(What’s Left of) Our Economy: Chip Derangement Syndrome

Tags

CCP Virus, Chad Bown, China, coronavirus, COVID 19, East Asia, export controls, fabless, Foreign Affairs, Huawei, infotech, lockdowns, Mainstream Media, manufacturing, metals, offshoring lobby, Peterson Institute for International Economics, reopening, semiconductor shortage, semiconductors, supply chains, tariffs, Trade, Trump Derangement Syndrome, Wuhan virus, {What's Left of) Our Economy

As some RealityChek regulars may have noted, I’m spending somewhat less time lately batting down ill-conceived, off-base, and downright incoherent individual books or articles etc on key subjects like trade and globalization, foreign policy, and immigration. It’s not that there’s any less “nonsense out there” these days. Goodness knows there remain enough mouthpieces of the Offshoring-, Forever Wars-, and Cheap Labor-Lobbies in and out of the Mainstream Media paid handsomely cranking out this bilge.

It’s just that they’re clearly so much less important these days, as the American political system has so markedly been ignoring their missives. I mean, even a longtime China coddler and offshoring trade deal supporter like President Biden knows – at least politically – that these stances don’t fly any more. Not that enough progress has been made. But champions of what I think can fairly be called the pre-Trump conventional wisdom in these areas are increasingly giving off those “wrong side of history” vibes – and lashing out at Trump policies in ever more desperate and arguably deranged ways.

I’m making an exception today, however, because Chad P. Bown’s new article in Foreign Affairs blaming the former president significantly for the global semiconductor shortage, appeared in such a (still) influential publication, and is such a thoroughly pathetic example of the marginalized trade policy establishment’s Get Trump and Trumpism obsession.

For the last few years, Bown has served as the MSM’s go-to economist for swipes at Trump’s tariffs and trade wars – every single one of them. As a result, it’s almost inevitable that, with Trump out of power, and Mr. Biden now having retained for months the principal Trump China and metals tariffs – every single one of them – that he’d be looking for new ways to show how mistaken these measures have been.

Although Bown admits that the unprecedened stop-start nature of the CCP Virus-era U.S. economy, the suddently booming demand for microchip-intensive infotech products during the pandemic, and weather-related production disruptions all contributed substantially to the shortage, he also claims that Trump’s trade and tech policies also “squeezed supply” – by definition enough to write about.

His main arguments: First, Trump’s tariffs on semiconductors made in China reduced U.S. imports on net because American purchases from other countries didn’t make up for those chips. Second, his restrictions on the sale of American-made semiconductors to Huawei led the Chinese telecommunications gear giant and other Chinese tech companies to start hoarding chips from everywhere for fear of inadequate overall supplies, and left fewer semiconductors for other users to buy. Third, these curbs on sales of U.S.-made semiconductor to such an enormous customer discouraged chip-makers from all over the world from investing in production capacity in the United States in favor of building factories that could supply China from elsewhere.

But even though, as noted above, Bown admits that other culprits deserve responsibility as well, he not only downplays their effects. He completely ignores the impact of much more fundamental, indeed root, causes. Highly conspicuous, for example, are the consequences of decades of the kinds of offshoring-happy trade policies so strongly supported by Bown and his Offshoring Lobby-funded think tank, the Peterson Institute for International Economics. These policies persuaded U.S.-owned semiconductor manufacturers to move to China and the rest of East Asia much production capacity that could have been installed in America – in large part because they sent to China and the rest of East Asia so much production of the infotech hardware production that buys so many semiconductors.

Nor does Bown mention the dangerously shortsighted decisions of so many U.S.-owned semiconductor companies to eschew manufacturing for a “fabless” business model of researching and designing chips and then farming out the production “foundries” run by separate contract companies – mainly in Asia. Largely as a result, the growth of inflation-adjusted American semiconductor output fell by fifty percent between the U.S. economic expansion of 2001-2007 and the longer expansion of 2009-2019. (See my National Interest article on the subject from last October for the statistics presented above and below.) 

The growth during the latter period (73.68 percent) seems impressive in isolation. But it wasn’t nearly enough to prevent the U.S. share of global semiconductor manufacturing capacity from sinking to 12 percent – less than half the percentage in 1990. And it’s not like the growth of this global capacity has been killing it lately, especially considering it’s an archetypical “industry of the future.”

You wouldn’t know this if you if you were relying solely on Bown, but by one key measure, this capacity’s 2013-2019 cumulative expansion (14.29 percent, as shown in the chart below (which comes from the main trade association of the global semiconductor manufacturing equipment industry) was actually slower than the after-inflation growth of total global output of everything (18.29 percent). And if that’s not a surefire formula for a global shortage to me, tariffs and export controls or not, I don’t know what is. Nor do Chad Bown, or the Foreign Affairs editors who published a diatribe that’s factually unhinged even by the rock bottom standards of Mainstream Media coverage of U.S. trade policy.      

Glad I Didn’t Say That! Biden Going Trump-y on North Korea, Too

Tags

Biden, Donal d Trump, East Asia, foreign policy, geopolitics, Glad I Didn't Say That!, Kim Jong Un, national security, North Korea, nuclear weapons

“What has [President Trump] done? He’s legitimized North Korea. He’s talked about his good buddy, who’s a thug, a thug. And he talks about how we’re better off. And they have much more capable missiles, able to reach us territory much more easily than they ever did before.

– Presidential candidate Joe Biden, October 22, 2020

 

“The U.S. administration of President Joe Biden will build on a 2018 summit agreement with North Korea, White House Asia czar Kurt Campbell said Tuesday, extending overtures to Pyongyang after completing a months long policy review on the North.”

