Making News: Podcast Now On-Line of National Radio Interview on “Friend-shoring” & Reshoring from China

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CBS Eye on the World with John Batchelor, friend-shoring, Gordon G. Chang, Making News, manufacturing, national security, offshoring, reshoring, resilience, supply chains, Trade

I’m pleased to announce that the podcast of an interview conducted with me on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line. The segment focused on whether U.S.-owned manufacturing that’s been offshored to China is either coming back state-side or moving to countries deemed friendlier and more reliable suppliers. Click here to listen to the discussion with John and co-host Gordon G. Chang.

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

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(What’s Left of) Our Economy: Apple Products Now Designed in China, Too

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Apple, China, design, engineering, Federal Trade Commission, globalization, Made in America, manufacturing, offshoring, research and development, technology, The New York Times, Tripp Mickle, {What's Left of) Our Economy

Although Apple has long relied on factories in China to turn out its incredibly popular electronics products, the company has clearly sought to counter charges that it’s been a world champion outsourcer that’s contributed to U.S. industrial hollowing out and general economic weakening. How? By touting its products as “Designed by Apple in California.”

And that’s mattered in more than a public relations sense because it’s been that U.S.-located design – and engineering – that’s long comprised the vast majority of the value of Apple products. Even better, it’s also long been the case that almost none of the wealth generated by iPhones and iMacs and the rest have gone to China. Those factories in the People’s Republic, owned by contract manufacturers, have largely been snapping the sophisticated parts together according to Apple’s appealing designs and sophisticated blueprints.

Now, though, according to excellent reporting by The New York Times‘ Tripp Mickle, it’s clear that Apple’s going to have at least put a big asterisk on its slogan. He’s updated trends that I identified literally decades ago in my book The Race to the Bottom and have followed since (see, e.g., here) making clear that not only is much of the Apple’s most advanced manufacturing (of parts and components) now performed in China, but so is a large and surging share of that engineering and design.

According to Mickle’s sources,

“More than ever, Apple’s Chinese employees and suppliers contributed complex work and sophisticated components for the 15th year of its marquee device, including aspects of manufacturing design, speakers and batteries, according to four people familiar with the new operations and analysts. As a result, the iPhone has gone from being a product that is designed in California and made in China to one that is a creation of both countries.”

Mickle continues: China’s “engineers and suppliers have moved up the supply chain to claim a bigger slice of the money that U.S. companies spend to create high-tech gadgets.”

As a result, just as American leaders have belatedly been awakening to the dangers of heavy reliance on China for critical goods, both because of Beijing’s burgeoning power and challenges to U.S. global technological leadership and the national security created by this stature, Apple has been boosting its dependence on the People’s Republic – and helping to enrich and empower this hostile dictatorship. 

Some of Mickle’s specifics:

>”This year, Apple has posted 50 percent more [high wage] jobs in China than it did during all of 2020, according to GlobalData, which tracks hiring trends across tech.”

>”When China closed its borders in 2020, Apple was forced to overhaul its operations and abandon its practice of flying hordes of California-based engineers to China to design the assembly process for flagship iPhones. Instead of subjecting staff to lengthy quarantines, Apple began empowering and hiring more Chinese engineers in Shenzhen and Shanghai to lead critical design elements for its best-selling product….”

>In 2007, Chinese suppliers accounted for a mere 3.6 percent of an iPhone’s value. Now this figure is more than 25 percent.

The U.S. Federal Trade Commission has just begun to enforce new regulations aimed at ensuring that products labeled “Made in America” really are produced domestically.  It’s time for Washington to require Apple to start telling the truth about its operations, too.     

