Our So-Called Foreign Policy: Evidence that the Multinationals Really Did Sell the U.S. Out to China

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capital spending, chemicals, China, computers, electronics, health security, healthcare goods, information technology, investment, Lenin, manufacturing, multinational companies, national security, offshoring, offshoring lobby, Our So-Called Foreign Policy, pharmaceuticals, research and development, supply chains, tech, tech transfer, U.S-China Economic and Security Review Commission, USCC, World Trade Organization, WTO

RealityChek readers and anyone who’s familiar with my work over many years know that I’ve often lambasted U.S. multinational companies for powerfully aiding and abetting China’s rise to the status of economic great power status – and of surging threat to U.S. national security and prosperity. In fact, the dangers posed by China’s activities and goals have become so obvious that even the American political and policy establishments that on the whole actively supported the policies – and that permitted money from this corporate Offshoring Lobby to drive their decisions – are paying attention.

If you still doubt how these big U.S. corporations have sold China much of the rope with which it’s determined to hang their own companies and all of America (paraphrasing Lenin’s vivid supposed description of and prediction about the perilously shortsighted greed of capitalists), you should check out the latest report of the U.S-China Economic and Security Review Commission (USCC). As made clear by this study from an organization set up by Congress to monitor the China threat, not only have the multinationals’ investments in China figured “prominently in China’s national development ambitions.” They also “may indirectly erode the United States’ domestic industrial competitiveness and technological leadership relative to China.”

Worst of all, “as U.S. MNE (“multinational enterprise) activity in China increasingly focuses on the production of high-end technologies, the risk that U.S. firms are unwittingly enabling China to achieve its industrial policy and military development objectives rises.”

And a special bonus – these companies’ offshoring has greatly increased America’s dependence on China for supplies of crucial healthcare goods.

Here’s just a sampling of the evidence presented (and taken directly by the Commission from U.S. government reports):

> U.S. multinationals “employ more people in China than in any other country outside of the United States, primarily in the assembly of computers and electronic products.” Moreover, this employment skyrocketed by 574.6 percent from 2000 to 2017.

> “China is the fourth-largest destination for U.S. MNE research and development (R&D) expenditure and increasingly competes with advanced economies in serving as a key research hub for U.S. MNEs. The growth of U.S. MNE R&D expenditure in China is also comparatively accelerated, averaging 13.6 percent yearon-year since 2003 compared with 7.1 percent for all U.S. MNE foreign affiliates in the same period. This expenditure is highest in manufacturing, particularly in the production of computers and electronic products.”

> “U.S. MNE capital expenditure in China has focused on the creation of production sites for technology products. This development is aided by the Chinese government’s extensive policy support to develop China.”

> The multinationals’ capital spending on semiconductor manufacturing assets “has jumped 166.7 percent from $1.2 billion in 2010 (the earliest year for which complete [U.S government] data is available) to $3.2 billion in 2017, accounting for 90 percent of all U.S. MNE expenditure on computers and electronic products manufacturing assets in China.”

> “China has grown from the 20th-highest source of U.S. MNE affiliate value added in 2000 ($5.5 billion) to the fifth highest in 2017 ($71.5 billion), driven primarily by the manufacture of computers and electronic products as well as chemicals. The surge is especially notable in semiconductors and other electronic components.”

> “[P]harmaceutical manufacturing serves as the largest chemical sector in terms of value-added [a measure of manufacturing output that seeks to eliminate double-counting of output by stripping out the contribution of intermediate goods used in final products]…” And chemicals – the manufacturing category that include pharmaceuticals – has become the second largest U.S-owned industry in China measured by the value of its assets (after computers and electronic products).

Incidentally, the report’s tendency to use 2000 as a baseline year for examining trends is no accident. That’s the year before China was admitted into the World Trade Organization (WTO) – and the numbers strongly reenforce the argument that the multinationals so avidly sought this objective in order to make sure that the value of their huge planned investments in China wouldn’t be kneecapped by any unilateral U.S. tariffs on imports from China (including those from their factories). For the WTO’s combination of consensus decision-making plus the protectionist natures of most of its members’ economies created a towering obstacle to Washington acting on its own to safeguard legitimate American domestic economic interests from Chinese and other foreign predatory trade and broader economic activity.

At the same time, despite the WTO’s key role in preserving the value of the multinationals’ export-focused China investments, the USCC study underestimates how notably such investment remains geared toward exporting, including to the United States. This issue matters greatly because chances are high that this kind of investment (in China or anywhere else abroad) has replaced the multinationals’ factories and workers in the United States. By contrast, multinational investment in China (or anywhere else abroad) that’s supplying the China market almost never harms the U.S. domestic economy and in fact can help it, certainly in early stages, by providing foreign customers that add to the domestic customers of U.S.-based manufacturers.

There’s no doubt that the phenomenal growth of China’s own consumer class in recent decades has, as the China Commission report observes, generated more and more American business decisions to supply those customers from China. In other words, the days when critical masses of Chinese couldn’t possibly afford to buy the goods they made in U.S.- and other foreign-owned factories are long gone.

But the data presented by the USCC does nothing to support this claim, and the key to understanding why is the central role played by computer, electronics, and other information technology-related manufacturing in the U.S. corporate presence in China. For when the Commission (and others) report that large shares of the output of these factories are now sold to Chinese customers, they overlook the fact that many of these other customers are their fellow entities comprising links of China-centric corporate supply chains. These sales, however, don’t mean that the final customers for these products are located in China.