– Yonhap News Agency, May 19, 2021

 

(Sources: “Donald Trump & Joe Biden Final Presidential Debate Transcript 2020,” October 22, 2020 , Rev.com, Donald Trump & Joe Biden Final Presidential Debate Transcript 2020 – Rev & “U.S. will build on Singapore agreement with N. Korea: Campbell,” by Byun Duk-Kun, Yonhap News Agency, May 19, 2021, (LEAD) U.S. will build on Singapore agreement with N. Korea: Campbell | Yonhap News Agency (yna.co.kr) )

Our So-Called Foreign Policy: Why America’s Stakes in East Asia’s Security are Looking Vital Again

Tags

allies, America First, China, East Asia, East Asia-Pacific, extended deterrence, free-riding, globalism, Intel, Japan, Joe Biden, manufacturing, Michele Flournoy, nuclear weapons, Our So-Called Foreign Policy, protectionism, Samsung, semiconductors, South Korea, Taiwan, Trump, TSMC

News flash! This past week I read a newspaper column by George F. Will that didn’t prompt me to say “What an ignoramus!’ In fact, not only did I learn something. I learned something so important that, in conjunction with some other recent developments, is causing me to rethink some long and deeply held ideas I’ve had about America’s grand security strategy in the East Asia-Pacific region.

Specifically, although Will’s own focus in the September 8 piece was who Joe Biden would pick as Secretary of Defense, the piece itself described some ominous changes in the U.S.-China military balance in Asia that call into question my main concerns about America’s approach to region, and especially what I’ve depicted as an increasingly dangerous reliance on nuclear weapons to deter Chinese aggression. Meanwhile, as I’ll detail in a forthcoming freelance article, two U.S. Asian allies – Taiwan and South Korea – whose value to the United States I’ve long insisted doesn’t remotely justify running such risks, are looking for now like critical assets.

To review, since the Cold War began, the United States has resolved to defend its East Asian allies in large part by using the threat of nuclear weapons use to persuade potential attackers to lay off. Presidents from both parties agreed that the conventional military forces needed to fight off China and North Korea (and early on, the Soviet Union) were far too expensive for America to field. Moreover, the Korean War convinced the nation that fighting land wars in Asia was folly.

Before China and North Korea developed nuclear weapons able to reach the U.S. homeland, or approached the verge (the case, it seems, with the latter), this globalist policy of extended deterrence made sense whatever the importance to America of Asian allies. For the United States could threaten to respond to any aggression by literally destroying the aggressors, and they couldn’t respond in kind.

As I noted, however, once China and North Korea became capable of striking the continental United States with nuclear warheads, or seemed close to that capability, this U.S. policy not only made no sense. It was utterly perverse. For nothing about the independence of South Korea and Taiwan, in particular, made them worth the incineration of a major American city – or two, or three. The security of much larger and wealthier Japan didn’t seem to warrant paying this fearsome price, either.

Greatly fueling my opposition to U.S. policy and my support for a switch to an America First-type policy of military disengagement from the region was the refusal of any of these countries to spend adequately on their own defense (which, in combination with U.S. conventional forces, could deter and indeed defeat adversaries without forcing Washington to invoke the nuclear threat), and their long records of carrying out protectionist trade policies that harmed the American economy.

As Will’s column indicated, though, the threat, much less the use, of nuclear weapons is becoming less central to American strategy. Excerpts he quotes from recent (separate) writings by a leading Republican and a leading Democratic defense authority both emphasize dealing with the Chinese threat to Taiwan in particular with conventional weapons. The nukes aren’t even mentioned. Especially interesting: The Democrat (Michele Flournoy) is his recommended choice to head a Biden Pentagon – and she’s amassed enough experience and is well regarded enough among military and national security types to be a front-runner. I also checked out the journal article of hers referenced by Will, and nuclear weapons don’t come up there, either.

Moreover, neither Flournoy nor her Republican counterpart (a former aide the late Senator John McCain) shies away from the obvious implication – accomplishing their aim will require a major U.S. buildup of conventional forces in East Asia (including the development of higher tech weapons). In fact, they enthusiastically support it.

Any direct conflict involving two major powers has the potential to escalate beyond the expectations of the belligerents. But certainly bigger and more capable American forces in East Asia would reduce the chances that war with China will go nuclear. So in theory, anyway, the nuclear dimensions of my concerns could be reduced.

Moreover, my willingness to run greater risks to safeguard Taiwan and South Korea in particular, and pay the needed economic price – even if they keep free-riding on defense spending – is growing, too. That’s because of the theme of that forthcoming article I mentioned: Intel, the only major U.S.-owned company left that both designs and manufactures the most advanced kinds of semiconductors, has run into major problems producing the last two generations of microchips. In fact, the problems have been so great that the company has lost the technological lead to South Korea’s Samsung and in particular to Taiwan’s TSMC, and their most advanced facilities are in South Korea and Taiwan, right on China’s rim.

Given the importance of cutting edge semiconductors to developing cutting edge tech products in general, and ultimately cutting-edge weapons (including advanced non-weapons electronic gear and cyber warfare capabilities), acquiring the knowhow to produce these microchips by whatever means – outright conquest, or various forms of pressure – would make China an even more formidable, and even unbeatable challenge for the U.S. military, at least over time.

So until Intel, whose most advanced factories remain in the United States, figures out how to regain its manufacturing chops, or some other U.S.-owned entrant rides to the rescue, there will be a strong argument on behalf of protecting South Korea and Taiwan against Chinese designs at very high risk and cost. And as noted above, Americans may even have to tolerate some more military free-riding along with, in the case of South Korea, fence-sitting in the overall U.S.-China competition for influence in East Asia.

At the same time, because of the military (including nuclear) risks still involved, seizing back control of the semiconductor manufacturing heights ultimately is the best way out of this bind for Americans. So shame on generations of U.S. leaders for helping this vulnerability develop by swallowing the kool-aid about even advanced manufacturing’s obsolescence and replacement by services. But this grave mistake can’t be wished away, or overcome instantly, either – though efforts to regain this lost tech superiority need to be stepped up dramatically. So shame on current leaders, their advisers, and wannabe advisers – whatever their favored foreign policy strategy – if they fail to acknowledge that dangerous new circumstances may be upon the nation, and the sharp imperatives they logically create. And that includes yours truly.

