Making News: Podcast Now On-Line of Last Night’s China Trade War National Radio Interview

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China, Gordon G. Chang, Making News, national security, Phase One, The John Batchelor Show, Trade, trade war

I’m pleased to announce that the podcast is now on-line of last night’s interview on John Batchelor’s nationally syndicated radio show on the state of America’s economic conflict with China.  Click on this link to hear a timely discussion with me, John, and co-host Gordon G. Chang on which power has the upper hand in a clash that will greatly influence America’s national security as well as future prosperity.

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

Making News: Back on National Radio Tonight Talking China Trade

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China, Gordon G. Chang, Making News, national security, Phase One, The John Batchelor Show, Trade, trade war

I’m pleased to announce that I’m slated to return tonight to John Batchelor’s nationally syndicated radio show tonight to talk about where the U.S.-China economic conflict stands.  Although it hasn’t gotten as much news coverage as the CCP Virus or the recession or race relations, America’s dealings with its strongest economic rival will go far toward making or breaking its future prosperity and national security.  And you can listen to a timely discussion of these issues with me, John, and co-host Gordon G. Chang, focusing on the Phase One trade deal, by clicking here.

As usual, lately, because of pandemic conditions in New York City, the show’s home base, the interview was recorded this afternoon, and I don’t know exactly when my segment will air.  But the entire program runs from 9 PM-12 PM EST, and tuning into all of it will be well worth your while!

If you can’t listen tonight, I’ll post a podcast as soon as one’s available.  And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Im-Politic: Bolton’s China Derangement Syndrome

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China, decoupling, election 2020, Huawei, Im-Politic, John R. Bolton, Lighthizer, Made in China 2025, national security, Phase One, Robert M. Lighthizer, sanctions, tariffs, tech, Trade, trade enforcement, trade war, Trump

How are John R. Bolton’s new kiss-and-tell revelations to date about his tenure as President Trump’s national security adviser truly deranged? In at least three big, related ways when it comes to China.

First, (according to this most comprehensive statement of his views) Bolton apparently was too busy marketing this policy potboiler to have bothered reading the text of the trade deal with China Mr. Trump signed in mid-January. Rather than the agreement entailing “less…than met the eye,” it entailed much more. Not only did the Phase One deal require China greatly to boost its purchases of U.S.-made advanced manufactures (in addition to the agricultural products on which Bolton obsesses). It also created dispute resolution procedures – meaning an enforcement mechanism – completely tilted in America’s favor.

As I’ve explained, when all procedures are exhausted, China is only entitled to pull out of the entire agreement if it’s unhappy with the results – an extreme unlikelihood given China’s heavy reliance on selling to the U.S. market to maintain growth and employment that Beijing sees as being both political and economically important. The United States has the same ultimate option, but its threats to do so would be highly credible, given the huge net losses it suffered from pre-Trump China trade policies.

Moreover, the President secured these benefits while maintaining steep U.S. tariffs on literally hundreds of billions of dollars worth of prospective Chinese exports to America – and especially on those high value manufactures that have benefited most from the Made in China 2025 program and other Chinese predatory economic policies, and whose development pose the greatest threats to U.S. national security as well as prosperity. Also crucial – Bolton criticizes his former boss for agreeing to China’s insistence that he refrain from imposing new tariffs in return for restarting the trade talks. But the structure of the trade agreement leaves this option entirely open to the United States – and, in effect, with impunity. 

By the way, the results of the trade talks also demolish Bolton’s uber-claim that President Trump’s China policies stemmed solely from his desire for reelection, and the related suggestion that Mr. Trump believed that a purely cosmetic agreement would serve his political purposes much more effectively than reaching a deal heavily favoring U.S. interests.

They similarly leave as a smoking ruin Bolton’s allegation that the President continued to flatter Chinese leader Xi Jinping after the CCP Virus broke out because he was desperate to preserve the trade agreement. If anyone felt such desperation, it was Xi – whose regime hasn’t even tried to use the virus’ damage to China’s own economy as an excuse for at least temporarily ignoring Phase One’s import requirements.