In other words, when a facility in China that, for example, performs final assembly activities on semiconductors sells those chips to another factory in China that sticks them into computers or cell phones or HDTV sets, the sale is regarded as one made to a Chinese customer. But that customer in turn surely sells much of its own production overseas. As the USCC documents, China’s consumer market for these goods has grown tremendously, too. But China’s continually surging share of total global production of these electronics products (also documented in the Commission report) indicates that lots of this output continues to be sold overseas.

Also overlooked by the USCC – two other disturbing apects of the multinationals’ activities in China.

First, it fails to mention that all the computer and electronics-related investment in China – which presumably includes a great deal of software-related investment – has contributed to China’s economic and military ambitions not only by transferring knowhow to Chinese partners, but by teaching huge numbers of Chinese science and technology workers how to generate their technology advances. The companies’ own (often glowing) descriptions of these training activities – which have often taken the form of dedicated training programs and academies – were revealed in this 2013 article of mine.

Second, the Commission’s report doesn’t seem to include U.S. multinationals’ growing investments not simply in high tech facilities in China that they partly or wholly own, but in Chinese-owned entities. As I’ve reported here on RealityChek, these capital flows are helping China develop and produce high tech goods with numerous critical defense-related applications, and the scale has grown so large that some elements of the U.S. national security community had been taking notice as early as 2015. And President Trump seems to be just as oblivious to these investments as globalist former President Barack Obama was.

These criticisms aside, though, the USCC has performed a major public service with this survey of the multinationals’ China activities. It should be must reading in particular for anyone who still believes that these companies – whose China operations have so greatly enriched and therefore strengthened the People’s Republic at America’s expense – deserve much influence over the U.S. China policy debate going forward.

Im-Politic: On Biden’s New Plan for Medical & Other Supply Chain Security

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alliances, Biden, CCP Virus, China, coronavirus, COVID 19, Defense Department, Defense Production Act, DPA, election 2020, health security, healthcare goods, Im-Politic, manufacturing, offshoring, Pentagon, pharmaceuticals, PPE, supply chains, tariffs, taxes, Trade, Wuhan virus

Joe Biden’s plan for rebuilding U.S. supply chains to ensure American access to critical products like healthcare goods came out yesterday, and any fair reading would have to conclude that these proposals are about as serious as the presumptive Democratic Presidential nominee’s proposals in related areas – like China policy. That is to say, they’re not terribly serious at present.

As with China policy, the first concern entails credibility. In 2011, when Biden was Barack Obama’s Vice President, the Commerce Department issued a report detailing all sorts of dangerous vulnerabilities in U.S. supplies of all manner of vital healthcare goods. The “Obama-Biden administration” did absolutely nothing in response – unless you count avidly pursuing offshoring-friendly trade deals, like the Trans-Pacific Partnership (TPP) that were bound to worsen these vulnerabilities. You could also throw in a record of continually coddling the trade and broader economic predation practiced by China, which surely fostered similar results.

As a result, it’s legit to ask whether any of these proposals will survive Day One of a Biden presidency.

In this vein, it’s more than a little disturbing that Biden proposes to use the Defense Department’s policies to minimize supply chain vulnerabilities as his model for addressing such problems for a wide variety of products –not just healthcare-related goods. These include “energy and grid resilience technologies, semiconductors, key electronics and related technologies, telecommunications infrastructure, and key raw materials.”

Unfortunately, the principal lessons taught by the Defense Department’s record on supply chains are how to duck the problem or define it out of existence, and the administration in which Biden served was no exception. Some of the biggest specific problems (as made clear in this Obama administration report):

>The Pentagon’s overall assessments prioritized financial metrics, not specific domestic production capabilities, as measures of the defense manufacturing base’s health.

>Its treatment of globalization’s challenges placed major emphasis on taking “advantage of emerging capabilities, regardless of where they originate,” not maximizing domestic production capabilities.

>Although specific vulnerabilities – and the related need to maintain or rebuild adequate domestic capabilities – were acknowledged, this vulnerabilities were consistently portrayed as isolated holes that could somehow be plugged without taking into account the dependence of these narrowly defined products on their own supply chains. Indeed, Biden’s new plan seems to reveal a similar flaw when it describes itself as “a set of targeted proposals to ensure the United States has the domestic manufacturing capacity necessary for critical supply chains.”

>Moreover, the Department has long supported objectives such as interoperability with allies’ armed forces and maintaining traditional – pre-Trump – global systems of what it defined as free trade, both of which often clashed with the goal of incentivizing domestic production. These goals were explicitly stated in this George W. Bush administration report, and here’s no evidence that the Obama-Biden Pentagon ever disagreed.

Indeed, the new Biden blueprint indicates that the former Vice President’s definition of supply chain security is pretty global, instead of national, as well:

“Instead of insulting our allies and undermining American global leadership, Biden will engage with our closest partners so that together we can build stronger, more resilient supply chains and economies in the face of 21st century risks. Just like the United States itself, no U.S. ally should be dependent on critical supplies from countries like China and Russia. That means developing new approaches on supply chain security — both individually and collectively — and updating trade rules to ensure we have strong understandings with our allies on how to best ensure supply chain security for all of us.”

