(What’s Left of) Our Economy: You Bet that Mass Immigration Makes America Less Productive

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amnesty, Bureau of Labor Statistics, construction, demand, Donald Trump, economics, Forward.us, hotels, illegal aliens, immigrants, Immigration, labor productivity, productivity, restaurants, supply, total factor productivity, wages, {What's Left of) Our Economy

An archetypical Washington, D.C. swamp denizen thought he caught me with my accuracy pants down the other day. Last Sunday’s post restated a point I’ve made repeatedly – that when countries let in too many immigrants, their economies tend to suffer lasting damage because businesses lose their incentives to improve their productivity – the best recipe for raising living standards on a sustainable, and not bubble-ized basis, as well as for boosting employment on net by fostering more business for most existing industries and enabling the creation of entirely new industries.

The reason mass immigration kneecaps productivity growth? Employers never need to respond to rising wages caused by labor shortages by buying labor-saving machinery and technology or otherwise boost their efficiency. Instead, they continue the much easier and cheaper approach of hiring workers whose pay remains meager because immigrants keep swelling the workforce.

It’s a point, as I’ve noted, strongly supported by economic theory and, more important, by evidence. But Todd Schulte, who heads a Washington, D.C.-based lobby group called Forward.us, wasn’t buying it. According to Schulte, whose organization was founded by tech companies like Facebook with strong vested interests in keeping U.S. wages low, “the decade of actual [U.S.] productivity increases came directly after the 1986 legalization AND 1990 legal immigration expansion!”

He continued on Twitter, “giving people legal status and… expanding legal immigration absolutely has not harmed productivity in the last few decades in the US.”

So I decided to dive deeper into the official U.S. data, and what I found was that although there are bigger gaps in the productivity numbers than I’d like to see, there’s (1) no evidence that high immigration levels following the 1986 amnesty granted by Washington to illegal immigrants and the resulting immigration increase mentioned by Schulte improved the national productivity picture over the pre-amnesty period; and (2) there’s lots of evidence that subsequent strong inflows of illegal immigrants (who Schulte and his bosses would like to see amnestied) have dragged big-time on productivity growth.

First, let’s examine the productivity of the pre-1986 amnesty decades, which provides the crucial context that Schulte’s claim overlooks.

According to U.S. Bureau of Labor Statistics figures, during the 1950s, a very low immigration decade (as shown by the chart below), labor productivity grew by an average of 2.63 percent annually. Significantly, this timespan includes two recessions, when productivity normally falls or grows unusually slowly.

Figure 1. Size and Share of the Foreign-Born Population in the United States, 1850-2019

During the 1960s expansion (i.e., a period with no recessions), when immigration levels were also low, the rate of labor productivity growth sped up to an annual average of 3.26 percent.

The 1970s were another low immigration decade, and average labor productivity growth sank to 1.87 percent. But as I and many other readers are old enough to remember, the 1970s were a terrible economic decade, plagued overall by stagflation. So it’s tough to connect its poor productivity performance with its immigration levels.

Now we come to the 1980s. Its expansion (and as known by RealityChek regulars, comparing economic performance during like periods in a business cycle produces the most valid results), lasted from December, 1982 to July, 1990, and saw average annual labor productivity growth bounce back to 2.24 percent.

As noted by Schulte, immigration policy changed dramatically in 1986, and as the above chart makes clear, the actual immigant population took off.

But did labor productivity growth take off, too? As that used car commercial would put it, “Not exactly.” From the expansion’s start in the first quarter of 1982 to the fourth quarter of 1986 (the amnesty bill became law in November), labor productivity growth totalled 10.96 percent. But from the first quarter of 1987 to the third quarter of 1990 (the expansion’s end), the total labor productivity increase had slowed – to 5.76 percent.

The 1980s are important for two other reasons as well. Nineteen eighty-seven is when the Bureau of Labor Statistics began collecting labor productivity data for many U.S. industries, and when it began tracking productivity according to a broader measure – total factor productivity, which tries to measure efficiency gains resulting from a wide range of inputs other than hours put in by workers.

There’s no labor productivity data kept for construction (an illegal immigrant-heavy sector whose poor productivity performance is admitted by the sector itself). But these figures do exist for another broad sector heavily reliant on illegals: accommodation and food services. And from 1987 to 1990 (only annual results are available), labor productivity in these businesses increased by a total of 3.45 percent – worse than the increase for the economy as a whole.