(What’s Left of) Our Economy: A Win for Transparency on Corporate Vulnerability to China

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China, Congress, investment, multinational companies, national security, offshoring, Securities and Exchange Commission, Steve Milloy, The Wall Street Journal, Trade, transparency, {What's Left of) Our Economy

Here’s a development in U.S.-China economic relations that’s potentially game-changing, and that yours truly finds particularly satisfying: The Securities and Exchange Commission (SEC), the federal agency largely responsible for regulating U.S. financial markets require companies publicly traded in America to open their books wide on their ties with and reliance on China.

It’s potentially game-changing because ever since the early 1990s, Washington stepped on the gas to encourage the expansion of trade and investment with China (including massive factory and manufacturing job offshoring), but permitted the multinational companies that by far benefited most from these practices to control the release of most of the information capable of gauging the impact on the broader economy.

The result: When the American political system set its China economic policy priorities, it was forced to rely on the offshoring companies themselves for crucial information on the employment and production fall-out at home. And naturally, these firms – along with the sympathetic economists and think tank hacks they funded – presented Members of Congress and journalists with only cherry-picked facts and figures suggesting that the domestic winners far outnumbered the losers.

But this playing field may be in for major leveling thanks to the work of Steve Milloy of the Energy and Environmental Legal Institute. Milloy, a former SEC attorney, has persuaded the Commission to approve his proposal for a “Communist China Audit,” that would ask “companies to disclose to shareholders the extent to which their business relies on China.”

Milloy’s rationale, as explained in a Wall Street Journal op-ed earlier this week? A Chinese invasion of Taiwan would thoroughly disrupt the extensive commercial ties many public companies maintain with China (which include crucial supply chain dependencies of all kinds), and threaten their bottom lines – and the portfolios of their shareholders – with massive losses. In turn, the entire national economy would take a staggering hit. He rightly adds, moreover, that China’s hostility now extends nearly across the board of major U.S. interests.  

Multinational and other public companies are already required to tell shareholders about the various risks they run. But everyone who has looked through their quarterly and annual financial statements knows that politics and geopolitics risk disclosures are invariably vague and scanty, and details on their China-related operations almost non-existent.

Indeed, the author reports that the SEC is already pushing public companies to reveal how significantly Russia’s invasion of Ukraine is affecting their businesses. Since China’s impact on American companies, their shareholders, and the entire American economy is so much greater, he rightly argues that full transparency on this front is all the more important.

I was thrilled to learn about Milloy’s ideas and successes because for many years, I’ve been advocating something very similar. As I wrote in this 2017 post, Congress should pass and a President should sign what I called a “Truth in Testimony Act.” The measure would require any multinationals representatives appearing before Congress on an international trade or investment or technology-related issue

“to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics.”

I also recommended that time series be provided, in order to identify long-term patterns. In addition, I pointed out, comparable information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. And I urged similar requirements for a full range of businesses and their representatives when testifying before the House and Senate, and called for their think tank and academic spokespersons to come clean on all relevant sources of their funding.

Businesses have long protested that such requirements would deprive them of valuable trade secrets and other prime sources of competitive advantage. I countered that (a) if full disclosure is a must for everyone, then no one wins or loses on net; and (b) companies unconvinced by this argument would remain free to opt out of telling Congress their stories.

Milloy’s proposal, however, matters much more, because it would apply to the entire universe of public companies whether they appear before lawmakers or not.

So I’ll be trying to get in touch with him to see if I can help his China audit campaign in any way, and report back on the results, and on any further progress he’s made. As I wrote five years ago, for far too long, the U.S. government has been flying blind on China and other international economic issues and relying on unreliable, incomplete information. Milloy is right in emphasizing that the China threat in every dimension has metastasized. Nothing less than full corporate China-related transparency can be acceptable.

Im-Politic: Crucial New Info on U.S. Pharmaceutical Supply Chain Weaknesses

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active pharmaceutical ingredients, Bain & Company, CCP Virus, China, coronavirus, COVID 19, Cytiva, FDA, Food and Drug Administration, health security, Im-Politic, offshoring, pharmaceuticals, supply chain, Wuhan virus

Here’s a post full of data that should be of more than a little interest to folks who aren’t data geeks. That’s because it presents information shedding light on the likelihood of America getting caught dangerously short of key medical supplies – in this case, pharmaceuticals – when the next pandemic hits. As usual with CCP Virus-related info nowadays, it contains some good news and some findings that aren’t so encouraging.