(What’s Left of) Our Economy: Good – & Promising – News on Manufacturing Reshoring

Tags

Canada, China, Commerce Department, East Asia, Forbes.com, GDP-by-industry, Kearney, Kenneth Rapoza, manufacturing, manufacturing production, manufacturing trade deficit, Mexico, North America, Trade, Trade Deficits, {What's Left of) Our Economy

When two separate sources of information agree on a conclusion, the conclusion obviously becomes a lot more important than if it’s got only a single supporter. That’s why I’m excited to report that a major economic consulting firm has just released data showing that American domestic manufacturing has been coping just fine with all the challenges it faces from Trump tariffs aimed at achieving the crucial goal of decoupling U.S. industry and the the broader economy from China.

I’m excited because these results track with my own analysis of U.S. trade and manufacturing output data – which I’ve been able to update because of a new Commerce Department release measuring manufacturing production through the end of last year. And you should be excited, too – because the more self-reliant U.S.-based industry becomes, the better able it will be to add to the nation’s growth without boosting its indebtedness. In addition, the more secure the country will be both in terms of traditional national security and America’s ability to provide all the military equipment it needs, and in terms of health security and its ability to provide all the drugs and medical equipment it needs to fight CCP Virus-like pandemics.

The consulting firm data comes from Kearney, and I need to tip my hat to Forbes.com contributor Kenneth Rapoza for initially spotlighting it. According to the company, its seventh annual Reshoring Index reveals that last year, imports from low-cost Asian countries like China (well, none are really “like China,” but you get it) as a percentage of U.S. industry’s output hit its lowest annual level since 2014. The decrease was the first since 2011, and the yearly drop was by far the biggest in percentage terms since 2008.

What’s especially interesting is that the Kearney figures show that manufacturing imports from Asia made inroads even during much of the Great Recession. Last year, their prominence dwindled notably even though the American economy as a whole was growing solidly. And although domestic manufacturing output slowed annually last year – due partly to the inevitable short-term disruptions and uncertainties created by major policy shifts, and partly due to the safety problems of aerospace giant Boeing – the Kearney report noted, it “held its ground.”

Kearney reported even better news on the “trade shifting” front, and its findings also track with mine. One major criticism of the Trump China tariffs in particular entails the claim that they won’t aid American domestic manufacturing because they’ll simply result in the U.S. customers of tariff-ed Chinese products buying the same goods from elsewhere – especially from Asian sources.

The Kearney study refutes that claim, reporting that not only did the role of Asian imports decrease in 2019, but that due to the tariffs, this decrease was led by a China fall-off, that production reshoring rose “substantially,”and that a major import shifting beneficiary was Mexico – which is good news for Americans since it means that the globalization of industry is now doing more to help a next-door neighbor whose problems do indeed tend to spill across the border. (I’ve also found important trade shifting away from East Asia as a whole and toward North America – meaning both Canada and Mexico.) 

As for my own research, the release Monday of the Commerce Department’s latest Gross Domestic Product by Industry report, combined with the monthly trade statistics, these data also shed light on the relationship between U.S.-based manufacturing’s growth, and the economy’s purchases of manufactured goods from abroad.

The big takeaway, as shown by the table below: The relationship has continued its pattern of weakening – suggesting less import dependence – during the Trump years, although production growth did indeed slow because of that aforementioned tariff-related disruption and the Boeing mess.

The figure in the left-hand column represents U.S.-based manufacturing’s growth during the year in question (according to a gauge called “value added), the middle column represents the growth that year of the manufacturing trade deficit, and the right-hand column shows the ratio between the two growth rates (with the trade gap’s growth coming first). The higher the ratio, more closely linked manufacturing output growth is to the expansion of the manufacturing trade deficit. All figures are in pre-inflation dollars.

2011:             +3.93 percent              +8.21 percent                2.09:1

2012:             +3.19 percent              +6.27 percent               1.97:1

2013:             +3.36 percent              +0.77 percent               0.23:1

2014:             +2.93 percent            +12.39 percent               4.23:1

2015:             +3.72 percent            +13.22 percent               3.55:1

2016:              -1.19 percent              +3.07 percent                 n/a

2017:             +3.99 percent              +7.22 percent              1.81:1

2018              +6.23 percent            +10.68 percent              1.71:1

2019              +1.67 percent              +1.09 percent              0.65:1

Domestic manufacturers obviously haven’t completed their adjustments to the new Trump era trade environment, and the CCP Virus crisis clearly won’t make this task any easier. But Kearney expects that the pandemic will wind up moving more U.S.-owned or -related manufacturing out of China, and so do I. And although the Kearney authors don’t say so explicitly, it’s easy to read their report and conclude that the crisis and the resulting national health security needs will help ensure that the domestic U.S. economy will keep getting a healthy share.

Our So-Called Foreign Policy: A China Fork-in-the-Road Coming for America First-ers?

Tags

allies, America First, Barack Obama, China, deterrence, East Asia, globalism, industrial policy, Marco Rubio, national security, North Korea, nuclear deterrence, Our So-Called Foreign Policy, South Korea, Trade, tripwire, Trump

Something’s been bothering me for some time about the way that the national debate over dealing with China has been evolving.

Don’t get me wrong – it’s been great to see the major shift in the conventional wisdom since President Trump took office toward genuine recognition that the People’s Republic poses major economic and national security threats to the United States, that many of these threats are closely related, and that they have to be dealt with both on the economic and national security policy fronts.

That’s tremendous progress from the pre-Trump – and globalist – consensus that greater U.S. economic engagement with China was promoting more economic and political freedom in China, and more peaceful international behavior (or definitely would in some indefinite future), and that any dangers emanating from Beijing in the national security sphere are best coped with by increasing America’s military presence in East Asia (e.g., former President Barack Obama’s “pivot to Asia,” largely rhetorical though it was), cooperating more closely with the country’s allies in the region, or some combination of the two.

You don’t have to be an avid follower of world affairs to realize that the sharp distinction drawn by this globalist consensus between China economic and China national security policy was already producing a mind blowingly idiotic result: Washington was still resolving to resist any expansionist ambitions of Beijing’s in East Asia while continuing to help send China’s way floods of money and defense-relevant technology bound to turn into formidable military equipment that U.S. and other allied forces would face if conflict broke out.

