(What’s Left of) Our Economy: Energy Drove the U.S. Trade Deficit Drop in a March Full of Records

Tags

Advanced Technology Products, China, energy, European Union, exports, Germany, goods trade, imports, Made in Washington trade flows, manufacturing, Mexico, Netherlands, non-oil goods trade, oil, petroleum products, services trade, Trade, trade deficit, {What's Left of) Our Economy

The monthly improvement in the U.S. deficit in March revealed in today’s official U.S. trade report was first and foremost an energy story – not that other noteworthy developments couldn’t be found, specifically records in manufacturing and in American trade with several leading partner countries and regions, and big changes in goods trade with China.

The combined goods and services trade gap narrowed sequentially on month by 9.08 percent, from an upwardly revised $70.64 billion to $64.23 billion. The March total was the lowest since November’s $60.65 billion.

Moreover, the deficit shrank in the best possible way. Total exports rose by 2.12 percent, from a downwardly revised $250.84 billion to $256.15 billion, while total imports dipped (and for the second straight month) by 0.34 percent, from an upgraded $321.48 billion to $320.38 billion. And this trade deficit progress took place when the economy was still growing (albeit at a significantly slowing rate).

And of the $5.31 billion sequential increase in total exports, $4.68 billion (88.14 percent) came in the petroleum products category. In fact, these foreign sales grew at the fastest monthly rate (21.26 percent) since March, 2022 (28.22 percent).

Largely as a result, the goods deficit tumbled in March by 6.92 percent, from $93.03 billion to $86.59 billion – their lowest level since last November, too. ($83.02 billion).

Indeed, petroleum products exports accounted for 89.66 percent of the $5.22 billion expansion of goods exports. On a relative basis, these foreign sales climbed by 3.09 percent, from a downwardly revised $169.09 billion to $174.31 billion.

Goods imports, meanwhile, decreased for the second straight month as well, by 0.47 percent, from a downwardly revised $262.12 billion to $260.90 billion.

The longstanding surplus in services trade slipped in March by 0.11 percent, from a downwardly revised $22.39 billion to $22.37 billion – the lowest level since October’s fractionally higher figure.

Services exports improved by 0.11 percent, from a downwardly revised $81.75 billion to a second straight record of $81.84 billion. The new total topped the old $81.32 billion mark from last December by 0.65 percent.

Services imports, meanwhile, advanced by 0.20 percent, from a downwardly revised $59.36 billion to $59.48 billion – the second highest total ever behind last September’s $59.55 billion.

The huge and longstanding U.S. goods trade deficit with China became a good deal less huge in March, sinking for the second straight month – and by 12.59 percent, fom $19.00 billion to $16.61 billion. Further, that total was the lowest since the $15.76 billion hit in February, 2020 – when China’s economy was still grappling with the devastating first wave of the CCP Virus.

U.S. goods exports to the People’s Republic shot up by 22.06 percent sequentially in March – from $11.62 billion to $14.18 billion. The new total is the highest since last November’s $15.58 billion, and the rate of increase the fastest since last October’s 31.33 percent.

For some perspective, though, this big March increase followed a sizable 11.26 percent decrease in February.

U.S. goods imports from China inched up for the second straight month, but by just 0.55 percent, from $30.62 billion to $30.79 billion. And those two totals are the lowest since early in China’s recovery from that first 2020 virus wave.

Most strikingly, on a year-to-date basis, the U.S. goods deficit with China has cratered by a whopping 39.85 percent, from $101.04 billion to $60.77 billion.

These results, moreover, clash loudly with those of the U.S. worldwide non-oil goods trade – which as known by RealityChek regulars is a close proxy for U.S.-China goods trade.

The U.S. non-oil goods deficit (which can also be considered the “Made in Washington” deficit because it tracks trade flows most strongly influenced by U.S. trade deals and other policy decisions) worsened by 0.19 percent between February and March – from $92.19 billion to $92.36 billion. So China goods trade performed better sequentially on this basis.

U.S. goods exports to China were up in March much faster than the 0.25 percent gain in non-oil goods exports (from $145.80 billion to $146.16 billion).

As for non-oil goods imports, they increased by just 0.23 percent in March (from $237.98 billion to $238.52 billion) – not dramatically different from the China goods performance.

But the year-to-date contrast is enormous. Whereas the U.S. goods deficit with China nosedived by nearly 40 percent, for non-oil goods trade, it fell by less than half that – 17.80 percent, from $336.25 billion to $276.40 billion.