If America’s allies were proven reliable suppliers of these products themselves, Biden’s perspective would make sense. But the list of countries that have recently hoarded medical goods for themselves as soon as the CCP Virus pandemic’s full dangers became apparent included most of these allies – meaning that the U.S. vulnerability problem far exceeds “China and Russia.”

Nor is it entirely evident how clearly Biden has thought though the tax policy provisions of his plan. Tax policy’s role is clearly viewed as crucial, as the plan emphasizes that

“Pharmaceutical offshoring has been heavily driven by tax code provisions that have encouraged companies to locate pharmaceutical production in low-tax countries even where those countries have labor and other costs comparable to the U.S.”

Consequently, Biden says he will “eliminate Trump Administration tax incentives for offshoring and pursue other tax code changes that will encourage pharmaceutical production in the U.S.”

At the same time, Biden favors raising the overall U.S. corporate tax rate from the 21 percent to which it has recently been lowered to 28 percent, along with a 15 percent “minimum tax” on large corporations. So good luck to drug companies – or any other companies making goods deemed critical by Biden – gleaning clear reshoring or domestic production ramping signals from this combination.

Perhaps any confusion will be cleared up by other alleged Biden measures to boost U.S.-based production – like “new targeted financial incentives, including tax credits, investments, matching funds for state and local incentives, R&D support, and other incentives to encourage the production of designated critical materials such as semiconductors in the United States”? At best, business will surely need to see many more details along these lines before committing the needed capital.

Unless maybe as President, Biden will simply mandate that the needed new facilities will be built when all else fails (as well as in tandem with those other policies)? That’s obviously the implication of his promise to use the Defense Production Act (DPA) “to its fullest extent to rebuild domestic manufacturing capacity in critical supply chains, using the lessons learned from the COVID-19 pandemic and applying them to our national needs.”

Or does Biden actually view the DPA as his primary tool for “generating the domestic mobilization we need”? That seems like a reasonable conclusion, especially given that it’s the first specific measure he mentions. Maybe instead he’s really talking about using the Act simply “to direct U.S. companies to ramp up production of critical products that will be needed over the near-term.”

Regardless of Biden’s real intentions, though, it’s anything but clear how Biden believes the DPA can be used to increase U.S. production in many of the industries he mentions as vital where such output has largely migrated overseas That’s especially true for the “semiconductors, key electronics and related technologies, [and] telecommunications infrastructure” he specifies. It’s sure going to be far more difficult than, say, ordering auto companies, to make ventilators.

It’s just as unclear how these Biden’s ideas can succeed without a much stronger trade policy dimension – and specifically, continued and even expanded tariffs. And it shouldn’t be limited to straightening out the muddled views mentioned above. 

Specifically, maintaining levies on chronically subsidized and dumped products like metals, along with sweeping tariffs on systemically protectionist China (and on other similar countries) would send the all the companies and sectors concerned an invaluable message. Bipartisan endorsement of these protections would demonstrates that they really can have confidence that new investments won’t be decimated by trade and broader economic predation. Just as important, an enduring commitment to tariffs would help convince overseas competitors (domestic and foreign owned) that if they want to sell the products in which they have big edges to Americans, they’ll need to make these products in America.

The good news is that at least some of these mysteries may be cleared up “soon,” when this Biden plan promises the former Vice President will release his “comprehensive strategy to create American jobs through modern American manufacturing.” The bad news is that if he what he’s said and written so far is any indication, he’ll have a lot of rewriting to do.

(What’s Left of) Our Economy: U.S. Manufacturing Keeps Gaining Independence

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Commerce Department, decoupling, GDP-by-industry, health security, healthcare goods, manufacturing, manufacturing production, manufacturing trade deficit, Obama, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Like a strike-shortened sports season’s champion, the conclusion in today’s RealityChek post needs an asterisk. The conclusion stems from this morning’s Gross Domestic Product (GDP) by Industry report from the Commerce Department, which shows that U.S. domestic manufacturing continues to become ever more self-reliant. In other words, it’s reducing its dependence for growth on foreign-made industrial goods of all kinds generally speaking.

The asterisk is needed because the new data covers the first quarter of this year, and therefore it includes March – when much of the U.S economy was shut down by government order or recommendation due to the CCP Virus. As a result, a chunk of the results say nothing about how manufacturing or the rest of economy would have performed in normal times.

Still, this morning’s evidence that U.S.-based industry is becoming more autonomous comes from several different findings calculable from the GDP by Industry’s raw data.

For example, again, due partly to the shutdowns’ effects, the report shows that according to a widely followed measure called value-added, domestic manufacturing’s output dipped by 0.99 percent between the first quarter of 2019 and the first quarter of this year. At the same time, the manufacturing trade deficit during this period shrank by 7.31 percent – more than 13 times faster. During the last comparable period (fourth quarter, 2018 to fourth quarter, 2019), manufacturing production grew by 0.70 percent, and its trade gap narrowed by 7.59 percent – a somewhat better performance on both scores.

At this point it’s vital to note that these growth rates are by no means good. In fact, they’re the worst by far since the final year of the Obama administration – when on a calendar year basis, domestic industry shrank by 1.19 percent. Yet during that same year 2016, despite this contraction, the manufacturing trade shortfall expanded by 4.66 percent. So if you value self-sufficiency (as you should in a world in which the United States has found itself painfully short of many healthcare-related goods, and in which dozens of its trade partners were hoarding their own supplies), it’s clear that during 2016, the nation was getting the worst of all possible manufacturing worlds.