On the total factor productivity front, between 1987 and 1990 (again, quarterly numbers aren’t available), it rose by 1.23 percent for the entire economy, for the construction industry it fell by 1.37 percent, for the accommodation sector, it fell by 2.30 percent, and for food and drinking places, it increased by 2.26 percent. So only limited evidence here that amnesty and a bigger immigrant labor pool did much for U.S. productivity.

As Schulte pointed out, the 1990s, dominated by a long expansion, were a good productivity decade for the United States, with labor productivity reaching 2.58 percent average annual growth and total factor productivity rising by 10.87 percent overall. But when it comes to labor productivity, the nineties still fell short of the 1950s (even with its two recessions) and by a wider margin of the 1960s.

But did robust immigration help? Certainly not in terms of labor productivity. In accommodation and food services, it advanced by just 0.84 percent per year on average.

Nor as measured by total factor productivity. For construction, it actually dropped overall by 4.94 percent. And although it climbed in two other big illegal immigrant-using industries, the growth was slower than for the economy as a whole (7.17 percent for accommodation and 5.17 percent for restaurants and bars).

Following an eight month recession, the economy engineered another recovery at the end of 2001 that lasted until the end of 2007. This period was marked by such high legal and illegal immigration levels that the latter felt confident enough to stage large protests (which included their supporters in the legal immigrant and immigration activist communities) demanding a series of new rights and a reduction in U.S. immigration deportation and other control policies.

Average annual labor productivity during this expansion grew somewhat faster than during its 1990s predecessor – 2.69 percent. But annual average labor productivity growth for the accommodation and food services sectors slowed to 1.19 percent, overall total factor productivity growth fell to 1.19 percent, and average annual total factor productivity changes in accommodations, restaurants, and construcion dropped as well – to 6.36 percent, 2.67 percent, and -9.08 percent, respectively.

Needless to say, productivity grows or shrinks for many different reasons. But nothing in the data show that immigration has bolstered either form of productivity, especially when.pre- and post-amnesty results are compared. In fact, since the 1990s, the greater the total immigrant population, the more both kinds of productivity growth deteriorated for industries relying heavily on illegals. And all the available figures make clear that these sectors have been serious productivity laggards to begin with.

And don’t forget the abundant indirect evidence linking productivity trends to automation – specifically, all the examples I’ve cited in last Sunday’s post and elsewhere of illegal immigrant-reliant industries automating operations ever faster — and precisely to offset the pace-setting wage increases enjoyed by the lowest income workers at least partly because former President Trump’s restrictive policies curbed immigration inflows so effectively. 

In other words, in the real world, changes in supply and demand profoundly affect prices and productivity levels – whatever hokum on the subject is concocted by special interest mouthpieces who work the Swamp World like Todd Schulte.

Im-Politic: Liz Cheney’s Weird New Messaging on the January 6th Hearings

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Capitol riot, conservatives, Donald Trump, election 2022, GOP, Im-Politic, January 6 committee, Liz Cheney, MAGA, midterms 2022, neoconservatives, Never Trumper, Republicans, Wyoming

With the first set of January 6^th Committee hearings on the Capitol riot on that day in 2021 coming up tonight in prime time, I just got a clue that these sessions might not be Must-See TV in terms of revealing any wide-ranging conspiracy (including Donald Trump or not) to overturn the results of the 2020 presidential election illegally. The source? None other than my buddy, Liz Cheney.

To be sure, I was as surprised as anyone to learn that I’m a Close Personal Friend of the Wyoming GOP Member of Congress. After all, I’ve never come close to endorsing her long record as an enthusiastic neoconservative warmonger and leading Never Trumper. And there’s no reason to view me as the kind of Republican campaign donor who could help finance her efforts to continue representing her state in the House.

But here I am holding in my hand a “Dear Alan” letter from her dated May 21 inviting me to join her “National Campaign Team.”

The funny thing is, though, despite the role she’s actively created for herself as one of Washington’s most outspoken nemeses of the former President – to the point of earning a nod as one of two Republican members on the riot and sedition investigating panel unilaterally created by Democratic House Speaker Nancy Pelosi – her fund-raising pitch never mentioned the January 6^th Committee by name, and contained only the most glancing references to its work.

This letter – obviously sent to reach recipients just before the hearings – did say that “Putting my principles first has made me an enormous target,but I am not – and will not be – deterred. America needs leaders who are not afraid to do what’s right regardless of political fallout. I will never forget the duty that we swore to uphold: to defend the Contitution and he freedoms so many have worked so tirelessly to preserve.”

In addition, Cheney did promise to “uphold that oath at all times…not just when it is politically convenient.”