That makes it hard to avoid concluding that the Trump (now Trump-Biden) tariffs keep punishing China (along with Beijing’s own-goals ranging from last year’s wildly over-the-top Zero Covid policies to increasing harassment of U.S.- and other foreign-owned companies) but not simply by diverting imports and trade to other countries and regions. Domestic American producers must be getting some of that old China business as well.

The manufacturing trade deficit, however, worsened by 9.08 percent in March, from $100.05 billion to $109.64 billion. True, this increase followed a 14.36 percent drop in February, but it can’t be good news given the sector’s recent weakness.

Interestingly, this deterioration reflected major changes in both monthly exports and imports. The former soared by 18.91 percent, from $98.06 billion to a new record $116.60 billion (which topped the previous mark of $114.78 billion set last June by 1.58 percent).

Industry’s foreign purchases jumped by 14.20 percent, from $198.10 billion to $226.24 billion.

Big monthly changes and a record were also recorded in Advanced Technology Products (ATP) trade in March. The ATP deficit dropped from $16.23 billion to $14.31 billion. The 11.82 percent narrowing brought the gap to its smallest since February, 2022’s $13.42 billion.

ATP exports shot up from $29.12 billion to a new all-time high $38.33 billion. And the 31.65 percent increase was the most dramatic since March, 2002’s 31.94 percent.

Imports surged, too – by 16.09 percent, from $45.35 billion to $52.65 billion. And that upswing was he fastest since the 33.64 percent burst of last March.

On the regional and bilateral fronts, many of the most dramatic developments came in U.S. goods trade with Europe.

America racked up its biggest exports total ever to the European Union ($34.96 billion – 12.04 percent greater than the $31.20 billion level hit last March) and bought its second greatest total of imports ($50.82 billion, a number trailing only last October’s $53.07 billion).

The volatile U.S. surplus with the Netherlands skyrocketed by 116.40 percent on month, from $1.84 billion to $3.98 billion, keyed by record exports of $7.76 billion. That smashed the previous mark of $6.96 billion by 11.50 percent.

U.S. goods exports to Germany achieved an all-time high, too, with the $7.50 billion figure exceeding the old record of $6.62 billion, set last March, by 13.20 percent.

The U.S. goods deficit with Mexico reached its highest ever, too, in March, with the $13.55 billion total coming in 8.25 percent higher than the old record of $12.57 billion from August, 2020. American goods sales to Mexico totaled $29.27 billion – their second best performance ever after last August’s $29.98 billion. But imports reached a new record of $42.82 billion – 5.87 percent greater than last March’s $40.45 billion mark.

Advertisement

Glad I Didn’t Say That! Germany Dodges Biden Bullet (Or Did It?)

Tags

allies, Biden, economic aid, geopolitics, Germany, Glad I Didn't Say That!, miitary aid, Olaf Scholz, Ukraine, Ukraine War

“German Chancellor Set for Heat From Biden Over Ukraine Ammunition Supplies: What to Watch”

—Bloomberg.com, March 3, 2023, 12:01 AM EST

 

“Biden Lauds Germany’s Military Aid to Ukraine in Scholz Meeting”

– Bloomberg.com, March 3, 2023, 3:17 PM EST

 

(Sources: “German Chancellor Set for Heat From Biden Over Ukraine Ammunition Supplies: What to Watch,” by Arne Delfs and Michael Niemaber, Bloomberg.com, March 3, 2023, Biden Ukraine Talks With Scholz on Ammunition, China: What to Watch – Bloomberg and “Biden Lauds Germany’s Military Aid to Ukraine in Scholz Meeting,”by Justin Sink and Akayla Gardner, Bloomberg.com, March 2, 2023, Biden Lauds Germany’s Military Aid to Ukraine in Scholz Meeting – Bloomberg)

(What’s Left of) Our Economy: 2022 Saw More U.S. Trade Deficits but More Secure Supply Chains

Tags

Advanced Technology Products, ATP, Biden adminstration, Canada, Central America, Dominican Republic, European Union, friendshoring, Germany, Immigration, Japan, manufacturing, Mexico, offshoring, South Korea, supply chains, Taiwan, Trade, Trade Deficits, U.S.-Mexico-Canada Agreement, USMCA, Vietnam, {What's Left of) Our Economy

Sometimes the best-laid plans of mice and men etc etc. So this second look by RealityChek at the final (for now) year-end 2022 official U.S. trade figures is coming out today, rather than yesterday, as I expected.

