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

Tags

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

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

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

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

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

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

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

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

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

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

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

Our So-Called Foreign Policy: “Anonymous” Inanity on China

Tags

Atlantic Council, Biden, China, China Strateg Group, decoupling, Donald Trump, Foreign Affairs, George F. Kennan, globalism, Iran, Our So-Called Foreign Policy, The Long Telegram, The Longer Telegram, X Article, Xi JInPing

How lucky for President Biden that, just as he’s announced a wide-ranging review of U.S. China policy (after he and his supposedly fellow foreign policy mavens spent the entire presidential campaign lambasting Donald Trump’s initiatives and clearly conveying that they knew exactly how to fix these alleged blunders), a wavelet of advice has appeared offering answers, at least at the broad brush level.

How unfortunate for the United States, though, that so little of this advice has any prospect of advancing and defending American interests vis-a-vis China, much less improving on the Trump efforts to neutralize the China threat. In fact, if Mr. Biden follows his longstanding Beijing-coddling instincts and generally heeds the authors, the United States is bound to become more vulnerable and more beholden to the People’s Republic than ever.

Two blueprints for the President to follow have emerged in recent weeks: a memo from an anonymous author who clearly views him or herself as a latter day George F. Kennan; and a collective effort from a “China Strategy Group” dominated by Silicon Valley figures (and co-chaired by Google co-founder Eric Schmidt). The first is the most easily disposed of, and will be the subject of today’s post. Tomorrow I’ll discuss the Group’s China grope.

Kennan, in case you’ve forgotten, was the mid-twentieth century American diplomat whose analyses of Soviet power and behavior (including an early 1946 memo written during his stint in Moscow that became known as “The Long Telegram”) powerfully shaped the Cold War strategy of containment adopted by Washington. He was by no means perfect, but in my view amply deserves his reputation as one of the most incisive foreign policy analysts in American history – which is why if he read the new and arrogantly titled “The Longer Telegram,” he’d probably be hard-pressed to decide whether to laugh or cry.

The most eye-catching proposal made by the author (whose desire for anonymity apes that displayed Kennan in a 1947 article that grew out of “The Long Telegram” that he published in the journal Foreign Affairs as “X”): urging that rather than focus on broadly changing China’s totalitarian system of government and control over the economy, or targeting the Chinese Communist Party (CCP) in particular as Public Enemy Number One, U.S. policy recognize Chinese leader Xi Jinping and his inner circle as the dominant game changer that has turned the People’s Republic and its practices from a “manageable” challenge into today’s mortal danger not only to the United States but to the entire world.

I actually agree with the author that prompting Chinese reform of any kind is a fool’s quest – a prime reason that I regard substantially decoupling America’s economy from China’s as the best way to ensure that the nation can handle whatever problems Beijing creates. It was also heartening to see “Anonymous” recognize that dealing with China successfully will be that much harder for Washington if it keeps going out of its way to demonize Russia – which has clearly become a Democratic Party staple.

But concentrating U.S. China policy “through the principal lens of Xi himself” and seeking to capitalize on “significant” opposition within the CCP to “Xi’s leadership and its vast ambitions” in order to “return [China] to its pre-2013 path—i.e., the pre-Xi strategic status quo” suffers from at least two glaringly obvious flaws.

The first is Anonymous’ belief that however numerous China’s challenges to U.S. interests before Xi gained control, “they were manageable and did not represent a serious violation of the US-led international order.” In fact, even the author him/herself doesn’t seem to believe this.

If he or she did, why admit that the current Chinese challenge, “to some extent, has been gradually emerging over the last two decades”? And that that “China has long had an integrated internal strategy for handling the United States….” And that pursuing its goals “nationally, bilaterally, regionally, multilaterally, and globally….has been China’s approach for decades.” And that “What links” today’s China threat and that posed by the Soviet Union in particular during the early Cold War is that “the CCP, like the former CPSU [Communist Party of the Soviet Union], is an avowedly Leninist party with a profoundly Marxist worldview”?

Have Xi’s ambitions magnified the threat? Of course. But – as Anonymous also admits – not because Chinese leaders’ goals have fundamentally changed, but because growing economic and therefore military strength have brought them within reach.

In the author’s own words,

“China has undergone a dramatic economic rise in recent decades, and it is using its economic power to engage in coercive practices and to become the center of global innovation….China is transforming its economic heft into military strength, modernizing its military and developing capabilities to counter the United States’ ability to project power in the western Pacific.”