But that was it for her anti-insurrectionary work. Indeed, Cheney’s letter began with her claim that, “Since I was first elected, I’ve fought to restore America’sstrength and standing in the world, to pursue conservative solutions that stimulate job growth, to cut taxes and onerous regulations, and to expand America’s energy, mining, and agriculture industries.”

Cheney went on to “strongly oppose the massive waste and liberal priorities crammed into seemingly every bill the Democrats have put forward in the first year of the Biden administration” and called the party’s priorities not only “a radical socialist wish list” but an agenda that, by “handing our children and grandchilden something that has never happened…a weaker nation than the one left to us,” must be condemned as being as “unconscionable as it is immoral.”

And the letter was completely dominated by such themes.

Moreover, it’s clear that Cheney wasn’t simply appealing to voters in her very conservative and strongly pro-Trump state. Her letter was addressed to “ALL Republicans who believe in the Constitution and want to see our Party led in a way that actually reflects traditional conservative values and priorities.” So it’s logical to assume – especially since as a Committee member, Cheney already knows exactly what’s been discovered – that she doubts that the results of her January 6^th Committee work will greatly impress even a faction that’s long been clamoring for Trump’s scalp, and a recovery of the supremacy it’s clearly lost in right-of-center circles.

And because these Cheney-type Republicans and conservatives have generally been as virulently anti-Trump as even many Democrats (Google “The Lincoln Project”), it seems just as logical to assume that she also doubts that any hearings revelations will resonate much among the rest of the non-MAGA electorate either.

So if I’m expecting the January 6th Committee hearings to be a nothing-burger, think twice before you dismiss this perspective. After all, it seems like that’s what I’ve just heard from Liz Cheney.

(What’s Left of) Our Economy: Is the New (April) U.S. Trade Report a False Dawn?

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Advanced Technology Products, Biden, Census Bureau, China, Donald Trump, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, South Korea, stimulus, supply chains, Switzerland, tariffs, Trade, trade deficit, Zero Covid, {What's Left of) Our Economy

Although today’s new official figures showed a major dropoff in the U.S. trade deficit between March and April, and the results came from a normally encouraging combination of more exports and fewer imports, the Census data also show that big caveats and questions are hanging over these results and how enduring they might be.

First and foremost, the improvement in the combined goods and services deficits, and all virtually all the trade balances comprising it, could be resulting from a dramatic slowdown in U.S. economic growth. Second, the latest decline in the chronic and huge U.S. goods trade gap with China surely stems from Beijing’s recent over-the-top (but surely temporary) Zero Covid policies, which have further snagged already tangled up supply chains. And third, large revisions in some of the numbers (especially for services trade) inevitably cast some doubt as to their reliability lately.

In fact, these features of the report – along with the still-near historic levels of many of these trade deficits and other usually typical gap-widening developments like a strong U.S. dollar and still-astronomical levels of economic stimulus from Washington – are telling me that my prediction last month of higher deficits to come will age pretty well.

Not that the narrowing of the trade gap in April was bupkis. The combined goods and services deficit fell 19.11 percent from March’s all-time high of $107.65 billion (which itself was revised down a hefty 1.96 percent) to $87.08 billion. This level was the lowest since December’s $78.87 billion and the nosedive the biggest since December, 2012’s 19.85 percent.

And as just mentioned, the improvement came from the right combination of reasons. Total exports hit their third straight monthly record, rising 3.49 percent from an upwardly revised (by 0.99 percent) $244.11 billion to $252.62 billion

Overall imports, meanwhile, tumbled 3.43 percent from their record $351.79 billion to $339.70 billion. The total was the second biggest ever, but the decrease was the greatest since the 13.16 shrinkage during pandemic-y and recession-y April, 2020.

The trade shortfall in goods was down 15.04 percent from a downwardly revised (by 1.04 percent) $126.81 billion in March to $107.74 percent in April. This level, too, was the lowest since December’s $100.52 billion, and the 15.04 percent sequential tumble the biggest since April, 2015’s 15.09 percent.

Goods exports rose sequentially by 3.57 percent in April, from 170.04 billion to a third consecutive record of $176.11 billion. And U.S. purchases of foreign goods sank by 4.38 percent on month in April, from a downwardly revised (by 0.65 percent) record $296.85 billion to $283.84 billion (as with total imports, the second highest result of all time). The decrease was the biggest since the 12.79 percent drop in that pandemic-y April, 2020.

But even the above sizable revisions paled before those made for services trade. The March surplus was upgraded fully 4.48 percent, from $18.34 billion to $19.16 billion, and the April figure grew by another 7.83 percent to $20.66 billion – the highest level since December’s $21.66 billion.

