Following Up: Biden’s Cave-In on Ukraine, Russia, and Germany and Why It Matters

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Adam Schiff, alliances, allies, America First, Angela Merkel, Democrats, Donald Trump, energy, Eric Swalwell, Following Up, Germany, impeachment, NATO, natural gas, Nord Stream 2, North Atlantic treaty Organization, Russia, Ukraine, Vladimir Putin

Earlier this month, I wrote about the weirdness of the Biden administration’s seemingly blasé attitude toward Ukraine’s security, given the President’s long record of support (including military aid) for its independence from an expansionist Russia, and especially given the determination of the entire Democratic party to impeach Donald Trump largely because his allegedly blasé attitude toward Ukraine security treasonously endangered America’s own security.

Today I can report that the situation has grown even weirder – and in the process, raised major questions about the administration’s view of smooth alliance relations as a top foreign policy priority, and about its adults-in-the-room reputation itself for foreign policy competence itself.

As explained in my March 17 post, the issue at hand is the Nord Stream 2 pipeline, That’s a natural gas transport project that the Trump administration opposed because it threatened to, among other problems, increase Europe’s energy dependence on Vladimir Putin’s Russia, provide this aggressive autocrat with a big new source of revenue and therefore of funds for his military, and ace Ukraine itself out of natural gas earnings, thereby weakening its economy and ultimately its ability to defend itself.

So why is Nord Stream 2 being built? Two main reasons. First, lots of big German (and other European) companies have been involved in its financing and nearly finished construction, and will profit from its operation. (See here and here for good summaries.) Further, the German government is obliged to cover the multi-billion dollar losses that would result from cancellation. Second, Chancellor Angela Merkel;s government views the project as a means of keeping Germany, and Europe in general, economically engaged, influential, and therefore at peace with Russia.

The Germans also say they need the new gas because of its plans to de-nuclearize and de-carbonize its economy. Berlin also has the option of filling the looming energy supply gap by purchasing more gas from the United States than at present.  But Germany seems more impressed by the fact that higher transport costs make the U.S. product more expensive than Moscow’s.

You’d think, therefore, that Germany would be facing heavy pressure to cancel the pipeline from the Biden administration and especially from the impeachment enthusiasts in the Democrats’ Congressional ranks – like California’s Adam Schiff, the lead House manager for the first Trump impeachment trial, who described Ukraine’s sovereignty and safety as nothing less than a vital interest of the United States.

Not a peep about Nord Stream has been heard from Schiff or from other Trump impeachment hard-liners, like California Democratic Congress Member Eric Swalwell – confirming suspicions that their main concerns all along during both the Trump-Russia collusion and impeachment dramas were somehow ousting Trump for purely partisan or possibly simply deranged reasons, not safeguarding America’s security or democracy.

But Mr. Biden’s stance is more puzzling and disturbing – the latter since Presidents matter so much more than individual legislators. As my earlier post noted, his administration has seemed more relaxed about Nord Stream even though it, too, has claimed to harbor major concerns about Ukraine’s fate.

In fact, as recently as a few days ago, Secretary of State Antony J. Blinken declared that “President (Joe) Biden has been very clear, he believes the pipeline is a bad idea, bad for Europe, bad for the United States, ultimately it is in contradiction to the EU’s own security goals, It has the potential to undermine the interests of Ukraine, Poland and a number of close partners and allies.”

Yet just this morning, when asked whether Washington could (and by extension, actually would) do anything to stop Nord Stream 2, Blinken “Well, ultimately that is up to those who are trying to build the pipeline and complete it. We just wanted to make sure that our … opposition to the pipeline was well understood.”

In other words, “La de dah.”

Such quick and complete turnabouts by America’s top diplomat are disturbing in and of themselves, but the real problems with the Biden Nord Stream stance go far beyond the impotence claimed (and therefore advertised) by Blinken.

After all, avoiding a showdown with Germany on the pipeline would be understandable and even smart if Mr. Biden really didn’t view Ukraine’s security, and/or Russia’s aims and power, as terribly important in the first place, or if (as I offered as a possibility in my previous post), this decision reflected some broader administration conclusion that relations with Russia should be improved in order to outflank the stronger and more dangerous Chinese.

But not only is the President a strong believer in deterring Russian designs on Europe. He recently seemed to go out of his way to antagonize Putin by calling him a “killer.”

So the most reasonable conclusion to draw is that, at least for now, Mr. Biden is so determined to keep America’s wealthiest European ally happy that he’s given it a veto on a matter he himself has deemed a major U.S. interest. Worse, he seems indifferent to Trump’s (correct) complaint that Germany evidently has no problem with enriching Moscow while continuing to rely on the U.S. military to defend it from Russia. This doesn’t necessarily leave the President guilty of carrying out an “America Last” foreign policy. But it makes you wonder how far he’ll drift from from putting America First.

Our So-Called Foreign Policy: Is Biden Going Trump-y on Russia and Ukraine?

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Adam Schiff, alliances, Atlantic Council, Biden, China, Democrats, Donald Trump, energy, Frederick Kempe, Germany, globalism, impeachment, natural gas, Nord Stream 2, Our So-Called Foreign Policy, Russia, Ukraine, Vladimir Putin

Something weird’s going on with the Biden administration, Ukraine, and Russia, and it could eventually put lots of Democrats in an awfully awkward position.

I’m old enough to remember when helping the eastern European country maintain its independence against Russia’s aggression was considered so important by leading Democrats, along with U.S. foreign policy establishmentarians, that it justified impeaching Donald Trump. For allegedly he illegally slow-walked Congressionally approved military aid to the Ukrainians – allegedly because he wanted to force Ukraine’s government to help him dig up political dirt on then soon-to-be Democratic presidential candidate Joe Biden.

