(What’s Left of) Our Economy: The Real Deal with that U.S.-China Decoupling

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China, decoupling, national security, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

“Decoupling” is a word that’s started to pervade news reports and commentary about the U.S.-China trade war. And it’s even at long last been mentioned as a possible goal by President Trump. So this seems like a good time to explain what it really means, and why it’s strongly in both American economic and security interests.

Simply put, decoupling refers to the idea (which I’ve strongly endorsed) that the United States should start disengaging from the Chinese economy. It’s based on the conviction that the closer bilateral commercial ties that have developed between the two countries since China’s economic reform efforts began in the mid-1980s – and that have been avidly sought by U.S. Presidents and lawmakers from both major political parties – have backfired disastrously. They’ve not only greatly strengthened the military power of an increasingly belligerent dictatorship. They’ve also needlessly damaged America’s domestic “real economy” (the businesses and their employees that produce everyday goods and services in the United States – as opposed to the fortunes of the multinational corporations that make goods in China, and of the American financial sector).

In addition, as I’ve explained, major economists have written (albeit in veiled terms) that the grossly lopsided nature of U.S.-China trade and consequently capital flows helped set the stage for the near-global economic meltdown experienced in 2007 and 2008, and the ensuing worst economic downturn suffered by Americans since the Great Depression of the 1930s.

Of course, it would be great if Washington and Beijing could reach a trade deal that solved all these problems, or even greatly mitigated them. But as I’ve also explained, verification problems render this goal impossible. China’s record of violating agreements is simply too long, and its government (including the state-owned and controlled entities that dominate China’s economy) is simply too big and too secretive to warrant any realistic hope that Chinese compliance could be monitored effectively.

So since decades of experience now demonstrate overall that mutually beneficial trade and investment with China simply isn’t possible – at least under this regime in Beijing – the only logical alternative is to start loosening ties. Just as important, as I’ve documented, decoupling has already begun and proceeded to a noteworthy extent.

As a result, the questions before American leaders now entail how much further such disengagement should continue, where it should be actively encouraged, and where – if any place – American policy should try to slow it down or at least try to preserve the status quo.

One of the big arguments against decoupling holds that American businesses (and their employers) can’t afford to deemphasize China because its own domestic market has become so enormous, and because growth potential remains considerable. A related point: China boasts manufacturing strengths for which companies that produce in China for its own or foreign markets (including America’s) simply can’t find adequate substitutes.

But these claims overlook some crucial realities about U.S.-China trade. For example, few U.S.-based businesses export from the United States to the Chinese consumer market. After all, it’s been decades since consumer goods have represented domestic U.S. manufacturing’s strong point, and those firms that remain prominent in the field have long been supplying the Chinese market mainly from China itself.

Moreover, other major exceptions to this rule (like Boeing wide-body airliners, and advanced semiconductors) sell the Chinese products China simply can’t yet make itself. That’s why such aircraft haven’t been tariff-ed by Beijing – and won’t be for the foreseeable future. And even though the Chinese could in principle replace their Boeing purchases by buying from Europe’s Airbus, the result would be complete Chinese dependence on a single source for this crucial product – a situation China rightly seems determined to avoid.

Motor vehicles, interestingly, are another major American consumer export to China – and the PRC is now the world’s largest automotive market as well as the top customer for General Motors and the second biggest for Ford in terms of vehicles sold. But if you look at these firms’ financial statements, you see that the former makes little money in China, and Ford is actually operating at a loss.

Just as important, U.S. and other foreign automotive manufacturers urgently need to come to grips with China’s ultimate intentions – not to remain dependent on non-Chinese products and services one moment longer than necessary. That’s why China remains such a huge extorter and outright thief of intellectual property. Its national business model is to welcome foreign capital in sectors where China has an inadequate presence, use the funds to create one, strong-arm or steal the knowhow to get up to foreign standards, and then spit out non-Chinese firms ASAP.

And China’s apparent rationale (so far) has looked completely reasonable. The country represents one-sixth of humanity, it’s full of smart people. Why should it rely on foreign supplies of anything longer than necessary? Even better – foreign firms and governments, including pre-Trump America’s have seemed all too willing to help out.

As for the tech companies, national security now clearly means that the United States can no longer afford to enable them to supply Chinese entities like telecoms giant Huawei with the chips needed to run their systems. So it’s time to tighten their ties with leading non-Chinese competitors like Nokia and Ericsson, and over the longer term, pitch in and make sure that there’s a major U.S. presence in such internet and global communications markets once again.

Moreover, no one should be deterred by warnings that such decoupling would fracture the global internet. China’s censorship and privacy-threatening practices have already made that outcome inevitable – at least if American leaders take free speech and privacy concerns seriously. And if other countries want to cast their lot with the Chinese, and expose their populations to these Chinese threats, good riddance and good luck to them. They were never likely to be reliable customers for U.S.-based companies anyway.

It’s also necessary to debunk the anti-decoupling claim that the tech companies, and especially the semiconductor manufacturers, earn most of their global profits in China, and as a result would face disaster if much more decoupling takes place. The basis of this claim is the outsized share of their global profits these firms book in China. But an accounting illusion is at work here.

The tech firms book profits in China whenever they sell a computer chip (often assembled, packaged, and tested in China) other product to a China-based assembly plant for computers or smartphones, etc. And the scale of these recorded profits results of course from China’s current dominance of global electronics product assembly. But in a large percentage of cases, the final demand for these goods isn’t China – it’s overseas. And much of that demand of course is American. That’s why more than half of the semiconductors China buys from overseas (including from U.S.-based facilities) get re-exported as parts of final products.