The big takeaways: First, record deficits were set practically everywhere the eye can see – and on top of sizable increases – when it comes to trade flows in manufacturing, advanced technology products (ATP), and with nearly all of America’s major trade partners (except China, which was covered Friday).

Second, and more encouragingly, regionalization of U.S. trade within the Western Hemisphere kept growing, which is (a) surely making supply chains more secure; and (b) creating more economic opportunity in countries that have long sent the United States large numbers of migrants. In other words, the Biden administration goal of “friendshoring” keeps becoming a thing. 

The biggest absolute numbers were turned in by U.S. manufacturing, which saw its huge, chronic deficit rise by 13.46 percent, from $1.32544 trillion to a twelfth straight record $1.50379 trillion. (Unless otherwise specified, all figures in this post will be in pre-inflation dollars, which are the trade data most closely followed by students of the economy.)

And in context, these figures look just as bad. Although full-year, 2022 results won’t be available until late March, when the pre-inflation manufacturing output numbers come out, as of the third quarter, the manufacturing shortfall stood at 53.09 percent of its value-added production (a measure that avoids significant double counting for complex goods made up of lots of parts and components). That marks the first time this number has topped fifty percent.

Moreover, it could well climb further, since in inflation-adjusted terms, manufacturing output has weakened significantly in the fourth quarter.

The only remotely optimistic development: The growth rate of the manufacturing trade deficit last year slowed from 2021’s 18.84 percent.

The trade gap in advanced technology products widened even faster last year – by 24.58 percent, from $195.95 billion to a sixth consecutive all-time high $244.11 billion.

An even stronger goods trade deficit increase was registered by America’s partners in the United States-Mexico-Canada Agreement (USMCA) – the successor to the North American Free Trade Agreement (NAFTA). This shortfall worsened by 34.12 percent, from $158.19 billion to a second straight record .$212.17 billion.

The most dramatic USMCA deficit change came in U.S-Canada goods trade. Here, the gap soared by 63.14 percent, from $50.03 billion to $81.62 billion. That new record deficit was the highest since 2005’s $78.49 billion..

The goods trade deficit with Mexico surged more slowly – by 20.73 percent. But 2022’s $130.55 billion total was a new all-time high as well, surpassing 2020’s $112.08 billion.

American trade with the European Union (EU) was an exception to the 2022 pattern. The goods shortfall fell by 6.78 percent, from $218.74 billion to $203.91 billion, largely reflecting supercharged American exports of natural gas to the continent to make up for reduced post-Ukraine war Russian supplies.

But the goods deficit with the EU’s largest economy, Germany, increased by 5.44 percent, from $69.88 billion to $73.69 billion.

Turning to U.S. goods trade with Asia, the deficit with Japan grew by 12.80 percent on year, from $60.30 billion to $68.01 billion.

The gap with South Korea jumped by 51.39 percent, from $28.98 billion to a third straight record $43.87 billion.

In swelling by 19.65 percent, from $40.23 billion to $48.13 billion, the goods shortfall with Taiwan set recorded its fourth consecutive all-time high.

And consistent with its growing role as an alternative to offshoring export-oriented production to China, the U.S. goods deficit with Vietnam ballooned by 27.77 percent, setting a thirteenth straight record in the process.

At the same time, these geographic trade statistics show that despite the emergence of Asia altenatives to China, U.S. goods trade is becoming increasingly concentrated within the Western Hemisphere.

Between 2021 and 2022, two-way U.S. goods trade with Canada and Mexico combined as a share of total U.S. goods trade rose from 28.76 percent to 29.33 percent. And in 2019, the last full-year before the pandemic’s arrival state-side, this share was just 25.71 percent.

The numbers for Dominican Republic and Central America are much smaller but the trends more dramatic. Between 2021 and 2022, their share of total U.S. goods trade improved from 5.25 percent to 5.34 percent, but since 2019, it’s way up from 1.23 percent.   

 

Our So-Called Foreign Policy: Two German Tank Decision Mysteries

Tags

Germany, Iron Cross, Leopard, Nazi Germany, Our So-Called Foreign Policy, Panzer, Prussia, tanks, Ukraine, Ukraine War, World War II

Germany has finally decided to send advanced battle tanks to Ukraine (and to allow other countries whose militaries use the weapon to do te same). So ends a period of reluctance that was widely (and in my view, correctly) attributed in large measure to Berlin’s reluctance to suggest that historic German hyper-militarism is on the way back. Even so, I find two related aspects of Germany’s decision puzzling, to say the least.