Services exports (apparently) deserve much of the credit. They reached an all-time high of $76.52 billion. This total bested May, 2019’s previous record of $75.41 billion by only 1.46 percent, but the milestone is significant given the outsized hit suffered by the service sector worldwide during the pandemic period.

April services exports, moreover, rose 3.30 percent from March’s $74.07 billion – a total that itself was revised up by 4.23 percent.

Services imports set their third consecutive monthly record in April, rising 1.73 percent, to $55.86 billion, from March’s upwardly revised (by 4.19 percent) $54.19 billion.

A big April fall-off also came in the non-oil goods trade deficit – known to RealityChek regulars as the Made in Washington trade deficit, because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

This shortfall decreased by 14.72 percent in April, to $108.68 billion, from March’s downwardly revised record $127.42 billion. The drop was the biggest since March, 2013’s 16.74 percent.

The enormous and persistent manufacturing trade deficit retreated in April from record levels, too. But even though the month’s $124.41 billion shortfall was 12.71 percent lower than March’s all-time high $142.22 billion, and even though the monthly decline of 12.71 percent was the biggest since pandemic-y February, 2020’s 23.09 percent, this deficit was still the second biggest ever.

April’s manufactures exports of $109.36 billion were 4.03 percent lower than March’s record $113.96 billion, but were still the second best total on record. Ditto for the month’s manufactures imports, which tumbled 8.85 percent from their March record of $256.18 billion to $233.50 billion.

Another April fall-off from a record monthly deficit came in advanced technology products (ATP). After ballooning by 73.65 percent sequentially in March, to $23.31 billion, the recently volatile gap narrowed in April by 21.50 percent, to $18.30 billion.

Both the better manufactuing and ATP trade figures surely stemmed at least in part from the Zero Covid policies that interfered with so much industrial production from China. The U.S. goods deficit with the People’s Repubic, however, narrowed by just 10.02 percent on month in April, from $34 billion to $30.57 billion. Even so, the level was the lowest since last July’s $28.56 billion.

U.S. goods exports to China were down on month in April by 16.25 percent (their biggest drop since February, 2021’s 278.85 percent), from $13.38 billion to $11.20b. This total is the lowest since last September’s $11.03 billion.

The much greater amount of U.S. goods imports from China plummeted 11.82 percent n month in April, from $47.37 billion to $41.77 billion – the lowest level since last July’s $40.32 billion.

Also notable – breaking a pattern going back several years — the 10.02 percent April monthly drop in the U.S. goods deficit with China was smaller than the month’s sequential decline in the non-oil goods deficit (14.72 percent). And on a yar-to-date basis, the China deficit is up only slightly less (27.59 percent) than the non-oil deficit (28.95 percent). So the next few months’ worth of data may shed some light on whether the Trump (now Biden) tariffs on China are losing their effectiveness, or whether the last few months’ numbers are anomalies.

Other significant April results for individual U.S. trade partners: The goods deficit with South Korea set a new record of $4.09 billion – 23.79 percent higher than March’s total of $3.30 billion and 21.70 percent greater than the old record of $3.36 billion set last September.

And the goods deficit with Switzerland cratered in April by 67.63 percent, to $2.89 billion, from March’s $8.93 billion level. The percentage shrinkage of this bilateral trade gap was the biggest since September, 2018, when a $1.22 billion U.S. deficit turned into a $149 million surplus.

Our So-Called Foreign Policy: Why Biden’s Somalia Decision Looks Literally Insane

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Afghanistan, Al Qaeda, Al-Shabab, Biden administration, Biden border crisis, border security, Donald Trump, globalism, Immigration, jihadists, migrants, Open Borders, Our So-Called Foreign Policy, September 11, Somalia, terrorism, terrorists

With all the headline news about major crises ranging from the Ukraine War to inflation to the infant formula shortage to the likelihood that abortion rights will be rescinded, RealityChek readers and others can be forgiven for overlooking the Biden administration’s recent decision to send a small contingent of U.S. forces back to Somalia. In fact, everyone can be forgiven if you can’t find Somalia on a map.

But the redeployent is eminently worth discussing because it’s the latest example of how foreign policy globalists (like President Biden) have their priorities completely ass-backward when it comes to dealing with global terrorism.

These units are back in this failed state on the Horn of Africa – after being withdrawn by former President Donald Trump in late 2020 – not because Somalia is located strategically or boasts any resources or export markets that matter to the U.S. economy. They’re back because the country has long been a headquarters for the jihadist group and major Al Qaeda affiliate Al-Shabab, and this organization “has increased in strength and poses a heightened threat” recently, according to the White House. Additionally, as observed by new Biden Press Secretary Karine Jean-Pierre, Somalia’s dismal excuse for a government is failing to prevent Al-Shabab from gaining the ability to launch terrorist attacks on the United States.