And although China has generated much of this impressive progress through its own devices, it’s also indisputable that its closely related economic, technological, and military advances stem from the U.S. and other free world resources and knowhow that flooded into China precisely when the bipartisan Washington consensus viewed any possible dangers emanating from Beijing as “manageable.” In other words, whether knowingly or not, Anonymous in effect is arguing for a return to the policies that helped create the problem he’s (correctly) identified. And P.S. Since he or she is described as “a former senior government official with deep expertise and experience dealing with China,” chances are the author had more than a minor hand in crafting this failed approach.

The second fatal flaw in “The Longer Telegram” is its assumption that American foreign policymakers understand enough “about the fault lines of internal Chinese politics” to manipulate them into bringing back those allegedly manageable pre-Xi leaders. To which anyone with even the skimpiest knowledge of American diplomacy should be responding, “Remember Iran.”

For since that country’s 1979 revolution replaced a generally pro-American monarch with a zealously anti-American Shiite Islamic theocracy, U.S. leaders have tried repeatedly to find influential moderates that would help reshape the new regime’s behavior. Because the United States knew so little about the internal politics and fault lines of this leadership, all these efforts have failed. Does Anonymous really believe that Washington’s knowledge of China’s even more secretive leadership is any better?

The Atlantic Council, the globalist Washington, D.C. think tank that published “The Longer Telegram,” calls it “one of the most insightful and rigorous examinations to date of Chinese geopolitical strategy and how an informed American strategy would address the challenges of China’s own strategic ambitions.”

Actually, its signature recommendation is so internally contradictory and naive that I don’t blame the author for wanting to stay Anonymous.

Our So-Called Foreign Policy: Globalism on Steroids on the Way for America?

Tags

alliances, America First, Antony Blinken, Blob, Cold War, containment, Foreign Affairs, George F. Kennan, globalism, international institutions, Joe Biden, Our So-Called Foreign Policy, Trump

I’ve written at length on how President Trump has conducted a foreign policy that follows America First principles unevenly at best. Now the evidence is growing that if Joe Biden becomes President, he’ll pursue a strategy that will look like globalism on steroids – in other words, an approach certain to return the nation to a diplomacy that minimizes or ignores completely America’s unique advantages on the world stage, maximizes its vulnerabilities, and needlessly increases its exposure to danger.

Aside from Biden’s own strongly globalist impulses, the main evidence so far is the news that he’s decided to appoint longtime aide Antony Blinken as his Secretary of State. Practically all you need to know about this Washington foreign policy veteran, his priorities, and the almost congenitally globalist worldview from which they spring was summed up in this New York Times headline: “Biden Chooses Antony Blinken, Defender of Global Alliances, as Secretary of State.”

For those still doubting his hallmark, The Times stressed in its homepage subhead that, “Mr. Blinken is expected to try to re-establish the U.S. as a trusted ally ready to rejoin international agreements” – which had the added virtue of making clear that Blinken (along with Biden) is thinking not only about America’s security arrangements with Europe and East Asian countries, but about the entire raft of international institutions ranging from the United Nations to the World Trade Organization.

As I’ve explained, this globalist obsession with multilateralism overlooks (1) the potential of the security alliances in particular to plunge the United States into nuclear war for stakes far less than vital; and (2) America’s matchless overall capabilities and potential to achieve security and prosperity in an inevitably unstable, dangerous world through its own power, favored geographic position, and wealth, rather than by making quixotic attempts to pacify the international environment.

At least as worrisome, Blinken seems utterly oblivious to the importance of cultivating and wielding national power when international arrangements of various kinds do offer advantages to the United States. No one could reasonably disagree with his recent observation that

“Simply put, the big problems that we face as a country and as a planet, whether it’s climate change, whether it’s a pandemic, whether it’s the spread of bad weapons — to state the obvious, none of these have unilateral solutions. Even a country as powerful as the United States can’t handle them alone.”

You’ll search in vain, however, for any awareness that the multilateral solutions in which he places so much stock will have content. As a result, countries with different strengths and weaknesses, with differing histories and social and economic priorities will be pushing for outcomes likely to differ significantly from those optimal for America. So achieving those optimal outcomes is fanciful without the leverage to compel or to bribe, or some combination of the two.

