Our So-Called Foreign Policy: U.S. Tech Dependence on Taiwan is Even Worse Than You Think

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China, defense, defense manufacturing, electronics, Eric Lee, national security, Our So-Called Foreign Policy, semiconductors, supply chain, Taiwan, Taiwan Semiconductor Manufacturing Company, tech, The Diplomat

As known by RealityChek regulars, I’m really worried about the threat of a Chinese takeover (militarily or political) of Taiwan. That’s overwhelmingly because the island is home to the world’s leader in producing cutting-edge computer chips (Taiwan Semiconductor Manufacturing Company, or TSMC), and these devices will be the brains of future cutting-edge militaty systems and thus vital to U.S. national security as far into the future as anyone can see.

Sure, U.S.-owned companies like Qualcomm, Apple, and Nvidia still design lots of the world’s most advanced semiconductors. But they don’t produce them, and if you can’t manufacture these items (and no U.S.-owned firms can achieve this goal either at their domestic or foreign factories), you have nothing to actually stick into your missile defenses and jet fighters and radar arrays and communications networks.

It turns out, however, that I didn’t know the half of it about Taiwan’s electronics industry and America’s safety and independence vis-a-vis China. As made clear in this report today in The Diplomat, these Taiwanese companies – all located thousands of miles from the United States but only 100 miles from the People’s Republic – are major players in a wide range of both semiconductors and related electronics components that are used in advanced weapons and military systems right now, and that are certain to be keys to their successors.

Even concerning products for which the Pentagon has done a reasonable job helping to maintain adequate U.S.-based output, Chinese control of Taiwan would result in Chinese access to Taiwanese counterparts that are at least as effective – and whose manufacturers in fact perform some of the production for some of the American-owned firms concerned.

Just as bad: “Reasonable job” is a good description of Washington’s performance in terms of ensuring enough manufacturing of these sophisticated electronics during peacetime. But as Diplomat author Eric Lee observes, war-time or the run-up to a conflict could be a different story altogether. Therefore, the reliance on Taiwanese output for any needed surge production a potentially “vulnerable chokepoint for American forces.”

Nor is the situation likely to improve anytime soon, even if Congress does get off its duff and finally pass an acceptable version of legislation aimed at incentivizing much more advanced semiconductor manufacturing at home. For the necessary factories (known as “fabs”) cost billions of dollars and take years to construct. Indeed, as Lee notes, their price tag for one that’s state-of-the-art is about the same as for one of America’s biggest aircraft carriers. Further, as he points out, however much the U.S. government may be willing to provide semiconductor makers with subsidies of various kinds, TSMC by itself will be spending much more. So it’s likely to remain superior in the production of the most powerful chips.

Lee advances an intriguing idea for at least improving the situation – creating a “U.S.-Taiwan Senior Level Steering Group for Supply Chain Security and Defense Industrial Cooperation.” Its mission: more closely coordinating and integrate U.S. and Taiwan defense and technology sectors in order to jointly develop and produce the defense systems of the future and their most valuable components.

At the same time, this step would create its own risks. For China views Taiwan not simply as an asset it would very much like to possess. It’s seen as a renegade province that must be bought back under Beijing’s rule, not according to any particular schedule to be sure, but by force if necessary. That’s largely why the United States has shied away from officially recognizing the island as an independent country, let alone forming an alliance. As a result, how could the cooperative venture Lee proposes be formed without establishing such a relationship? And even if Washington threaded this needle in its own mind, would the Chinese recognize view the difference as meaningful, and simply accept the new status quo? Or would they conclude that a red line had been crossed and attack?

No one can outside Chinese leadership circles can say for sure. And maybe El Supremo Xi Jinping doesn’t yet know himself. What is completely clear, though, is that U.S. failure to maintain leadership in one of the most important industries of the future yet developed has left Washington – and the American public whose interests it’s supposed to safeguard – with only lousy and dangerous policy alternatives, and slightly less lousy and dangerous altenatives.

P.S. In the interests of full disclosure, you should be aware that I hold a not-trivial long position in TSMC stock. And thanks to friend and electronics manufacturing specialist Chris Peters for flagging this Diplomat article for me.

(What’s Left of) Our Economy: “Joe Science” – Finally?

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Barack Obama, Biden, Bill Clinton, Congressional Research Service, defense, dual-use technologies, George W. Bush, infrastructure, National Science Foundation, research and development, science, scientists, technology, {What's Left of) Our Economy

President Biden is a champion of science – everyone knows this, right? He promises to follow it on major issues like the CCP Virus. He’s pledged to boost Washington’s funding of research and development. He’s blasted his predecessor for neglecting this responsibility. (See here for examples of the last two statements.)  And the scientific community the world over is brimming with confidence that greater respect from the White Houe and more resources are on the way.  (See, e.g., here and here.)

