(What’s Left of) Our Economy: How to Really Make Trade Fair

Tags

automotive, BBB, Biden administration, bubbles, Build Back Better, Canada, consumption, Donald Trump, electric vehicles, EVs, fossil fuels, manufacturing, Mexico, NAFTA, North America, production, tax breaks, Trade, U.S.-Mexico-Canada Agreement, USMCA, {What's Left of) Our Economy

There’s no doubt that the next few weeks will see a spate of (low-profile) news articles on how unhappy Canada and Mexico are about proposed new U.S. tax credits for purchasing electric vehicles (EVs) and how these measures could trigger a major new international trade dispute.

There’s also no doubt that any such disputes could be quickly resolved, and legitimate U.S. interests safeguarded, if only Washington would finally start basing U.S. trade policy on economic fundamentals and facts on the ground rather than on the abstract and downright childishly rigid notions of fairness that excessively influenced the approach taken by Donald Trump’s presidency.

The Canadian and Mexican complaints concern a provision in the Biden administration’s Build Back Better (BBB) bill that’s been passed by the House of Representatives but is stuck so far in the Senate. In order to encourage more EV sales, and help speed a transition away from fossil fuel use for climate change reasons, the latest version of BBB would award a refundable tax break of up to $12,500 for most purchases of these vehicles.

The idea is controversial because the administration and other BBB supporters see these rebates as a great opportunity to promote EV production and jobs in the United State by reserving his subsidy for vehicles Made in America. (As you’ll see here, the actual proposed rules get more complicated still – and could change some more.) And according to Canada and Mexico, this arrangement also violates the terms of the U.S.-Mexico-Canada-Agreement (USMCA) governing North American trade that replaced the old NAFTA during the Trump years in July, 2020.

Because USMCA largely reflects those prevailing concepts of global economic equity, Canada and Mexico probably have a strong case. But that’s only because this framework continues classifying all countries signing a trade agreement as economic equals. Even worse, there’s no better illustration of this position’s absurdity is the economy of North America.

After all, the United States has always accounted for vast majority of the continent’s total economic output and therefore market for traded goods. According for the latest (2020) World Bank figures, the the United States turned out 87.51 percent of North America’s gross product adjusted for inflation. And when it comes to new car and light truck sales, the U.S. share was 84.24 percent in 2019 (the last full pre-pandemic year, measured by units, and as calculated from here, here, and here).

But in 2019, the United States produced only 68.88 percent of all light vehicles made in North America (also measured by units and calculated from here, here, and here.) Moreover, more than 70 percent of all vehicles manufactured in Mexico were exported to the United States according to the latest U.S. government figures. And for Canada, the most recent data pegs this share at just under 54 percent (based on and calculated from here and here).

What this means is that, without the American market, there probably wouldn’t even be any Canadian and Mexican auto industries at all. They simply wouldn’t have enough customers to reach and maintain the production scale needed to make any economic sense.

So real fairness, stemming from the nature of the North American economy and the North American motor vehicle industry, leads to an obvious solution: Give vehicles from Canada and Mexico shares of the EV tax credits that match their shares of the continent’s light vehicle sales – just under 16 percent.

Therefore, using, say, 2019 as a baseline, from now on, the first just-under-16 percent of their combined light vehicle exports to the United States would be eligible for the credits for each successive year, and the rest would need to be offered at each manufacturer’s full price (a pretty plastic notion in the auto industry, I know, but a decision that would need to be left to whatever the manufacturers choose).

Nothing in this decision would force Canada or Mexico to subject themselves to these requirements; they would remain, as they always have been, completely free to try to sell as many EVs as they could to other markets (including each other’s).

What would change dramatically, though, is a situation that’s needlessly harmed the productive heart of the U.S. economy for far too long, resulting from trade agreements that lock America into an outsized consuming and importing role, but an undersized production and exporting role. In other words, what would change dramatically is a strategy bearing heavy responsibility for addicting the nation to bubble-ized growth. And forgive me for not being impressed by whatever legalistic arguments Mexico, Canada, any other country, or the global economics and trade policy establishments, are sure to raise in objection.

Im-Politic: Good Luck to Biden Keeping Up with Immigration’s Root Causes

Tags

Alejandro Mayorkas, Biden, Biden administration, Caribbean, Central America, Cuba, Department of Homeland Security, economic development, Haiti, Im-Politic, Immigration, Kamala Harris, Latin America, Mexico, nation-building, Northern Triangle, Western Hemisphere

Remember that advertising campaign launched by Jamaica a few decades ago, reminding Americans that “We’re more than a beach. We’re a country”? Lately it seems that the area’s islands are doing their best to reinforce this message, in the process presenting yet more reasons to doubt that President Biden’s policy of stemming immigration largely by addressing its “root causes” in the sending countries (especially in Central America’s “Northern Triangle”) will produce results in the policy- (and politics-relevant) future.

After all, in the last week alone, not only has Haiti lapsed into chaos again, but Cuba has been roiled by what are being described the biggest protests in decades against Communist rule. So undoubtedly heading state-side is looking especially attractive in those countries now. In addition, Venezuela keeps looking like a candidate for a political explosion (its migrant outflows have already been considerable for years as the left-wing regime’s policies keep destroying the economy).

Nor do these countries exhaust the list of deeply troubled countries whose inhabitants are increasingly flocking to the U.S.-Mexico border. As the Washington Post reported earlier this month, U.S. government data show that “From South America, the Caribbean, Asia and beyond tens of thousands of migrants bound for the United States have been arriving to Mexico each month.” Further, the shares represented by Mexico and Central America are going down, and those of nationals from “beyond” are going up. Many more migrants from regions further afield, moreover, are apparently on the way.