But there’s another maxim of globalism possibly exemplified by Blinken (and other likely Biden appointees) that’s potentially even more dangerous for the United States. It’s the notion that striving for and achieving triumphs in the international arena are much nobler as well as much more important endeavors than seeking success in domestic affairs. Indeed, globalists have become so convinced of the paramount stakes of foreign policy not only out of sheer necessity but for moral reasons as well that they have crowned foreign policy ambition as nothing less than the ultimate test of the nation’s character and worth.

In this vein, back in 1993, as Americans and especially their leaders were still struggling to grasp the implications of the Cold War’s end, I wrote that that epic contest

“generated some troubling theories about America’s national identity and purpose which have become all too uncontroversial. Specifically, many of us have come to believe that America will never be true to its best traditions unless it is engaged in some kind of world mission, that creating a more perfect United States is not a noble or an ambitious enough goal for a truly great people, that we will be morally and spiritually deficient unless we continue to be the kind of globe-girdling power we have been for the past half century.”

In fact, I was always struck by the fact that even a major foreign policy decision-maker and thinker such as George F. Kennan – who for most of his career was not much of a globalist at all – fell under this idea’s sway (or did during his most globalist period). Why else would he have ended his famous 1947 Foreign Affairs article outlining the anti-Soviet containment strategy with this description of the upcoming challenge:

“The issue of Soviet-American relations is in essence a test of the over-all worth of the United States as a nation among nations. To avoid destruction the United States need only measure up to its own best traditions and prove itself worthy of preservation as a great nation.

“Surely, there was never a fairer test of national quality than this. In the light of these circumstances, the thoughtful observer of Russian-American relations will find no cause for complaint in the Kremlin’s challenge to American society. He will rather experience a certain gratitude to a Providence which, by providing the American people with this implacable challenge, has made their entire security as a nation dependent on their pulling themselves together and accepting the responsibilities of moral and political leadership that history plainly intended them to bear.”

In the Blinken context, I was reminded of these claims by this sentence from someone as embedded in the think tank-centered globalist foreign policy Blob as the likely Secretary-to-be has been. Biden, writes this author, “will be flanked and assisted by a group of ambitious, sophisticated, and energetic aides eager to leave their mark on American foreign policy—and the world.”

This observation isn’t exactly the same as identifying Blinken as a foreign policy-uber-alles type. But it’s close enough to unnerve me, and raises the question of what makes these Biden staffers believe that the vast majority of Americans want them to “leave their mark on…foreign policy – and the world,” as opposed to expecting them to reserve blood and treasure for genuinely, and nationally, vital purposes, and hoping that they’ll avoid major blunders?

The answer, of course, is “nothing,” and makes clear that if Biden foreign policy team members are is thinking of shining in the history books, they’ll lower their sights, keep their collective noses to the grindstone, and view America’s international business as a sacred trust rather than a vehicle for their personal — or even the nation’s — reputation.

Our So-Called Foreign Policy: America First by Any Other Name?

Tags

America First, Council on Foreign Relations, establishment, Foreign Affairs, globalism, internationalism, Michael Beckley, Our So-Called Foreign Policy, Trump

Here’s a blog post lede I never thought I’d write. And if you’re familiar with the ongoing but almost always blinkered way the establishment debates U.S. foreign policy, you’ll find it pretty starting, too:

An intellectually interesting article appeared in Foreign Affairs. Or maybe more accurately, an article that’s far more intellectually interesting than either its author or the magazine’s powers-that-be realized.

First, here’s why this matters. Foreign Affairs is the journal of the New York City-based Council on Foreign Relations – an organization that literally was created in the shadow of World War I by America’s then-Northeast-centric ruling classes to push the nation to abandon its domestically focused collective impulses and priorities and remain comprehensively involved in world affairs following the conflict.

The organization became so influential that in 1962, the journalist Richard Rovere published an article (which appeared in various forms, notably Esquire) arguing (in my opinion, with tongue not so firmly in cheek) that the Council and its members were pillars of a broader national establishment that not shaped decisively not only American public policy, but the definition of which viewpoints were and weren’t legitimate to air in nationally influential media. (Full disclosure: From the mid-1980s or so through the mid-1990s or so, I was a member until I decided that the dues were no longer worth the candle.)