Judging from his remarks unveiling his big new infrastructure plans, it looks like Mr. Biden will indeed bolster the federal government’s support for science and technology. And that’s great news, because such efforts will be crucial to meeting any number of big public policy challenges and seizing equally important opportunities. Dealing with enviromental threats, beating back the China challenge, and boosting the nation’s productivity – its best hope for raising living standards on a sustainable basis – are just a few that come to mind.

And if you’re one of those who believe the Feds can’t do anything right, you need to learn some history. Washington has a formidable record both on the basic research and applied research sides. (Here’s an impressive list from America’s National Laboratories system, and it doesn’t even include major advances fostered by other agencies in medicine, agriculture, aerospace, and information technology – some of which are summarized here.)

Mr. Biden also is unmistakably right about America having fallen behind on these fronts. But what he hasn’t told you, and what his scientific backers seem to have forgotten, is that in the last roughly quarter century, federal science and technology spending in toto never stagnated as much as during the administration he served as Vice President.

The data below are calculated from the annual research and development budget requests made by U.S. Presidents going back to the Clinton years. (For the data from 1998 through 2015, see the National Science Foundation reports archived here.  For the later data years, see the annual Congressional Research Service reports here, here, here, here, here, and here.)

Since Congress has the authority to raise or lower these requests, these figures don’t measure actual federal research and development spending by year. But they do shed light on how much various Presidents sought to spend, and by extension how greatly they valued nurturing such activity, how much they believed they could convince Congress actually to appropriate – and, by implication, how hard they were willing to push to achieve these goals.

In this vein, during his second term, Bill Clinton’s overall annual federal research and development budget requests rose by a total of 15.54 percent.

During the eight years of George W. Bush’s presidency, such Executive Branch requests increased by 43.91 percent.

For the eight years of Barack Obama’s administration? These requests climbed by 6.56 percent.

And under supposed science denier Donald Trump? They were up 20.82 percent.

Some important qualifications need to be made here. The big Bush increases were driven by major new asks for defense-related R&D (think “September 11,” “Global War on Terror,” and “Iraq”). Indeed, during his administration, such spending grew from 52.47 percent of total federal research and development spending to 58.97 percent. And when you draw this distinction, the Obama (-Biden) record looks better if you value civilian research over military. Here’s how recent Presidential requests compare on that score.

Clinton civilian requests: +25.67 percent

Bush civilian requests: +24.24 percent

Obama civilian requests: +34.26 percent

Trump civilian requests: +19.07 percent

But the Obama-(Biden) record doesn’t look that much better, especially than the Trump record. After all, that 34.26 percent increase took place over eight years, not four. And the Obama-Bush comparison, and other Obama comparisons, need to take into account the ever-blurring line between defense and non-defense-related research and development, because so many new technologies can be used in both fields and spur progress in both. That is, advances in defense knowhow can and do produce spin-off effects in the civilian world, and vice versa.

It still remains to be seen how the Biden infrastructure plan translates into specific research and development budget requests. But for now at least, Americans can be grateful that the Joe Biden of 2021 seems to be much more of a science and tech enthusiast than the administration he worked for a decade ago. 

By the way, special thanks to Rafal Konapka, who first brought the recent federal research and development trends to my attention.

 

Making News: More Press Cites and a D.C. Trade Debate Tonight!

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China, defense, defense trade, Donald J. Boudreaux, Gordon G. Chang, IndustryToday.com, Making News, tariffs, The American Conservative, The Fund for American Studies, Trade

I’m pleased to announce that my views on U.S.-China trade relations have been cited once again in one of Gordon G. Chang’s pieces on the subject. Click on to this link to read the American Conservative article – which anticipates that my recommendation that the United States start to disengage economically from the People’s Republic will steadily become more mainstream.

In addition, IndustryToday.com reprinted yesterday’s post on the detailed May U.S. trade figures.  Click here to have a look.

And last, but certainly not least, tonight I will be participating in a debate on using tariffs to protect U.S. defense and defense-related industries.  It will take place tonight on the George Washington University campus in Washington, D.C. and is sponsored by The Fund for American Studies.  My interlocutor will be Prof. Donald J. Boudreaux, an economist at the Mercatus Center at George Mason University and a strong advocate of conventional trade policies.

The event isn’t open to the general public, but it will be recorded, and I’ll post a link to the streaming video as soon as it’s available.

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

Making News: Back on Nationally Syndicated Radio on Trump Tariffs — & More!

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alliances, allies, burden sharing, defense, Gordon G. Chang, IndustryToday, John Batchelor Show, Making News, manufacturing, tariffs, Trade, Trump, wages

I’m pleased to announce a return engagement on John Batchelor’s nationally syndicated radio show tonight. The segment, slated to start at 10 PM EST, will deal with the new tariffs President Trump has imposed on imported solar panels and washing machines, and whether these steps will usher in a new era of U.S. trade policymaking.

