreign counterparts in markets the world over. The result would be a big trade lift for the Chinese economy at the expense of its competitors — and for reasons that have nothing to do with either free trade or free markets.

Anyone pretending to know what Chinese leaders are really thinking about such vital economic (or other) matters is blowing smoke. But it’s nothing less than absurd to suppose that the considerations Subacchi cite for her China currency optimism are taken the slightest bit seriously in Beijing.

For example, the author argues that “by increasing import prices and bolstering export sectors, a weaker renminbi would undermine the Chinese government’s goal of shifting away from export-led growth and toward a model based on higher domestic consumption.” But although it’s true that Beijing has long talked about this goal, it’s highly doubtful that China’s are prioritizing these days – if they ever have.

After all, as made clear in this new column from the Financial Times‘ Martin Wolf, China in recent years has been relying on domestic purchases (especially investment spending) supercharged by official stimulus policies to keep growth at satisfactory levels. This shift, however, has scarcely been voluntary. The choice was essentially forced on China by the sharp downturn in global trade triggered by the last global financial crisis and recession, which pummeled foreign markets for Chinese products. The results, Wolf shows, have not been a healthily rebalanced Chinese economy, but one that’s growing more slowly, and whose growth is dangerously reliant on an explosion in the country’s indebtedness. Is it really plausible that China is seeking more of the same?

According to Subacchi, “a weaker renminbi could [also] invite renewed US complaints about currency manipulation.” President Trump has just revived this charge. But the Chinese so far seem to be counting on blunting the new U.S. trade offensive by imposing their own retaliatory tariffs on American products (especially from politically important states and Congressional districts), and thus prompting a decisive counterattack by vulnerable political and economic interests. A continuingly weakening renminbi/yuan would plainly help, too. 

Moreover, Subacchi herself clearly regards Trump-ian U.S. trade policies as a major mistake, describing them (as well as China’s currency policies) as “not good for anyone.” Yet for those renewed U.S. complaints about currency manipulation to matter to Beijing, they’d need to be followed up with a credible threat of tariff responses – and, if needed, actual levies. Is she therefore suggesting that playing trade hardball makes no sense unless the target is China? Maybe she’ll explain in her next article.

“Finally, and more crucially,” the author writes, “a weak renminbi at the same time that dollar-denominated assets become more attractive could cause China to suffer capital flight.” She’s correct  – but oddly overlooks Beijing’s option of tightening capital controls – a policy that’s not exactly unprecedented for Chinese leaders.

Subacchi does deserve praise for spotlighting major actual and potential weaknesses in China’s economic and financial position. Unfortunately, the response she says she favors to the prospect of a full-fledged Chinese-launched currency war – “the world should call its bluff” – is wishful thinking. For the world as a whole – which remains heavily dependent on growing by selling to America’s gargantuan, wide open market – has displayed much more interest in protecting this convenient, though dangerously unsustainable, arrangement from vigorous U.S. responses than in imposing any significant disciplines on China.

In other words, the odds remain high that unless the prospect of a China-launched currency war is met with unilateral – i.e., Trump-ian – American counter moves, it won’t be met at all.

(What’s Left of) Our Economy: The Rules-Based Global Order – & Other Fairy Tales

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alliances, America First, burden sharing, China, currency, Federal Reserve, Financial Crisis, globalists, Great Recession, hegemony, NAFTA, North American Free Trade Agreement, offshoring, public goods, recovery, Robert Triffin, tariffs, Trade, Trade Deficits, Triffin dilemma, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

Can the foreign and domestic critics of President Trump’s latest trade policy moves finally get real – and start talking and acting like adults? I’m not referring to politicians and analysts who have pointed out problems with individual aspects of the President’s recent announcements of tariffs on various trade competitors. I’ve been one of these myself.

Instead, I’m talking about those who keep whining that Mr. Trump’s tariffs and his overall – inconsistently to be sure – emerging “transactional” approach to alliances and other international arrangements are endangering a rules- and institutions-based global order that has served both America and the rest of the world unmistakably well. No description of the post-World War II world could be less accurate and indeed more childish – not to mention more self-serving for the supposed U.S. allies and multinational business interests (and their Washington, D.C. hired guns) that have pushed this canards so insistently.

For the institutions and rules so touted by President Trump’s globalist critics were simply window-dressing created to obscure a much less aesthetically pleasing reality: The postwar (non-communist) world’s success has been based fundamentally on America’s power and wealth, and the  consequent U.S. ability to provide what political scientists call “public goods” for those aligned with it. Specifically, it almost single-handedly created the conditions on which success decisively depended: the military protection that countries recovering from war-time devastation could not provide for themselves, and the credit and export markets that were similarly beyond the capacities of their crippled economies. Just as important, during the early post-war decades, the United States could play this role for the most part without excessive security risks and economic costs.

Unfortunately, even the biggest, best-run public goods-providing country will find these arrangements unsustainable, especially on the economic front, and especially if its government is substantially accountable to its people. The essential dilemma was first identified by the Yale University economist Robert Triffin back in 1960, when American power was at or near its zenith.

