Following Up: More Reasons for the NBA to Get Woke on China

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basketball, China, Following Up, Hong Kong, human rights, India, Japan, LawfareBlog.com, National Basketball Association, NBA, Nikkei Asian Review, sports, Uighurs, Victor Cha

Earlier this month, I published a piece on The American Conservative website scolding the National Basketball Association (NBA) and some of its star players and coaches for too often knuckling under to Chinese human rights-related pressure for fear of getting shut out of the People’s Republic’s vast and rapidly growing market. I justified my call for a more outspoken China stance by this normally politically outspoken league by noting that China wasn’t the only big foreign market capable of adding to the league’s already healthy profits and thus to the players’ and coaches’ already titanic salaries. And I observed that in fact, U.S. pro basketball has enough leverage with China to lead a global sports world push for better behavior from Beijing, especially when it comes to Hong Kong and the country’s Uighur Muslim minority.

That’s largely why it’s been great to see these arguments being reinforced lately both by some new NBA-related business developments and by a leading authority on Asian affairs.

On the business front, a recent report from Japan’s Nikkei Asian Review (NAR) observes that the league is indeed continuing full steam ahead with its efforts to win fans and rake in bucks in Japan and India. The former, not so incidentally, is the world’s third largest single national economy (after the United States and China). The latter has a population so huge and still growing so fast that it’s soon expected to surpass China as the world’s biggest.

According to NAR, this fall the NBA played its first games in Japan (exhibitions) in 16 years and the stands were packed. Moreover, the publication cites one estimate claiming explosive recent growth in subscriptions for the streaming service authorized to carry league games.

Further, the NBA’s popularity in Japan looks set to keep surging for the foreseeable future. For next year’s summer Olympics will be held in Tokyo, and the U.S. and other foreign teams slated to compete will contains dozens of NBA stars. And in 2023, Japan will be one of the co-hosts (along with other big Asian countries the Philippines and Indonesia) of the basketball World Cup.

But perhaps the biggest boost to the NBA’s popularity has been Washington Wizards rookie Rui Hachimura. Hachimura isn’t the first Japan-born player to appear in an NBA game. But so far he looks to be the best by far, and could boost the league’s Japanese fan base in ways reminiscent of Yao Ming’s impact in China.

As for India, the league opened its first office in that population giant in 2017, and although its athletes don’t seem NBA- (or major college-) ready yet, but its fans could identify with Vivek Ranadive, Indian-born owner of the Sacramento Kings. And the Kings played the Indiana Pacers in Mumbai this fall shortly before the Japan exhibition games.

Meanwhile, my claim that the NBA possesses ample clout to confront China successfully on human rights issues was seconded recently by Victor Cha, a Georgetown University political scientist and former National Security Council Asia specialist under George W. Bush’s administration. In a December 8 post for the Lawfare blog, Cha wrote:

“China may continue to ban broadcasts of [certain NBA] games, but how long before Chinese people express frustration? It’s not like there is an alternative to NBA stars like Lebron James or Steph Curry for youth on a Chinese basketball team to worship. China’s punishment may be costly in the short term, but in the long run, the demand signal from Chinese consumers will remain strong. And if the Beijing authorities are seen to be standing in the way, the Chinese Communist Party may be doing more harm than good to its own domestic standing. Moreover, the attention brought to the Chinese over the NBA ban could make the Chinese people aware of alternative narratives of the events in Hong Kong beyond the official media’s framing of the protests as criminal, thuggish and unjustified behavior.”

And I would strongly second Cha’s broader conclusion that “China’s predatory liberalism is an affront to the liberal international order, and the NBA, whether intended or not, is now a part of this struggle. Its actions going forward will set precedents, hopefully positive, for governments, companies, and individuals both inside and outside of China.”

(What’s Left of) Our Economy: Trade Derangement Syndrome, Libertarian Style

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Apple, Cato Institute, China, Colin Grabow, corporate cash, corporate debt, India, liberatarians, manufacturing, reshoring, supply chains, tariffs, Trade, Trump, {What's Left of) Our Economy

Not that libertarians are wielding much influence over U.S. trade policy these days, or are likely to in the foreseeable future. After all, how many politicians in either party, much less voters, have much interest in analysts that urge the United States to practice one-way free trade – dropping its trade barriers even though competitor economies keep theirs towering?

But it’s always useful to be reminded about the lengths to which these trade extremists will go to make their case, and a great example of such “trade derangement syndrome” has just been provided by Colin Grabow of the Cato Institute.

In a recent op-ed, Grabow asked “what would happen if, due to rising tariffs, Apple decided to end the production of iPhones in China and move production in the United States.” His answer?

“True enough, jobs would be created, but at substantial cost. Before a single iPhone could be made, billions would have to be devoted to building new factories. Further billions would have to be spent attracting workers in a low-unemployment economy with much higher wages than those found in China. Time would be needed to train these workers as well as develop the associated ecosystem of suppliers.”

