(What’s Left of) Our Economy: Biden Goes Full Trump on His New Metals Tariff Deal

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allies, aluminum, Biden, Biden administration, China, Donald Trump, EU, European Union, metals, metals tariffs, quotas, steel, steel tariffs, tariff-rate quota, tariffs, Trade, trade wars, transshipment, Trump administration, {What's Left of) Our Economy

I’m old enough to remember when Donald Trump’s decision to tariff steel and aluminum imports from many U.S. allies was almost universally condemned outside his administration as not only unimaginably stupid and economically ignorant (as the supposed case for all tariffs) but downright heinous.

After all: These were U.S. allies that would be paying the price for Trump’s troglodyte protectionism. For decades they’d stood shoulder to shoulder with America in numerous foreign policy crises and showdowns with hostile dictatorships (or at least much of the time) and served as valuable force multipliers (even though their skimpy defense budgets prevented them from providing the United States with much concrete defense help when push came to shove, and needlessly exposed Americans to nuclear war risk). How, moreover, could relying on imported metals from friendly countries endanger U.S. national security – as the Trump administration legally needed to claim in order to slap on the trade curbs. Worse, the Trump metals levies as such left China, by far the biggest metals trade offender, untouched.

Even Trump’s own first Defense Secretary agreed on the tariffs’ cockeyed targeting. So did a fellow named Joe Biden, who during his presidential campaign last year upbraided his opponent for “picking fights with our allies” vowed to “focus on the key contributor to the problem [of a global metals glut] – China’s government.”

So although it’s been telegraphed for some weeks now, it’s still worth noting not only that since his inauguration, President Biden has kept the steel and aluminum tariffs firmly in place, but that his administration has just reached an agreement with the European Union (EU) that makes clear that the two major assumptions that drove Trump’s approach were completely correct.

First, as I’ve demonstrated repeatedly (e.g., here), the evidence is overwhelming both that global metals capacity stems not only from China’s own mammoth overproduction, but from numerous other metals manufacturing countries, and that all of these economies were working in any number of clandestine ways to make sure that most of this overcapacity was dumped into the U.S. market.

That is, they either responded to Chinese product flooding their own markets and threatening their own metals industries by ramping up their own exports to the United States; by modifying these Chinese metals slightly and then sending them state-side as their own products; or by simply permitting Chinese steel and aluminum to be transshipped through their own ports to the United States under false labels.

(This new report shows that China’s strategy of evading U.S. trade barriers has taken another mportant form”: acquiring metals production capacity in third countries – especially in the most profitable, specialty and other high-value metals segments – and using these facilities to ship to America.)

As a result, any U.S. tariffs needed to be universal to be effective – either simply to keep imports under control, or to secure foreign agreement to stop playing footsie with the Chinese. Any other approach would have left Washington continuing to play Uncle Sucker in a game of global whack-a-mole – whose latest round began when direct Chinese exports to the United States were sharply limited by tariffs put in place during the last year of the Obama administration.

Second, the Trump approach recognized that the United States boasted the leverage to achieve success, and the terms of the new agreement with the EU make clear that the former president judged the balance of economic power correctly It’s true that the deal EU saves various American industries from retaliatory tariffs. But in return for restoring these sectors largely unimpeded access to the huge total EU economy, the Europeans have accepted sharply reduced access to American customers.

A U.S. government fact sheet states that tariff-free EU steel and aluminum exports to the United States will be limited to “historically-based” volumes (which have not been specified, but which reportedly will equal only about 60 percent of the immediate pre-Trump tariff totals). Practically all attempted European shipments above that total would be subject to the exact same Trump levies that clearly kept them mostly out of the United States – at least judging from the Europeans’ fundamental complaint. (Trade mavens call such arrangements “tariff-rate quotas.”) In this respect, this EU agreement mirrors those reached by the Trump administration with countries like Canada, Mexico, Argentina, Brazil, and South Korea.

The full details of the agreement haven’t yet been released, so questions remain about enforcement mechanisms – which of course matter decisively for any effort to combat secretive activity like transshipment. But because American-owned steel companies and U.S. steel unions have endorsed the deal, chances are they’ll be effective. And that’s likely to be true for the rest of his trade agenda as long as President Biden keeps going full Trump.      

(What’s Left of) Our Economy: Springtime Blahs for U.S. Manufacturing Jobs

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aerospace, aircraft, appliances, automation, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Employment, fabricated metal products, Jobs, Labor Departent, machinery, manufacturing, masks, metals tariffs, non-farm business, non-farm payrolls, pharmaceuticals, PPE, productivity, protective gear, regulatory policy, tariffs, tax policy, vaccines, Wuhan virus, {What's Left of) Our Economy

In contrast to the mixed set of signals I saw being given off by last month’s official monthly U.S. jobs report (for April), today’s May figures are pretty clearly indicating that manufacturing hiring is in a weak patch. In fact, the patch has been weak enough to turn the sector from a national employment creation leader to a laggard. Just as important, the short-term outlook at least seems somewhat dimmer than it had been.

The main reason for confusion over the previous data had to do with the disconnect between the automotive-heavy losses of April (which accounted for more than all of that month’s initially reported 18,000 net job decrease) and the positive revisions for the preceding months. Another very encouraging sign – the second straight month of strong jobs gains for the machinery sector, whose products are used widely not only in the rest of manufacturing, but in other major parts of the economy like agriculture and construction.

May’s results were almost a mirror image – and not in a good way.