Triffin’s warning was narrowly economic. He argued that the very free lending and especially spending by which such a country (which political scientists call a “hegemon”) fueled growth around the world would eventually massive international deficits and a global glut of its currency – which was serving as the world’s money – and erode global confidence that currency’s value. Either the hegemon could tighten up – and likely throw the entire world economy into a major downturn. Or it could keep over-lending and especially spending. In this case, its currency would lose enough of its perceived value to end its world-money role, and the world economy would degenerate into chaos. Or the rest of the world could keep stockpiling these excess dollars – which as the French in particular noted would result in the inflation caused by the greenback’s declining value being exported around the world.

Yet in America’s case, the ultimate engines of the paradox – at least in post-World War II America’s case – were foreign policy and domestic politics-related. The over-spending, and consequent deficits stemmed from the United States’ determination simultaneously to incur the expenses of maintaining huge military forces at home and abroad (along with dispensing considerable foreign aid), and of satisfying the American public’s growing demand for social services, without increasing taxes enough to finance these programs responsibly. At the same time, the dilemma was greatly intensified by the refusal of the foreign beneficiaries of these U.S.-provided public goods to pay many more of the costs of their own defense, or to open their markets wider to American exports.

The breakdown of these arrangements in 1971 bore out Triffin’s warnings, but although major adjustments were made globally, the rest of the world continued relying heavily on American security guarantees and markets. And in fairness, a bipartisan American foreign policy establishment addicted to intangibles like “global leadership” and genuinely worried that its European and East Asian allies could not manage their own security affairs in particular responsibly, staunchly resisted any fundamental changes to the status quo.

Fast forward to the mid-2000s, and the exact same fundamental problem reemerged. Further, a Triffin-like situation was greatly worsened by two new developments. First, the Federal Reserve decided to enable reckless over-spending by American consumers by keeping interest rates at peacetime lows not seen for many decades.

Second, American trade policy swelled the international deficits by taking a new, offshoring-focused turn starting with the North American Free Trade Agreement (NAFTA) in the early 1990s, and culminating with multinational companies’ decisions to focus tightly on supplying more and more American business and consumer demand from China, not from the United States.

Not so coincidentally, this trade policy shift was accompanied by the creation of an international organization – the World Trade Organization (WTO) – that was the first such body ever authorized to create both binding rules for any international policy sphere, and to utilize enforcement mechanisms in which the United States enjoys no special standing (as opposed, for example, to the United Nations Security Council, where the United States and other permanent members possess an individual veto over decisions).

A better recipe could not be created for empowering China (and the rest of the world’s major export-dependent economies) to view the United States as an even more attractive dumping ground for surplus production; for undermining America’s internationally recognized right to respond unilaterally; and for consequently enabling footloose multinational companies to supercharge the trade deficits by sending an astonishing amount of the nation’s production capacity to China and other super-low cost countries that could not or would not import remotely as much as they could or would export.

The end result: Rather than the United States winding up exporting inflation and (along with free-riding allies and trade competitors) bringing down a global monetary order, America exported financial instability, triggering the worst worldwide financial crisis, the deepest international economic downturn since the Great Recession, and the weakest U.S. economic recovery on record. And revealingly, to the cheers of the bipartisan American foreign policy and economic policy establishments, the first post-financial crisis president, Barack Obama, kept America’s grand strategy firmly on course.

Although it’s still unclear whether Mr. Trump is choosing an effective combination of trade and alliance policy tactics, his initiatives so far raise even more important questions. Chiefly, is he simply trying to achieve greater security and economic burden-sharing? And even if his aims at present are restricted to securing better deals, is he prepared to scrap American participation in current alliances and other international institutions altogether if U.S. tariffs and other America First-type threats don’t seem to be working?

Nonetheless, the President has opened the door to elevating America’s thinking about its global environment toward the adult levels that ultimately will be needed to prevent today’s lopsided unsustainable international arrangements from disastrous crackups. If his critics want to increase the odds that the best choices will be made, they’ll need to grow up, too.

(What’s Left of) Our Economy: Why the Trump-ers (So Far) Aren’t Wrong About the Dollar

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bubbles, consumption, currency, debt, dollar, exchange rates, finance, Financial Crisis, growth, inflation, investment, protectionism, Steve Mnuchin, Trade, Treasury Department, Trump, {What's Left of) Our Economy

The economics, finance, and business worlds are kind of up in arms over U.S. Treasury Secretary Steve Mnuchin’s suggestion earlier this week that a weaker U.S. dollar would be good for the American economy.

I say “kind of up in arms” because Mnuchin’s remarks were more nuanced than generally reported; because financial markets in particular seem to be on steroids and have barely reacted; and because he took pains afterwards to profess his confidence that, despite its recent falling value, nothing fundamental had changed to undermine the greenback’s historic appeal to investors. Indeed, just a little while ago, President Trump stated that he “ultimately” wants to see a strong dollar. 