In other words, lots of new jobs and factories in the United States. The horror! And – even worse? – major efforts would be needed to teach valuable new skills to many American workers.

Since free lunches are indeed difficult to find in economic theory and reality, Grabow then rightly proceeds to ask how the necessary expenses could be financed. All the answers he provides make a reasonable case that, at least in the short term, the costs would exceed the benefits. But his list of Apple’s funding options – which features raising prices, which would decrease sales and productivity for an entire economy deprived of many of the company’s miraculous devices; cutting R&D spending, which would threaten the firm’s competitiveness and ultimately its ability to generate any of its high-pay American jobs; and absorbing the costs of the tariffs, which would lower investable profits and dividends, and hurt shareholders by cutting the stock price – is missing one stratagem that should be glaringly obvious today.

That funding option? Borrow the money. And P.S. – it’s an approach that Apple (and many other businesses) have been using a lot lately because interest rates have been so low for so long. According to this recent report, the company has “become one of the largest bond issuers in the market, with dozens of bond offerings. These large bond issues and other short-term debt offerings have brought Apple’s total debt to almost $100 billion as of the end of 2017.”

And although no outsiders should pretend that they know exactly how much cash a company should hold at any given time, it’s noteworthy that Apple’s current stash isn’t exactly negligible. As of mid-year, it topped $240 billion.

Grabow is correct in pointing to the difficulties of moving big supply chains in the first place. But the challenge is hardly impossible, especially when important national governments say “Jump!” In fact, in response to India’s demands, Apple itself has promised to start helping the country set up just an iPhone manufacturing complex in return for permission to establish Apple retail stores in the country and access its (potentially) huge market in the most profitable way. The United States, of course, has a large market, too, and the skill levels and other pieces of industrial infrastructure are much greater than those current in India.

In fact, this Cato analyst’s arguments against tariffs on Apple are so transparently flimsy that they indicate that he and his Institute aren’t mainly concerned that such trade curbs won’t help strengthen the American economy. They’re mainly concerned that they will.

Our So-Called Foreign Policy: Is Trump Isolating the U.S. in Asia? Apparently No One’s Told the Asians

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alliances, Asia, Australia, Barack Obama, China, India, Japan, Our So-Called Foreign Policy, Quadrilateral Security Dialogue, Susan Rice, TPP, Trade, Trans-Pacific Partnership, Trump

Ever since President Trump kept his campaign promise and nixed U.S. participation in the Trans-Pacific Partnership (TPP) trade agreement, America’s chattering classes have been charging that his decision has opened the door wide to China to expand its influence in East Asia at America’s expense, and shunted the United States to the sidelines of the regional and international economy. Mr. Trump’s just completed visit to Asia has revived all these accusations – and not so coincidentally, afforded yet another opportunity to demonstrate just how ludicrous they are.

Most embarrassingly, if the president’s approach to “this vital region,” in the words of Barack Obama’s national security adviser, Susan E. Rice, even has much potential to leave “the United States more isolated and in retreat, handing leadership of the newly christened “Indo-Pacific” to China on a silver platter,” no one seems to have told Asia’s leading powers. For they have been hard at work helping Washington develop a new grouping that’s obviously aimed at frustrating Beijing’s ambitions.

So even as Rice and the rest of the foreign policy establishment were bemoaning the United States’ supposedly declining influence in the first year of the Trump presidency, representatives of Japan, Australia, and India were meeting with American counterparts in the Philippines, site of the latest series of regional summits, to breathe life into longstanding plans to foster greater cooperation among their four democracies.

And if you don’t think that the effort is amply capable of worrying the Chinese, don’t take my word for it. Take China’s. Just as the meeting was concluding, Beijing was out with a statement warning that no joint ventures among regional countries should target or damage a “third party’s interest.”

Just as interesting: Plans for such a “Quadrilateral Security Dialogue” were first advanced by Japan in 2007. But Australia and India weren’t especially interested – the former for fear of antagonizing the Chinese. Apparently nothing that Washington did during the ensuing Obama years changed their minds. Now, however, they’re at the table.

At least two overlapping developments appear to be responsible. First and most unmistakably, America’s pushback against China under Obama on both the national security and economic fronts was so feeble and ineffective that the PRC’s power grew tremendously. So the Australians and Indians no doubt now view the need to contain China more seriously. Second, it’s entirely possible that President Trump’s indications that the United States will no longer assume the bulk of the burden and risk of maintaining Asian security while getting shafted continuously by Asian trade policies has convinced those two countries in particular that they’d better get into a proactive mode.

And maybe most interesting of all, the Trump decision to exit TPP (whose signatories included Australia and Japan) apparently did nothing to discourage Canberra, New Delhi, or Tokyo from teaming up with the United States.