Indeed, in 2018, Gallup research found that more than 150 million adults worldwide want to live in the United States permanently. Of course, not every one will try to migrate. Nor does every one come from a homeland afflicted by various combinations of poverty, dictatorship, corruption, major disorder, and out-and-out conflict. But clearly most of them do. Meaning that there’s a massive amount of root causes out there to be addressed if that approach is to be the Biden strategy’s main pillar long term.

And it’s not like Washington has a great record in promoting the kind of nation-building (see, e.g., here) or even narrower economic development needed to root out those causes, or that lots more money – public or private – will be forthcoming (assuming that money is even the biggest obstacle to begin with). Heck – Americans haven’t even done a decent job of addressing the root causes of violence in many of their own inner cities.

Therefore, given the high and growing amount of turmoil in the United States’ backyard and beyond, to avoid swamping the nation with ever greater numbers of migrants, the Biden administration will need to return American policy to a border security-centric approach. It’s true that both Vice President and immigration point person Kamala Harris and Homeland Security Secretary Alejandro Mayorkas have both publicly warned not to try to enter the country.

But this message clearly has been drowned out by dozens of other administration decisions that de facto put out the welcome mat (see, e.g., here) – including a virtual halt to interior enforcement that supercharges the odds that newcomers who make it into the United States will be able to stay in the United States. Which is why the longer the current Biden policy mix lasts, the more the root causes dimension of his administration’s immigration strategy looks like a dodge aimed at greasing the skids for much wider border opening.

Im-Politic: An Open Borders Mainstay Shoots His Cause in the Foot

Tags

Biden administration, Border Crisis, Central America, Donald Trump, drug cartels, Emma Lazarus, human trafficking, Im-Politic, immigrants, Immigration, Jorge Ramos, Latin America, Mexico, migrants, Open Borders, sovereignty, Statue of Liberty, The New York Times, Univision

The current crisis on the U.S.’ southern border is President Biden’s fault. His predecessors’ immigration policies were working. The new administration’s reliance on stemming the migrants’ tide by Building Back Better in Central America won’t work for the foreseeable future, if at all. When folks like Mr. Biden talk about “fixing a broken system,” they really mean reorienting that system to maximize immigration. And – most damning of all – bolstering America’s well-being and security shouldn’t be the main aims of U.S. immigration policy.

Don’t take my word for it. Take that of Jorge Ramos. Because these dangerously radical and indeed – in one instance, un-American – points were exactly what the Univision anchor and long-time supporter of Open Borders by Any Other Name just admitted openly in a column in last Friday’s New York Times.

On responsibility for the current border crisis? According to Ramos:

“‘The border is not open,’ the U.S. secretary of homeland security, Alejandro Mayorkas, told me in an interview. ‘What we have discontinued,’ Mr. Mayorkas promised, ‘is the cruelty of the previous administration.’”

“Well, apparently, in Central America, people only heard the bit about ‘cruelty’ being over, which is why so many migrants are heading north toward the border. Tens of thousands of asylum seekers, mostly from Central America, have waited for over a year in Mexican border towns and they will not waste this opportunity.”

Don’t think for a minute, incidentally, that the small Central American countries will be the only sending countries – even in the Western Hemisphere. The polling organization Gallup has recently determined that no fewer than 42 million Latin Americans want to move to the United States permanently. And as Ramos makes clear, no one should be startled in the least:

“It should come as no surprise that this [migration flow] is happening along a border that divides one of the richest and most powerful countries in the world from one of its most economically unequal regions. Latin America’s poor and vulnerable — struggling amid a pandemic, the devastation of climate change and the violence of their homelands — are moving north to a safer, more prosperous place. It’s that simple. And this will keep happening for a long time.”

On the effectiveness of President Trump’s policies, Ramos writes that they “reduced annual net immigration to its lowest levels since the 1980s.” It’s true that he denounces them as “racist,” “anti-immigrant,” “inhuman,” and “repressive.”

But as long as he’s being so candid, he and others of his ilk need to ask “compared to what?” As Ramos himself reports,

“According to the head of the U.S. Northern Command, 30 percent to 35 percent of [Mexico] is under the control of ‘transnational criminal organizations.’ This means that any migrants traveling north through Mexico are in immediate danger.”

Indeed, the present U.S. immigration system is now “a dangerous system that encourages human trafficking controlled by drug cartels and other organized crime networks.”

What should U.S. immigration policy aim for? What could be clearer than Ramos’ answer that it “must involve accepting many more authorized immigrants”?

Or than Washington must “create a system that can legally, efficiently and safely absorb more of these immigrants and refugees. They will keep coming; there is no other solution”?

Or than “[T]he United States should start accepting between one and a half and two million authorized immigrants every year. Entry into the United States must be legalized and optimized….”? (At the same time, given the powerful forces Ramos describes as fueling continuing hemispheric migration to the United States, what makes him think that such a U.S. quota would prevent much greater migrant flows from continuing to come to America’s doorstep?)

Nor does Ramos evidently think much of the near-term potential of turning Central America into the kind of place people wouldn’t seek to flee in the first place:

“The $4 billion investment in Central America that President Biden has promised is a good starting point for tackling the origins of migration in the region: poverty and a lack of opportunity. That project, however, will take years to yield results.”

But the key to understanding Ramos’ position, and possibly those of many other supporters of more lenient U.S. immigration policies, is recognizing that U.S. interests – safeguarding the nation’s security and prosperity – isn’t his top priority.