I say “up in arms” to some extent because, the President’s newest words notwithstanding, no American Treasury Secretary has ever said anything remotely like this in public for decades; because Mnuchin’s original words looked suspiciously consistent with what the establishments in these interconnected economic worlds abhor as the Trump administration’s protectionist instincts on trade policy (because all else equal, a weak dollar promotes U.S. exports and curbs U.S. imports); and because dollar strength (and the big U.S. trade deficits it’s encouraged) has long been a cornerstone of the global economy, and a major growth engine for the numerous countries that rely on selling to Americans to promote their own output and employment. (Hence many of them fiddle around with their own currencies’ values to make sure they can sustain these strategies.) Many strong dollar proponents also claim that a weaker American currency could dangerously stoke inflation (especially by boosting import prices) and deter investment inflows into the United States.

But two crucial points are Missing in Action in the tumult sparked by Mnuchin’s remarks. One should be obvious but can’t be repeated often enough, especially in these current overwrought times: You can have too much and too little of a good thing. An overly weak dollar would cause major problems for the U.S. economy. So would an overly strong dollar. Therefore, the key is not to assume either extreme (especially in the absence of any evidence that they’re around the corner) but to figure out a dollar level that achieves the best combination of benefits.

The second has been much less much widely recognized even in calmer periods, but it’s closely related to my longstanding point about the importance of the quality of American growth. As I’ve written frequently, growth based largely on production and the growing incomes it generates place the economy on the soundest foundation. This approach may not always produce the fastest growth, but it fosters the growth that tends to last longest, and that’s least likely to inflate bubbles that then collapse into economic and financial crises).

Such disasters, as we should have learned, stem from growth largely based on borrowing and consuming – i.e., on shopping sprees that eventually can’t be paid for responsibly, and can only continue by racking up enormous debts. And other than legitimate (though clearly overblown nowadays) concerns about inflation, that’s a main reason why folks in finance – and everyone on their payroll in the U.S. government and the rest of Washington – like the strongest possible dollar. Until the merry-go-round stops, they make tons of money by lending to those borrowers.

Here’s where the dollar’s value comes in. A strong-ish greenback tends to result in that borrowing and consuming brand of growth. A weak-ish dollar tends to result in the healthier kind of growth. And as indicated by this chart showing the change in the dollar’s value (also called the exchange rate) against other currencies, only looked at over the shortest possible period could the dollar nowadays be called weak or even weakening. Over a much longer period, it’s obviously still well in “strong territory.” 

And it’s no coincidence, as I’ve also written, that although the U.S. economy seems to be making some slight progress toward creating healthier growth, it still has way too long a way to go – especially given that the current recovery from the crises and the painful recession that followed is now more than eight years old.

The lessons, then, look clear. If you only care about the fastest growth possible regardless of its makeup or the longer-term consequences, and/or if you think finance should be the dominant part of the American economy, you’ll join the chorus of critics scolding Mnuchin for even hinting that some further dollar decline wouldn’t be a disaster for the nation. If you’d like the economy to steer clear of near-meltdowns like the one experienced just about a decade ago, you’ll be applauding what still looks like a subtle call from him for a somewhat weaker dollar.

(What’s Left of) Our Economy: The Case for Keeping it Simple with China Trade Just Got Stronger

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China, currency, currency manipulation, exchange rates, Great Recession, import prices, imports, Labor Department, Robert Lighthizer, Trump, U.S. Trade Representative, yuan, {What's Left of) Our Economy

I haven’t been closely following the Labor Department’s import price data lately, and that’s been an oversight. As is clear from this morning’s figures (for August), they keep telling a fascinating and important tale about China’s ongoing manipulation of its currency and how it does and doesn’t impact U.S. trade with the People’s Republic. More specifically, examining the data over time reinforces a strengthens a point I’ve posted on previously – that as important as this currency protectionism is, it’s far from the only predatory Chinese practice that’s been shafting domestic companies and workers exposed either directly or indirectly to Chinese competition.

Just as a refresher, unlike most other trading countries and regions, China prohibits the free buying and selling of its currency. For most of the previous decade, Beijing’s aim has been to keep the value of the yuan artificially low versus most other currencies and especially the U.S. dollar – in order to give its goods and services price advantages over foreign rivals in markets everywhere. As a result, China’s exports got a government-aided boost worldwide, and its domestic industry was able to undersell imports in its home market – all for reasons having nothing to do with free trade or free markets generally.

Since the latter part of that decade, and especially earlier during the current economic recovery, the story has been more complicated. The main reason: China was getting worried about wealthy Chinese concerned about political stability or the economy’s future spiriting too much of their wealth out of the country, for stashing in countries (like the United States) considered a lot safer. These capital outflows began depressing the yuan’s value much faster than Beijing wanted, and even threatened to cause a worldwide crisis of confidence in the currency – and the broader Chinese economy. So for much of this latter period, China has been trying to prop up the yuan’s value to some extent – even as its wary that an overly strong yuan would jeopardize the exports on which its growth still heavily relies.