First, some background. The surveys cited here underscore just how much offshoring of drugs and their chemical building blocks has taken place in the years – and possibly decades – before the pandemic. A poll of pharmaceutical executives the world over conducted by the U.S. life sciences company Cytiva found that 51 percent of the former “say that drug shortages increased in their domestic market during the pandemic, although 33% say that the issue had been increasing over the past five years.”

In other words, a series of “underlying issues around supply chain resilience…have been exacerbated — but not caused — by the pandemic.”  

In this vein, Cytiva also found that fluctuating demand is only part of the shortage problem: “About half of the executives and policymakers surveyed (47%) say their country is moderately or highly dependent on the import of drugs,” and nowhere is this problem more worrisome than with those drug building blocks, since “China and India in particular have become the epicentres of production for the generics and active pharmaceutical ingredients (APIs) that form so much of the industry’s output.”

Moreover, according to a study last fall by the American consulting firm Bain & Company, the API production picture is increasingly dominated by China. All by itself, the People’s Republic accounted for 39 percent of global output last year, up from 17 percent ten years ago. Meanwhile, the North American share has fallen from 23 percent to 19 percent.

Bain also draws a direct link between the shift of drug industry output to the developing world and the frequency of U.S. shortages:

“The transfer of pharma sourcing and manufacturing to Asia has directly affected supply chain reliability. FDA [U.S. Food and Drug Administration] data shows an increase in drug shortages [shown in the chart above] resulting from several factors, including quality issues and disruptive events, such as the 2017 fire at a Chinese API producer that led to a global shortage of piperacillin/tazobactam.”

And indirectly responsible for these shortages have been industry features like “The winner-take-all generic pharmaceutical bidding process in Germany….” This system has “produced drug shortages by reducing the number of producers or bidders over time. In some cases, for example, the winners were sales offices dependent on foreign third-party manufacturers incapable of delivering high drug volumes.”

This finding, in turn, adds to the evidence that the pharmaceutical supply chain security issue predates the current pandemic, and that the industry has been slow to respond. In fact, Bain specifies that the CCP Virus outbreak and its effects weren’t “the first warning. Tsunamis wrecked pharma manufacturing facilities in Asia in 2011 and 2012, and in 2017, Hurricane Maria knocked out Puerto Rico’s electricity supply, disabling many of the nearly 50 pharmaceutical plants on the island for months.”

Moreover, RealityChek readers might remember the post reporting that in 2011, a U.S. Commerce Department study discovered not only that troubling pharmaceutical supply chain vulnerabilities had developed, but that the companies themselves were pretty blasé about the problem.

Like I said at the outset, however, the pharmaceutical supply chain news is by no means all discouraging. The Cytiva survey found that 59 percent of the executives “say that the era of offshoring drug manufacturing to low-cost countries is over, and 67% say that the manufacturing of biopharma staples such as biologics would dramatically increase in their own countries over the next three years.” And given the U.S. industry’s global prominence, it seems safe to assume that many of these executives work at American-owned firms.

In addition, the Biden administration has designated improving health security as a high priority – although as I’ve reported, the President’s plans so far seek to treat as reliable suppliers many countries that have curbed or outright banned exports of medical supplies during the height of the pandemic. And these nationalistic impulses clearly are alive today in the pandemic era’s current “vaccine phase”

Finally, a big shout out to the Cytiva folks for including a URL for the aformentioned FDA shortage database – which I’ve been trying to find for months. It’s not only searchable, but it’s updated daily.

