(What’s Left of) Our Economy: Without Supply Chain Transparency, There’s No Supply Chain Security

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Bureau of Economic Analusis, Defense Department, Defense Innovation Unit, defense manufacturing, election 2020, FDI, foreign direct investment, GAO, Government Accountability Office, health security, Joe Biden, medical equipment, national security, offshoring, Pentagon, supply chains, Trump, {What's Left of) Our Economy

Earlier this month, I criticized Joe Biden’s new plan to strengthen U.S. domestic manufacturing with a special eye toward boosting the security of key supply chains for holding out as a model the Pentagon’s work on defense-related manufacturing. Just this week, I found even more evidence to support the view that if the presumptive Democratic presidential nominee is really serious about achieving this goal (and given his longstanding record on trade and globalization issues, ample doubt is warranted) he’ll need a dramatically new model.

By the way, these findings show that the Trump administration also remains too far from getting its own supply chain act together.  And the main reason is a dangerous – and wholly unnecessary – lack of supply chain transparency.

The evidence comes from a September, 2019 report from the U.S. Government Accountability Office (an investigative arm of Congress) that summarizes the views of a panel of specialists convened to discuss foreign threats to the U.S. defense manufacturing base, and presents findings on the subject from various U.S. government agency, private sector, and university studies. The threats include the offshoring of the production of key defense-related goods; takeovers by foreign entities of U.S.-based facilities that supply these products, along with important services, or foreign acquisitions of significant stakes in these facilities; and the loss of U.S. competitiveness in these areas for market- and competition-related reasons and the resulting turns to foreign suppliers.

And crucially, the panelists consulted (listed on p. 40 of the report) include no notable supposed globalization alarmists or China hawks. In fact, one panelist was a senior executive of the U.S.-China Business Council, which has been a major pillar of what I call the nation’s Offshoring Lobby.

The report correctly noted that the use of foreign-origin goods and services can benefit U.S. national security interests. Specifically, it can “lower costs and provide better access to foreign workers and markets [which can help the companies in question gain the benefits of economies of scale by winning more customers].” Moreover, “When companies that offshore contract with DOD [the Departent of Defense], they can pass those benefits along. Foreign investment can help U.S. companies grow.”

So as in all areas of public policy, the key is finding the best balance, and reasonable people can always legitimately disagree on where it’s found. But here’s what’s really alarming about the message sent by the GAO report – and collectively by all the specialists and materials consulted: Neither the Defense Department nor any other branch of the U.S. government has the ability needed to achieve this goal partly because they lack the information needed to identify vulnerabilities, and partly because much helpful information is kept confidential at the request of private industry.

Here are the main relevant observations and conclusions presented in the report making emphatically clear that the nation lacks the supply chain transparency vital to improving supply chain security:

>”[T]he absence of a common definition of offshoring makes it difficult to analyze the extent to which offshoring is occurring in general as well as its effect on the defense supplier base. As such, the extent of offshoring and its effects are largely unknown.”

>”[P]ublicly available data do not provide granularity to analyze foreign direct investments in industry subsectors that comprise the defense supplier base.”

>”Pentagon “industrial policy officials told us that BEA’s [the Commerce Department’s Bureau of Economic Analysis] publicly available data are not complete enough to assess foreign investments in U.S. defense industrial subsectors. We also found that BEA does not disclose certain data for industry subsectors if the data would disclose the identity of individual companies, as these data are considered confidential. For example, BEA data on new foreign direct investment from China in the U.S. industry subsector “electrical equipment, appliances and component manufacturing” are not publicly available for 3 of the 5 years we reviewed.”

>”[A]ccording to BEA, new foreign direct investment data do not capture foreign investment transactions that involve less than 10 percent voting ownership in a U.S. enterprise. This may include data on venture capital investments in U.S. start-ups. According to a report by the Defense Innovation Unit (DIU) within DOD, there are an increasing number of investments in U.S. venture-backed startups from China-based investors that are not tracked by the U.S. government. This limits full visibility into foreign investors and the technologies they are investing in, as well as any increase or decrease in investment flows.”

>The DIU “echoed concerns about the limitations of U.S. government data and stated that the U.S. government does not comprehensively track all available data on investments, including those from private sources to assemble a complete picture of the level of foreign investment in U.S. companies.”

One big takeaway from the above is that the Defense Department is far from the only culprit here. Much more important, though, nothing could be clearer from this list of information gaps than that the Pentagon that Biden would rely on hasn’t made much of an effort to close them. And although the Trump administration has rhetorically prioritized reshoring manufacturing back to the United States in part for national security-related reasons, and can boast noteworthy progress in changing the U.S. trade policies that have encouraged so much defense-related offshoring, it’s clearly made little progress in making sure that it has the most fundamental information it needs to make sound decisions.

Also critical to recognize: It’s not that this information doesn’t exist. As I’ve previously noted, the companies that produce these goods and provide these services know exactly they, and most of their own contractors and subcontractors, are doing. Fully understanding and optimizing their own operations, after all, is one of the main ways they make money.

And the best way to extract what the government needs is to require legally what I’ve described as “Truth in Globalization” – and require it fast. Otherwise, no matter who wins the Presidency in November, the U.S. government will needlessly keep flying blind on supply chain security.