Also important: there’s no doubt that the same Trump administration tariffs and trade wars with which domestic manufacturing has been dealing over the past two years have slowed its growth. In other words, industry has been adjusting to policy-created pressures to adjust its global, and in particular China-centric, supply chains. That’s bound to create inefficiencies.

If you don’t care about significant American economic reliance on an increasingly hostile dictatorship, you’ll carp about paying any efficiency price for this decoupling from China (and other unreliable countries). If you do care, you’ll recognize the slower growth as an adjustment cost needed to correct the disastrous choice made by pre-Trump Presidents to undercut America’s economic independence severely.

Moreover, during the last year, domestic manufacturing output was held back by two developments that had nothing to do with President Trump’s trade policy: the strike at General Motors in the fall of 2019, which slashed U.S. production both of vehicles and parts, and of all the components and materials that comprise dedicated auto parts; and the safety problems at Boeing, which resulted in the grounding of its popular 737 Max model worldwide starting in March, 2019, and in a suspension of all that aircraft’s production this past January.

Also encouraging from a self-reliance standpoint. During the first quarter of 2019, the manufacturing trade deficit as a percentage of domestic manufacturing output sank from just under 43 percent in the fourth quarter of 2019 (and 43.36 percent for the entirety of last year) to 37.27 percent. That’s the lowest level since full-year 2013’s 35.82 percent.

These figures should make clear that the manufacturing trade deficit’s share of manufacturing output kept growing during the final Obama years and into the Trump years. Indeed, on an annual basis, this number peaked at 47.01 percent in the third quarter of 2019. To some extent, blame what I’ve previously identified as tariff front-running (the rush by importers throughout the trade war to bring product into the United States before threatened tariffs were actually imposed) along with those supply chain-related adjustment costs.

To complicate matters further, as suggested above, that very low first quarter result stemmed partly from the nosedive taken by manufacturing and other U.S. economic activity in March. Since that level is clearly artificially low, it’s probably going to bob up eventually – but hopefully not recover fully.

In all, though, the first quarter GDP by Industry report points to a future of more secure supplies of manufactured goods for Americans. And unless you believe that domestic manufacturers have completely lost their ability to adjust successfully to a (needed) New Normal in U.S. trade policy, the release points to a return of solid manufacturing output growth rates as well.

Glad I Didn’t Say That: No CCP Virus Learning Curve for Globalization Zealots

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China, Daniel Griswold, free trade, George Mason University, Glad I Didn't Say That!, global supply chains, globalization, health security, healthcare goods, Mercatus Center, Paul Hannon, Stu Woo, supply chains, The Wall Street Journal, Trade

“US supply chains for medical goods are already diversified and are not overly reliant on China.”

Daniel Griswold, Mercatus Center, George Mason University, April 3, 2020

Number of countries that have imposed export curbs on healthcare-related goods, 2020: 85

Number of individual healthcare-related goods export controls imposed, 2020: 186

– The Wall Street Journal, May 25, 2020

(Sources: “The Coronavirus Should Not Prompt Us to Rethink Globalization,” The Bridge, Mercatus Center, George Mason University, April 3, 2020, https://www.mercatus.org/bridge/commentary/coronavirus-should-not-prompt-us-rethink-globalization and “Steep Drop in Trade Flows Shows Pitfalls of Cross-Border Supply Chains,” by Paul Hannon and Stu Woo, The Wall Street Journal, May 25, 2020, https://www.wsj.com/articles/steep-drop-in-trade-flows-shows-pitfalls-of-cross-border-supply-chains-11590416983)

Following Up: Inside April’s U.S. Manufacturing Crash II

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aerospace, appliances, automotive, CCP Virus, chemicals, components, computers, coronavirus, COVID 19, durable goods, electrical equipment, electronics, fabricated metals products, Federal Reserve, Following Up, food products, healthcare goods, inflation-adjusted output, machinery, manufacturing, manufacturing output, manufacturing production, medical devices, metals, non-durable goods, paper, real growth, Wuhan virus

A little earlier today, RealityChek presented some lowlights from this morning’s Federal Reserve U.S. manufacturing production report (for April). As promised, here’s a more granular look at the results, which yield even more insights as to how the CCP Virus blow to the economy is reflecting – and probably influencing dramatically changed spending patterns.

The table below shows the findings for durable goods industries, the super-category that covers products with expected usage and shelf lives of three years or more. Included are the original March inflation-adjusted output changes, the revised March data, and the April statistics:

Wood products:                                                -4.22%       -3.15%      -9.04%

non-metallic mineral products:                        -6.56%      -6.50%     -16.26%

Primary metals:                                                -2.82%      -3.95%     -20.37%

Fabricated metal products:                               -8.28%      -4.23%     -11.33%

Machinery:                                                       -5.56%      -3.05%     -10.98%

Computer & electronic products:                     -1.89%      -1.24%      -5.02%

Electrical equip, appliances, components:       -2.24%      -2.83%      -5.99%

Motor vehicles and parts:                               -28.04%    -29.96%    -71.69%

Aerospace/miscellaneous transport equip:      -8.12%      -8.90%     -21.65%

Furniture and related products:                       -9.99%      -6.50%     -20.60%

Miscellaneous manufacturing:                        -9.94%      -7.09%       -9.05%

   (contains most of those non-pharmaceutical healthcare goods)

As in the broader category analysis from earlier today, the automotive collapse – over both March and April – stands out here, although it was joined in the double-digit neighborhood (at much lower absolute levels of course) by six of the other eleven sectors. And as predicted in last month’s post on the March Fed report, the sector that’s held up best has been the computer and electronics industry – though following surprisingly close behind is electrical equipment, appliances, and their components.