Trade policy critics have rightly focused much and even most of their anti-China ire on currency manipulation, and that’s been understandable for two main reasons. First, this policy affects the relative prices of everything sold back and forth between the United States and China; and second, currency manipulation is one of the few protectionist practices that even some of the globalization-happy economics and business establishment (and the latter’s political hired guns), can be convinced to combat. (Much of the rest of this group, though, will simply grandstand against this form of protectionism.)

Nonetheless, the import price numbers, coupled with the oscillation in China’s currency priorities, the consequent roller-coaster ride of the yuan’s value versus the dollar, and the actual trade flows, show that the cost of Chinese goods and services aimed for the American market stems from many other causes.

The Labor Department’s import price data for China goes back to 2004, and it shows that, in the 13 years since, on an August-to-August basis, the prices of purchases from China Americans can make has fallen in eight years and risen in five. As for the yuan’s value, it’s strengthened versus the U.S. dollar in nine of those 13 years, and weakened in four.

What happens when the two indicators are paired? The numbers reveal that in five of the 13 years, the prices of imports from China in the American market have fallen while the yuan has strengthened – which isn’t supposed to happen if you believe in currency uber alles. In another year, the prices of those imports rose while the yuan weakened – another counterintuitive result. In seven of the thirteen years, in other words, currency values and import prices seem to have behaved as they should have, but in six (nearly half the time), they didn’t.

Also important : In three of the four years when both import prices and the yuan went up, the yuan’s rise was much greater, most often by a factor of two to one. And in two of the three years when both indicators fell, the change in the yuan again was much greater. So at the very least, even when the relationship is looking like economists tell us it should, it takes a lot of yuan movement to generate significant import price changes. Clearly, therefore, other factors must be at work.

In this vein, the yuan’s value and the changes it undergoes doesn’t seem to have an especially strong relationship with the amount of goods that American imports from China. Of course, they have some effect. After all, all else equal, if U.S. customers buy a certain quantity of items and services from China one year, and the same quantity the next, and the price of those goods and services falls (for whatever reason), the value of those purchases will go down. And naturally, the converse is true as well.

This point matters because purchasing patterns rarely respond to price changes right away, and the lag can mean that the impact of currency changes on import values can take some time to materialize – and often more than a year. But even taking this reality into account produces a fuzzy picture. For example, between August, 2004 and August, 2005, U.S. goods imports from China (which make up the vast majority of American purchases from China) jumped by more than 24 percent even though import prices fell (by 1.10 percent) and the yuan rose versus the dollar (by 2.13 percent). The next year, Americans bought 19.14 percent more products from China, despite their prices falling yet again (by nearly as much – 1.01 percent), and the yuan rising again (also by nearly as much – 1.80 percent).

Between August, 2007 and August, 2008, import prices rose by a very large 4.95 percent and the yuan strengthened by an even greater 9.55 percent. Yet U.S. goods imports from the People’s Republic increased by double digits again (11.96 percent). The following year, however, import prices plummeted (by 3.08 percent), and the yuan weakened by 0.70 percent. And did American imports surge again? Not even close. They nosedived by 18.93 percent.

Sharp-eyed RealityChek readers will realize why: The Great Recession was intensifying in 2008 and lingered well into 2009. So Americans’ consumption of just about everything fell off a cliff for a while. Between the following Augusts, neither the prices of imports from China nor the yuan’s value moved much, and America’s goods imports from China nonetheless soared by more than 37 percent.

Yet you don’t need these kinds of extreme economic events for import prices, import amounts, and yuan movements to confound expectations, lag or not. From August, 2011 to August, 2012, both the prices of Chinese imports and the value of the yuan were up (both by a bit) and American imports from China dipped by 0.25 percent. Even stranger, the American economy grew by a pretty decent 2.39 percent (in inflation-adjusted terms) during that period.

The following year, U.S. growth was down to 1.69 percent, prices of imports from China dropped (by a meaningful 1.24 percent), the yuan rose (by a much greater 3.61 percent), and American purchases from China jumped from a small dip to more than five percent growth.

The point here is not that China’s currency policies don’t matter, but that the prices of Chinese goods and services, and therefore America’s trade performance with the People’s Republic, are influenced by a wide array of factors. Some are legitimate – for instance, if China keeps selling Americans greater amounts of relatively pricey advanced goods (like industrial machinery and high tech products), and less in the way of cheaper, simpler products (like clothing and toys), as has been the case, the price of the average import from China is going to rise. But many reasons are much less legitimate (e.g., changing levels of subsidies like value-added tax rates), and these can be so numerous, so fungible, and therefore so difficult to document that trying to isolate them and attack them piecemeal is a fool’s quest.

