(What’s Left of) Our Economy: A “Gentleman’s C” for the New Manufacturing Jobs Numbers

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aircraft, aircraft engines, aircraft parts, automotive, Boeing, CCP Virus, electronics, Employment, fabricated metals products, facemasks, food products, furniture, housing, Jobs, Labor Department, manufacturing, masks, metals, pharmaceuticals, ports, PPE, printing, productivity, protective gear, recession, recovery, reopening, semiconductor shortage, tariffs, vaccines, {What's Left of) Our Economy

June’s gains weren’t nearly enough to overcome the latest trend in U.S. manufacturing employment: From a job growth leader earlier during the CCP Virus pandemic, domestic industry has turned into a laggard. It’s not lagging by a big margin, but given significant net headwinds it should still be enjoying, recent results are clearly disappointing.

This morning, the Labor Department reported that U.S.-based manufacturers created 15,000 net new jobs in June – a modest number given the 662,000 increase in total private sector employment on month. At least revisions were positive. May’s initially reported 23,000 monthly improvement is now judged to be 39,000, but April’s already downwardly revised 32,000 sequential job loss is now pegged at 35,000.

In many of the nation’s supposedly prestige colleges, the grade earned by this kind of result would be called a “Gentleman’s C.”

As a result, domestic manufacturing has now regained 904,000 (66.32 percent) of the 1.363 million jobs lost during the pandemic. The numbers for the private sector overall are 72.98 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 69.75 percent of the 22.362 million jobs lost.

A manufacturing optimist (and I’ve been one of them) can note that industry took less of an employment hit during the pandemic-loss months of March and April, 2020. Manufacturing employment sank by 10.65 percent, versus 16.46 percent for the private sector and 14.66 percent for the whole non-farm economy.

But nowadays, domestic manufacturers are still benefiting from major tariffs plus massive government stimulus on both the fiscal and monetary fronts, and from the huge ramp up in vaccine production. Reopening-related bottlenecks clearly are causing problems, but according to the major national surveys that measure how manufacturers themselves believe they’re faring, production and new orders for their products keep growing strongly. (For the newest ones, see here and here.) Even given equally widespread reports that new workers are hard to find, I expected hiring to remain much more robust than it has.

One explanation may be higher productivity, which enables businesses to turn out more goods with fewer workers. But given the longstanding difficulties of gauging this measure of efficiency, and undoubted pandemic-era distortions, I’m reluctant to put too much stock in this argument.

The shortages issues have been once again illustrated by the dominance of the automotive sector in the June manufacturing jobs picture. Payrolls of vehicles and parts companies fell by 12,300 – the biggest individual sector decreases by far – and surely stem from the continuing global shortage of the computer chips that have become ever more important parts of cars and trucks of all kinds.

One small bright spot in the June figures – the 300 jobs increase in the machinery sector. It’s an important indicator of the overall state of industrial hiring, since its products are used throughout industry (as well as in non-manufacturing sectors like agriculture and construction). At the same time, these new positions represented machinery’s weakest sequential performance since January’s 3,200 employment decrease.

Other big June manufacturing net hiring winners were furniture and related products (up 8,500, no doubt reflecting still strong home sales and remodeling activity), fabricated metals products (up 5,700, which is noteworthy given still widespread whining about the ongoing U.S. tariffs on metals), and miscellaneous durable goods manufacturing (up 3,300 – encouraging since this category includes many pandemic-related medical supplies).

The biggest losers other than automotive were food products (down 4,100 and continuing an employment slump that began in January), electronic instruments (down 2,100 and possibly related to the semiconductor shortage), and printing and related activities (down 1,400).

Pandemic-related industries turned in a mixed hiring performance, according to the latest jobs report. Job creation accelerated significantly in the surgical appliances and supply sector, which contains protective gear like face masks, gloves and surgical goans. Its payrolls grew by 1,700 on month in May (its data are one month behind, as is the case with the other sectors examined below), up from April’s 1,200 and its best monthly total since last July’s 3,000. This surgical category’s workforce is now 11.50 percent bigger than in February, 2020 – the last pre-pandemic month.

But the May figures revealed a job creation setback in the overall pharmaceuticals and medicines industry. April’s hiring was revised down slightly, from 2,700 to 2,500, but the number was still solid. In May, however, its payrolls shrank by 400, its worst such performance since pandemicky April, 2020. And its workforce is only 3.82 percent greater than in February, 2020.

