(What’s Left of) Our Economy: U.S. Manufacturing’s Biggest 2020 Winners & Losers

Tags

aerospace, automotive, Boeing, CCP Virus, computer and electronics products, consumer goods, coronavirus, COVID 19, energy, Federal Reserve, food products, fossil fuels, furniture, housing, industrial production, inflation-adjusted output, lockdowns, machinery, manufacturing, on-line shopping, stay-at-home, travel, wood products, Wuhan virus, {What's Left of) Our Economy

Thanks to last Friday’s release of the Federal Reserve’s report on December U.S. manufacturing production, it’s possible to identify the sector’s biggest winners and losers for inflation-adjusted growth. And their ranks include some notable surprises. (As with all U.S. government economic data, though, there’ll be plenty of revisions over the next few years.)

First, let’s keep in mind that the following categories are pretty broad, including a wide range of products whose performances have varied just as widely. For example, as noted previously (e.g., here), “machinery” contains everything from machine tools to heating and cooling equipment to semiconductor production gear to turbines to construction equipment to farm machinery.

Still, these groupings are specific enough to show how much care is needed when generalizing about the performance of a piece of the economy as big as manufacturing. Moreover, they’re the categories that come early on in the incredibly detailed presentation each month of manufacturing output results deep in the weeds of the Fed’s own website.

With these observations in mind, the five strongest growers (or most modest shrinkers) in manufacturing during 2020 were automotive (vehicles and parts combined) at plus-3.64 percent; food, beverage, and tobacco products (up 0.40 percent), wood products (0.38 percent), computer and electronics products (up 0.14 percent), and non-metallic mineral products (down just 0.52 percent).

The biggest losers? Petroleum and coal products (down 13.34 percent); printing and related activities (off by 10.41 percent); furniture and related products (down 9.86 percent); non-durable miscellaneous manufactures (down 8.57 percent); and aerospace and other non-automotive transportation equipment (an 8.27 percent contraction).

Some of these results were entirely predictable. For example, petroleum and coal products essentially entails the fossil fuels industries, which have been decimated by the overall U.S. and global economic slumps triggered by the CCP Virus, and by the particular hit taken by business and leisure travel. And don’t forget the lingering effects of Boeing’s safety troubles. Moreover, of course those Boeing woes in turn have taken their toll on the aerospace sector.

On the flip side, despite major concern about the strength of America’s food supply chain, it proved impressively resilient. And since Americans didn’t stop eating, real food production expanded – although as the table below shows, its this expansion was much slower than in 2019.

I’m not sure what’s been up with furniture, though, especially considering that the good performance of wood products surely reflects the strength of a domestic housing industry that should have spurred production of furniture. Moreover, so far, the 2020 trade statistics reveal no significant increase in imports.

Non-durable miscellaneous manufactures are something of a puzzle, too. This category includes items like jewelry, silverware, sporting goods, toys, and musical instruments. Since on-line shopping has propped up consumption during the pandemic period, purchases and domestic production of these goods should have remained strong, too – even though many of these sub-sectors have long dominated by imports.

And speaking of imports, a clear sign of their importance is the negligible growth of the domestic computer and electronics industries. It’s clear that the virus and related lockdowns and stay-at-home orders has greatly increased demand for information technology products. But it’s evident that the biggest winners weren’t U.S.-based suppliers. In fact, 2020 growth was way below 2019’s, as the table below shows.

Meanwhile, the solid growth of the automotive sector is pretty remarkable, since the sector literally shut down almost completely in March and April. That looks like awfully strong evidence that much of the economic damage of the pandemic period has stemmed from government restrictions, and not from any inherent weakness in the economy.

In any event, below are the results for all of manufacturing’s main big industry groups, along with the data for the durable goods and non-durable goods super-sectors, and industry overall. For comparison’s sake with the pre-CCP Virus period, I’ve also presented their after-inflation growth for 2019. And a year from now, the final Fed 2021 statistics will permit judging just how complete a retun to normalcy has been achieved.