It’s also easy to see how the rapid deterioration in automotive and the miscellanous transportation category that includes aerospace (especially in April for the latter) spilled over into supplier industries like metals and fabricated metal products, and machinery.

One durable goods puzzle: the relatively fast April decrease in the miscellaneous manufacturing category, which contains non-pharmaceutical medical goods so crucial for the nation’s CCP Virus response.

The second table shows the same information for the non-durables super-category, where the virus impact has been considerably lighter. Among notable results – the sharp worsening of after-inflation output in the food sector. Although it fared relatively well, there can be little doubt that the worker safety problems in meat-packing plants, along with the cratering of big customers – mainly the restaurant and hotel businesses – played big roles.

The non-durables results also make clear that the sector that’s survived best so far has been paper. Also excelling (at least relatively speaking): the enormous chemicals sector. This industry also contains the pharmaceutical industry, although the any positive CCP Virus impact seems unlikely to date because no vaccines or treatments have been developed yet.

Food, beverage, and tobacco products:          -0.76%      -1.56%       -7.10%

Textiles:                                                        -14.05%      -6.98%     -20.72%

Apparel and leather goods:                          -16.54%    -10.31%     -24.10%

Paper:                                                            -2.04%      -0.08%        -2.58%

Printing and related activities:                    -18.18%    -10.75%      -21.16%

Petroleum and coal products:                       -5.93%      -6.56%      -18.55%

Chemicals:                                                   -1.65%      -1.50%         -5.14%

Plastics and rubber products:                      -7.60%       -4.37%       -11.03%

Other mfg (different from misc above):     -5.37%       -4.29%       -10.37% 

The virus crisis contains so many moving parts (e.g., vaccine and therapeutics progress; infection, fatality, and testing data; uneven state reopening and national social distance practicing; consumer attitudes; second wave possibilities) that extrapolating the manufacturing trends to date seems foolhardy. But tracking industry’s winners and losers as the months pass could still provide important clues as to how much further the economic woes it’s caused will continue; and when, how quickly, and how completely recovery arrives.   

(What’s Left of) Our Economy: Is the New U.S. Trade Report a Virus Portent or Anomaly?

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China, decoupling, Europe, healthcare goods, high tech goods trade, Ireland, manufacturing, pharmaceutical, pharmaceuticals, PPE, protective gear, services trade, Trade, trade deficit, travel services, {What's Left of) Our Economy

Were this morning’s latest monthly U.S. trade figures (for March) just one of those things? Or a sign of CCP Virus-affected trade patterns to come? Evidence for both propositions can be found in the weeds, though on balance I remain confident that as the nation’s economy remains gravely wounded (and could well face worse), its trade shortfall will continue its recent (and highly beneficial) Trump-era trend of narrowing.

The reasons for dismissing the new trade report as an outlier stem from the tendency (with numerous exceptions) of the gap to narrow when the economy weakens and to expand when it strengthens. So it was a real surprise to find that, from February to March, when all indicators showed that a major downturn was beginning thanks to the pandemic, the trade deficit rose a strong 11.57 percent – from a downwardly adjusted $39.81 billion to $44.42 billion.

Also surprising for a U.S. economy that’s not very export focused but that’s usually voracious importer: The main reason for the deficit’s growth both in absolute and percentage terms was a drop-off in the former. In March, total U.S. overseas sales sank on month by 9.63 percent, from an upwardly adjusted $207.75 billion to $187.75 billion. That was the lowest monthly total since November, 2016’s $185.49 billion. Combined goods and services imports were down, too – but by a smaller 6.22 percent, from an upwardly adjusted $247.56 billion to $232.16 billion. That total was the lowest for a month since December, 2016 ($234.56 billion).

Moreover, in terms of the trade balance, March’s worse U.S. performance can’t be pinned on the virus-produced collapse in travel. Make no mistake about it – international travel both to and from the United States did collapse. In value terms, two-way travel sank from $28.77 billion in February to $13.49 billion. In other words, it was more than cut in half. But the travel services trade surplus actually improved during that period – from $4.53 billion to $4.72 billion. That means not only that, on net, legal visitors to the United States (including students) as usual spent more in America than Americans spent overseas between February and March. It means that foreign spending in the United States exceeded Americans’ spending abroad by an even greater amount.

Another puzzling result that doesn’t have obvious staying power – at least not to me: The biggest single contibutor to the March trade deficit increase was a more than doubling of the monthly goods trade shortfall with Europe – from $11.37 billion to $22.97 billion. That’s the biggest monthly total ever and the biggest absolute increase ever (the figures go back to 1997), and the third biggest percentage increase of all time (after July, 1997’s 418.80 percent and March, 1998’s 205.89 percent – both totals coming when trade volumes were much smaller, and big percentage increases therefore much easier to generate).