At the outset, though, let me be perfectly clear: I’ve long advocated major German (and, for that matter) Japanese rearmanent. Believe me, I understand why the Germans (and Japanese) have long resisted such measures, and why Washington has tacitly supported the resulting defense free-riding.

After all, even nearly eight decades after these countries ignited World War II and committed such unspeakable atrocities before and during the conflict, who would support risking a repeat lightly? (At the same time, permitting Germany and Japan to remain military pygmies meant that American leaders would remain the national security and geopolitical kingpins of Western Europe and East Asia long after both countries had regained the economic power that ordinarily would have led to much more influence along these lines and likely greater diplomatic independence from Washington. Why? Because…well…countries with dramatically different historical experiences and geographic locations naturally often view the world differently.)

But because economic strength inevitably produces the ability and therefore the will to assert uniquely national interests, I always believed that this U.S. approach was simply delaying not only the inevitable, but the kind of orderly transition to the point at which these countries (in tandem with their neighbors, in the case of Germany but not so much Japan) would handle their own defense – and greatly reduce the nuclear war risk America was running because of its deterrence and coupling strategy.

And in a purely military sense, I always worried about the prospect of the United States plunging into a major war in Europe or Asia without allies it could count on one hundred percent – either because they stayed so weak or because they didn’t endorse American policy fully.  

Nor did I ever see any significant evidence that America’s determination to conduct these countries’ national securiy strategies for them (which I called “smothering”) generated any benefits for the U.S. economy. If anything, prioritizing alliance relationships typically convinced Washington to allow such allies to continue the protectionist policies that harmed domestic U.S. industry and its workers. (See this 1991 article for a wide-ranging discussion of both alliance-related security and economic issues.)

So again, I strongly support both the German, Japanese, and other allies’ stated intentions to get serious about their own security. But I have two related questions about Germany.

First, if Germany is so worried about even perception that it’s reverting back to its terrible old ways, why since the end of has it chosen the Iron Cross as the symbol of its military? Granted, it’s not the same Iron Cross the Nazis used. But it’s really close. Moreover, this version was used by the 19^th century Prussians, who were pioneers in developing modern militaries and whose leaders in those days had no compunctions about throwing its weight around first to unify Germany and then ensure that it could rival and even surpass the rest of Europe in terms of continental and global clout. (Not that these neighbors were angels themselves.)

And yet, in 1956, when the German army was reconstituted, West Germany’s president designated as its official emblem. Like no other choices were available then, or have been since? (For a brief history of Iron Cross, see here.) 

Second, why would a long-neutered Germany call any of its tanks a “Leopard”? How could such nomenclature fail to evoke the Nazi era in particular? After all, Hitler’s most famous tanks were the Panther (Panzer) and a late variation (the Tiger). Of course, weapons names should convey might and ferocity. But the world isn’t exactly shrt of other animal predators. And animal predator names aren’t the only words that can do the job.

Obviously, I’m not expecting any revival of worrisome German revanchism. But I still view these two military branding decisions as head-scratchers, and because even the weirdest choices rarely come completely out of the blue, I’ll continue to find them mystifying until I see a sensible explanation.    

Glad I Didn’t Say That! Energy Security One Tanker at a Time

Tags

energy, energy crisis, energy prices, Germany, Glad I Didn't Say That!, inflation, natural gas, Olaf Scholz, Persian Gulf, Ukraine, Ukraine War

”Germany secures more gas shipments as [Chancellor Olaf] Scholz visits [Persian] Gulf”

 —Associated Press, September 25, 2022

Number of gas shipments Scholz has secured during his visit to the Persian Gulf: 1

–Bloomberg.com, September 25, 2022

 

(Sources: “Germany secures more gas shipments as Scholz visits Gulf,” by Frank Jordan, Associated Press, September 25, 2022, https://apnews.com/article/russia-ukraine-boris-johnson-united-arab-emirates-germany-b2ff121c9b7e3931ab3c89acdf76beaa and “Germany Secures Just One Tanker of Gas During Scholz’s Gulf Tour,” by Birgit Jennen and Omar Tamo,” Bloomberg.com, September 25, 2022, https://www.bloomberg.com/news/articles/2022-09-25/germany-nabs-uae-gas-deal-as-energy-squeeze-tightens?srnd=premium&leadSource=uverify%20wall)

(What’s Left of) Our Economy: Encouraging Brexit Lessons for the United States

Tags

Brexit, China, decoupling, European Union, Eurozone, Financial Times, France, Germany, IMF, International Monetary Fund, United Kingdom, {What's Left of) Our Economy

Some awfully interesting evidence supporting my view (see, e.g., here) that the United States is uniquely positioned in the world to prosper quite nicely from seeking to maximize its already high degree of economic self-sufficiency has just emerged — and from some awfully unlikely sources.