The main reason could not be more obvious (except to the American establishment): Keeping America engaged however possible is the only alternative conceivable for the time being to greater Chinese control. And herein lies a crucial lesson that Mr. Trump may have grasped but that his establishment critics have unmistakably ignored: The United States is not a superpower because of what it does on the world stage. It’s a superpower because of what it is.

That is, the source of American strength is not how many alliances it joins or trade treaties it signs or international regimes it creates – or even how many conflicts it enters. Instead, the source is strength itself – in all of its interlocking forms: military, economic, and technological.

So as long as the United States maintains this strength – which of course can be and has been greatly undercut by the kind of Asian mercantilism winked at by American presidents for decades but protested loudly by President Trump – it will remain a player wherever it wishes. But nothing is likelier to limit America’s global reach – and threaten its interests – than the apparent establishment belief that international activism per se can somehow substitute for power.

Not that I’m a supporter of what may be an emerging American strategy here. For as I’ve written, the nation’s essential interests in East Asia are economic – creating satisfactory terms of trade and commerce. And as long as the United States serves as an irreplaceable final market for Asia’s export-heavy economies (that is, as long as it remains soundly and sustainably wealthy), it will be able to lever that power to achieve its goals whoever runs Asia politically.

And as I’ve also written, East Asia’s major powers (e.g., Australia, Japan, and India) should be strong enough, especially together, to resist China’s designs on their own. Further, to give them an extra edge, the United States can always sell them advanced weapons, and if need be drop its insistence that they forswear (in the case of Australia, Japan, and South Korea) nuclear weapons.

But if Mr. Trump is going to double down on the United States’ traditional strategy of Asia’s stabilizer and defender, his apparent understanding – expressed most often during the campaign – that America’s economic ties with the region will need to change dramatically provides the only hope of enduring success.

(What’s Left of) Our Economy: Trump’s Globalization Promises are Already Producing Victories

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Canada, China, Digitimes, H1B visas, Immigration, India, Infosys, Mexico, NAFTA, Reuters, Taiwan, Trade, Trade Deficits, trade surpluses, trade wars, Trump, {What's Left of) Our Economy

America’s political and media establishments keep warning of the disastrous consequences of President-elect Donald Trump’s vow to conduct international economic policy by in effect telling U.S. competitor countries and offshoring multinational companies to “Jump.” And rather than responding indignantly by promising to resist or retaliate and touch off a series of international trade wars and other conflicts, businesses in these countries keep responding by in effect asking “How high?”

As a result, they keep adding to the already copious body of evidence indicating that the United States boasts more than enough leverage (thanks to the matchless power of its market) to achieve better terms of trade unilaterally. Here are two of the latest examples.

Yesterday, the reliable Taiwanese technology publication Digitimes reported that “US-based high-tech enterprises are expected to reduce their reliance on data centers abroad and add ones in the US.” In addition, the Digitimes piece quoted a Taiwanese tech magnate speculating – reasonably – that tech companies (like his) that have already built significant manufacturing capacity in the United States will have advantages over more foreign-centric competitors – who will “have to evaluate the feasibility of shifting factories from Mexico or other areas to the US….”

Meanwhile, on Sunday, Reuters quoted the COO of the Indian tech services giant Infosys as stating that because they expect Mr. Trump to curb significantly the visa programs that enable American tech companies to replace U.S. workers with low-paid imported Indian counterparts, companies such as his will “speed up acquisitions in the United States and recruit more heavily from college campuses there.”

Specifically, according to this Indian executive, “We have to accelerate hiring of locals if they are available, and start recruiting freshers from universities [in the United States].”

Previously, it should be noted, both Canada and Mexico announced in the wake of the Trump victory that they would indeed be willing to renegotiate or “discuss” NAFTA.

China may still apparently believe it can bluff Mr. Trump. But good luck to Beijing and its still export-heavy economic growth strategy if it thinks it can find foreign markets to substitute for America’s, with which it ran a $367 billion goods trade surplus last year. Good luck also to China’s efforts to maintain political stability if, as likely, declaring a trade war on such a crucial foreign customer raises unemployment.

America’s economic competitors are fully aware that its enormous trade surpluses have fueled much of their own, and global, growth for decades. The biggest change on this front represented by Trump’s election is that now a U.S. president clearly understands – and has been publicly touting – this indisputable reality as well.  In otherwise, for the first time in decades, America is led by someone well versed in “the art of the deal.”   

Following Up: Trump on Trade and Offshoring Gets Vindicated Again

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Apple Computer, China, domestic content, Donald Trump, Following Up, India, manufacturing, Obama, offshoring, Steve Jobs, Trade

The evidence just keeps coming in that folks like presumptive Republican presidential candidate Donald Trump are right to insist that better U.S. trade and other public policies can bring lots of offshored manufacturing production and jobs back to the United States, and keep lots of domestic industry in place. And this same evidence keeps demonstrating that their critics are either actively misleading the public or peddling their own ignorance,

As noted last month, General Electric CEO Jeffrey Immelt has made clear his intention to respond to what he views as rising protectionism in the United States and around the world by localizing production – i.e., increasingly building GE products where they’re consumed, and resorting less and less to supplying its markets from outside those markets.