The big Europe merchandise trade deficit surge, moreover, came on the the import side. These soared to $56.04 billion in March (another record), and the 26.42 percent sequential rise was the biggest since March, 2011’s 29.35 percent.

U.S. goods exports to Europe didn’t do badly – they hit $33.07 billion in March, the third best total ever. But the monthly increase was a bare 0.26 percent.

Some of the Europe trade results were due to a much bigger goods deficit and much greater goods imports from Ireland – which is a major foreign supplier of pharmaceuticals to the United States. Despite the overall sequential decrease in American merchandise exports and imports in March, trade in pharmaceutical preparations rose both coming and going. The trade shortfall increased by 13.25 percent, with imports rising by 14.92 percent. And the goods trade gap with Ireland (not all due to pharmaceuticals, to be sure) soared by 45.81 percent with imports up 41.91 percent.

It’s true that both the deficit with Ireland and imports from the Emerald Isle fell sharply on month in February. But both totals were all-time highs.

At the same time, India is another big pharmaceutical supplier to the United States, and although its March merchandise trade deficit with America shot up by 47.87 percent month-to-month, imports actually dipped (by 0.37 percent).

And what about March U.S. trade with China – which gave the world the virus, and remains a major supplier of the chemical building blocks of pharmaceutical products as well as protective medical gear?

In an unmistakably good development for those who recognize both the health security and broader economic dangers of doing extensive business with a predatory trader that’s increasingly hostile geopolitically, the U.S. merchandise trade deficit with the People’s Republic plummeted dramatically again – by just over 26 percent month-to-month, to $11.83 billion. You’d have to go back to March, 2004 to find a lower monthly figure ($10.44 billion).

U.S. goods exports to China actually improved sequentially in March – by 16.98 percent, to $7.97 billion. That’s far from the biggest absolute or percentage monthly increase on record. But with China’s economic growth at multi-decade lows due largely to the virus and the Trump tariffs, it’s encouraging that America’s goods exports to China have held up since the Phase One trade deal was signed in January.

U.S. goods imports from China, meanwhile, fell by 13.18 percent on month in March, to $19.81 billion. That total is the lowest since February, 2009 ($18.85 billion), during the depths of the Great Recession.

On a year-to-date basis, the American merchandise merchandise deficit with the People’s Republic is now down an astonishing 32.61 percent. That’s nearly three times more than the comparable drop in the global U.S. goods deficit, and a clear sign that trade diversion and decoupling from China are taking place even as the overall American trade gap narrows – and are likely to continue taking place.

Two other oddities worth noting in the March trade report. First, the manufacturing deficit rebounded from February’s $63.01 billion (the lowest total since February, 2017’s $60.47 billion) to $75.80 billion. That’s a very big 20.30 percent higher. Even though overseas markets for America’s domestic manufacturers are tumbling into recession and maybe worse along with the U.S. economy, manufacturing exports still managed a monthly gain of 3.55 percent in March – to $93.26 billion. But despite signs of weakness in domestic U.S. manufacturing and the overall economy, manufacturing imports shot up by 10.45 percent, to $169.06 billion. It’s difficult to see how either trend lasts until the CCP Virus is brought under control.

Incidentally, the March totals bring the manufacturing trade gap to $220.75 billion so far this year – down 7.01 percent from last year’s comparable $237.38 billion. Manufacturing exports year-to-date as of March are down four percent, and imports have declined 5.38 percent.

Similarly, the longstanding U.S. trade shortfall in high tech goods more than doubled sequentially in March, from $5.13 billion to $10.30 billion. Sure, this increase followed a 55.62 percent plunge in February, but the turnaround is still stunning. And although high tech exports rose in March on month by a healthy 8.55 percent, the big change, as in February, was on the import side – where U.S. purchases from abroad jumped by 22.24 percent.

More detailed March trade data — particularly shedding more light on U.S. trade in healthcare-related goods — should be out from the federal government shortly, and I’ll be sure to keep you up to date on those developments.   

(What’s Left of) Our Economy: New Fed Manufacturing Figures Show No Burst So Far in Anti-CCP Virus Goods Output

Tags

(What' Left of) Our Economy, CCP Virus, coronavirus, COVID 19, facemasks, Fed, Federal Reserve, healthcare goods, industrial production, inflation-adjusted growth, manufacturing, manufacturing output, medical devices, medical equipment, PPE, protective gear, ventilators, Wuhan virus

No one should have been surprised by this morning’s manufacturing output report from the Federal Reserve, which judged that industry’s inflation-adjusted production tumbled by 6.27 percent in March from February’s levels – which was revised downward slightly from a 0.12 percent gain from a 0.02 percent dip. In other words, “Thanks, China!” for the CCP Virus that’s caused an unprecedented shutdown of huge sections of the U.S. economy.

Lately, however, some manufacturing sectors of special concern have emerged – the healthcare goods sectors. And the results are below.

Unfortunately, the statistics in the relevant sectors aren’t very granular. In particular, they don’t enable us to distinguish between, say, masks and ventilators, or between final pharmaceutical products and vaccines, or between CAT-scan and MRI machines and non-medical high tech instruments. Still, the following sequential results must have some significance, given the overall skid in after-inflation manufacturing production. And for February-March, they are:

soaps, cleaning compound, & toilet preparation:      +1.85 percent

pharmaceuticals & medicines:                                  +0.50 percent

  (includes vaccines)

medical equipment & supplies:                                 -1.55 percent

  (includes everything from ventilators to facemasks)

Less helpful is learning that constant dollar output in a category called “navigational, measuring, electromedical and control instruments” decreased by 2.39 percent on month.