Further, as I began pointing out years ago, because of the impressive progress made by both China and North Korea in developing intercontinental-range nuclear weapons, the globalist approach was exposing the American homeland to an ever increasing threat of nuclear attack – and mainly because even the U.S.’s wealthiest regional allies refused to field the (admittedly) expensive conventional military forces that could repel aggression from Beijing or Pyongyang without American help.

So everyone should be encouraged by the growing, bipartisan support for limiting the flow of U.S. resources and technology to China – even though many allegedly converted globalists continue hoping in vain that this goal can be achieved without setting limits (like tariffs) on trade and investment between the two economies.

My problem? Many of the new China hawks (and the leading example here is Florida Republican Senator Marco Rubio, who deserves considerable credit for his out-front role waking up other conservatives to the need for changing course on China) apparently believe that new U.S. trade, investment, and technology transfer curbs are mainly needed to shore up America’s decades-long position as the national security kingpin of East Asia. In other words, they’re hoping that America First-type China economic and technology policies can buttress globalist East Asia policies.

Maybe they’re right.  And if they succeed, it will at least become less likely that American troops will be killed in battle by Chinese weapons developed with dollars and knowhow from the United States.

Unfortunately, too much of the nuclear danger to the United States will remain in place – because the free-riding instincts of America’s East Asian allies inevitably will be reinforced. That is, the more confident they stay in America’s determination to protect them, the less military effort they’ll feel the need to make, and the longer U.S. military forces in places like South Korea will be needed to play tripwire roles – deterring aggression due to their vulnerability to attack and the chances that their imminent destruction will pressure a U.S. President to save them with nuclear weapons use that could trigger a similar retaliatory strike on the United States.

As I’ve written repeatedly, because taking every step possible to prevent a nuclear weapon from landing on American soil should be a much higher priority for Washington than protecting free-riding allies, it’s best for the United States to pull its troops back from the front-lines in East Asia and force its allies to defend themselves. And if this means okaying their own decisions to build nuclear forces, fine with me. I’d also sell them any conventional weapons they’re seeking – which would achieve the added benefit of improving American economic growth and employment.

Does this mean that an America First China policy would or should lack any national security dimension? Not at all. For as I first explained in this recent interview, staying ahead of China technologically will stay imperative for the United States to protect itself from the kinds of cyber-attacks Beijing is already capable of waging and has probably been sponsoring. And the threat is hardly limited to the hacking of U.S. government agencies or private businesses that originates from China. The more Americans (including individual Americans possessing valuable knowledge) use Chinese technology products because these goods have become the world’s best or cheapest, the more their privacy will be vulnerable to Chinese surveillance and ultimately blackmail. The advanced telecommunications equipment produced by Huawei is of course the most important example so far.

There’s another technology-based national security issue that purist America First-ers of my ilk need to deal with as well, and one that I haven’t sufficiently thought through. Nothing’s changed my mind about the United States being a big net loser from trade with East Asia, or about how it can retain the clout if needs in the solely from its role as a final consumption market these export-dependent economies will desperately need.

But thanks largely to failed globalist trade policies, most of the world’s semiconductor manufacturing capacity and capability is now located in East Asia – particularly in Japan, Taiwan, and South Korea. It may be tempting to believe that these countries will become more resistant to China’s power if the United States withdraws militarily from the region. But prudence counsels against simply assuming the best.

So as America First leaders start and keep offering these countries all the military hardware they need to rebuff Chinese advances, they will also need greatly to step up efforts to restore U.S. self-sufficiency in these key building blocks not only of high tech industry, but increasingly of all high value manufacturing and services. (To their credit, Rubio and some other new China realists also understand the need for redoubled American industrial policy efforts to achieve these goals.)

Attempts to reorient U.S. foreign and trade policies in America First directions are still at such an early stage that concern about these differing emphases might look premature. But events have a way of forcing major decisions much earlier than expected – either because crises erupt sooner, or because lead-times to implement new strategies can be longer, than is convenient. So all America First-ers should agree at least agree that the earlier this potential division in America First ranks is addressed, the better.

(What’s Left of) Our Economy: Can Free Trade Nowadays Really Maximize Global Well-Being?

Tags

China, East Asia, economics, free markets, free trade, globalization, Trade, {What's Left of) Our Economy

As nearly every economist worth their salt can tell you, as far as their profession is concerned, the prime end goal of liberalizing global trade as completely as possible is maximizing the entire world’s economic well-being. And theoretical, purely economic criticisms of the freest possible global trade have been dominated by questioning whether efforts to achieve this goal have truly have kept this promise, or are capable of doing so.

I don’t mean to minimize the importance of this debate, or others focusing on related but distinctive issues bringing into play non-economic considerations – like whether trade and broader economic policies need to broaden their definition of well-being to include goals like increasing feelings of happiness and security, or like fighting climate change and other threats to the environment, or like preserving America’s national security, or like ensuring that the economic well-being being created is more equitably shared.

But these days, it seems that American policymakers in particular need to ask themselves a more fundamental question: Assuming the goal can be reached, is the greatest possible worldwide economic (that is, material) well-being actually a goal that the global trading system should be trying to reach? And all peoples and governments of good will, not simply the United States, have a vital stake in figuring out the right answer – especially if they place noteworthy value on free markets.

The presence of the word “governments” in the previous sentence points to a central complication that the welfare-maximizing enthusiasts seem to be missing.

Specifically, no one of good will could reasonably oppose maximizing the economic welfare of all the world’s individuals (assuming, of course, that whatever non-economic challenges caused by high growth – e.g., environmental threats – aren’t ignored).

But even leaving aside strategic and national security considerations, the organization of the world’s individuals into governments creates a big problem with this objective. Specifically, many of these governments have organized their national economies in turn around principles and practices that have nothing to do not only with free trade, but with free markets or any aspect of economic liberalism themselves – the idea that individuals and other economic actors (like businesses) have the right to make the (legal) economic choices they regard as serving their own best economic and/or non-economic interests.

China is the obvious example. Its system holds that, even though at a very local or micro level, individual and other actors (because of the point I’m about to make, I’ve always hesitated to use the word “businesses” or “companies” to describe any Chinese goods- or service-producing entities) can be permitted to act on their own impulses, any such economic decisions with broader effects should be made or be subject to the control of the state. And all resources related to the economy are ultimately accountable to the state as well.