                                                                              2018-19              2019-20

manufacturing                                                        -1.06                   -2.63

durable goods                                                         -1.70                   -2.97

wood products                                                       +3.58                  +0.38

non-metallic mineral products                               -1.17                   -0.52

primary metals                                                       -2.69                   -7.66

fabricated metals products                                     -1.72                   -5.38

machinery                                                              -2.39                   -3.80

computer & electronics products                          +6.19                  +0.14

electrical equipmt, appliances & components       -1.71                   -1.68

motor vehicles and parts                                        -9.05                  +3.64

aerospace and misc transporation equipment       +0.29                   -8.27

furniture and related product                                +0.34                   -9.86

miscellaneous manufactures                                +0.30                    -3.67

non-durable goods                                                -0.72                    -2.24

food, beverage and tobacco products                  +2.67                   +0.40

textiles and products                                            -2.24                    -5.04

apparel and leather goods                                    -7.50                    -3.64

paper                                                                    -2.37                    -1.91

printing and related activities                              -3.20                  -10.41

petroleum and coal products                               -1.32                  -13.34

chemicals                                                            -2.07                     -1.31

plastics and rubber products                               -3.24                     -0.78

other manufacturing                                           -8.59                      -8.51

Im-Politic: Final Grades on the Final Debate

Tags

battleground states, climate change, crime, crime bills, election 2020, energy, fossil fuels, fracking, green energy, Im-Politic, Joe Biden, marijuana, narcotics, natural gas, oil, presidential debates, progressives, racism, systemic racism, Trump

I got something massively wrong about the second (and final) presidential debate of 2020. I thought that my frantic live-tweeting covered every important aspect of the Thursday night event. Upon reading the transcript, I realized there was lots more to say.

Let’s start with the 30,000-foot picture. There’s no question that President Trump performed more effectively than in the first debate. Even his most uncritical admirers, like Fox News talker Sean Hannity, have conceded as much (Check out the video of his post-debate show, in which he acknowledges that long-time Republican political operative Ari Fleischer was right in faulting Mr. Trump’s first debate performance as too overheated.)

But there are plenty of questions left unanswered about the second debate’s impact on the Presidential race. For the record, I’m sticking with the assessment I offered after the first debate: Given his lead even in most battleground state polls, because the Trump campaign and other Trumpers (including Hannity) had set the bar so low for “Sleepy Joe,” all Biden needed to do was show up and not screw up massively in order to win.

Those battleground polls have tightened somewhat, Biden’s perfectly fine first debate performance raised the bar for the second debate, and I’m far from thinking that the race is over. But I’d still rather be in Biden’s shoes than in Mr. Trump’s. And time keeps running out for the President. All the same, it’s important to remember that we haven’t seen any major post-debate nationwide or battleground polls come out yet, so there’s simply no hard evidence to go on at this point.

The time-is-not-the-President’s-friend point, though, brings up my first new debate-related point: Mr. Trump’s improved performance alone (whether he “won” or not either on points or according to the public), indicates that he erred in rejecting the Commission on Presidential Debate’s offer to hold the second debate virtually, due ostensibly to CCP Virus-related reasons.

Especially if Mr. Trump had by that time begun heeding the advice of supporters urging him to dial it down (which isn’t at all clear), he lost an opportunity to square off again against Biden in real time. And although there’s no adequate on-line substitute for the atmosphere and resulting pressures of in-person encounters, the President did lose a valuable opportunity to reassure voters unnerved – rightly or wrongly – by his first debate tactics.

Getting down to specific points, on Thursday night, two issues really do demand further discussion. First, I might have been mistaken in my tweeted view that the Biden comments on natural gas fracking and energy (and related climate change) policy wouldn’t be terribly important.

I did agree that the former Vice President did nothing to help himself in key energy states like Pennsylvania, where voters might worry that his various positions – and the prominence of staunch fossil fuels opponents in Democratic ranks now – would guarantee relatively rapid closures of the coal mines and gas and oil fields that created so much employment in their regions. But I stated that, because these subjects had been aired so thoroughly already, few energy voters’ minds would be changed.

What I clearly underestimated was the impact of an extended discussion of energy and climate subjects before a nation-wide audience. If I’d been right, why would the Trump campaign have almost immediately put out an ad spotlighting Biden’s assorted statements on these topics. And why would the Biden campaign have spent so much time trying to explain the Biden position?

Looking at the transcript helped me understand why energy- and climate-related anxieties in the energy states might have been elevated by the Biden debate remarks. For on the one hand, the Democratic challenger insisted that he was “ruling out” “banning fracking” and claimed that

“What I will do with fracking over time is make sure that we can capture the emissions from the fracking, capture the emissions from gas. We can do that and we can do that by investing money in doing it, but it’s a transition to that.”

And whereas previously, Biden had responded to a primary debate question about whether fossil fuels would have any place in his prospective administration by declaring “We would make sure it’s eliminated and no more subsidies for either one of those. Any fossil fuel,” on Thursday night, the former Vice President referred to transitioning from “the old oil industry”–presumably to some (undefined) new kind of oil industry.