As a result, for months, Americans heard again and again how critical Ukraine’s security was to America’s own security, and how Trump’s actions therefore endangered U.S. national security. In the words of lead House impeachment trial manager Adam Schiff (D-California):

“[T]he military aid that we provide, Ukraine helps to protect and advance American national security interests in the region and beyond. America has an abiding interest in stemming Russian expansionism and resisting any nation’s efforts to remake the map of Europe by dent of military force, even as we have tens of thousands of troops stationed there. Moreover, as one witness put it during our impeachment inquiry, the United States aids Ukraine and her people so that we can fight Russia over there and we don’t have to fight Russia here.”

Mr. Biden has never gone quite this far in public, either as former President Obama’s vice presidential point man on Ukraine, as presidential candidate, or as chief executive himself. Nonetheless, he continually pressed his former boss to provide more and better weapons to the Ukrainians than Obama was willing to approve, indicating he, too, considered Ukraine’s security closely related to America’s own.

Indeed, last year, his campaign issued a statement declaring that “Ukraine’s success will contribute to a more stable and secure Europe, which is in America’s interest.”

More recently, however, President Biden has been sending out significantly different signals. For example, his statement last month marking the seventh anniversary of Russia’s “illegal invasion of Ukraine,” he pledged to “stand with Ukraine against Russia’s aggressive acts” and condemned Moscow for violating “international law, the norms by which modern countries engage one another,” but didn’t draw any direct connections between Ukraine’s fate and America’s.

More concretely, Mr. Biden has been looking pretty slow-walking-ly himself on an issue vital to Ukraine’s prosperity: preventing Russia and Germany from completing a natural gas pipeline that would bypass that country, deprive it of billions of dollars worth annually in badly needed revenues from transit fees from existing pipelines across its own territory, heighten its vulnerability to Russian gas blackmail (as candidate Biden noted himself last year), and increase Europe’s energy dependence on Vladimir Putin’s regime to boot. His press secretary has called the Nord Stream 2 project a “bad deal for Europe.” But the project is nearly finished, and his administration isn’t displaying much urgency. As State Department spokesperson Ned Price told reporters blandly, “we are always looking at pipeline activity that would be sanctionable, so if we see activity that meets that threshold we are prepared to follow the law.”

Not that the administration doesn’t have some good reasons for caution on the Nord Stream 2 project. After all, improving relations with allies like Germany, which were strained by Trump’s “transactional” approach, is a top Biden priority.

Perhaps more important, and revealing, Mr. Biden might be reacting to signs of ever closer ties between Russia and China, since responding to the latter’s rise and increasingly aggressive behavior is also a U.S. priority now. Indeed, just last weekend, leading think tanker Frederick Kempe, whose Atlantic Council sees the world in precisely the kinds of globalist ways as the President, cited growing Sino-Russian cooperation as one reason for America moving away from an indiscriminately anti-Moscow hard line to “a more strategic approach” that would “combine more attractive elements of engagement with more sophisticated forms of containment alongside partners.”

During his first presidential campaign, Trump responded to complaints about his supposedly excessive and even corrupting regard for Russia by asking “If we could get along with Russia, wouldn’t that be a good thing, instead of a bad thing?” and noting possible benefits like defeating ISIS jihadists in the Middle East. No remotely comparable statement has come from the Biden administration, but its deeds on the Ukraine-Russia front are starting to send a similar message. Expect the silence from the Democrats’ ostensible Ukraine hawks and Russia hawks to be deafening.

Im-Politic: Final Grades on the Final Debate

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battleground states, climate change, crime, crime bills, election 2020, energy, fossil fuels, fracking, green energy, Im-Politic, Joe Biden, marijuana, narcotics, natural gas, oil, presidential debates, progressives, racism, systemic racism, Trump

I got something massively wrong about the second (and final) presidential debate of 2020. I thought that my frantic live-tweeting covered every important aspect of the Thursday night event. Upon reading the transcript, I realized there was lots more to say.

Let’s start with the 30,000-foot picture. There’s no question that President Trump performed more effectively than in the first debate. Even his most uncritical admirers, like Fox News talker Sean Hannity, have conceded as much (Check out the video of his post-debate show, in which he acknowledges that long-time Republican political operative Ari Fleischer was right in faulting Mr. Trump’s first debate performance as too overheated.)

But there are plenty of questions left unanswered about the second debate’s impact on the Presidential race. For the record, I’m sticking with the assessment I offered after the first debate: Given his lead even in most battleground state polls, because the Trump campaign and other Trumpers (including Hannity) had set the bar so low for “Sleepy Joe,” all Biden needed to do was show up and not screw up massively in order to win.

Those battleground polls have tightened somewhat, Biden’s perfectly fine first debate performance raised the bar for the second debate, and I’m far from thinking that the race is over. But I’d still rather be in Biden’s shoes than in Mr. Trump’s. And time keeps running out for the President. All the same, it’s important to remember that we haven’t seen any major post-debate nationwide or battleground polls come out yet, so there’s simply no hard evidence to go on at this point.

The time-is-not-the-President’s-friend point, though, brings up my first new debate-related point: Mr. Trump’s improved performance alone (whether he “won” or not either on points or according to the public), indicates that he erred in rejecting the Commission on Presidential Debate’s offer to hold the second debate virtually, due ostensibly to CCP Virus-related reasons.

Especially if Mr. Trump had by that time begun heeding the advice of supporters urging him to dial it down (which isn’t at all clear), he lost an opportunity to square off again against Biden in real time. And although there’s no adequate on-line substitute for the atmosphere and resulting pressures of in-person encounters, the President did lose a valuable opportunity to reassure voters unnerved – rightly or wrongly – by his first debate tactics.

