Our So-Called Foreign Policy: Time to Test U.S. “Allies” on China

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allies, America First, Asia-Pacific, Barack Obama, China, Emmanuel Macron, EU, European Union, France, globalism, Our So-Called Foreign Policy, RCEP, Regional Comprehensive Economic Partnership, TPP, Trade, Trans-Pacific Parternship, Trump

President Trump’s globalist critics in the foreign policy Blob (the Washington, D.C.-centered complex of former diplomats and military officers, genuine academics, think tank hacks, and their Mainstream Media mouthpieces) think they’ve uncovered major new proof that the administration’s America First-type foreign policies and trade policies are failing catastrophically. Actually, the developments they’ve seized upon make clearer than ever the dangerous folly of their own outdated strategies, and the urgent need for a Trump-ian course change.

What’s gotten the globalists excited: Reports that America’s allies the world over are turning their backs on Washington and either moving into China’s orbit or cultivating better relations with the People’s Republic.

In the Asia-Pacific region, fifteen countries, including American treaty allies Australia, Japan, and South Korea, have decided to join the Regional Comprehensive Economic Partnership (RCEP) – a Chinese spearheaded trade agreement that doesn’t include the United States. Although Washington is apparently free to join, RCEP’s progress is seen as a big defeat for the United States, and for Mr. Trump in particular, because for years Beijing has been pushing it as an alternative to the Asia-Pacific-focused Trans-Pacific Partnership (TPP) deal signed by former President Barack Obama but nixed by President Trump on his first full weekday in office.

TPP was touted as a counter to RCEP that was vastly preferable for the United States because its protections of the environment and labor rights, and its curbs on state-owned enterprises, created standards that China could not hope to meet any time soon. Therefore, the agreement allegedly represented both a means of containing Chinese power and a powerful inducement to the kinds of Chinese reform long sought by Washington (and at least nominally sought by the President).

In other words, it supposedly was a globalist masterstroke that was foolishly trashed by Mr. Trump. And he’s now getting his richly deserve comeuppance via the Chinese-developed RCEP, which, it’s said, doesn’t address the above issues nearly as effectively as TPP, but which has nonetheless attracted many other signatories also spurned by the Trump rejection.

As known by RealityChek regulars, the anti-China case for TPP was bogus from the start, along with its claims to promoting the kinds of reforms throughout the Asia-Pacific region that would benefits American exporters. For the agreement contained a wide open backdoor for numerous products with high levels of Chinese content, which would have enabled Beijing to realize many of TPP’s benefits without incurring any of its obligations. Nearly as bad, for all their lofty ambitions, those obligations would have been impossible for Washington to monitor and enforce adequately, as most signatory governments’ bureaucracies, along with their national industrial bases, were too large (and in the case of the governments, secretive) to track.

Moreover, these glaring TPP weaknesses raise questions that hardly strengthen confidence in globalist views both of the agreement and, just as important of U.S. Allies. Specifically, TPP’s China back door and verification shortcomings weren’t exactly secrets. And they surely reveal that the Australias, Japans, and South Koreas of the world were never very interested in containing China or pressuring it to reform in the first place. The decision of these countries to go along with an RCEP that doesn’t even try seriously to achieve these goals casts even deeper doubt on their reliability for any future American efforts to work multilaterally to cope with China.

And as for the inevitable counter-argument that the Trump TPP pullout gave these Asia-Pacific countries little choice but to accept a second-best deal more advantageous to Beijing, it doesn’t withstand scrutiny. After all, all these countries had years to work with the George W. Bush and Obama administrations to develop regional trade arrangements that could realistically hope to achieve their intertwined China and reform objectives. They all (along with those globalist Presidents) completely blew the opportunity.

On the other side of the world, the Associated Press has just reported on a similar shift by the European Union, that huge economic bloc that also contains many countries allied with the United States through the North Atlantic Treaty Organization. In an article titled “Europeans look to China as global partner, shun Trump’s US,” correspondent Sylvie Corbet wrote that “When France’s president wants to carry European concerns to the world stage to find solutions for climate change, trade tensions or Iran’s nuclear ambitions, he no longer calls Washington. He flies to Beijing.”

She added that on his recent visit to Beijing, Emmanuel Macron “portrayed himself as an envoy for the whole European Union, conveying the message that the bloc has largely given up on Trump, who doesn’t hide his disdain for multilateralism.”

In the process, though, the author made a powerful, if completely unwitting, case for American unilateralism. For according to Corbet, Macron and Chinese dictator Xi Jinping “issued a ‘Beijing call’…for increased global cooperation in fighting climate change and better protecting biodiversity. Both countries have deplored the U.S. withdrawal” from the Paris climate change accord.

Macron apparently stood by as Xi “said the two leaders were sending ‘a strong signal to the world about steadfastly upholding multilateralism and free trade, as well as working together to build open economies.’”

And for good measure, the French president touted China’s record of helping to reduce tensions in the Persian Gulf, and potential contributions to using diplomacy to persuade Iran to return to full compliance with the nuclear proliferation deal rejected by Mr. Trump. In addition, he touted China’s ability to help “develop stable and cooperative trade rules at the international level.”

To which the only serious reply from the American standpoint is, “If Macron and anyone else in Europe really believe this nonsense, and assume that they’re better off aligning with China than with the United States, then America is better off without them.” And this holds not only for trade but for security issues like Iran.

It’s been unconvincing enough for globalists to insist that the United States has no choice but to maintain alliances with countries famous for being defense deadbeats and free-riders, and fence-sitters in the campaign to create a truly open world economy (as opposed to one that winks at all instances of protectionism except America’s). But it’s positively goofy for globalists to claim that these countries would be strong and active supporters of security or economic goals compatible with U.S. and traditional free world interests if only President Trump showed more patience with them.