Keep in mind that since these data were compiled, all manner of manufacturing companies have volunteered, or been officially pressured, either to ramp up their existing healthcare goods production greatly, or to enter the field. So next month’s Fed industrial production report – for April – should be more revealing. For now, however, the March numbers don’t show much in the way of surge production.

Nor should anyone expect the Fed’s figures on manufacturing capacity and capacity utilization to shed much light on healthcare-related surge performance and surge capacity. The categories simply aren’t this detailed.

Maybe one of the CCP Virus-induced changes in government will be involve tracking healthcare-related manufacturing data in more detailed? Stay tuned. And send all such suggestions to

Jerome Powell, Chair, Board of Governors of the Federal Reserve System, 20th St. and Constitution Ave. NW, Washington, D.C.  20551

 

Making News: Jim Bohannon Interview on America’s Compromised Health Security Now On-Line; Returning Tonight to Batchelor Show on China & Supply Chains

Tags

CCP Virus, China, coronavirus, COVID 19, Gordon G. Chang, health security, healthcare goods, Making News, manufacturing, medicines, pharmaceuticals, supply chains, The Jim Bohannon Show, The John Batchelor Show, Wuhan virus

I’m pleased to announce that the podcast is on-line of my interview last night on Jim Bohannon’s nationally syndicated radio show.  Click here for a great discussion of America’s troubling dependence on foreign sources of supply for vital medicines and other healthcare products.

Also, I’m slated to return on John Batchelor’s nationally syndicated radio show tonight. John, I, and co-host Gordon G. Chang will be looking at how the CCP Virus crisis is likely to change global supply chains and trade products not only for healthcare products, but for all domestic industry, especially when it comes to China.

Tonight’s segment is a little different from usual, because virus-related disruption has led John to tape his programs for now, and I haven’t yet been told exactly when this particular segment will air.

I’ll certainly post that information on Twitter (a compelling reason to follow me there at @AlanTonelson!), but in the meantime, here‘s where you can listen on-line to this evening’s show.  I’ll be posting a link to that podcast as soon as one’s available. And of course, keep checking with RealityChek for news of other upcoming media appearances and other developments.

Following Up: More Data on America’s Dependence on Foreign Healthcare Goods

Tags

Barack Obama, Department of Health and Human Services, facemasks, Following Up, George W. Bush, health security, healthcare goods, imports, Lena H. Sun, manufacturing, masks, Mike Bowen, Prestige Ameritech, Rachel Siegel, supply chain, The American Conservative, Trump, Washington Post

Since news organizations can be so unreliable, I always do whatever I can to use information from primary sources instead of items in the media. I’m making an exception this morning, however, because I’ve failed to find a government document mentioned in several news articles, and reportedly it contains such important data that it deserves mention. Specifically, this document seems to add vital detail to my recent description in The American Conservative of how extensively the United States relies on foreign sources for crucial health care goods, and how long this gaping hole in the nation’s healthcare security has existed.

The document I can’t find has been described in this Washington Post piece as “a 2014 briefing released by the Office of the Assistant Secretary for Preparedness and Response in the U.S. Department of Health and Human Services.” Among its findings, according to Post correspondents Lena J. Sun and Rachel Siegel:

“Up to 95 percent of surgical masks are made outside the continental United States, in places like China and Mexico….”

The 2014 date, of course, is revealing in that it was two years before Donald Trump was elected President. Also revealing: The authors interviewed a domestic mask manufacturer who showed them letters he’s written to American Presidents warning that mask availability could be disrupted during a pandemic outbreak.

The first was written to Barack Obama in 2010. And apparently little or nothing was done. But the manufacturer, Mike Bowen of Texas-based Prestige Ameritech, says he reached out to George W. Bush’s administration as well – with the same results.

But just in case you think this is an establishment-bashing exercise, it’s important to note also that Bowen says he sent the same warning in 2017 – when Mr. Trump did occupy the Oval Office.

Contrary to much (self-serving) conventional wisdom, I’m not at all opposed to finger-pointing and blame-casting, even during a crisis. In fact, I view it as critical to ensuring that mistakes aren’t repeated. But I am opposed to cherry-picking finger-pointing. Because by now it should be abundantly clear that when it comes to U.S. national leaders and American health security, both Democrats and Republicans and liberals and conservatives and even populists have let the country down.

And the faster all partisans get off their high horses and focus on identifying lessons that need to be learned regardless of political effect, the faster Americans will overcome this crisis and the lower the chances of a rerun.

Im-Politic: Selective CCP Virus Finger-Pointing

Tags

Barack Obama, CCP Virus, coronavirus, COVID 19, Dan Diamond, Daniel Lippman, Defense Production Act, DPA, George W. Bush, health security, healthcare goods, Im-Politic, Jessica Silverman-Greenberg, Mainstream Media, MSM, Nahal Toosi, National Security Council, Nicholas Kulish, pandemic, regulations, Sarah Kliff, The New York Times, Trump, ventilators, Wuhan virus

Mainstream Media accounts of the Trump administration’s CCP Virus response keep appearing emphasizing how lousy and lackadaisical it’s been compared with the federal response to potentially dangerous disease outbreaks during the Obama years – and especially given supposedly prescient pandemic warnings that the Obama-nauts sounded to their successors that allegedly were ignored.