Thus the author’s argument that “It’s clear that America’s immigration system is broken and outdated” because “it doesn’t reflect the new needs of the United States or its southern neighbors.” And why else would he emphasize that “all along the U.S.-Mexico border, the aspirations of new immigrants are colliding with a country reluctant to revamp its way of welcoming and absorbing newcomers.”

Ramos doesn’t neglect the case that ramping up immigration is in America’s interests, too, focusing in particular on familiar arguments that many more newcomers are needed “to support the nation’s beleaguered economy, replace its growing population of retired workers and make up for the country’s low birthrate.”

Although I and others have repeatedly debunked these claims (see, e.g., here and here), they’re entirely legitimate to debate. So is the insistence that America has a moral duty to accept more of the world’s tired, poor, and huddled masses yearning to breathe free – to paraphrase the (justly) famous Emma Lazarus poem at the pedestal of the Statue of Liberty.

But the judgment about the economic impact of greater immigration flows, and about the country’s moral obligations, must be made by Americans alone. Otherwise, kiss goodbye the country’s sovereignty and independence. Ramos’ suggestion to the contrary should go far toward intellectually (though not legally!) disqualifying him from the American immigration policy debate.

Except he’s did such a great job in this Times column of unwittingly confirming some of the strongest indictments of lax immigration policies and the worst fears of border realists about the agendas of their backers. In fact, to paraphrase a classical Greek general’s reported lament after a costly victory, another such column (or a couple), and the Open Borders cause may be undone.

Im-Politic: For Biden, It’s Americans Last on Migrants and the Virus

Tags

asylum seekers, Biden, CBP, CCP Virus, coronavirus, COVID 19, detention, Donald Trump, El Salvador, Guatemala, Honduras, ICE, Im-Politic, immigrants, Immigration, Immigration and Customs Enforcement, Journal of the American Medical Association, lockdowns, Mexico, migrants, Remain in Mexico, stay-at-home, testing, U.S. Customs and Border Patrol, Worldometers.info, Wuhan virus

Some of you might have heard and been concerned about reports that President Biden’s new policies will result in migrants caught by U.S. border authorities being released into the United States without being tested for the CCP Virus. If you knew how much potential for superspread these policies hold, you’d be even more concerned.

Under President Trump, the problem appeared under control because Washington ended the policy of processing migrants who crossed the southern border illegally and then releasing them into the United States to await future hearings on their requests for permanent residency. Instead, apprehended migrants claiming to be asylum seekers, were returned to Mexico (whatever their nationality) until their cases could be brought up. And last March, these policies were extended to all would-be border crossers due to pandemic concerns.

Yet due at least partly to the Biden administration’s immigration-welcoming statements and actions (including during the campaign), migrant flows northward have surged, and current U.S. detention centers have been filling to overflowing despite American court orders preventing them from holding detainees for more than 72 hours in certain facilities in Texas. Worsening the situation has been Mexico’s new refusal in some instances to accept migrants expelled from U.S. territory. (See here for details.) And the new U.S. President seems determined to facilitate immigration inflows generally.

Therefore, the U.S. Customs and Border Enforcement (CBP) agency publicly acknowledged last week that “some migrants will be processed for removal, provided a Notice to Appear, and released into the U.S. to await a future immigration hearing.” Crucially, this practice is proceeding even though CBP doesn’t test arrivals for the CCP Virus unless symptoms are visible. (See the previously linked article for the statement.) 

Which is where the public health threat comes in. Because data from the virus has seemed to be unusually prevalent among these migrants. To begin with, although figures only go through August, a paper published by the Journal of the American Medical Association (JAMA) found that the monthly rate of cases in detention centers was more than 13 times that for the U.S. population as a whole.

Although the JAMA authors wrote that increased testing at the centers only partly explains these high numbers, it also points out that they may also stem from “challenges faced implementing the Pandemic Response Requirements” – like overcrowding. At the same time, they confirm that because asymptomatic detainee testing has been “limited,” even these case numbers could be underestimates. And since migrants tend to be relatively young, asymptomatic cases are surely more common than among legal U.S. residents generally.

The total number of virus cases found among migrants in the detention centers since February has been small – just over 9,300. But the real measure of the danger comes from the incidence of the CCP Virus in the migrants’ main native countries – which look to be sources of large and ever greater greater supply going forward.

Yes, their overall case rates are much lower than their U.S. counterparts, as these data from the Worldometers.info website show:

cases per million

U.S.:                  83,687

Mexico:            14,920

Guatemala:         9,052

Honduras:         15,573

El Salvador:        8,708

One big reason, however, is that they’ve done so little testing, as these numbers from the same source make clear:

tests per million

U.S.:               984,900

Mexico:            37,781

Guatemala:      45,624

Honduras:        39,569

El Salvador:   110,338

Given the immense virus-related uncertainties revealed by these statistics, any measures that increase the numbers of untested migrants in the United States are simply incomprehensible for any government taking seriously the obligation to protect its own population. And given the tight controls already restricting individual, group, and business activities in the United States, these Biden decisions seem even less defensible.

It’s one thing for the new President to reject an America First framework for public policy. It’s quite another to adopt positions that merit the bizarre and perverse label “Americans Last.”

Im-Politic: Big Media Praise for Trump’s Trade and Manufacturing Policies…Post-Election

Tags

Biden, Bloomberg.com, Carrier, China, election 2020, Im-Politic, Indiana, Jobs, Mainstream Media, manufacturing, Mexico, Nelson D. Schwartz, tariffs, The New York Times, Trade, trade war, Trump, Trump Derangement Syndrome

Boy, here are two Mainstream Media articles that President Trump and his supporters (like me) sure would liked to have seen come out before Election Day in November rather than afterwards. Not that their appearance would have made much difference in the apparent outcome. But they did resoundingly vindicate high-profile Trump decisions that epitomized his approach to the trade and manufacturing issues so central to his agenda, and that were roundly criticized by his opponents – including apparent President-elect Joe Biden and union leaders.