There’s no legitimate doubt that freer trade has helped lift hundreds of millions of Chinese out of poverty, and of course contributed to the economic well-being of myriad non-Chinese individuals and businesses and other entities that sell to this huge, burgeoning market, the growing prosperity of Chinese individuals. But there can also be no legitimate doubt that this free trade has also greatly strengthened a Chinese government whose practices clearly amount to a broad rejection of free trade and the rest of free market thinking.

Until now, it’s been easy to argue that whatever Beijing’s interventionist record, freeing up trade between China and the rest of the globe has improved the world’s wealth on net, even though China may have been the greatest beneficiary, and even though workers in high-income countries (to cite one prominent example) may have paid an economic price on net. 

But all this wealth creation unquestionably has strengthened this command-and-control Chinese system, its global footprint, and its influence over the world economy. If you believe in the virtues of free markets, how can this kind of development possibly keep increasing overall world economic well-being over any significant period of time (as opposed to spurring the kinds of brief boom periods that tend to become busts)? And if it can (and statist China has been a big global economic player for many years now), then maybe it’s time to rethink faith in free markets to begin with?

Of course, it’s important to keep in mind a long-time standard explanation of how China’s economic rise can be squared with support for continual global trade liberalization. It’s the confidence that more and freer trade with China will promote a liberalization of China’s domestic economy that will inevitably loosen the state’s grip trade and other foreign economic policies. But as known to anyone who’s been following China issues in recent years, Beijing has been reasserting control over much of the paltry amount of economic activity that it had previously ceded. Moreover, this trend didn’t begin with current leader Xi Jinping. So at the very least, the optimists are now under a heavy burden of proof to show that continuing to free up trade with China, or even fighting Trump-ian American backsliding, will maximize global welfare indirectly, by fostering Chinese internal economic liberalization.

Given China’s immense size, a China exception to the trade-spurring-welfare-maximization claim would be crucial enough. But it’s not just China. Economic intervention even dwarfing that practiced by the United States (including but hardly limited to the massive response to the financial crisis by the Bush and Obama administrations, and especially the still considerable stimulus supplied by the Federal Reserve) is common the world over. Gradations vary considerably, but fascinatingly, and perhaps revealingly, its strongest in East Asia, the region that, even leaving China out, almost everyone agrees has been the biggest net winner from trade liberalization going back to the early post-World War II period.

Unlike China, some of the leading East Asian beneficiaries of freer global trade, like Japan and South Korea, are U.S. security allies. But they conform with no reasonable definitions of free market systems, either. Should American policy, and the policies of other more market-oriented economies, support making these countries and their highly interventionist systems stronger, richer, and more influential as well?

China’s rise and increasingly anti-American actions on many fronts have prompted speculation that current bilateral tensions might eventually split today’s highly integrated global economy into separate, Cold War-like U.S.- and Chinese-dominated spheres. In fact, this may be a Trump administration goal. So far, this talk has emphasized the intertwined technology and national security reasons for pursuing this goal. But if free markets are all they’re cracked up to be, it may also be warranted for solely economic reasons.

Our So-Called Foreign Policy: America’s Foreign Policy Blob Challenged from Within

Tags

alliances, allies, America First, Asia, Blob, burden sharing, Chas W. Freeman, East Asia, East Asia-Pacific, establishment, globalism, Japan, North Korea, nuclear deterrence, Our So-Called Foreign Policy, South Korea, Trade, Trump

Chas [that’s not a typo] W. Freeman isn’t exactly a household name. He’s even far from the most prominent member of the U.S. foreign policy “Blob” – the bipartisan establishment of current government bureaucrats, former officials, think tank-ers, academics, and journalists whose members for decades have both constantly changed exchanged jobs as their particular political patrons have rotated in and out of elected office, and helped keep the nation’s approach to international affairs on a strongly activist, interventionist (i.e., globalist) course for decades.

That is, they’ve succeeded in this mission until Donald Trump’s election as president, and even he hasn’t managed to throw off their grip completely. (See this 2018 article of mine for an explanation of how globalism and the “America First” approach touted by Mr. Trump differ, and examples of how his foreign policy decisions have reflected both strategies so far.)

But Freeman is a card-carrying member of the Blob – as one look at his bio should make clear. And that’s what makes this recent speech of his so interesting and important.

The address, delivered to a world affairs conference in Florida, has attracted the most attention (especially on Twitter) for its critique of President Trump’s China policy. And that makes perfect sense given the Freeman literally was present at the creation of the Nixon-era outreach to the People’s Republic that ended decades of Cold War hostility and set the framework for bilateral relations from the early 1970s until the Trump Era began.

But in my view, the China portions are eminently forgettable – amounting to a standard (but less oft-stated these days) Blob-y claim that the PRC is being scapegoated for chronic failures of U.S. domestic economic and social policy.

What really stands out is this passage – which clashes violently with the Blob’s defining worship of America’s security alliances and dovetails intriguingly, albeit only partially, with my own views of how America’s economic and security strategy toward China and the rest of East Asia should evolve.

According to Freeman (and he’s worth quoting in full):

“President Trump has raised the very pertinent question: Should states with the formidable capabilities longstanding American “allies” now have still be partial wards of the U.S. taxpayer? In terms of our own security, are they assets or liabilities? Another way of putting this is to ask: Do our Cold War allies and their neighbors now face credible threats that they cannot handle by themselves? Do these threats also menace vital U.S. interests? And do they therefore justify U.S. military presences and security guarantees that put American lives at risk? These are questions that discomfit our military-industrial complex and invite severe ankle-biting by what some have called ‘the Blob’ – the partisans of the warfare state now entrenched in Washington. They are serious questions that deserve serious debate. We Americans are not considering them.

“Instead, we have finessed debate by designating both Russia and China as adversaries that must be countered at every turn. This has many political and economic advantages. It is a cure for enemy deprivation syndrome – that queasy feeling our military-industrial complex gets when our enemies disorient us by irresponsibly defaulting on their contest with us and disappearing, as the Soviet Union did three decades ago. China and Russia are also technologically formidable foes that can justify American R&D and procurement of the expensive, high-tech weapons systems. Sadly, low intensity conflict with scruffy ‘terrorist’ guerrillas can’t quite do this.”