For example, whereas in April, the 27,000 sequential automotive job losses exceeded total manufacturing job loss of 18,000 (leaving the rest of industry’s hiring performance pretty subdued, to be sure), in May, automotive payrolls rose by 24,800. But overall manufacturing job gains totaled only 23,000 – so the rest of the sector shed workers on net.

In addition, revisions are now negative. April’s manufacturing employment is now judged to have fallen by 32,000 month-to-month, not 18,000. That’s largely because that month’s automotive layoffs were much bigger than first reported – 37,700 rather than 27,000. Even March’s very good upwardly revised monthly hiring surge of 54,000 has now been revised down again to 51,000.

As for machinery, that crucial industry lost 4,700 jobs on net in May – its worst results by far since April, 2020 – at the depths of the CCP Virus-induced downturn and the first negative number since January. Moreover, this April’s 3,700 monthly jobs increase has now been revised down to 1,900, and March’s last upgraded 5,400 figure is now pegged at only 3,500.

In all, manufacturing has now regained 876,000 (64.27 percent) of the 1.363 million jobs it lost at the pandemic’s height in the spring of 2020. That’s now well behind the 69.74 percent employment recovery of the private sector and even the 65.88 percent rebound of the total economy (defined as the non-farm sector by the U.S. Labor Department, which compiles and categorizes the data).

The manufacturing sectors with the biggest sequential May jobs gains were the overall transportation equipment sector (where a 9,000 hiring improvement was propped up by the automotive increases), miscellaneous non-durbable good makers (up 4,100), fabricated metals products (up 3,500) miscellaneous durable goods manufacturing (a catch-all category including everything from surgical equipment – like facemasks and other personal protection equipment to gaskets to jewelry – where payrolls were up 3,400), and computer and electronics products and electrical equipment and appliances (up 2,800 each).

The hiring in fabricated metals and appliances was noteworthy given that companies in both industries have been complaining loudly about the pain they’ve been suffering from higher metals prices stemming in part from ongoing U.S. tariffs on these materials. (See, e.g., here and here.)

May’s big manufacturing jobs losers aside from machinery were non-metallic mineral products (down 2,200), paper and paper products (down 2,100), and the big chemicals sector, which is another big supplier of a wide variety of products to the entire economy (down 1,100).

More encouragingly, when it comes to industries closely related to the fight against the pandemic, job creation seems picking up, although the relevant data are one month behind the rest of the jobs figures. Specifically, in the surgical appliances and supplies sector that includes the protective gear, March’s employment increase was unrevised at 900, and hiring accelerated to 1,200 in April – the best monthly performance since September’s 1,600. This sector’s payrolls are now 10,400 (9.89 percnt) higher than in February, 2020 – the last pre-pandemic month.

For pharmaceuticals and medicines overall, March’s 1,500 sequential jobs increase was revised up to 1,600, and April hiring surged to 2,700 – its best performance by far of the CCP Virus period. Its payrolls are up by 12,500 (4.01 percent) since pre-pandemicky February, 2020.

For the pharmaceuticals subsector containing vaccines, March’s initially reported employment increas of 500 is now judged to be 800, and net hiring grew by 1,300 in April – a solid improvement by this industry’s recent standards. As a result, its workforce has now increased by 9,200 (9.30 percent) since February, 2020.

The same unfortunately can’t be said for the aerospace industry, and continuing and even mounting troubles for Boeing presage ongoing woes for the foreseeable future. March’s initially reported 1,800 monthly job loss for aircraft has now been revised for the worse to 1,900, and the sectors workforce fell by another 200 in April. Meanwhile, following sequential March losses in aircraft engines and parts, and in non-engine aircraft parts, employment flatlined in these two sectors combined in April.

Continued strength in the overall recovery of the U.S. economy should provide strong tailwinds for domestic manufacturers and for industry’s jobs figures, and continuing tariffs should help by keep much foreign competition (especially from China) out of the market.

Vaccine production will likely keep expanding – and requiring more workers – as well, mainly to supply immense foreign demand. But the sector is so small that its employment performance can’t move the manufacturing jobs needle much.

Boeing’s problems, however, can be expected to cast a big shadow not only over the big aerospace industry, but over its big domestic supply chain as well. And although the global semiconductor shortage that has hit the automotive sector especially hard may be starting to ease, the damage appears likely to take considerably longer to overcome. Manufacturers face big questions about the future of U.S. tax and regulatory policy, too.

Recently, moreover, some data’s come out pointing to a development that might wind up strengthening domestic industry in toto, but weakening its employment potential, at least in the short run. Labor Department figures show that, from the depths of the pandemic through the first quarter of this year, U.S.-based manufacturing has boosted its labor productivity much faster than the non-farm economy generally — and much faster than it has since its recovery from the last recession.  In other words, manufacturers lately been improving their ability to turn out product more than they’ve increased hiring. 

Whether this is a secular change or whether industry will revert to its recent mean is anyone’s guess. Also highly uncertain is whether better productivity growth (including of course more use of labor-saving technologies) will wind up destroying jobs on net, or increasing them by supercharging production. So far history seems to teach that such advances are net employment creators, but is that inevitable going forward? And is it inevitable for manufacturing specifically? All I can say is “Stay tuned” and “Be patient.”          

(What’s Left of) Our Economy: Biden’s Now a Full-Throated “Tariff Man” on Metals

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aluminum, Biden, China, dumping, EU, European Union, Katherine Tai, metals tariffs, overcapacity, steel, subsidies, tariffs, trade war, U.S. Trade Representative, World Steel Association, {What's Left of) Our Economy

There’s now a good case to be made that the trade curbs originally called the “Trump metals tariffs” should be called the “Trump-Biden metals tariffs” (and even vice versa). For on Monday, the Biden administration reached a “truce” in the trade dispute they touched off with the European Union (EU – whose member countries’ steel exports are among those hit with these levies). And this agreement kept the U.S. curbs – originally imposed by the former President in early 2018 – firmly in place.