Of course, it’s possible – and perhaps likely – that these Asian and European moves are ultimately bluffs aimed at curbing Mr. Trump’s perceived worst excesses. But it’s at least as possible that these countries hope to create pressure on the President to accept their longstanding, “Heads we win, tail you lose,” strategy vis-a-vis the United States.

All of which reminds me of episodes when I was little, and blurted out remarks like, “I’m going to run away.” My parents often replied, “Is that a promise or a threat?” That sounds to me like a necessary and indeed long overdue U.S. response to its worrisomely feckless allies.

Our So-Called Foreign Policy: Why a Real America First European Security Policy is More Urgent than Ever

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alliances, America First, Article Five, Cato Institute, China, Cold War, coupling, EU, Europe, European Council on Foreign Relations, European Union, extended deterrence, globalism, NATO. North Atlantic Treaty Organization, nuclear weapons, Our So-Called Foreign Policy, Pew Research Center, Russia, Ted Galen Carpenter, tripwires, Trump

Even if the Cato Institute’s Ted Galen Carpenter wasn’t one of my closest friends, I’d still be writing this post highlighting his op-ed piece earlier this week for the Washington Post. Because it absolutely decimates the claim that all that ails the North Atlantic Treaty Organization (NATO), America’s oldest national security alliance, is recklessly mindless norms-buster Donald Trump.

Instead, Carpenter reports on overwhelming evidence that the arrangement, which since 1949 has committed the United States to the defense of first Western Europe and now most of Europe (and at considerable risk of nuclear attack on the U.S. homeland), is critically ill mainly because, in the decades since the end of the Cold War, U.S. and European interests have been steadily – and inevitably – diverging. And these findings add powerfully to the case that America’s globalist military commitment to Europe has become dangerously outdated.

The evidence consists of polling data showing unmistakably that European publics no longer believe that their governments should side with the United States in its disputes and conflicts with Russia (whose perceived threat Western Europe’s independence during its post-World War II decades as the Soviet Union sparked NATO’s creation in the first place), or that they should even rally to each other’s defense.

The Russia-focused results come from a September survey conducted by the European Council on Foreign Relations, and are based on the views of no less than 60,000 individuals from fourteen countries belonging to the European Union (EU) – an economic organization not officially related to NATO but many of whose member countries are U.S. NATO allies as well.

The bottom line – which Carpenter rightly describes as “startling”? “When asked ‘Whose side should your country take in a conflict between the United States and Russia?’ the majority of respondents in all 14 E.U. countries said ‘neither’.”

Some of the country-specific results?

“In France, only 18 percent would back the United States, while 63 percent opt for neutrality; in Italy, it’s 17 percent vs. 65 percent, and in Germany, 12 percent to 70 percent.

“The results were similar even in NATO’s newer East European members, despite their greater exposure to Russian pressure and potential aggression. Hungarian respondents selected neutrality over supporting the United States 71 percent to 13 percent, while Romanians did so 65 percent to 17 percent. Even in Poland, a country whose history with Moscow during both the Czarist and Soviet periods was especially frosty, neutralist sentiment had the edge, 45 percent to 33 percent.”

What’s especially disturbing, and indeed outrageous, from an American standpoint is that since NATO’s founding, European governments have insisted that U.S. troops be stationed on the continent to serve (as in South Korea) in a trip-wire role – which RealityChek regulars knows means units deployed close enough to invasion routes and vulnerable enough to the superior conventional militaries of aggressors practically to force American Presidents to use nuclear weapons to save them if conflict breaks out.

This policy of “extended deterrence,” or “coupling,” has been intended to prevent such conflicts from breaking out in the first place. What’s dangerous for the United States of course – and needlessly so – is that if deterrence fails, nuclear weapons use could expose American territory to a retaliatory nuclear strike, even though the United States itself may not be at risk.

Even worse: Throughout the Cold War, NATO non-nuclear forces were inferior to their Soviet and Soviet satellite counterparts because the European allies preferred to free-ride on the U.S. military guarantee instead of spending funds they all could have afforded for armed forces capable of self-defense.

For good measure, moreover, this European Council on Foreign Relations poll showed that Europeans are just about as ambivalent in joining with the United States if a conflict with China broke out.

Of course, even though the lopsided nature of the results indicates that these European views have been long in the making, it’s not entirely crazy to believe that Mr. Trump’s election has been so alarming to these populations that the shift did actually begin with his 2016 victory. But as Carpenter points out, a survey from the Pew Research Center conducted in 2015 demonstrates that NATO’s core principles were in deep trouble in Europe well before the President even declared his candidacy for the Oval Office.

Pew sampled opinion in eight NATO members and found that 49 percent of respondents opposed their country coming to the defense of other allies. And majorities in key alliance members France, Italy, and Germany alike rejected “fulfilling their country’s obligation to fulfill the Article 5 treaty pledge to consider an attack on any NATO member as an attack on all.” Crucially, Article 5 of the NATO treaty embodies the notion of collective security. In other words, it literally makes NATO NATO.

Carpenter rightly concludes that “the concept of transatlantic solidarity, even on collective defense, is now largely confined to out-of-touch political elites on both sides of the Atlantic.” Just as important, he notes that “it will be hard to sustain policies that increasingly run counter to the wishes of popular majorities.”

Ironically, however, despite his harsh criticisms of NATO allies’ free-riding and periodic swipes at the alliance as possibly obsolete, President Trump is increasingly acting like one of those out-of-touch globalist mainstays who urgently needs to see these poll results. For despite the warnings sounded by these polls that the United States won’t be able to rely on the European governments and their militaries even if shooting breaks out in Europe, he’s actually strengthened American forces on the continent – including in Poland, right on the Russian border.

In other words, an avowedly America First President is binding his country’s fate to that of Europe at the very moment when disengagement is more important than ever.