The first came from Bloomberg.com, and it declared on December 20 that “Biden Will Inherit a Strong Hand Against Xi, Thanks to Trump.” That header was nearly as much of a stunner as the lead sentence: “Joe Biden will take office next month wielding more leverage over Beijing than he would have ever sought.” And the first reason cited? “Biden will be sworn in as president after Trump’s administration spent years ramping up pressure on China, including levying tariffs on $370 billion in imports….”

I call these statements stunners not because I don’t believe them, or because you may not believe them. Instead, they’re stunners on two main counts.

First, the apparent President-elect himself apparently doesn’t believe them. After all, he claimed earlier this year that, because of the Trump trade curbs, “Manufacturing has gone into a recession. Agriculture lost billions of dollars that taxpayers had to pay.” And last year, he argued that “President Trump may think he’s being tough on China. All that he’s delivered as a consequence of that is American farmers, manufacturers and consumers losing and paying more.”

Obviously, no one who really put any stock into these propositions could possibly also believe that such self-defeating moves could be of much use against foreign antagonists. Employing them or even threatening to employ them would be tantamount to vowing to hold your breath until you get what you want.

Maybe Biden regards the costs created by the Trump tariffs as smaller than the pain they’ve inflicted on China, and/or that they’re a reasonable price to pay for advancing or protecting U.S. interests threatened by China? Maybe. But the former Vice President has never made those points. At the same time, he’s also (since the election) decided to keep the tariffs in place pending a policy review. That makes no sense, either, if he really views them as an unmitigated disaster, and as a result, it will be fascinating to see if his deeds as President match these lastest words.

What seems certain, though, is that the political impact of a pre-election Biden acknowledgment that the trade levies have served any useful purpose would have had an awfully interesting impact on those manufacturing-heavy Midwestern battleground states that swung so narrowly back into the Democrats’ presidential corner after backing Mr. Trump in 2016.

But the Bloomberg article was also stunning because the folks at Bloomberg themselves never seemed to believe that the Trump tariffs did any good for Americans. For example, in September, 2019, a Bloomberg analysis (by a different author, but it ultimately was approved by the same editors) contended that “China is Winning the Trade War with Trump” because “On just about every metric that matters, China is ahead. At every turn, Trump seems to have been outplayed and outsmarted throughout the global trade war that began shortly after he took office.”

Two months later, Bloomberg readers were treated to this header: “How Trump’s Trade War Went From Method to Madness.” And let’s not forget December 10, 2019’s article with the news that “Trump’s China Tariffs Boomerang on America” because “Thanks to trade wars, companies are skimping on new U.S. plants and equipment.” Maybe I’m missing something, but none of these developments sounds like a source of leverage to me.

The second stunner article came out two days after Bloomberg‘s post-election paean to Trump-created trade leverage, and concerned the President’s efforts, which began early in his first White House run, to save jobs at Carrier manufacturing facilities in Indiana that were slated to be moved to Mexico. As a December 18 piece by New York Times reporter Nelson D. Schwartz reminded, the saga began with the company’s announcement in February, 2016 that was closing an Indianapolis furnace factory and sending its operations – and of course jobs – south of the border, where wages are much lower.

Candidate Trump quickly seized on the situation as a perfect example of how the offshoring-friendly trade policies of recent establishment Presidents, like the North American Free Trade Agreement were shortsightedly hollowing out the U.S. industrial base, and enriching executives and stockholders at the expense of American workers. And he quickly declared that, if elected, he would force the company to reverse the decision and save the jobs.

A not neligible firestorm ensued, with economists insisting that Mr. Trump’s actions amounted to pointless at best and bad at worst economics, and the usual gang of free market zealots in the media and think tank worlds condemning the candidate for seeking to move the United States well down the road to socialism and even worse. At least one local union leader called the arrangement reached by the then-President elect a “phony operation” and “a dog and pony show.”

And I wasn’t crazy about the specific measures eventually used by Mr. Trump to keep much of Carrier in Indiana, either – arguing that although such jaw-boning had major uses, tariffs were greatly preferable to the tax breaks that kept some of the company’s work and employment in the Hoosier State.

To their credit, Schwartz and other reporters didn’t forget about the story, but their follow-ups were overwhelmingly downbeat. (See, e.g., here, here, and here.) Schwartz’ own coverage sounded pretty grim, too. (See, e.g., here and here.)

So imagine my surprise to read the December 18 article’s headline proclaim that the “Carrier Plant is Bustling” and the text inform readers that

> “The assembly line is churning out furnaces seven days a week”;

>“overtime is abundant”;

>“Carrier has been hiring, adding some 300 workers and bringing the total work force to nearly 1,050”;

>”the Indianapolis plant offers a shot at a solidly middle-class lifestyle, with wages of more than $20 an hour, with time-and-a-half pay on Saturdays and double-time on Sundays”; and that 

>”it’s clear that without Mr. Trump’s intervention even before he took office, the factory would never have become so prominent, if it had survived at all.”

Yes, Schwartz also noted that Carrier workers still feel highly insecure. But he also made clear that the reason is because they don’t trust Biden to look after them the way the President has.

As RealityChek has documented time and again, the Mainstream Media has displayed more than its share of Trump Derangement Syndrome over the last four years. Now that the President seems certain to leave office, is a wave of Trump Revisionism Syndrome in store?