It’s indirect evidence, to be sure, and concerns the United Kingdom’s (UK) economic perfomance since the Brexit referendum of 2016 that mandated its pull-out from the European Union. But it’s relevant to the United States’ situation because the U.S. economy is far more actually and potentially self-sufficient.

The evidence – from the ardently globalist International Monetary Fund (IMF) and from the just-as-ardently anti-Brexit Financial Times – makes clear that since the UK finally left the EU at the end of January, 2020, it’s gross domestic product (GDP – the standard measure of a national economy’s size), has not only risen about as fast as those of the major members of the EU, but that it’s closed the gap that existed pre-withdrawal. And all the while, the UK has reaped a crucial benefit – much more control over its future.

The IMF evidence came in today’s release of its World Economic Outlook – a twice yearly Fund publication that surveys the state of the globe and includes growth forecasts for major countries, geographic regions, and formal groupings of countries like the eurozone (which overlaps pretty thoroughly with the EU).

According to the Fund, last year, the UK economy expanded by 7.4 percent in inflation-adjusted terms (the most closely monitored gauge of growth). The figure for the countries using the euro as their currency? A mere 5.4 percent. And it’s not like the lagging eurozone performance was dragged down by its long-time economic laggards. Germany’s real 2021 growth was a measly 2.8 percent, and France’s much better seven percent still trailed the UK’s.

In other words, a single country that’s cut itself off from all the alleged benefits of economic integration with a much larger market had out-grown the collective members of that market that presumably were enjoying all the economic advantages of such integration.

Moreover, the IMF’s latest projection for this year crowns the UK as a growth winner, too. Its 2022 price-adjusted GDP is forecast to improve by 3.7 percent, versus 2.8 percent for the euro area. The French after-inflation growth rate is expected to top the UK’s slightly (2.9 percent), but Germany’s will be stuck at a lowly 2.1 percent.

The only solace Brexit-haters can take from the IMF analysis is that the UK supposedly will fall way behind growth-wise next year. Its real GDP performance is pegged at a mere 1.2 percent – slower than that of the euro area (2.3 percent), France (a not-so-impressive 1.4 percent), and Germany (a respectable 2.7 percent, but a performance coming off an unusually low baseline). Yet needless to say, it’s much more reasonable to put more stock in near-term predictions and longer-term predictions.

In addition, even with this possible slowdown, the Financial Times graph below (taken from this article) shows that, despite its glass-half-empty title, if the IMF is right about 2022, the UK will have turned itself from a growth laggard in 2019 compared with France and Germany to a growth equal. And although the 2023 projections are tough to see in this graphic, they show near parity among the three.

Two qualifications to these findings need to be made. First, as I’ve repeatedly noted, all economic data for the last few years has been dramatically affected and surely distorted by the CCP Virus pandemic. Second, although the UK left the EU, it still does business with the bloc and its economic ties with the rest of the world stayed the same organizationally.

At the same time, for years after the referendum vote, businesses in the UK had been dealing with major uncertainties and the inevitable short-term costs of the negotiations over Brexit’s precise withdrawal procedures and terms. And the growth figures make obvious that, on the whole, they and the entire economy have managed to navigate them successfully.

And if the UK has so far emerged successfully from its Brexit-style decoupling from the EU, it’s hard to imagine that the much more economically diverse United States can’t emerge from a much more determined decoupling from China – which will promote vital and intertwined economic and national security interests – at least as well.

Our So-Called Foreign Policy: How the Last Seven Days Could Really Shake the World

Tags

alliances, Baltics, Crimea, deterrence, Donbass, energy, European Union, free-riding, Georgia, Germany, NATO, North Atlantic treaty Organization, nuclear deterrence, Olaf Scholz, Our So-Called Foreign Policy, Poland, Russia, spheres of influence, Ukraine, Ukraine invasion, Ukraine-Russia war, Vladimir Putin

The situation in Ukraine as of this morning remains as fluid and full of uncertainties as it was when yesterday when caution persuaded me to pause and turn my attention to a sobering CCP Virus milestone.