Arguably even more important, U.S. Trade Representative Katherine Tai fully endorsed Trump’s rationale for the global scope of these tariffs (which eventually exempted some countries – including Canada and Mexico, which joined with Trump in signing a  revamp of the North American Free Trade Agreement). At a Senate hearing last week, she noted that they were needed “to address a global overcapacity problem driven largely but not solely by China.”

In other words, Tai – and her boss in the White House – were acknowledging that massive and government-subsidized excess global steel output in particular was being dumped into the U.S. market, often indirectly, by many countries other than China. They’d either been permitting Chinese product to come into their import doors and go out their export doors to America (after being re-labeled); compensating for their own steel industries’ losses at the hands of dumped Chinese steel by ramping up their own exports of subsidized metal to the United States; or engaging some combination of the two.

Although President Biden has also decided to retain Trump’s China tariffs, the metals position deserves special attention. After all, a broad consensus has developed in U.S. policy and (to a lesser extent) business circles on the need for responding strongly to China’s systemic trade predation. But the metals tariffs have consistently been widely condemned as needless Trump slaps at many staunch U.S. security allies (like many EU members that also belong to NATO – the North Atlantic Treaty Organization).

The Economic Policy Institute released a report in March documenting how well the tariffs have worked to help revitalize the U.S. steel industry, and how scant their damage has been to American steel-using industries. (My case for the latter proposition includes this post.)

But the American industry’s need for worldwide tariffs until the overcapacity problem is (somehow) solved also keeps emerging from the data on global steel markets that I first highlighted shortly after Trump’s announcement.

This post showed that before the tariffs were imposed, the American domestic steel industry was far and away the biggest global loser from the China steel glut – and that most other big steel-producing countries escaped anything close to comparable damage. Here’s how the percentages of global steel output of leading producers changed between 2010 and 2018.  (Note that some of the original 2018 numbers have been revised.)

US:                        -35.79

China:                   +20.44

EU 27:                   -23.73

Japan:                    -25.36

South Korea:           -2.67

India:                    +22.20

Turkey:                          0

Brazil:                   -17.24

Russia:                  -11.61

Logically, these figures can lead to only one of two conclusions: Either the U.S. steel industry had become the world’s least competitive by a mile (and very suddenly), or virtually the entire steel-producing world was exporting many of its own China steel problems to the United States.

And since U.S. productivity statistics reveal that the American primary metals sector (including steel and aluminum) had been a national productivity leader during that period, and was suffering major import-related production losses that were dwarfed by those of much less productive manufacturing industries, there can be no legitimate doubt that it faced a trade problem urgently needing fixing. (Here‘s the evidence.)

So what’s happened to the U.S. share of world steel production since the tariffs’ onset? The World Steel Association, source of the above figures, makes clear that the American relative performance has been much better. Here are the percentage changes in woldwide output between 2018, and the first quarter of this year:

US:                           -12.53

China:                       +8.44

EU 27:                     -16.45

Japan:                      -15.60

South Korea:           -12.47

India:                        +3.23

Turkey:                      -2.43

Brazil:                       -6.77

Russia:                      -2.02

These numbers show that China continues to increase its global production market share (to fully 55.66 percent as of this year’s first quarter) and that the United States has continued to lose share. But they also show that much of the rest of the steel-producing world is no longer able to gain so dramatically at America’s expense. Indeed, major producers like the European Union and Japan have fared worse than the United States, and the gap between American performance and that of the rest of these economies has closed substantially. And as the aforementioned Economic Policy Institute report has demonstrated, the U.S.-based steel sector’s fortunes in absolute terms have turned up as a result.

The lesson here is that the metals tariffs haven’t been a cure-all either to the U.S. steel industry’s troubles or even its trade-specific troubles. But they’ve undeniably helped – while leaving the rest of American manufacturing and the economy doing just fine. And because other global steel players are now taking it on the chin from China’s overcapacity, maybe the continued U.S. levies will finally help convince them to stop paying lip service to the goal of dealing with global – and especially Chinese – steel overcapacity, and join Washington in serious efforts to end it.

(What’s Left of) Our Economy: New Evidence that Trump’s Tariffs Have Bolstered U.S. Manufacturers

Tags

aluminum, CCP Virus, China, coronavirus, COVID 19, GDP, gross domestic product, inflation-adjusted growth, lockdowns, manufacturing, metals, metals tariffs, real GDP, real value-added, recession, steel, tariffs, Trade, trade war, Trump, value added, Wuhan virus, {What's Left of) Our Economy

As everyone knows, at least as of the final (for now) official third quarter growth figures just released, the entire U.S. economy remains in a severe recession thanks to the arrival of the CCP Virus and the subsequent tight curbs on business activity.

Less widely known:  A separate set of official figures released along with yesterday’s government release on third quarter gross domestic product (GDP) shows that, by the measures most closely watched (i.e, inflation-adjusted), domestic manufacturing never suffered a recession by one crucial definition – a cumulative downturn lasting at least two quarters. And can it be mere coincidence that the entire time, President Trump’s sweeping and steep tariffs on hundreds of billions of dollars worth of Chinese goods, and of steel and aluminum from most major foreign producers, have remained in place?