(What’s Left of) Our Economy: Good News About Manufacturing Reshoring to the U.S.

Tags

(What's Left of) Our Economy, automotive, Canada, China, domestic content, Foley & Lardner, manufacturing, Mexico, quotas, reshoring, rules of origin, tariffs, Trade, trade war, Trump, U.S.-Mexico-Canada Agreement, USMCA

President Trump’s critics have often complained that even if his trade war with and tariffs on China have prompted many U.S.-owned and other companies to move production out of the People’s Republic, relatively few are relocating back to the United States. (See, e.g., here.) So it was especially interesting to come across a survey of mainly America-headquartered firms indicating that the Trump policies actually deserve pretty high marks for benefiting domestic industry.

The study was conducted by the legal and business advisory firm Foley & Lardner, and involved 143 executives (presumably from 143 companies). Fully 78 percent were “primarily based in the U.S.” and most of the rest were from Mexico. And their businesses ranged throughout the manufacturing sector, with the two biggest industries represented being automotive and general manufacturing (22 percent each). These companies’ sizes and places in global supply chains varied significantly, too.

When it comes to China production and sourcing strategies, Foley found that 21 percent of these respondents “have already” moved “some” of their facilities out of the People’s Republic, 22 percent were “currently in the process of doing so,” and 16 percent are “considering” this option. Of the remaining 39 percent of respondents, 16 percent have rejected leaving China, and 23 percent say they haven’t considered such a move to date.

These numbers roughly correspond with the results of other, similar surveys and reports. (E.g., this one.) But the real eye opener came from answers to the question “To what other countries are you moving, or considering moving, production or sourcing of goods and/or services?” Of the companies that said they’re moving production or sourcing from China, 74 percent mentioned the United States. The next most popular option was Mexico (47 percent), followed by Canada (24 percent), and Vietnam (12 percent).

These percentages (and others) add up to more than 100 because, as the question implied, firms can be leaving China for more than one country, in order to hedge their bets against dangers like tariffs, pandemics, and the like. But they make clear that the United States has been prominently in the mix, and so has the Western Hemisphere – which helps U.S.-based manufacturing because goods made in Mexico and Canada tend to have relatively high levels of American-made parts and components and other industrial inputs.

To be sure, there’s some evidence that these levels have been falling in recent years. But there’s also reason to expect that the Trump administration’s U.S.-Mexico-Canada Agreement (USMCA – its rewrite of the North American Free Trade Agreement), will reverse these trends at least in part because its provisions require that goods receiving tariff-free treatment in the tri-national trade zone contain higher levels of North American content overall, and because of quotas on U.S. automotive imports from Mexico (which haven’t kicked in yet but which seem likely to in the not-too-distant future).

I’d be the last one to claim that the Foley report settles the argument over how effective the Trump trade policies have been in encouraging manufacturing reshoring. But when all the hard data showing U.S. domestic manufacturing’s resilience both during the current pandemic (in terms of both jobs and output), and during a disruptive event like a trade war, are considered, the Foley findings look anything but fanciful.

Our So-Called Foreign Policy: Big Decisions Coming on Asia

Tags

Asia, Asia-Pacific, Central America, China, containment, currency manipulation, deterrence, East Asia-Pacific, Japan, Mexico, New Journalism, Norman Mailer, nuclear deterrence, Our So-Called Foreign Policy, semiconductors, South Korea, Taiwan, tripwire, U.S. Army, Vietnam, Walker D. Mills, Western Europe

Whenever I think about what to blog about, I ask myself a question that I first heard one of my all-time writing idols raise many years ago when he faced similar decisions. The occasion came during a college writing seminar where the guest lecturer was none other than Norman Mailer.

The seminar probably took place sometime in 1974, and one of my fellow students asked Mailer why he hadn’t turned out anything about the Watergate scandal. I had been wondering this myself, since Mailer’s world renown by then stemmed both from his novels and from his forays into the “new journalism” that was emerging in that era, in which gifted writers tried to employ some key techniques from fiction (especially their keen insights into human nature and their considerable descriptive and narrative skills) ito shed light on the events of the day. On top of turning out numerous important non-fiction works, Mailer had also run (unsuccessfully) for Mayor of New York City in 1969. So he was by no means shy about sounding off on headline subjects, and I’m sure I wasn’t the only one of his fans anxious to hear about the Nixon-centric drama.

But his answer was disarmingly simple. He decided to give Watergate a pass because he couldn’t think of anything distinctive and important to say.

And that’s an (admittedly roundabout) way of explaining why today’s post won’t be about any aspect of President Trump’s contraction of the CCP Virus. At the very least, events are moving so quickly that it’s hard to know the score. Instead, I’m focusing on foreign policy, and in particular two major, under-reported developments in U.S.-Asia relations that are underscoring the return of Cold War-like challenges across the Pacific, but that should be teaching American policymakers very different lessons.

I’ve already dealt to some extent with the first here on RealityChek: The U.S.’ loss of global leadership in the manufacture of cutting-edge semiconductors to companies in South Korea and especially Taiwan. In a journal article scheduled for publication this week, I’ll be laying out the key the technical details and some of the main policy implications. But in brief it amplifies my argument that the location of the world’s most advanced producers of the vital building blocks of modern economies and militaries right at China’s doorstep means that the defense of Taiwan in particular has now become a vital U.S. national security interest that requires the kinds of military forces and strategies (including a threat to use nuclear weapons) employed to protect major treaty allies like Japan and Western Europe both during the Cold War decades and since.