Bolton’s second deranged claim follows on directly from that last point. On the one hand, he accuses the President of being completely indifferent to his master plan of fitting “China trade policy into a broader strategic framework,” and complains that “we struggled to avoid being sucked into the black hole of U.S.-China trade issues.”

On the other hand, he credits Mr. Trump with appreciating “the key truth that politico-military power rests on a strong economy. Trump frequently says that stopping China’s unfair economic growth at America’s expense is the best way to defeat China militarily, which is fundamentally correct.”

Yet as just detailed, Bolton heaps scorn on major Trump achievements that have gone far toward weakening China’s economy vis-a-vis America’s. Moreover, such Trump moves also include punishing sanctions on Chinese telecoms giant Huawei that Bolton bizarrely views as undeserving of mention.

The final evidence of Bolton’s derangement: his whining about the President’s decision-making style. According to the author, Americans should be up in arms because Mr. Trump’s advisers have been “badly fractured intellectually” and because “Trade matters were handled from day one in a completely chaotic way.” Indeed, the Trump leadership style, Bolton moans, “made my head hurt.”

To which any minimally intelligent and/or adult reader should respond “So what?” Leaving aside that it was never the President’s job to please whatever otherwordly expectations Bolton (a longtime Washington operator who obviously knows better) claims to have had about policymaking processes, the results have been entirely coherent and clear to anyone caring actually to look. Whatever uncertainties Mr. Trump may have had about choosing China trade tactics and whose advice to follow, he has plainly put U.S. Trade Representative Robert E. Lighthizer and other so-called hawks in command, and the results have been a wide variety of measures that have both gut-punched China’s economy (see, e.g., here) and steadily decoupled America’s economic fortunes from this dangerous dictatorship. (See, e.g., this post.)

Unless the rest of Bolton’s forthcoming book is completely different and indeed vastly more coherent than the portions made public to date (and why would he and his publicists want to lead with any material they believed wasn’t bullet-proof), his tell-all will only be important for shedding light on a single question: Will the author be best remembered as a dangerously incompetent armchair warhawk who helped lead the United States into a major disaster in Iraq, or as a wildly flailing freelance wannabe hitman who tried to sabotage an urgently needed turnaround in America’s approach to China?

(What’s Left of) Our Economy: Full Virus-Distortion Mode for New U.S. Trade Figures

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aerospace, Boeing, CCP Virus, China, civilian aircraft, coronavirus, COVID 19, decoupling, exports, imports, manufacturing, manufacturing trade deficit, Phase One, Trade, Trump, Wuhan virus, {What's Left of) Our Economy

Here’s a heck of a way to start a blog post: On the one hand, it’s a relief to.be writing about something other than the shameful George Floyd killing and its too-often-violent aftermath, and focus on an economic issue like the latest U.S. trade figures. On the other hand, because of the CCP Virus and the deep U.S. and global recessions (and possibly worse) it’s triggered, it’s hard to make the case that the new numbers (for April) even say much of anything useful about that month, much less about how trade flows and their impact on the economy might evolve going forward.

Even less serious is the notion that they shed light on the past, present, or likely future effectivness of President Trump’s Phase One trade deal with China – which incidentally only went into effect in mid-February.

All the same, speaking of China, the month-on-month change was discouraging at least on the surface. The goods deficit nearly doubled between March and April – from $11.83 billion to $22.27 billion. The last change of that magnitude came back in April, 1989, when trade flows were orders of magnitude smaller, and therefore huge fluctuations much easier to generate. Moreover, this trade gap bounceback followed two straight months of dramatic decline that brought the shortfall to its lowest level since March, 2004.

Worth noting in this regard for additional context. On a year-to-date basis, the U.S. goods shortfall with China is down by 28.55 percent. That’s more than three times greater than the 8.17 percent decrease in the global U.S. merchandise deficit, and more than six times faster than the 4.52 shrinkage of America’s worldwide non-oil goods gap, which is a better global proxy for U.S.-China trade.