Getting down to specific points, on Thursday night, two issues really do demand further discussion. First, I might have been mistaken in my tweeted view that the Biden comments on natural gas fracking and energy (and related climate change) policy wouldn’t be terribly important.

I did agree that the former Vice President did nothing to help himself in key energy states like Pennsylvania, where voters might worry that his various positions – and the prominence of staunch fossil fuels opponents in Democratic ranks now – would guarantee relatively rapid closures of the coal mines and gas and oil fields that created so much employment in their regions. But I stated that, because these subjects had been aired so thoroughly already, few energy voters’ minds would be changed.

What I clearly underestimated was the impact of an extended discussion of energy and climate subjects before a nation-wide audience. If I’d been right, why would the Trump campaign have almost immediately put out an ad spotlighting Biden’s assorted statements on these topics. And why would the Biden campaign have spent so much time trying to explain the Biden position?

Looking at the transcript helped me understand why energy- and climate-related anxieties in the energy states might have been elevated by the Biden debate remarks. For on the one hand, the Democratic challenger insisted that he was “ruling out” “banning fracking” and claimed that

“What I will do with fracking over time is make sure that we can capture the emissions from the fracking, capture the emissions from gas. We can do that and we can do that by investing money in doing it, but it’s a transition to that.”

And whereas previously, Biden had responded to a primary debate question about whether fossil fuels would have any place in his prospective administration by declaring “We would make sure it’s eliminated and no more subsidies for either one of those. Any fossil fuel,” on Thursday night, the former Vice President referred to transitioning from “the old oil industry”–presumably to some (undefined) new kind of oil industry.

Nonetheless, it would be reasonable for energy states residents to question these assurances of gradualness and transformation instead of elimination given Biden’s continued contention that “global warming is an existential threat to humanity,” that “we’re going to pass the point of no return within the next eight to ten years,” and that the energy sector in toto needs “to get to ultimately a complete zero emissions by 2025.” Last time I checked, that’s only five years from now.

Moreover, given the notable split within the Democratic party on climate change and energy issues between progressives and centrists, the Biden statements suggesting that major fossil fuel industries will survive during his administration in some form could depress turnout in their ranks for a candidate who clearly needs to stoke their enthusiasm.

The second set of issues I should have tweeted more about entails crime and race relations. I think Biden deserves a great deal of credit for calling “a mistake” his support for crime bills of the 1980s and 1990s that, in the words of moderator Kristen Welker “contributed to the incarceration of tens of thousands of young Black men who had small amounts of drugs in their possession, they are sons, they are brothers, they are fathers, they are uncles, whose families are still to this day, some of them suffering the consequences.”

He was also correct in pointing out that President Trump – who quite properly pointed to some noteworthy achievements of his administration on behalf of African Americans – took a sweepingly harsh line on crime himself in previous decades.

But two positions taken by Biden should disturb even supporters. First, his argument that “It took too long [during the Obama administration] to get it right. Took too long to get it right. I’ll be President of the United States, not Vice President of the United States,” clearly throws his former boss under the bus. In fact, he also implicitly blamed Obama for the failure to resolve the problem created by children living the United States born to illegal immigrant parents.

The second such position was Biden’s argument that “No one should be going to jail because they have a drug problem. They should be going to rehabilitation, not to jail.”

I personally can support this view when it comes to hard drugs. But marijuana? For whose use so many American blacks have been jailed – and so many more than white Americans? (I’m not a big fan of the American Civil Liberties Union these days, but the data in this study are tough to refute.) Mandatory (government-funded?) therapy for potheads? That could use some rethinking.

But like I said at the outset, I expressed views on many other debate-related subjects on my Twitter feed (@AlanTonelson). So there’s no substitute for following there, as well as checking in with RealityChek, for the most up-to-date thinking on the election — as well as everything else under the sun.

Making News: Back on National Radio Tonight, a New Podcast…& More!

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Angela Merkel, Cato Journal, CCP Virus, China, collusion, coronavirus, COVID 19, election 2020, Germany, Gordon G. Chang, Joe Biden, journalism, Making News, manufacturing, Market Wrap with Moe Ansari, natural gas, Nord Stream 2, presidential debate, recession, recovery, reshoring, Russia, stimulus package, Ted Galen Carpenter, The John Batchelor Show, Trade, trade war, Trump, Trump-Russia, Wuhan virus

I’m pleased to announce that I’m scheduled to return to national radio tonight when I guest on The John Batchelor Show.  The subjects for John, co-host Gordon G. Chang, and me will be China, trade, manufacturing, and the election.

The pandemic is still forcing John and Gordon to pre-record segments, so I’m not yet sure about air-time.  But it seems that you can listen live to the show on-line at this all-purpose link starting at 9 PM EST.  And of course, if you can’t tune in, I’ll post a link to the podcast as soon as one’s available.

In addition, yesterday, I was interviewed on the popular Market Wrap with Moe Ansari radio show on the election (including the debate!), trade policy, the future of the entire U.S. economy, the fate of CCP Virus relief legislation, and a surprising recent example of collusion with Russia.  To listen to the podcast, click here and then on the show with my name on it.  My segment starts at about the 23:38 mark.

Finally, my friend Ted Galen Carpenter has just published in the Cato Journal a fascinating piece on the history of U.S. news coverage of U.S.-China relations – which certainly has seen its ups and downs in recent decades.  It was great, moreover, to see Ted cite two of my writings along the way.  Here’s the link.