Im-Politic: Some European Immigration Lessons for Americans

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assimilation, asylum seekers, Daniel Gros, Europe, European Union, Germany, Im-Politic, Immigration, Lily Hindy, migrants, Open Borders, refugees, The Century Foundation

With all the hubbub lately about supposed insiders writing and speaking about the Trump administration’s supposed dangerous dysfunction, the upcoming U.S. midterm elections, Brett Kavanaugh’s nomination to the Supreme Court, the ongoing American pro football national anthem controversy, Big Tech’s growing power over our lives and politics, and approaching hurricanes, it’s hard to remember that the nation still has a major unsolved illegal immigration problem –  and that the longstanding, often emotional debate about how to fix it (including its migrants and refugees dimensions) could re-erupt at any time.

When it does, all participants would do well to consider some important points contained in some recent research and writing about Europe’s struggles with borders-related issues. Here are a few that stick out especially prominently in my mind.

Two stunners come from a recent post by leading French economist Daniel Gros. First, he contends:

“The rate at which migrants are arriving has diminished considerably almost everywhere in Europe since the huge inflows seen in 2015….It is largely the result of EU [European Union} efforts, such as the agreement with Turkey to prevent Syrians from crossing into Greece, its cooperation with Libyan militias, and the massive pressure it has placed on the Sahara transit states to close their borders. Thanks to these measures, Europe has become a de facto fortress against migration.”

Yes, the migrants situations facing the United States and Europe differ considerably. But could you come up with any more convincing evidence that tough and smart border enforcement measures can work even when the underlying political and social “sending” pressures remain intact?

It seems that once European leaders mustered the political will – mainly to keep themselves in office – intractable problems got a lot more tractable. And P.S.: I’d argue that Europe’s immigration and refugee challenges are far more difficult than America’s, as it’s located near or relatively near both the economically failed states of North and Sub-Saharan Africa, and conflict-ridden Syria, Iraq, and Afghanistan. Add Libya to that second list, too.

Gros also notes that “In the last three years, men – many of whom are aged 18-35 – comprised more than two-thirds of all people seeking protection in Germany.” Moreover, this lopsided gender ratio seems to hold throughout Europe. Such figures make it awfully difficult to claim that migrants flows are triggered mainly by humanitarian catastrophes befalling so many developing countries. If these worries were the case, wouldn’t women and children be much more prominently represented? Even if picking up stakes while single (or individually) is much easier to do than making these journeys as families? Instead, the disproportionate representation of men, and especially younger men, among migrants signals that economics is a major motivator as well – which is a much less compelling justification for liberal admissions policies.

Some other key insights have been provided by a recent Century Foundation study of Germany’s efforts to assimilate the enormous populations of migrants it’s let in from the Middle East, Africa, and Central Asia. According to author Lily Hindy, her research on “what a determined government can accomplish if it commits to a policy of welcoming a massive influx of refugees” found that

“While Germany’s experience so far is checkered, on the most important counts, it has been a success. Fears that refugees would spur an increase in terrorism proved unwarranted. So did worries that the refugee influx would derail Germany’s economy. Despite the tensions and setbacks detailed in this report, Germany has managed to reap national benefits from a welcoming policy, implemented despite major political, economic, and social risks.”

All the same, many of those “checkers” look pretty sobering. For example, Hindy reports that the German government pegs the refugee unemployment rate as roughly 40 percent and estimate that, by 2020, only “half of the refugee population that arrived in 2015 would be working.” And this in a country with a world-renowned system of vocational training.

Further, however welcoming it’s been, Germany’s government doesn’t seem big on promoting multi-culturalism. Since 2005, the country has legally required “all immigrants from non-European Union countries to participate” in cost-free (at least to the refugees) “integration courses” that “include 600 hours of German language instruction and a sixty-hour ‘orientation course’ including information on German law, history, culture, and values.”

What if refugee vocational students don’t show up? If they miss these integration classes without valid excuses, or who simply rack up too many absences, they face curtailed government benefits, including in their monthly educational subsidies and food vouchers. And it’s clear from Hindy’s report that many Syrian newcomers in Germany aren’t entirely happy with these assimilationist efforts, charging that they require too much surrendering of their culture and their religion – including keeping women in clearly subordinate positions.

Perhaps most important to keep in mind: Germany has engaged in this massive effort at integration, and achieved what Hindy calls “impressive” successes, at a time when its economy has performed strongly. And even so, in response to political protests, Germany has dramatically reduced refugee admissions over the last two years.

Hindy is surely correct in writing that “barring a reopening of large-scale conflict in Syria, there should be some less chaotic years ahead in which the communities will more easily be able to settle” in Germany. But I wonder how many open and closet, diversity-happy Open Borders enthusiasts in the United States – who tend to pillory calls for any restrictions, or concerns about national identity, as racist and xenophobic – will recognize the loud “proceed with caution” message inherent in her observation.

(What’s Left of) Our Economy: China, Manufacturing, the EU, & Canada (sort of) Led the New Trade Deficit Surge

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Canada, China, EU, European Union, exports, imports, Made in Washington trade deficit, manufacturing, Mexico, NAFTA, North American Free Frade Agreement, oil, real trade deficii, recovery, services, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

With President Trump still threatening to slap $200 billion worth of tariffs on Chinese imports this week, this morning’s trade figures from the Census Bureau show that the U.S. goods deficit with China hit a new monthly record of $36.83 billion. The U.S. manufacturing trade shortfall reached an all-time high as well – $92.29 billion. And as talks to revamp NAFTA (the North American Free Trade Agreement) continue, America’s goods gap with Canada jumped by nearly 58 percent on month, but the merchandise shortfall with Mexico sank by more than 25 percent.