In other words, here’s clear evidence of major progress toward President Trump’s unstated but apparent goal of decoupling the U.S. and Chinese economies.

U.S. merchandise exports to the economy of the People’s Republic, which by most accounts has started recovering steadily from its own pandemic setback – did rise by 7.94 percent. But the much greater value of imports shot up by 56.88 percent. That’s the biggest percentage increase ever. In second place? The 49.92 jump back in January, 1986, when trade flows were miniscule.

Year-to-date, U.S. goods exports to China are down by 9.03 percent – a little less than overall U.S. goods exports (9.46 percent) and than overall U.S. non-oil goods exports (10.86 percent).

The comparable imports figures: America’s merchandise purchases from China are off by 23.88 percent. That’s more than twice decrease of its total goods imports (9.03 percent) and of its non-oil goods imports (8.45 percent).

In other words, here’s clear evidence that the decoupling and contraction of the bilateral deficit is taking place exactly where it should from an American standpoint – on the import side.

Some other notable takeaways from the April trade report:

>The combined goods and services trade deficit soared sequentially in April by 16.66 percent, to $49.41 billion. That’s the highest monthly total since last August’s $50.78 billion, and the biggest such rise since…March’s revised 22.11 percent.

But that revision is a story in and of itself. The originally reported $44.42 billion figure for the month is now estimated at just $42.34 billion – 4.68 percent lower. That’s an unusually big change, and indicates some major, CCP Virus-related data-gathering and analysis problems.

Year-to-date, the total trade deficit has fallen by 13.36 percent.

>Total U.S. exports took by far the biggest hit in April. plunging by 20.46 percent, from an upwardly revised $190.18 billion to $151.28 billion. That’s the lowest monthly total since the $150.01 billion recorded in April, 2010, when the last economic recovery was still young.

Moreover, the monthly nosedive was both nearly twice as bad as the old record holder of 10.19 percent set in CCP Virus- and shutdown-impacted March, and nearly doubled the previous all-time high (going back to 1992) of 5.50 percent set in September, 2001 – the month of the September 11 terror attacks.

Goods exports fell even faster – by 33.71 percent, from a downardly revised $127.72 billion to $95.52 billion. This contraction has just obliterated the previous record of 10.03 percent, from Great Recession-y December, 2008. (For comparison’s sake, goods exports declined by 5.80 percent in September, 2001).

>Combined goods and services imports were down dramatically, too, on month in April. But although an all-time high, the 13.36 percent decline — from an upwardly revised $232.52 billion to $200.69 billion – was much smaller than that for exports. In addition, it only slightly exceeded the previous monthly record of 11.58 percent, from the Great Recession month of November, 2008. Further, as with exports, the new April monthly total was also the lowest since April, 2010.

April’s monthly goods import decrease was only a bit greater – 13.62 percent, from an upwardly revised $193.74 billion to $167.35 billion. The monthly level was the lowest since November, 2010 and the rate of decrease just a hair above that of the aforementioned November, 2008.

>The longstanding and huge U.S. manufacturing trade deficit also grew sequentially in April – by 9.63 percent, from $75.08 billion to $82.31 billion..That was the biggest monthly total since October, 2019’s $92.70 billion.

Manufacturing exports sank by 30.51 percent on month in April, while the much larger value of imports was 12.78 percent lower.

Interestingly, the sequential worsening of the manufacturing trade shortfall was dominated by the country’s civilian aerospace industry – once far and away America’s trade surplus and surplus growth leader. But between March and April, this surplus tumbled by 73.21 percent, from $4.05 billion to $1.09 billion. The $2.97 billion decrease accounted for fully 41 percent of the widening of the manufacturing trade gap, and stems from the combined impact of aerospace giant Boeing’s continuing safety woes and production cutbacks, the virus-induced global recession, and its especially great impact on the travel industry.