Making News: New Article Spotlights America’s Second-Rate Semiconductor Manufacturing

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Asia-Pacific, China, globalism, innovation, Intel, Making News, manufacturing, offshoring, semiconductors, Taiwan, Taiwan Semiconductor Manufacturing Company, technology, The National Interest

I’m pleased to report that a new article of mine has just been published in the November-December, 2020 issue of The National Interest. The focus: America’s loss of its longtime global lead in manufacturing semiconductors. Given the central role played by microchips to the constantly acclerating information technology revolution, this setback threatens both the nation’s prosperity and its security — especially since the world’s most advanced semiconductors are now produced a grand total of 100 miles from China.

Click here to read.

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

Making News: National Interest Post Examines Biden’s Often Head-Scratching Manufacturing Plans

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2020 election, allies, Barack Obama, China, Joe Biden, Making News, manufacturing, offshoring, reshoring, tariffs, taxes, Trade

I’m pleased to announce that my latest article for an outside publication is now on-line.  It’s an analysis of Democratic presidential nominee Joe Biden’s proposals to revive American domestic manufacturing, and it leads off this morning’s edition of The National Interest.  Here’s the link.

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

(What’s Left of) Our Economy: A Backfiring Attack on Trump’s Trade & Manufacturing Policies

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Barack Obama, CCP Virus, coronavirus, COVID 19, Economic Policy Institute, election 2020, EPI, Great Recession, Joe Biden, manufacturing, offshoring, Trade, Trump, Wuhan virus, {What's Left of) Our Economy

For the record, the Economic Policy Institute (EPI) has done terrific work over decades on the domestic economic impact of U.S. trade policy decision and trade flow, and it’s been great to stand shoulder-to-shoulder with its economists and ther staff during many major trade policy battles starting with the North American Free Trade Agreement (NAFTA).

Which is why I have been absolutely baffled by a recent EPI report that shows signs of furnishing some major trade policy talking points for Democratic nominee Joe Biden’s presidential campaign.

Most puzzling of all: a table in the August 10 study purporting to show that (a) “President Trump’s erratic, ego-driven, and inconsistent trade policies have not achieved any measurable progress” in reversing the offshoring of U.S. manufacturing jobs and the related ,”decline of American manufacturing”; and in fact (b) that “Offshoring and the loss of manufacturing plants have continued under Trump, notwithstanding U.S. Trade Representative Robert Lighthizer’s claim that the administration’s trade policy is helping U.S. workers.”

Here are the main table figures that cover the first two Trump years and the record of its predecessor, the Obama administration (whose Vice President of course was Biden). I started with 2010 because during 2009, the first year of the Obama presidency, the nation was mired in a Great Recession for which he deserves absolutely no blame. In addition, EPI stops the table at 2018 because factory numbers afterwards aren’t yet available. (The gross output figures have been added by me to make further comparisons possible.)

             Change in factory #s            Change in mfg jobs        mfg real gross output

2010:            -11,283                               -755,000                        +5.37 percent

2011:              -5,155                              +222,000                        +2.89 percent

2012:             -2,938                               +223,000                        +1.93 percent

2013:             -4,220                               +101,000                        +2.86 percent

2014:             -4,056                               +121,000                        +0.79 percent

2015:             -2,129                               +192,000                        +0.54 percent

2016:                -999                                 +33,000                        +0.04 percent

2017:                -782                                 +50.000                        +0.99 percent

2018:             -1,005                               +216,000                        +2.31 percent

The first point that needs to be made is that, as must be obvious, these numbers show absolutely no consistent relationship between the annual change (and in this case, decline) in the number of the nation’s “manufacturing establishments” (what these official figures call factories) and the annual change in manufacturing payrolls.  

For example, in each of these years, lots of factories kept closing, yet manufacturing employment kept rising. It’s true that rates of annual change have varied for both categories during this period. But these variations don’t seem to hold any significance, either. If they did, why would the number of closures fall notably between 2011 and 2012, while those years’ manufacturing workers’ numbers rise by almost exactly the same amount? And why the big difference between the number of closures in 2011 and 2012 on the one hand, and in 2018, on the other, and the close resemblance of the employment gains for each of those years?