No one can dispute the need to protect the American homeland from foreign terrorist threats. But what’s so perverse about this Biden administration move is that it’s taking place after the President has taken numerous steps since his January, 2020 inauguration – many very early in this term – to weaken the security of America’s own border and thereby faciliate the entry of those terrorists.

Even worse, this Open Borders-friendly position has coincided with (a) growing numbers of apprehensions at U.S. borders of migrants from Turkey and other non-Western Hemisphere countries (including in Africa) and (b) growing numbers of such apprehensions of individuals on the federal government’s terrorist watch list. (See the official U.S. interactive feature here and the equally official dropdown menus here, respectively.)  The absolute numbers of the latter are small, but how many jihadists did it take to knock down the Twin Towers?

And speaking of Afghanistan, Biden’s sensible but operationally botched withdrawal was never accompanied by stronger border security measures, either.  Quite the opposite.  

In other words, unlike the Trump administration, the Biden administration is refusing to focus its anti-terrorism strategy on what the U.S. government can reasonably hope to control (securing its own borders). Instead, in the case of Somalia, it’s not only returning to, but doubling down on, an approach I’ve criticized before that focuses on what Washington can’t possibly hope to control – using the U.S. military to keep chasing down jihadists in failed regions like the Middle East and countries like Somalia, whose deep-seated dysfunction is bound to keep generating them. Is the President seriously expecting different results from doing this same thing over and over again? That’s of course a definition of something no one should want any U.S. leader to display.

(What’s Left of) Our Economy: Why Cutting China Tariffs to Fight U.S. Inflation Looks More Bogus Than Ever

Tags

Biden, China, consumer price index, CPI, currency, currency manipulation, Donald Trump, import prices, inflation, non-oil goods, Section 301, tariffs, yuan, {What's Left of) Our Economy

As RealityChek readers may have noted, I haven’t followed the U.S. government data on import prices for a while. That’s been because global trade has been so upended for the last two-plus years by the CCP Virus pandemic and the supply chain turmoil it’s fostered. Three big recent developments warrant returning to import price numbers, though.

First, President Biden has confirmed that he and his administration is seriously considering lowering tariffs on imports from China in order to help fight inflation. Second, since early March, China has dramatically driven down the value of its currency, the yuan. Since the yuan’s value is controlled by the Chinese government, rather than trading freely, Beijing has been giving its exports price advantages over all the competition (and in the U.S. and other foreign markets as well as in its own) for reasons having nothing to do with free trade or free markets. Third, new import price statistics just came out this morning.

And developments number two and three make clearer than ever that blaming the China tariffs for any of the torrid price increases afflicting American consumers or businesses is the worst kind of fakeonomics.

In a previous post, I explained why the scant actual tariffs imposed by former President Donald Trump on Chinese-made consumer goods and remaining on them, and the negligible portion of the Consumer Price Index (CPI) they represented, couldn’t possibly move the inflation needle notably.

Further, there’s the timing issue: The Trump tariffs imposed under Section 301 of U.S. trade law were slapped on in stages between March, 2018 and August, 2019. And by their nature, each of them could only generate a one-time price change. Yet consumer inflation in America didn’t take off until early 2021. Obviously, something(s) else was (were) responsible.

China’s currency moves, moreover, show that any Biden tariff-cutting will only add more artificial price edges to those Beijing is already creating for itself – thereby recreating some of the predatory Chinese pressure that competing U.S. employers and workers had long endured before the relief granted by Trump’s tariffs.

Since early March, the yuan has weakened by fully 7.75 percent versus the dollar. And with China’s leaders facing a substantial economic slowdown that could challenge the Communist Party’s political legitimacy, don’t expect Beijing to abandon quickly any practice that could prop up growth and employment.

Those new U.S. import price data reveal that the yuan’s depreciation hasn’t much affected China’s (government-made) competitiveness yet. But as indicated by the chart below, it soon will. As you can see, for years, the prices of Chinese imports entering the American market and the yuan’s value have risen and fallen pretty much in tandem.  

In addition, according to the new import price statistics, over the past year (April to April), import prices from China have risen much more slowly (4.6 percent) than the prices of the closest global proxy, total American non-fuel imports (7.2 percent). And the Trump tariffs should be singled out as a meaningful inflation engine?