Clearly, the Chinese themselves buy lots of these consumer electronics, too. But their importance is just as clearly overestimated, and as long as firms like Intel and Qualcomm keep making products the Chinese can’t match, their China-based so-called back end semiconductor operations should remain viable.  In that vein, they’d have better odds of preserving their competitive positions if they stopped voluntarily transferring technology and even investing in Chinese-owned tech entities. And even if Mr. Trump’s tariffs help shift much electronics assembly out of China, those operations will still need U.S.-brand insides.

The anti-decouplers are right to argue that both U.S. consumers and businesses still rely on huge flows of low-cost imports of China to help stretch their paychecks and to maintain their global competitiveness. But although China’s ability to produce shoes and toys and clothing and consumer electronics remains peerless, and will not be duplicated easily or immediately elsewhere, that’s no reason to believe that China’s advantages will endure indefinitely.

As widely reported, companies in these industries are already leaving, or planning to leave, China in substantial numbers. Yes, bottlenecks have emerged in alternative production platforms like Vietnam. But if what most Americans believe about economics is true, the new demand will create its own supply – and the businesses involved will have plenty of incentive to make the shifts as quickly as possible.

Even better, decoupling could help Americans solve the pressing problems they face from the economic woes of their hemispheric neighbors. As I’ve written, flows of illegal aliens and drugs could be staunched if the United States prioritized regionalizing its trade arrangements and overhauling the North American Free Trade Agreement (NAFTA) even further to turn North America (including Central America) into a trade bloc – thereby fostering more job creation, development, and prosperity generally.

The role played by Chinese parts, components, and materials in American domestic manufacturing, meanwhile, has been seriously misunderstood. First, since many of these products are fairly capital- and technology-intensive, they’re goods in which domestic producers should be fully competitive, and would be but for massive Chinese government subsidies that depress the China price. Offsetting these subsidies with trade curbs, therefore, would create a huge new opportunity to supercharge domestic American manufacturing and employment.

Second, there’s evidence that the widespread use of these Chinese intermediates is exacting a big long-term cost on U.S.-based manufacturing, by knee-capping its productivity growth. For as I’ve shown, the productivity data indicate that the widespread availability of these artificially cheap products has undermined domestic firms’ incentives to increase their efficiency by developing new and better products and especially processes.

Finally, Chinese direct investment plays a similarly distorting role in the American economy by permitting the presence of government-owned or controlled entities that simply aren’t responsive to pricing signals. If Americans really believe that markets, and their entire economy, work best when participants enjoy the maximum freedom to discover prices and thereby create the optimal terms for competition, a big Chinese footprint is the last thing they should want. And because the United States is having no problem creating its own capital or attracting it elsewhere from abroad, this Chinese presence clearly isn’t needed. It should, additionally, go without saying that any Chinese investment in any U.S. tech or advanced manufacturing companies should be verboten for national security reasons alone.

None of this is to say that U.S.-China decoupling can or should be complete. In fact, the success of Starbucks and, more recently, Costco in China indicate that American consumer companies will continue doing well in the PRC as long as they maintain strong brands (although a Chinese rival is challenging the former). And short-term costs are inevitable when disruption of an immense bilateral economic relationship is on the table. 

But the verdict has long been in: Greater U.S. engagement with the Chinese economy has failed on an epic scale for American prosperity and national security. If the United States wants to avoid the ever greater dangers of continuing endlessly down this road, President Trump should treat decoupling as his top China economic policy priority.         

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Im-Politic: China Experts Who Obviously Ain’t

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China, experts, foreign policy, Im-Politic, national security, Reuters, Trade

The United States has to be the only country on earth (excepting dictatorships with no respect for facts or the truth) in which individuals who have been massively wrong on major issues can be considered “experts.” Think that’s wrong or overstated? Then how do you explain this recent Reuters report on a draft letter apparently signed by dozens of specialists on China policy?

Over the weekend, the news agency ran an item contending that “Scores of Asia specialists, including former U.S. diplomats and military officers, want President Donald Trump to rethink policies that ‘treat China as an enemy,’ warning the approach could hurt U.S. interests and the global economy, according to a draft” seen by reporters Michael Martina and Jonathan Landay.

The letter, intended for Mr. Trump and members of Congress, states that the roughly 80 signers (more are being sought) are “very deeply troubled by Beijing’s recent behavior….”

More specifically, “The Chinese government’s increase in domestic repression and control over private companies, ‘its failure to live up to its trade commitments, greater efforts to control foreign opinion and more aggressive foreign policy’ are ‘serious challenges for the rest of the world,’” according to the draft and some Reuters paraphrasing.

But as is typical of much China-related commentary lately, the signers “also believe that many U.S. actions are contributing to the downward spiral in relations….”

Reportedly, the letter continues, “U.S. efforts to treat China as an enemy and decouple it from the global economy will damage America’s international role and reputation and undermine the economic interests of all nations. The U.S. fear that Beijing will replace the U.S. as the global leader is exaggerated.”

That last claim underscores what’s most absurd about this whole exercise – and about taking it as a serious commentary about the Trump China approach. It’s perfectly legitimate – and necessary – to debate how the United States should handle the multi-dimensional China challenge. But the idea that the group of signatories described here has anything worthwhile to contribute, much less that its collective experience entitles it to a special hearing, flunks the laugh test by miles.

For although only two signers were named in the Reuters piece, it’s a safe bet that exactly none of them, during their long years and even decades of public service, predicted China’s spectacular rise to date – at least not on a remotely timely basis. Had they detected this possibility and alerted policymakers, does anyone seriously think that American policy would have continued literally showering wealth and advanced (often defense-related) technology on China? Not unless you believe the entire U.S. China-related policy establishment had been completely bought off by Chinese interests. (Ahem!)