Further, although it’s true that factory closures continued during the first two Trump years, the annual rate of closures slowed dramatically. Indeed, from 2010 through 2016, the average annual closure rate was 4,397. For 2017-18, this rate was 893.5. That’s not progress? And let’s be fair and not count 2010, because the manufacturing job losses of the Great Recession continued through its early months. The 2011-16 annual average factory closure number was still much higher (3,249.5) than during the Trump years.

Not weird enough for you? According to these EPI figures, despite factories closing at a much faster rate during the Obama years than during the Trump years, manufacturing employment grew faster. From 2011 through 2016, manufactring jobs grew by an annual average of 148,670. The comparable number for the first two Trump years was only 133,000.

At the same, time, this seemingly paradoxical relationship between numbers of factories and numbes of workers isn’t so completely paradoxical after all.  For example, new kinds of machinery and other efficiencies have surely enabled many domestic manufacturers to consolidate their physical footprint, and actually boost production and hiring. Alternatively, manufacturing companies can increase their capacity by expanding existing plants rather than build new facilities.        

Speaking of production, if we’re going to talk about the decline of American manufacturing, we need to talk about output levels and their changes, too. After all, it’s tough to boost or even maintain manufacturing workers’ numbers if production isn’t rising. Yet the annual growth numbers I’ve added to the table (which represent inflation-adjusted gross output), don’t show much of a relationship with closure numbers or employment numbers, either – and that’s the case even leaving out the quasi-manufacturing recession year 2010.

Still, don’t the EPI figures make clear that manufacturing hiring during the first two Trump years was weaker than during the Obama years? They sure do. As mentioned above, from 2011 through 2016, manufacturing payrolls grew by an average of 148,670 each year versus the Trump annual average in 2017 and 2018 of 133,000.

But are the EPI numbers the right numbers? I decided to check since the 50,000 manufacturing jobs increase presented for 2017 seemed way off to me. And there’s strong evidence that my suspicions were justified. Here’s what I found on the Bureau of Labor Statistics website. They represent December-to-December changes, and they’re seasonally adjusted. But the unadjusted numbers aren’t terribly different:

2011:    +207K

2012:    +158K

2013:    +123K

2014:    +209K

2015:     +70K

2016:        -6K

2017:   +185K

2018:   +264K

According to these data, the average annual manufacturing employment increase during the Obama years was 126,830 (again, recession-y 2010 is left out) and the annual average for the first two Trump years was 224,500. So advantage Trump here. The current administration enjoys a big edge even adding in 2019, when industry’s payrolls rose by only 59,000. That performance brings the Trump annual average down to 169,330 – still considerably higher better than the Obama years’ performance.

The EPI report correctly notes that 2020 has been much worse so far for manufacturing employment, and reasonably argues that even though the CCP Virus pandemic has been mainly responsible, “If President Trump wants to take credit for the job growth at the tail end of a decade of recovery from the Great Recession, then he must also own this collapse, thanks to his administration’s mismanagement of the pandemic.”

But if we’re going to start blaming non-trade policy-related factors for changes in manufacturing performance measures, let’s at least be consistent. For manufacturing hiring and growth (1.30 percent) undoubtedly were held down in 2019 by the safety woes experienced by aerospace giant Boeing – and therefore by its vast domestic supply chain – and by the six-week strike at General Motors.

Combine those developments with the inevitability of manufacturing inefficiencies as companies and entire industries adjust to a dramatically different trade policy environment, and the Trump record looks remarkably good. Unless EPI (and other Trump critics) believe that a painless way to transform U.S trade and manufacturing policies (which the institute strongly supports) has ever been possible?