Im-Politic: On Biden’s New Plan for Medical & Other Supply Chain Security

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alliances, Biden, CCP Virus, China, coronavirus, COVID 19, Defense Department, Defense Production Act, DPA, election 2020, health security, healthcare goods, Im-Politic, manufacturing, offshoring, Pentagon, pharmaceuticals, PPE, supply chains, tariffs, taxes, Trade, Wuhan virus

Joe Biden’s plan for rebuilding U.S. supply chains to ensure American access to critical products like healthcare goods came out yesterday, and any fair reading would have to conclude that these proposals are about as serious as the presumptive Democratic Presidential nominee’s proposals in related areas – like China policy. That is to say, they’re not terribly serious at present.

As with China policy, the first concern entails credibility. In 2011, when Biden was Barack Obama’s Vice President, the Commerce Department issued a report detailing all sorts of dangerous vulnerabilities in U.S. supplies of all manner of vital healthcare goods. The “Obama-Biden administration” did absolutely nothing in response – unless you count avidly pursuing offshoring-friendly trade deals, like the Trans-Pacific Partnership (TPP) that were bound to worsen these vulnerabilities. You could also throw in a record of continually coddling the trade and broader economic predation practiced by China, which surely fostered similar results.

As a result, it’s legit to ask whether any of these proposals will survive Day One of a Biden presidency.

In this vein, it’s more than a little disturbing that Biden proposes to use the Defense Department’s policies to minimize supply chain vulnerabilities as his model for addressing such problems for a wide variety of products –not just healthcare-related goods. These include “energy and grid resilience technologies, semiconductors, key electronics and related technologies, telecommunications infrastructure, and key raw materials.”

Unfortunately, the principal lessons taught by the Defense Department’s record on supply chains are how to duck the problem or define it out of existence, and the administration in which Biden served was no exception. Some of the biggest specific problems (as made clear in this Obama administration report):

>The Pentagon’s overall assessments prioritized financial metrics, not specific domestic production capabilities, as measures of the defense manufacturing base’s health.

>Its treatment of globalization’s challenges placed major emphasis on taking “advantage of emerging capabilities, regardless of where they originate,” not maximizing domestic production capabilities.

>Although specific vulnerabilities – and the related need to maintain or rebuild adequate domestic capabilities – were acknowledged, this vulnerabilities were consistently portrayed as isolated holes that could somehow be plugged without taking into account the dependence of these narrowly defined products on their own supply chains. Indeed, Biden’s new plan seems to reveal a similar flaw when it describes itself as “a set of targeted proposals to ensure the United States has the domestic manufacturing capacity necessary for critical supply chains.”

>Moreover, the Department has long supported objectives such as interoperability with allies’ armed forces and maintaining traditional – pre-Trump – global systems of what it defined as free trade, both of which often clashed with the goal of incentivizing domestic production. These goals were explicitly stated in this George W. Bush administration report, and here’s no evidence that the Obama-Biden Pentagon ever disagreed.

Indeed, the new Biden blueprint indicates that the former Vice President’s definition of supply chain security is pretty global, instead of national, as well:

“Instead of insulting our allies and undermining American global leadership, Biden will engage with our closest partners so that together we can build stronger, more resilient supply chains and economies in the face of 21st century risks. Just like the United States itself, no U.S. ally should be dependent on critical supplies from countries like China and Russia. That means developing new approaches on supply chain security — both individually and collectively — and updating trade rules to ensure we have strong understandings with our allies on how to best ensure supply chain security for all of us.”

If America’s allies were proven reliable suppliers of these products themselves, Biden’s perspective would make sense. But the list of countries that have recently hoarded medical goods for themselves as soon as the CCP Virus pandemic’s full dangers became apparent included most of these allies – meaning that the U.S. vulnerability problem far exceeds “China and Russia.”

Nor is it entirely evident how clearly Biden has thought though the tax policy provisions of his plan. Tax policy’s role is clearly viewed as crucial, as the plan emphasizes that

“Pharmaceutical offshoring has been heavily driven by tax code provisions that have encouraged companies to locate pharmaceutical production in low-tax countries even where those countries have labor and other costs comparable to the U.S.”

Consequently, Biden says he will “eliminate Trump Administration tax incentives for offshoring and pursue other tax code changes that will encourage pharmaceutical production in the U.S.”

At the same time, Biden favors raising the overall U.S. corporate tax rate from the 21 percent to which it has recently been lowered to 28 percent, along with a 15 percent “minimum tax” on large corporations. So good luck to drug companies – or any other companies making goods deemed critical by Biden – gleaning clear reshoring or domestic production ramping signals from this combination.

Perhaps any confusion will be cleared up by other alleged Biden measures to boost U.S.-based production – like “new targeted financial incentives, including tax credits, investments, matching funds for state and local incentives, R&D support, and other incentives to encourage the production of designated critical materials such as semiconductors in the United States”? At best, business will surely need to see many more details along these lines before committing the needed capital.

Unless maybe as President, Biden will simply mandate that the needed new facilities will be built when all else fails (as well as in tandem with those other policies)? That’s obviously the implication of his promise to use the Defense Production Act (DPA) “to its fullest extent to rebuild domestic manufacturing capacity in critical supply chains, using the lessons learned from the COVID-19 pandemic and applying them to our national needs.”

Or does Biden actually view the DPA as his primary tool for “generating the domestic mobilization we need”? That seems like a reasonable conclusion, especially given that it’s the first specific measure he mentions. Maybe instead he’s really talking about using the Act simply “to direct U.S. companies to ramp up production of critical products that will be needed over the near-term.”