Especially nutty is the contention that “The current U.S. response, however, is counterproductive because by treating China as an existential national security threat, it weakens the influence of moderates in Beijing who know that ‘a cooperative approach with the West serves China’s interests.’”

For if anything has been sadly clear about American foreign policymaking in recent decades, it’s that Washington’s ability to identify moderates and other factions inside dictatorships, and to manipulate them to promote or defend U.S. interests, is exactly zilch. (Google “Iran Contra affair” and “Ngo Dinh Nhu” if you’re unfamiliar with those two especially important and pathetic examples.)

But one ray of hope did emerge from this Reuters story: It’s not clear when the final version will be released. That creates the possibility that the signers will recognize how uniquely unqualified they are to offer anyone China policy advice, and have the good sense to keep their incompetent (at best) mouths shut.

(What’s Left of) Our Economy? Did Trump Trade National Security for Soybeans with China?

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agriculture, China, election 2016, election 2020, export controls, extradition, farmers, G20, G20 Summit, Huawei, Meng Wangzhou, national security, Osaka G20 Summit, rural areas, soybeans, tariffs, technology, telecommunications, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Did President Trump sell U.S. national security down the river at his meeting with Chinese dictator Xi Jinping in order to make American farmers happy and, he hopes, ensure his reelection? Could be – even though there’s still much that’s not known about the U.S.-China deal reached between the two leaders on the sideline of a big international economic summit meeting in Osaka. In fact, I haven’t even seen any official U.S. government documents describing the agreement in detail. (A further complication: Whatever official Chinese documents come out describing the deal could differ significantly from the American portrayal.)

At the same time, I’ll venture that the major, and from the U.S. standpoint, urgently, needed course change in China policy begun by Mr. Trump hasn’t yet been altered fundamentally. And I still don’t consider that outcome likely, even though events of the last few days reveal that some important loopholes in America’s approach need to be closed, pronto. 

From what I can glean from the just-released official White House transcript of the President’s Osaka press conference is that (as I predicted), Mr. Trump and Xi agreed to resume formally negotiations that fell apart in early May, apparently because China began reneging on commitments it had already made. The quid pro quo that seems to have revived the talks evidently comes down to this:

The President agreed to refrain from imposing threatened tariffs on U.S. imports from China that don’t already face duties or new duties (a little more than half of Chinese goods entering the American market fall into this category), and to make it easier for American tech companies to sell, seemingly on an ongoing basis, parts and components vitally needed by Chinese telecommunications giant Huawei.

In return, China agreed to boost greatly purchases of agricultural products that it had all but shut out of its own large market to retaliate for Trump tariffs, thereby denying U.S. farmers major rivers (not just streams) of revenue. Since rural America went so notably for Mr. Trump in 2016, the political appeal of that approach is easy to see.

The chief uncertainty remaining: What exactly will Huawei be able to buy from U.S. firms? The issue is crucially important to China because, notwithstanding its commanding position in many global markets for advanced telecommunications systems, these Huawei products still depend vitally on information technology hardware and software from American-owned tech companies that have no adequate (if any) substitutes from other suppliers. And if, as was likely, Huawei suffered major damage because these U.S.-origin goods and services weren’t available, a major blow would be dealt to China’s ambitions to gain preeminence in a wide range of advanced technologies – and turn itself into a military superpower in the process.

Factors contributing to the uncertainty? To start, the so-called U.S. ban on selling to Huawei wasn’t technically a ban. It was an announcement that any proposed U.S. sales to Huawei needed to be approved by the American government because Huawei had been placed on a list of “entities” deemed dangerous to U.S. national security. So in principle, some American firms’ products and services could still be sold to Huawei (and several dozen affiliated entities also added to the list). But presumably, the truly valuable inputs would be denied.

Second, President Trump told the Osaka press conference that Huawei would only be permitted to buy from American-owned business “equipment where there’s not a great national-emergency problem with it.” That’s somewhat comforting, but only somewhat. The reasons? First, there’s reason to believe that, even before the Trump-Xi agreement, Huawei could have bought even equipment that did raise national security concerns as long as those computer chips or whatever else consisted mainly of foreign content (which is often the case because production of these goods has become so globalized, and because – irony alert! – some of the non-U.S. content now comes from China itself).

That qualification was shaping up as a huge problem because, if it’s present, then Huawei would still retain access to many of the high tech products it needs; and because the result could be even stronger incentives for American high tech companies to manufacture and develop even more of their most sophisticated offering offshore, including in China.

Third, as Mr. Trump specified, Huawei has not been taken off the “bad entities” list. Nor has there been any change in the U.S. extradition request to Canada for Meng Wangzhou, the CFO of Huawei (and daughter of its founder) to enable her trial for violating America’s export control laws. Why, then, do anything to make life easier for this entity?

Fourth, the Huawei-centric nature of this policy could signal that the President is falling into a China policy trap: Assuming that measures focused on specific entities (remember: nothing in China that’s routinely called a “business” or “company” deserves that label, in terms of how they’re used in most of the rest of the world, because China’s economy is so thoroughly controlled by the state) are adequate to cope with the intertwined China tech and national security challenge.

In fact, such episodic approaches seem doomed to fail because the China challenge is a systemic challenge. The exact names of specific instruments comprising this China challenge don’t matter in the slightest. For instance – let’s say that a truly total Huawei ban did sink this organization. In time, what’s to stop Beijing from simply slapping another name on the same units, facilities, and employees? Would Americans really want their government to have to wait to impose an embargo on this new entity until it began endangering their national security? Wouldn’t it be much better to understand that every Chinese entity big enough to be permitted by the Chinese government to play in global markets is by definition an agent of Beijing’s and of its (distinctly dangerous) ambitions? And to treat the Chinese high tech sector – for starters – accordingly?