Far better is to decouple American tariff policy completely from specific items of evidence of individual predatory trade practices and impose these levies proactively, until they produce the desired effects on bilateral trade flows. In fact, the case for such a sweeping approach was made just yesterday, and is worth quoting at length:

“[T]here is one challenge on the current [trade] scene. It is substantially more difficult than those faced in the past, and that is China. The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer and to distort markets, in China and throughout the world, is a threat to the world trading system that is unprecedented.”

This speaker also argued that “The years of talking about these problems has not worked, and we must use all instruments we have to make it expensive to engage in non-economic behavior.”

His name is Robert Lighthizer, he’s President Trump’s chief trade negotiator, and the devilishly complex relationships between currency values, import prices, and trade flows just add to the case for the administration to start following this advice pronto.

Making News: Thom Hartmann and John Batchelor Interviews Now On-Line!

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China, currency, currency manipulation, John Batchelor, Making News, Thom Hartmann, Trade, Trump

I’m pleased to report that the streaming video and podcast are now on-line of my two broadcast media interviews yesterday on President Trump’s China policy about-face.

Click here for my discussion with RT America’s Thom Hartmann on Mr. Trump’s decision to absolve China of charges that it manipulates its currency for trade advantage.  And click here for my segment on John Batchelor’s nationally syndicated radio show on the same subject. You can find the podcast by scrolling down the column on the right until you see “Xi Stalls Trump Trade Talks 100 Days.”

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

(What’s Left of) Our Economy: Trump’s Real China Currency Blunder

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airstrikes, alliances, America First, chemical weapons, China, currency, currency manipulation, dollar, exchange rates, North Korea, nuclear weapons, predatory trade, Syria, Trade, trade barriers, Trump, Xi JInPing, yuan, {What's Left of) Our Economy

What was worst about President Trump’s decision yesterday to let China off the currency manipulator hook (for now) was not the scrapping of a long-time campaign promise it represented. What was worst about the decision was its geopolitical rationale – that is, Mr. Trump’s judgment that major Chinese cooperation in reining in North Korea’s nuclear program could be secured if his administration moderates or delays various efforts to counter Beijing’s trade predation.

Nonetheless, some recent developments also presage reasons for modest optimism that a sounder approach to currency manipulation by China (and other countries), at least, will eventually emerge if it becomes clear Beijing is welshing on this deal.

The president’s new China policy makes least sense from a pure negotiating tactics standpoint. After all, what course of action could now be more tempting than for China to keep stringing America along with promises to get tough on North Korea, and even with token actions suggesting that meat is being put on these bones? Think “Charlie Brown,” “Lucy,” and “football.” And how will the president decide that his gamble has failed?

Moreover, Mr. Trump’s own views of China’s clout with North Korea seem confused, at best. On the one hand, the president must (logically) believe that China can make much more of a difference in resolving the North Korea situation than it’s so far chosen to. Why else would he offer China the valuable benefit of better terms of trade than it would otherwise receive? On the other hand, Mr. Trump said in an interview with The Wall Street Journal “After listening for 10 minutes [to Chinese leader Xi Jinping at their summit a week ago], I realized it’s not so easy. I felt pretty strongly that they had a tremendous power [over] North Korea. … But it’s not what you would think.” So here he’s indicating that Beijing can’t help decisively at all.

Related Trump statements point to another major negotiating No-No: Rewarding interlocutors for steps they would take anyway. The president is now on record as stating that Xi “means well and wants to help” on North Korea. But this confidence raises the question, “Why?” It’s of course possible that Chinese policy has entered a new, more charitable phase. It’s more likely, however, that Beijing is becoming increasingly worried about the situation in its next-door neighbor spinning out of control and triggering a conflict that could go nuclear right on its borders.

Indeed, a recent editorial from its own government-controlled press clearly signals that those dire concerns are China’s main motivator: “China…can no longer stand the continuous escalation of the North Korean nuclear issue at its doorstep. Instead of accepting a situation that continues to worsen, putting an end to this is more in line with the wish of the Chinese public.”

Even more revealing, the same editorial made plain as day that official Chinese nerves have been frayed further by Mr. Trump’s willingness to go-it-alone militarily in Syria (when he ordered airstrikes in the middle of his meetings with Xi), by his threat to take a similar course of action against North Korea, and by his dispatch of a powerful American naval force to Korean coastal waters. In other words, the president’s apparent comfort with using force already has caught China’s attention.

Better yet, some concrete evidence of this success has appeared. China seems to be reducing its imports of coal from North Korea – one of Pyongyang’s few major sources of foreign exchange – and it abstained yesterday from voting on a UN resolution condemning Syria’s government for the chemical weapons use that prompted the U.S. cruise missile attack. Until then, China had vetoed similar UN resolutions. Why, therefore, would Mr. Trump sweeten the supposed deal further with trade breaks?