Year-to-date, moreover, the manufacturing trade gap has narrowed by 6.62 percent, from $324.59 billion to $303.59 billion.

(What’s Left of) Our Economy: More Ridiculous Myths About Trump’s China Trade Policies

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CCP Virus, China, coronavirus, COVID 19, election 2020, enforcement, exports, Hong Kong, imports, Phase One, Trade, trade war, Trump, Wuhan virus, {What's Left of) Our Economy

Time to scotch two myths that have come up recently about U.S.-China relations that are close to a class in themselves in terms of weirdness.

Myth Number One: President Trump is clinging to the “Phase One” trade deal he signed in January because he thinks its continuation is crucial to his reelection.

No less than every single reason cited is wrong. First is the suggestion that it’s a lousy deal but that Trump needs it because it’s one of the only results of his China or overall trade record that can be called an “accomplishment” to any extent.

Actually, even leaving aside Mr. Trump’s record of significant success in disentangling the U.S. economy from China’s (which admittedly isn’t universally viewed as a plus), the trade deal is undoubtedly a major success on terms every American except agents of the multinational Offshoring Lobby should cheer. As I’ve explained, it not only committed China to buying an enormous amount of U.S. goods way above and beyond what its import patterns suggested. It also contained an ingenious enforcement system likely to hold China’s feet to the fire by leaving Beijing only the option of pulling out of the entire deal if it’s dissatisfied with any U.S.actions – including new American tariffs to punish China for treaty violations.

In sharp contrast to their predecessors under pre-Trump administrations, the President’s negotiators acted like they understood that China’s heavy dependence on exporting to the U.S. market would prevent Beijing from walking away – for fear of losing any remaining access. But because the United States needs China’s market much less, a U.S. withdrawal would be a supremely credible threat.

It’s true, as so many critics have charged, that China’s promises in the Phase One deal to cease or cut back on its wide-ranging predatory trade and related practices are pretty general. But the lopsided nature of the enforcement mechanism provides a great way to solve this problem. If Washington decides that Beijing isn’t living up to even vague promises, it can retaliate however harshly it wishes. The only legal option open to China is ending the entire agreement. None of the kinds of tit-for-tat retaliations that Beijing used so skillfully to spark domestic U.S. complaints about the President’s earlier tariffs are authorized. If China tries going down this road, it would likely face even stiffer U.S. tariffs.

Slightly more reasonable – but only slightly – have been observations that Mr. Trump urgently needs the extra Chinese purchases to sustain his claim of guiding the American economy to impressive levels of prosperity. Make no mistake: The export promises specified in Phase One represent valuable, production-based growth opportunities – the more so since 40 percent of those exports were specified to be manufactures, which add so much value to the American economy, as well as create so many family wage jobs.

But the economy – including the trade-sensitive manufacturing sector – was climbing out of a soft patch by the end of last year. Now that the CCP Virus has induced a prolonged national economic shutdown, any growth boost would of course be welcome, including from exports to China. But the downturn has been so gargantuan, and so heavily concentrated in the personal services sectors, that China trade has receded far into the background for the time being. Nor will it matter much to any substantial recovery – which will mainly require a rebound in those same personal services.

But couldn’t a collapse of the Phase One deal – for whatever reason – still threaten the President’s cherished goal of a strongly rising stock market? No, and because investors also appear aware of the trade deal’s marginality to the real economy for time being – and, it seems, especially keenly. In fact, their behavior as Sino-American tensions have risen recently for all sorts of reasons (the virus, China’s apparently impending further crackdown on Hong Kong) contrasts strikingly with their reactions to the trade war’s previous ups and downs. Then, they traded – often frantically – on the resulting headlines. Since the March bottom, though, it’s been a decidedly seller’s market.

Which leads to the second myth that should be headed for the circular file – that the Chinese know they have the upper hand on the President at least during this election year, and that they’re about to use an obscure clause in the deal to get them off the import hook. I’ve always doubted that anyone outside top Chinese leadership circles has any handle on what’s going on and being thought in Chinese leadership circles.

