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Following Up: More Reasons for Iran Deal Concerns

14 Tuesday Jul 2015

Posted by Alan Tonelson in Following Up

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allies, Arabs, China, Congress, Democrats, energy boom, Following Up, Germany, Iran, Iran deal, Israel, Middle East, missile defense, Obama, Persian Gulf, Peter Beinart, Republicans, Richard Nixon, sanctions, Sunnis, The Atlantic, United Kingdom

One of my favorite political anecdotes concerns an exchange that looks like it resulted from a misunderstanding. Like many such stories, though, it’s so revealing that it’s worth recounting. And it’s incredibly timely in this immediate aftermath of the Iran nuclear deal announcement.

According to initial reports, during his first, historic visit to what we used to (and still should) call “Communist China,” former President Richard Nixon was talking history with Chinese Premier Zhou En-Lai – reputedly a world-class intellectual that the chronically insecure American leader surely wanted to impress. What, Mr. Nixon supposedly asked Zhou, was the impact of the French Revolution? Replied the Paris-educated Zhou, “Too early to say.”

Eyewitnesses say that Zhou mistakenly thought Mr. Nixon was referring to the student riots that had recently rocked France, but the impression reinforced in its retelling – of Chinese farsightedness and America’s persistent short-termism – remained vivid.

President Obama and his defenders have touted the new Iran deal and the president’s overall Iran approach as embodying just the kind of strategic patience America chronically needs. I wish I could be so confident. As I’ve written previously, Mr. Obama’s optimism that Iran’s broad foreign policy will moderate as it becomes reintegrated into the world economy strongly resembles badly mistaken and longstanding expectations that a China that traded more extensively would be a much safer China. While China remained much weaker than the United States, these predictions were arguably understandable. But the reintegration process was handled so recklessly, and so much wealth and defense-related technology have been showered on China, that its belligerence has been returning as the power gap has – largely as a result – narrowed.

Iran lacks China’s global potential. But the resumption of quasi-normal trade and investment with the west in particular, coupled with the return of major oil revenues, means at the very least that its leaders will feel much less of a “guns versus butter” resource squeeze than at present. Therefore, Tehran will become better able to have its cake and eat it, too – simultaneously capable of increasing living standards at home and boosting its influence across the Middle East.  So both the regime’s grip on power and its ability to continue threatening U.S. interests are likely to grow stronger, not weaker. As a result, just as with China’s leaders, the mullahs will feel that much less pressure to mend their ways.

There’s another problem with Obama’s concept of the long game. One of the hallmarks of foreign policy realism is recognizing that lasting solutions to even the most serious challenges are rarely possible short of war or some comparable event. And even the so-called military last resort is no long-term guarantee, either. Hence muddling through is often the best option diplomats face. But truly strategic muddling through doesn’t simply entail improvising from crisis to crisis and hoping for the best. It also involves actively trying to hedge – and especially to reduce risks and vulnerabilities

In other words, the same pragmatism that has convinced Mr. Obama that unattainable perfection is the enemy of this good deal should have also convinced him to come up with a Plan B. But there’s no evidence of one worthy of the name, other than vague references to using military strikes against Iran’s nuclear complex that even his senior advisers have warned him against. I’m not advocating such attacks. But how nice it would be to hear something from Mr. Obama about bolstering American missile defenses – assuming that a nuclear-armed Iran will eventually acquire intercontinental delivery vehicles.

Stronger efforts to offer such shields to allies would be welcome, too. The major role played by the United States – including under the current administration – in developing and funding Israeli missile defenses should not be overlooked, although few Israelis seem to consider even the most advanced systems deployed an adequate substitute for genuinely de-nuclearizing Iran. The president also held a greatly hyped summit with Persian Gulf leaders in May, but contrary to hopes harbored by these countries, no significantly greater defense assistance was on the administration’s agenda.

At the same time, leaving the special issue of Israel aside, the intrinsic domestic weaknesses of these Sunni Arab countries underscores Mr. Obama’s continuing failure to explore actively another promising major strategic option for America: capitalizing on the nation’s new potential, largely thanks to the domestic energy revolution, of marginalizing the entire Middle East in its security calculations. As a result of this presidential blind spot, the United States still finds its fate closely linked to a group of regional states that lack the internal cohesion to be reliable allies over any serious time span.