But one feature of the conflict is becoming clear, and if it holds much longer, opens up the distinct possibility that the major assumptions that have animated U.S. policy toward European security merit major rethinking.

That feature: Ukraine is proving to be a much tougher military challenge for Russia than anyone, including me, expected. It’s still not entirely certain why. But even the explanations most favorable to Moscow and Russian military prowess – that Vladimir Putin decided to go gradual for fear of destroying the infrastructure of a country his regime will eventually need to run, or of needlessly enflaming the occupied population to the point of triggering an insurgency with staying power, or some combination of the two – lead (logically, anyway) to these potentially game-changing conclusions: that Russia is too weak to bend countries of any decent size to its will, and that there’s no reason to believe it will acquire the necessary power in the policy relevant future.

In other words, it’s one thing to take control over two tiny enclaves of a very small neighbor like Georgia (2008), or to seize a part of Ukraine with a sizable ethnic Russian population (Crimea in 2014), or to use local proxies to challenge on the cheap Ukrainian sovereignty over an eastern region also full of Russian speakers, or even to march into and annex two provinces of this Donbass region.

But using force to turn the rest of Texas-sized Ukraine with its population of more than 40 million people into a Russian satellite? That’s obviously been a much taller order.

And even if superior Russian troop numbers and weaponry ultimately do achieve their apparent near-term goal of replacing Volodymyr Zelensky’s government with pro-Moscow puppets, and thereby the longer-term goal of keeping Ukraine out of NATO, these results will seriously challenge the views of folks like me (most recently, here), who had credited Russia with enough power to bring into a sphere of influence Ukraine – along with smaller neighbors, like the rest of Georgia plus Moldova (neither of which belongs to the North Atlantic Treaty Organization – NATO), and even the three Baltic states that are NATO members.

After all, as mentioned above, keeping control over Ukraine alone may well seriously drain lots of Russian military power, and further strain an economy that’s not exactly a powerhouse to begin with. And if even the old Soviet leaders eventually found keeping Afghanistan not worth the candle, in part because public anger over casualties kept mounting, will Putin really be able to demonstrate greater staying power in Ukraine? Much less simultaneously keep the clamps on other small neighbors? Much less achieve the same objectives vis-a-vis larger Eastern European countries like Poland? Much less even credibly threaten anyone in Western Europe?

But if the more optimistic Ukraine scenario plays out, that would mean that the mainstream, globalist foreign policy leaders and thinkers who view keeping that country free of Russian control, and even bringing it into NATO, as essential for America’s security have been wrong as well – precisely because severe limits on Russian power are becoming increasingly obvious. Unless a Russia that can’t pose a military threat to Western Europe can pose one to the United States?

Russian failure or overly costly success in Ukraine even undercuts arguments that the militarily dominant, or any major, American role in NATO remains crucial. On the one hand, it’s true that, Russia has attacked non-NATO member Ukraine but not NATO allies like Poland and the Baltics. So Putin surely sees a big difference between countries to whose defense the alliance is committed (including with recent deployments of U.S. and other members’ military forces), and those outside the NATO umbrella.

But does that mean that the United States must still remain the kingpin, and contribute an outsized (and very expensive) share of the alliance’s military might? And continue to extend a nuclear shield over Europe – which of course creates a risk of nuclear war with Russia? Maybe not, especially upon considering the West European NATO members’ response to the Ukraine invasion.

Specifically, it’s been much stronger than I and most others expected, too. And the German response has been most revealing of all. After decades of being the alliance’s worst military free-rider, and skimping on its defense budget to the point that a top general just called his forces “more or less bare,” new Chancellor Olaf Scholz has now vowed a big increase in military spending and promised not only that Germany will hit the goal of members’ defense budgets representing two percent of their economies, but exceed it. Moreover, the entire European Union (EU), whose membership overlaps considerably with NATO’s, is now finally recognizing how dangerously moronic they’ve been in boosting their dependence on Russian fossil fuel supplies.

What this seems to demonstrate is that once the Europeans (many of whom have free-ridden militarily themselves) perceive a sharp enough threat to their own safety and independence and well-being, they change profoundly. They begin to act less like cunning and not-so-reliable protectorates determined to gain any benefits they can from Russia in full confidence that America will shield them from any dangers, and more like countries that recognize that their best bets for security and prosperity are their own considerable resources.