Of course, these price trends could be cited to argue that these tariffs had no notable impact on U.S. competitiveness at all. But U.S. Census data show that, between the first quarter of 2018 (when the first Section 301 Trump tariffs were imposed), and the first quarter of this year, goods imports from China fell from 2.44 percent of the U.S. economy to 2.26 percent. (And this despite a big surge in American purchases of CCP Virus-fighting goods from the People’s Republic due to Washington’s long-time neglect of the nation’s health security and the secure supply chains it requires.) During this same period, total non-oil goods imports (the closest global proxy) increased as a share of the economy from 11.35 percent to 12.41 percent. So the Trump policies must have had some not-negligible effect.

The case for reducing the China tariffs is feeble enough even without these inflation points. After all, the Chinese economy is running into significant trouble due to its over-the-top Zero Covid policy, the deflation of its immense property bubble, and dictator Xi Jinping’s crackdown on the country’s tech sector. So the last thing on Washington’s mind should be throwing Beijing a tariff lifeline. Boosting China’s export revenue also means boosting the amount of resources available to the armed forces of this aggressive, hostile great power. And none of the tariff-cutting proposals is conditioned on any reciprocal concessions from China.

Citing bogus inflation arguments is the icing on this rancid cake, meaning the tariff-cutting proposal can’t be dropped fast enough.

Making News: Back on National Radio Talking China Tariff Cuts and Inflation

Tags

Biden administration, CBS Eye on the World with John Batchelor, China, consumer goods, Donald Trump, Gordon G. Chang, inflation, John Batchelor, Making News, near-shoring, reshoring, supply chains, tariffs, trade war

I’m pleased to announce that tonight I’m scheduled to be back on the nationally syndicated “CBS Eye on the World with John Batchelor.” Air time for the segment is yet to be determined, but the show is on nightly between 9 PM and 1 AM EST. You can listen live on-line here (among many other stations) as John, co-host Gordon G. Chang, and I discuss my recent report about the Biden administration mulling cutting the Trump tariffs on lots of imports from China – for completely bogus reasons.

As usual, a podcast of the interview will be posted as soon as one’s available.

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

Following Up: Podcasts of National and New York City Radio Interviews Now On-Line

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American politics, Bernie Sanders, Biden, Biden administration, China, decoupling, Democrats, Donald Trump, election 2022, election 2024, Following Up, Frank Morano, inflation, Market Wrap with Moe Ansari, midterms 2022, Moe Ansari, prices, recession, Republicans, Ron DeSantis, tariffs, The Other Side of Midnight, trade policy, trade war, Ukraine, Ukraine-Russia war

I’m pleased to announce that the podcasts are now on-line of my two radio interviews yesterday (and one technically this morning) on a wide range of foreign policy, economic, and U.S. political topics.

Click here to listen to my appearance on Moe Ansari’s nationally syndicated “Market Wrap” show, where we did a deep dive into the questions of whether or not President Biden’s thinking seriously of cutting some of the Trump tariffs on imports from China, and the likelihood and wisdom of America pulling off any kind of significant divorce from the Chinese economy. The segment starts at about the 21:40 mark.

At this link, you can access my conversation with host Frank Morano on his late-night WABC-AM (New York City) show “The Other Side of Midnight.” It covered the impact of tariffs on consumer prices, the outlook for America’s inflation-ridden economy, the chances that the Ukraine war goes nuclear, and the odds of (figurative) earthquakes down the road for American presidential politics – for starters!

In addition, click here for the second half of my interview on the U.S. government-run Voice of America – which zeroes in on Ukraine war-related global economic disruptions. (Yes, the segment was pre-my latest haircut!)

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

(What’s Left of) Our Economy: Biden Big Wigs Signal a Cave-in on China Tariffs

Tags

apparel, bicycles, Biden, Biden administration, CAFTA, Central America, Central America Free Trade Agreement, China, consumer goods, consumer price index, CPI, Daleep Singh, Donald Trump, Hunter Biden, Immigration, inflation, Janet Yellen, Mexico, NAFTA, North American Free Trade Agreement, tariffs, Trade, trade war, {What's Left of) Our Economy

In theory, once can always be dismissed as a gaffe (even President Biden isn’t the speaker) or a trial balloon motivated by genuine uncertainty and curiosity. Twice, especially within two days, looks an awful lot like the preview of a policy change. Which is why recent remarks by two senior Biden administration officials last week are so worrisome. If that’s the game they’re playing, then the President is planning what could be major cuts in the Trump tariffs on China – without requiring any meaningful concessions from China in return. Even worse, the rationale being advanced – reducing inflation — is completely bogus.