At the same time, these latest Trump decisions are sending signs about the president’s national security strategy and overall priorities that are equally disturbing. Principally, during his campaign for the White House, Mr. Trump displayed a keen awareness of the burgeoning nuclear risks being run by the United States by maintaining its defense commitments in East Asia. In numerous remarks that were pilloried by an ossified bipartisan American foreign policy establishment, candidate Trump quite sensibly suggested that the United States should transfer much of this risk to the local countries (like China) most directly threatened by the North Korean nuclear program. Yesterday, Mr. Trump endorsed America’s longstanding Asia strategy even though the North can increasingly call the U.S. nuclear bluff on which regional deterrence has been based with forces of its own that can strike American targets.

Even more striking, Mr. Trump’s new quid pro quo has demoted policy options that can deliver major economic benefits to his core voters and the entire U.S. economy (more trade pressure on China) back to their longstanding position subordinate to national security strategies that primarily help other countries (the Asian allies covered by the American nuclear umbrella). Far from the type of America First strategy he touted during his campaign and especially in his Inaugural Address, these new Trump moves add up to an America Last strategy.

All the same, Trump’s new approach could set the stage for improved U.S. anti-currency manipulation strategies should circumstances require them. Although unmistakably disheartening to many trade policy critics, this latest American China currency decision was defensible on its own terms. It’s true that substantial evidence continues indicating that China’s yuan is significantly undervalued versus the U.S. dollar – and still enables producers in China (including those owned by or linked with U.S. and other foreign-headquartered companies) to offer their goods for artificially low prices in markets around the world. Nonetheless, it’s also true that China has permitted its (surely dollar-dominated) foreign currency reserves to drop by about 25 percent since 2011 – largely because it’s been selling those reserves and buying yuan in order to curb worrisome capital flight. In other words, Beijing has been trying to support the yuan versus the dollar, and keep its value higher than it would be were it freely traded.

Yet there’s absolutely no reason for trade policy critics – or the U.S. government – simply to conclude that ambiguous circumstances simply force America to accept the status quo. In fact, such shoulder-shrugging would amount to rewarding China currency cheating that the conventional wisdom now admits lasted for years, and whose cumulative effects continue to undercut the price competitiveness of domestic U.S. manufacturers and other producers.

So what to do? According to at least one press report, the Trump administration is considering revamping currency manipulation policy in ways that would appear to abandon the current, blinkered approach in favor of one that takes these cumulative effects into account. Specifically, a Reuters article last week suggested that one option that’s attracted the administration’s attention would involve lengthening “the time period for reviewing currency market interventions from 12 months to several years, capturing more past interventions by China….” At least logically, this shift would signal recognition that the impacts of these interventions (to suppress the yuan’s value) are dynamic, and long-lasting.

Even better, however, would be to recognize that, important as it’s been because of its effects on prices across the Chinese economy, currency manipulation is only one form of trade predation practiced by China, and that such individual policies can easily frustrate current legalistic countermeasures by virtue of the powerful and secretive Chinese bureaucracy’s ability to turn them on and off at will – often with little more than a phone call. More important, China has successfully used these ploys in the past. And P.S.: Other Asian economies are just as skilled as China’s at pulling off these scams.

In other words, the various mercantile measures used by China and others to distort markets are completely fungible. Dealing with them effectively therefore requires Washington to become much more agile and flexible in response. And the critics need to stop focusing so tightly on currency manipulation and keep the much bigger, more important China and global trade picture in mind.

For the entire U.S. economy has a big stake in the Trump administration putting these changes into effect before Chinese and other countries’ trade predation sucker punches even more of its most productive sectors – whether they interfere with the president’s new North Korea strategy or not. So, in all likelihood, does Mr. Trump’s political future.

Making News: Talking China on Thom Hartmann TV & John Batchelor Radio Shows Tonight!

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China, currency, currency manipulation, John Batchelor, Making News, RT America, The Big Picture with Thom Hartmann, The John Batchelor Show, Trade, Trump

I’m pleased to announce a media two-fer today!  At 7 PM EST, I’ll be returning to The Big Picture with Thom Hartmann on RT America to discuss President Trump’s landmark decision today to decline to label China as a currency cheater. Here’s the link that lets you watch live what’s sure to be a provocative segment on what Mr. Trump’s move means for both America’s economy and its national security.

And at 9:15 PM EST, I’ll be back on John Batchelor’s nationally syndicated radio program talking about the same subject with John and co-host Gordon Chang. You can listen live at this link.

As usual, if you can’t tune in to either, as soon they’re available, I’ll post the links to the streaming video of the Hartmann TV interview and to the podcast of the Batchelor segment.

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

(What’s Left of) Our Economy: New Trade Figures Full of (Odd) Surprises & (Mainly Dubious) Records

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Census Bureau, China, currency, exports, Germany, high tech goods, imports, inflation-adjusted growth, Japan, Korea, Made in Washington trade deficit, manufacturing, Mexico, non-oil goods trade deficit, recovery, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit decreased 3.21 percent in nominal terms on month in December – even though inflation appears to be rising and the fourth quarter real deficit rose at its fastest rate (14.82 percent) since early 2010. In fact, in pre-inflation terms, the quarterly deficit was up only 12.95 percent sequentially. In addition, despite a slowdown in U.S. economic growth, the overall trade deficit edged up on-year by 0.38 percent, to $500.25 billion. In 2016, both combined and goods imports both recorded their first consecutive annual decreases since the current Census historical series begins (1960). In addition, both categories of exports fell in 2016 for the second straight year for the first time since 2002.