Better news came out of the pharmaceuticals subsector containing vaccines, but not that much better. This industry added one thousand workers on net in May, but April’s initially reported 1,300 jobs increase was revised down to 1,100. Still, this vaccines-heavy sector now employs 9.20 percent more workers than just before the pandemic.

And in aircraft, Boeing’s continuing manufacturing and safety issues surely helped produce this industry’s worst jobs month – consisting of a 5,500 payroll decrease – since June, 2020’s 5,800. This sector has now lost 9.39 percent of its jobs since the final pre-pandemic month.

Interestingly, the aircraft engines and parts, and non-engine parts categories weren’t nearly as hard-hit job-wise in May. (The former even maintained employment levels.) But payrolls in each are down since February, 2020, by roughly twice as much proportionately as in aircraft.

Major uncertainties still hang over the domestic manufacturing jobs scene, and in one important respect – big new backups in Chinese ports – they’ve become murkier. Nor do Boeing’s problems seem ready to end any time soon. I’m still bullish on U.S.-based manufacturing’s employment outlook, at least in the short and medium terms mainly because American policy remains so overwhelmingly stimulative and its effects are still coursing through the economy. But I’m getting a little impatient for the numbers to start backing me up once again.

(What’s Left of) Our Economy: It’s an Autos Story Again for U.S. Manufacturing Production

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aerospace, aircraft, aluminum, apparel, automotive, Boeing, CCP Virus, chemicals, China, computers, coronavirus, COVID 19, Donald Trump, electronics, facemasks, Federal Reserve, health security, inflation-adjusted output, machinery, manufacturing, medical supplies, paper, pharmaceuticals, PPE, printing, real growth, semiconductor shortage, semiconductors, shutdowns, steel, stimulus, tariffs, vaccines, Wuhan virus, {What's Left of) Our Economy

Earlier in the CCP Virus era, the U.S. manufacturing production story was largely an automotive production story – because the industry shut down so suddenly and completely during the pandemic’s first wave and the deep economic downturn it triggered, and then began reopening at a record pace. And today’s Federal Reserve figures show that domestic industry’s growth is being driven by dramatically fluctuating vehicles and parts output once again – but this time it seems due significantly to the global semiconductor shortage that’s deprived the sector of critical parts.

Also noteworthy about today’s Fed manufacturing release (which covers May): It incorporates the results of the benchmark revision of these data for the 2017-19 period. As explained in yesterday’s post on the subject, the new numbers create a new baseline for pre-pandemic manufacturing growth, and therefore a new picture of how big the virus-induced downturn was, and how strong the recovery has been – at least until the next benchmark revision. And of course, the new figures therefore supersede those in the April Fed release I reported on last month.

Automotive’s influence on the May numbers is clear from the following: Total inflation-adjusted sequential growth for U.S.-based manufacturing hit a strong 0.89 percent last month. Without automotive (whose 6.69 percent monthly output pop followed a 5.57 percent April drop), the increase would have been just over half that – a still solid 0.50 percent. Don’t be surprised if the microchip shortage keeps these results on a roller coaster.

Its May increase brought total real domestic manufacturing output back within 0.31 percent of its last pre-pandemic level, in February, 2020. In March and April, such production plummeted by 19.41 percent. Since then, it’s surged by 23.90 percent. For the record, as I wrote yesterday, the pandemic-spurred Spring, 2020 nosedive was slightly shallower (0.92 percent) than judged before the revisions (1.42 percent) but the comeback through this past April was a bit weaker (22.81 percent versus 23.27 percent).

Machinery making enjoyed a good month in May, and as known by RealityChek regulars, that’s good news for all domestic manufacturing and the rest of the economy, since its products are so widely used. Constant dollar output improved by 0.78 percent last month, and consequently, the sector is now 2.35 percent bigger in these terms than just before the virus started depressing the economy. One downside should be noted, though: The new revision indicates that the machinery recovery has actually be significantly slower than previously estimated.

Manufacturing’s list of other big inflation-adjusted production winners in May featured some real surprises. The apparel and leather goods industries remain shadows of their historic selves, but their real output last month jumped 2.59 percent – their best such result since January’s 2.06 percent. Moreover, this sector has grown in real terms by 6.74 percent since just before the pandemic – much faster than manufacturing as a whole.