It’s not that Foreign Affairs never runs material that challenges the orthodoxy in the field of foreign policy – which historically has been called “internationalism” and which President Trump has re-labeled “globalism.” But such articles are published so rarely that their very infrequency clearly telegraphs even to minimally perceptive readers that they’re exercises in tokenism. Another big clue along these lines – they’re given the magazine’s blessing usually only after internationalist policies lead to outright national disasters.

One leading example is this piece, which came out at the height of the Vietnam War. Much less important examples include two pieces of my own, which indicated the Council’s willingness to consider that, with the Cold War ended, America’s military reach was needlessly and dangerously exceeding its grasp; and that the standard economic theories sanctifying free trade policies weren’t all they were cracked up to be.

Yet Michael Beckley’s essay in Foreign Affairs‘ November/December issue falls into a different category altogether. It not only decimates globalism’s core tenets. It does so unwittingly. And there’s no reason to suspect that the magazine’s editors or their superiors understand its profoundly subversive implications, either.

Even more startling: the author’s main arguments closely mirror those made in this 2018 article of mine (and foreshadowed in this Atlantic Monthly piece from…wait for it…nearly 30 years ago).

My own case against globalism first and foremost challenges its assumption that the United States has become exquisitely sensitive, and indeed downright vulnerable, to virtually every disturbance of a set of global circumstances whose default position is called “order” – even though the stability of the entirety of this so-called system itself in turn is considered as fragile as a pyramid of champagne glasses.

In fact, I’ve contended, because of America’s unique combination of geographic isolation, technological prowess and therefore military power, and natural wealth, it’s substantially unaffected by most outbreaks of instability overseas.

And where globalism claims that because of this vulnerability, U.S. foreign policy must engage in a ceaseless effort to create, maintain, or restore order and stability abroad, I’ve argued that because developments within the United States (including its actual or potential foreign vulnerabilities) are far easier for Americans to control than developments without, even when foreign developments threaten to impinge on its security and prosperity, the U.S. government is best advised to respond by addressing its own weaknesses and shoring up its own defenses rather than trying to fix what’s broken overseas.

There’s definitely a paradox at work here, but a paradox that makes perfect sense to the open-minded: The United States is anything but capable through its own devices of ensuring its security and prosperity by making or keeping the world safe and stable. But it’s entirely capable of ensuring through its own devices its own security and prosperity in a world that remains unsafe and unstable.

So imagine my surprise upon reading Beckley statements like:

>”By 2040, the United States will be the only country with a large, growing market and the fiscal capacity to sustain a global military presence. Meanwhile, new technologies will reduce U.S. dependence on foreign labor and resources….”

>”Remaining the most powerful country, however, is not the same thing as remaining the guarantor of a liberal international order. Somewhat paradoxically, the same trends that will reinforce U.S. economic and military might will also make it harder to play that role—and make Trump’s approach more attractive.”

>For much of its history, “The United States could afford to pursue its goals alone because it, unlike other powerful countries, was self-sufficient. By the 1880s, the United States was the world’s richest country, largest consumer market, and leading manufacturer and energy producer, with vast natural resources and no major threats. With so much going for it at home, the United States had little interest in forging alliances abroad.”

>With the passing of the Cold War-era Soviet threat that could only be adequately contained with alliances (I disagree, but that’s a separate issue) “Americans will feel less dependent on foreign partners than they have in generations.”

>”As other major economies shrivel, the United States will become even more central to global growth and even less reliant on international commerce.”

>”The United States will also have less need for staunch allies, because rapid aging will hobble the military expansion of its great-power adversaries.”

>”The United States’ task of leading the liberal world order will grow harder as nationalists gain power and raise tariffs, close borders, and abandon international institutions.” 

One likely reason that neither Beckley nor the folks at Foreign Affairs or the Council understood the real importance of his article is that the author works so hard to paint such unattractive – and even ominous – picture of the rest of the world if the United States does pursue a go-it-alone strategy. Indeed, his portrayal of this kind of America (“rogue” and “illiberal”) isn’t exactly flattering, either.

Another likely reason for this obliviousness is that the second-best version of globalism that Beckley proposes as an alternative to the pre-Trump iteration isn’t so terribly different from traditional globalism.