President Trump was clearly (though anything but disastrously) mistaken when he claimed in early 2018 that trade wars are “easy to win.” Let’s hope that the EPI report isn’t a sign that a Biden administration and other critics would peddle the same pipe dreams.

Glad I Didn’t Say That! Middle Class Meg?

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Democratic National Convention, election 2020, establishment Republicans, Glad I Didn't Say That!, Hewlett-Packard, Jobs, Joe Biden, Meg Whitman, offshoring, STEM workers, tech jobs

“Joe Biden…has a plan that will strengthen our economy for working people and small-business owners. For me, the choice is simple. I’m with Joe.”

– Former Hewlett Packard CEO Meg Whitman, one of four leading Republicans chosen to speak on opening night of the Democratic National Convention, August 17, 2020

“The IT services market has continued to change and put more pressure on HP to reorganise its operations, for instance by increasing the proportion of its services workforce in lower-cost, offshore centres to 60 per cent.”

–Then Hewlett Packard CEO Meg Whitman, September 15, 2015

(Sources: “Former GOP gubernatorial candidate Whitman endorses Biden at DNC,” by Carla Mainucci, Politico, August 17, 2020, https://www.politico.com/states/california/story/2020/08/17/former-gop-gubernatorial-candidate-whitman-endorses-biden-at-dnc-1309809 & “HP to slash up to 30,000 jobs ahead of split,” by Richard Waters, Financial Times, September 15, 2015, https://www.ft.com/content/ff029c82-5bec-11e5-a28b-50226830d644 )

(What’s Left of) Our Economy: Without Supply Chain Transparency, There’s No Supply Chain Security

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Bureau of Economic Analusis, Defense Department, Defense Innovation Unit, defense manufacturing, election 2020, FDI, foreign direct investment, GAO, Government Accountability Office, health security, Joe Biden, medical equipment, national security, offshoring, Pentagon, supply chains, Trump, {What's Left of) Our Economy

Earlier this month, I criticized Joe Biden’s new plan to strengthen U.S. domestic manufacturing with a special eye toward boosting the security of key supply chains for holding out as a model the Pentagon’s work on defense-related manufacturing. Just this week, I found even more evidence to support the view that if the presumptive Democratic presidential nominee is really serious about achieving this goal (and given his longstanding record on trade and globalization issues, ample doubt is warranted) he’ll need a dramatically new model.

By the way, these findings show that the Trump administration also remains too far from getting its own supply chain act together.  And the main reason is a dangerous – and wholly unnecessary – lack of supply chain transparency.

The evidence comes from a September, 2019 report from the U.S. Government Accountability Office (an investigative arm of Congress) that summarizes the views of a panel of specialists convened to discuss foreign threats to the U.S. defense manufacturing base, and presents findings on the subject from various U.S. government agency, private sector, and university studies. The threats include the offshoring of the production of key defense-related goods; takeovers by foreign entities of U.S.-based facilities that supply these products, along with important services, or foreign acquisitions of significant stakes in these facilities; and the loss of U.S. competitiveness in these areas for market- and competition-related reasons and the resulting turns to foreign suppliers.

And crucially, the panelists consulted (listed on p. 40 of the report) include no notable supposed globalization alarmists or China hawks. In fact, one panelist was a senior executive of the U.S.-China Business Council, which has been a major pillar of what I call the nation’s Offshoring Lobby.

The report correctly noted that the use of foreign-origin goods and services can benefit U.S. national security interests. Specifically, it can “lower costs and provide better access to foreign workers and markets [which can help the companies in question gain the benefits of economies of scale by winning more customers].” Moreover, “When companies that offshore contract with DOD [the Departent of Defense], they can pass those benefits along. Foreign investment can help U.S. companies grow.”

So as in all areas of public policy, the key is finding the best balance, and reasonable people can always legitimately disagree on where it’s found. But here’s what’s really alarming about the message sent by the GAO report – and collectively by all the specialists and materials consulted: Neither the Defense Department nor any other branch of the U.S. government has the ability needed to achieve this goal partly because they lack the information needed to identify vulnerabilities, and partly because much helpful information is kept confidential at the request of private industry.