Below are the growth (and contraction) figures for the entire U.S. economy and for the manufacturing sector for the entire CCP Virus period so far – the first quarter through the third quarter of this year. They come from the Commerce Department’s data on four measures of output tracked by the folks who look at “GDP by Industry” and consist of gross output both pre-inflation and adjusted for price changes, and value-added (a gauge of production that tries to remove the double-counting that results from gross output’s inclusion of both inputs for products and services and the final products and services themselves) in pre-inflation and price-adjusted terms. All the non-percentage numbers are in trillions of dollars at annual rates.

                                                      1Q                2Q                3Q            1Q-3Q

v/a whole economy:                 21.5611        19.5201        21.1703    -1.81 percent

v/a manufacturing:                     2.3643          2.0537          2.3291    -1.49 percent

real v/a whole economy           19.0108        17.3025        18.5965    -2.18 percent

real v/a manufacturing:              2.1999          1.9629          2.2132   +0.60 percent

gross output whole econ          37.8268        34.2600         36.9425    -2.34 percent

gross output mfg                        6.1163          5.3334           6.0134    -1.68 percent

real g/o whole economy           34.2613        31.3989         33.4440    -2.39 percent

real g/o manufacturing               6.2038          5.6162           6.2089    +0.08 percent

Probably the most important of these results is real value-added, since its topline economy-wide numbers are identical to the inflation-adjusted GDP figures regarded as the most important measures of economic growth. And in real value-added terms, manufacturing output in the third quarter was actually slightly (0.60 percent) higher than in the first quarter. Manufacturing expansion has also taken place according to the real gross output figures, though it’s been marginal.

Also crucial to note although both pre-inflation measures show first-third quarter cumulative manufacturing downturns, they’ve been shallower in both cases than the economy-wide slumps.

It’s true that the virus and related shutdowns have more dramatically impacted the service sector when it comes to first-order effects – because so many service industries entail personal contact. But the case for the tariffs’ benefits for manufacturing looks compelling upon realizing that U.S. services companies are major customers of domestic manufacturers. So although the virus obviously crimped these markets, it seems that the tariffs preserved a good many of them by pricing out much Chinese and foreign metals competition.

One way to test this proposition, of course, would be for apparent President-elect Joe Biden to lift the levies while the pandemic keeps spreading. Unless powerful evidence comes in to the contrary, manufacturers, their employees, and indeed all Americans should be hoping this is a bet Biden won’t make.

(What’s Left of) Our Economy: The Trade Wars Would’ve Been Much Easier to Win if Not for Boeing

Tags

(What's Left of) Our Economy, aerospace, aircraft, aircraft parts, Boeing, manufacturing, metals tariffs, tariffs, Trade, trade wars, Trump

Today’s grim news about recent Boeing aircraft orders and deliveries is just the latest valuable reminder that any evaluation of the Trump record on manufacturing and trade policy has to take into account the entire aircraft and parts industry’s transformation from a slight to a bigtime industrial laggard. Moreover, Boeing’s weakness – which has nothing to do with the President’s trade or any other policies — seems likely to continue for the foreseeable future, at least according to Boeing. The company’s latest long-term forecast for the global aircraft market affirms that it will take years for aviation worldwide to return to pre-CCP Virus levels.

The degree of the pain inflicted by Boeing’s troubles – which also include major safety woes that started making headlines in early 2019 – on the whole of domestic industry, and how unrelated manufacturing’s overall Trump era performance has been to the President’s tariff-heavy trade policies, becomes clear from diving into the most detailed U.S. manufacturing output figures available: the Federal Reserve’s industrial production data.

For example, the Fed numbers show that, during the Obama administration, adjusting for inflation, manufacturing output increased by 14.65 percent. Real aircraft and parts production output growth was just slightly slower: 12.39 percent.

But from the start of the Trump years until the arrival of the pandemic (February, 2017 through February, 2020), whereas the manufacturing sector as a whole expanded by 3.60 percent in price-adjusted terms, the aircraft and parts industry shrank by 13.10 percent.

Since the virus struck (from February through the latest available – August – numbers)? Manufacturing output is down by 6.39 percent after inflation, and aircraft and parts production is off by 10.81 percent.

As for the trade war impact, from March, 2018 (the first full month of President Trump’s metals tariffs and a good place for marking the start of the broader trade wars) until February, 2020 (the last month before the virus began significantly affecting manufacturing and the entire domestic economy), overall manufacturing production grew by a bare 0.83 percent. But that poor performance was clearly dragged down by the nation’s aircraft and parts factories – which turned out 10.74 percent less in terms of constant dollar product value.

Aircraft and parts were major industrial also-rans, too, during the comparable 23-month period preceding the first full month of the Trump metals tariffs. Their real production slumped by 4.11 percent, as manufacturing’s overall production rose by 4.07 percent.

The bottom line, then, couldn’t be clearer. The President was wrong in insisting that trade wars for big deficit countries like the United States are “easy to win.” But the facts also demonstrate that the victories the nation has won in these conflicts – which have been significant – would have been come much easier had the aerospace sector and its long-time leader Boeing not turned into such major losers.

(What’s Left of) Our Economy: Some New Trump-Friendly Data on Manufacturing Productivity

Tags

Barack Obama, Labor Department, manufacturing, metals tariffs, multi-factor productivity, productivity, tariffs, total factor productivity, Trade, trade wars, Trump, {What's Left of) Our Economy

If I had a list of twenty top wishes, more timely U.S. government publication of the multifactor productivity statistics wouldn’t make the cut. All the same, I’d like to see the posting of this data sped up for several reasons, including:

>Multi-factor productivity (also called total factor productivity) is the broadest of the measures of economic efficiency tracked by Washington, purporting to show how much in the way of all kind of inputs are needed to produce a unit of economic output in a given time period; and

>although even stalwarts of the rarely humble economics profession agree that productivity is challenging to measure precisely, they also mainly tend to agree that the stronger a country’s productivity performance, the likelier that country’s population will be living standards rise on a sustainable, not bubbly, basis.