In blunter terms, Immelt has declared that this giant multinational will essentially act as various governments want the company to act. Contrary to the claims of trade policy cheerleaders, GE will not tell these governments to go take a hike because in a globalized world, businesses like his can pick and choose production sites as they please. In the process, of course, Immelt confirmed Trump’s claim that the United States has more than enough leverage to attract more production and jobs to its shores.

Now an even bigger company (at least by the measure of market capitalization) reportedly is also asking “How high?” when countries say “Jump!” – Apple Computer. According to Bloomberg, “India is seeking a commitment from Apple Inc. to bring manufacturing facilities to the country before the government will approve the iPhone maker’s request to open its own retail stores, according to a senior government official with direct knowledge of the matter.”

The story goes on to explain that it isn’t just Apple that faces such conditions: “India requires companies to procure at least 30 percent of their components locally if they want to sell through their own retail stores, with some exceptions. Apple makes most of its products in China and doesn’t currently meet that criteria.”

Nor has the company registered any objections so far – declining the Bloomberg correspondent’s request for a comment. And it’s not likely to, either. Again, to quote the article: “Apple has little market share in India now, as consumers opt for less expensive devices from rivals such as Samsung Electronics Co. and Micromax Informatics Ltd. The country is projected to have a billion smartphones sold over the next five years. A network of prominent stores could help not just burnish the brand, but also push the benefits of services from iTunes to Siri to potential customers.”

The likelihood that Apple will dance to India’s tune is interesting not only because the company has become a 21^st century icon, but because reportedly it received a similar quasi-request from President Obama in 2010, and got an unmistakable brushoff. Why can’t Apple make more of its products domestically, the president is said to have asked the late Steve Jobs, Apple’s co-founder and chairman. As this New York Times story described the exchange, “Mr. Jobs’s reply was unambiguous. ‘Those jobs aren’t coming back,’ he said, according to another dinner guest.

Apparently fearing a public backlash, Apple seems to have reached out to the Times reporters to make sure they didn’t simply write that the firm manufactures in places China to capitalize on cheap labor. Instead, executives told him, “the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that ‘Made in the U.S.A.’ is no longer a viable option for most Apple products.”

That’s a reasonable point. But it looks as though such industrial infrastructure barriers won’t be preventing Apple from moving a substantial amount of manufacturing and jobs to India – even though no one who knows the subject believes that India’s relevant capabilities are anywhere near as advanced or as extensive as America’s. The main difference between the two countries? One is led by a government that’s not reluctant to play hard ball with international businesses, and one that – as Trump charges – has been.

Im-Politic: GE’s New Gift to the Trade Populists

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2016 election, Bernie Sanders, Canada, China, Donald Trump, GE, General Electric, Im-Politic, India, investment, Jeffrey Immelt, Jobs, manufacturing, multinational companies, NAFTA, North American Free Trade Agreement, protectionism, reshoring, Saudi Arabia, scale, Trade

The maverick presidential campaigns of Donald Trump and Senator Bernie Sanders just got a major boost from an unexpected source: General Electric CEO Jeffrey Immelt.

Throughout this political year, the presumptive Republican nominee and the Democratic challenger have drawn scorn from the nation’s intertwined political class and business establishment for promising voters that their administrations will bring back to America significant numbers of manufacturing jobs that have been lost to foreign competition. But in a speech last Friday, Immelt (unwittingly, to be sure) made clear both that their ambitions are eminently realistic, and that his own giant company plans to adjust its production and employment policies in response to just these “protectionist,” “populist” pressures – which he noted are appearing all over the world.

Immelt’s apparent tone and much of his phrasing indicates that he intended his remarks – to the graduating class at New York University’s business school – as a ringing defense of GE’s contributions to both the U.S. and world economies so far; as a grim warning that shortsighted, misguided fears about the costs of trade liberalization and global integration were about to endanger the much greater good done by these developments; and as a defiant declaration that his company was positioned to thrive come what may from the world’s cowardly politicians.

Let’s leave aside for now his claims about the net effects of GE’s operations and about today’s version of globalization – although once more he provided a specific number for GE’s annual exports without revealing how much the company imports into the U.S. market. What was actually most remarkable about Immelt’s speech was how strikingly it contrasted with the picture of U.S. multinational companies that’s emerged and prevailed especially since the debate over the North American Free Trade Agreement (NAFTA) more than 20 years ago ushered in the current era of American trade policy.