Here are the main relevant observations and conclusions presented in the report making emphatically clear that the nation lacks the supply chain transparency vital to improving supply chain security:

>”[T]he absence of a common definition of offshoring makes it difficult to analyze the extent to which offshoring is occurring in general as well as its effect on the defense supplier base. As such, the extent of offshoring and its effects are largely unknown.”

>”[P]ublicly available data do not provide granularity to analyze foreign direct investments in industry subsectors that comprise the defense supplier base.”

>”Pentagon “industrial policy officials told us that BEA’s [the Commerce Department’s Bureau of Economic Analysis] publicly available data are not complete enough to assess foreign investments in U.S. defense industrial subsectors. We also found that BEA does not disclose certain data for industry subsectors if the data would disclose the identity of individual companies, as these data are considered confidential. For example, BEA data on new foreign direct investment from China in the U.S. industry subsector “electrical equipment, appliances and component manufacturing” are not publicly available for 3 of the 5 years we reviewed.”

>”[A]ccording to BEA, new foreign direct investment data do not capture foreign investment transactions that involve less than 10 percent voting ownership in a U.S. enterprise. This may include data on venture capital investments in U.S. start-ups. According to a report by the Defense Innovation Unit (DIU) within DOD, there are an increasing number of investments in U.S. venture-backed startups from China-based investors that are not tracked by the U.S. government. This limits full visibility into foreign investors and the technologies they are investing in, as well as any increase or decrease in investment flows.”

>The DIU “echoed concerns about the limitations of U.S. government data and stated that the U.S. government does not comprehensively track all available data on investments, including those from private sources to assemble a complete picture of the level of foreign investment in U.S. companies.”

One big takeaway from the above is that the Defense Department is far from the only culprit here. Much more important, though, nothing could be clearer from this list of information gaps than that the Pentagon that Biden would rely on hasn’t made much of an effort to close them. And although the Trump administration has rhetorically prioritized reshoring manufacturing back to the United States in part for national security-related reasons, and can boast noteworthy progress in changing the U.S. trade policies that have encouraged so much defense-related offshoring, it’s clearly made little progress in making sure that it has the most fundamental information it needs to make sound decisions.

Also critical to recognize: It’s not that this information doesn’t exist. As I’ve previously noted, the companies that produce these goods and provide these services know exactly they, and most of their own contractors and subcontractors, are doing. Fully understanding and optimizing their own operations, after all, is one of the main ways they make money.

And the best way to extract what the government needs is to require legally what I’ve described as “Truth in Globalization” – and require it fast. Otherwise, no matter who wins the Presidency in November, the U.S. government will needlessly keep flying blind on supply chain security.

Im-Politic: What Even Barr Has Missed About the China Threat

Tags

Center for Strategic and International Studies, China, idea laundering, Im-Politic, Jeanne Whalen, lobbying, Mary E. Lovely, multinational corporations, offshoring, Peterson Institute for International Economics, Scott Kennedy, Steven Zeitchik, think tanks, Trump, Washington Post, William P. Barr

As masterly as Attorney General William P. Barr’s Thursday speech about China’s sweeping “whole-of-society” challenge to the United States was – and “masterly” is an entirely fitting description – it still missed one key danger that’s been created by big Americans businesses’ determination to advance China’s agenda. And conveniently, the nature and importance of this danger was (unwittingly, to be sure) made clear by the Washington Post‘s coverage of Barr’s alarm bell-ringing.

The Attorney General’s address was unquestionably a landmark – and a badly needed one – in the history of U.S.-China relations. The decisive break of course was Donald Trump’s election as President. For decades, American administrations had permitted and even encouraged U.S. multinational corporations and their recklessly shortsighted offshoring- and tech transfer-happy agenda to dominate policymaking toward China. (See here for the Bill Clinton-era origins of this approach.) Sometimes raggedly to be sure, the Trump administration has been reversing decisions that had exponentially increased China’s wealth and therefore military to the detriment of U.S. prosperity and national security.