The goods gap with the European Union, meanwhile, reached record monthly heights as well ($17.59 billion). The sequential increase of 50.03 percent was the greatest since October, 2013 (58.87 percent) and was driven by the biggest monthly plunge in U.S. merchandise exports (15.72 percent) to the region since July, 2006 (16.62 percent).

America’s combined goods and services trade deficit rose at its fastest pace (9.50 percent) since March, 2015 (35.63 percent), to $50.08 billion from a downwardly revised $45.74 billion. Total monthly imports of $261.16 billion were a new record as well, and total monthly exports fell for the first time since January – to $211.08 billion. Other all-time monthly highs were recorded for services exports ($70.29 billion), services imports ($47.22 billion), goods imports ($213.94 billion), and current dollar oil exports ($15.77 billion). Pre-inflation oil imports of $20.32 billion were the highest since December, 2014 ($23.58 billion). Though not a new monthly record in July, the goods trade deficit did increase that month at its fastest pace (6.11 percent) since November, 2016 (6.76 percent).

Although these July trade figures come too early in the third quarter to calculate trade’s drag on the current economic recovery through that period, if the monthly deficits remain in this neighborhood, trade’s subtraction from cumulative growth since the expansion began would rebound after falling during the second quarter. As of the revised second quarter figures, the increase in the real total trade deficit since mid-2009 had reduced inflation-adjusted growth during this period by 11.79 percent, or $398.50 billion. That was down from the $457.20 billion drag (14.33 percent) as of the final first quarter results.

The trade drag numbers are much greater for the Made in Washington trade deficit – that portion of U.S. trade flows most heavily influenced by trade agreements and similar trade policy decisions. As a result, it omits trade in services (where liberalization efforts remain at an early stage) and in energy (which is rarely discussed in trade diplomacy as such). The final first quarter figures pegged this growth drag at 17.37 percent, or $523.88 billion worth of lost constant dollar growth. As of the revised second quarter numbers, this growth bite had shrunk to 14.88 percent, or $502.90 billion worth of lost real growth.

Making News: A New York City Radio Podcast — & More!

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AM 970 The Answer, automotive, European Union, Frank Morano, Lifezette.com, Making News, Memphis Commercial Appeal, tariffs, Ted Evanoff, The Joe Piscopo Show, Trade, trade war, Trump

I’m pleased to announce that the podcast is now on-line of my latest appearance on “The Joe Piscopo Show” on New York City’s AM 970 “The Answer” radio station. Unfortunately, the invite was too last minute to preview here, but luckily all you need to do to listen to a great discussion (with guest host Frank Morano) about where we stand currently with President Trump’s “trade wars” and their impact is click on to this link.  My segment comes on at about the 22:25 mark.

On July 26, my skepticism about the new trade agreement between Mr. Trump and the European Union was reported in this post on Lifezette.com. Click onto this post to read about the subject in more detail.

Also, it was great to be quoted on the possibility of Trump auto tariffs by in Ted Evanoff’s July 25 article on the subject in the Memphis (Tennessee) Commercial Appeal. Ted, incidentally, is a journalist who’s become a genuine expert on this topic. His 2010 book on the American automotive industry’s struggles to overcome the last recession and deeper rooted challenges is an absolute must for anyone interested in manufacturing and trade issues.

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

(What’s Left of) Our Economy: Can Negotiations Really Solve America’s Main Europe Trade Problems?

Tags

automotive, EU, European Union, Eurozone, Jean-Claude Juncker, non-tariff barriers, tariffs, Trade, Trump, value-added tax, VAT, {What's Left of) Our Economy

Whenever an agreement raises many more, and bigger, questions than it answers, it’s legit to ask whether it’s much of an agreement. And the questions raised by yesterday’s U.S.-European Union (EU) announcement on trade relations are numerous and immense.

For example, the statement, released following talks between President Trump and European Commission President Jean-Claude Juncker, said nothing directly about the U.S. auto trade tariff threat that raised transatlantic trade tensions to a whole new level. To be sure, the two leaders did agree that, while a joint “Executive Working Group” would begin work on implementing a new trade agenda between the two economic giants, neither “will not go against the spirit of this agreement, unless either party terminates the negotiations” – which sounds like a deal to forego any new trade restrictions. Moreover, Juncker reportedly has stated that this agreement specifically rules out the automotive levies.

Nonetheless, there’s been no announcement yet that the United States will terminate the study it launched in May to determine whether or not new tariffs are needed to bolster the American automotive sector for national security reasons. And regarding the U.S. levies still in place on certain metals products from Europe, the statement simply declared an intention “to resolve the steel and aluminum tariff issues and retaliatory tariffs” issue.

But there are far bigger questions about the agreement, its execution, and the implications for U.S. trade flows and industries that haven’t been answered — or even asked. Of special importance: First, will Washington and Brussels agree to tackle – and eliminate — all the barriers impeding and distorting transatlantic trade? Second, will any such agreement be genuinely enforceable. Major doubts are justified on both counts.

Regarding the barriers to be addressed, it’s encouraging that the statement targeted the complete elimination of not only tariffs, but non-tariff barriers and subsidies on “non-auto industrial goods.” But why was the automotive sector omitted? And why, when it comes to “trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans,” is the aim simply to “reduce barriers.”

Even more important, what about the towering value-added taxes (VATs) imposed by European Union members? Not only do they typically add between 20 and 25 percent to the cost of imports. They subsidize exports to the same degree. Unless they’re on the agenda, the proverbial playing field will remain badly tilted. Yet the joint statement made no mention of them.

Monitoring and enforcement is a major concern, too. As indicated above, it’s heartening that the Trump administration recognize the importance of non-tariff trade barriers and subsidies. But recognizing their importance is a far cry from devising a strategy to eliminate or even reduce them verifiably.