So even though the new detailed multi=factor productivity statistics released by the Labor Department late last week only bring us through 2018, they’re worth contemplating anyway – and even for those focused tightly on politics in this presidential election year. For these latest numbers somewhat further undercut widespread claims that President Trump’s tariff-heavy trade policies have been weakening American domestic manufacturing (which is strongly affected by trade), and indeed add to those overall economic metrics for which the Trump years have seen better performance than the Obama years. (As known by RealityChek regulars, the Obama administration holds an edge here.)

Let’s start with what the new Labor Department release says about how many of the industries it follows achieved multi-factor productivity growth during the last two Obama years and the first two Trump years (the best basis for comparison, since it examines time spans closest together in the same – expansionary – business cycle). Here are the numbers:

2015: 21 of 86

2016: 37 of 86

2017: 32 of 86

2018: 44 of 86

On average, these gains were considerably more widespread under the Trump administration. Also noteworthy: Although the number of multi-factor productivity growers dipped between the final year of the Obama administration and the first year of the Trump administration, that first Trump year featured no tariff increases. These moves didn’t begin until the early spring of 2018 – a year in which the numbers of productivity growers rose significantly.

Such figures by no means clinch the case that the tariffs helped domestic manufacturers – because a single year can’t make or break an argument; because trade policy was far from the only development influencing manufacturing; because none of the developments that do influence productivity work their magic in ways convenient for calendar-watchers; and because the 2018 tariffs only covered aluminum and steel.

Still, it’s hard to look at these productivity numbers and see any harm done to U.S.-based manufacturing by the tariffs – or by the very good reasons at the time for assuming that many more were on the way, with all their implications for business plans.

But what about actual multi-factor productivity throughout the entire manufacturing sector. Here’s what separate Labor Department data reveal:

last two Obama years combined:  -2.15 percent

first two Trump years combined: +0.84 percent

Another Trump edge, and another reason for doubting the “tariff-mageddon” claims concerning manufacturing.

The multi-factor productivity reports also handily present the numbers of manufacturing sectors that enjoyed overall output growth year in and out. These data make the Trump years look superior, too, and cast further doubt on the tariff opponents’ credibility:

2015: 50 of 86

2016: 31 of 86

2017: 44 of 86

2018: 55 of 86

Unfortunately, even if the multi-factor productivity data for 2019 (a slower growth year for domestic industry) were available, robust conclusions about the Trump manufacturing record on this front per se, and especially about the effects of the tariffs would be difficult for the fair-minded to draw. After all, that’s the year when major tariffs on Chinese goods were imposed, and therefore when the inevitable inefficiencies they created began. In other words, U.S.-based manufacturers were just at the start of efforts to make supply chain and other adjustments to the levies, not at the end of this process. And the CCP Virus’ arrival and all the economic distortions it’s produced will complicate analysis going forward.

Moreover, although it should be “needless to say,” I’ll make the point again anyway: Major changes in U.S. trade policy toward China and overall were vital both for economic, national security, and – as has become clear this year – health security reasons.

As a result, here’s the firmest conclusion I can draw: The stronger U.S. manufacturing’s performance in improving multi-factor productivity remains, the easier these needed trade wars will be to win at acceptable prices.

(What’s Left of) Our Economy: Confusing but Overall Downbeat News on U.S. Manufacturing Productivity

Tags

aluminum, CCP Virus, China tariffs, coronavirus, COVID 19, durable goods, lavbor productivity, manufacturing, metals tariffs, metals-using industries, multifactor productivity, productivity, steel, tariffs, trade war, Wuhan virus, {What's Left of) Our Economy

I wish I could say that the detailed U.S.manufacturing labor productivity statistics for 2019 that came out late last week provided a clear, pre-CCP Virus picture of domestic industry’s health, and especially insights into how well manufacturing was holding up during the ongoing U.S.-China trade war. Unfortunately, the sector-by-sector data add up to a confusing mix of halfway decent and bad news.

First a reminder: Productivity is an important measure of efficiency, and labor productivity is the narrower of the two sets of productivity statistics tracked by the Labor Department. But although it only measures output per hour by individual workers (as opposed to examining the usage and output results for a wide-ranging combination of inputs), the labor productivity figures are released on a timelier basis than the more comprehensive multifactor productivity numbers.

Also important to remember: For all their importance, the productivity data represent the statistics in which economists have the least confidence, although the problem is much more difficult in services than in goods like manufactured products.

Nevertheless, most economists do agree that raising productivity levels is any economy’s best way to boost living standards on a sustainable basis, and so it’s discouraging to report that the overall context for manufacturing last year was pretty dreary. Another productivity series from the Labor Department judged that labor productivity in industry shrank by 0.56 percent. In 2018, it rose by 0.64 percent. Moreover, this general result certainly doesn’t indicate that American manufacturers made much progress compensating for higher costs created by metals and China tariffs by figuring out how to make their workers more efficient.

At the same time, last year, labor productivity fell in 54 of the 86 manufacturing sectors monitored by the Labor Department. As bad as that sounds, this result was actually better than that for 2018, when labor productivity decreased in 67 of those sectors.