Nonetheless, it would be reasonable for energy states residents to question these assurances of gradualness and transformation instead of elimination given Biden’s continued contention that “global warming is an existential threat to humanity,” that “we’re going to pass the point of no return within the next eight to ten years,” and that the energy sector in toto needs “to get to ultimately a complete zero emissions by 2025.” Last time I checked, that’s only five years from now.

Moreover, given the notable split within the Democratic party on climate change and energy issues between progressives and centrists, the Biden statements suggesting that major fossil fuel industries will survive during his administration in some form could depress turnout in their ranks for a candidate who clearly needs to stoke their enthusiasm.

The second set of issues I should have tweeted more about entails crime and race relations. I think Biden deserves a great deal of credit for calling “a mistake” his support for crime bills of the 1980s and 1990s that, in the words of moderator Kristen Welker “contributed to the incarceration of tens of thousands of young Black men who had small amounts of drugs in their possession, they are sons, they are brothers, they are fathers, they are uncles, whose families are still to this day, some of them suffering the consequences.”

He was also correct in pointing out that President Trump – who quite properly pointed to some noteworthy achievements of his administration on behalf of African Americans – took a sweepingly harsh line on crime himself in previous decades.

But two positions taken by Biden should disturb even supporters. First, his argument that “It took too long [during the Obama administration] to get it right. Took too long to get it right. I’ll be President of the United States, not Vice President of the United States,” clearly throws his former boss under the bus. In fact, he also implicitly blamed Obama for the failure to resolve the problem created by children living the United States born to illegal immigrant parents.

The second such position was Biden’s argument that “No one should be going to jail because they have a drug problem. They should be going to rehabilitation, not to jail.”

I personally can support this view when it comes to hard drugs. But marijuana? For whose use so many American blacks have been jailed – and so many more than white Americans? (I’m not a big fan of the American Civil Liberties Union these days, but the data in this study are tough to refute.) Mandatory (government-funded?) therapy for potheads? That could use some rethinking.

But like I said at the outset, I expressed views on many other debate-related subjects on my Twitter feed (@AlanTonelson). So there’s no substitute for following there, as well as checking in with RealityChek, for the most up-to-date thinking on the election — as well as everything else under the sun.

Making News: New York City and National Radio Interview Podcasts Now On-Line

Tags

baseball, Black Lives Matter, China, election 2020, election interference, energy, Frank Morano, Gordon G. Chang, Joe Biden, Making News, Mexican cuisine, The John Batchelor Show, trade war, Trump, WABC AM

I’m pleased to announce that the podcasts of my interviews Wednesday on national and New York City radio are now available on-line for your listening pleasure!

The first, on Frank Morano’s program on New York City’s WABC-AM, dealt with indications that the Chinese government is funding a Black Lives Matter-type group.  Listen by clicking here, and then on the September 23 link.  My segment begins at about the 31-minute mark.  And special bonuses!  We get into the fine points of the New York City Major League Baseball scene, and sound off on a running debate on Mexican cuisine!

The second, on John Batchelor’s nationally syndicated nightly show, covers the latest developments in the intensifying U.S.-China economic conflict, how it may affect the U.S. presidential election – and vice versa.  Click here for a timely discussion among John, co-host Gordon G. Chang, and me.

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

Glad I Didn’t Say That: So Who Exactly is Colluding with Russia?

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allies, Angela Merkel, energy, Germany, Glad I Didn't Say That!, Nord Stream 2, Russia, The New York Times, Trump, Vladimir Putin

““President Trump, for reasons that remain one of the top mysteries of his administration, has largely closed his eyes to Mr. Putin’s serial transgressions….”

—The New York Times, September 22, 2020

““The surest sign of European anger [over Russian trangressions] would be cancellation of the Nord Stream 2 pipeline, a gas conduit from Russia to Germany under the Baltic Sea. But the project is nearly completed, and Angela Merkel, the chancellor of Germany, is reluctant to take a step that would be costly for Europe and that would look like bowing to threats from the Trump administration, which has demanded cancellation of the pipeline.

– The New York Times, September 22, 2020

 

(Sources: “Vladimir Putin Thinks He Can Get Away With Anything,” The New York Times, September 22, 2020, https://www.nytimes.com/2020/09/22/opinion/vladimir-putin-navalny-poisoning.html?action=click&module=Opinion&pgtype=Homepage )

Making News: Talking China Trade Deal with Jersey Joe, John Batchelor…& More!