Principally, although the European Union’s bureaucracy is less opaque than similar complexes in East Asia, for example, it still suffers major transparency problems – as even its officials admit. So even identifying many non-tariff barriers and subsidies – much less eliminating them – will be exceedingly difficult at very best. America’s governing processes, by contrast, are highly transparent. All rules and regulations and budgetary expenditures are published regularly, frequently, and in full.

Relatively secretive bureaucracies such as Europe’s enjoy another important trade-related advantage over the American system. Subsidies and non-tariff trade barriers have proved to be eminently fungible. In other words, they are easily reshuffled and renamed. But when such shell games are played by systems such as the EU’s, they’re typically played behind closed doors. Such American gambits, however, are pursued and agreed on in the open.

Finally, the joint statement made no mention of currency manipulation. Admittedly, there’s precious little consensus even within the United States as to defining this protectionist practice. Yet there’s a serious case to be made that it’s been engaged in by the eurozone, which includes many EU members, by virtue of the European Central Bank’s ultra-easy monetary policies.

Not that the America’s central bank, the Federal Reserve, hasn’t kept interest rates very low for long periods of time, and pursued similar forms of stimulus, such as Quantitative Easing. But given the consumption-oriented structure of the U.S. economy and the gigantic trade and current account deficits it chronically runs, it’s hard to make the currency manipulation charge stick. Given the major international surpluses racked up by the eurozone and EU, and how net exports have led their growth, they’re much more plausible culprits.

Interestingly, for all these differences, Europe’s economic and political systems are surely closer to and more compatible with America’s than those of nearly all other major economies. If Washington can’t overcome the above obstacles and negotiate a truly win-win deal with Brussels, how promising can trade talks with other countries and regions be?

(What’s Left of) Our Economy: A U.S. Trade Figures Update with a Special Focus on China & Trump “Foe” EU

Tags

Canada, China, EU, European Union, exports, goods trade, high tech goods trade, imports, manufacturing, merchandise trade, services trade, tariffs, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

The May U.S. trade figures are no longer exactly new, having been released July 6. But with a big round of U.S. tariffs just imposed on China, and many more possibly on the way (along with automotive trade curbs that would affect most major U.S. economic competitors), they’re still incredibly newsy. So here’s a quick rundown of some highlights closely related to recent headlines, starting with the China figures.

>The enormous American goods trade deficit with China shot up by 18.68 percent sequentially, from $27.96 billion to $33.19 billion. The May shortfall was the biggest since January ($35.95 billion) and the increase was the greatest since May, 2016 (19.49 percent).

>The widening of the trade gap was largely driven by a 14.56 percent monthly jump in U.S. merchandise imports from China, to $43.80 billion.

>That level was also the highest since January ($45.79 billion) and the increase was the biggest since March, 2015 (30.33 percent).

>U.S. goods exports to China rose on month by only 1.69 percent, to $10.61 billion.

>Year-to-date, the merchandise deficit is running 9.92 percent higher than last year’s rate – which resulted in a record $375.58 billion bilateral shortfall.

>Also, year-to-date, U.S. goods exports to China have increased by 7.79 percent, while the far larger amount of imports is up by 9.36 percent.

>The trade figures for another competitor in President Trump’s cross-hairs, the European Union (EU) tell a different story. In May, the goods trade deficit with this grouping – labeled a trade “foe” by Mr. Trump – declined by 8.57 percent, from $14.64 billion to $13.39 billion.

>U.S. merchandise exports to the EU advanced by 4.34 percent sequentially in May, to $27.97 billion, and American sales to the group have been improving steadily since November. Indeed, on a year-to-date basis, they’ve improved by a healthy 14.02 percent.

>The merchandise deficit, however, has risen by 14.77 percent year-to-date as of May, with the larger amount of imports up nearly as fast: 14.27 percent.

>The U.S. goods deficit with Canada, another country that has drawn Mr. Trump’s ire, nearly doubled on month in May, from $806 million to $1.50 billion. But because this shortfall has fallen to such low levels in recent years, largely because of reduced American energy imports, these figures now tend to be volatile.

>U.S. merchandise exports to Canada – still America’s largest single country trade partner – increased 4.42 percent on month in May, to $26.81 billion, while goods imports rose by 8.53 percent, to $28.31 billion

>But although that import figure was the highest such monthly total since December, 2014’s $28.83 billion, the year-to-date American bilateral merchandise deficit has plummeted by 40.78 percent, from $9.78 billion to $6.08 billion.

>U.S. goods exports to Canada year-to-date are up by 4.98 percent, as of May, and goods imports have risen by 6.02 percent.

>U.S. global trade flows set a series of multi-month bests and all-time records in May.

>The combined May goods and services deficit fell by 6.57 percent sequentially to $43.05 billion – the lowest such total since October, 2016’s $42.64 billion.

>The goods deficit declined by 3.77 percent on month to $65.79 billion – the lowest since last August’s $65.49 billion.

>On the services side, the May surplus of $22.74 billion bested the April result by 2.04 percent, and fell just short of the record $22.77 billion recorded in February, 2015.

>Total exports, which rose sequentially by 1.94 percent, to $215.33 billion, hit their fourth straight monthly record.

>U.S. goods exports, which increased on month by 2.62 percent, to $144.89 billion, set their third straight such record.

>U.S. services exports, which advanced by 0.56 percent, to $70.44 billion, set their 13^th straight monthly record.

>U.S. non-oil goods exports (pre-inflation) in May climbed by 2.75 percent on month, to $129.98 billion, and set their third straight monthly record.

>U.S. current dollar oil exports inched up by 0.77 percent sequentially in May, to $14.18 billion – the second best performance on record after December, 2013’s $14.27 billion.

>The immense American manufacturing trade deficit in May continued its march toward the $1 trillion-dollar annual mark, and a new yearly record.