If you ignore what I view as the not-very-informative shots against the “warfare state,” you can see that Freeman comes close to exposing some of the main weaknesses and even internal contradictions of both main factions in the national China policy debate, and (unintentionally, but unmistakably) provides some support for the America First set of priorities I’ve proposed.

Specifically, supporters of pre-Trump China trade policies generally have insisted that China and the rest of East Asia are crucial to America’s economic future because of their huge and fast-growing markets and overall dynamism. But although they staunchly back maintaining the U.S. alliances in the East Asia-Pacific region that has long aimed to secure the political independence of its non-communist countries and thereby keep their economies open to American exports and investment, they keep ignoring three major problems created by this approach.

>First, the trade and broader China economic policies they’ve stood for have greatly enriched and strengthened the country posing the greatest threat to East Asian security. (See, e.g., this column.) 

>Second, because of the growth and increasing sophistication of Chinese and North Korean nuclear forces, America’s alliances in the region have brought the U.S. homeland under unprecedented threat of nuclear attack from both of these rivals.

>Third, despite the alliances, countries like Japan and South Korea have remained highly protectionist economies whose trade predation has damaged America’s overall economy and particularly its manufacturing base. In fact, there’s every reason to believe that U.S. security objectives have enabled this allied trade predation, by preventing Washington from retaliating effectively for fear of antagonizing Tokyo and Seoul.

The Trump policy mix strikes me as being much more internally consistent. In large measure because of fears of growing Chinese military might, it’s trying to use both trade and investment policy to curb Beijing’s use of intellectual property theft and technology extortion in particular to gain regional parity with U.S. forces and thus make America’s alliance commitments much more dangerous and costly to fulfill. The administration also deserves credit for recognizing the purely economic damage Asian trade predation has caused America.

But for all the president’s complaints about defense burden-sharing, he, too, appears determined to keep the alliances intact. Hence his recent insistence that South Korea pay more of the costs of the U.S. troop deployments on its soil despite his repeated claims about the alliance’s necessity. Just as important, although the Trump Asia policies have sought more balanced trade flows with regional allies, these very efforts make clear how unsatisfactory these economic relationships have been. As a result, they sandbag the case that the United States must run major military risks to preserve them.

Freeman’s speech suggests support for a different set of priorities. In one sense, they’re logical: If, as he suggests, its security alliances in East Asia are no longer good deals for the United States, then it’s indeed not such a big deal from a security perspective if America’s economic policies toward China are helping Beijing increase its military power – and boost the odds that it will someday control the region to America’s economic detriment.

Yet Freeman’s apparent priorities fail on the purely economic front, as they seem to propose doing nothing whatever to combat the Chinese policies that have harmed America’s economy.

And that’s why the America First recipe I’ve proposed makes the most sense:

>First, disengaging from an increasingly hostile and economically dangerous China (largely because no trade deal can be adequately verified).

>Second, recognizing that trade with the entire East Asian region has been a loser for the United States and certainly not worth the growing military risks to the American homeland – and thereby concluding that the U.S.’ still-overwhelming economic leverage is likeliest to secure whatever improvements in trade and commercial relations are needed.

>Third, wherever possible, using this economic leverage to shift jobs offshored to Asia but not likely to return to the United States (because they’re too labor-intensive and therefore “low tech”) to Mexico and Central America. The resulting new economic opportunities could go far toward solving the Western Hemisphere’s immigration problems.

Unfortunately, because the Trump administration has its Asia priorities so confused, optimism regarding major changes is tough to justify. But Freeman’s willingness to challenge from within the Blob’s fetishization of U.S. alliances, however flawed, is a ray of hope. And who was it who said that a journey of a thousand miles begins with a single step?

Our So-Called Foreign Policy: The Establishment’s Korea Nuclear Cover-Up Continues

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alliances, allies, Chicago Council on Global Affairs, East Asia, free-riding, missiles, North Korea, nuclear war, nuclear weapons, Our So-Called Foreign Policy, polls, South Korea

If a pollster asked respondents a question on the order of “Would you favor the government handing Americans unlimited amounts of money?” without specifying that “it might destroy the economy,” you wouldn’t take it very seriously, would you? In fact, you’d probably (and rightly) condemn the survey as a con job.

And that’s exactly the reaction you should have to a new “finding” by the Chicago Council on Global Affairs that this year, for the first time [since 1990, when the organization began asking the question], “a majority of Americans express support for using US forces to defend South Korea” if it was attacked by North Korea. According to the Council, moreover, this figure has risen sharply since 2015 – from 47 percent to 62 percent.

If you’re a RealityChek regular, you know why this question is fraudulent. It doesn’t tell respondents that North Korea is terrifyingly close to being able to retaliate against such U.S. military involvement by destroying an American city or two with nuclear-tipped intercontinental ballistic missiles.

In fact, the question doesn’t mention anything about specific consequences for riding militarily to South Korea’s rescue. Even granting that the public realizes that wars are not picnics, the Council’s full phrasing was inexcusably anodyne:

“There has been some discussion about the circumstances that might justify using US troops in other parts of the world. Please give your opinion about some situations. Would you favor or oppose the use of US troops if North Korea invaded South Korea?”

Like the issue was simply being debated in a seminar.

Nor did the Council tell Americans why their country would need to risk blood and treasure to aid South Korea. It’s because, even though the South’s economy is vastly larger than the North’s, and even though the North actions have been threatening for decades, this long-time U.S. protectorate spends a negligible fraction of its wealth on its own defense.

So here’s what the Council should have asked:

“For nearly seventy years, the United States has pledged to defend South Korea militarily from attack by communist North Korea. But this promise was made when it created no risk for the American homeland, when the South was dirt poor, and when Washington feared that communism was on the march worldwide. Now it’s clear the North will very soon be able to launch a successful nuclear attack on the United States if it keeps its promise to the South. Since the alliance was formed, South Korea has skimped on its own defense spending even though it’s become one of the world’s richest countries. And communism is dead as a global military menace. Would you favor or oppose using U.S. troops to defend a free-riding South Korea if the result could be the nuclear destruction of an American city?”