Luckily, howeve, there’s no need for entrails-reading. What matters most of all are Chinese actions. And the record shows that Beijing has never brought up the so-called force majeure clause (see Article 7.6 at the very end of the treaty text), which could enable China to suspend promised increases of imports due to extraordinary circumstances like the virus – which continues to take a heavy toll on its own economy. Indeed, at the recent meeting of China’s rubberstamp legislature, Premier Li Keqiang, second in command to China’s supremo Xi Jinping, explicitly affirmed China’s commitment to meet its Phase One obligations. 

Because that legislature has now passed the newly proposed Hong Kong crackdown law, Mr. Trump will face the challenge of developing a response. His options are wide-ranging, and predicting them seems a thankless task. What does seem certain is that his choices will be accompanied by a new round of bizarre China policy myths.   

Our So-Called Foreign Policy: A Cheer and a Half for Trump’s New China Strategy Document

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alliances, allies, America First, CCP Virus, China, coronavirus, COVID 19, decoupling, globalism, Josh Rogin, liberal global order, Our So-Called Foreign Policy, Phase One, stock markets, technology, The National Interest, Trade, transactionalism, Trump, Washington Post, Wuhan virus

When over breakfast this morning I read Josh Rogin’s Washington Post column on the Trump administration’s new China strategy statement, I was pretty pleased. It’s been a long time since I viewed the intra-administration disagreements on the subject that its release has supposedly resolved as major problems in the China strategy overhaul that President Trump has sought, The tough and, more important, smart Phase One trade deal signed in mid-January was a convincing sign that the “doves” had been marginalized, but only one sign. The new statement itself describes many others. At the same time, the more basic agreement within Mr. Trump’s team, the better.

When I finally read the actual statement a little later, I was less pleased. It’s true that the President is both fully woke to the China threat, and that he’s reversed or overturned many of the disastrous mistakes made by his predecessors on a variety of fronts – including not only trade but technology, foreign investment, and exchange programs in particular. Moreover, the evidence is multiplying that the disaster created by the CCP Virus will lead to still tougher and, more important, still smarter measures. (A further crackdown on U.S. stock exchanges listings of Chinese entities is just one example.)

But the statement also made clear that Mr. Trump hasn’t made the clean break with previous globalist approaches to China and related aspects of American foreign policy that I’ve been advocating and that, as I’ve written, could lead to serious and needless dangers down the road. And as with much of the rest of the Trump framework, the big problem has to do with the role assigned to U.S. allies and alliances. Specifically, it’s still way too big, and not different enough from the globalist approach he’s rightly slammed verbally.

Not that “United States Strategic Approach to The People’s Republic of China” was devoid of America First-y ideas. It was great, for example, to see the administration reaffirm “Our approach is not premised on determining a particular end state for China. Rather, our goal is to protect United States vital national interests” (even though the United States keeps demanding, at least rhetorically, major structural reforms in China’s trade, technology, and other economic policies – demands I’ve explained are fruitless because of impossible monitoring and enforcement challenges).

Similarly encouraging, the top two vital interests identified: “(1) protect the American people, homeland, and way of life; (2) promote American prosperity….”

I also really liked “[T]he United States responds to the PRC’s [People’s Republic of China] actions rather than its stated commitments. Moreover, we do not cater to Beijing’s demands to create a proper ‘atmosphere’ or ‘conditions’ for dialogue. Likewise, the United States sees no value in engaging with Beijing for symbolism and pageantry; we instead demand tangible results and constructive outcomes.”

Indeed, the document adds, “We acknowledge and respond in kind to Beijing’s transactional approach with timely incentives and costs, or credible threats thereof.” This kind of transactionalism – expecting proposed foreign policy measures above all to create specific, measurable short-term benefits for the United States, rather than focusing on more ambitious steps that might turn out even better farther down the road, but whose success is far less certain – is a key tenet of America First foreign policies (as I’ve argued in the above linked National Interest article). Therefore, this explicit mention and endorsement of the term is most welcome (though it needs to be enshrined as a pillar of U.S. diplomacy elsewhere, too).