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AlphaWeek.com, America First, Breitbart News Tonight, Breitbart.com, China, economic nationalism, energy, enforcement, Gordon G. Chang, IndustryToday.com, Jersey Joe, Joe Piscopo, John Carney, Making News, Middle East, Phase One, Populism, RealVision.com, tariffs, The Epoch Times, The Joe Piscopo Show, The John Batchelor Show, trade deal, trade deficit, Trump

I’m pleased to announce that I was interviewed this morning on the new U.S.-China trade deal on “The Joe Piscopo Show” on New York City’s AM 970 The Answer radio station.  Sorry that I could only give limited advance notice, but the podcast is on-line already!  Special bonus:  Jersey Joe and I also dealt with the Major League Baseball cheating scandal, too!

In addition last night, I was back on John Batchelor’s nationally syndicated radio program to discuss the so-called Phase One agreement with John and co-host Gordon G. Chang.  You can listen to the podcast here.

Tuesday night, I was interviewed on a wide range of foreign and domestic issues on “Breitbart News Tonight.”  Click on this link and scroll down till you see my January 14 segment.

The Breitbart.com folks were also kind enough to write up some portions of this segment in website items here and here.

On Tuesday, meanwhile, Breitbart‘s excellent economics and finance editor John Carney quoted me in his detailed analysis of the latest U.S. government report on consumer prices – which reveals whether the Trump trade wars have sparked any meaningful inflation.  You can read it at this link.  (Spoiler alert for everyone who hasn’t been paying attention to RealityChek‘s own coverage of this issue:  They haven’t.)

Meanwhile, The Epoch Times has quoted my views recently on energy security and what it means for America’s policy in the hopelessly dysfunctional Middle East, and on the progress made in reducing the U.S. the trade deficit.

On January 6, IndustryToday.com re-published – at this link – my recent blog post on the latest data undermining the claim that President Trump has betrayed his working class and middle class voters.  (Another spoiler alert:  These data indicate that he hasn’t.)

Finally, on January 2, the popular finance website AlphaWeek.com posted the video of my December RealVision.com interview on the virtues of an America First approach to U.S. foreign and trade policy – and whether Mr. Trump’s measures fit the bill.  Catch it here.

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

 

 

 

Our So-Called Foreign Policy: Why the Khashoggi Incident Really Matters

Tags

Al Qaeda, America First, arms sales, Cold War, energy, globalism, globalists, Iran, ISIS, Islam, Israel, Jamal Khashoggi, jihadism, Middle East, oil, Our So-Called Foreign Policy, Persian Gulf, Saudi Arabia, September 11, terrorism, Trump

Important though it is, the most important question surrounding the possibility that Saudi Arabia’s monarchy has killed Jamal Khashoggi is not whether the United States responds or how it responds if the kingdom did murder the dissident journalist – who happens to be a legal resident of the United States.

Instead, the most important question is really two-fold. First, do the many U.S. foreign policy traditionalists calling for severe punishment understand how such a move could undercut the decades-long approach toward the Saudis that they themselves have strongly supported? Second, and even more intriguing, do these globalists understand that the Khashoggi affair is simply the latest in a long string of signs that it’s well past time for the United States to adopt a genuine America First approach and leave the hot, dysfunctional mess that is the entire Muslim Middle East?

Given the prominence of maintaining good relations with the Saudis in the strategies of American globalists across the the board, it’s nothing less than jaw-dropping to see how many of them – liberal and conservative alike – are calling for strong counter-measures if Khashoggi is in fact dead at Saudi hands. Here’s a representative example from no less than former CIA chief John Brennan – who’s gone on Never Trump rampage in part because he views Trump’s foreign policy views as anathema. My astonishment, however, is justified even if much of the outrage is no more than outrage-signaling – posturing assumed to be safe because the Trump administration will eventually not upset the felafel cart.

After all, since World War II, Saudi Arabia and the rest of the Persian Gulf region has been valued as a prime source of the oil desperately needed for the world economy to function acceptably in peacetime, and crucial to prevailing over ruthless global enemies in hot and cold wars alike. Once the Soviet threat disappeared, the region’s oil retained all of its perceived importance, and the critical mass of the foreign policy establishment gravitated toward seeing first Iraq’s Saddam Hussein and then Iran’s theocracy as the prime threat to the world’s unimpeded access. Crucially, not even evidence of (unofficial?) Saudi support for the Islamic extremists of Al Qaeda who launched the September 11 attacks ever truly threatened the U.S.-Saudi connection. 

Indeed, in recent years, even far left-of-center American politicians joined widespread calls for Washington to create a Middle Eastern-dominated coalition to handle most of the fight against ISIS (a successor group to Al Qaeda). And one of the anchors of this arrangement was expected to be none other than Saudi Arabia.