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

Our So-Called Foreign Policy: The Main Threat to U.S. Alliances Sure isn’t Trump

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alliances, allies, America First, Angela Merkel, Belarus, Blob, China, David Brin, free-riding, Germany, globalism, natural gas, Nord Stream 2, Our So-Called Foreign Policy, Philippines, Russia, science fiction, South China Sea, Trump, Ukraine, Vladimir Putin

Here’s how widespread the charge is that President Trump has been destroying America’s longstanding foreign policy alliances – and for no good reason: I just saw it made on Facebook by David Brin. (I hope this link works.)

In case you’re not a science fiction fan like me, Brin is one of the truly great modern masters of this genre. A few years ago, I read his novel of the near future Kiln People, and was just blown away. And his achievements are hardly limited to literature, as this bio makes clear. In other words, he can’t be written off as some hysterically virtue-signaling, Never Trumper know-nothing celebrity. And even if he was, he has every right to express these or any other views. But clearly foreign policy isn’t his wheelhouse.

But here’s how deeply ignorant this comment is: It, and others like it from sources with more than a passing familiarity with U.S. foreign policy and world affairs, keep ignoring just how feckless the countries America’s allied with – and to whose defense the United States is pledged – have long been, and remain. For anyone who cares about The Facts, two major examples of their cynicism and unreliability have appeared in the last month alone.

The first came from the Philippines, whose president, Rodrigo Duterte, is no decent person’s ideal of a national leader. But his island archipelago country is located on the eastern edge of the South China Sea, which has turned into a major regional hotspot and theater of U.S.-China rivalry due to Beijing’s efforts over the last decade or so to assert more and more control over its economically and strategically important sea lanes. So as with decades of pre-Trump presidents and their relations with authoritarian allies, the current administration has overlooked Duterte’s domestic record for the sake of national security.

Duterte, however, hasn’t exactly reciprocated. As a foreign policy realist, I can’t blame him for trying to placate China (which is right in his neighborhood) while continuing to enjoy the protection of the United States (which is far away). But as an America Firster, my main concern is whether the United States has any reason to feel confident about counting on Duterte when the chips are down and shooting starts, and the Filipino leader’s fence-sitting clearly shows that the answer is “No.”

In fact, in February, Duterte went so far as to announce the ending of one of the deals in the web of official U.S.-Philippine defense ties that regulates exactly what American forces can and can’t do on Filipino territory. Because of the Philippines’ location, this so-called Visiting Forces Agreement inevitably impacts how effectively the U.S. military can operate to counter China – and defend the Philippines itself. But Duterte’s spokesman boasted that it was time that Filipino’s “rely on ourselves” and “strengthen our own defenses and not rely on any other country.”

Funny thing, though. In the six-and-a-half months since, Duterte’s confidence seems to have evaporated. Because late last week, his foreign secretary announced that if China attacks, “say a Filipino naval vessel … [that] means then I call up Washington DC.” So maybe there’s some merit to Trump’s insistence that these relationships be reexamined from head to toe?

But in case you think that double-dealing and hypocrisy is limited to “our bastard” types like Duterte…stop. For the second such instance comes courtesy of no less than Germany’s Angela Merkel, who has been anointed as the current champion of the global liberal order by much of the globalist U.S. foreign policy Blob and the Mainstream Media journalists who drink its Kool-Aid.

This lionizing of Merkel, however, is mocked mercilessly by Germany’s continued refusal to make serious military contributions to the defense of Europe, by its huge, global growth-killing trade surpluses, and by its rush to ban exports of crucial medical equipment as soon as the CCP Virus hit the continent.

But Merkel-worship seems to be just as devoted – and unjustified – as ever judging from this report in yesterday’s Financial Times. “Angela Merkel warns Vladimir Putin against intervention in Belarus,” the headline declared.

The article itself, however, made clear that nothing of the kind happened. The German Chancellor simply expressed the “hope” that the Russian leader wouldn’t send troops to quell pro-democracy protests that threaten to topple the longtime leader of this compliant Russian neighbor.

Just as worrisome, earlier this month, Germany reacted with indignation to U.S. attempts to punish and therefore give pause to an increasingly aggressive Russia by ending a pipeline deal that would bring natural gas directly from Russia to Germany.

This Nord Stream 2 project would greatly enrich Putin’s regime (and make more resources available to his military) – and at the expense of alternative gas supplier Ukraine, another Putin target. German companies, however, are heavily invested in the project. So Merkel has responded to suggestions that the country pull out of the deal to protest what looks like Putin’s latest attempt to assassinate a political rival by arguing that the two matters should be “decoupled” because linking an “economically driven project” to the alleged assassination wouldn’t be “appropriate.”

Again, I’m a realist, and won’t criticize these allied leaders for wanting their cake and eat it, too. Their job is to protect and advance their countries’ interests. So if they judge that accomplishing this mission requires fence-sitting and free-riding – and thereby increasing risks to the United States – (especially the risks of rushing to their defense and even of nuclear attack on the U.S.homeland) – they should go ahead,

But by the same token, an American chief executive’s job is protecting advancing and protecting U.S. interests. And the charge – whether by the Brins or the Blobbers of the world – that Mr. Trump is gratuitously endangering venerable relationships that unquestionably make America safer and stronger – belongs in the realms of science fiction and fantasy, not fact..

(What’s Left of) Our Economy: The Real Deal with the U.S.-Canada Trade Balance

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aerospace, Canada, China, crude oil, dairy, energy, Justin Trudeau, lumber, natural gas, subsidies, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

Extra! Extra! Read all about it! The nation’s globalist political and media classes have gotten it right on a major U.S. trade policy issue!