Of course, my phrasing could be toned down. It could also add the argument American trade and other forms of business with economically dynamic East Asia would suffer if major war broke out anywhere in the region (although it’s easy to argue that business with the region has been a big net loser for the American economy), and that so far, the U.S. military presence and commitment have helped keep the peace. And to be fair, the Council didn’t mention any pro-interventionist arguments, either.

But the main point is that it’s hard to imagine any consideration surrounding the decision to intervene in a Korean war remotely comparing with this development: Until recently, Americans could be certain that their own territory would remain unscathed. Now such involvement could kill and maim millions of their compatriots, and turn important metropolitan areas into radioactive wastelands.

As I’ve long written (along with others), the American foreign policy establishment has been so irrationally wed to the country’s alliances that it’s concealed the catastrophic, and sometimes suicidal, (in the case of Europe, where the antagonist has been the Soviet Union and now Russia) dangers they have inevitably created. The only useful information contained in this Chicago Council on Global Affairs Korea finding is that, wittingly or not, this group is participating in the cover-up.

Our So-Called Foreign Policy: The Uses and Mis-Uses of Thucydides

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balance of power, China, Destined for War, East Asia, foreign policy, geopolitics, globalism, Graham Allison, international order, internationalism, Our So-Called Foreign Policy, realism, strategy, The History of the Peloponnesian Wae, Thucydides, Thucydides Trap

It’s always great to learn that U.S. leaders are working hard to use history to inform their policy decisions – unless they’re completely misreading the relevance of lessons of the past to America’s current circumstances, as could well be the case with senior Trump administration officials and their fascination with Thucydides’ History of the Peloponnesian War.

Don’t get me wrong: This chronicle of conflicts between ancient Athens and Sparta is a genuine classic both of military history and international relations theory. I hold it in particularly high regard because it contains a seminal argument for viewing the latter through a “realist” lens, emphasizing that countries act, in the words of one recent description, “out of pragmatic self-interest, with little regard for ideology, values or morality.”

But according to an account that came out last week (and that hasn’t been denied), top Trump foreign policy and national security aides are viewing Thucydides as a valuable guide to answering the question of whether war between the United States and China is inevitable. And their interest in the History has been encouraged by the work of a leading modern scholar, Harvard University’s Graham Allison. Allison has applied what’s widely regarded as Thucydides’ main conclusion – that established powers find it intrinsically and understandably difficult to deal with rising powers peacefully – to the U.S.-China situation, and in the process, he’s drawn a lot of attention in Beijing as well as Washington.

But there’s a major problem with focusing on whether the United States and China are stuck in a “Thucydides Trap” that makes war just about inevitable (Allison is not nearly so pessimistic), and examining past international rivalries for insights (his major contribution to the debate). As with so many mainstream analyses of American foreign policy for decades, Allison – and the Trump-ers apparently paying him heed – have completely forgotten the distinctive geopolitical and economic advantages the United States brings to international relations.

As I’ve written previously, the United States enjoys the kind of geographic isolation, military power, and capacity for economic self-sufficiency that enables it to view most overseas developments with relative indifference – provided that it maintains these strengths. And for all the important nuance he brings to his treatment of U.S.-China relations, it’s clear that Allison has overlooked what’s genuinely special about the American position, too.

Although I haven’t read Allison’s full Thucydides Trap book yet, I have read this lengthy magazine version. And it shows unmistakably that his warning that “Based on the current trajectory, war between the United States and China in the decades ahead is not just possible, but much more likely than recognized at the moment” accepts the same longstanding American globalist assumptions that have led to so many costly U.S. foreign policy mistakes since the end of World War II.

For example, Allison has a great deal to teach if it’s true that the United States has an intrinsic need to worry greatly about developments or questions like

>”a rising power…threatening to displace a ruling power”:

>”a rapid shift in the balance of power between two rivals”:

>”the rising power’s growing entitlement, sense of its importance, and demand for greater say and sway”;

>the fact that “Never before in history has a nation risen so far, so fast, on so many dimensions of power”:

>whether China is “restored to its rightful place, where its power commands recognition of and respect for China’s core interests”;

>whether “the growing trend toward a multipolar [as opposed to a U.S.-led] world will not change”;

But nowhere has he made this case for these concerns. Indeed, by and large, like other mainstream analysts and leaders, he simply assumes their crucial importance, without explaining how they could affect the nation’s safety, independence, and well-being directly and decisively.

Allison (along with the rest of the foreign policy mainstream, whose dominance is as complete on the conventional American Left as on the Right) gets more specific, and his analysis becomes more useful, when he raises questions like: ”Could China become #1? In what year could China overtake the United States to become, say, the largest economy in the world, or primary engine of global growth, or biggest market for luxury goods?”

And he identifies and expresses even more concrete core mainstream worries:

>First, whether China’s “current leaders [are] serious about displacing the U.S. as the predominant power in Asia?”’

>Second, both more broadly and more centrally “the impact that China’s ascendance will have on the U.S.-led international order, which has provided unprecedented great-power peace and prosperity for the past 70 years.”

But like the first set of worries, even these concerns should be treated as first-order issues by Americans only if they assume that, as with much less secure and inherently wealthy powers, either their security, prosperity, and independence are crucially reliant on the international environment, or that these aims are much more safely and efficiently achieved through international activism than through enhancing their abilities to deal with challenges and withstand crises acceptably in a turbulent international environment.

If the long-held globalist views stressing America’s relative vulnerability or dependence are accepted, then all of Allison’s questions remain vital – from the least tangible (like whether China wins more influence overall) to the most (whether China wants to replace the United States as Asia’s kingpin). And the fate of that “U.S.-led international order” (including preserving American primacy in Asia) ultimately matters most of all because it’s seen to be the only acceptable or only feasible guarantor of a satisfactory national future.