As Americans and their leaders have constantly heard throughout this period, corporations – especially gigantic ones like GE – had become completely liberated from specific locations and their political authorities. Thanks to dramatic breakthroughs in transportation and communications, these firms could establish any kind of operation anywhere in the world that created a favorable business climate. And if any retrograde national governments tried to interfere, executives could flip them the bird, pick up stakes, and condemn their unfortunate citizens populations to isolation and impoverishment.

The resulting policy conclusion that the multinationals and their mouthpieces in politics and the media obviously have tried to reinforce is that the form of globalization that was emerging is inevitable – a product of progress itself – and that nothing would be more foolish and futile than for the public sector to get in the private sector’s way.

My book on globalization exposed these claims as nonsensical. My research – conducted back in the late-1990s – showed that even the leaders of smallish countries, notably in prospering East Asia, routinely established conditions on in-bound foreign investment from the multinationals as a matter of course. And when faced with requirements to share technology with local partners or use certain levels of domestic content or export specific percentages of their output, the companies routinely complied. And as has just been reported today, these practices are still standard operating procedure the world over.  

The only important economic power that has failed to use its leverage has been the United States, which is why its approach to globalization was forcing its citizens into a “race to the bottom.”

So it’s crucial to understand that what Immelt was telegraphing to his Friday audience was not only that the American political system seemed likely to present the multinationals with comparable requirements, but that GE, for one, had no choice to comply. In his words:

“[T]he globalization I grew up with – based on trade and global integration – is changing.

“As a business leader, it is difficult to decide when to defend the old way (what you were taught) or when to change based on what you see.

“With globalization, it is time for a bold pivot….In the face of a protectionist global environment, companies must navigate the world on their own.

“We must level the playing field, without government engagement. This requires dramatic transformation. Going forward:

“We will localize. In the future, sustainable growth will require a local capability inside a global footprint. GE has 420 factories around the world giving us tremendous flexibility. We used to have one site to make locomotives; now we have multiple global sites that give us market access. A localization strategy can’t be shut down by protectionist politics. …

“We will produce for the U.S. in the U.S., but our exports may decline. At the same time, we will localize production in big end-use markets like Saudi Arabia. And countries with effective export banks, like Canada, will be more attractive for investment. ”

And if GE perceives no choice but to reply “How high?” when governments say “Jump!” it’s likely that similar firms will respond similarly to more demanding American trade policies.

With his suggestion of fewer GE exports, Immelt clearly hopes to convey the idea that although GE may weather this policy storm just fine, Americans as a whole won’t – and that therefore the populist candidates’ promises about returning jobs and achieving other economic gains will backfire big time if they’re kept.

But iron global economic realities have always meant that the main beneficiary of less globalized, more localized production patterns will be the United States. For how many other economies have the scale to support the manufacture of hi value industrial products – like those in which GE specializes – without needing major access to export markets? Obviously, the answer is “Not many.”  The number of economies with the scale to support such production without exporting to the United States is even smaller.

That’s why Immelt’s vow to “localize production in big end-use markets like Saudi Arabia” is so manifestly un-serious. Saudi Arabia isn’t nearly big enough for GE to profit by producing, say, jet engines or turbines for power plants in the kingdom solely for the kingdom. Canada, which his speech also mentioned as an attractive future location for investment, doesn’t qualify, either – despite its “effective” export financing bank. After all, as Immelt has explained, in a world of increasingly localized production, export possibilities by definition shrink substantially.

As for India and China, also touted as ever more important centers of future GE output, the still super-low incomes of their populations will prevent companies like GE from enjoying the kinds of pricing power and margins that remain essential for justifying servicing only those national markets with domestic factories.  To be sure, individual companies might figure out the necessary formula. But even after several decades of record-setting growth, China still needs to export desperately – which explains why such success won’t be possible for most firms.

So whenever you hear or read some self-appointed expert insist that job reshoring promises are simply cynical political pandering exercises, keep in mind that not only do Trump and Sanders disagree. So does one of America’s biggest industrialists.

(What’s Left of) Our Economy: Is it the National Association of Manufacturers or the National Association of Offshorers?

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auto parts, automotive, China, domestic content, exports, fast track, Gregg Sherrill, imports, India, Jobs, manufacturers, manufacturing, Mexico, NAM, National Association of Manufacturers, Obama, offshoring, production, Tenneco, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, {What's Left of) Our Economy

Here’s hoping that the National Association of Manufacturers (NAM) gets to testify in Congress on President Obama’s trade agenda – and soon. That’s not because there’s any reason to expect the organization voluntarily to shed any genuine light on the likely impact of granting the president fast track negotiating authority or the Trans-Pacific Partnership (TPP). Instead, it’s because it will be a great opportunity for lawmakers with some smarts to find out whether and to what extent, like the rest of the big business organizations pressing for new trade deals, NAM’s views are shaped by offshoring interests.