By the way, these resources include not only the wealth to field much larger conventional militaries, but French and British nuclear forces. So NATO’s European members should be able not only to deter Russia conventionally, but at the strategic nuclear level as well. And if they deem those nuclear forces inadequate to the task, they can build more

Just as important, this European awakening seems at least partly due to a dawning recognition that for a wide variety of reasons (e.g., America’s preoccupation with its internal problems, its supposedly unreliable recent political leadership, its higher prioritization of Asia, its resentment at being played), historic U.S. enabling can no longer be taken for granted.

All of which means that the American response should be not devoting more of its military strength to deterring or countering Russia in Europe, moving still more conventional forces to Eastern Europe, or unleashing a new round of rhetoric declaring its own vital, ironclad, and undying stakes in the continent’s security, but encouraging these trends – and especially appreciating the opportunity to let itself off the nuclear hook.

This doesn’t mean that the United States should make no contributions to Europe’s defense. But whatever assistance is proposed to the American political system should be clearly described to the public (and to the Europeans) as a policy of choice, not of necessity, and should be flexible enough to enable the nation to opt out of a conflict on the continent if it so decides, not trapped into one, as is potentially the case now. Indeed, as I’ve written, that danger could all too easily still result from the Ukraine war, because non-negligible U.S. forces are now deployed close to the actual fighting.

In 1919, American journalist John Reed came out with a book describing first-hand the Bolshevik Revolution of two years before called Ten Days that Shook the World.  I’m sure not yet certain that this first week of the Ukraine war will turn into seven days that shook the strategic and geopolitical worlds.  (And I certainly hope that the above scenarios turn out to be more accurate than Reed’s sunny expectations of Soviet communism.)  But American leaders focused on their own country’s genuinely vital interests shouldn’t overlook the possibility.

Our So-Called Foreign Policy: The Ukraine Crisis Grows Curiouser and Curiouser

Tags

Annaleena Baerbock, Biden adminisration, China, democracy, deterrence, Eastern Europe, energy, European Union, Germany, human rights, Italy, Mario Draghi, NATO, natural gas, Nordstream 2, North Atlantic treaty Organization, Olaf Scholz, Our So-Called Foreign Policy, Phase One, Poland, Russia, sanctions, sovereignty, Taiwan, tariffs, The Wall Street Journal, Trade, trade war, Ukraine

The longer the Ukraine crisis lasts, the weirder it gets. Here are just the latest examples, keeping in mind that new developments keep appearing so quickly that this post might be overtaken by events before I finish!

>What’s with the Chinese? Toward the end of last year, (see, e.g., here) I’ve been worried that President Biden’s Ukraine policy would push Russia and China to work more closely to undermine U.S. interests around the world – a possibility that’s both especially worrisome given evident limits on American power (Google, e.g., “Afghanistan”), and completely unnecessary, since no remotely vital U.S. interests are at stake in Ukraine or anywhere in Eastern Europe.

In the last week, moreover, numerous other analysts have voiced similar concerns, too. (See, e.g., here and here.)

But just yesterday, The Wall Street Journal published this piece reporting on Chinese words and deeds indicating that Beijing opposed any Russian invasion of Ukraine. You’d think that China would welcome the prospect of significant numbers of American military forces tied down trying to deter an attack by Moscow on Ukraine, or on nearby members of the North Atlantic Treaty Organization (NATO), or getting caught up in any fighting that does break out. The result of any of these situations would be an America less able to resist Chinese designs on Taiwan forcibly.

It’s unimaginable that Chinese leaders have forgotten about these benefits of war or a continuing state of high tensions in Ukraine’s neighborhood. But according to the Journal, Beijing has decided for the time being that it’s more important to avoid further antagonizing the United States on the trade and broader economic fronts – specifically by helping Russia cushion the blows of any western sanctions. China is also supposedly uncomfortable with the idea of countries successfully intervening in the internal affairs of other countries – because of its own vulnerability on the human rights front, and because it regards foreign (including U.S.) support for Taiwan as unacceptable interference in its internal affairs, too (since it views Taiwan as a renegade province).

Not that China isn’t already acting to prop up Russia’s economy – specifically agreeing earlier this month to buy huge amounts of Russian oil and gas. But if Beijing has indeed decided to go no further, or not much further, the potential effectiveness of western sanctions on Moscow would be that much greater. It would also signal that the Biden adminisration has much greater leverage than it apparently realizes to use tariffs to punish China for various economic transgressions – e.g., failing to keep its promises under former President Trump’s Phase One trade deal to meet targets for ramping up its imports from the United States.