Although the so-far-pervasive but widely varying use of Chinese materials, parts, and components makes identifying the China tariffs’ impact on labor productivity, figuring out the effects of the metals tariffs is much easier, and here the news is more encouraging still.

In durable goods – the super-sector that contains the major U.S. industries that use tariff-ed steel and aluminum – labor productivity fell in 31 of the 51 sectors examined. That’s a genuine improvement on 2018, when labor productivity decreased in 41 out of 51.

Even more revealing: Most of the big metals users themselves stepped up their productivity game somewhat in 2019, though in absolute terms (as shown in the table below), their yearly performances weren’t by any means impressive.

                                                                        2018                       2019

fabricated metals products:                    -1.4 percent             -0.1 percent

machinery:                                                  0 percent             -0.2 percent

household appliances:                           +1.6 percent            +2.0 percent

motor vehicles:                                       -7.6 percent            -2.1 percent

motor vehicle parts:                                -1.2 percent            -0.6 percent

aerospace products & parts:                   -8.1 percent            -2.2 percent

As long as the CCP Virus keeps affecting the American and global economies (an especially important point for manufacturing, since in 2019, its exports represented nearly 18 percent of its total gross output), it’ll be tough to get a handle on underlying trends in manufacturing labor productivity and other performance indicators. But on the labor productivity front, last week’s figures sadly make clear that a return to pre-virus levels won’t be terribly difficult to achieve.

(What’s Left of) Our Economy: Manufacturing Jobs Revisions Burnish Trump’s Employment and Trade War Record

Tags

Barack Obama, Bureau of Labor Statistics, China tariffs, election 2020, Jobs, manufacturing, manufacturing recession, metals tariffs, tariffs, trade war, Trump, {What's Left of) Our Economy

However much of a pain it is for us data geeks to slog through monthly U.S. jobs reports incorporating multi-year revisions, President Trump, his supporters, and everyone rooting for the domestic manufacturing sector (which should be everyone) should be grateful for the latest such exercise.

For the results show that the economy’s manufacturing job creation record under his administration has been better on the whole even than previously believed. Moreover, that conclusion also is justified for manufacturing employment since the President’s tariff-heavy trade policies began in earnest (in April, 2018, the first full month when the global duties on imports of steel and aluminum were in effect).

Not that this morning’s release from the Bureau of Labor Statistics came up all roses for Trump-World and U.S.-based industry. Manufacturing lost 12,000 net jobs sequentially in January – the worst such total since October’s 41,000 (when payrolls were dragged down by the strike at General Motors). Ignoring that anomalous figure, the January manufacturing jobs shrinkage was the worst monthly decline since August, 2016’s 21,000 nosedive.

Moreover, the year-on-year gain of 26,000 was the weakest since the 17,000 annual improvement in February, 2017 (the President’s first full month in office).

But check out the revisions, and the record during the Trump years improves in some key respects – especially compared with that compiled under his predecessor, Barack Obama. The table below shows how the revisions change the picture between the two administrations – an issue bound to matter greatly during the current presidential campaign. They begin with 2015 (the first year for which the totals were updated) and proceed through last month. The figures for the post-Trump tariffs period and the Trump administration’s tenure stop in January (because that’s when the effects of the benchmark revisions stop. The left-hand column shows the pre-revision results and the right-hand column the new. All figures are seasonally adjusted (the statistics most closely followed by economists):

                                            Old manufacturing job change      New change

2015:                                                  +30K                                  +70K

2016:                                                   -45K                                    -6K

2017:                                                +196K                               +185K

2018:                                                +284K                               +264K

2019:                                                  +46K                                 +58K

final 34 Obama months:                  +270K                               +259K

first 34 Trump months*:                 +478K                               +479K

since tariffs*                                   +197K                               +231K

(April, 2018):

21 months before:                          +320K                               +253K

*thru December, 2019

To me, the most important comparisons involve those between the two administrations, and those between the pre- and post-tariff periods of Mr. Trump’s presidency.

The Obama and Trump figures show how manufacturing employment changed during their periods in office closest together in the current (expansionary business) cycle – the comparison that yields the best apples-to-apples results. The Obama period ends with January, 2017 (the former President’s last – near-full month in office and the Trump period begins with February, 2017 (his first full month in office).

And as made clear above, the growth in manufacturing payrolls was a bit weaker during the Obama period than previously reported, and the growth during the Trump period ever-so-slightly stronger.

As for the impact of Mr. Trump’s tariffs, although these numbers don’t isolate the industry sectors likely to be most seriously affected (especially the metals-using industries – which I’ll examine shortly), the results are instructive in particular for the China duties’ effects, since they’re so widely, if unevenly, spread throughout domestic manufacturing.

Since the Trump tariffs’ advent, 21 revised data months passed through December, 2019, so the best comparison is that with the 21 months preceding them. And interestingly, the revisions show that although manufacturing’s hiring pace indeed has slowed since the first full tariff month, they’ve slowed much less markedly (by 8.70 percent rather than 38.44 percent).  And that means that manufacturing employment has improved more since the tariff era began than previously thought (by 231,000 instead of 197,000).  

Manufacturing trends won’t be working in Mr. Trump’s favor politically this year unless its recent weakness (which may not technically have been a recession) ends – especially on the hiring front. Sure , he could in theory blame the troubles of Boeing and its safety-related woes, which could last many months more. But voters are unlikely to be interested.

Economically speaking, however, the President can legitimately contend that, contrary to endless predictions, American industry and indeed the entire nation are weathering the trade conflict with China in particular just fine – and claim that the modest costs have been well worth the strategic goal of checking the economic and technological progress of this dangerous dictatorship.