As for the Chinese promises of greater imports of U.S. farm products, they’re problematic, too, even if Beijing does keep its promises. Hopefully, American farmers will be smart enough to respond in a measured way, not by simply assuming that they’ve won a free pass back into China forever, and recklessly supercharging and distorting their planting patterns to satisfy this new demand (as was the case especially for soybeans). Instead, hopefully, they’ve learned that Beijing can close the doors whenever it wants to – and that President Trump is kind of mercurial itself.

The President also could well be selling his agricultural record short. For although farmers clearly don’t like the Chinese tariffs on their exports prompted by the Trump levies, they also no doubt recognize how they’ve benefited from his tax and regulatory policies. And those that are culturally and socially conservative probably like what they hear from the President on those subjects – and/or don’t like many Democrats’ statements. Finally, the passage of the Trump administration’s revamp of the North American Free Trade Agreement (NAFTA) – the U.S.-Mexico-Canada (USMCA) deal could ease many farmers’ trade worries. 

In fact, the volatile Trump temperament – and his reelection hopes – look like the best guarantors that this shortsighted high-tech-for-soybeans trade-off won’t last long. Because the main obstacle to the kind of overarching trade deal the President still talks about still remains – the impossibility of verifying China’s compliance adequately. So the longer the Chinese hold out, and deny the President the chance he so clearly covets to claim a big victory, the more irritated with them he’s likely to become, and the greater the odds that some hammer comes down again.

Moreover, if the overall American economy and especially its manufacturing sector wind up slowing down, as some key indicators already suggest they are, increases in tariffs on Chinese manufactures could be the difference between Trump victories in the manufacturing-heavy Midwest states that (narrowly) helped key his 2016 triumph, and defeats.

In addition, it’s critically important to note that the Chinese products still facing tariffs are much more important to China’s economic future than the products that remain entirely or largely duty-free. That’s because the first group overwhelmingly consists of parts and components of industrial products that in turn are pretty advanced goods themselves. They’re the kinds of products that matter crucially to America’s industrial future as well.

So, as observed by this perceptive New York Times article, the China-links to the global supply chains that face such mortal threats from these tariffs still remain endangered, and the more-than-decent odds that these levies will remain in place, and even get raised further, will surely keep prompting multinational companies the world over to move at least partly out of China. And any developments that weaken China economically are by definition good for the United States.

Moreover, despite widespread predictions that Trump tariffs on these so-called intermediate goods would wind up raising consumer prices because their corporate buyers would need to pass along the tariffs’ cost to their final customers, little of such inflation has emerged, for numerous reasons I’ve written on previously.

By contrast, the still un-tariffed goods are consumer goods – like shoes and toys and apparel and consumer electronics products. For various reasons I’ve written about, their prices weren’t likely to budge much even with new Trump tariffs. But for now, the President has foreclosed any such possibility completely. The only drawback for the United States to leaving these goods largely duty-free – because they’re generally very labor-intensive products, they employ unusually large numbers of Chinese workers – is that any movement of production from China to anywhere else (even even it’s Chinese companies themselves doing the moving) would result in greatly increased Chinese unemployment. The regime has long viewed high joblessness as a mortal threat to its survival. So China’s labor-intensive industries, and by extension China’s dictators, have been let off the hook, too.

In all, then, so far it seems fair to conclude that President Trump handed the Chinese some genuinely important concessions in exchange for precious little from Beijing. But it’s also distinctly possible that this trade-off makes so little sense economically, national security-wise, and politically, that it will badly flunk the test of time. And at least as important, nothing in its seems capable of stopping or even greatly slowing the U.S.-China economic disengagement that, as I’ve written, is bound to serve America’s long-term interests, and that’s already underway.

Our So-Called Foreign Policy: U.S. Companies Keep Feeding the China Tech Beast

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AI, artificial intelligence, Bloomberg.com, China, hacking, Karen Weise, Microsoft, national security, Our So-Called Foreign Policy, Paul Mozur, technology, technology transfer, The New York Times, Trump

Wow! This was quite the revealing – and disturbing – nugget buried in a recent New York Times article about American tech companies’ trials and tribulations in China! According to reporters Paul Mozur and Karen Weise, Microsoft’s “long-established research and development center has turned out valuable products and launched the careers of a generation of artificial-intelligence experts who have started important new companies in China.”

Mozur and Weise mentioned this Microsoft activity in order to make the important point that even companies, like the Seattle software giant, that have bent over backwards to remain viable in China by keeping Beijing happy in various ways seem to be fighting a losing battle. For even these firms are falling victim to China’s persistent desire to replace them in the country’s huge market with Chinese rivals.

But the reference to Microsoft’s artificial intelligence operations could well matter more to the United States because it underscores a point I made several years ago in a Bloomberg.com op-ed that bears on American national security: For decades, U.S. tech companies have been transferring to Chinese entities cutting edge knowhow that has greatly strengthened Beijing’s ability to endanger key American interests. It’s the price they need to pay to keep playing in the Chinese market. But whatever the commercial justification, and whether these transfers are voluntary, coerced, or somewhere in between (including the training of China’s tech workforce), they’ve too long been neglected by American policymakers.

My Bloomberg piece focused on technologies related to cyberhacking – where transfers ironically were coming back to bite the U.S. tech firms themselves. Since then, in several posts for RealityChek, I’ve covered tech transfer that’s handing China more conventional advanced defense-related knowhow. (See, e.g., here and here.)

But artificial intelligence-related operations push the threat to an entirely new level. For these capabilities will likely be the biggest game-changers in national security for decades, and Washington is already so alarmed by the progress China has made that many specialists worry that Beijing could soon forge ahead. Nearly as troubling: The more such tech American companies keep handing over to the Chinese, the closer China gets to self-sufficiency – the point at which it won’t need American assistance anymore.