After-inflation production in the small printing and related activities industry grew by 2.59 percent – also its best result since January (3.99 percent).

But some big sectors saw healthy gains in May, too – notably chemicals (whose products are also used throughout the economy) and computer and electrnics products. The former saw real production advance by 2.19 percent sequentially last month – its best such result since March’s weather-aided 4.08 percent. And the latter grew in May by 1.60 percent.

The biggest losers? Paper led this pack by far, with May constant dollar production sinking by 1.59 percent on month – its worst such showing since January’s 1.78 percent decrease.

Likely due to Boeing’s continuing production and safety problems (more on which later), the aerospace and miscellaneous transportation sector’s after inflation production sank by 0.95 percent sequentially in May – and that followed a 2.55 percent nosedive (no pun intended) in April. And wood products real output fell by 0.82 percent.

But the losers’ list contains a big surprise, too. Complaints keep coming that that the domestic steel and aluminum industries (and especially the steel-makers) have responded to tariffs simply by enjoying the higher resulting prices and sitting on these winnings. So it’s noteworthy that even after a 0.82 percent monthly real output decline in May, primary metals production after inflation is slightly (0.15 percent) higher than in immediate pre-pandemic-y February, 2020 – another such performance that’s bested that for all manufacturing.

The aforementioned problems suffered by Boeing keep coming through in the real output data for the aircraft and parts sub-sector of the aerospace and miscellaneous transportation industry. In May, inflation-adjusted output was down 1.47 percent on month – much bigger than the larger industry fall-off. And that came on the heels of April’s 2.21 percent decrease. Real aircraft and parts production is still 4.36 percent above its immediate pre-pandemic level, but given the ongoing post-CCP Virus worldwide rebound in air travel, these figures are definitely disappointing – and moving in the wrong direction.

By contrast, the big pharmaceuticals and medicines sector is still benefitting from reopening headwinds. May’s 0.22 percent monthly real output increase was admittedly modest, especially since this sector includes vaccine production. But it’s grown by 8.44 percent since the virus began spreading rapidly in the United States. on g – also delivered a disappointing performance in April, especially since it includes vaccines.

But both the May real production numbers and the benchmark revision left the vital medical equipment and supplies sector a conspicuous production laggard. This industry – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators – grew in real tems by just 0.19 percent sequentially in May, and April’s after inflation output was down 1.66 percent. As a result, this sector is turning out only 0.35 percent more product than just before the pandemic’s arrival – which doesn’t seem to augur well for national preparedness for the next pandemic.

If I was a betting person (I’m not), I’d still wager on better days ahead for U.S. domestic manufacturing – because so many powerful supportive trends and developments remain in place, ranging from massive government spending and other forms of stimulus to the virus’ continuing retreat to waning consumer caution to huge amounts of pandemic-era consumer savings to ongoing Trump tariffs that keep pricing huge numbers of Chinese goods out of the U.S. market.

But no one should forget about a list of threats to the pace of manufacturing growth, if not growth itself – like the prospect of higher taxes and more regulations, and the possibility that consumer demand will keep growing but switch away from goods to the hard-hit but quickly reopening service sectors (which of course do buy manufactures). Inflation isn’t good for strong (real) growth, either, though I’m an optimist on this front.

Ultimately, though, I’m most struck by evidence of domestic manufacturers’ continuing optimism about the prospects of their businesses. If they’re still confident about their futures, that remains good enough for me.

(What’s Left of) Our Economy: In Case You Still Doubt How Much Manufacturing Matters

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automotive, CCP Virus, coronavirus, COVID 19, electronics, Immigration, infotech, Nikkei Asia, semiconductors, stay-at-home, Taiwan, TSMC, wages, Wuhan virus, {What's Left of) Our Economy

One of the most encouraging recent developments in American public policy lately is the virtual disappearance of the idea that manufacturing boasts no special importance to the American economy. I guess that’ll happen when a pandemic reveals dangerous shortages of key medical equipment (and the long supply chains needed to supply equally key parts, components, materials and the production equipment to make all of these items).

Ditto for the loss by a U.S.-based company (Intel) of the global lead in the knowhow to produce the world’s most powerful semiconductors – which run not only the world’s exploding numbers of electronics devices and networks, but soaring percentages of production machinery, as well as lying at the heart of nearly all present and future defense-related goods.