As I’ve argued for years now, none of the arguments for a close, if informal, U.S.-Saudi alliance holds any more water. North America possesses all the fossil fuels needed by the United States, and thanks to the shale/fracking-led energy technology revolution, the Persian Gulf’s role as key global oil supplier is greatly diminished as well. The terrorist threats likely to keep emanating from the region are best dealt with through much stronger U.S. border controls, not repeated American military interventions or fantasies about the Muslim Middle East’s decrepit (and highly compromised) regimes becoming a strong, reliable bulwark against jihadism.

And those claiming that Israel’s security warrants continuing America’s Middle East policy status quo need to remember that Israel and Saudi Arabia (and most other Sunni monarchies) have now created a tacit alliance to counter Shi’ite Iran. Moreover, Washington can always keep selling or simply giving the Israelis all the weapons they need.

The situation has changed so much that the most compelling argument against steps like cutting off or suspending U.S. arms sales to the Saudis has been advanced by President Trump: a boatload of revenue and jobs would be lost by the American economy, and the Saudis could always turn to alternate suppliers (like the Chinese and, more credibly – because their military equipment is still better – the Russians). In addition, don’t forget this irony: Consistent with its anti-Iran goals, Israel and its own impressive defense-related technologies could also partly fill the vacuum left by a U.S. withdrawal from the Saudi market.

At the same time, there’s no shortage of countries living in dangerous neighborhoods that would remain or could become massive buyers of American weapons. And as pointed out here, the Saudi military has relied on so much U.S. equipment for so long that changing its complexion would be as complicated as it would be expensive. Not to mention the years it would take for a regime that faces imminent threats to complete this task.

As a result, even if Khashoggi miraculously reappears one day, or even if he doesn’t but the Saudis are innocent, here’s hoping that the uproar over his disappearance triggers some major rethinking of America’s Middle East policy. After all, to paraphrase a famous recent remark about governing, a policy firestorm is a terrible thing to waste.

Our So-Called Foreign Policy: The Case that Trump is…and is not…a NATO Disrupter

Tags

energy, Europe, George H.W. Bush, Germany, Mainstream Media, Marc Fischer, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, Russia, Soviet Union, Trump, Trump Derangement Syndrome, Washington Post

Marc Fisher’s column in today’s Washington Post on the approach taken to the North Atlantic Treaty Organization (NATO) by President Trump and his successors is one of the more schizoid articles on American foreign policy that I’ve ever seen.

On the one hand, Fisher makes the absolutely crucial – and typically overlooked – point that since its founding (back in 1949), the United States has seen the alliance as a means not simply to contain the old Soviet Union (and now the Russian follow-on state). It’s also been seen as a means to contain Germany – specifically, (in Fischer’s words) to “enmesh Germany so thoroughly in Western alliances that it never again became a dominant, destabilizing force.” And P.S. – that’s also why Washington was so enthusiastic about Germany joining the European Union (originally through various predecessor organizations).

Even better, the author discusses how this strategy has had historic benefits (helping build a Western Europe that was free and peaceful for decades) and costs (discouraging Germans, especially after unification, from grappling seriously with the challenge of becoming a “normal” country, complete with robust defense capabilities, without reverting back to dangerous militarism).

But despite the valuable history lesson, Fisher’s article at least flirts with Trump Derangement Syndrome in two important ways. First, he fails to distinguish between German ambivalence about more assertive foreign and defense policies, and current German policies like signing energy supply contracts bound to send billions worth of euros in revenue to a Russian government that Berlin professes to view as a threat to European security and the broader “global liberal order.”

Even seven decades after the end of World War II, the former remains understandable, at least to some extent. There can be no excuse for the latter, and President Trump has been absolutely right to call Germany on the carpet in this respect.

Second, Fisher calls the Trump-ian approach to NATO, and to defense burden-sharing issues a major and troubling departure from longstanding U.S. policy because it’s been (or seemed to be) uniquely ignorant of the Germany issue. Yet he belittles Mr. Trump’s claim to be a long overdue disrupter of hidebound American NATO strategies by noting that, in 1992, former President George H.W. Bush’s administration “bluntly warned” Germany that “the United States would pull its troops out of Europe if the Germans and other Europeans didn’t cough up the money and manpower to take more responsibility for their own defense.”

Unless Bush 41 was simply blowing smoke, I’m hard pressed to see the difference between this position and President Trump’s hard (and harsh) line. Fischer could have made this case – which is entirely conceivable given the long history of similar, indeed transparently hollow, threats from Mr. Trump’s globalist predecessors. But he didn’t. Moreover, the President’s rhetoric hasn’t (yet) gone as far as Bush 41.