I’m talking about the numerous complaints issuing from American politicians, journalists, talking heads, and purported academic and think tank experts about President Trump’s decision to make Canada the focus of so much of his trade-related ire.

Mr. Trump is right about Canada maintaining sky-high tariffs and lavish subsidies in certain sectors of its economy, like dairy and lumber. (I’d add aerospace to this list.) But the idea that Canada represents one of America’s biggest trade headaches, and has been taking advantage of the U.S. economy left and right due to poorly negotiated trade deals, is completely belied by the numbers. And P.S. – it’s not even necessary to point to America’s services trade surplus with its northern neighbor to debunk the numbers.

The keys are recognizing the immense role played by energy in bilateral goods trade. Commerce in crude oil and natural gas is almost never the subject of the U.S. trade deals and broader trade policy decisions that the President – for the most part – has correctly lambasted.

Energy’s predominance is most apparent when U.S.-Canada trade in goods is calculated according to the measures used most prominently by the American government – total exports, and general imports. In fact, these headline data show that the U.S. oil and gas shortfall has typically been twice the size of the overall American merchandise trade deficit with Canada – meaning that when it comes to other goods (like manufactures) the United States has been running a surplus.

For example, in 2009 (the year the current U.S. economic recovery began), according to these figures, the United States ran an overall $20.18 billion goods trade deficit with Canada, a $45.75 billion deficit in crude oil and natural gas, and a $30.02 billion surplus in manufacturing.

Last year, the overall U.S. merchandise deficit with Canada had fallen to $17.50 billion – largely because the energy deficit had sunk to $16.45 billion. And the American manufacturing surplus reached $41.07 billion.

As many trade policy critics have rightly pointed out, the total exports and general imports numbers aren’t the best data for measuring U.S. bilateral trade balances. (They’re fine for America’s global trade balances, though, as the discrepancies that emerge in the bilateral accounts cancel each other out on a worldwide scale.) Instead, the most accurate picture is provided by looking at domestic exports and imports for consumption – i.e., the trade flows that concentrate on exports that are actually made in America (as opposed to being transshipped through the United States from countries where they originated), and on imports that Americans actually purchase for their own use (as opposed to products being transported through the United States to their final destinations).

But although these statistics reveal a much larger U.S. merchandise gap, along with deficits in manufacturing, oil and gas predominate in these figures as well. In 2009, the domestic exports etc numbers show a total American goods trade deficit with Canada of $52.89 billion – nearly 87 percent of which was in oil and gas. The manufacturing shortfall, moreover, was tiny – only $200 million.

By 2017, according to this measure, the annual U.S. goods deficit had risen to $64.84 billion. But the oil and gas deficit – which had shrunk dramatically in absolute terms due to the U.S. energy production revolution – still comprised a little over 73 percent of this total. And the manufacturing deficit was only $4.28 billion (out of a U.S. global total of more than $937 billion).

I can understand why President Trump views Canadian Prime Minister Justin Trudeau as a pro-globalist showboat. I agree. But when it comes to trade, and turning it into an engine of growth and domestic job creation, Mr. Trump has much bigger fish to fry – starting with the thoroughly and increasingly predatory trade policies pursued by his “good friend,” Chinese leader Xi Jinping.

(What’s Left of) Our Economy: What are Trump’s “Trade War” Priorities?

Tags

border adjustment tax, China, Gordon G. Chang, intellectual property, manufacturing, natural gas, tariffs, Trade, trade deficit, Trump, value-added tax, VAT, World Trade Organization, WTO, {What's Left of) Our Economy

Last week on CNBC, I surprised one of the anchors by expressing frustration at how President Trump’s China trade policies have been unfolding.

As I tried to explain, I’ve been pleased with the President’s recognition that past efforts to discipline China’s wide-ranging trade predation have failed miserably, and that the alternatives currently being touted by his critics (launching a suit at the World Trade Organization, further bilateral talks, mobilizing a global coalition to confront China) are simply old, spoiled vintages being poured into new bottles.

But I also faulted the administration for not comprehensively describing its end game, and for not employing the considerable power of the presidential bully pulpit to make its case to the public. So I feel obligated at least to lay out the main challenges Mr. Trump needs to meet in order to succeed. The biggest by far? Prioritizing a series of China trade objectives that the President and his aides keep mentioning, but that are far from being satisfactory or even entirely consistent with each other. Here are some examples.

The Trump administration is rightly concerned about China’s many and varied efforts to steal American intellectual property. The technological progress that this theft has enabled the PRC to make has displaced U.S. production and employment in advanced American manufacturing, and has helped China catch up with the United States militarily. And as analysts like Gordon G. Chang have warned, if dictatorial China gains supremacy in key cutting-edge technologies like telecommunications and artificial intelligence, privacy and individual liberty around the world could be profoundly threatened as well.

It should be obvious by now that China’s technology predation won’t stop unless Beijing is made to suffer major consequences – or believes they’re on the way. But American success would breed problems whose solutions aren’t easy to see. Principally, how would Chinese promises to stop either the outright stealing of intellectual property or its extortion (in exchange for access to the Chinese market) be verified?

As I’ve asked previously, as with other proposals for improving Chinese behavior, like improving its labor or environmental standards, how many American officials would need to be running around how many Chinese corporate suites ensuring compliance? And would the U.S. tech and other companies victimized by Chinese rip-offs and blackmail suddenly start complaining loudly, and en masse, about practices they’ve meekly tolerated for decades in exchange for short-term China profits? At least, the burden of proof should be on the optimists.