Meanwhile, another less explicit Obama assumption is also looking eminently challenge-able – that the United States and its western allies will hang closely enough together to put meaningful teeth in the deal’s monitoring and inspection provisions. Ironically, some alarming new evidence comes from Atlantic contributor Peter Beinart, who supports the Iran agreement.

As Beinart sees it, one main reason for accepting a flawed deal along its present lines is that the allies were unlikely to have continued supporting current sanctions if Washington held out for stronger terms.  For it was precisely the hope of negotiating an Iran solution sooner rather than later that persuaded them to incur the economic losses generated by sanctions to begin with.  Moreover, he quotes top British and German diplomats to this effect.

Yet if the Europeans are this money hungry, are they really likely to respond to anything but the most flagrant Iranian misbehavior by shutting the new trade off? I’m glad I don’t have to make that argument.

I’m still not willing to write off the Iran deal completely – as I believe many of Mr. Obama’s staunch conservative and Republican opponents are doing reflexively and prematurely. But if it turns out to be a bad one, I’m fully prepared to “walk away.” Here’s hoping Congress is, too – especially Democrats who will surely be tempted to back the president for their own purely partisan reasons.  

(What’s Left of) Our Economy: U.S. Manufacturing Delivers a Strong 2014 – & Lots of Surprises

16 Friday Jan 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

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automotive, energy boom, industrial production, machinery, manufacturing, manufacturing renaissance, non-durable goods, {What's Left of) Our Economy

This morning’s release of the Federal Reserve’s December industrial production numbers enables us to examine American manufacturing’s growth performance for all of 2014 (though there will be subsequent revisions – starting next month). The big takeaways include domestic industry recording its biggest inflation-adjusted production gains since 2010, a ten-year high in real output of non-durable goods (possibly a long-awaited sign of cheap energy’s manufacturing-boosting effects), and a stark reminder of how heavily manufacturing’s post-recession rebound has depended on the automotive sector.

Here are the manufacturing highlights of the new Federal Reserve release:

>This morning’s data revealed that American manufacturing in 2014 enjoyed its strongest growth year since the start of the U.S. economy’s overall recovery, with the 5.22 percent inflation-adjusted output gain far exceeding 2013’s 2.47 percent. In 2010, manufacturing expanded by an inflation-adjusted 7.05 percent.

>Nonetheless, manufacturing production’s slump during the downturn was so severe (20.48 percent), that the sector is still only 3.43 percent larger in real terms than at the recession’s onset seven years ago.

>Although the automotive sector’s annual growth (7.05 percent) again outpaced manufacturing’s overall performance in 2014, industry’s real star last year was machinery, where inflation-adjusted production jumped by 12.12 percent. That surge was the biggest since 2010’s 21.52 percent surge. Between 2012 and 2013, real machinery output rose by only 2.53 percent – its worst year since its 13.77 percent plummet in 2009.

>Nonetheless, automotive’s influence on real manufacturing output remains undeniable. If that sector is stripped out, manufacturing’s 2014 year-on-year growth falls from 5.22 percent to 4.72 percent. And its expansion since the recession’s December, 2007 onset nosedives from 3.43 percent to 0.48 percent.

>The month-on-month manufacturing picture was less bright, with December real production growth slowing from an upwardly revised 1.34 percent in November (the biggest since the snap back from last year’s harsh winter) to 0.29 percent.

>The original November manufacturing growth figure was 1.15 percent. October’s real production was revised down from 0.45 percent to 0.26 percent.

>Continuing a recent pattern, December’s monthly manufacturing growth was led by the non-durable goods sector – whose 2014 real output increase of 3.83 percent was its best since 1994. Non-durables’ December monthly 0.38 percent real expansion significantly exceeded the 0.20 percent growth of durable goods production – that sector’s worst monthly performance since real output fell in August.  

>The pickup in the non-durables sector — which includes major energy users like chemicals and plastics — could indicate that the American energy production revolution and the cheap prices it’s brought are shaping U.S. manufacturing’s performance and structure. 

>Dragging down December durables growth was a 0.93 percent decline in automotive production – the fourth monthly drop in the last five months.