The Trump administration rightly keeps calling attention to China’s growing technological prowess and the resulting dangers to the United States, and even many long-time supporters of the reckless pre-Trump China engagement policies are starting to agree.

But tariffs to punish predatory Chinese policies aimed at building tech dominance, and curbs on Chinese tech investments in the U.S. economy are necessary, not sufficient responses. The above linked Financial Times article indicates the administration now recognizes need to staunch the flow of advanced knowhow to China by American companies. But every minute new curbs are delayed, the United States will keep feeding the beast.

Our So-Called Foreign Policy: The U.S. Public Opinion Gap isn’t Only Partisan

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alliances, America First, climate change, Democrats, globalism, Immigration, Jobs, national security, nuclear deterrence, Our So-Called Foreign Policy, Pew Research Center, Republicans, terrorism, Trump, weapons of mass destruction

A recent (November 29) Pew Research Center poll on public attitudes toward foreign policy issues was a classic good news/bad news story – at least if you believe that the top priority of American foreign policy should be to promote the security and well-being of the American people.

On the one hand, that’s pretty much what the results show – that’s the good news. On the other hand, these commonsense positions prevail overwhelmingly because adults viewing themselves as either Republicans or Republican leaners hold them. That’s the bad news.  In other words, the views of Democrats and those leaning Democratic reveal a marked disregard for their nation’s self-preservation and prosperity.

According to Pew, 72 percent of all Americans say that “taking measures to protect the U.S. from terrorism” should “be a top foreign policy priority,” 71 percent would assign the same priority to “protecting jobs of American workers,” and 66 percent regard “preventing the spread” of weapons of mass destruction (WMD) with similar urgency.

But now check out the partisan splits: On the terrorism issue, fully 84 percent of Republicans and their leaners regard it as a top foreign policy priority. Only 61 percent of Democrats and their leaners agree. So much, i.e., for the idea that Americans will never forget September 11. And remember – the question only described protection from terrorism as a top priority, not the top foreign policy priority.

On protecting American workers’ jobs, 81 percent of Republicans and their leaners would treat it as a priority, versus only 65 percent of Democrats and their leaners. I’m old enough to remember when the Democrat called themselves the party of working Americans.

The exception here is preventing the spread of WMD: Fewer (64 percent of Republicans and their leaners see it as a major priority than do Democrats and their leaners (68 percent), but these results are very close.

Many of the other Pew poll findings are not the slightest bit surprising. Principally, the biggest partisan divides on foreign policy issues come on “dealing with global climate change,” “reducing illegal immigration into the U.S.,” and “maintaining U.S. military advantage over all other countries.”

But here’s what’s more surprising. The Democrats, and especially their leaders, have enthusiastically assumed the mantle of globalism champions versus President Trump’s proclaimed America First approach. And a hallmark of globalism, whether on the right or the left ends of the national political spectrum, has been international activism. Liberals and conservatives generally disagree on where to place the emphasis (e.g., emerging transnational issues like climate change and migration versus more traditional security-oriented issues), but energetic engagement is favored by all.

Nonetheless, if you look carefully at the Pew results, Democrats and their leaners would place the “top priority” label on relatively few foreign policy issues. Indeed, only one such candidate for this status reaches the 70 percent mark with these groups – “improving relationships with allies.” And only four issues are seen as top priorities by 60 or more percent of Democrats and their leaners – as stated above, WMD (68 percent), protecting American jobs (65 percent), climate change (64 percent) and terrorism (61 percent). 

Overall, then, it’s easy to conclude from these and other findings in the Pew poll that Democrats and their leaners may be globalists, but they’re globalists who don’t seem to regard overseas-related challenges with overwhelming concern. Alternatively, they’re reluctant to support zeroing in on a limited (and arguably more manageable) set of goals. P.S., the relatively low score for climate change seems especially noteworthy given the importance progressive Democrats and others relatively far to the Left have attached to the idea of a “Green New Deal.”

It’s even easier to conclude that Republicans and their leaners are more committed to an America First-type approach. And it looks like this commitment is somewhat stronger. Their highest priority foreign policy issues are the aforementioned terrorism and job protection – where their priority scores are in the 80s percent. And their next three priorities are maintaining a national military edge (70 percent), reducing illegal immigration (68 percent), and preventing WMD spread (64 percent). For good measure, “getting other countries to assume more of the costs of maintaining world order” comes in at 56 percent.

However revealing these Pew results, they still left out two of the biggest questions for politicians and others trying to surmise which approaches to U.S. foreign policy, and what specific initiatives, would garner the most and least public support. The first is how genuine political independents view these issues. The second is how high a priority is assigned to preventing a nuclear attack on the U.S. homeland.

The importance attached to halting the spread of weapons of mass destruction points to great concern about this challenge. But the strong support expressed by Democrats and their leaners for shoring up America’s alliance relations indicates an especially serious lack of awareness on their part that indiscriminately extending nuclear umbrellas over U.S. allies has greatly increased the odds of such attack (principally from the newish NATO commitments to the highly vulnerable Baltic states, and the longstanding commitment to protect South Korea from North Korea and its new nuclear capabilities).

Of course, these Americans can’t entirely be blamed for this knowledge gap, as both U.S. leaders and the mainstream media continue to work overtime to mask the – growing – nuclear war risks inherent in the nation’s alliance system. (President Trump has been only a partial exception.) Hopefully 2019 will see some explicit, intellectually honest discussion of these dangers – and well before they reach critical mass.

Im-Politic: Has a Major U.S. Economist Secretly Been in China’s Pocket?