Regardless of Biden’s real intentions, though, it’s anything but clear how Biden believes the DPA can be used to increase U.S. production in many of the industries he mentions as vital where such output has largely migrated overseas That’s especially true for the “semiconductors, key electronics and related technologies, [and] telecommunications infrastructure” he specifies. It’s sure going to be far more difficult than, say, ordering auto companies, to make ventilators.

It’s just as unclear how these Biden’s ideas can succeed without a much stronger trade policy dimension – and specifically, continued and even expanded tariffs. And it shouldn’t be limited to straightening out the muddled views mentioned above. 

Specifically, maintaining levies on chronically subsidized and dumped products like metals, along with sweeping tariffs on systemically protectionist China (and on other similar countries) would send the all the companies and sectors concerned an invaluable message. Bipartisan endorsement of these protections would demonstrates that they really can have confidence that new investments won’t be decimated by trade and broader economic predation. Just as important, an enduring commitment to tariffs would help convince overseas competitors (domestic and foreign owned) that if they want to sell the products in which they have big edges to Americans, they’ll need to make these products in America.

The good news is that at least some of these mysteries may be cleared up “soon,” when this Biden plan promises the former Vice President will release his “comprehensive strategy to create American jobs through modern American manufacturing.” The bad news is that if he what he’s said and written so far is any indication, he’ll have a lot of rewriting to do.

Our So-Called Foreign Policy: Why Mattis Isn’t the Last Word on “America First”

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alliances, allies, America First, China, Defense Department, globalism, Japan, Jim Mattis, Marines, Mattis, NATO, North Atlantic treaty Organization, North Korean, Our So-Called Foreign Policy, South Korea, The National Interest, Trump

By all accounts, General George S. Patton was one of America’s greatest battlefield leaders during World War II. And by nearly all of those same accounts, he had no qualifications to advise Presidents on the grand strategies that would serve the country best in world affairs.

I couldn’t help but think of Patton while reading about the contents of former Trump Defense Secretary Jim Mattis’ upcoming book about leadership lessons he’s learned during his own career in a Marine Corps uniform. For one of the main points made in Call Sign Chaos – that President Trump’s foreign policies are dangerously ignoring the vital importance of allies to U.S. security and prosperity – is not only far from obvious. This critique of America First-ism could itself be dangerously wrong.

Here’s the gist of Mattis’ case:

“Nations with allies thrive, and those without them wither. Alone, America cannot protect our people and our economy.

“At this time, we can see storm clouds gathering. A polemicist’s role is not sufficient for a leader. A leader must display strategic acumen that incorporates respect for those nations that have stood with us when trouble loomed.”

“…An oft-spoken admonition in the Marines is this: When you’re going to a gunfight, bring all your friends with guns,” he wrote. “Having fought many times in coalitions, I believe that we need every ally we can bring to the fight.”

And there can be no question that these beliefs form the core of Mattis’ policy worldview. His letter to Mr. Trump declaring his resignation as Pentagon chief shows that this decision was driven largely by his prioritizing of alliances. His stated position is worth quoting at length:

“One core belief I have always held is that our strength as a nation is inextricably linked to the strength of our unique and comprehensive system of alliances and partnerships. While the US remains the indispensable nation in the free world, we cannot protect our interests or serve that role effectively without maintaining strong alliances and showing respect to those allies.

“Like you, I have said from the beginning that the armed forces of the United States should not be the policeman of the world. Instead, we must use all tools of American power to provide for the common defense, including providing effective leadership to our alliances. NATO’s 29 democracies demonstrated that strength in their commitment to fighting alongside us following the 9-11 attack on America. The Defeat-ISIS coalition of 74 nations is further proof.

“Similarly, I believe we must be resolute and unambiguous in our approach to those countries whose strategic interests are increasingly in tension with ours. It is clear that China and Russia, for example, want to shape a world consistent with their authoritarian model — gaining veto authority over other nations’ economic, diplomatic, and security decisions — to promote their own interests at the expense of their neighbors, America and our allies. That is why we must use all the tools of American power to provide for the common defense.”

“My views on treating allies with respect and also being clear-eyed about both malign actors and strategic competitors are strongly held and informed by over four decades of immersion in these issues. We must do everything possible to advance an international order that is most conducive to our security, prosperity and values, and we are strengthened in this effort by the solidarity of our alliances.

“Because you have the right to have a Secretary of Defense whose views are better aligned with yours on these and other subjects, I believe it is right for me to step down from my position.”

In fact, the letter’s reference to advancing an international order most conducive to U.S. interests also makes clear that Mattis is a card-carrying globalist. For the defining feature of this school of thought is that because the United States lacks the ability to defend and promote its essential goals on its own, it has no choice but to nurture and support global systems that will do these jobs for it – even if such policies degrade some of its own power and wealth.

I’m not saying that because he’s a globalist, Mattis is wrong and good riddance to him from a policy-making position. Instead, I’m saying that, typically for adherents to this school of thought, Mattis evidently doesn’t know, or refuses to acknowledge, the possibility of an alternative approach, one that relies above all on America’s own considerable strengths and advantages, to security, prosperity, and freedom. I made the case for such an approach last year in this article for The National Interest (which also pointed out that the President’s actions – lamentably – haven’t been nearly as America First-y as his rhetoric).