The administration has also spoken about securing a Chinese promise to reduce its trade surplus with the United States by $100 billion. That’s a worthy goal in principle, and Asian comfort with trade management could easily result in Beijing making major purchases of American services and especially goods simply to reach a compromise solution even if there’s no demand for these imports in the Chinese market. The latter, for example, could simply be stuffed into warehouses.

But not all traded goods create equal economic value. For instance, would Washington really want most of the reduction in the Chinese surplus to come on the agricultural front? Pro-Trump farm states might rejoice, but what’s the justification for favoring commodities as opposed to manufacturing industries – which have long punched way above their weight in terms of productivity increases, knowledge intensiveness, and growth and employment multipliers?

Another idea that’s been floated has been to close some of the trade gap with U.S. natural gas exports. But much cheaper energy prices resulting from such fossil fuel extraction and reduction revolution has turned into a big advantage for domestic U.S. manufacturers. Do Americans really want to share this advantage with their Chinese competitors?

The crucial question of imposing pain apparently needs to be examined more thoroughly as well. Assuming that the main U.S. objective is changing Chinese behavior by creating fearsome consequences for continuing with the status quo, is the best way to hurt Beijing (at least in the short run) tariff-ing its advanced, technology-intensive goods sectors – which employ relatively few Chinese? Such levies could well undermine China’s long-range plans for supremacy in these fields. But isn’t it likelier that in the short run, China would be much more worried about the job destruction that could result from curbing Chinese exports in labor-intensive consumer goods sectors, which are still mass employers?

Yes, the U.S. retailers that import and sell most of these products could obtain them from other super low-cost, barely or unregulated foreign economies – meaning that this step wouldn’t add much, if anything, to American output and job creation. But China at least would be punished.

At the same time, success here, too, raises the aforementioned monitoring and enforcement questions: How can Washington be certain that the Chinese will behave even after they cry “Uncle!”

Finally, however, the President does believes that his China tariffs – including the possible expansion of the round that’s already been announced – will return production and jobs to the United States. Interestingly, previous tariffs have achieved some notable successes along these lines. And America buys lots of Chinese manufactures that can’t be procured from many other developing countries because they can’t match China’s industrial infrastructure, or from many high income countries because they can’t match Chinese prices. So it’s reasonable to expect that the China tariffs will generate some further manufacturing reshoring.

But many of the more sophisticated products imported by the United States can be supplied by other countries, so China-specific tariffs are unlikely to affect those shipments. This problem could be solved – and much reshoring spurred – by more sweeping tariffs. Which is why it’s such a shame that the President was so dismissive of the border adjustment tax contained in the House Republicans’ original version of the tax reform bill.

This levy would have worked like a value-added tax (VAT). U.S. exports would have been effectively subsidized, and U.S. imports penalized. The tax would have likely been legal according to the World Trade Organization (because it would be considered a domestic tax and therefore outside the organization’s purview – which is why most other WTO members use VATs). Both because of its all-embracing nature and the subsidies it would afford, it would have spared the administration and the country most of the task of fine-tuning tariffs on China, or on steel and aluminum imports, in order to minimize domestic economic or political costs. The measure enjoyed strong support from many powerful Congressional Republicans (especially House Speaker Paul Ryan and House Ways and Means Chair Kevin Brady), along with many influential big American manufacturers. And don’t forget all the revenue it would have raised.

Mr. Trump has just expressed buyers’ remorse about the budget deal he just signed. Inserting the border adjustment tax into an alternative proposal just might enable him to accomplish key fiscal and trade policy goals – and avoid many of the headaches in these fields his administration is currently experiencing.

(What’s Left of) Our Economy: August US Manufacturing Output Joins List of Harvey’s Victims

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automotive, chemicals, durable goods, energy, Federal Reserve, Great Recession, Gulf coast, Hurricane Harvey, industrial production, inflation-adjusted output, Louisiana, manufacturing, natural gas, non-durable goods, oil, recovery, Texas, {What's Left of) Our Economy

Hurricane Harvey’s devastation of the energy-rich Texas and Louisiana Gulf coasts slammed into America’s after-inflation manufacturing output in August as well, as the Federal Reserve’s new industrial production figures showed real manufacturing output down 0.26 percent on month due mainly to fall-offs in chemical industries that use oil and gas as feedstocks. As a result, constant dollar non-durable goods output fell in August by its greatest monthly total (0.86 percent) since January, 2014 (1.20 percent), and overall chemicals production sank by its greatest sequential amount (2.15 percent) since recessionary December, 2008 (4.85 percent).

After-inflation production was off by the greatest monthly totals since that time in basic chemicals; organic chemicals; and especially in resins, synthetic rubber, and artificial and synthetic fibers and filaments. The most affected industry was fibers and filaments, where price-adjusted output plummeted by 9.10 percent – the worst such performance in this volatile sector since November, 2008 (11.25 percent).

Among the bright spots in the August manufacturing production figures: The automotive industry saw its first real output improvement in four months (2.16 percent), and revisions for manufacturing were positive. All the same, America’s real industrial production levels remain 4.03 percent lower than their pre-recession peak – more than nine years ago in December, 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on August industrial production:

>Hurricane Harvey’s devastation of the energy-rich Texas and Louisiana Gulf coasts devastated enough of the nation’s chemicals industry to create a 0.26 percent monthly sequential drop in real manufacturing output in August.

>The decline was heavily concentrated in chemicals, and especially in sectors highly dependent on Gulf oil and gas as feedstocks.

>The Harvey effects could first be seen in the non-durable goods sector in which chemicals industries are found. Its August inflation-adjusted production decreased by 0.86 percent – the worst sequential performance since January, 2014’s 1.20 percent fall-off.