But I’m far from taking this triumph for granted – no doubt because this victory has been so recent, and because I’ve spent so much of my career making the case for government promotion of manufacturing against a free market-worshipping opposition that not only represented an entrenched conventional wisdom, but that could vastly out-spend and therefore practically drown out us “industrial policy” supporters.

And that’s why I was so pleased to see an article just out from the Japanese publication Nikkei Asia that dramatically illustrated how a robust national manufacturing base can supercharge an entire national economy and its workforce’s well-being.

Nikkei Asia described the effect on Taiwan of the new expansion programs being carried out by its world-class semiconductor manufacturing company TSMC (the firm that, along with South Korea’s Samsung, has taken the global microchip manufacturing technology lead from Intel). TSMC’s planned growth is dramatic, largely because the CCP Virus and its effects have created such surging demand for and consequent shortages of microchips. Blame (or credit) the booming popularity of semiconductor-powered electronic devices critical for increasingly popular stay-at-home work and leisure, and the on-and-off jolts generated by the pandemic for giant semiconductor-using industries like the automotive sector.

Compounding the impact, according to authors Cheng Ting-Fang and Laury Li, is the trend of “other Taiwanese companies…bringing production home from China amid Beijing-US trade tensions.”

And the results? “Business has never been brisker for construction companies in Taiwan….” Consequently, wages are way up for construction workers with both ordinary skill sets and specialized knowledge. But even though labor shortages are evident, Taiwan’s government shows no signs of killing this living standards bonanza by trying to open immigration flood gates.

As explained by a manager in the construction industry itself, “Foreign workers are not the ultimate solution as the government sets limits on their entry and many positions, such as electroplating specialists, require professional knowledge.”

Bottlenecks are already appearing and more are sure to come. But it also seems that Taiwan’s businesses will be solving the problem in the way that brings the greatest, most broadly shared national benefits – with technological and managerial innovation (i.e., by improving productivity) rather than by suppressing wages via artificially pumping up Taiwan’s labor supply.

At the same time, it’s not just workers that are in great demand on Taiwan. As the Nikkei Asia article specifies, “Cranes, trucks, excavators and all manner of heavy vehicles stream in and out of the vast construction site for” TSMC’s new advanced semiconductor factory in the city of Tainan. So the need for these machines is pressing, too – and thus for the workers and machinery needed to turn them out.

Is there a downside? Absolutely. Higher wages (and they’ve advanced throughout the economy) have driven major real estate and housing price increases (though the wage hikes indicate that affordability remains pretty much the same, and therefore bubble fears are unwarranted so far). And Taiwan’s water supplies and other infrastructure systems are under strain.

Overall, though, I’d bet on Taiwan to cope successfully with these and other actual and potential problems – which most other countries would actually love to have. And that’s precisely because, to a practically unrivalled extent, the country knows how much manufacturing matters. 

Full disclosure: I own some TSMC stock.  

 

Our So-Called Foreign Policy: Evidence that the Multinationals Really Did Sell the U.S. Out to China

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capital spending, chemicals, China, computers, electronics, health security, healthcare goods, information technology, investment, Lenin, manufacturing, multinational companies, national security, offshoring, offshoring lobby, Our So-Called Foreign Policy, pharmaceuticals, research and development, supply chains, tech, tech transfer, U.S-China Economic and Security Review Commission, USCC, World Trade Organization, WTO

RealityChek readers and anyone who’s familiar with my work over many years know that I’ve often lambasted U.S. multinational companies for powerfully aiding and abetting China’s rise to the status of economic great power status – and of surging threat to U.S. national security and prosperity. In fact, the dangers posed by China’s activities and goals have become so obvious that even the American political and policy establishments that on the whole actively supported the policies – and that permitted money from this corporate Offshoring Lobby to drive their decisions – are paying attention.

If you still doubt how these big U.S. corporations have sold China much of the rope with which it’s determined to hang their own companies and all of America (paraphrasing Lenin’s vivid supposed description of and prediction about the perilously shortsighted greed of capitalists), you should check out the latest report of the U.S-China Economic and Security Review Commission (USCC). As made clear by this study from an organization set up by Congress to monitor the China threat, not only have the multinationals’ investments in China figured “prominently in China’s national development ambitions.” They also “may indirectly erode the United States’ domestic industrial competitiveness and technological leadership relative to China.”