You can listen live at this link to what’s sure to be a great discussion involving John, co-host Gordon G. Chang, and me. And as usual, I’ll post a podcast of the interview as soon as one’s available.

In addition, IndustryToday.com just posted my recent RealityChek item on wage stagnation in U.S. manufacturing. Click here to see it.

Moreover, that article referred to in yesterday’s Making News item about alliance defense burden-sharing can be accessed for free after all. Just click here.

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

Our So-Called Foreign Policy: A Good Trump Defense Speech – but Good Enough?

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2016 election, defense, defense budget, deterrence, Donald Trump, foreign policy establishment, Madeleine Albright, Mainstream Media, military, nation-building, Our So-Called Foreign Policy, The New York Times, Wilsonianism

Donald Trump has done it again! No, I’m not talking about the Republican presidential candidate blurting out a new insult or gaffe. I’m talking about yet another speech or set of remarks that has given the nation yet another opportunity to learn an important lesson about the essentials of a sound foreign policy.

Unfortunately, as in some previous instances, Trump didn’t capitalize adequately on this opportunity, and thereby sowed the seeds of confusion – especially in the ranks of a Mainstream Media too thoroughly imbued with and enthusiastic about establishment conventional wisdom to cover this subject objectively, let alone intelligently.

Trump’s latest chance to teach some badly needed diplomatic common sense came yesterday in his speech in Philadelphia on military readiness. Its two main points entailed a promise to increase American military spending greatly, and an attack on Hillary Clinton, his Democratic opponent, as an out-of-control, indeed “trigger happy,” global interventionist.

Almost instinctively, the establishment media, along with numerous national security types I follow on Twitter, claimed to have caught Trump in a major contradiction. As two New York Times correspondents put it, the maverick tycoon repeated his “at times paradoxical approach of using fiery oratory to promise a military buildup and the immediate destruction of the Islamic State, while also rejecting the nation-building and interventionist instincts of George W. Bush’s administration.”

In other words, Trump is by and large proposing spending huge – and possibly unaffordable – sums to pay for a military that he doesn’t intend to use much. The clear implication: Could anything be more stupid and wasteful?

In a narrow sense, Times reporters Ashley Parker and Matthew Rosenberg committed the common but nonetheless inexcusable mistake of assuming that someone who opposes military or other forms of intervention anywhere must logically oppose them everywhere. And vice versa. It’s as if every area of the world or every situation faced by the United States presents threats or opportunities of exactly the same magnitude.

In a more fundamental sense, however, the Times‘ critique harkens back to a question posed by Clinton-era Secretary of State Madeleine Albright, when she challenged the first Bush administration’s broadly circumspect approach to using force abroad: “What’s the point of having this superb military you’re always talking about if we can’t use it?” And this view is just as ditzy as the above all-or-nothing position.

To anyone even minimally schooled in national security strategy, it should have been embarrassingly and immediately clear that Albright hadn’t heard of the concept of deterrence. It’s been the overriding reason that countries, including the United States, have developed and maintained nuclear forces after America dropped atomic bombs in Japan in World War II.

But deterrence alone is also entirely valid justification for building and maintaining a strong conventional military. And it’s in no way intrinsically incompatible with the kind of relatively non-interventionist foreign policy instincts Trump has revealed. Indeed, as I have written, no approach to world affairs could make more sense for a country as fundamentally secure and economically self-reliant as the United States.

It’s entirely possible that Trump is wrong in his specific assessments of America’s most important international interests and how best to defend and promote them. But his suggestion that military strength has major value in and of itself, and that this value has no intrinsic bearing on how active or passive the nation should be in the international arena, is beyond informed criticism.

Trump did use in this speech the phrase “Peace through strength,” which in other circumstances would make the point nicely. Ditto for the follow-on claim that “President Obama and Hillary Clinton have also overseen deep cuts in our military, which only invite more aggression from our adversaries.” Similarly, he resolved “to deter, avoid and prevent conflict through our unquestioned military strength.”

But to an electorate and a foreign policy establishment and a national press corps accustomed to equating strength with interventionism, it wasn’t close to satisfactory. And Trump himself compounded the confusion by repeatedly referring to tactics and goals suggesting that he buys this idea, too. Hence his references to achieving “a stable, peaceful world with less conflict and more common ground”; to “promoting regional stability, and producing an easing of tensions in the world”; to “[making] new friends, [rebuilding] old alliances, and [bringing] new allies into the fold”; to promoting “gradual reform” in the terminally dysfunctional Middle East”; to “promoting our system and our government and our way of life as the best in the world…”

None of these goals is objectionable in and of itself. In the abstract, they’re of course admirable. But without the kinds of “When?”, “Where?”, and “How much?” questions he never asked, these objectives degenerate into the kind of grandiose, and even reckless, Wilsonianism that Trump’s previous attacks on “nation-building” have indicated he opposes.