Equally disturbing, the months since his resignation last December, Mattis seems to have overlooked the continuing emergence of evidence undermining continuing faith in globalism. Just three of the most obvious:

(a) the determination of the major allied economies of Europe and Asia to keep fence-sitting in America’s economic and strategic conflict with China – in large part because so many of them make so much money supplying the PRC’s export-focused factories;

(b) the ongoing failure of most of these allies to pay any reasonable share of the common defense;

(c) the bitter economic conflict that’s broken out between Japan and South Korea, which mocks the idea that the American military can rely on any effective help from them against aggression from North Korea or China; and

(d) the major progress made by North Korea and China in developing the kinds of nuclear forces that have created an unprecedented and needless risk of nuclear attack on the American homeland – needless because the wealthy countries anchoring the U.S. alliance system in East Asia refuse to build adequate defenses for themselves. In other words, tightly linking America’s fate to such deadbeats could wind up incinerating a major American city…or two…or three. 

So welcome to the foreign policy/grand strategy debate, General Mattis. Now how about addressing its most difficult questions seriously rather than simply repeating decades-old globalist mantras?

Following Up: Sign the Deal – then Seize the Border Security Initiative

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border security, border wall, Congress, crime, criminal aliens, Defense Department, Democrats, detention, Following Up, government shutdown, ICE, illegal aliens, Immigration, Immigration and Customs Enforcement, national emergency, shutdown, Trump

From what’s known of it, I’m as angry about the border security deal reached last night by Congressional negotiators to avert a new partial federal government shutdown as much as any immigration realist and/or supporter of President Trump. Even so, I would urge the President to sign it. (If he can win a few small improvements over the next day or two, as he’s just suggested he’ll seek, fine – but nothing achievable is worth sinking the agreement.) Then I’d recommend that he move to keep his promise that “we’ll be building the wall anyway” by using statutory authority to use Defense Department and other federal assets and resources to engage in barrier construction and secure the border in various other ways. In addition, the Trump administration should redouble efforts to keep his opponents on the defensive politically by shining the spotlight even more brightly on border security gaps left wide open by deal provisions they’ve insisted on.

I know that in yesterday’s post I argued that the Congressional Democrats, who have increasingly made clear their desire to gut meaningful border security completely, would both own a new shutdown morally (in terms of responsibility for government workers and contractors temporarily denied paychecks) and possibly pay a heavy price politically. The trouble is, that contention assumed that the Democrats’ latest cynical gambit, a new, goalpost-moving demand to shrivel (further) the federal government’s ability to detain apprehended illegal aliens – including surging numbers of border crossers – until their status hearings are held, would prevent the negotiators from reaching any agreement.

Consequently, any number of such aliens, including convicted criminals, would be released into American society, with little reason to believe many of them would risk a deportation decision (which would not be first for many). The result, as I wrote yesterday, would be a big victory for the Democrats’ principal goal of maximizing the number of migrants who can set foot on American soil to begin with, who consequently could avail themselves of the full range of legal due process protections to which everyone within U.S. territory is entitled, who would be released before their status hearings, and who would be scot-free to live and work in the United States until the Open Borders crowd could implement yet another amnesty.

Instead, the negotiators came to a conclusion that they, at least – if not necessarily many in their respective parties – could accept. There’s no denying that its threadbare reported barrier appropriation figure ($1.375 billion) would leave the current border security situation just about as unacceptable as it is today. So would the reported new quota on detention beds, which represent a big part of Washington’s ability to ensure that individuals arrested for immigration-law and related transgressions show up for hearings.

Final judgment should be withheld until the official text of the deal is released – especially on the beds issue. But some of the worst possible outcomes – from an immigration realist perspective – appear to have been avoided. In particular, although previous votes by Democrats so far haven’t been enough to prevent closet Open Borders supporters like House Speaker Nancy Pelosi from declaring walls to be “immoral,” the new agreement will make this childish position more difficult than ever to take. In addition, the current number of border detention beds is being cut, but not, it seems, by nearly as much as the Democrats recently sought, and the Immigration and Custom Enforcement (ICE) agency apparently will retain flexibility in their location.

Further, as its spokespeople have insisted, there’s a strong argument that President has ample legal authority to build and strengthen more in the way of barriers than the deal approves – even without taking the highly controversial step of declaring a national emergency. For example, as noted by one of my Twitter followers (“TruthHunterMan”), in a variety of circumstances, federal law states that “The Secretary of Defense may provide support for the counterdrug activities or activities to counter transnational organized crime of any other department or agency of the Federal Government or of any State, local, tribal, or foreign law enforcement agency.”

Moreover, this statute specifies that one of the purposes for which this assistance may be provided include “the transportation of supplies and equipment, for the purpose of facilitating counterdrug activities or activities to counter transnational organized crime within or outside the United States” and, more specifically, “Construction of roads and fences and installation of lighting to block drug smuggling corridors across international boundaries of the United States.”

In addition, as stated by White House Acting Chief of Staff Mick Mulvaney, “We will take as much money as you can give us and then we will go find money someplace else legally in order to secure that southern barrier.” So let the search intensify.

Finally, the Trump administration has done a fair job of publicizing the dangers to public safety posed by inadequate border security, but much more is possible. For instance, couldn’t the administration vividly illustrate how limits on detention are forcing the release of dangerous aliens by publishing on a regular basis the names of these individuals and the charges against them? And maybe some mass releases could be conducted regularly, too – with officials reading this information to broadcast news audiences as the migrants in question are set free? That would sure be Must-See TV. 

This strategy would have the added virtues of freeing federal workers – especially low-wage workers employed both directly and indirectly through contractors – of the threat of real economic hardship; of avoiding the forced labor situation that results from requiring essential workers to report to their jobs even if their departments aren’t funded; and of ensuring that the quality of vital services like air traffic control and Department of Homeland Security missions including Coast Guard patrols isn’t dangerously degraded.