NAM’s focus on maximizing opportunities to send American jobs and production overseas rather than boosting them at home could become especially apparent if the organization sends its new board chairman, Tenneco chief Gregg Sherrill, to Washington. By its count, his auto parts giant currently runs 101 production-related facilities around the world – and only 19 are in the United States.

According to Tenneco, this breaks down into 16 U.S. factories out of a global total of 86, and three engineering centers out of a global total of 14. The company’s only software development center is in India.  (It couldn’t find any qualified Americans to do the work?)

Tenneco explains its location decisions by declaring that “We are where our customers are.” At first glance, the figures bear out the firm. Tenneco makes a wide range of auto parts, and according to the latest figures I could find, the United States in the second quarter of 2014 accounted for only 13.14 percent of global auto and truck production (by units). That was second behind China – by a wide margin. China’s 11.783 million vehicle output represented 26.06 percent of the global total. And the company maintains 18 factories and one engineering center in the PRC.

Similarly, India produced 4.22 percent of the world’s motor vehicles in the second quarter of 2014, and accounted for just under seven percent of Tenneco’s worldwide factories (along with the software center). And Mexico’s 4.65 percent of the company’s manufacturing locations seems appropriate given its 3.68 percent of world vehicle output.

But when it comes to trade, the subject of trade policy hearings, Tenneco’s strategy raises big questions. For example, if its aim is to produce close to its customers, it would seem that expanding exports isn’t a high priority. Yet boosting these U.S. overseas sales, and thus increasing American growth and hiring clearly is the Obama administration’s top stated trade priority. So why is the NAM, now headed by Tenneco’s boss, so enthused about new trade deals?

Perhaps more important, is Tenneco’s factory location pattern in fact related to its trade behavior? The company doesn’t disclose that information, so it’s clearly a question Members of Congress and Senators should ask. Moreover, Tenneco is far from the only parts maker in NAM’s ranks. Sherrill (or whatever surrogate is sent) should be asked comparable questions about the entire industry, especially since sector-wide trade data is eminently available, and it shows clearly that the United States has steadily turned into an import magnet from low-wage countries where Tenneco (and other parts makers) have lots of factories.

Let’s take China. True, it’s now far and away the world’s vehicle output leader. And indeed, total U.S. parts exports to the People’s Republic rose by nearly 107 percent between 2007 (chosen as a baseline since it’s the year the American recession began) and 2013. Year-to-date 2013 to 2014 (we won’t have full 2014 data for another week), these exports are up another 13.90 percent.

Yet between 2007 and 2013, American auto parts imports from China were up nearly as fast – nearly 96.50 percent. And their value in 2014 was 5.77 times the value of U.S. parts exports. The same trends describe U.S.-India auto parts trade. The 2014 import-export ratio for the much larger amount of U.S.-Mexico auto parts trade is smaller – 2.20:1. But an enormous number of parts imports from Mexico are contained in the enormous number of finished vehicles America buys from the country. Vehicle imports from China and India are still small.  Given Tenneco’s stated aim of producing near its customers – a strategy that many other American-owned manufacturers also profess to be following – why such a large and growing gap in trade flows?

Tenneco’s Sherrill could certainly clear up all such questions about his own company by telling Congress how much the firm exports and imports nowadays annually, and how those numbers have changed since the North American Free Trade Agreement (also strongly supported by NAM) launched the current era of U.S. trade policymaking. He should also disclose the levels of domestic and foreign content in his company’s products and how they’ve changed during this period.

Sherrill should add how the company’s domestic and foreign output and employment levels have changed during this period. Similar figures for all the other companies and industries represented by NAM would be helpful, too – from Sherrill or any of the organization’s other spokespersons.

Any witnesses from NAM – or the other offshorer-dominated business groups favoring the president’s trade agenda – will no doubt claim that such information represents valuable commercial secrets, and can’t be revealed without surrendering major strategic advantages to rivals. But that problem is easily solved by requiring such disclosures from all companies, foreign or domestic-owned, above a certain size that do business in the United States.  That way, no one would come out on top on net.

NAM claims that it’s devoted to creating “job across the United States” – and presumably production, too. But without details about its companies’ actual performance, the official trade figures show that Congress and the public are entitled to wonder whether the organization’s name should be changed to the National Association of Offshorers.

Following Up: Foreign Engines of Deflation

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China, Congress, currency, currency wars, deflation, devaluation, Election 2014, emerging markets, Financial Crisis, Following Up, Global Imbalances, India, Indonesia, Japan, Korea, Obama, Republicans, The Economist, Trade, Trans-Pacific Partnership, won

If you think I’m worrying too much about new industrialization drives by India and Indonesia greatly strengthening deflationary forces that could further weaken an already feeble global economy, check out some new information from The Economist. It shows the powerful deflationary effect that’s already been generated by the industrialization of another third world population giant – China.