>The May manufacturing trade deficit totaled $85.05 billion – its fourth all-time highest, and an increase of 8.95 percent sequentially.

>Manufactures exports improved on month by 4.89 percent, from $96.72 billion to $101.45 billion. But the much greater amount of manufactures imports increased even more – by 6.71 percent, from $174.79 billion to $186.50 billion.

>Year-to-date, the manufacturing trade shortfall reached $397.48 billion in May – 11.89 percent higher than the comparable level in 2017, when the gap finished the year at $929.14 billion.

>Year-to-date manufacturing exports have increased by 7.38 percent, but imports are 9.27 percent higher.

>America’s trade deficit in advanced technology products also keeps heading to a new annual record.

>On month, the chronic shortfall in this category rose by 8.44 percent, to $10.32 billion.

>That increase brought the year-to-date deficit to $45.37 billion –32.62 percent higher than the comparable total last year, when this full-year trade gap reached $110.93 billion.

(What’s Left of) Our Economy: On Those Latest Trump Tariffs

Tags

aluminum, border adjustment tax, China, European Union, FDI, foreign direct investment, intellectual property theft, Made in China 2025, metals, overcapacity, steel, subsidies, tariffs, tax reform, Trade, Trump, value-added tax, {What's Left of) Our Economy

Never let a good set of talking points go to waste! Earlier this morning, one of the broadcast networks asked if I was available for a segment on the latest Trump administration tariff announcements, and wanted to get an idea of where I came down. Even as I was typing up the following, though, I was told that the plan had changed, and that the program in question had decided to go with a Member of Congress instead.

Yet since they’re still relevant to this latest phase of U.S. trade policy, I thought you might find them useful in this slightly edited form.

1.  If the Europeans and other major economies retaliate vs the new U.S. steel and aluminum tariffs, they’ll make clear their indifference to the government-subsidized Chinese output has flooded global markets with both these metals, and seriously distorted trade flows.  In recent years, these foreign governments have paid lip service to the need to curb Chinese overcapacity, but many have enabled it by transshipping Chinese metals (mainly steel) to the US market or stepping up their own exports to the US to relieve the pressure China has put on their own producers.

2.  As a result, (as I’ve previously documented) during the current global economic recovery, the US is the only major steel producing country that has seen its share of world output fall significantly. 

3. Moreover, (as I’ve also shown), the higher input costs resulting from the new metals and other tariffs pale beside the benefits recently received by U.S.-based businesses (including metals users) due to tax reform and regulatory relief.

4. Re both the steel and China tariffs, I wish that Trump had backed a superior alternative:  the Border Adjustment Tax contained in the original version of the House GOP tax bill.

The BAT would have functioned like a value-added tax (a levy imposed by virtually every other country) — imposing a tax on imports heading for the U.S. market, and providing a subsidy for U.S. exports.  Since the BAT would have been across-the-board, no U.S. industry (e.g., metals-using manufacturers) could have argued that it was going to be disadvantaged because its products would have received the same benefits.

Moreover, the BAT was backed not only by House GOP leaders with staunch pro-free trade records.  It was also supported by many major multinational manufacturers.  In addition, it would have been perfectly legal under the WTO, since it so closely resembles the value-added taxes so many other countries have had in place for decades.  But President Trump – for reasons that remain unclear – never came on board.

5. In the absence of the BAT, though, the metals tariffs are essential for correcting major distortions in global trade flows caused by Chinese overcapacity, and the China-specific tariffs are essential for offsetting the impact of Chinese trade predation (including rampant intellectual property theft and extortion) on high tech industries, exemplified by the “Made in China 2025” program.

6. Nonetheless, re China specifically, I have criticized some of the Trump response as being internally inconsistent.  If for example the United States convinces the Chinese to treat U.S. companies operating in China more equitably, U.S. corporate investment in the PRC could well increase, and the trade deficit that Mr. Trump wants to shrink is likely to grow, as much US investment in China creates products exported to the US.

7. More generally, I’m deeply skeptical that any Chinese promises to halt or reduce these forms of protectionism can be verified — because the Chinese bureaucracy operates so secretively, the Chinese national manufacturing complex is so vast, and because the United States will never be able to send over to China enough officials to monitor compliance effectively.

8. As a result, rather than seeking to improve Chinese behavior, I believe U.S. policy toward the PRC should aim first and foremost to reduce the extensive linkages between the two economies.  In this vein, ever more sweeping U.S. moves and proposals to curb Chinese direct investment in key industries in America is a good first step.

(What’s Left of) Our Economy: As Beijing Talks Begin, Lower March U.S. China Trade Deficit Reported – But the Drop Looks Seasonal

Tags

Canada, Census Bureau, China, EU, European Union, exports, high tech goods trade, imports, Made in Washington trade deficit, manufacturing trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, {What's Left of) Our Economy

The onset of top-level U.S.-China trade talks in Beijing roughly coincided with the release of the March monthly U.S. trade figures, which showed that the monthly American merchandise deficit fell to its lowest level ($25.88 billion) since the previous April ($27.63 billion). Nonetheless, this new figure was the second biggest such total for March on record, behind 2015’s $31.24 billion. In addition, the U.S. goods deficit with China is still running 15.52 percent ahead of 2017’s record yearly rate.

Partly as a result of the China improvement, the combined U.S. goods and services trade shortfall in March plunged to its lowest monthly level ($49.86 billion) since last September’s $45.30 billion. And the sequential decline of 15.22 percent was the biggest since the 17.47 percent plunge in March, 2016. March’s totals for combined U.S. exports, goods exports, and high tech goods exports were all monthly records ($208.53 billion, $140.88 billion, and $34.85 billion, respectively). The all-time high in total exports was the third monthly record in the last four months. And the sequential high tech goods gain was a new all-time best (33.95 percent) even for this volatile category.