Nor is it comforting to assume that Trump and his advisers stuck these stock phrases into the speech to assure voters that he’s solidly traditional in key respects, or to reach out to those conservatives more enamored with American global assertiveness. For such rhetoric always threatens to raise expectations and set the kinds of interventionist traps into which even the most cautious presidents have fallen. (Unless you think Lyndon Johnson relished the prospect of sending 500,000 American soldiers into Vietnam?)

Trump still has several weeks to flesh out his foreign policy approach more coherently and more sensibly. He could also wind up waiting to start staging teachable moments until he’s installed in the White House. But given the pace and unpredictability of world events, he shouldn’t assume that time is an ally in this respect.

(What’s Left of) Our Economy: New Wrinkles in the Manufacturing Jobs Story

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defense, Employment, Jobs, Labor Department, manufacturing, productivity, recessions, Russell Roberts, technology, Trade, World War II, {What's Left of) Our Economy

Just when I thought there wasn’t a heckuva lot more I could learn about the general, long-term (downward) direction of manufacturing employment in America, I just learned something pretty significantly new. Even better, the information bears on the big ongoing national debate about whether most of the blame for U.S. manufacturing job loss should go to trade and trade policy, or to improved productivity and the substitution of technology for labor.

I looked into the matter after watching a recording of a television show about globalization after Brexit. One of the featured guests, economist Russell Roberts, made a statement that I knew is flat wrong: “[M]anufacturing employment has been falling steadily, but long before we had free trade agreements; goes back to the end of World War II.” A few moments later, he (sort of) suggested that he was really talking about a rather different measure – manufacturing jobs as a share of total jobs. In Roberts’ words, this figure has been “falling steadily” for “about 70 years.”

Because I didn’t have the details in my head, I went back to the official statistics, kept by the Labor Department, and saw that I was indeed right on the first score. In addition, even though Roberts (as I knew) was correct on the second, the actual figures tell a much more complicated story than his standard rehash of the conventional wisdom that technology is the main culprit. Here’s what I mean.

When it comes to the absolute numbers of manufacturing jobs in the United States, they are indeed down considerably since 1945. But what’s as important as it is under-appreciated is that between V-J Day (in August, 1945) and June, 1979, American manufacturing employment rose by nearly 38 percent. That’s a period fully half as long as the 70 years Roberts mentioned. In addition, though the June, 1979 level of 19.553 million represented the absolute peak of the U.S. manufacturing workforce, even afterwards, the sector enjoyed periods of job growth. That is, its decline wasn’t all that steady.

For example, between late 1982 – when a deep recession ended – through March, 1989, the economy boosted manufacturing employment by 8.21 percent. From July, 1993 (following another, shallower, recession) to April, 1998, manufacturing increased payrolls by 5.36 percent. And of course, since the employment bottom hit soon after the latest recession ended, through last month, manufacturing employment has rebounded by 7.36 percent.

Manufacturing, as a result, has never come close to that World War II aftermath employment level. But the data also make clear that the start of manufacturing’s jobs decline (mid-1979) coincides almost exactly with the point at which trade – and especially imports – began rapidly rising as a share of the total economy, as this chart illustrates.

The same trends have held in connection with manufacturing’s share of total employment. I compared the December figures going back to 1945, and found that from then through December, 1980, the percentage of all American non-farm workers (the U.S. government’s official employment universe) employed in manufacturing dropped from 32.03 to 20.50. That’s a fall-off of just under 36 percent. Since then, the decline has been much faster – from 20.50 percent to 8.53 percent, or 58.39 percent.

Manufacturing has also managed to raise its share of the national workforce in several stretches since 1945. These periods include 1949 to 1956, and the years 1959, 1961, 1964-1966, 1971 to 1973, 1976, and 1983. But since then – and shortly after trade’s role in the economy began soaring – manufacturing has never repeated this feat.

Yet these statistics are telling us something else crucial about manufacturing employment and where it fits into the national economy. They’ve depended not only on trade and technology/productivity, but on macroeconomic factors (especially whether the economy is growing or shrinking), and on other political and policy factors – such as whether defense buildups are in progress (which gives manufacturing employment a lift) and whether all government employment is strong or weak (which affects its share of all jobs).

At the same time, better trade balances mean faster growth, manufacturing still dominates U.S. trade flows, and the sector is set to record yet another record trade deficit this year. So there can be little reasonable doubt that, although better trade policies are no manufacturing jobs cure-all, they’d make a valuable contribution.