The magazine’s Buttonwood column reports research findings of a 70 percent correlation between Chinese producer prices and American consumer prices since 1995. That’s when the inevitable production- and job-offshoring effects of Clinton-era decisions to expand U.S.-China trade greatly began to kick in. And the China producer price index has been falling for 30 straight months. That’s the longest such tailspin since the late-1990s, the years of the Asian and third world financial crises.

This powerful relationship between China producer prices and U.S. consumer prices also confirms many other important critiques that have long been made by opponents of U.S. trade policies with China and the rest of the world.

For instance, it makes clear that despite endless claims that China is working hard to turn its economy into one led by domestic demand, it still relies heavily on exports for growth – especially to the United States. In the process, it further debunks the contention that integrating huge so-called emerging markets like China more tightly into the global economy will in the policy-relevant future turn into an unprecedented win-win for the entire world economy.

Trade expansion with these countries – which also included decisions to overlook their currency manipulation and other predatory trade policies – was supposed to create immense new sources of net new global demand that in turn would create equally immense new opportunities for producers and workers in first world countries like the United States to supply these new consumers. But because third world populations still remained way too poor to absorb a critical mass of their own production – much less production from high-income countries on a net basis — the emerging markets became bigger emerging net exporters than ever. Consequently, they drained demand from the world economy and growth from wealthier countries, and especially their workers.

The only way this global economic high wire act could be sustained was to extend unprecedented amounts of credit to consumers in America, in particular (the only economy that kept itself fully open to third world exports). The spending and debt explosion that resulted wound up imploding in 2007 and 2008, and produced the global financial and economic near-collapse whose damaging after-effects are still felt in spades more than half a decade later.

Finally (for now), it’s revealing that Buttonwood noted how these burgeoning deflationary forces are also being strengthened by Japan’s recent decision to speed up the weakening of the yen – which will put renewed pressure on China and other Asian net exporters who compete with Japan to respond in kind. He (she?) could have added that Korea has already let its won hit a nine-month low versus the dollar – and has announced that it’s willing to devalue further or respond otherwise.

The columnist drew the right conclusion: “Small wonder if governments decide it is every man for himself.” I just hope that he (she?) and his (her?) colleagues remember that the next time they’re thinking of writing yet another editorial lambasting even the feeblest trade response by an America better positioned to go it alone than any other economy.

Not that Buttonwood or any other cheerleaders for foolhardy, indiscriminate trade expansion seem to have much to worry about.  With his pursuit of new agreements with Korea and proposed deals like the Trans-Pacific Partnership, Barack Obama has been faithfully following their advice throughout his presidency.   And of course this week’s midterm elections have presented him with eager new Republican partners in Congress.

 

(What’s Left of) Our Economy: Overseas Deflation Threats Over the Horizon

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deflation, economic development, exports, Global Imbalances, globalization, India, Indonesia, industrialization, manufacturing, {What's Left of) Our Economy

Whoever the winners in the midterm elections in the United States, their top challenge would have been the same: strengthening the U.S. recovery and extending its benefits to the vast majority of Americans who have seen their incomes fall even as growth has resumed. One of the main obstacles would have remained the same, too: unusually weak growth in wages and prices, which keeps signaling that the economy’s paramount source of growth – the demand for goods and services – is likely to remain weak, too.

More alarming, the wage and price stagnation could well turn into deflation – a situation of falling wages and prices that tends to worsen and plunge growth itself into a nosedive. Consumers put off purchases in the expectation of better bargains, businesses therefore sell less and less, they hire fewer and fewer (if at all), wages sink further, and a race to the bottom is on.

Deflation of course will need to be fought on the home front. But its deep rooted international roots will need to addressed as well, in particular the impact of literally hundreds of millions of workers from gigantic but very poor developing countries who began flooding world labor markets at the beginning of the 1990s whose capacity to produce was orders of magnitude greater than their capacity to consume.

It’s now become a commonplace that what I once called this worldwide worker explosion – epitomized by the rise of China – has undermined pricing power throughout the world economy, and especially in segments whose output could be readily traded, like manufacturing. Less commonplace, but just as important, is that the persistence and even strengthening of deflation since means that the uber-prediction advanced to sell expanded trade with these countries has so far proven completely bogus. At least in a relative sense, consuming power in the developing world hasn’t grown nearly fast enough to rebalance supply and demand.

In recent weeks, however, some news has emerged indicating that deflationary forces are about to get stronger still. I’m not talking about the worsening of economic stagnation in the European Union – the world’s largest single economic unit. I’m talking about the renewed determination of two other third world population giants – India and Indonesia – to become major manufacturing powers along the lines of China.

I’m actually surprised that it’s taken them this long. But contrary to my expectation – as expressed in my book The Race to the Bottom – Indonesia focused on exploiting its oil and other natural resources. India’s industrialization has famously been slowed by the dreadful state of its infrastructure and its choking bureaucratic red tape and, paradoxically, by its success in computer software and high tech services.