It essentially entails a more explicit use of U.S. power and wealth to pressure current allies and neutrals into following U.S. leads in exchange for using its still (and increasingly formidable) military edge to protect them against China and Russia and other predators. But although, in Beckley’s words, this foreign policy approach would be “more stingy and uninspiring” than today’s globalism, to my eyes, it also looks comparably (and needlessly) ambitious, interventionist, and risky – especially if America’s relative military prowess doesn’t prove to be nearly as intimidating as the author expects, and the U.S. homeland remains exposed to the risk of nuclear attack from foreign aggressors.

Also crucial to remember – at this stage, even though Beckley’s views have been given something of a Good Housekeeping Seal of Approval by the Council, his voice remains an awfully lonely one. In particlar, there is absolutely no indication yet that anyone associated with the Biden presidential campaign remotely agrees.

At the same time, changes in national strategy rarely develop through knowing adoption of the master plans laid out by policy writers like him (or me). In fact, one of my favorite lines in non-fiction has been been the Victorian era British historian J.R. Seeleye’s contention that his countrymen “seem to have conquered and peopled half the world in a fit of absence of mind.”

I’m not saying I believe Seeleye entirely. But he usefully spotlights the crucial role played by the force of circumstance in producing national course changes. And that’s mainly why Beckley’s article genuinely deserves the descriptor “subversive.” It’s ably identified the many of the developments (including some I haven’t considered) that demonstrate the attractiveness of a genuinely America First-type foreign policy, and could well push the United States to adopt one whether he – or the still powerful globalist U.S. national establishment – likes it or not.

(What’s Left of) Our Economy: The World Trade Organization Unmasked

Tags

Chad Bown, China, Foreign Affairs, Keith Bradsher, multinational companies, Peterson Institute for International Economics, Ronald Reagan, Section 301, The New York Times, Trade, trade law, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

It isn’t every day that Washington’s offshoring-happy economic policy establishment reveals one of its dirtiest secrets in public (unwittingly, of course!). So anyone – and especially U.S. political leaders – with any interest at all in trade, globalization, manufacturing, employment, and related issues (e.g., the economy, getting re-elected) urgently needs to read the final paragraphs of Tuesday’s New York Times article reporting that President Trump will soon greatly ramp up trade pressure on China.

But it’s vital to read the passage intelligently, because the point is made in in the kind of Washington-speak intended to conceal its real meaning.

As Times reporter Keith Bradsher wrote, a key feature of Mr. Trump’s alleged new China strategy will be the use of a provision of America’s national trade law system called “Section 301.” It’s a provision that grants a president broad authority to respond with punitive tariffs to foreign trade practices considered to be damaging the U.S. economy in “unfair” ways, and to respond pretty quickly. (It’s still not nearly quick enough for me, but that’s a separate issue.) And as he made clear, it’s a trade law provision with a noteworthy history. In Bradsher’s words:

“The United States used Section 301 energetically against other countries during the Reagan administration and the administration of President George Bush. Mr. Lighthizer [the current chief U.S. Trade negotiator] was a deputy United States trade representative in the Reagan administration and has been an advocate of shielding the American industrial base from government-assisted foreign competitors.

“But the cases then thoroughly antagonized America’s trading partners.

“‘It was really the aggressive uses of this in the late 1980s and early 1990s that prompted the rest of the world to set up the dispute resolution system’ of the World Trade Organization [WTO], said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics here.”

Bown – whose Peterson Institute home is heavily funded by the offshoring lobby – no doubt meant his statement to reinforce the standard establishment description of and rationale for the WTO-centered world trade system that’s been in existence for the last quarter century. That is, the international economy had too long operated on a law of the jungle basis that bred continual and dangerous conflict, and that in an act of enlightened self-interest, the world’s economies recognized these perils and created a global trade court that would mete out justice according to objective legal standards and thereby serve every countries’ long-term interests.

In fact, Bown wound up confirming a very different description of the WTO and the motives behind its creation that I have advanced since it was first proposed: It’s an arrangement supported by America’s trade partners in order to prevent the United States from using its matchless market power to promote and defend its legitimate international economic interests. P.S. – because U.S.-based multinational companies supply the American market from so many overseas factories, undercutting Washington’s unilateral power to restrict imports mattered crucially to them, too.

For the Reagan-era uses of Section 301 cases that Bown (and Bradsher) mention were noteworthy not mainly because they were “energetic” or “aggressive”. (Unless you view most of America’s trade partners as snowflakes or strong champions of the rule of law.) These 301 uses were noteworthy because they worked. All the evidence is contained in this article I published in Foreign Affairs in 1994. And as Bown made clear, this success was completely unacceptable to “the rest of the world” – most of which, like China, relies heavily on selling to America in order to grow and develop satisfactorily. As a result, these economies, along with the multinationals, became convinced that handcuffing the United States was essential. And official Washington dutifully went along.