Worst of all, “as U.S. MNE (“multinational enterprise) activity in China increasingly focuses on the production of high-end technologies, the risk that U.S. firms are unwittingly enabling China to achieve its industrial policy and military development objectives rises.”

And a special bonus – these companies’ offshoring has greatly increased America’s dependence on China for supplies of crucial healthcare goods.

Here’s just a sampling of the evidence presented (and taken directly by the Commission from U.S. government reports):

> U.S. multinationals “employ more people in China than in any other country outside of the United States, primarily in the assembly of computers and electronic products.” Moreover, this employment skyrocketed by 574.6 percent from 2000 to 2017.

> “China is the fourth-largest destination for U.S. MNE research and development (R&D) expenditure and increasingly competes with advanced economies in serving as a key research hub for U.S. MNEs. The growth of U.S. MNE R&D expenditure in China is also comparatively accelerated, averaging 13.6 percent yearon-year since 2003 compared with 7.1 percent for all U.S. MNE foreign affiliates in the same period. This expenditure is highest in manufacturing, particularly in the production of computers and electronic products.”

> “U.S. MNE capital expenditure in China has focused on the creation of production sites for technology products. This development is aided by the Chinese government’s extensive policy support to develop China.”

> The multinationals’ capital spending on semiconductor manufacturing assets “has jumped 166.7 percent from $1.2 billion in 2010 (the earliest year for which complete [U.S government] data is available) to $3.2 billion in 2017, accounting for 90 percent of all U.S. MNE expenditure on computers and electronic products manufacturing assets in China.”

> “China has grown from the 20th-highest source of U.S. MNE affiliate value added in 2000 ($5.5 billion) to the fifth highest in 2017 ($71.5 billion), driven primarily by the manufacture of computers and electronic products as well as chemicals. The surge is especially notable in semiconductors and other electronic components.”

> “[P]harmaceutical manufacturing serves as the largest chemical sector in terms of value-added [a measure of manufacturing output that seeks to eliminate double-counting of output by stripping out the contribution of intermediate goods used in final products]…” And chemicals – the manufacturing category that include pharmaceuticals – has become the second largest U.S-owned industry in China measured by the value of its assets (after computers and electronic products).

Incidentally, the report’s tendency to use 2000 as a baseline year for examining trends is no accident. That’s the year before China was admitted into the World Trade Organization (WTO) – and the numbers strongly reenforce the argument that the multinationals so avidly sought this objective in order to make sure that the value of their huge planned investments in China wouldn’t be kneecapped by any unilateral U.S. tariffs on imports from China (including those from their factories). For the WTO’s combination of consensus decision-making plus the protectionist natures of most of its members’ economies created a towering obstacle to Washington acting on its own to safeguard legitimate American domestic economic interests from Chinese and other foreign predatory trade and broader economic activity.

At the same time, despite the WTO’s key role in preserving the value of the multinationals’ export-focused China investments, the USCC study underestimates how notably such investment remains geared toward exporting, including to the United States. This issue matters greatly because chances are high that this kind of investment (in China or anywhere else abroad) has replaced the multinationals’ factories and workers in the United States. By contrast, multinational investment in China (or anywhere else abroad) that’s supplying the China market almost never harms the U.S. domestic economy and in fact can help it, certainly in early stages, by providing foreign customers that add to the domestic customers of U.S.-based manufacturers.

There’s no doubt that the phenomenal growth of China’s own consumer class in recent decades has, as the China Commission report observes, generated more and more American business decisions to supply those customers from China. In other words, the days when critical masses of Chinese couldn’t possibly afford to buy the goods they made in U.S.- and other foreign-owned factories are long gone.

But the data presented by the USCC does nothing to support this claim, and the key to understanding why is the central role played by computer, electronics, and other information technology-related manufacturing in the U.S. corporate presence in China. For when the Commission (and others) report that large shares of the output of these factories are now sold to Chinese customers, they overlook the fact that many of these other customers are their fellow entities comprising links of China-centric corporate supply chains. These sales, however, don’t mean that the final customers for these products are located in China.

In other words, when a facility in China that, for example, performs final assembly activities on semiconductors sells those chips to another factory in China that sticks them into computers or cell phones or HDTV sets, the sale is regarded as one made to a Chinese customer. But that customer in turn surely sells much of its own production overseas. As the USCC documents, China’s consumer market for these goods has grown tremendously, too. But China’s continually surging share of total global production of these electronics products (also documented in the Commission report) indicates that lots of this output continues to be sold overseas.