The statement’s treatment of transactionalism is closely related to its clear skepticism about another dubious globalist concept – though in this instance it’s more important for what it doesn’t say than for what it does: “[C]ompetition necessarily includes engagement with the PRC, but our engagements are selective and results-oriented, with each advancing our national interests….” I read this passage as an implicit announcement that the United States will no longer be seeking any particular kind of “relationship” with China, a gauzy goal that I’ve explained (on Twitter) creates powerful pressures to sacrifice concrete objectives in the here and now in the usually mistaken belief that the other party will feel obliged to make comparable sacrifices going forward – at some point.

And all this excellent material helps make clear why I’m so disappointed in the document’s numerous bow to globalism’s shibboleths. Two stand out in particular, and they’re so intimately intertwined as to be practically two sides of the same coin: the idea that it’s crucial for the United States to uphold something globalists (and the authors of this document) call a “rules-based international order,” and the maxim that critical building blocks of this order are America’s security alliances. The big problem from an America First standpoint with these notions? Once you buy into them, you’re back in Relationships-Uber-Alles-Land.

So I was distinctly unhappy to read passages like:

“[T]he United States does not and will not accommodate Beijing’s actions that weaken a free, open, and rules-based international order. We will continue to refute the CCP’s narrative that the United States is in strategic retreat or will shirk our international security commitments. The United States will work with our robust network of allies and likeminded partners to resist attacks on our shared norms and values, within our own governance institutions, around the world, and in international organizations.”

Indeed, the lionization of America’s international security commitments completely ignores problems that President Trump has rightly spotlighted – like flagrant defense free-riding, diplomatic fence-sitting, and trade policies that have ripped off America nearly as much as China’s. Just as thoroughly ignores problems that have largely escaped Mr. Trump’s notice – like the recent, rapidly growing nuclear war risks the United States has been running in places like the Korean peninsula and Eastern Europe precisely because its allies do so little to defend themselves. Does the Trump administration really believe it can count on these countries to help fight China if shooting starts?

Meanwhile, the similar shout-out to international organizations overlooks the administration’s warning in this very same document about the naivete of assuming that “engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners.”

Another way to put this critique: The document pays no attention to the fundamental problem with rules-based order worship. In the last analysis, it’s never been based on adherence to rules – i.e., a consensus on what is and is not acceptable international behavior. It’s been based on a willingness of the so-called free world to allow the United States to bear most of the costs and risks of providing them with security and prosperity. Those costs and risks, however, have become unaffordable and unacceptable for the United States, and its allies have displayed no serious signs of helping carry the load.

Let’s end on a happier note: The new China document promises that the United States will judge China by its deeds and not by its words. And since despite the references to alliances and international orders, these considerations so far haven’t much inhibited the administration from hitting China ever harder, especially on the trade and technology fronts, focusing on its deeds seems like the best way to evaluate its China policy, too. 

In fact, here’s possibly the strongest proof of that pudding.  The document doesn’t once mention the aim or even the concept of “decoupling” – the notion that the United States should disengage economically from China as fast and as thoroughly as practicable.  But decoupling – indeed, big time decoupling – is exactly what’s been taking place during the age of Trump.

(What’s Left of) Our Economy: Solid Manufacturing Jobs and Trade Numbers Despite Boeing’s Woes

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Boeing, China, exports, imports, Jobs, manufacturing, manufacturing jobs, manufacturing trade deficit, Phase One, tariffs, Trade, trade deficit, {What's Left of) Our Economy

You say U.S. manufacturing jobs keep growing too slowly? You say manufacturing’s trade deficit remains too high, and its exports inadequate? According to two big new government reports on the state of the American economy this morning, if you do, you should also be saying (with beaucoup de snark) “Thanks, Boeing!”