(What’s Left of) Our Economy: New Productivity Data Further Debunk “Tariffs Hurt” Claims

Tags

aluminum, aluminum tariffs, China, durable goods, fabricated metals products, inputs, Labor Department, labor productivity, manufacturing, metals, metals tariffs, multi-factor productivity, productivity, steel, steel tariffs, tariffs, Trade, trade law, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration’s announcement last Friday of new tariffs on some metals-using manufactures imports was greeted with the predictable combination of chuckles and gloating from the economists, think tank hacks, and Mainstream Media journalists who keep insisting that all such trade curbs are self-destructive whenever they’re imposed.

If the critics bothered to look at the new official data on multi-factor productivity, however, they’d stop their victory laps in their tracks. For the Labor Department’s latest report on this broadest productivity measure utterly trashes their claims that the tariffs slapped on metals in early 2018 – which unofficially launched the so-called Trump trade wars – have backfired by undercutting most domestic American manufacturing.

In fairness, the Trump administration itself gave the trade and globalization cheerleaders lots of evidence for their triumphalism. Specifically, the levies were justified with statistics showing that various categories of goods made primarily of tariff-ed steel and aluminum had seen major surges of imports since the duties began. The obvious conclusion? Foreign-based producers of these products were capitalizing on their cheaper metals available to their factories to undersell their U.S.-based competition.

As a result, Mr. Trump decided to tariff some of these final products, too – to erase the advantage created for imports from less expensive steel and aluminum.

So in one sense, it’s tough to blame tariff critics for feeling vindicated about predictions that the metals levies might boost the metals-producing sectors themselves, but injure the far larger metals-using sectors. Ditto for their warnings that in an economy with so many connected industries, protection for one or a few would inevitably spur calls for such alleged favoritism by others, threatening a consequent loss of efficiency for all of manufacturing and even the entire economy.

Examine the issue in more detail, though, and you see that it’s entirely possible to arrive at radically different conclusions. For example, the new tariffs appear to be imposed on a limited set of products, and none of them (e.g., nails, tacks, wires, cables, even aluminum auto stampings) qualifies as a major industry. In other words, the chief metals-using industries, like motor vehicles and parts overall, aerospace, industrial machinery (many of which have been complaining loudly about the metals tariffs, even though their overall operational costs have been barely affected) were left out.

Finally in this vein, and as the critics imply, the new Trump tariffs also make the case for trade curbs on any final products whose significant inputs receive duties. Why indeed strap otherwise competitive domestic producers with higher prices for materials, parts, and components? This practice has been a major flaw in the U.S. trade law system, which has prioritized legal over economic and industrial considerations, since its founding. And in fact, my old organization, the U.S. Business and Industry Council, has been urging this reform since at least 2008.

Even better – to prevent cronyism from influencing such trade policy decisions, impose a uniform global tariff on all manufactures, or all non-energy goods.

But it’s just as important to point out a gaping hole in the longstanding argument that cheap imported inputs (including subsidized, and therefore artificially cheap imported inputs) are essential for the overall global competitiveness of U.S. domestic manufacturing. And the hole has been opened (or perhaps it’s more accurate to say, reopened, given this previous RealityChek analysis of earlier data) by those new multi-factor productivity statistics.

They only go through 2018 (such time lags explain why multi-factor productivity trends aren’t followed as closely as labor productivity trends). But they’re the broader of the two productivity measures, as they gauge the effect of many inputs other than hours worked. And via the table below, they make clear that even the wide open access domestic manufacturers enjoyed to artificially cheap metals and other imported inputs have played absolutely no evident role in improving industry’s health. In fact, there’s reason to conclude that the more access domestic industry had to such materials, parts, and components, the less productive it became.

                                                               Total mfg   Durable goods   fabr metals

1990s expansion (91-2000):                   +23.40%       +38.76%         +4.79%

bubble decade expansion (02-07):          +11.74%      +16.61%          +7.62%

current expansion (10-present):                -4.84%         -0.84%           -4.51%

pre-China WTO (87-2001):                   +22.18%      +37.72%           -3.32%

post-China WTO (02-present):               +6.72%      +17.17%           -2.05%

As usual, the time periods chosen to illustrate these trends consist (with one exception) of recent economic expansions (because they enable the best apples-to-apples comparisons to be made). And the 1990s expansion is the first one examined because the relevant Labor Department data only go back to 1987. The products chosen consist of all manufactured goods, durable goods industries (the super-category containing most of the big metals users), and fabricated metals products (the most metals-intensive sectors of all).

The table demonstrates that multi-factor productivity growth across-the-board has weakened dramatically from the 1990s expansion through the current – ongoing – expansion. The slowdown between the 1990s expansion and the previous decade’s expansion was moderate (and multi-factor productivity actually grew faster during the second in fabricated metals, though in absolute terms its improvement lagged badly). But during the current recovery, multi-factor productivity growth has been replaced in all three instances by multi-factor productivity decline. And crucially, during none of this time did any of these manufacturing categories face any shortage of imported inputs of any kind – subsidized or not.

Indeed, one event in 2001 greatly increased the supply of subsidized inputs – China’s admission into the World Trade Organization (WTO). For once China joined, the difficulty of using U.S. trade law to keep these Chinese products out of the U.S. economy became much greater.

Yet at the same time, as shown below, productivity growth was considerably weaker after China’s WTO entry than before in manufacturing overall, and in durable goods. And although its performance actually improved in fabricated metals, that industry’s performance was much worse in absolute terms.