So RealityChek is going to have to keep pointing out major flaws in these accounts that both reporters and their editors should have noted, and questions they should have asked.

Keep in mind, moreover, that today’s pushback comes on top of (1) this blog’s description of a 2011 Commerce Department report on America’s increasingly dangerous vulnerability to foreign cutoffs of vital healthcare goods that was completely ignored; and (2) a similar presentation of federal economic data making clear the nation’s healthcare security – another way to think of this vulnerability – has been weakening for at least two decades.

Let’s start with the article in today’s New York Times detailing how a George W. Bush administration plan continued under Barack Obama failed to plug what its public health officials viewed as “one of the medical system’s crucial vulnerabilities: a shortage of ventilators.” The effort entailed finding businesses willing to try to build ventilators that were cheaper, more portable, and easier to use than were then available, and then awarding the contract to the best proposal.

According to Times reporters Nicholas Kulish, Sarah Kliff, and Jessica Silver-Greenberg (and presumably their editors), the eventual failure mainly highlighted “the perils of outsourcing projects with critical public-health implications to private companies; their focus on maximizing profits is not always consistent with the government’s goal of preparing for a future crisis.”

And although this point wasn’t made, the obvious message that the piece meant to send readers is that the President continues making a big mistake by not unleashing the full power of the Defense Production Act (DPA)– which creates vast government power to order whatever companies it wishes to make whatever products it considers necessary as quickly as possible, and to prioritize sales to Washington, not other customers. Underlying this position, of course, is the (completely ignorant) belief that this 1950 law (amended several times since) enables a Chief Executive to snap his fingers and instantly start assembly lines churning out ventilators and face masks and pharmaceuticals, etc.

But let’s leave aside this DPA fetishism. As I tweeted, the following sentence in the piece isn’t completely uninteresting given the unmistakable importance of quick results: After an initial failure (that shouldn’t be pinned on either of those two administrations), “The federal government started over with another company in 2014, whose ventilator was approved only last year and whose products have not yet been delivered.”

That doesn’t sound like the regulatory process reflected particular urgency – and clearly the problem extended into the Trump administration. But this business-as-usual attitude reigned even though, as the article noted, the ventilator project “came in the wake of a parade of near-miss pandemics: SARS, MERS, bird flu and swine flu.” In other words, evidence abounded that pandemics weren’t a rarity. Recently, they were becoming frequent. And still apparently no thought was given to any regulatory fast-tracking.

Finally in connection with this episode. It’s commendable that these pre-Trump public health officials tried to do something new. Less commendable, and less understandable, is why none of them recognized the foreign vulnerability problem and the offshoring-happy trade policies that fostered them.

Two other recent articles seeking to pin the blame for U.S. CCP Virus unpreparedness on Mr. Trump came out March 16 and March 25 in Politico. The first documented that on January 13, 2017 – seven days before the Trump inauguration – a team of outgoing Obama administration officials held a briefing for a team of incoming Trump-ers “intended to hammer home a new, terrifying reality facing the Trump administration, and the incoming president’s responsibility to protect Americans amid a crisis” – the distinct possibility that a major, deadly pandemic would sweep over the United States from abroad.

Further, the briefers specified that the new administration “could face specific challenges, such as shortages of ventilators, anti-viral drugs and other medical essentials, and that having a coordinated, unified national response was ‘paramount’….” Unfortunately, continued the article by Nahal Toosi, Daniel Lippman, and Dan Diamond, the Trumpers seemed pretty apathetic. And that’s pretty damning, right?

In principle, yes. But why did the Politico staff bury this observation: “None of the sources argued that one meeting three years ago could have dramatically altered events today”? Because it would take much of the punch out of this supposed bombshell?

Also buried: An observation in the apparently actual briefing document that, when in terms of “U.S. hospital preparedness and response,” “State and local governments lead public health response.” That’s an important piece of the current American response – even though it’s been relentlessly portrayed in the press another example of the administration’s failure. And P.S. – this document said nothing about ensuring adequate national screening capability.

Politico wasn’t finished, however. Nine days later, it ran another piece – by two of the same reporters – charging that the Trump administration’s CCP Virus policies have “failed to follow” a detailed pandemic playbook prepared by the Obama National Security Council that, it seems, would have prevented much of the virus damage inflicted on the nation.

Again, it’s a plausible claim – although, like the first Politico piece, this article left out the development of the Trump administration’s own pandemic strategy by the fall of 2018 (which means that work on it throughout the federal government began months before).

Also, like the first article, it failed to pose these crucial questions: If the Obama pandemic specialists were so utterly convinced that a pandemic would strike sooner rather than later, and that Team Trump was falling down on the preparation job, why didn’t they alert Democrats in Congress, or Never Trumper Republicans? Certainly there’s been no shortage of lawmakers (especially Democrats) looking for any opportunity to slam the administration (especially if this activity could do some good).

Additionally, if these pandemic warriors did send their message to these lawmakers, why did the public hear so little about it?

My hunch: For three years, the Never Trumpers of both parties had much higher priorities. Think “Russia” and “impeachment.”