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China, donors, economists, globalization, Huawei, Im-Politic, Isaac Stone Fish, Jeffrey D. Sachs, national security, Project Syndicate, technology, telecommunications, think tanks, trade war, Trump, Trump Derangement Syndrome, Washington Post

I’ve always been skeptical of claims that money explains everything about where prominent folks stand on policy debates. Sure, money talks loudly, and that’s why, for example, I’ve so consistently reported on how leading U.S. think tanks are lavishly funded by corporate interests (e.g., here) and even by foreign governments (e,g, here) with huge stakes in matters on which they regularly comment, such as trade and globalization issues.

But I’ve believed that for the most part, their positions are also at least partly sincerely held – reflecting either an inability even to question what they’ve learned in school, or the power of group-think in their professional and social circles (inside the Washington, D.C. Beltway in particular these realms tend to overlap substantially), their honest convictions, and typically some combination of the above.

I still refuse automatically to write off analysts who disagree with me as simple donors’ mouthpieces, but a recent incident has reminded me that – in the words of a close long-time friend – when seeking to understand political behavior, the most cynical explanation is rarely wrong.

The story begins with an article on the Project Syndicate website – a sort of digital global op-ed page (which, to be sure, overwhelmingly publishes writers with globalist/establishment viewpoints) – by economist Jeffrey D. Sachs.

Sachs is a world-renowned figure in his field, but as with many of his colleagues, seems to assume that mastery of conventional economic concepts translates into expertise on all other subjects. (Google “Krugman, Paul” for perhaps the leading example of this phenomenon.) So I wasn’t entirely surprised to see him writing on the recent American arrest, on sanctions-busting charges, of a senior executive from the Chinese telecommunications entity Huawei – even though he has no special credentials on China, or technology, or national security.

I was very surprised by the nature of Sachs’ attack on the U.S. action, which ran on December 11. Most criticisms of the arrest focused on whether it would escalate the U.S.-China trade war – whether because it signaled a more aggressive turn in Washington’s approach, or because it would trigger Chinese retaliation – or whether the United States ultimately could curb China’s technological development, or whether the American tech industry could continue excelling after a cutoff of its access to Chinese markets or parts and components.

But according to Sachs, the Huawei arrest mattered most because it showed that “The Trump administration, not Huawei or China, is today’s greatest threat to the international rule of law, and therefore to global peace.” That’s pretty out there given that Huawei’s largest shareholder is a Chinese telecommunications company owned outright by the Chinese state, that its close relationship with Beijing has caused governments the world over to limit its presence in their markets for national security reasons, and that the Chinese regime itself has been challenging international law, and in turn peace and security, in the South China Sea region.

Still, I was inclined to write off Sachs’ diatribe as yet another example of Trump Derangement Syndrome, or the outgrowth of idolatry of the globalization status quo fanatical enough to fuel (sincere) outrage at any development threatening to change it – e.g., President Trump’s decision to confront China’s trade predation.

As a result, I was inclined to dismiss as off-base the reaction of one of my Twitter followers to Sachs’ article: “I guess we know who is signing Jeffrey Sachs’ paycheck these days.”

So imagine my surprise when, on December 12, Washington Post columnist Isaac Stone Fish reported that Sachs had written the forward to a big report put out by Huawei in November.

Nothing necessarily improper there. Academics engage in such activities all the time. And if Sachs genuinely believes that an entity that clearly is an arm of the repressive Chinese government deserved “kudos” for “producing… a timely and clear roadmap to help governments, businesses and civil society [emphasis added] to create digital nations on the path to sustainable development,” well that’s his business.

What is massively improper has been Sachs’ reactions to Fish’s questions about Sachs’ relationship with Huawei in light of his glowing praise of the entity both in the report and in his Project Syndicate piece: “Did Huawei pay you for that [the forward]? If so, don’t you think you should disclose that?”

Rather than respond to Fish, Sachs stonewalled – in fact, going so far as to delete his Twitter account.

In the process, he not only made it difficult to avoid the conclusion that he has something to hide when it comes to Huawei. He’s also unavoidably created shadows over two respected organizations with which he’s been closely affiliated: Columbia University’s Earth Institute (which he headed between 2002 and 2016), and that Institute’s Center for Sustainable Development (which he heads now).

I’ve been looking for evidence of Huawei or other Chinese funding for these organizations, and haven’t found any yet. But that doesn’t mean that there hasn’t been any (perhaps funneled through third parties?), and that it hasn’t colored their work. Because like I said, when seeking to understand political behavior, the most cynical explanation is rarely wrong.

Im-Politic: Immigration Realists Should Love this Corporate Cheap Labor Lobby Immigration Study

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Business Roundtable, Cheap Labor Lobby, China, Im-Politic, Immigration, Jobs, national security, Open Borders, OPT, Optical Practical Training program, student visa, tech jobs

You have to hand it to the Business Roundtable (BRT) – an organization comprised of the CEOs of America’s largest companies. It’s not often that a lobby group puts out a study that undercuts its own message in no less than three ways. But that’s exactly what the Roundtable has accomplished with its new report warning about the consequences of Trump administration actions deemed likely to reduce the numbers of foreign students that come to study in the United States.

The focus of the BRT’s concern is the Optional Practical Training (OPT) program, which allows foreign students to work temporarily for employers for years after their graduation. The Roundtable and other supporters of issuing lots of these visas portray them as a valuable way for domestic U.S. businesses to improve their (and the nation’s) competitiveness by increasing their access to the best talent on the planet. As a result, they argue, programs like OPT boost these students’ incentives to study in the United States and thereby become eligible to enhance its well-being to begin with.

Opponents charge that OPT hands employers yet another means of hiring less expensive foreigners over equally capable but more expensive native-born workers, and thus suppressing wages for all workers in the technology-heavy industries in which these visa holders are highly concentrated. OPT and programs like it have also been criticized (including by the Trump administration) for enabling large numbers of students from China gain cutting-edge tech skills that Beijing can ultimately used to undermine American economic and national security interests, and for providing these students and the Chinese government with golden opportunities to spy on American industry.  