This potential tariff-cutting spadework began last Thursday, when deputy White House national security advisor Daleep Singh told a conclave of globalist poohbahs that tariffs could advance U.S. [in the words of Reuters reporter Andrea Shalal “strategic priorities such as strengthening critical supply chains and maintaining U.S. preeminence in foundational technologies and to support national security.”

But, he added (in his words) “For product categories that are not implicated by those objectives, there’s not much of a case for those tariffs being in place. Why do we have tariffs on bicycles or apparel or underwear?”

“So that’s the opportunity,” he continued. “It could be that in this moment of elevated inflation and China having its own very serious supply chain concerns … maybe there’s something we can do there.” Singh also suggested that eliminating such U.S. tariffs could prompt China to cut duties on comparable American products, though he didn’t establish such Chinese moves as a condition.

The very next day, Treasury Secretary Janet Yellen said on Bloomberg Television that “We’re re-examining carefully our trade strategy with respect to China” and that removing the tariffs is “worth considering. We certainly want to do what we can to address inflation, and there would be some desirable effects. It’s something we’re looking at.”

One immediate problem with Yellen’s position is that she herself has belittled it. As recently as last December, she testified to Congress that cuts in so-called non-strategic tariffs would not be an inflation “game-changer.”

In addition, although Yellen might be excused for not recognizing a major strategic benefit that the China tariffs could create, to the second in command in President Biden’s National Security Council – which is supposed to look at the nation’s global opportunities and challenges holistically – they should be obvious. Specifically, these kinds of labor-intensive consumer goods are exactly the kinds of products that could create the kinds of vital economic opportunities in Mexico and Central America that could many of the incentives for mass emigration.

Indeed, as I’ve written, pre-Trump presidents’ short-sighted decision to pursue trade liberalization with virtually all low-income countries guaranteed that the gains that could have flowed to U.S. neighbors via the North American Free Trade Agreement (NAFTA) and the Central America Free Trade Agreement (CAFTA) would shift instead to China and the other more competitive economies of East Asia. Just something to keep in mind the next time the Biden administration claims it’s serious about solving the “root causes” of mass migration in this hemisphere.

As for the inflation angle, Singh and Yellen have some big questions to answer. First of all, all sports vehicles (the category in which the U.S. Labor Department includes bicycles when it breaks down the contributions made to rising prices by different types of goods and services) comprise about 0.4 percent of the core Consumer Price Index (CPI) and apparel makes up about 3.2 percent. So it is indeed difficult to understand how stemming price rises of these products could be an inflation game-changer, as Yellen observed. (See here for the official CPI breakdown.)

Second, and at least as important, announced tariffs on some Chinese bicycles and bike products had already been suspended for much of the Trump China trade war period. For the rest of imports from China in this grouping, the 25 percent tariff remained unchaged. Yet annual inflation in the sports vehicles category has ranged from 4.8 percent in February, 2021 (President Biden’s first full month in office) to 10.52 percent this past January. Why such dramatic price fluctuation and big net increase over time? 

As for U.S. apparel imports, products from China represented just about a quarter of the U.S. global total last year – so it would seem that these goods represented just about a quarter of the total apparel contribution to the CPI (or about 0.80 percent).  And the Trump trade war levies cover just a tiny share of these imports, according to this industry source. Even so, however, annual apparel inflation rates have fluctuated even more dramatically than those for the bicycle category during the Biden presidency. They’ve ranged from -3.72 percent in February, 2021 to 6.79 percent last month (the latest available figures). 

The only possible explanation for these trends: As with the rest of the economy, apparel and bicycle prices have been determined ovewhelmingly by forces other than tariffs – principally the status of the CCP Virus pandemic and of the overall economic growth and consumption rates it’s so powerfully influenced; the injection of trillions of dollars worth of stimulus injected into the economy by the administration, the Congress, and the Federal Reserve; the supply chain snags that have caused shortages and therefore boosted prices of practically everything that needs to be transported; and the energy price rises that have generated the same kinds of effects. In other words, it’s the supply and demand, stupid.

And speaking of stupid, that adjective doesn’t begin to describe the politics of this seemingly impending Biden move. In an election year, does the President really want to expose himself to charges of being soft on China? Especially since evidence keeps emerging of his son Hunter’s lucrative business dealings with Chinese interests – which have clearly feathered the nests of the entire Biden family, including the President’s?

Even though, as I’ve pointed out, Mr. Biden has been a China coddler for his entire career in Washington, I was convinced that the American public’s mounting fear and loathing of the Beijing dictatorship would keep persuading him to follow the basic Trump approach to China trade. Indeed, his chief trade advisor implicitly endorsed this Trump strategy less than a month ago and indicated it would shape Biden administration polic going forward.