The way I see it, major changes in America’s approach to NATO (and to its alliances in East Asia) are urgently needed, and Mr. Trump hasn’t gone nearly far enough down this road. It’s also clear that, in some important respects, the Trump-ian approach of loud bark and modest bite has given his administration the worst of all possible worlds – widely accused by the U.S. and many foreign chattering classes of ostrich-like isolationism, yet failing (to date) to secure for the United States any of the benefits of a genuine America First global strategy. Worse, as I’ve just argued, Mr. Trump actually seems determined to increase some of the threats the United States faces from continuing the alliance status quo.

So I’m not knocking Fisher for criticizing the President’s NATO policy. What a shame, though, that he didn’t limit himself to spotlighting the Germany issue, and proceeded to fall into the kind of Trump-induced incoherence that has rightly cost the mainstream media so much credibility.

(What’s Left of) Our Economy: The Real Deal with the U.S.-Canada Trade Balance

Tags

aerospace, Canada, China, crude oil, dairy, energy, Justin Trudeau, lumber, natural gas, subsidies, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

Extra! Extra! Read all about it! The nation’s globalist political and media classes have gotten it right on a major U.S. trade policy issue!

I’m talking about the numerous complaints issuing from American politicians, journalists, talking heads, and purported academic and think tank experts about President Trump’s decision to make Canada the focus of so much of his trade-related ire.

Mr. Trump is right about Canada maintaining sky-high tariffs and lavish subsidies in certain sectors of its economy, like dairy and lumber. (I’d add aerospace to this list.) But the idea that Canada represents one of America’s biggest trade headaches, and has been taking advantage of the U.S. economy left and right due to poorly negotiated trade deals, is completely belied by the numbers. And P.S. – it’s not even necessary to point to America’s services trade surplus with its northern neighbor to debunk the numbers.

The keys are recognizing the immense role played by energy in bilateral goods trade. Commerce in crude oil and natural gas is almost never the subject of the U.S. trade deals and broader trade policy decisions that the President – for the most part – has correctly lambasted.

Energy’s predominance is most apparent when U.S.-Canada trade in goods is calculated according to the measures used most prominently by the American government – total exports, and general imports. In fact, these headline data show that the U.S. oil and gas shortfall has typically been twice the size of the overall American merchandise trade deficit with Canada – meaning that when it comes to other goods (like manufactures) the United States has been running a surplus.

For example, in 2009 (the year the current U.S. economic recovery began), according to these figures, the United States ran an overall $20.18 billion goods trade deficit with Canada, a $45.75 billion deficit in crude oil and natural gas, and a $30.02 billion surplus in manufacturing.

Last year, the overall U.S. merchandise deficit with Canada had fallen to $17.50 billion – largely because the energy deficit had sunk to $16.45 billion. And the American manufacturing surplus reached $41.07 billion.

As many trade policy critics have rightly pointed out, the total exports and general imports numbers aren’t the best data for measuring U.S. bilateral trade balances. (They’re fine for America’s global trade balances, though, as the discrepancies that emerge in the bilateral accounts cancel each other out on a worldwide scale.) Instead, the most accurate picture is provided by looking at domestic exports and imports for consumption – i.e., the trade flows that concentrate on exports that are actually made in America (as opposed to being transshipped through the United States from countries where they originated), and on imports that Americans actually purchase for their own use (as opposed to products being transported through the United States to their final destinations).

But although these statistics reveal a much larger U.S. merchandise gap, along with deficits in manufacturing, oil and gas predominate in these figures as well. In 2009, the domestic exports etc numbers show a total American goods trade deficit with Canada of $52.89 billion – nearly 87 percent of which was in oil and gas. The manufacturing shortfall, moreover, was tiny – only $200 million.

By 2017, according to this measure, the annual U.S. goods deficit had risen to $64.84 billion. But the oil and gas deficit – which had shrunk dramatically in absolute terms due to the U.S. energy production revolution – still comprised a little over 73 percent of this total. And the manufacturing deficit was only $4.28 billion (out of a U.S. global total of more than $937 billion).

I can understand why President Trump views Canadian Prime Minister Justin Trudeau as a pro-globalist showboat. I agree. But when it comes to trade, and turning it into an engine of growth and domestic job creation, Mr. Trump has much bigger fish to fry – starting with the thoroughly and increasingly predatory trade policies pursued by his “good friend,” Chinese leader Xi Jinping.