Even passage of the latest full Trump proposal wouldn’t have strengthened border security much in the near future. So signing the Congressional compromise clearly wouldn’t produce a fatal setback. The main challenge now before the President is to flip as much of the script as he can, and capitalize on all the opportunities before him to secure as much of the border as America can ASAP.

Our So-Called Foreign Policy: Why Mattis Shouldn’t be Missed

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alliances, allies, America First, Defense Department, defense manufacturing base, deterrence, free-riding, globalists, James Mattis, nuclear war, Our So-Called Foreign Policy, steel tariffs, Trump

Boy! Go away for a few days around the holiday season and the whole world seems to turn upside down! (Especially during the Trump era?) For the purposes of this column, I’m thinking of the resignation of Defense Secretary James Mattis and his “Don’t forget to write” replacement by the President – although of course adding to the sense of tumult have been Mr. Trump’s angry tweets about the Federal Reserve and the stock market swoon that has partly resulted.

Not that the reactions of the nation’s chattering classes to the Mattis departure haven’t been entirely predictable. A prominent figure publicly chides the President, and he’s practically canonized by establishment politicians and their Mainstream Media spokespeople. The more so if he’s a former Trump official. (Google, e.g., “Tillerson, Rex.”) And major histrionics are always added when the dearly departed have been designated the “adults in the room” – i.e., familiar, experienced (and therefore automatically venerated) policy hands who supposedly are the last lines of defense against Trump-induced catastrophes.

But even at a time when Trump Derangement Syndrome has become epidemic, the Mattis-related lamentations stand out for numerous reasons. First, although Mattis’ performance as a battlefield commander has been outstanding – and deserves the respect and gratitude of all Americans – show me the evidence that he’s been a great or even OK leader of the Pentagon. Spoiler alert: There is none. In fact, in two important respects, Mattis has underwhelmed, at best.

He’s displayed absolutely no interest in strengthening the nation’s domestic defense manufacturing base – a vital challenge considering how dependent such production has become on parts, components, and material made in China, an all-too-likely adversary. In fact, Mattis badly failed the President during the early stages of developing the administration’s steel tariffs. In the Defense Department’s official memo commenting on the President’s decision (sought as part of an interagency review undertaken before the final announcement), Mattis never told his boss that Canada is officially considered part of the U.S defense manufacturing base. So levies on Canadian steel justified by national security considerations arguably made no sense.  (Unfortunately, the full Mattis memo is no longer on-line.)

Nor is there any evidence that the Defense Department under Mattis made any progress in reducing its levels of waste, fraud, and abuse. What we do know now based on an official report is what everyone knowledgeable about the subject has known for decades: the scope is massive. Mattis deserves credit for approving this report – the first audit the Pentagon has ever conducted of its own (even more massive) operations. But he served for nearly two years, and the department continued to be poorly run in too many respects.

Mattis’ performance was even less impressive as a strategist. For all his expertise in fighting wars and otherwise deploying forces once the relevant decisions have been made, he’s demonstrated no expertise in helping to figure out what conflicts and threats the nation should prepare for and what interests are essential to defend or promote. And that’s a big problem because, although the Secretary of Defense is far from the only presidential adviser responsible for providing input in the periodic process of developing the country’s official foreign policy strategy, he’s one of the principals.

Worse, everything we know about Mattis’ contributions – the essence of which was made unmistakable in his resignation letter – shows that he remained doggedly devoted to the globalist dogma that the key to America’s security and prosperity is maintaining and advancing the current international order, and especially the nation’s core military alliances. Viewed in a vacuum, these views are eminently defensible. Viewed the (essential context) of recent and present circumstances, they’re a formula for continuing to coddle chronic economic protectionists and defense free-riders, and for open-ended military involvement in hopeless tar-baby regions like the Middle East. At worst, they’re a recipe for exposing the United States to needless military risks precisely because allied free-riding (in the form of pitifully inadequate spending on their own conventional military forces) despite burgeoning aggressiveness from China and Russia has put a growing premium on America’s nuclear forces to maintain deterrence.

Which leads to the greatest irony surrounding the role of the globalist advisers President Trump originally hired and those he still retains: The globalist establishment keeps propagating the meme that they’ve been all that have been preventing a hair-brained chief executive from blowing the entire world to kingdom come. But the greatest dangers (indeed, the only dangers) that the country could be drawn into a nuclear conflict come from the globalist policy of seeking to protect allies or regions marginal to U.S. interests (South Korea, the new Baltic and East European members of NATO) from adversaries that can or will soon be able to hit the American homeland with nuclear weapons.

Only somewhat more defensible is the globalists’ determination to protect South China sea lanes from Chinese designs even though their favored trade policies have greatly enriched and strengthened China for decades – and even though most of the local beneficiary economies have victimized America’s with their mercantile trade policies.

In the process, Mattis and his fellow globalists have either utterly neglected or arrogantly savaged the kinds of America First alternatives that the President has rhetorically championed (though, as argued comprehensively in this article, not carried out consistently). In other words, he has portrayed as impractical or ignorant – along with reckless – a far superior strategy that views America’s strength, wealth, and favored geographic position as the best guarantors of its safety and well-being.

That’s the real reason for the doom- and gloom-saying sparked by Mattis’ departure. And why I wish he had never been appointed in the first place.