After all, those Cold War commitments – which exposed the United States to the risk of Soviet and to a lesser extent Chinese nuclear attack – were reasonably justified by the belief that Japan and Western Europe were centers of industrial and technogical power and potential that could create decisive advantages for the communist powers if they gained control or access to their assets. The importance of advanced semiconductors today means that Taiwan now belongs in the same category.

As I detail in the upcoming article, Washington has rightly been building closer diplomatic and military ties to Taiwan in response (though I also argue that it’s ultimately far more important for the United States to restore its semiconductor leadership ASAP). But this fall, an article in an official journal of the U.S. Army argued for taking a net step that, however logical, would be nothing less than momentous – and comparably sobering. In the words of Marine Corps Captain Walker D. Mills,

“The United States needs to recognize that its conventional deterrence against [Chinese military] action to reunify Taiwan may not continue to hold without a change in force posture. Deterrence should always be prioritized over open conflict between peer or near-peer states because of the exorbitant cost of a war between them. If the United States wants to maintain credible conventional deterrence against a [Chinese military] attack on Taiwan, it needs to consider basing troops in Taiwan.”

To his credit, Mills goes on to make explicit that such troops would in part be performing the kind of “tripwire” function that similar units in South Korea serve – ensuring that aggression against an ally ensures the start of a wider war involving all of America’s formidable military capabilities. The benefit, as always, would be to prevent such aggression in the first place by threatening consequences the attacker would (presumably) find prohibitive.

Where Mills (like U.S. strategists for decades) should have been much more explicit was in explaining that because the threatened major conflict could easily entail nuclear weapons use, and since China now in particular, has ample capability to strike the U.S. homeland, the deployment of tripwire forces can result in the nuclear destruction of any number of American cities.

So this course of action would greatly increase at least theoretical dangers to all Americans. But what’s the alternative? Letting Beijing acquire knowhow that could eventually prove just as dangerous? As my upcoming article demonstrates, the blame for this agonizing dilemma belongs squarely on generations of U.S. policymakers, who watched blithely as this dimension of the nation’s technological predominance slipped away. And hopefully, as I just stated, this predominance can be recreated – and dangerous new U.S. commitments to Taiwan’s security won’t become permanent.

But that superiority won’t come back for years. Therefore, it seems to me that, as nuclear deterrence provided for Western Europe and Japan succeeded in creating the best of both possible worlds for the United States, this strategy could well work for protecting Taiwan for essentially the same reasons.

I’ll just insist on one proviso: At some point before it becomes a fait accompli, this decision should be run by the American people – as has never been the case.

Unfortunately, as I’ve also pointed out, Taiwan has become so important to the United States that even an America First-inclined U.S. President will have to look the other way at its longstanding trade protectionism and predation in order to maintain close ties – just as it winked at German, Japanese mercantilism in particular during the Cold War. But that kind of linkage needn’t apply to other countries in East Asia (and elsewhere in the world), who lack the kinds of assets Taiwan possesses, and in that vein, I hope the Trump administration (and a Biden presidency, if the former Vice President wins in November) won’t let strategic considerations prevent a thoroughgoing probe of Vietnam’s possible exchange rate manipulation and one other trade offense.

The former concern, of course, stems from the effects of countries’ sometime practice of keeping the value of their currencies artificially low. An under-valued currency just as artificially lowers the prices of a manipulator’s goods and services in markets all over the world vis-a-vis their U.S.-origin counterparts, and therefore makes the latter less competitive for reasons having nothing do with free markets.

The argument against the investigation (which I’ve so far seen only on Twitter, but by folks who are thoughtful and well-informed) is that in an economic conflict with China, the United States needs all the friends it can get. In addition, these critics point out, if tariffs are placed on Vietnamese goods, then companies thinking of leaving China because of the Trump levies on hundreds of billions of dollars’ worth of Beijing’s exports will face greater difficulties exiting, since Vietnam is such a promising alternative for so many products.

What these arguments overlook, however, is that, as a neighbor of increasingly aggressive China, and a country that’s struggled for centuries to prevent Chinese domination, Vietnam has plenty of powerful reasons of its own to help with any anti-China efforts initiated by the United States So it’s highly likely that Vietnam will keep cooperating with American diplomacy and other policies regardless of what the United States does on the trade front.

Moreover, Vietnam lacks Taiwan-style leverage over and value to the United States because it’s not a world-class producer of anything. So there’s no need for Washington to grin and bear Vietnamese trade abuses that may be harming the U.S. domestic economy.

And finally, although it’s great that Vietnam has been a prime option for companies thinking of moving factories and jobs out of China, it would be even better for Americans if those companies seeking low-cost production sites moved to Mexico or Central America, since greater economic opportunity for those Western Hemisphere countries will be so helpful to the United States on the immigration and drugs fronts.

Mark Twain is reputed (possibly incorrectly) to have said that “History doesn’t repeat itself but it often rhymes.” That is, it holds important lessons, but discovering them can be challenging, and both American security and prosperity are about to depend heavily on U.S. leaders getting them right.

Im-Politic: When It’s Open Borders for U.S. Stimulus Funds

Tags

CCP Virus, Central America, coronavirus, COVID 19, El Salvador, Financial Times, Guatemala, Honduras, illegal aliens, Im-Politic, immigrants, Immigration, Mexico, Nicaragua, Open Borders, remittances, stimulus, The Washington Post, Wuhan virus, {What's Left of) Our Economy

Ever since the CCP Virus began devastating the U.S. economy, I’ve been calling for the U.S. government to “go big” on stimulus. That means I’ve been especially frustrated with the large number of Congressional Republicans who seem determined to keep down the amount of unemployment and other aid to be provided by the new round of proposed relief legislation that’s still being debated – even after the last supplemental jobless benefits have run out.