Also overlooked by the USCC – two other disturbing apects of the multinationals’ activities in China.

First, it fails to mention that all the computer and electronics-related investment in China – which presumably includes a great deal of software-related investment – has contributed to China’s economic and military ambitions not only by transferring knowhow to Chinese partners, but by teaching huge numbers of Chinese science and technology workers how to generate their technology advances. The companies’ own (often glowing) descriptions of these training activities – which have often taken the form of dedicated training programs and academies – were revealed in this 2013 article of mine.

Second, the Commission’s report doesn’t seem to include U.S. multinationals’ growing investments not simply in high tech facilities in China that they partly or wholly own, but in Chinese-owned entities. As I’ve reported here on RealityChek, these capital flows are helping China develop and produce high tech goods with numerous critical defense-related applications, and the scale has grown so large that some elements of the U.S. national security community had been taking notice as early as 2015. And President Trump seems to be just as oblivious to these investments as globalist former President Barack Obama was.

These criticisms aside, though, the USCC has performed a major public service with this survey of the multinationals’ China activities. It should be must reading in particular for anyone who still believes that these companies – whose China operations have so greatly enriched and therefore strengthened the People’s Republic at America’s expense – deserve much influence over the U.S. China policy debate going forward.

Following Up: Inside April’s U.S. Manufacturing Crash II

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aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: Why Trump Should Have Hung Tough with China

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Applied Materials, ASM Lithography, Bloomberg, Bloomberg.com, China, electronics, forced technology transfer, Fujian Jinhua, G20 Summit, information technology hardware, intellectual property theft, KLA-Tencor, Lam Research, Made in China 2025, Micron Technology, Netherlands, semiconductors, Taiwan, technology, Trade, trade war, Trump, United Microelectronics Corporation, Xi JInPing, ZTE, {What's Left of) Our Economy

A U.S.-China summit on the sidelines of the global economic conference in Buenos Aires has produced what amounts to a three-month truce in the trade conflict the two countries have been waging since the early months of the Trump administration. I’ll have a detailed reaction coming out in a major newspaper op-ed piece tomorrow, so I don’t want to steal my own thunder here.

For now, it’s worth spotlighting a recent Bloomberg.com piece on America’s latest efforts to fight China’s intellectual property theft, and the dangerous progress and ambitions it’s been largely fueling. It’s so good, and so important, that it illustrates exactly why the President should have hung tough in his China trade diplomacy – and how much more thoroughly America’s China policies need overhauling before they can adequately serve U.S. national interests than even the Trump administration has been indicating.

Just to review, the Trump administration has imposed several rounds of tariffs on literally hundreds of billions of Chinese products typically headed for the American market, largely in response to China’s newly explicit ambition to achieve worldwide technological supremacy – and in the process become the world’s strongest economy and military power.

This Chinese goal – made clear in a program called Made in China 2025 – is anything but entirely new. Indeed, much of the blueprint has been in effect literally for many years, and certainly once Chinese leaders realized that the United States, Japan, South Korea, Taiwan, and Western Europe seemed happy enough to foster their country’s economic development by supplying in various ways the knowhow to make major tech catch-up a realistic goal. So China has long sought to secure such technology as fast as possible, by whatever means were needed – including those that violated various trade commitments it had made.

In the last few years, however, China’s often startling resulting advances, its reversion to a national economic strategy ever more reliant on government dictates and strong-arming and discriminating against foreign investors, and its mounting belligerence in world affairs, have woken up even many pillars of America’s free trade-happy establishment to the threat they’d been creating. And crucially, the crestfallen included many of the very companies that were handing over their crown jewels to China, along with the politicians and think tank shills they funded.

The Bloomberg article is so valuable because in one fell swoop, it illustrates how deeply involved American companies have been involved – and remain – in strengthening China’s tech capabilities, how consequently vulnerable China remains to American inputs of various kinds, and therefore why there is absolutely no reason for the Trump administration to relieve its tariffs’ pressures on China’s economy without major – and completely verifiable – concessions from Beijing.

In the piece, a team of Bloomberg reporters make all these points with a detailed account of a Chinese (government-supported, of course) entity that sought to produce advanced versions of critical pieces of the semiconductors used in smartphones. The explicit goal: Reduce the Chinese electronics’ industry’s dependence on foreign semiconductors.