Following Up: More on the Trump Tariffs

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aluminum, Australia, Canada, David J. Lynch, Defense Department, defense manufacturing base, downstream industries, European Union, Following Up, George W. Bush, Gordon Hanson, James Mattis, Kentucky, manufacturing, Mitch McConnell, multiplier, Paul Krugman, Paul Ryan, steel, steel-consuming industries, tariffs, terrorism, The New York Times, Trade, Trump, U.S. Business and Industry Council, United Kingdom, Washington Post, Wisconsin

I could spend all day today rebutting ignorant, biased, and simply inane commentary on President Trump’s Thursday announcement that stiff tariffs will be imposed on U.S. imports of steel and aluminum (along with watching the plethora of college hoops on TV today!). Instead, I’ll offer some follow-on thoughts to the tariff talking points I posted yesterday.

>The European Union in particular seems outraged by the Trump decision, and has threatened to retaliate with tariffs on its own on a wide range of products, including some from Wisconsin and Kentucky. These of course happen to be the home states of House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. It’s an understandable, and certainly clever, impulse, and in 2003, something like it succeeded in convincing former President George W. Bush to lift steel tariffs he had imposed 18 months earlier.

Of course, Bush 43 was no Trump. He was a committed free trader and globalist, and/or agent of of America’s powerful corporate offshoring lobby. But here’s something that needs to be considered by Messrs Ryan, McConnell, and other lawmakers at whom the Europeans or other powers may take aim: What if, shortly after September 11, Osama Bin Laden had threatened to destroy major targets in their home states or districts unless the United States withdrew militarily from Afghanistan and left him alone. Would the affected legislators have run to the White House to plead for an abandonment in the war on terror? Not likely.

I know that war and economics are different (although given the importance of economic strength as a source of military strength and overall national success, the similarities and overlap are widely overlooked). But don’t doubt for a minute that American politicians’ reactions to these European threats will be watched closely in all the world’s capitals, and that signs of weakness will be factored into foreign decisions to abide by or violate current trade agreements at the U.S.’ expense, or take other measures to gain advantage in their own, American, or third-country markets that clash with free market and free trade norms.

So here’s hoping that American Members of Congress and Senators will show some backbone, and make clear to the nation’s trade partners that they won’t permit themselves and the country at large to be hanged separately.

>Speaking of hanging separately, quite naturally, U.S. steel- and aluminum-consuming industries are concerned that their global competitiveness will be harmed if they’re forced to use more domestic metal in their products. They need to keep two considerations in mind. First, if foreign governments are permitted by Washington’s inaction to dump major American industries like aluminum and steel out of existence, consuming sectors would be next in line. 

Second, there is indeed no inherent reason to make the consuming industries pay any penalty at all. When I was at the U.S. Business and Industry Council, which represented many steel-consuming companies and industry groups, we persuaded them that the best solution would be tariff protection for them as well. The tariff complaints coming from such sectors today reveals that the Trump administration hasn’t put this possibility on the table. That’s a major missed opportunity, and the President should realize that such offers not only can build support for the steel and aluminum tariffs. They can also expand the constituency for broader America First trade policies. (New Trump statements on possible auto tariffs make clear exactly the types of steps needed, although as is usually the case, they work best when applied across-the-board.)   

>Speaking of missed opportunities, here’s another (big) one – the handling of some allied countries’ indignation about being treated as threats to America’s national security because of their steel and/or aluminum shipments. In several major cases, these complaints could have been prevented had the administration recognized that Australia, Canada, and the United Kingdom are defined by American law as part of the nation’s defense “technology and industrial base.”

I’m not necessarily a supporter of this policy, but since it exists, these countries have an entirely legitimate point regarding their possible inclusion in the metals’ tariff regime. And the Trump administration should have explained to them that they were of course being exempted. Moreover, the Defense Department should have told the rest of the administration about the legal and legislative situation. Yet Pentagon chief James Mattis’ memo to his administration colleagues outlining his department’s position on the tariffs never mentioned it.

Not that these allied countries are entirely blameless for the row. They could have raised the issue when the prospect of sweeping U.S. tariffs was first raised. But all indications are that they preferred to grandstand.

>As should now be expected, the media coverage of the tariff controversy has often veered off into economics and policy La-La Land. Two of the funniest examples I’ve seen so far (and they’re nearly identical): criticizing the announced tariffs because they only boast the potential of bringing back high-value manufacturing to the United States instead of lots of industrial jobs.

Think I’m kidding? Here’s Washington Post correspondent David J. Lynch: “If tariffs prompt companies to move production back to the United States, they would likely opt for highly automated plants that require fewer workers. Trump’s tariffs ‘would bring back 21st-century factories where we lost 20th-century factories,” [economist Gordon] Hanson said this week at the National Association for Business Economics conference in Washington.”

Here’s no less than Nobel Prize-winning economist and New York Times columnist Paul M. Krugman: “[T]he tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.”

What both authors are somehow missing is how manufacturing is valuable for much more than high wage employment. It’s long been the nation’s leader in productivity growth. It generates nearly 69 percent of private sector American spending on research and development. And don’t forget its high employment and output multipliers – which mean that each dollar of manufacturing output punches far above its weight in generation production and jobs elsewhere in the economy.

That last point is particularly relevant to Krugman’s claim about labor’s low share of national incomes. The manufacturing employment multiplier tells us that adding to industry in America – including capital-intensive industry – will promote employment in related sectors like logistics, plus revitalize the retail and other service sectors of the towns and cities and counties where the new factories are built. Those jobs may not pay as well as the manufacturing jobs lost. But they’re sure better than the economic death that often results when communities lose their factories.