But Barr’s speech indicates the launch of a new phase in this America First strategy – not only spotlighting corporate activities that keep endangering America, but naming and shaming some of the leading perps.

Especially important was the warning about Chinese leaders “and their proxies reaching out to corporate leaders and inveighing them to favor policies and actions favored by the Chinese Communist Party.” As Barr explained:

“Privately pressuring or courting American corporate leaders to promote policies (or politicians) presents a significant threat, because hiding behind American voices allows the Chinese government to elevate its influence and put a “friendly face” on pro-regime policies.  The legislator or policymaker who hears from a fellow American is properly more sympathetic to that constituent than to a foreigner.  And by masking its participation in our political process, the PRC avoids accountability for its influence efforts and the public outcry that might result, if its lobbying were exposed.”

In other words, Barr was talking about a form of “idea laundering” – the practice of pushing proposals that would benefit special interests first and foremost in ways meant to disguise their source of sponsorship and funding.

I identified one variety of idea laundering way back in 2006 – when I testified to Congress about how prevalent it had become for these offshoring-happy multinationals to pay think tanks to create the illusion that their self-serving objectives were also strongly supported by disinterested experts solely dedicated to truth-seeking. Barr has now pointed out that the multinational executives who have been funding idea laundering through think tank studies and op-eds and the like have also begun serving themselves as lobbyists-on-the-sly for China. In addition, he usefully warned them that they risk running afoul of U.S. laws requiring transparency from any individual or entity shilling for foreign interests.

But I wish Barr had mentioned the think tank version of idea laundering because a reminder of its perils came the day after he spoke, in the form of that Post coverage. Reporters Jeanne Whalen and Steven Zeitchik described and cited verbatim most of Barr’s indictment of corporate behavior. They rightly sought and received reactions from some of the companies fingered (Apple and Disney).

But then they played into the hands of the idea launderers when they claimed that “The attorney general’s warnings drew criticism from some economists, who said he at times exaggerated the threat China poses and downplayed benefits American industry has gained by trading with China….”

That’s surely the case, but the two individuals whose views the Post presented were hardly just any old economists. In fact, one – Scott Kennedy – isn’t even an economist, in the sense that he holds no academic degree in economics. Far more important, though, is that both of these authorities work for and get paid by think tanks that are heavily funded by offshoring multinationals – the Center for Strategic and International Studies (which employs Kennedy) in the academic-y-sounding position of “Senior Adviser and Trustee Chair in Chinese Business and Economics” and Mary E. Lovely, who is an economist (at Syracuse University) but who’s also a (academic-y-sounding) “Senior Fellow” at the Peterson Institute for International Economics.

Moreover, it’s crucial to note that both the Center for Strategic Studies and the Peterson Institute are also financed both by foreign multinational companies and even foreign governments with stakes in returning to the pre-Trump U.S. China trade and global trade policy status quo just as great as that of U.S.-owned multinationals. In fact, the Center even lists a contribution in the $5,000-$99,000 annual range from the Shanghai Institutes for International Studies, which, like all Chinese think tanks, is an arm of the Chinese regime. (It receives U.S government funding as well – in the greater-than-$500,000 annual neighborhood.)

To repeat a point I’ve made…repeatedly… there is nothing intrinsically wrong with any of these individual think tankers, the think tanks themselves, businesses, or even foreign governments trying to influence U.S. public policy. But as Barr has noted, there is everything wrong with these activities being conducted deceptively, which is the case with both forms of idea laundering. And the dangers to American democracy and U.S. interests are greatly compounded when journalists who should know better (and the two Washington Post reporters named above are hardly the only examples) help sustain this charade.