Although Section 301 is still on the books, it’s been U.S. policy under Democratic and Republican presidents alike to avoid it in favor of WTO procedures (just as most foreign governments, including allies, and the multinational companies want). And legally speaking (a term I use advisedly when it comes to the WTO and international law generally), that approach seems to dovetail with WTO rules.

But the Trump administration appears to be considering the contention that the United States retains the unfettered authority to use 301 at least in certain instances. The administration further seems confident that, whether it’s right or wrong on the law, the WTO membership collectively will shrink from a frontal challenge for fear of completely destroying a dispute-resolution system that still might serve its interests well going forward – at least much of the time. 

Nevertheless, the reports of a Trump course change on China trade – which could eventually be broadened – are still just reports. All that’s certain now is that, if they’re accurate, the president will wind up showing the his own compatriots and the rest of the world what a real America-First trade policy would look like.

 

Im-Politic: The Latest Anti-Trump Smear is Anything but a New Low

Tags

2016 election, Colbert King, David Duke, Donald Trump, Establishment Media, Foreign Affairs, Hobart Rowen, Im-Politic, Immigration, Japan, Japan-bashing, Nancy Pelosi, Obama, racism, Richard Holbrooke, The New York Times, Trade, Washington Post, xenophobia

I was tempted to say that Colbert King’s Washington Post column today – which tarred as race-baiting Donald Trump’s attacks on not only current U.S. immigration policy but trade policy as well – marked a new low in Establishment Media elitism and plutocracy coddling. Then I remembered that both the mainstream press and the broader Beltway political class have been using these underhanded tactics literally for decades.

According to King, when it comes to trade and immigration, in this year’s presidential campaign, Trump is using the formula employed by former Ku Klux Klan member, racist, and anti-Semite David Duke when he ran for Louisiana governor in 1991 – wooing “economically discontented and politically alienated white voters by playing to their fears and resentments.”

King rightly reminds that Duke – who has endorsed Trump’s presidential candidacy – is an unapologetic bigot. But he pointedly included in his attack on Duke’s success in appealing to voters who were “frustrated, insecure, angry and ready to blame someone” popular concerns over predatory Japanese trade policies and “massive immigration.” And he just as pointedly observed that these themes “echo today” in the rhetoric of the current Republican front-runner.

Sadly, he’s just the latest in a long line of U.S. leaders and Beltway scolds who have made lucrative careers working to ostracize any reservations about globalist trade and immigration policies that have enriched and empowered one percent-ers at the expense of the nation’s working and middle classes.

I first encountered these tactics in the early 1990s, while working at the Economic Strategy Institute. This think tank sought to challenge the free trade absolutism that then reigned virtually unchallenged in American policy circles. In the process, it tried to focus particular attention on Japanese economic successes that strongly indicated that a brand of capitalism differing significantly from the U.S. version could achieve impressive results and create major problems for American industries, their workers, and the country’s overall economic vitality.

An all-too-common response from the establishment pundits of the day, along with prominent think tanks created expressly to uphold conventional wisdom, was to brand the Institute as a “Japan-basher,” whose arguments were fueled by prejudice. Nor were the perpetrators shy about leveling these charges.

According to the late prominent American diplomat Richard Holbrooke – writing in no less than foreign policy establishment house organ Foreign Affairs in an effort to lower then-elevated U.S.-Japan tensions – “there may still be an underlying racism, not always conscious, in the attitudes of some Americans toward Japanese.” And the late Washington Post economics Hobart Rowen had no compunction in making this point to Members of Congress critical of Japan’s protectionism.  (Both these points are made in this Rowen column.)   

Immigration-boosting zealots in establishment ranks have committed the same intellectual crimes – and years before Donald Trump became a leading political figure. For example, when the Senate passed an immigration bill containing a path to legalization, The New York Times moaned, “It is hard to understand what — besides election-year pandering and xenophobic hostility — motivates [the House of Representative’s] unwillingness” to approve the measure. That was in 2006.