The President can still stop this initiative in its tracks.  But if he doesn’t, he’ll have only himself to blame when his political opponents ramp up their charges that he’s in Beijing’s pocket after all, and that his early China hawkishness meant that the payoff from his election, far from being off the table, was merely being delayed.  

Following Up: Podcast Now On-Line of NYC Radio Interview on Ukraine & Inflation…& More!

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Biden administration, Buck Showalter, China, decoupling, Donald Trump, Following Up, Frank Morano, globalization, inflation, Major League Baseball, New York Mets, tariffs, The Other Side of Midnight, Trade, trade war, Ukraine, Ukraine-Russia war, VOA, Voice of America, WABC AM

I’m pleased to announce that the podcast is now on-line of my interview late last night on Frank Morano’s “The Other Side of Night” radio show on New York City’s WABC-AM. Click here for a lively conversation on the Ukraine war, inflation, global economic decoupling, tariffs…and Buck Showalter???

In addition, a video is finally available of a Voice of America (VOA) interview I did last Monday, April 11, on the state of U.S.-China economic relations. Happily, the Chinese language service of this U.S. government foreign broadcasting agency is now offering telecasts that feature the English-language audio of non-Chinese speakers (like me) with the Chinese content in subtitles. So it’s much easier for non-Chinese speakers to understand that non-Chinese content than under the previous system, which featured simultaneous Chinese translation over the interviewees’ barely audible voice.        

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

(What’s Left of) Our Economy: An Epic Wall Street Journal Fail on Trump Tariffs

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aluminum, beverages, Donald Trump, tariffs, The Wall Street Journal, Trade, {What's Left of) Our Economy

The Wall Street Journal‘s recent editorial on how U.S. tariffs on aluminum imports are decimating the American American beverage industry serves at least one useful purpose: It makes clear that the newspaper’s editorial writers either don’t understand the importance of presenting data in context, or don’t care because they know the big picture would kneecap their argument.

According to this piece, these Trump-era levies show the dangers of trade barriers that “are a form of industrial policy that is really about favoring some producers at the expense of consumers,” and are fueling current inflation to boot. Their main evidence? First, that Since the tariffs were imposed in March, 2018, U.S. beverage manufacturers have “paid an equivalent of $1.4 billion in Section 232 aluminum tariffs through February 2022 [for the aluminum they use in cans”; and second, that this industry paid $463 million in tariff costs in 2021 alone.

The fueling inflatio argument can be dispensed with easily. In 2021, the U.S. economy produced just under $23 trillion worth of goods and services before factoring in inflation. (I’m using pre-inflation data throughout this post because that’s the gauge used by the Journal for tariff costs.) The non-durable goods sector (in which beverages are found) generated $3.455 trillion. As anyone can see at a glance, $463 million as a percentage of these totals is miniscule – to put it charitably. Its percentage of the non-durable goods sector alone is just 0.013. And these added costs are moving the needle on overall U.S. inflation exactly how?

But even when you look at the beverage industry by itself, the inflation and cost burdens fade into insignificance. Although official data are hard to find, this source pegs the sector’s total U.S. sales at $253.42 billion. The $463 million in tariff costs represents a grand total of 0.18 percent of that total. If the industry finds that amount crippling, or even noteworthy, it desperately needs new management.

More detailed data are available from individual corporate reports, and point to the same conclusion. This Yahoo Finance item presents the top ten beverage companies operating in the United States by revenue. Add up the figures and you get a $174.09 billion total for last year. The tariff costs as a share of that sum? A thoroughly unimpressive 0.27 percent.

But what about the all-important bottom line? The individual corporate reports of these publicly trade companies reveal this figure to have been $36.74 billion in 2021. The aluminum tariff costs come to 1.26 percent of that total. No one can blame companies for wanting to make every single dollar of profit they can (lawfully), but do the Wall Street Journal editorial writers really believe that the executives of these firms can’t compensate by increasing efficiency? If so, can them all. (Pun intended.)

Finally, the corporate reports also show the total costs incurred by these ten companies in order to produce their products. Last year, they amounted to $76.77 billion. So the tariff costs increased this amount by 0.60 percent. Again, this is worth a pity party? 

The Wall Street Journal editorial board — like everyone else — has a perfect right not to like any and all tariffs, on aluminum or anything else. It also has a perfect right (unless you don’t believe in freedom of the press) to cherry pick the facts to make its case. But readers and others also have rights — including the right to know when a publication is using Fake Commentary tactics like this to make its case, and to wonder whether, if this is the best this staff can do to discredit tariffs, any solid grounds to oppose them exist at all.