Our So-Called Foreign Policy: North Korea, China, & the (Inevitable) Limits of Diplomacy

Tags

agriculture, China, commodities, diplomacy, energy, Iran, Kim Jong Un, LIbya, Made in China 2025, manufacturing, Muammar el-Qaddafi, North Korea, nuclear weapons, Our So-Called Foreign Policy, Russia, Saddam Hussein, Saudi Arabia, South Korea, tariffs, technology, Trade, trade deficit, tripwire, Trump, Ukraine

Diplomacy has sure taken a beating these last few days. And revealingly, that looks like a good thing.

Let me explain: I have no problem whatever with countries trying to resolve their differences peacefully, through dialogue and compromise. But in the nuclear age, and especially after America’s Vietnam debacle, this age-old concept has turned into a foreign policy magic bullet in the United States – including among the nation’s bipartisan globalist establishment. So the collapse (for now) of plans for a summit between President Trump and North Korean dictator Kim Jong Un, and the failure so far of the President to make any headway in curbing China’s predatory trade practices, could be welcome developments. For these developments could remind Americans of diplomacy’s limits in promoting U.S. national interests (the overriding priority of the nation’s foreign policy), and how even on crucial issues of war and peace, it can be completely pointless and even dangerously distracting.

On North Korea, there have always been strong grounds for skepticism that negotiations could achieve America’s main objective – the complete elimination of Kim Jong Un’s nuclear weapons. It’s true that Kim has appeared more interested in economic reform than his father or grandfather – who preceded him in power. Therefore, in principle, he would be more responsive to economic carrots and sticks. On the one hand, he might be amenable to surrendering his arsenal in exchange for foreign investment and aid (along with security-related concessions from the United States like formal recognition of his regime, a peace treaty ending the decades-long state of war between Pyongyang and its enemies). On the other hand, he might be more concerned about the impact of the sanctions that President Trump has both broadened and intensified.

Yet it was always difficult to believe that Kim would prize any of these considerations above his regime’s defense against overseas threats, and for these purposes, nuclear weapons are hard to beat. As widely noted, he’s surely been impressed by the gruesome fates of fellow autocrats who gave up their nuclear hopes (Libya’s Muammar el-Qaddafi) or who hadn’t the chance to develop these weapons (Iran’s Saddam Hussein).

Further, Kim also is no doubt aware of a third recent example of a country paying heavily for signing away its nuclear weapon status: Ukraine. In 1994, that nation agreed to dismantle the large nuclear force stationed on its soil when it was part of the Soviet Union, and left there after the USSR’s demise. In return, it received security promises from the United States, the United Kingdom, and Russia that its territorial integrity would be respected. A quarter century later, Moscow has seized effective control over much of the country’s eastern half.

Moreover, if a Trump-Kim summit and follow-on negotiations resulted in a compromise that left the North with some kind of nuclear arsenal, this “victory” could eventually become disastrous for America and its homeland. For there would be no guarantee that Kim would have truly abandoned his family’s goal of dominating the Korean peninsula through nuclear-aided conquest or intimidation of the South. And as long as large U.S. ground forces remained in South Korea, the outbreak of war would still threaten to draw Washington into a conflict with a foe capable of hitting its territory with nuclear warheads.

That still-live prospect should be an awfully powerful reason for switching to a strategy I’ve long advocated – ditching diplomacy, withdrawing the U.S. troops in South Korea that expose the United States to nuclear danger, and permitting North Korea’s neighbors to handle Kim and his nuclear ambitions any way they wish.

Trade diplomacy with China doesn’t threaten to turn an American city into a glowing ruin. But it’s all too likely to result in open-ended talks that do as little to combat the economic and security threats created by Beijing’s trade predation as previous negotiations involving President Trump’s predecessors. As I’ve recently written, even if his administration could come up with a coherent set of priorities, adequately verifying any Chinese compliance with U.S. positions is a pipe dream.

But this latest American attempt at trade diplomacy faces two other seemingly insuperable obstacles. First, the President’s objective of reducing the U.S.’ massive bilateral trade deficit with China appears to neglect the makeup of this deficit – which matters more than its size. Specifically, his proposals to date envision narrowing the trade gap mainly by boosting American exports of farm products and energy to China.

Both sectors of the U.S. economy are obviously important. But neither can become a major driver of sustainable American prosperity, because they’re essentially involved in producing commodities – which have never added nearly as much value to national economy as manufactures. That’s why developing countries invariably view a transition from agriculture to industry as the key to their hopes for rising living standards, and why even wealthy energy producers like Saudi Arabia have resolved to focus more on manufacturing and other higher value activities.

And P.S. – that’s no doubt why the Chinese clearly consider this American demand the most appealing on the Trump agenda.