Commenting on the immigration policy environment, a junior Senator from Illinois charged, “A certain segment has basically been feeding a kind of xenophobia. There’s a reason why hate crimes against Hispanic people doubled last year. If you have people like Lou Dobbs and Rush Limbaugh ginning things up, it’s not surprising that would happen.” That was Barack Obama, and the year was 2008.

House [Democratic] Minority Leader Nancy Pelosi has stated, “I think race has something to do with them not bringing up the immigration bill. I’ve heard them say to the Irish, ‘If it was just you, it would be easy.’” That remark came in 2014. And if you Google the right search terms, you’ll see that these examples are just the tip of the iceberg.

There’s no doubt that there’s entirely too much anger in American politics today, and that Trump is responsible for much of it. But many of his opponents are in no position to single out Trump’s contribution. As King’s column make clear, their ranks include smear merchants, too. And their paper trail long predates the current campaign.

Our So-Called Foreign Policy: A Conflicted but Noteworthy Call for a U.S. Middle East Pullback

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Council on Foreign Relations, energy, Foreign Affairs, foreign policy establishment, Henry Kissinger, Iran, ISIS, Middle East, Obama, Our So-Called Foreign Policy, Saudi Arabia, Syria, terrorism

The signs are getting curious-er and curious-er that the American foreign policy establishment is becoming more and more taken with the idea of just throwing up its collective hands in exasperation and walking away from the Middle East. In addition to being personally gratifying to yours truly, as I’ve been urging this course change for many months, it would be great for the nation as a whole, as the region has become completely dysfunctional on every level imaginable. Therefore, the notion that any outside power can intervene or try to manage events constructively has become a formula for disaster.

Last week, I noticed that former Secretary of State Henry Kissinger, clearly still one of America’s foremost foreign policy gurus, published a column in The Wall Street Journal that could easily be read as a thinly disguised brief for withdrawal. This essay has now been followed by one in Foreign Affairs that argues explicitly for a U.S. pullback – mainly in military terms. That journal has for nearly a century rightly been seen as the flagship publication of the national foreign policy establishment – or, more accurately, its increasingly underwhelming remnants – because it’s sponsored by the Council on Foreign Relations, the closest approximation the nation has to Establishment HQ. And to thicken the plot further, Kissinger has long been a leading power in the Council’s counsels.

Skeptics can observe that the article’s authors are two former Obama administration White House foreign policy advisers, and that, just to keep a premature campaign promise, the president wants nothing more than to wash his hands of the Middle East and its seemingly endless wars and turmoil. But its appearance in Foreign Affairs means that a much broader – and powerful – part of the establishment has at least decided that this recommended strategy has now become legitimate to bring up. And such developments and the signals they send throughout not only the policy and political communities, but into the upper ranks of business and finance, have a habit of influencing decision-makers sooner or later.

The main problem with “The End of the Pax Americana” – which Foreign Affairs‘ editors billed as pointing to a “Post-American Middle East” – is that the pullout depends on a great many things going right in a region where confidence in the future has rarely been justified. The authors’ overall prescription is that Washington seek to advance America’s “primary interest” in the Middle East – “regional stability” – by acting as an “offshore balancer.” As they explain, this political science-y term entails “refraining from engagement in overseas military operations and forgoing quasi-imperial nation building to focus instead on selectively using its considerable leverage to exert influence and protect U.S. interests.”

But usually when analysts use phrases like “use its considerable leverage to exert influence,” it’s a sign of fudging. On the one hand, they’re seeking to dispel the illusion that the United States remains powerful enough simply to dictate outcomes in the region. On the other hand, they’re insisting – for no apparent reason – that the amount of influence that can be exerted will always, or at least often enough, suffice to achieve the desired goal.

It also seems that the authors are saying that whatever interests the United States retains can’t be addressed militarily (hence their warning that “Political and economic developments in the Middle East have reduced the opportunities for effective American intervention to a vanishing point….”) but can be handled diplomatically. Which seems awfully, and inconvincingly, convenient.

But the bases for the authors’ optimism are also specific and concrete, though no more persuasive. Will the United States really be able to continue deterring Iran’s ambitions to be the Middle East’s kingpin even after it becomes clear that a major military campaign against ISIS has been ruled out?