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

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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”?

Our So-Called Foreign Policy: At the WTO, Europe Claims a Right to Free Ride

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Airbus, alliances, Boeing, Charles Dickens, Defense Department, EU, European Union, foreign policy establishment, free-riding, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, subsidies, Trade, trade law, Trump, World Trade Organization, WTO

Charles Dickens famously observed that the law can be an idiot. Last week’s World Trade Organization (WTO) ruling on U.S. and European Union (EU) aerospace subsidies reminds that American alliance policy can be idiotic – and in a key respect has been for decades. The fault here lies not with the WTO – which is hardly beyond criticism. Instead, the problem entails an American approach to international security relationships that continues a decades-long record of enabling brazen free-riding even under the current U.S. administration – which so far has decried this practice only rhetorically.

Interestingly, the WTO decision last Friday looks like a big win for American aerospace giant Boeing and a big loss for its EU rival Airbus. The trade body ruled as still illegal only one of the original 28 subsidies provided Boeing by Washington state and the federal government that were challenged by Airbus. According to Airbus, the WTO agreed with its allegation that some of the other 27 means of Boeing support were subsidies, but Boeing says that since the ruling determined that these payments had not harmed Airbus, they can remain in place. Airbus disagrees, so expect more litigation.

But here’s what’s completely outrageous. Some of the subsidies Airbus successfully challenged – at least on paper so far – were U.S. Defense Department subsidies. It’s jaw-dropping enough to recognize that Airbus gets military support, too. What’s worse is that so much of the Pentagon money handed over to Boeing (and other defense contractors) has been spent on weapons and other military systems that the United States would not need at all or in such quantity either if Washington hadn’t taken on any role in protecting Europe for decades, or if the Europeans bore anything like an appropriate burden for the own defense.

And don’t forget: For decades, even most U.S. Presidents and other foreign policy establishmentarians who have assign supreme value to continuing current transatlantic security arrangements agree that too many European members of the North Atlantic Treaty Organization (NATO) have been shirking. Talk about biting the hand that shields you.

It’s important, however, to keep in mind who’s mainly to blame. It’s clear that the Europeans deserve no high marks for either gratitude or loyalty. But it’s also clear that their actions can be reasonably portrayed as legitimate efforts to maximize their own self interests – reflecting the equally reasonable judgment that these gambits long have been good bets to succeed.

What the American public needs to ask is (a) why their leaders have handled alliance relationships so ineptly as to have created expectations of free-riding that the WTO case shows are now seen as nothing less than a right to free-ride; and (b) whether the avowedly transactional Trump administration will view the EU defense subsidy charges as a long overdue opportunity to say enough’s enough.

Our So-Called Foreign Policy: An Asia Grand Strategy that Still Looks Like America Last

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Asia, Barack Obama, China, Defense Department, export controls, John McCain, military spending, neoconservatives, Our So-Called Foreign Policy, pivot, technology transfer, The Wall Street Journal, Trump

It looks like the Trump administration is going All Neocon on its Asia grand strategy. Or is it All Obama? Interestingly, both approaches have shared the same main features, and depressingly, both are dangerously incoherent and disturbingly resemble the course that Mr. Trump apparently has chosen to follow. .

The essence of neoconservative strategy in Asia consists of bloviating about the risks to America’s national security from China in particular, pushing for a stronger American military response, and with equal vigor backing economic policies that inevitably boost China’s military strength. And the quintessential example is Republican Senator John McCain of Arizona.

McCain has voted for his entire career in favor of the U.S. trade policy decisions that have enabled China to amass literally trillions of dollars worth of trade surpluses with the United States, and therefore finance an enormous military buildup that he himself has warned directly threatens American interests in Asia. He’s periodically voiced concerns about the lax U.S. export controls that have enabled China to secure some of America’s best defense-related technology. But he’s never sponsored any steps capable of solving this problem.

What McCain has focused on has been boosting military spending and stationing more of these forces, in large part to counter burgeoning Chinese ambitions. And recent Trump administration moves make clear that the president and his top advisers have been listening. As The Wall Street Journal reported earlier this month:

“The Pentagon has endorsed a plan to invest nearly $8 billion to bulk up the U.S. presence in the Asia-Pacific region over the next five years by upgrading military infrastructure, conducting additional exercises and deploying more forces and ships….The proposal, dubbed the Asia-Pacific Stability Initiative, was first floated by Sen. John McCain (R., Ariz.) and has been embraced by other lawmakers and, in principle, by Defense Secretary Jim Mattis and the head of U.S. Pacific Command, Adm. Harry Harris. Proponents haven’t developed details of the $7.5 billion plan.”

The Journal account goes on to remind readers that the Obama administration had pursued its own military “pivot” to Asia, but that it was “disparaged by critics as thin on resources and military muscle.” And of course, the former president refused to respond effectively to China’s predatory trade practices, and only very late in his second term began rethinking flood of advanced defense-related knowhow to the PRC.

President Trump has of course spoken repeatedly of acting forcefully to overhaul America’s China trade policies. But his administration’s actions so far have fallen far short of this mark.

The mind-blowing upshot: In a military conflict with China, the United States forces could find themselves fighting against, and taking casualties from, Chinese units and weapons that have been paid for and researched by their enemy. Is that the kind of first so many Americans voted for?