As for the intertwined threats of continued and rampant Chinese intellectual property theft, and of China’s master plan to lead the world in a wide array of “industries of the future” (the Made in China 2025 program), U.S. tariffs on the goods and services these policies already enable Beijing to produce and export could well deal its ambitions a major blow. And clearly, that’s the Trump administration’s aim.

But if so, why negotiate over these matters? The United States has made reasonably clear what it wants China to do. And it’s declared its intent to retaliate with trade curbs if China balks. If the Trump administration is serious about this approach, and confident that it will succeed, what is there left to talk about? Either the Chinese accede (in which case, as I wrote this week, towering verification challenges would remain), or they dig in their heels and the tariffs follow.

Further talks, unless they’re simply aimed at clarifying American positions, can only muddy the waters and encourage endless Chinese foot-dragging – including regularly throwing Washington a few crumbs of market share – by telegraphing a Trump reluctance to pull the trigger. All the while, the Chinese tech prowess ostensibly alarming Americans across the political spectrum will keep growing.

And as with the case of the Korean crisis, a far better American approach would be disengagement – i.e., a series of measures aimed at reversing the disastrously wrongheaded twenty-year U.S. effort to more closely link the nation’s fate to a country with which mutually beneficial commerce was never possible. The Trump administration has already taken some important steps in this direction. Chiefly, it has greatly tightened restrictions on Chinese takeovers of economic assets in the United States. And the President’s threatened tariffs have induced some factories to move from China to the United States. But as previously indicated, the administration also seems bent on helping U.S. companies invest more in the Chinese economy, which can only further widen the trade deficit and hand China more cutting edge American technology. And it’s given no hint of a comprehensive strategy to bring manufacturing supply chains now concentrated in China back to the United States.

The latter task, in particular, will entail a long-term effort – not exactly the American governing system’s strong suit these days. And success will also depend on thoroughgoing domestic policy reform. (See this article for one sensible list.) But compared with the apparent belief that, over any policy-relevant time frame, China’s will become an economy compatible with America’s, it’s the height of realism.

(What’s Left of) Our Economy: Both Trump and Critics Could be Wrong About the Business Spending Rebound

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Barack Obama, business spending, Center for Economic and Policy Research, Dean Baker, energy, recession, regulation, Trump, {What's Left of) Our Economy

Economist Dean Baker of the Washington, D.C.-based Center for Economic and Policy Research has just performed a valuable service. He’s looked under the hood of U.S. economic data and found a major, under-reported feature of the economy’s business spending performance under President Trump so far: A lot of the improvement has come in the energy sector, and therefore stems from energy price increases that have little to do with Washington policy decisions.

And if the story ended there, Baker would be justified in dousing “Trump capex (capital expenditures) rebound” claims with lots of cold water. But it doesn’t.

As Baker points out, energy-related capital spending accounted for more than 40 percent of the total increase in all capital spending recorded in the official government data since last year. That is indeed big-time out-performance, and there’s no doubt that (like the energy-related business investment bust that began in late 2014) it’s largely due to energy price changes. When the price of oil and natural gas goes up, businesses (understandably) conclude that demand is rising, drill more, and need more drilling equipment and the like. When energy prices fall, this spending just as understandably tends to sink.

Even so, if you look at the policy landscape, there’s a case for giving the administration some credit for the energy investment recovery. Specifically, it’s rolled back some important regulations in the industry, and has spoken repeatedly of eliminating more. And interestingly, this latest increase in energy-related business spending has taken place much faster than the previous surge, under former President Barack Obama – who was not exactly a fossil fuels booster.

Yet developments outside the energy sector indicate even more powerfully that the economy could be seeing a Trump effect on capex. The key is examining spending on equipment. Whatever the effect of energy-related spending on the business investment totals, equipment’s is much bigger. Even after the latest spurt in energy, it still represents less than four percent of the business spending total (officially called non-residential private fixed investment). The latest figures show the equipment share is more than ten times larger – nearly 48 percent.

So although equipment spending has increased by only 5.93 percent during the Trump era, that rise amounts to just over $62 billion – much more than the energy-related spending increase. And more telling, this advance follows a 3.38 percent yearly drop in this spending category in 2016. In fact, equipment capex was down on net from the third quarter of 2014 through the fourth quarter of last year. The last time it fell for that long a stretch was during the last (historically terrible) recession (when the plummet was much greater and lasted considerably longer).

All the same, let’s not forget that the Trump administration is still only one year old. So a wait-and-see attitude is probably best for both sides of the Trump effect capex debate. And to the extent that any patterns can be discerned, not surprisingly, the truth so far seems to lie somewhere in between.