The BRT’s case for the biggest possible OPT program rests entirely on its supposed economic benefits. But these exclusively economic arguments are their own Achilles Heel.

First, the damage the BRT claims the U.S. economy will suffer from a hypothetical (but in my view, reasonably assumed) 35 percent reduction in OPT visas by 2020 and a consequent 60 percent decline in participation in OPT by 2020 is laughably small. Chiefly, by 2028, according to the BRT, the economy will be a cumulative $52 billion smaller in inflation-adjusted terms than otherwise, and the cumulative number of jobs lost by native-born Americans will hit 255,000.

These numbers may sound big, but keep in mind: They represent not annual losses but the estimated total damage over ten years from OPT cutbacks. And they’re laughably miniscule given that the United States currently produces goods and services (the activity that generates the “size of the economy,” or gross domestic product, figure) at an annual, rate of nearly $18.7 trillion in real terms, and that this economy is currently supporting nearly 150 million jobs.

Second, logically speaking, the reverse proposition is also true: If the economic losses resulting from cutting back on the OPT program are so infinitesimal, then so is the economic contribution made by the program at its current size. In fact, it’s reasonable to conclude from the BRT report that if OPT was eliminated completely, the U.S. economy (rightly) wouldn’t even notice.

Third, the BRT’s complete neglect of the national security dangers posed by the OPT program looks like an implicit confession that they’re considerable. Are the BRT’s CEOs telling us that they shouldn’t be considered at all? That reducing them is worth no cost at all? That enhancing national security isn’t even worth the itsy-bitsy price that the BRT itself reveals OPT curbs would entail? 

Of course, none of these conclusions reflects well on the Roundtable, or on the corporate Cheap Labor Lobby of which it’s a card-carrying member. That’s why I’m hoping that immigration and national security realists share it with as many recipients – including government decision-makers – as possible. If this is the best that the Open Borders movement’s Big Business branch can do to tout the OPT program, it’s fate will quickly be sealed.

Making News: Back Tonight on Nationally Syndicated Radio on the Trade War & Huawei

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China, Huawei, Iran, Making News, national security, sanctions, tech, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to return tonight to John Batchelor’s nationally syndicated radio show to help provide an update on the U.S.-China trade conflict.  The segment, which is slated to begin at 9 PM EST, will also deal with the arrest in Canada of a senior Chinese technology executive for allegedly violating U.S. national security sanctions on Iran.

You can listen live on-line at this link, and as always, if you can’t tune in, I’ll post a link to the podcast as soon as one’s available.

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

(What’s Left of) Our Economy: A Pundit’s China Policy Delusions

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2016 election, artificial intelligence, big government, China, Holman Jenkins, incomes, Jobs, Jr., national security, offshoring, tech transfer, The Wall Street Journal, Trade, Trump, Welfare State, {What's Left of) Our Economy

Holman Jenkins, Jr. did make one important and useful point in his Wall Street Journal column yesterday on U.S.-China trade policy (which puts him far ahead of most of the punditocracy): He’s absolutely right to call on President Trump to “lay out for the American people just how thoroughly [he] intends to shake up the hugely important U.S.-China economic relationship.”

For weeks, I’ve offered Mr. Trump exactly the same advice – to explain his China end game comprehensively to the American people in a prime-time Oval Office address (though unlike the free trade-obsessed Jenkins, I believe such a speech would boost public support for the Trump China agenda by describing the compelling long-term stakes of what I view as an effort to disengage economically from the PRC – and why they’re more than worth short-term sacrifices).

As for the rest of his column? It’s useful only for reminding Americans how internally contradictory and dangerous (not to mention downright ditzy) the case remains for retaining most of the pre-Trump China policy status quo. Just a few key examples:

>Jenkins insists that rather than pursue a “shakeup” that would amount to “following [Chinese leader] Xi Jinping down the path of seeking foreign scapegoats for failure and heavy-handed intervention at home,” the United States should be “building up our military and alliances.”

But what would be the point of sending more troops and equipment to East Asia while Washington returned to trade policies that have transferred literally trillions of dollars to the Chinese state and helped fuel a rapid military buildup, and investment policies that have ignored the massive export of advanced defense-related knowhow to Chinese entities, and for too long overlooked Chinese acquisitions of similar assets in the American economy?

>According to Jenkins, “China’s avid pursuit of artificial intelligence” shouldn’t worry Western experts because it’s “likely to be employed mainly in destroying the creativity and initiative of its own people.” But capabilities even remotely that massive won’t threaten any major U.S. strategic interests?

>In Jenkins’ view, central to strengthening the U.S. economy sufficiently to meet the Chinese threats he doesn’t laugh off is “dealing with the fiscal challenge of our welfare state.” But good luck with the politics of shrinking social safety nets under an American approach to globalization that kept sending valuable opportunities to earn middle- and even living-wage working- class incomes to China and other penny-wage and regulation-free production and export platforms.

Jenkins isn’t entirely wrong in his overall conclusion that “American prosperity is still made at home.” But the impact of purely domestic reforms is bound to be seriously diluted after decades of Jenkins and his crowd at the Journal (along with most of the rest of the nation’s punditocracy, the pre-Trump Republican party, and the Clinton-ite Democrats) focusing like laser beams on building a truly globalized economy.

And finally – about that headline calling for a “vote on a China Cold War”  (even though the article’s body only glancingly mentions the point): During his successful White House run, President Trump made no secret of his determination to overhaul America’s China trade policy. From the standpoint of democratic legitimacy, the Trump 2016 election victory was all the mandate his administration’s China policy measures need.