Here’s a development, though, that justifies some skepticism about shoveling money out the door as fast as possible: As reported in both The Washington Post and the Financial Times, it’s clear that a pretty sizable share of the income support funds being sent to immigrants in the United States have been forwarded on to their home countries, especially Mexico and the Central American states of El Salvador, Guatemala, Nicaragua, and Honduras. And it’s surely the same story for whatever Paycheck Protection Program monies have been sent to businesses owned by newcomers from these countries. 

In addition, these articles add to the evidence undercutting the common claim (debunked already in RealityChek posts like this one) that even illegal residents greatly benefit the U.S. economy on net because these border crossers wind up spending so much on domestic goods and services, thereby boosting America’s growth and overall employment, and contributing to the national tax base.

Compared with the total size of the U.S. economy and all the stimulus funding provided to date, the sums sent overseas (called remittances) are piddling. Mexico, for example, received $36 billion worth of these payments last year, and are running 10.6 percent higher this year so far. And this source tells us that nearly all came from the United States. Yet the federal government has provided literally trillions of dollars worth of virus-related aid to individuals and businesses.

At the same time, compared with the U.S. population (currently some 330 million), the share born in these countries and living in the United States both legally and illegally remains pretty modest itself – about 14.8 million in 2016 (the latest data available). That’s less than five percent. Further, illegals from Mexico and the Central American countries represented an estimated 46 percent of the total foreign born population in the United States as of 2017, and they’re not eligible for federal relief.  This means that it’s a relatively small number of Americans sending those tens of billions of dollars overseas, and a significant amount of resources transferred abroad per immigrant. (The number of actual senders is even smaller if you just count workers and business owners, and not their non-working family members.) 

Still, at a time of great privation in the United States, why are any government resources going right out the door (other than spending on imports – which of course takes place among these immigrants, too)? Clearly there are currently many millions of Americans for whom collectively about $35 billion would make a real difference nowadays.

By the way, remittances aren’t sent home only by immigrants in the United States from Mexico and Central America. Immigrants from everywhere transfer these funds (including to China, reported to be second biggest recipient country).  But Mexico is Number One by far and the Central American countries rank high as well.  ` 

The remittances information in the Post and Financial Times articles is also difficult at best to square in particular with the claim that illegal aliens are major engines of U.S. growth and prosperity. It’s already well-established that most work in low-wage jobs – so their spending power is pretty modest to start with. Now, both the Post and Financial Times articles report that it’s common for them to send abroad hundreds and even thousands of dollars each month.

These funds are overwhelmingly going to help hard-pressed family members in sending countries, which clearly stems from admirable values. Nevertheless, this is all money that does little, if anything, to enrich the U.S. economy, or create more employment for Americans. Unless you think that families in Mexico or Central America that depending heavily on funds from the United States are spending like gangbusters on imports of U.S.-made goods and services?

Because I’m a “go big” stimulus supporter, I’m in a lousy position logically speaking to insist that legislation going forward contain lots of strings to prevent waste and even fraud.  Those can’t be neglected, but they can’t be top priorities for anyone like me who believes that this is still a full-blown economic emergency. But I’m also wondering how hard it would be for Washington at least to tax funds like remittances that simply leave the country. 

What I’m even less optimistic about, though:  that even when confronted with this new information about remittances from illegals, the bipartisan Open Borders Lobby will stop making transparently absurd claims that that ever more of these newcomers are essential for ensuring continued American well-being, or rebuilding it.

(What’s Left of) Our Economy: Good – & Promising – News on Manufacturing Reshoring

Tags

Canada, China, Commerce Department, East Asia, Forbes.com, GDP-by-industry, Kearney, Kenneth Rapoza, manufacturing, manufacturing production, manufacturing trade deficit, Mexico, North America, Trade, Trade Deficits, {What's Left of) Our Economy

When two separate sources of information agree on a conclusion, the conclusion obviously becomes a lot more important than if it’s got only a single supporter. That’s why I’m excited to report that a major economic consulting firm has just released data showing that American domestic manufacturing has been coping just fine with all the challenges it faces from Trump tariffs aimed at achieving the crucial goal of decoupling U.S. industry and the the broader economy from China.

I’m excited because these results track with my own analysis of U.S. trade and manufacturing output data – which I’ve been able to update because of a new Commerce Department release measuring manufacturing production through the end of last year. And you should be excited, too – because the more self-reliant U.S.-based industry becomes, the better able it will be to add to the nation’s growth without boosting its indebtedness. In addition, the more secure the country will be both in terms of traditional national security and America’s ability to provide all the military equipment it needs, and in terms of health security and its ability to provide all the drugs and medical equipment it needs to fight CCP Virus-like pandemics.

The consulting firm data comes from Kearney, and I need to tip my hat to Forbes.com contributor Kenneth Rapoza for initially spotlighting it. According to the company, its seventh annual Reshoring Index reveals that last year, imports from low-cost Asian countries like China (well, none are really “like China,” but you get it) as a percentage of U.S. industry’s output hit its lowest annual level since 2014. The decrease was the first since 2011, and the yearly drop was by far the biggest in percentage terms since 2008.

What’s especially interesting is that the Kearney figures show that manufacturing imports from Asia made inroads even during much of the Great Recession. Last year, their prominence dwindled notably even though the American economy as a whole was growing solidly. And although domestic manufacturing output slowed annually last year – due partly to the inevitable short-term disruptions and uncertainties created by major policy shifts, and partly due to the safety problems of aerospace giant Boeing – the Kearney report noted, it “held its ground.”