December combined goods and services exports rose to their highest level since January, 2015, but total imports hit a post-March, 2015 high. Fueling much of the December sequential improvement was a double-digit drop in the huge and chronic manufacturing trade deficit, and the biggest all-time fall in the volatile high tech goods shortfall (71.78 percent) that was generated largely by the sector’s best-ever monthly exports ($32.18 billion). The goods deficit was down 1.64 percent on year, but the long-time surplus the nation has run in services trade decreased by 5.48 percent – its first such fall since 2003.

Trade with countries possibly targeted by President Trump for new negotiations or unilateral U.S. tariffs turned in a mixed 2016 performance, as American goods deficits rose slightly with Mexico and Japan, and fell with China and Germany. But all these imbalances remained at lofty levels historically. The monthly shortfall with free trade partner Korea, however, hit its lowest level since February, 2014. Nonetheless, the December figures revealed a dramatic rise in the trade drag on America’s sluggish economic recovery.

Most troubling, as of year-end 2016, the Made in Washington deficit had reduced cumulative inflation-adjusted growth during the recovery by 20.56 percent, or $434.78 billion.

Here are selected highlights of the latest monthly (December) and full-year trade balance figures released this morning by the Census Bureau:

>A monthly 3.21 percent drop in the December goods and services trade deficit led off a series of surprises produced by the new monthly U.S. trade figures – which also presented the first full-year results for 2016.

>The December sequential decrease – to $44.26 billion from an upwardly revised $45.73 billion November level – yielded a rise in the nominal fourth quarter 2016 trade gap of 12.95 percent. That’s less than the 14.82 percent surge in the real trade deficit in that fourth quarter reported in the latest gross domestic product figures – even though inflation in the United States appears to be heating up.

>Also puzzling in the new trade figures – the annual increase of the combined goods and services shortfall (albeit by only 0.38 percent, to $500.25 billion) despite a slowing overall economy.

>The new records and multi-year highs and lows revealed in this morning’s trade figures start on the import side. Both combined imports and goods imports fell in 2016 for the second straight year. Such declines have not been seen since 1960 – when the Census Bureau’s current historical statistics series begins.

>The former reached $2.712 trillion in 2016 – the lowest such level since 2011 ($2.676 trillion). The latter reached $2.210 trillion – also the lowest such level since that year ($2.240 trillion).

>Combined exports also fell for the second straight year in 2016 – by 2.34 percent – and totaled $2.209 trillion. The last time such a back-to-back decline was experienced was in 2002. And the 2016 level was the lowest since 2011 ($2.127 trillion).

>Goods exports on an annual basis fell consecutively for the first time since 2011 as well. In 2016, they were off by 3.31 percent, and hit $1.460 trillion. That’s the lowest such level since 2011 as well ($1.499 trillion).

>Meanwhile, the slight deterioration in the annual overall 2016 trade deficit resulted largely from an unusual source – the first drop in the services trade surplus (by 5.48 percent, to $247.82 billion) since 2003.

>In 2016, services exports dipped by 0.17 percent, to $749.58 billion. But the drop was the sector’s first since 2009. Services imports, meanwhile, hit an all-time high of $501.75 billion – up 2.68 percent from 2015 levels.

>The goods deficit in 2016 fell for the first time since 2013 – by 1.64 percent, to $750.07 billion.

>Total exports increased in December on a monthly basis by 2.71 percent, from a downwardly adjusted $185.65 billion to $190.69 billion. That’s the best total since January, 2015’s $191.97 billion.

>Total imports rose more slowly – by 1.54 percent, to $234.95 billion from an upwardly adjusted $231.38 billion. But that total was the highest since March, 2015’s $238.64 billion.

>Fueling much of the December monthly improvement was the biggest monthly drop in America’s volatile high tech goods deficit on record – a 71.78 percent plunge from $13.53 billion to $3.82 billion.

>High tech goods exports shot up sequentially by 15.80 percent to a monthly all-time high of $32.18 billion. Imports were off by 12.87 billion on month, to just over $36 billion.

>The broader manufacturing sector enjoyed a good December, too. The monthly deficit fell from a record $80.75 billion in November to $69.52 billion – an improvement of 13.91 percent.

>Even better, the manufacturing trade gap shrank because imports fell on month in December by 4.71 percent and exports advanced by 3.91 percent.

>On year, however, manufacturing’s trade performance deteriorated again. The annual trade deficit rose by another 3.25 percent to $861.82 billion – its latest annual record.