That objective per se is highly objectionable – that is, for anyone who takes seriously the supposed main purpose of the global trade system, which is to foster the most efficient possible global division of labor by freeing up trade flows to ensure that the output and provision of various products and services is concentrated in those countries that do these jobs best. But defenders of the global trade status quo never seemed to notice that China demonstrated no interest in passively accepting the verdict of market forces.

In fact, as the Bloomberg team makes clear, American technology companies have been all too ready to aid this Chinese ambition, even with Beijing’s ambitions ringing more and more alarm bells. Specifically, this Chinese entity (as usual, I refuse to call these outfits “companies” or “businesses” because Beijing’s effective control over them sharply distinguishes them from groupings in largely free market economy that actually deserve those labels), was being supplied by U.S. semiconductor manufacturing equipment firms KLA-Tencor, Applied Materials, and Lam Research – along with foreign counterparts like the Netherlands’ ASM Lithography and Taiwan’s United Microelectronics Corp.

But at the end of October, the U.S. government placed the Chinese entity – called Fujian Jinhua Integrated Circuits – on a list of economic actors whose operations are just to pose “significant risk of becoming involved in activities that are contrary to the national interest of the United States.” Several days later, Washington also indicted the entity for stealing the intellectual property of American semiconductor firm Micron Technology of stealing its intellectual property. As a result of the national security finding, American companies are in effect prohibited from supplying Fujian Jinhua. And since Fujian’s non-U.S. suppliers sell it goods that contain American-made parts, the restrictions cover them, too.

The result of the ban announcement? According to the Bloomberg article, Fujian Jinhua’s “dream is now in tatters with consultants from American suppliers gone, the factories silent and workers rattled.” And lest you think this is just one anecdote, recall that a similar American export ban on selling to Chinese telecommunications manufacturer ZTE would have doomed that entity had President Trump not let it off the hook in hopes of currying some valuable favor and negotiating leverage (so far, in vain) with Chinese leader Xi Jinping.

In other words, the United States enjoys decisive leverage over China in the struggle for technological, economic, and military power, and should continue ramping it up to extract whatever concessions it can get from Beijing. In this vein, it’s as shocking as it is disturbing that U.S. tech firms like those mentioned above are still allowed to contribute to China’s technological development months after the Trump administration has literally designated China as a power (along with Russia) that is challenging “American power, influence, and interests, [and] attempting to erode American security and prosperity.” Further, the same national security strategy document declared, more specifically, that “Part of China’s military modernization and economic expansion is due to its access to the U.S. innovation economy, including America’s world-class universities.”

But more important, as I’ve written, since verifiable concessions are so unlikely, this pressure should form one major element of a larger strategy that to disengage America from China economically, and this goal, and the stakes that justify it, should be declared by President Trump soon after his return from Buenos Aires.

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

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

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

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

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

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

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China, computers, counterfeits, cyber-security, Defense Department, electronics, globalization, hacking, Intel, microchips, semiconductors, smart phones, technology, Trade, {What's Left of) Our Economy

OK, who out there has an electronic device like a computer or a smartphone? I thought so. And who uses them like…nearly all the time? And engages in lots of financially or personally sensitive activity on-line? Thought so again. And you no doubt weren’t thrilled to find out yesterday that the computer chips vital to the operations of virtually all of these devices have some big security flaws that make them eminently hackable.

Well, here’s worse news: There’s an excellent chance that the hackers could be working for the Chinese government. And for that, you can thank decades of stupefyingly boneheaded American trade and globalization policies.

I can’t tell you how excellent the chances are, because one of the completely unnecessary failures of these policies has been pre-Trump Washington’s complete lack of interest, from either major political party, in tracking and letting the American public know how dependent they and their economy have become on products from potentially dangerous countries.

But I feel confident in claiming that the chances are at least pretty excellent. The reason? Private sector specialists have published detailed studies on subjects like the Chinese electronics industry. Thanks to them, it’s well established that, although China has yet to become a top global player in manufacturing semiconductors, and especially cutting-edge microchips, it’s a powerhouse in what’s known as “back end” semiconductor production – relatively low-tech phases of the process that involve activities like packaging, assembling, and testing.