Nor does the inclusion of the 2007-2009 Great Recession in the post-2002 China-related data (which violates the “apples-to-apples rule”) seem to have been a game changer – because the worst performances of all in each case, and by a mile, have been registered during the current expansion. Moreover, since the data stop in 2018, those current expansion results are dominated by the period preceding both the Trump metals tariffs and the Trump China tariffs (most of which target industrial inputs, as opposed to final products).

It’s entirely possible that, for various reasons, the multi-factor productivity statistics would have been even worse if not for the widespread availability of cheap imports. Or maybe multi-factor productivity isn’t much of a measure of manufacturing’s health? Both alternative explanations, however, seem pretty far-fetched (especially given the pre- and post-China WTO results).

Much likelier – as I argued in that post linked above – the availability of cheap inputs has helped retard productivity growth by enabling businesses to achieve cost-savings without investing in research and development into new products and especially processes, and without buying more efficient equipment (including software).

(What’s Left of) Our Economy: Manufacturing’s (Latest) Recession Looks Like It’s Over

Tags

aluminum, China, Commerce Department, Federal Reserve, Great Recession, industrial production, inflation-adjusted output, manufacturing, manufacturing production, metals tariffs, recession, steel, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Let’s do something a little different this time in RealityChek‘s monthly examination of the Federal Reserve’s latest domestic U.S. manufacturing output figures – which came out this morning and bring the story through December and therefore through full-year 2019 (at least preliminarily).

Instead of focusing on the industries most seriously affected by President Trump’s tariff-heavy trade policies (mainly the metals tariffs, given big measurement problems with the China duties), let’s look at the question of whether manufacturing remains in recession – which has big, trade war-related implications because this Trump campaign is widely blamed for many of manufacturing’s recent weakness.

There’s considerable evidence that the answer is “Yes” – that industry’s inflation-adjusted production (the measure used by the Fed) is back in growth mode, though just barely.

But the question remains an open one. That’s partly because the answer depends on which baseline date you use for the start of the manufacturing recession, which unit of time you use (along with which particular manufacturing output gauge you favor).

Among that evidence tilting toward “Yes” – today’s Fed data.  Specifically, December’s 0.16 percent monthly increase in constant dollar manufacturing output means that, since June, such production is up. Now it’s only up by 0.04 percent. But since that’s a cumulative increase over the last six months (i.e., two consecutive quarters), the technical definition of recession no longer applies.

Or does it? The same Fed figures show that, between December, 2018 and December, 2019, after-inflation manufacturing output was down – by 1.26 percent. So the recession is still on, right?

Maybe. But use another baseline – April, 2018. As RealityChek regulars know, that’s the first full month in which significant Trump tariffs went into effect (on imports of aluminum and steel). Since then, though, price-adjusted manufacturing production has grown by 0.38 percent. This result, therefore, indicates that, although the President’s trade policies seem to have delivered a hit to domestic manufacturing, it was pretty negligible, and it’s already over (at least for now).

To complicate matters still further, as RealityChek reported last July, according to the Fed’s figures, manufacturing has suffered several recessions since the current economic recovery began (in the middle of 2009).  Indeed, as of this morning, it  still hasn’t recovered from the Great Recession that began at the end of 2007!

At the same time, another set of U.S. government data support the conclusion that there has been no trade war-related manufacturing recession during the Trump years – or manufacturing recession of any kind.

These statistics come from the Commerce Department’s “GDP [Gross Domestic Output] by Industry” reports. They use the same measure used by the Fed for tracking manufacturing growth (or contraction), but they’re kept on a quarterly, not monthly, basis. As a result, these numbers aren’t issued as frequently.

Yet the latest results came out January 9, and although they stop at the third quarter of last year, they show that in real terms, domestic manufacturing under Mr. Trump never shrank on net for two straight quarters, much less over any longer time frame. Here are the quarterly change figures:

2Q 16-1Q 17 :+0.32%

1Q 17-2Q 17: -0.7%

2Q 17-3Q 17: +0.35%

3Q 17-4Q 17: +1.22%

4Q 17-1Q 18: +0.38%

1Q 18-2Q 18: +0.09%

2Q 18-3Q 18: +1.38%*

3Q 18-4Q 18: +0.38%

4Q 18-1Q 19: +0.43%

1Q 19-2Q 19: -0.38%

2Q 19-3Q 19: +0.67%

*those Trump metals tariffs began in this quarter

Indeed, what comes through loud and clear from them is that not only has there been no manufacturing recession on President Trump’s watch, but there hasn’t even been an output slowdown.

It’s always possible to point to the counter-factual – that is, in this instance, to try to figure out how matters would look without any Trump tariffs, or similar Trump efforts to transform U.S. trade policy. And it’s certainly conceivable that domestic industry would have fared even better had Trump abjured all tariffs.

But that’s not the only counter-factual. For example, what if the rest of the world had been able to deal with the pressure created by China’s steel dumping by dumping its own steel into the United States (which hasn’t happened because the Trump metal tariffs were global)? What if China itself had remained completely free to send artificially low-priced (because heavily subsidized) product into the US market? What if President Trump had kept the United States in the Trans-Pacific Partnership trade agreement (TPP), with its wide open back door for imports with lots of Chinese content, while China remained under no obligation whatever to open its market to U.S. products? It’s easy to see that U.S.-based manufacturing could have gone on the critical list.

What’s certain, however, is that according to the most authoritative data available, claims of tariffs-led disaster for U.S. manufacturing have been either much ado about nothing, or much ado about very little. Could the coming months finally bear out the worst fears of cheerleaders for pre-Trump trade policies and other globalists? Of course. But that’s simply speculation, which counts much less than facts.