Im-Politic: Flynn & Abe Reveal the Price of a Thinly Staffed Trump Administration

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Defense Department, Gary Cohn, Im-Politic, James Mattis, Japan, Michael Flynn, National Economic Council, National Security Council, Shinzo Abe, Stephen Miller, Steve Bannon, Trade, Trump

During the last presidential campaign, the Mainstream Media ran so many stories about the Trump campaign being in various stages of “disarray” at various times that some skepticism was in order when such articles resumed popping up following Mr. Trump’s presidential victory and inauguration. In addition, I kept asking myself why any official with any loyalty to Mr. Trump would even speak with mainstream reporters like The New York Times‘ Maggie Haberman, who was so hostile to their boss for so long that she was considered a “surrogate” by top aides to candidate Trump’s main general election rival, Hillary Clinton.

At the same time, as so often remarked, running for office is hardly the same as serving in office, especially when the presidency is involved. And the resignation of an official so high level as national security adviser Michael Flynn after only about three weeks into an administration is a glaring sign that the president is well behind the curve in getting his organizational act together. Unless he raises his game dramatically very soon, his thick teflon coating could start wearing very thin, and even at this early stage, “failed presidency” claims will look disturbingly on target.

But even if the transition to a post-Flynn presidency goes relatively smoothly, and no other fiascoes break out, this latest episode vividly reminds of a big challenge President Trump will keep facing throughout his time in office, and one that I’m not totally confident he’ll solve in a satisfactory way.

Why not? Because he’s never had a large cadre of high-quality advisers capable of staffing even the very top levels of a new administration. Nor is one is likely to appear any time soon. For nationalist critics of recent American trade, broader globalization, and foreign policies have never attracted anywhere near the kind of funding that’s needed to create the kind of counter-establishment that can nurture a big enough core of knowledgeable specialists representing that perspective.

In fact, the nationalists’ performance stands in stark and sad contrast to that of other interests in years past. The leading example is mainstream conservatism – which recognized the need for such institutions to overthrow or at least modify what they saw as a dangerously liberal policy consensus reigning in Washington and in national politics during the post-New Deal decades.

As a result, if Mr. Trump is to halt an powerful downward spiral in his presidency, he may well need to rely even more heavily than at present on cabinet and key sub-cabinet and other aides who hold much more conventional views than his – and those of his base – on key issues like trade and immigration that largely vaulted him into the Oval Office. Just look at the president’s recent summit with Japanese Prime Minister Shinzo Abe for evidence of how this dilemma has already affected U.S. policy in ways that Trump backers can’t possibly support.

Precisely because Japan has been a leading predatory trading power for so long, its economy-wide trade barriers and other mercantile practices had drawn Mr. Trump’s ire during the campaign. In addition, Japan was (rightly) portrayed as a classic defense free-rider – a country that was able to skimp on its own military spending because of its guarantee of American protection. And candidate Trump went even further than most critics in questioning the bilateral security relationship, suggesting that because of the mounting nuclear threats from both China and North Korea, Washington’s decades-old promise to defend Japan against any and all attacks posed increasingly alarming nuclear risks to the United States.

Japan clearly was so worried about President Trump’s views that Abe rushed to the United States right after the November vote and became the first foreign leader to meet President-elect Trump in person. Abe’s trip last week, moreover, made him the second foreign leader to see President Trump in person once his term began. (Britain’s Theresa May was the first.)

Judging not only from the official record of the visit, but from the judgment of a group of Japan policy specialists that convened in Washington yesterday, Abe achieved both of his major objectives – and then some. President Trump pledged to continue the policy of defending Japan through thick and thin (“100 percent”), and Abe successfully deflected significant U.S. trade pressure – at least for the time being.

As made clear by Abe’s detailed and decisive statements during his visit, one main reason for his triumph was preparation – always an urgent necessity for Tokyo since, despite all the traditional American establishment boilerplate about interdependence, the United States has always been much more important to Japan than vice versa. But three other main reasons bring us back to the “Flynn problem.”

First, Abe plainly was able to fill a policy vacuum created both by the Trump administration’s growing pains and its thin staffing. Second, the American preparations made for the Abe meetings, including putting together briefing materials, were dominated by holdover bureaucrats who overwhelmingly support the longtime status quo in U.S.-Japan relations. And third, many of the top aides Trump has selected strongly support the status quo, too. These include Secretary of Defense James Mattis and National Economic Council Chair Gary Cohn. The former is general recently retired from an American military with a big vested psychological and bureaucratic stake in maintaining massive U.S. forward deployed forces in East Asia. The latter is a former senior executive at Wall Street mainstay Goldman Sachs.

Not that this kind of gloom and doom scenario (from a Trump-ian standpoint) is inevitable. Although high quality nationalist policy specialists are hardly abundant, they can be found. Moreover, it’s possible that President Trump could make clear to his more establishment-oriented advisers that he expects them to reflect his own iconoclastic leanings. In addition, aides that plainly represent his campaign positions (and of course contributed substantially to formulating them) could be given the whip hand bureaucratically, in order to drive this message home.

But of course this approach’s success will depend largely on the establishment figures following this lead – and not walking away from jobs that most of them plainly don’t need financially or or professionally. At the same time, even if Mr. Trump’s more conventionally minded advisers stay on in this atmosphere, would there be enough loyalists, and enough competent loyalists, to discipline them effectively? I don’t know if the aides most strongly supportive of the president’s vision, chiefly White House policy chief Stephen Miller, and chief strategist Steve Bannon, are grappling with these issues. I do know that they’ll need to if the Trump presidency is to achieve its promise.