>Manufacturing exports declined by 4.71 percent, to $1.051 trillion, but imports were off only 1.71 percent, to $1.913 trillion.

>U.S. trade partners who have attracted the ire of President Trump could take some solace from this morning’s trade figures.

>The longstanding and enormous U.S. goods trade deficit with China fell by 5.48 percent on year, from $367.13 billion to $347.04 billion. Both U.S. merchandise imports from and exports to the still strongly growing Chinese economy decreased on annual basis – by 4.23 percent and 0.26 percent, respectively.

>The merchandise trade shortfall with Germany – whose currency policies, like China’s, have been criticized by the Trump administration – was down as well on year, by an even greater 13.34 percent, from $74.85 billion to $64.87 billion. U.S. goods exports to Germany slipped by 1.22 percent but goods imports sank by 8.49 percent.

>>The decline in the U.S. goods trade deficit with Korea, with which a free trade agreement went into effect in 2012, was 2.29 percent, from $28.31 billion to $27.67 billion. This total was still the second highest on record. Both U.S. goods exports to and imports from Korea decreased – by 2.71 percent and 2.55 percent, respectively.

>Some of the improvement in Korea trade resulted from the nearly 50 percent monthly plummet in the December goods gap. The $1.20 billion figure was the lowest since February, 2014’s $1.08 billion.

>Yet the merchandise trade gap with Mexico rose – by 4.17 percent, from $60.66 billion to $63.19 billion. U.S. goods exports – many of which are intermediate goods that are re-imported as final products – inched down by 2.03 percent while imports were down by only 0.76 percent.

>America’s merchandise trade deficit with Japan climbed fractionally, to $68.94 billion in 2016, as goods exports advanced by 1.32 percent and the much greater volume of goods imports grew by 0.64 percent.

>Unfortunately, the new trade data showed that trade’s drag on the U.S. economy increased significantly in 2016. In particular, the inflation-adjusted increase in the Made in Washington deficit (the non-oil goods deficit) since the current recovery began in mid-2009 has cut cumulative inflation-adjusted growth during this sluggish expansion by fully 20.56 percent. That translates into $434.78 billion of real output lost because of America’s trade performance in those areas most heavily affected by trade deals and related policies.

(What’s Left of) Our Economy: Signs that Chinese Currency Manipulation is Back

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China, Congress, currency, currency manipulation, exchange rates, Obama, TPP, Trade, Trans-Pacific Partnership, yuan, {What's Left of) Our Economy

For several years, China has been the gift that has kept on giving to cheerleaders for current American trade policies, as its currency policies allowed President Obama and his trade supporters to all but declare “mission accomplished” for the decision to address Beijing’s predatory approach to globalization through quiet diplomacy, not punitive tariffs.

Now after letting its currency strengthen versus the U.S. dollar, Beijing, is permitting the tightly controlled yuan weaken once again. So as during most of the previous decade, Chinese goods are once again getting major price advantages over competing products in all global markets for reasons having nothing to do with free markets or free trade. Let’s see if Mr. Obama and his backers will be as quick to admit failure as they were to claim success.

China’s currency policies have had their ups and downs for the last 15 years or so, and throughout the cheerleaders consistently have mis-represented the idea of proper currency valuation. Moreover, some impressive evidence indicates that the yuan has been much more undervalued – and therefore distorting trade flows – to a much greater extent than the standard exchange rate figures (from the Federal Reserve) show.

Nonetheless, it’s still important to note that those standard figures have reported a 20.39 percent increase in the yuan’s value against the dollar since July, 2005. It’s just as important to note that, during this period, the dollar is up versus a broad Fed measure of world currencies by about 7.70 percent, so by this key measure, China has been a big outlier in ways that work to its disadvantage.

And even though the yuan has fallen in value since it hit its peak versus the dollar, in mid-January, 2014, it’s fallen much less than that basket of other currencies – 8.63 percent for the yuan, as of the Federal Reserve’s latest (May 27) figures, versus 19.04 percent.

But the key baseline date Washington and everyone else should be looking at is last August 11. That’s the day the Chinese government clearly decided it had had enough of a stronger yuan, and devalued the currency by a stunning 1.83 percent in one day. And from last August 10 though May 27, the yuan has dropped by 5.67 percent versus the dollar. But that group of major currencies is down only 2.86 percent against the greenback. Moreover, since May 27, the yuan has been permitted to sink another 0.42 percent. (I couldn’t find a comparably recent number for that broad dollar index.)

With the American economy still mired in an historically sluggish recovery, and manufacturing output still faltering, expect all the remaining presidential candidates to start decrying Chinese currency manipulation again. If it continues, Beijing’s apparent gambit could also further diminish the chances that Congress will approve Mr. Obama’s Trans-Pacific Partnership (TPP) agreement, since a U.S. failure to respond adequately coupled with the deal’s own lack of currency disciplines with teeth would arguably turn Congressional approval into a green light for other would-be foreign manipulators. Pity the lawmaker who’d have to answer for that vote.