America’s merchandise trade with Canada racked up its largest monthly surplus on record ($306.1 million), but the U.S. goods deficit with its other NAFTA trade partner, Mexico, jumped to its biggest monthly total ever ($8.05 billion). Amid trans-Atlantic wrangling over American metals tariffs, new monthly records were also set for U.S. goods exports to and imports from the European Union ($29.85 billion and $41.99 billion, respectively), while the March U.S. goods export figure for South Korea was also the best on record ($5.09 billion).

America’s huge and chronic manufacturing trade deficit rose from $73.21 billion in February to $74.53 billion in March, and stayed on course to exceed $1 trillion this year. The March figure also showed that the drag on the current economic recovery from the growth of the Made in Washington trade deficit – that portion of U.S. trade flows most heavily influenced by trade deals and other trade policy decisions – dipped from 18.37 percent in real terms in the fourth quarter of last year (or $538.38 billion in constant dollars) to 17.66 percent ($535.09 billion in constant dollars) in the first quarter of this year.

Here are selected highlights of the latest monthly (March) trade balance figures released this morning by the Census Bureau:

>As a top-level Trump administration delegation arrived in Beijing for possibly contentious trade talks with China, the Census Bureau reported that the massive American goods deficit with the PRC – whose reduction is a leading on the U.S. goal – fell in March by 11.57 percent to its lowest level ($25.87 billion) since the previous April ($27.63 billion).

>At the same time, because U.S.-China goods trade is strongly influenced by seasonal factors, it was also noteworthy that this new March total was the second highest of all time – behind only 2015’s $31.24 billion.

>In addition, even this latest improvement left the bilateral merchandise shortfall running 15.52 percent ahead of last year’s rate, which produced an annual record of $375.23 billion.

>American goods exports to China jumped by 26.27 percent sequentially in March – the biggest such increase since the 32.70 percent advance in October, 2016 – to reach $12.38 billion.

>U.S. goods imports from China fell sequentially in March for the second straight month, to $38.26 billion. That total was the lowest monthly figure since last May’s $41.80 billion.

>The monthly improvement in goods trade with China helped push the combined U.S. goods and services trade deficit down 15.22 percent sequentially, from an upwardly adjusted $57.74 billion in February to $48.96 billion. The February figure was the highest since October, 2008.

>The monthly drop, moreover, was the biggest since March, 2016’s 17.47 percent.

>U.S. total exports hit a new record in March, with the $208.53 billion figure standing 2.04 percent higher than February’s downwardly revised figure of $204.35 billion. In addition, this was the third all-time monthly total export high achieved in the last four months.

>America’s merchandise exports reached an all-time high in March as well, rising 2.37 percent from February’s downwardly revised $137.13 billion to $140.88 billion.

>Another monthly trade best: high tech goods exports. At $34.85 billion, they were 33.95 percent higher than February’s $26.02 billion. High tech goods trade numbers tend to be volatile, but this advance was the greatest on record.

>Largely as a result, the high tech goods trade deficit sank 23.04 percent on month, from $7.93 billion to $6.11 billion – the second straight post-May, 2017 low.

>High tech imports soared on month in March, too – by 20.64 percent, to $40.96 billion. That was the biggest such increase since last March’s 24.58 percent. And the total was the biggest ever for a March.

>The high tech goods deficit is running fully 33.89 percent ahead of last year’s rate – which resulted in the biggest such shortfall on record.

>U.S. merchandise trade with Canada reached its own milestone in March – the biggest monthly American surplus of all time ($306.1 million). In February, the United States ran a deficit of $404.2 million.

>American goods exports to Canada surged by 15.26 percent on month in March, to $27.10 billion. That was the highest monthly total since October, 2014’s $28.39 billion.

>U.S. goods imports from Canada rose robustly, too – by 12.04 percent, to $26.80 billion. That was their highest monthly total since June, 2015’s $27.34 billion.

>The U.S. merchandise deficit with Canada is running 44.72 percent behind last year’s rate.

>The March trade picture for America’s other NAFTA partner, Mexico, was strikingly different. The U.S. goods deficit of $8.05 billion set a new monthly record.

>U.S. merchandise exports to Mexico rose by 8.31 percent on month, to $21.91 billion (the third highest total on record). But merchandise imports climbed by 13.96 percent, to a new record $29.96 billion.

>The merchandise deficit with Mexico is running 9.01 percent ahead of last year’s pace, which at $71.06 billion was the second highest annual total ever (after 2007’s $74.80 billion).

>Amid continued feuding between the United States and the European Union (EU), America’s merchandise trade deficit with the grouping inched up by 0.82 percent on month in March, from $12.05 billion to $12.15 billion.

>Though this total was far from an all-time high, both U.S. goods exports to and imports from the EU set new monthly records in March – $29.85 billion and $41.99 billion, respectively.

>The 19.51 percent percent monthly export increase was the biggest since March, 2011’s 22.51 percent.

>America’s goods deficit with the EU is running 17.71 percent ahead of last year’s rate, which resulted in the second highest annual figure ever ($151.42 billion, with the record being 2015’s $155.66 billion).

>The U.S. merchandise trade deficit with South Korea soared by 58.61 percent on month in March, to $1.08 billion. But this total was at the low end of the recent range. Moreover, in February, the goods shortfall cratered by 65.28 percent.

>The immense and longstanding American manufacturing trade deficit 73.21 to 74.53

>More notably, American goods exports to South Korea climbed to $5.09 billion – a new all-time high. Further, the 18.53 percent sequential advance was the fastest monthly rate of increase since the previous March’s 22.04 percent.

>U.S. merchandise imports from South Korea rose even faster on month in March – by 23.96 percent, to $6.17 billion. That increase, however, followed a 12.05 percent monthly decrease, repeating a roller-coaster pattern that has been typical for the first quarter of the year.