Indeed, it’s doubtful that the authors themselves believe this. In the first place, they pointedly add that Iran probably isn’t strong enough to dominate the region. And in the second place, even though they portray a major ant-ISIS campaign as the height of strategic folly, they argue that “a serviceable regional U.S. military presence” can “prevent ISIS from expanding further (into Jordan, for example) and…deter Iranian breaches of the nuclear deal and respond to any destabilizing Iranian moves, such as a major ground intervention in Iraq.” Even, apparently, though this presence should never be used.

Moreover, the serviceable presence itself turns out to be pretty big. In fact, they maintain that “The American military footprint in the region should not change.” In fact, neither should the Obama administration’s current military strategy:

“The air campaign against ISIS should continue, and American troops will still need to be deployed occasionally on a selective basis to quell terrorist threats or even respond in a limited way to large-scale atrocities or environmental disasters. But a resolute policy of restraint requires that any major expeditionary military ground intervention on the part of the United States in the Middle East be avoided and that regional partners be encouraged to take on more responsibility for their own security.”

And that reveals a further weakness with the authors’ proposals: As they themselves point out, Washington has few, if any, local countries it can rely on. Worse, its supposedly closest allies, like Saudi Arabia, seem deeply conflicted about the desirability of defeating the terrorists – as opposed to trying to use them to overthrow Syrian dictator Bashir Al-Assad.

Nonetheless, even though “The End of Pax Americana” doesn’t make a sound case for U.S. withdrawal from the Middle East, and in fact seems to back only the slightest actual policy changes, its appearance in Foreign Affairs is a minor milestone. It pushes the foreign policy mandarinate – and therefore the nation as a whole – one step closer to a strategically sensible and prudent case for exiting the region, one that recognizes America’s potential to deal with the threats the region still generates mainly through domestic policy that capitalize on its geographical remoteness from the Middle East and its potential for even greater energy self-sufficiency.

But all the progress in the world won’t make a difference unless it takes place fast enough to prevent a new regional disaster for the United States. And so far, it’s been tough to justify genuine optimism on that score.

(What’s Left of) Our Economy: Better U.S. Growth Through Tariffs

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Alabama, Bloomberg, economists, FDI, Foreign Affairs, foreign direct investment, imports, incentives, Jobs, manufacturing, production, recovery, tariffs, Trade, {What's Left of) Our Economy

If there’s anything you can count on other than death and taxes, it’s nearly all of America’s economists and members of the political and policy elites abhorring unilateral tariffs on imports as dangerous folly. (Multilateral tariffs, applied with the approval of the World Trade Organization, are generally more popular, as they’re seen as an internationally acceptable means of enforcing global trade rules.) Which is why it’s so important for RealityChek to keep pointing out examples of these duties working like a charm to help bring valuable production and jobs to the United States.

A recent Bloomberg item showed just how effective tariffs can be. This report on a recent $120 million Chinese investment in a copper tubing factory in Alabama contained the usual boilerplate about the Chinese company wanting to avoid higher wages back home and seeking to manufacture closer to its customers. To their credit, the reporters also noted that Alabamanians needed to shell out $20 million in incentives to make sure the Chinese chose their state – a widespread practice that should remove much of the shine from this piece of the American manufacturing renaissance meme.

But they and their editors also buried a crucial inducement for China deciding to produce these goods in the United States – to avoid tariffs on copper products. Nor has this been an isolated case. Years ago, in Foreign Affairs quarterly, I described how Reagan-era tariffs and quotas resulted in major new foreign investments in American auto assembly plants and steel mills. And similar measures clearly continue driving the construction of lots of new foreign-owned facilities in the United States today. Of course, America’s trade competitors have mastered this strategy, too. Scholarly research makes clear that erecting trade barriers in order to induce “tariff jumping” investment is common in developing countries. But Europe also attracted considerable U.S. and other multinational capital in the electronics and information technology sectors with this practice.

Tariffs are especially promising for America, however, not only because of that matchless consumer market mentioned above, and the leverage it creates with foreign governments and corporations alike. They’re especially promising because this huge consumer market is so far away from most of the foreign production sites that still supply it so successfully. Making products in America is both a great way to cut transportation costs and a great way to cut delivery times.

American labor and regulatory costs of course remain on the high side. And foreign governments are rarely shy about using a wide range of subsidies – including artificially cheap currencies – to keep their own goods and services competitive. All the more reason, then, for Washington to set about meaningfully boosting the weakfish U.S. recovery by using tariffs more systematically to lure productive, job-creating foreign investment and technology.  Why keep arguing with success?