(What’s Left of) Our Economy: Now That It’s a Real China Trade War….

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Apple Inc., Bob Woodward, China, consumer goods, Fear, foreign direct investment, Gary Cohn, intermediate goods, Jobs, manufacturing, national security, prices, producer goods, supply chains, tariffs, technology, Trade, trade war, Trump, {What's Left of) Our Economy

Now it’s a “trade war.” By slapping tariffs on $200 billion worth of imports from China, President Trump has now placed in harm’s way roughly half of all last year’s American purchases of goods from the PRC. So I’ll stop using quotes around the phrase, at least when it comes to China developments. And here are some points that deserve special emphasis:

>For many of the same reasons that the new tariffs on China or on steel haven’t shown any sign of increasing prices for the intermediate (or producer) goods that businesses buy (the focus of previous tranches, and of the Trump metals tariffs), this larger set of tariffs on consumer goods are unlikely to cause much pain for American shoppers.

As I’ve written, if businesses don’t believe that their markets can currently bear price increases, what it is about the tariffs that will change their assessment – especially in the next few weeks and even months? Put differently, if they’re likely to raise prices then, why haven’t they done so already? Are they really in the habit of giving their customers unsolicited and unnecessary price breaks at the expense of their revenues and profits?

In this vein, President Trump’s decision to exempt some prominent Apple products from the new levies suggests he’s been snookered by the tech giant – for fear of spoiling too many Americans’ Christmases. In fact, here’s an article that makes clear that Apple’s pricing policies have virtually nothing to do with the cost of the components it uses.

Of course, it seems logical to suppose that if consumer products companies won’t be raising their prices much because of the tariffs, then the supplier of those products – China – won’t be harmed either, because sales levels will remain generally unchanged. But actually, the tariffs will accomplish a somewhat related but highly worthwhile goal (that is, if you believe that China’s predatory trade practices pose a major problem for the American economy): They’ll make China a higher cost, and therefore less competitive supplier of these products.

As a result, the American companies they depend on will have further incentives to shift supply chains outside China. For most consumer goods, which are labor intensive, nearly all of the beneficiaries won’t be domestic U.S. competitors and their workers. Instead, they’ll be other very low-cost countries with natural comparative advantages in these industries.

But this result will definitely weaken employment in China and possibly the PRC’s politics – whose stability has long depended on the ability of China’s leaders to deliver rising living standards for a critical mass of China’s population. Both developments would unmistakably serve U.S. interests.

Electronics – both consumer and “higher tech” – look like a conspicuous exception, due to the sheer size of China’s industrial complex in these sectors and the scale advantages alone that they create. Few acceptable alternative production sites will be available for many years. Nonetheless, there’s much more potential for production and job shifts back to the United States for the large number of non-electronics advanced manufacturing industries where domestic American producers would boast considerable competitive advantage – especially if they didn’t need to worry about predatory Chinese competition.

>The President’s decision to limit the tariff on the new group of targeted Chinese products to ten percent (at least initially) strongly indicates his awareness that his trade policies could well provoke even greater opposition than has been expressed already. In other words, despite his professed confidence, trade wars aren’t always “easy to win.” But he needs to do much more to generate and even preserve needed public support. Specifically, Mr. Trump needs to make an address – or even a series of addresses – from the Oval Office, with all its trappings, explaining why the stakes of America’s economic conflict with China are so high, and therefore why some domestic sacrifice will be absolutely essential.

The President has spoken about the need for tariffs at numerous rallies and brief sessions with reporters. But his main points – that the Chinese have been ripping Americans off for decades, that basic fairness must be restored, and even that success will mean investment and jobs flooding back to U.S. shores – are sadly inadequate to the task. As widely observed, at risk from continued China policy failures are the nation’s security and future as global technology leader – which will undercut future U.S. prosperity in ways that dwarf even the employment and production damage suffered so far.

That such an address hasn’t been made – and by such an effective communicator – could be a sign that an overarching China strategy still hasn’t been developed. And although Mr. Trump’s initiatives so far show every sign of throwing Beijing off balance, they’ll fall way short of their (needed) potential unless carried out as part of an integrated strategy.

>My own candidate for such a strategy – economic disengagement from China. The main reasons?

First, the clearest lesson from decades of generally unfettered U.S.-China trade and investment is that the two countries’ economic systems are simply too incompatible to permit mutually beneficial commerce.

Second, as I’ve written, even full Chinese agreement to most American demands can’t be adequately verified by Washington. China’s manufacturing complex is too vast, and its government operates too secretively. In this vein, in particular, subsidies are way too fungible for outsiders to track.

Third, most forms of continued economic engagement with China will inevitably continue to strengthen directly or indirectly China’s ability to challenge U.S. national security interests. In macroeconomic terms, continuing huge Chinese trade surpluses with the United States will keep ensuring that Beijing will have the resources needed to continue its rapid military buildup while satisfying civilian needs satisfactorily. In more sector-specific terms, continued American manufacturing investment will continue bolstering China’s ability to turn out the advanced weapons and other defense-related goods to enable Beijing to narrow further America’s remaining military and underlying technology edges. (That’s one reason why the administration’s stated objective of making China an easier environment for American business is so dubious.)

The Trump administration has made good disengagement progress on the inbound foreign direct investment front. But even here, much more can and should be done. For how can any acquisitions of American businesses or other assets by a non-market economy like China reinforce the free market basis of the U.S. economy? Indeed, how can such transactions help but distort and ultimately weaken American capitalism?

But let’s end on an optimistic note: Assuming Fear, Bob Woodward’s new tell-all book about the Trump administration, is accurate, there’s no more Gary Cohn running around the White House taking advantage of his position as head of the National Economic Council to snatch needed proposals like these from the President’s desk.