>In fact, since its 9.38 percent real monthly output spike in July, automotive production is off by 5.24 percent.

>The entire manufacturing sector’s real annual December 5.22 percent growth represented a pickup from November’s 5.12 percent figure. Year-on-year manufacturing growth peaked in July at 5.29 percent, powered mainly by the automotive spike.

>Durable goods output in 2014 increased by 6.44 percent. In addition, this December year-on-year figure was the sector’s best since the July automotive-led 8.09 percent jump.

>Durable goods output after inflation is now 10.57 percent greater than at the December, 2007 start of the last recession.

>Real non-durable goods production’s strong 2014 growth still left the sector 4.84 percent smaller than at its pre-recession peak, which was hit in July, 2007.

 

(What’s Left of) Our Economy: Record Low Real Oil Deficit Helps Depress November Trade Shortfall

07 Wednesday Jan 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

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Tags

China, energy boom, high tech goods, Korea, manufacturing, oil, TPP, Trade, trade deficit, {What's Left of) Our Economy

November’s U.S. trade figures underscore how strongly the recent narrowing in America’s chronic deficits has been driven by booming domestic energy production and therefore historic declines in the oil trade gap. The enormous goods deficit fell for the second straight month after hitting an all-time monthly high, and the manufacuring trade deficit also retreated after setting a monthly record. But a new all-time worst monthly  trade deficit with Korea raises major questions about President Obama’s approach to the Trans-Pacific Partnership, as the 2012 Korea bilateral deal has been described by the administration as a model for the TPP.

Here are the specifics drawn from this morning’s Census Bureau report on November U.S. trade:

>The combined U.S. goods and services trade deficit dropped 7.69 percent in November to $39.00 billion, its lowest level since December, 2013. In addition, October’s originally reported total deficit of $43.43 billion was revised down to $42.25 billion.

>The $3.25 billion fall in the goods and services deficit resulted chiefly from the manufacturing deficit’s $8.75 billion retreat from the record $71.22 billion October level to $62.47 billion.

>A $3.77 billion monthly narrowing of the petroleum deficit also helped, but oil trade’s impact is made clear by the November deficit’s drop to $11.44 billion – the smallest monthly total since December, 2003. In addition, the $23.07 billion’s worth of November oil imports was the smallest monthly total since August, 2009.

>The oil effect is even more stunning after adjustments are made for inflation. In real terms, the November petroleum trade deficit of $7.57 billion was the lowest level since these figures started to be compiled in 1994. November’s $15.84 billion after-inflation oil imports were the lowest since March, 1996.

>Despite November’s improvement, the combined U.S. goods and services trade deficit for the first 11 months of 2014 is running 5.09 percent ahead of its 2013 rate. Goods and services exports are 2.88 percent higher than in January-to-November, 2013, and imports are 3.21 percent higher.

>Similarly, the $641.09 billion January-to-November, 2014 manufacturing trade deficit is 7.49 higher than the $596.42 billion 2013 total. And it is nearly as great as 2013’s record full-year $646.77 billion manufacturing trade deficit.

>The huge and chronic U.S. goods trade deficit with China dropped for the second straight month in November – to $29.94 billion from October’s $32.55 billion level which was the second highest on record. But the China goods gap is still 6.84 percent larger than 2013’s totals – which eventually produced an annual record – on a January-to-November basis.

>The U.S. merchandise deficit with Korea rose to a new monthly record in November as well, with the $2.80 billion shortfall eclipsing the previous high of $2.68 billion, reached in May.

>Since the U.S.-Korea free trade agreement went into effect in March, 2012, the monthly U.S. goods deficit has nearly quintupled on a monthly basis, from $564.2 million. American goods exports to Korea have sank from $4.22 billion to $3.50 billion since the deal’s implementation, while U.S. goods imports are up from $4.79 billion to $6.31 billion.

>In addition, the monthly U.S. trade deficit in high tech goods soared 24.19 percent in November to a 2014 record high and its second-highest level on record.  The $11.38 billion gap trailed only November, 2012’s $11.72 billion. After lagging 2013’s levels for most of this year, the high tech trade deficit is now running ahead of last year’s level.

 

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The Snide World of Sports

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  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
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  • Our So-Called Foreign Policy
  • The Snide World of Sports
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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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