So many U.S. and other non-Chinese information technology companies do so much of this activity in China that, according to a report from the consulting firm PwC, in 2015 (the latest available data) China-based facilities accounted for 44.6 percent of total global revenues from these back end operations. That’s up from just 20.3 percent in 2009. In other words, Chinese employees of these companies have ample opportunity to insert all sorts of bugs in them, and these opportunities have been growing rapidly.

Think I’m paranoid? Or just anti-Chinese? Then you need to learn that the Defense Department had admitted that, over a recent two-year period, its weapons systems had been studded with some 1 million counterfeit electronics parts and components – some 70 percent traceable to China. DoD now claims it’s solved much of the problem with a “trusted supplier” program. But good luck reliably inspecting the gargantuan Chinese electronics production complex over any serious length of time.

Longstanding American trade and globalization policies deserve most of the blame because, through priorities like indiscriminately expanding U.S. commerce with and export-oriented investment in China, they actively encouraged much of the world’s electronics industry to migrate to the People’s Republic.

The world’s current Number Two semiconductor producer, likes to tout “Intel Inside” a huge share of the world’s electronics devices. Maybe it, and others, should start to advertise “China Inside”?

(What’s Left of) Our Economy: Foxconn’s U.S. Plans Debunk China-Related Manufacturing Defeatism

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Apple, China, electronics, flat panels, Foxconn, General Electric, Jeffrey Immelt, Jobs, manufacturing, Obama, supply chains, tariffs, Terry Gou, Trade, transportation, Trump, {What's Left of) Our Economy

Another day, another big corporate announcement about job-creation in the United States in the wake of Donald Trump’s election as president – this time from Taiwanese electronics giant Foxconn, which makes so many iPhones and other products in China.

All the usual skeptical responses have been marshaled – or will be. Some of these have already been made by Foxconn’s chairman, like “We were already thinking of this” and “Trump’s tariff threats had nothing to do with these plans.” (Those aren’t direct quotes – just paraphrases.) An unusual skeptical response is out there, too – that the very large (and growing) flat panel displays Foxconn is thinking of producing in America are inevitable candidates for relocation because they’re too fragile to keep shipping half way around the world to customers.

But here’s what’s especially fascinating about Foxconn even considering this move: It demolishes or at least severely undercuts many of the most powerful explanations for why huge chunks of manufacturing will never return to the United States.

First, although Foxconn chief Terry Gou brushed off Trump’s trade stance, he has also stated that because of surging populism in the United States and globally, the rise of protectionism is “inevitable.” In this way, he’s just acknowledged the same trends that recently prompted his General Electric counterpart Jeffrey Immelt to declare that his huge multinational manufacturer will start making more goods where those goods are sold. So there’s little doubt that, precise timing aside, Gou has had his finger up to the prevailing political winds – which got a lot stronger on November 8.

Second, it may be true that very large flat panels for the highest tech TVs etc aren’t suitable for ocean voyages. But the United States, you may remember, is an awfully big country. And at least some of its roads aren’t in such hot shape. So since these panels will still have to travel by truck thousands of miles inside America to get from factories to warehouses and then to retail outlets (or directly to customers), it’s hard to imagine that transportation technicalities have been the main drivers of Foxconn’s decision.

Third, the kinds of electronics products made en masse by Foxconn in China have long been seen as especially farfetched candidates for domestic American production because the PRC is thought to have created such utterly matchless competitive advantage in this field. As Apple executives apparently told the (credulous) Obama administration five years ago, China’s manufacturing edge goes way beyond labor costs.  The U.S. company, of course, is one of Foxconn’s leading customers.  

Instead, “the vast scale of overseas [especially Chinese] factories as well as the flexibility, diligence and industrial skills of foreign [especially Chinese] workers have so outpaced their American counterparts that ‘Made in the U.S.A.’ is no longer a viable option for most Apple products.” In other words, the electronics sector’s main supply chains are now located in China, and changing this immense fait accompli is impossible.

Yet Foxconn’s Gou is talking about doing just that. For example, he’s talking about a 30,000-50,000 job gain from the investment. Moreover, he already employs 400 in Virginia in a packaging and engineering, and has announced his intention to build a Pennsylvania facility to “build precision tools and develop a robotics programme.” That sure sounds like supply chain stuff to me.

Ever since his first run for the White House, former President Obama has used the phrase “Yes, we can” to inspire his countrymen. His successor seems to recognize that the phrase applies to reviving American manufacturing, too.