>The enormous chemicals industry suffered as well, with price-adjusted production down 2.15 percent on month in August – its biggest such decline since December, 2008’s 4.85 percent, at the nadir of the Great Recession.

>Similar multi-year worsts were registered in basic chemicals, organic chemicals, and the resin, synthetic rubber, and artificial and synthetic fibers and filaments grouping. The latter two segments – which often displays volatile production patterns – saw real output dive in August on month by 9.10 percent, the greatest drop since November, 2008’s 11.25 percent.

>The hit to oil refineries so far has been more modest – their constant dollar output was off on month by just 1.93 percent. Nonetheless, this represented the biggest such decline since June, 2014’s 2.06 percent.

>Better news in August was generated by the U.S. automotive sector. Since leading domestic manufacturing out of its deep recessionary slump during most of the recovery, combined vehicle and parts production has tailed off recently – including a July sequential production plunge that has now been revised down (to 4.16 percent) to the worst such performance since June, 2015 (4.48 percent).

>In fact, combined vehicle and parts production had worsened sequentially for three straight months.

>But in August, after-inflation automotive output advanced by 2.16 percent sequentially, and helped the durable goods super-sector grow by 0.30 percent on month.

>In addition, the Fed’s real manufacturing output revisions were positive, including an upgrade for July from a 0.06 percent dip to a 0.04 percent rise.

>In fact, largely because real manufacturing output was so weak in 2016, August’s fair results were enough to push price-adjusted year-on-year output up to 1.63 percent from July’s 1.49 percent.

>Nonetheless, the August Fed figures make clear that U.S. domestic manufacturing has still not full recovered from the Great Recession. In terms of real output, it remains 4.03 percent smaller than its pre-recession high – reached more than nine years ago, in December, 2007.

Im-Politic: How Bernie Can “Win”

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2016 elections, amnesty, Bernie Sanders, Buy American, carbon tariff, China, climate change, Democrats, Donald Trump, energy, environment, fossil fuels, fracking, greenhouse gases, gun control, Hillary Clinton, Im-Politic, Immigration, Jobs, liberals, multinational corporations, natural gas, offshoring, Open Borders, Populism, progressives, third world, Trade, unions

Like Donald Trump, Bernie Sanders is doing such a good job of influencing the agenda of other 2016 presidential candidates (namely Hillary Clinton) that there’s no useful advice I can offer on that score. Yet the Vermont Senator still has a ways to go if he wants to generate more lasting change in American politics, and the recipe, not too surprisingly, is the inverse of that for Trump.

First, some background. I’ve had the privilege of working with Sanders firsthand on trade and jobs issues, and greatly admire his dedication to getting America’s international economic policies right. He’s not only been a longtime champion of this cause – he’s been a tireless worker as well. Sanders has also kept his focus squarely on the most important victims of offshoring-friendly and otherwise flawed trade policies – the American worker and the productive segments of the U.S. economy. That’s a refreshing change from most others on the leftward end of the political spectrum, who have consistently muddied both the politics and economics of trade issues by (wrongly) emphasizing the harm allegedly inflicted on developing countries by American and American-supported policies.

Even better, it’s already clear that Sanders recognizes the importance of generating crossover appeal. In addition to noting that many of his positions – like Wall Street reform – resemble those of real conservative populists, he has walked this walk on an important social/cultural issue: gun control. But if he genuinely wants to shake up American politics and not simply worry Clinton through next November, the Democratic contender needs to understand the game-changing potential of more realistic immigration and climate change policies.

Earlier in this year’s campaign, Sanders was chided by numerous progressives for being too quiet on immigration issues. Unfortunately, he responded with a June speech to Latino-American elected officials by appearing to pander to this Open Borders crowd. His trade policy position, however, makes clear how substantively mistaken these views are. In particular, as suggested above, he has recognized that failed U.S. trade policies have betrayed America’s “working people” by sending “their jobs…to China and Mexico….” (Although he’s also made some nods to “third world victimhood-mongering.”) Unlike Trump, moreover, he correctly targets multinational companies – not foreign governments – for most of the blame.

But why, in this case, does Sanders (along with most other liberal and Democratic party trade critics) now favor immigration policies that also will take more jobs from Americans, and drive wages down? If trade deals that, among other failures, make many more very low-paid workers in the third world much more available to U.S.-based businesses have these effects, why would immigration policies that literally encourage such workers to come to America produce different results?

In fairness, Sanders and other liberal immigration supporters have an answer: Foreign workers who come to the United States will be much easier to union-ize, and thus will earn higher wages, than their counterparts who remain abroad. But given the labor movement’s major and chronic failure to stem dramatic shrinkage – especially in the private sector – that clearly belongs in the wishful thinking category. Moreover, labor’s recent organizing successes have come almost entirely in service sectors that don’t face any foreign competition. As for parts of the economy that are heavily traded, like manufacturing, continuing new legal or illegal immigration influxes, along with amnesty, will surely intensify the competition for remaining domestic jobs and drive wages even lower.  

Further, as I’ve written, liberals’ claims that mass immigration can produce a new mass middle class overlook that their conception of mass immigration has no logical stopping point – and therefore is likeliest to furnish American businesses with not only huge, wage-killing labor gluts, but with huge, never-ending labor gluts.   

More important, in an election year, populist-minded voters on the Right are bound to reject this reasoning. For any hope of recruiting them to his ranks, Sanders’ immigration approach will need a thorough overhaul. And of course, by extension, this goes for any Democratic candidate.

Sanders has been one of Washington’s leading champion of high priority efforts to fight climate change, which means that re-positioning on this issue to broaden his base will be even more difficult than on immigration. But it could also pay some political dividends, and could be engineered in a way to satisfy at least some environmentally minded Democrats. In three related ways, moreover, the kinds of trade policies Sanders favors are very helpful.