Both countries recently elected new leaders, and both of them have decided that promoting manufacturing can fill crucial national gaps and promote crucial national needs. India has concluded that even the most advanced services sector offers no hope of providing decent employment for the vast majority of its people living on subsistence wages – at best. Indonesia believes that it will never approach first world levels of prosperity by continuing to rely on commodity production.

Unquestionably, industrialization remains the best long term bet for meaningful third world economic progress. Over the shorter term, though – if it works – it could inject a huge new deflationary shock into a world economy at exactly the wrong time.

Consider some of these figures. Indonesia’s population is 250 million. Even after an excellent, commodity-led growth run over the last few years, only 13 million households have annual disposable incomes greater than $10,000. In large measure, the explanation is that, as one analyst puts it, “Compared with other countries in Asia Pacific, Indonesia…has the most attractive hourly wage.” Meaning of course, the lowest wage. India has 1.25 billion people. Its average hourly manufacturing labor cost of 92 cents is just over one-fourth of China’s.

Of course both countries are hoping – and need – to serve export markets, especially in higher income countries, where the world’s critical mass of purchasing power is still found. But both are also hoping to supply their own internal markets from within. So export opportunities for U.S. and other workers from the developed world could be even less lucrative than suggested by these two countries’ low living standards.

As a result, their big-time entry into global manufacturing markets stands to bring not only deflation, but greater international imbalances like those that triggered the financial crisis six years ago. Figuring out how to harmonize worthy and entirely legitimate third world hopes for progress and prosperity on the one hand, and the global financial stability that benefits everyone on the other, is the greatest international economic policy challenge of our time. Is there any reason to think it’s even close to the screen of either the Obama administration or Republican leaders in Congress?

(What’s Left of) Our Economy: India Shows US Folly of WTO

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consensus, India, international law, international organizations, Modi, Trade, WTO, {What's Left of) Our Economy

I have to admit – part of me admires new Indian Prime Minister Narendra Modi for singlehandedly blocking a new World Trade Organization agreement to streamline customs procedures throughout the global economy. The proposed deal falls considerably short of a global trade game-changer. In fact, its main value seems to be in showing that the WTO has not become completely moribund now that its members have deadlocked on a significant world trade liberalization deal, and many have ramped up efforts to reach regional agreements like the Trans-Pacific Partnership instead.

Nonetheless, Modi was under heavy international pressure to cave in, and resisted. His rationale? “Do we choose feeding our poor or getting good press world-wide?” I have no idea whether the food stockpiles other WTO countries found so objectionable actually do prevent hunger in India, or represent the best way to do so. But I was impressed to see a leader unabashedly prioritizing his own nation’s interests over those of some abstract “global community” or supposed set of “global norms” in language that would have made his Israeli counterpart Binyamin Netanyahu proud.

At the same time, India’s ability to veto an entire global trade agreement all by itself spotlights one of the WTO’s biggest structural flaws, and one so serious from Day One that it should have convinced Washington to stay out: the organization’s requirement, carried over from its predecessor global trade body, that decisions be made by a consensus of the entire membership if at all possible.

In this way, the WTO differs fundamentally from other international organizations, like the United Nations and the International Monetary Fund. In those bodies, an outsized share of the real power was given to the strongest, wealthiest countries, in the form of the Security Council and its veto provision at the UN, and in the form of weighted voting at the IMF. By contrast, the WTO in effect established equal power for all countries, regardless of their characteristics.

This egalitarianism was mainly codified because most of the world’s national economies viewed it as vital for achieving one of their highest priority goals – reining in America’s legal authority to act unilaterally to advance or defend its trade interests. For a world heavily dependent on exporting to the United States to achieve and maintain prosperity, few developments could be more dangerous. Fortunately for these U.S. competitors, American trade policy was (as today) tightly controlled by offshoring and importing interests, and Washington agreed to a system bound to leave the U.S. market open much wider than other national markets.

But as made clear by Modi’s gambit, consensus-based decision-making also gives grossly outsized influence to countries whose real-world attributes merit nothing of the kind. Of course, India has an enormous population, and has made impressive strides alleviating poverty and modernizing its economy. Relatively speaking, however, it remains a pygmy, representing only 3.03 percent of global output as of last year.

Because there’s nothing even close to a worldwide consensus on acceptable trade and related economic practices, no conceivable WTO reforms can solve the problem – at least on a basis acceptable to the United States. Instead, Washington should take full advantage of the opt-out provision of its WTO accession agreement and leave the organization at the next opportunity (which comes up in 2015). As American leaders never should have forgotten, the best guarantors of U.S. security, independence, and prosperity have always been its own power and wealth – not the useless-at-best and potentially dangerous illusions of international law and institutions.