If, however, that assumption about the present international order is fatally flawed, then even subjects like the relative overall balance of power between the United States and China become secondary. They would logically cede pride of place to the issue of whether America’s power (in any dimension) is adequate to achieve specific national objectives or maintain valued national advantages. For even though relative power will of course influence success or failure, in the final analysis, the decisive consideration is whether that power is sufficient to achieve those particular successes and maintain those particular advantages, not whether America in some general sense “matches up” with other countries.

As always with these posts on overall foreign policy strategy, the main takeaway here isn’t that Allison and the other globalists are wrong and that I’m right. The main point is that the globalist school has – wittingly or not – long not only opposed, but defined out of existence, alternative approaches to security and prosperity that dovetail well with many of the nation’s most conspicuous strengths.

Here’s another way to put it: In his article, Allison expressly states that his detailed look at “16 cases over the last 500 years in which there was a rapid shift in the relative power of a rising nation that threatened to displace a ruling state….” But all entailed “the struggle for mastery in Europe and Asia over the past half millennium….” When globalists like him can explain why the geopolitical and economic similarities between the United States and these historic powers – or between ancient Athens and Sparta – count much more than the differences, they’ll be entitled to claim victory in their on-again-off-again debate with those favoring less ambitious over America’s foreign policy strategy. Until then, however, their opponents will be entitled to claim that they’ve managed to avoid the biggest questions.

Our So-Called Foreign Policy: Why Establishment Thinking About Containing China Remains Far from Serious

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allies, American Enterprise Institute, Asia, burden sharing, China, Daniel Blumenthal, defense budget, East Asia, entitlements, foreign policy establishment, free-riding, Japan, Our So-Called Foreign Policy, RealClearPolitics.com, South Korea, taxes, tech transfer, Trade

Congratulations to the American Enterprise Institute’s Daniel Blumenthal for coming up with some genuinely new insights into the U.S.-China balance of power and especially its relationship with the evolving economies of the two countries. Unfortunately, Blumenthal’s new essay for RealClearPolitics.com also shows that gaping blind spots remain in establishment thinking about the China challenge its members claim to be analyzing seriously.

For the purposes of this post, let’s grant Blumenthal’s mainstream assumption that it matters greatly to the United States which great power dominates East Asia politically. I disagree, but the point here is that if America does want to fend off a China challenge, greater policy changes will be needed than Blumenthal and other conventional wisdom-mongers seem ready to contemplate.

The author’s main theme is that the United States has no legitimate reason to doubt its economic capacity to prevent China from becoming Asia’s kingpin, and his new wrinkle involves measuring economic power by looking more at national wealth, and less at national economic growth. Since the U.S. wealth levels are both much greater than China’s, and since the gap has just resumed growing according to statistics he cites, America can easily afford the military forces needed to put China back in its place. And he blames China’s recent and impressive catch-up on this score on Americans’ recent (Blumenthal doesn’t specify the time frame) political decision to skimp on military spending while continue to devote exorbitant sums to entitlement spending – which has indeed long dominated the budget outlays (along with, as he’s noted, interest payments on the resulting ballooning national debt).

According to Blumenthal, Americans and their leaders as a result have chosen to elevate “the intergenerational transfer of wealth” over national security. Strictly speaking, he’s right. But other interpretations of national priorities seem just as legitimate.

For example, as the author briefly notes, the U.S. population is aging. So a major national retirement funding challenge will face even the most defense-minded politicians. That doesn’t let American leaders or the recipients of these entitlements off the hook in terms of making sacrifices needed to safeguard national security. But it’s bound to raise the question of whether the burden of sacrifice should be limited to middle class Americans. The great increase in national wealth mentioned by Blumenthal makes clear that the nation has many other resources on which it can draw to fund a bigger military – especially since the private economy’s wealth has led the surge. In other words, why not tax the rich or corporations more heavily to pay for new personnel and weapons?

One obvious rejoinder is that modest levels of taxes on wealthy Americans and on American companies are needed to ensure the economic growth needed to keep national wealth levels robust. But even accepting the doctrinaire trickle-down economics underlying this assumption, should upper-level individual incomes and business profits be completely exempted from any responsibility to pay for the military? If so, why? And wouldn’t that policy greatly loosen the relationship between national wealth and military capability emphasized by Blumenthal?

The author also neglects another big pool of resources that can be brought to bear on countering China: the wealth of America’s regional allies. Stunningly, after decades of American pleading for greater burden-sharing, countries with a far greater stake than the United States in resisting Chinese regional domination continue free-riding on U.S. defense guarantees. Why should American entitlements recipients see any reduction in benefits before Japanese and South Koreans pay at least as much for their own security (relatively speaking) as the much more geographically distant United States does? And their contributions could be immense. Japan alone, for example, is the world’s third largest national economy (behind the United States and China, respectively). 

Finally, as with nearly all the rest of the establishment, Blumenthal completely neglects the opposite side of the U.S.-China defense resources equation: The decisive extent to which American economic policy continues enriching China, and therefore continuing to enable it to afford lots of both “guns and butter” (as economists and political scientists have dubbed military and social spending). Thanks in part to literally trillions of dollars of earnings from the trade surpluses it’s long run with the United States, the Chinese pie keeps expanding strongly (that’s the economic growth whose importance Blumenthal softpedals). As a result, more new resources are generated for whatever priorities or combination of priorities the Chinese government chooses.

Even worse, as I’ve long noted, recklessly lax tech transfer policies on America’s part have for decades given the Chinese much of the knowhow needed to turn out increasingly advanced weapons and other military systems. Some signs of official concerns about this outflow have appeared in Washington lately, but U.S. leaders (and the rest of the establishment) remain woefully behind the curve.

When America’s East Asia security strategy stops bolstering the Chinese threat it depicts as such a huge concern, when it insists that local countries act like they have at least as great a stake in remaining independent of China as does the United States, when the wealthiest Americans are required to devote more of their recent immense windfalls to the common defense, and if all of those changes still leave China closing fast on the combined forces of the United States and its neighbors, it would become legitimate to ask Main Street Americans to start shouldering greater burdens. Until then, the U.S. working and middle classes will be entirely justified in demanding that the nation’s Asia strategy pass a minimal seriousness test first.