>Nonetheless, the year-on-year shrinkage of the U.S. merchandise trade gap with South Korea has been impressive – 64.30 percent.

>Volatility has also marked the immense and longstanding U.S. manufacturing trade deficit. After sinking dramatically in February from January’s $86.62 billion (the second highest monthly total on record, following last October’s $88.98 billion), the shortfall rebounded by 1.80 percent – from $73.21 billion to $74.53 billion.

>Manufactures exports increased robustly on month, by 18.56 percent, to $10.5.35 billion. But the far greater amount of manufactures imports rose by 10.99 percent, to $179.88 billion.

>This manufacturing trade gap is now running 13.87 percent ahead of last year’s pace – which produced a record total $927.48 billion annual total.

>As a result, if current trends continue, the manufacturing trade shortfall will top $1 trillion this year.

>The March trade figures permit calculation of the drag exerted as of the first quarter of 2018 on the current American economic recovery of the growth of the Made in Washington trade deficit. This consists of the trade flows, adjusted for inflation, that are most heavily influenced by U.S. trade agreements and similar trade policy decisions – i.e., the nation’s non-oil goods trade.

>As of the fourth quarter of last year, this trade drag had reduced cumulative recovery growth by 18.37 percent, or $538.38 billion in constant dollars.

>In the first quarter of this year, the drag was lower – 17.66 percent, or $535.09 billion in constant dollars.

(What’s Left of) Our Economy: Martin Wolf Whiffs on the Trump Tariffs

Tags

allies, aluminum, EU, European Union, Financial Times, General Motors, Martin Wolf, Mary Barra, national security, steel, tariffs, Trade, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

I hate to go after the Financial Times‘ Martin Wolf, because he’s definitely one of the world’s smartest and most responsible economics commentators. Unfortunately, his March 6 column on the Trump tariffs fell so far short of his standards – and in fact simply parrots so much wrongheaded and/or simplistic trade-related conventional wisdom – that a response is essential. Let’s take his main arguments seriatim.

Wolf is apparently upset that the tariffs are “explicitly intended to last a long time.” But what could make more sense? If the aim is to spur more American steel and aluminum output, which requires major capital investments that need time to pay off, short-term tariffs, or tariffs with a publicized termination date, are bound to fall way short of their mark. The former will naturally scare off investors that simply have the requisite time horizon; the latter will additionally tell potential capital sources and foreign steel and aluminum exporters exactly when they can resume dumping subsidized product.

Wolf believes that the tariffs will so raise the costs of steel- and aluminum-using U.S.-made products that these industries and their workforces, which vastly outnumber those of the metals-makers, will suffer major losses of global competitiveness. In making this claim, he both overlooks the relatively small steel and aluminum content of many of these products, and oddly dismisses any possibility that these businesses will find ways to offset any notable input price increases with greater efficiencies elsewhere in their operations.

I say “odd” because that’s exactly what conventional economics tells us will happen – at least with companies determined to stay in their respective businesses. It’s one main reason why productivity growth exists at all. It’s also at the least significant that no less than General Motors Chair and CEO Mary Barra has stated that that’s exactly what her company will do: “We would look to find offsets and efficiencies to offset that [higher steel prices] and not have to pass it on to the customer.”

Wolf worries about the spread of what he admits are trade actions confined to steel and aluminum because so many American trade partners will retaliate. I was waiting for him – as a major supporter of free trade – preemptively to scold these countries for not realizing that theory holds that the best way to respond to tariffs is by compensating losers, not by retaliating. But it doesn’t appear to think that this venerable maxim applies outside the United States.

Wolf predicts that this retaliation will take the form of World Trade Organization  (WTO) challenges and safeguards “to forestall diversion of imports on to their markets.” But because the global steel market is a single integrated market (like so many other markets in this era of extensive globalization), such country-specific measures will fail to prevent diversion as completely as have similar past U.S. Measures. That’s probably why the European Union, for example, has hinted that it won’t wait for the WTO Good Housekeeping Seal for any retaliation. Which of course would be illegal according to WTO rules.

Wolf regurgitates the argument that the sweep of the Trump tariffs will hit “friends and allies” – belying the claim that they’re based on national security considerations. As I’ve noted, though, many of these supposed friends and allies have long been directly or indirectly helping make sure that an outsized share of Chinese-spurred global overcapacity in steel and aluminum winds up being sent to the United States. With allies like these….

Wolf expresses bewilderment that the United States would seek protection for its steel and aluminum industries because output in both has been “stable” since roughly 1990. But in the business world, that’s a euphemism for “no growth since roughly 1990.” Does that scream “competitiveness” to you? Moreover, Wolf overlooks the loss of global and U.S. market share for both sectors – not normally a sign of companies or industries with bright or even viable futures. (See here for the steel data and here for the aluminum figures.)

Wolf uses tariffs as his main measure of whether, as many trade policy critics argue, the United States really is the world’s least protectionist major economy. But nowhere in his article does the term “non-tariff barriers” appear – a shocking omission given their prevalence and strong growth as global negotiations have reduced tariff rates worldwide.

Finally, Wolf alludes to the canard that America’s national savings rate is overwhelmingly responsible for its bloated trade deficits. In fact, the relationship between the trade and broader current account balances on the one hand, and the savings rate on the other is a mathematical identity. As such, it says nothing whatever about causation – which could easily flow the other way.

It’s understandable that Wolf doesn’t like the Trump tariffs per se – I’ve been critical of them in some respects myself. But the scornful tone of his article, and its utter failure even to consider obvious rejoinders (much less address them) indicates that something deeper is at work here: One of our most thoughtful and knowledgeable economics analyst has come down with a bad case of Trump Derangement Syndrome.