>Speaking of sanctions, the Biden administration view of these measures keeps getting stranger, too. The President and his aides have repeatedly insisted that the best time for imposing them is after a Russian invasion of Ukraine, because acting beforehand would “lose the deterrent effect.”

But this reasoning makes no sense because it – logically, anyway – assumes that the sanctions that would be slapped on would achieve little or nothing in the way of inflicting economic pain powerful enough either to induce a Russian pullback or convince the Kremlin that further aggression along these lines wouldn’t be worth the costs.

After all, pre-invasion sanctions would be taking their toll while the Russians were fighting in Ukraine, and until they pulled out or made some other meaningful concession. The Biden position, however, seems to be that in fact, during this post-invasion period, they’d be taking scarcely any toll at all – or at least not one significant enough to achieve any of their declared aims. If that’s the case, though, why place any stock in them at all at any time?

>One reason for these evidently low Biden sanctions expectations is surely that, at least for now, the administration isn’t willing to promise that the potentially most effective punishments will be used. Nor are key U.S. allies.

Principally, last Friday, Deputy National Security Adviser Daleep Singh told reporters that banning Russia from the global banking system would “probably not” be part of an initial sanctions package. And Germany keeps hemming and hawing about ending the Nordstream 2 gas pipeline project even if Russia does invade.

The Germans – and the rest of Europe – are now acting like they’re taking seriously the need to reduce their reliance on Russian natural gas (which currently supplies some forty percent of their supplies of this fossil fuel. But Berlin has still not committed to cancelling its plans to buy even more gas from Russia via the recently completed Nordstream channel. (The pipeline isn’t yet in use because the Germans are in fact dragging their feet on final regulatory approval.) Foreign Minister Annalena Baerbock has declared that Nordstream is “on the table” for her if the Russians move militarily. But nothing even like this non-promise has been made by Prime Minister Olaf Scholz. And last Friday, Italian Prime Minister Mario Draghi said he opposes including energy in anti-Russia sanctions.

>The final puzzle: Although Poland is a linchpin of NATO’s strategy for preventing any Putin aggression beyond Ukraine, the European Union has just moved a major step closer to cutting the country off from the massive economic aid it receives from the grouping, and indeed has already frozen $41 billion in CCP Virus recovery funds it had previously allotted to Warsaw.

The decisions stem from Poland’s alleged backsliding on commitments it made to protect human rights in order to join the EU, but blocking these resources isn’t exactly likely to strengthen Poland’s ability to aid in the effort to contain Russia, and Ukraine itself is hardly a model democracy (see, e.g., here and here) – all of which can’t help but scramble the politics of the crisis in Eastern Europe yet further. And all of which should be added to the already impressive list of paradoxes, ironies, mysteries, and curiosities that everyone should keep in mind whenever they hear about the future of Europe, the global liberal order, world peace, and human freedom itself being at stake in Ukraine.    

Following Up: Podcast Now On-Line of National Radio Interview on Ukraine, China Trade, & Manufacturing

Tags

China, energy, Following Up, Germany, manufacturing, Market Wrap with Moe Ansari, NATO, natural gas, Nord Stream 2, North Atlantic treaty Organization, reshoring, Russia, sanctions, tariffs, Trade, trade war, Ukraine

I’m pleased to announce that the podcast is now on-line of my interview yesterday today with Moe Ansari on his nationally syndicated “Market Wrap” radio program.

Press the “play” button under “Current Market Wrap” at this link for a timely discussion of America’s approach to the Ukraine crisis, where President Biden’s China policy is heading, and whether the Trump (and now Biden administration) tariffs and supply chain knots have spurred much manufacturing to come back home to the United States.

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

Making News: Back on National Radio Talking China, Russia, and the Economy

Tags

Biden, Biden administration, China, energy, Germany, Making News, Market Wrap with Moe Ansari, NATO, natural gas, North Atlantic treaty Organization, Putin, Russia, sanctions, tariffs, Trade, trade war, Ukraine

I’m pleased to announce that tomorrow night I’m scheduled to be back on the nationally syndicated “ “Market Wrap with Moe Ansari” radio program to discuss awhole grab bag of economic and foreign policy topics, ranging from U.S.-China relations to what, if anything, Washington should do to keep Russia from pushing deeper militarily in Ukraine.

“Market Wrap” is broadcast nightly between 8 and 9 PM EST, the guest segments typically come in the second half-hour, and you can tune in by visiting Moe’s website and clicking on the “Listen Live” link on the right-hand side.

As usual, moreover, if you can’t tune in, the podcast will be posted as soon as it’s on-line.

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