Kearney reported even better news on the “trade shifting” front, and its findings also track with mine. One major criticism of the Trump China tariffs in particular entails the claim that they won’t aid American domestic manufacturing because they’ll simply result in the U.S. customers of tariff-ed Chinese products buying the same goods from elsewhere – especially from Asian sources.

The Kearney study refutes that claim, reporting that not only did the role of Asian imports decrease in 2019, but that due to the tariffs, this decrease was led by a China fall-off, that production reshoring rose “substantially,”and that a major import shifting beneficiary was Mexico – which is good news for Americans since it means that the globalization of industry is now doing more to help a next-door neighbor whose problems do indeed tend to spill across the border. (I’ve also found important trade shifting away from East Asia as a whole and toward North America – meaning both Canada and Mexico.) 

As for my own research, the release Monday of the Commerce Department’s latest Gross Domestic Product by Industry report, combined with the monthly trade statistics, these data also shed light on the relationship between U.S.-based manufacturing’s growth, and the economy’s purchases of manufactured goods from abroad.

The big takeaway, as shown by the table below: The relationship has continued its pattern of weakening – suggesting less import dependence – during the Trump years, although production growth did indeed slow because of that aforementioned tariff-related disruption and the Boeing mess.

The figure in the left-hand column represents U.S.-based manufacturing’s growth during the year in question (according to a gauge called “value added), the middle column represents the growth that year of the manufacturing trade deficit, and the right-hand column shows the ratio between the two growth rates (with the trade gap’s growth coming first). The higher the ratio, more closely linked manufacturing output growth is to the expansion of the manufacturing trade deficit. All figures are in pre-inflation dollars.

2011:             +3.93 percent              +8.21 percent                2.09:1

2012:             +3.19 percent              +6.27 percent               1.97:1

2013:             +3.36 percent              +0.77 percent               0.23:1

2014:             +2.93 percent            +12.39 percent               4.23:1

2015:             +3.72 percent            +13.22 percent               3.55:1

2016:              -1.19 percent              +3.07 percent                 n/a

2017:             +3.99 percent              +7.22 percent              1.81:1

2018              +6.23 percent            +10.68 percent              1.71:1

2019              +1.67 percent              +1.09 percent              0.65:1

Domestic manufacturers obviously haven’t completed their adjustments to the new Trump era trade environment, and the CCP Virus crisis clearly won’t make this task any easier. But Kearney expects that the pandemic will wind up moving more U.S.-owned or -related manufacturing out of China, and so do I. And although the Kearney authors don’t say so explicitly, it’s easy to read their report and conclude that the crisis and the resulting national health security needs will help ensure that the domestic U.S. economy will keep getting a healthy share.

Im-Politic: How Mexico’s Paying for the Border Wall After All

Tags

AMLO, Andres Manuel Lopez Obrador, asylum seekers, border security, border wall, caravans, Central America, illegal immigration, Im-Politic, immigrants, Immigration, international law, Jorge Ramos, Mexico, Migrant Protection Protocols, migrants, The New York Times, Trump

Here’s quite the spectacular new entry in the “Life is Strange” category: President Trump has turned out to be right in predicting that Mexico would pay for a border wall to curb illegal immigration. Only this victory has taken a form that neither Mr. Trump nor anyone else could have possibly expected. It didn’t even totally entail developments at the border envisioned!

It’s a major win nonetheless, and if you doubt me, then take the word of Jorge Ramos, the well known anchor for Spanish language TV network Univision, a major champion of de facto Open Borders policies, and of course no fan of the President’s. 

For as Ramos has pointed out in a New York Times op-ed piece yesterday, Mexico has created at least the functional equivalent of a wall. He’s referring to the decision (forced by a very effective – though of course widely condemned – tariffs and border-closing threat by Mr. Trump, as Ramos ruefully observed) of Mexico’s new President Andres Manuel Lopez Obrador (nicknamed “AMLO”) to use Mexican forces to prevent Central American migrants and various other supposed asylum seekers from entering the United States en masse. Nor has Ramos been the only mass immigration advocate to point out this specific Trump success.

Some of these Mexican National Guards personnel are helping the United States enforce its new policy that permits requiring many asylum seekers to stay in Mexico while their cases are judged. This Migrant Protection Protocols program replaces the obligation created by international law that until now has been interpreted to rquire Washington to admit  U.S.-bound asylum seekers’ entry even before evaluation. Although motivated by entirely understandable humanitarian concerns, this measure never anticipated the type of mass migration and related asylum fraud situation faced by the United States nowadays.

Other Mexican National Guards have been deployed to the country’s southern border with Guatemala, where they’ve been unmistakably effective in preventing huge caravans of Central American migrants from traveling through Mexico to reach the U.S.-Mexico border.

The United States has been indirectly financing a small portion of these efforts (through training programs to help for Central American officials better control their own borders). But the vast majority of spending on these efforts is coming from Mexico.

The President is entirely correct in continuing to emphasize the need for more effective physical barriers at the U.S.-Mexico border. But the essence of his famous campaign wall-building promise was to improve America’s own border security greatly, and to make Mexico pay the costs. And that’s exactly what’s now happening to a major extent. Even better – this approach is working. Illegal crossings at the U.S. border are down, and Mexico’s Lopez Obrador says that the migrants groups seeking to enter his country are shrinking.

President Trump has been supplied with abundant material for reelection campaign ads this week (notably, House Speaker Nancy Pelosi’s ripping up of her ceremonial State of the Union transcript). Jorge Ramos’ op-ed has just given him some more.