First, Sanders should start emphasizing that one of the best ways to reduce global greenhouse gas emissions is to reduce China’s emissions – and that this objective in turns requires slowing down the Chinese export machine. I’ve long emphasized that, given the huge market for Chinese goods represented by the United States, American trade curbs would be a big environmental plus – whether put in place unilaterally, through sanctions on currency manipulation, or possibly better, through the kind of multilateral carbon tariff that even prominent economists are starting to favor.

Second, Sanders could win some business support for this approach by pointing out that, the less competition American businesses face from countries where environmental (and other) regulations are non-existent or not enforced, the more environmentally friendly regulation they could bear.

Third, as a strong opponent of trade decisions that have gutted the nation’s ability to administer strong Buy American regulations governing government purchases, Sanders will have no problem insisting that federal support for green manufacturing and technology be restricted to operations and facilities in the United States that employ American workers.

At the same time, Sanders will have to take much more seriously the inevitably dominant role fossil fuels will play in the country’s energy future for the foreseeable future, and his energy approach will need to make much more room for greenhouse-friendly natural gas in particular. As a result, he’ll need to view whatever pollution issues are posed by fracking not as an excuse to reject or neglect gas, but as a problem to be solved technologically.

The good news, in contrast to Trump, is that Sanders does seem to take advice from outside his ideological comfort zone and political base – his dealings with me and colleagues, when I worked at a small manufacturers’ organization, represent just one body of evidence. And representing even a small state like Vermont inevitably has exposed Sanders to the kinds of voters and their direct feedback that a one-percenter like Trump probably rarely encounters. For these reasons alone, he seems to be a more plausible candidate to help create an enduring populist alternative to the two major parties.

Just with my treatment of Trump, this analysis of Sanders’ chances doesn’t mean that I view him as an ideal candidate or, similarly, that I’m with him on most or even many issues other than those mentioned here. What it does signal is my belief that these two figures boast the potential to rework American politics by identifying crucial areas of overlap on the core pocketbook issues that are vital both to voters and to the nation’s future. Will they? Leaving aside their personal traits, recent history doesn’t provide many reasons for hope. But of course it’s precisely because meaningful change sometimes happens that we’ve had history in the first place.

Following Up: More Cold Water Thrown onto Manufacturing Renaissance Claims

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competitiveness, energy costs, Following Up, fracking, manufacturing, manufacturing renaissance, natural gas, reshoring

It’s getting so that with each passing week, claims that reshored factories are producing an American manufacturing renaissance look more and more specious. Last week, I wrote about Massachusetts Institute of Technology scholars who found that the supposed reshoring wave is much more talk than action. Now they’ve filled in some of the details, and the Federal Reserve has undercut the renaissance myth with a recent study of its own on what much lower natural gas prices are and are not doing for domestic industry’s competitiveness.

In an article for IndustryWeek, Jim Rice and Francesco Stefanelli of MIT’s Center for Transportation and Logistics acknowledge that some reshoring has taken place recently – by which they reasonably argue means “a change in policy from a previous decision to locate manufacturing offshore from the firm’s home location.” But they contend that their own research has unearthed precious little evidence that these corporate decisions add up to a “major trend” – or anything close.

According to Rice and Stefanelli, most of the more than 50 reported instances of reshoring they investigated were actually alleged plans to reshore, not actual reshoring. In addition, they note, accounts of these supposed renaissance-inducing events “tend to lack certain key details. For example, there is seldom mention of whether the offshore operation has been closed, which means that the company could be adding domestic capacity while continuing to support offshore production.”

Their conclusions: “[T]here is no clear reshoring trend in the U.S. Companies do not appear to be abandoning overseas operations in droves; some are building new capacity in the U.S. and other countries to meet domestic demand. And the level of reshoring activity varies widely depending on the industry involved.”

Moreover, the authors shed much needed light on the politics of reshoring. The renaissance claims, they note, are “especially appealing at a time when Americans yearn for a return to the heyday of homegrown manufacturing when jobs were seemingly plentiful. Moreover, vested interests are eager to provide evidence of a national manufacturing base that is being rejuvenated by its believed newfound competitiveness. “

And they issue a warning that could not be more important: “If the reshoring revolution turns out to be a false dawn, it could distract us from the policies and investments that need to be put in place in order to make supply chains more competitive and effective, or even identify a different phenomenon that will affect supply chains in the future.”

But what about fracking revolution and the huge cost advantage cheap natural gas is bound to give U.S.-based manufacturing? A June report for the Fed by William R. Melick of Kenyon College found that lower energy prices have certainly been helpful to American industry, but far from a game-changer.

It’s not that gas prices in the United States aren’t way down. In the past eight years, Melick states, they’ve declined by two-thirds compared to the gas prices paid by Europe-based manufacturers. But for their U.S.-based counterparts as a whole, the natural gas price bonanza has meant only a 10 percent increase in capital spending during this period, an increase in production of less than three percent, and an increase in employment of less than two percent. And the impact of cheaper gas on the global competitiveness of American manufacturing is even smaller.

Lower natural gas prices have had a much bigger impact on America’s most energy-intensive manufacturing sectors, according to Melick. But he also notes that the four most intensive gas-using industries – nitrogenous fertilizers; alkalies and chlorine; carbon black; and flat glass – represented only 0.5 percent of U.S. manufacturing’s total value added in 2011.

According to Melick, the fracking revolution’s effects on domestic manufacturing could become significant over time. But to date, they’ve been about as revolutionary as the decidedly less-than-renaissance-y rebirth of American industry.