For it keeps getting clearer that the aerospace giant’s safety woes and resulting production halt of its (once) popular 737 Max model are sandbagging both measures of manufacturing’s performance – and not trivially. Don’t forget the silver lining, however.  Despite the Boeing effect, domestic industry has been holding up encouragingly well. 

The evidence is clearest from the trade figures. As reported last month in RealityChek, if not for a big deterioration in the civilian aircraft trade balance (until recently the sector of the entire economy with the biggest trade surplus), the full-year 2019 manufacturing trade shortfall would barely have grown over the 2018 level. And since industry itself increased output last year in pre-inflation terms, (at least through the latest – third quarter – data available), that represented a heartening sign that domestic manufacturing was becoming more self-reliant.

In January, the manufacturing shortfall actually fell month-to-month (by 0.38 percent, from $82.24 billion to $81.93 billion, and $850 million in absolute terms). The mix wasn’t exactly ideal: Imports were down 3.11 percent, but the value of exports (which are much smaller) fell by 5.58 percent.

But the civilian aircraft trade surplus plunged 44.43 percent – from $3.06 billion to $1.70 billion. So in January, had the sector simply equaled its December trade performance, the January manufacturing deficit would have been not $81.93 billion but $80.57 billion – the lowest total since last March’s $76.96 billion, and a monthly drop of 2.03 percent, not 0.38 percent. Further, manufacturing exports would have been $87.93 billion rather than $86.25 billion – or down only 3.74 percent, not 5.58 percent.

The picture is muddier for manufacturing employment because the data for civilian aircraft and their parts is reported one month after most other industry-by-industry jobs statistics. Another complication: The new jobs report overall goes up to February.

More puzzling still: Although latest statistics for the Boeing-related categories are January, they’re little changed from the December totals even though the 737 Max production suspension was announced in the middle of that month.

But it’s still legit to wonder whether they would’ve been better without the Boeing crisis. And how much better? Moreover, the vast aircraft supply chain encompasses dozens of manufacturing sectors beyond the engines and parts themselves. After all, these systems are in turn made of any number of components and materials. Boeing’s difficulties, therefore, could have been holding back manufacturing job growth broadly speaking for months.

Even so, industry as a whole added 15,000 jobs sequentially in February – it’s best such performance (except for a November increase that was aided by the end of the General Motors strike) since January, 2019’s 20,000.

And let’s not forget – industry achieved this employment gain even though the “Phase One” trade deal with China has left stiff U.S. tariffs on hundreds of billions of dollars worth of imported goods from China, as well as on much foreign steel and aluminum.

No doubt the coronavirus outbreak could send the manufacturing performance arrows pointing down again, or leveling off, in the next few months. But the new jobs and trade data make clear that despite an external (Boeing) shock that has nothing to do with President Trump’s trade wars, and despite the trade curbs he has enacted, domestic manufacturing has been on the rebound lately, and showed impressive resilience that bodes well for its future – and the entire economy’s.

(What’s Left of) Our Economy: Boeing Woes Finally Smack (Otherwise Encouraging) Fed Manufacturing Data

Tags

737 Max, aircraft, Boeing, China, China trade deal, Commerce Department, Fed, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, manufacturing production, manufacturing recession, Phase One, recession, tariffs, Trump, {What's Left of) Our Economy

The Federal Reserve’s report on January industrial production is out, and it not only finally makes clear the impact on manufacturing output of Boeing’s safety woes. It also strongly suggests that whatever (mild) recession industry has experienced is now over.

I say “whatever (mild recession)….” because several official measures of manufacturing output indicate that no downturn took place at all. For example, the Commerce Department’s GDP-by-Industry data series (which gauge factory production on a quarterly basis, not a monthly basis like the Fed) shows that manufacturing’s real gross output (analogous to the Fed’s inflation-adjusted manufacturing output figures) has not declined for two consecutive quarters during the entire current economic recovery. At the same time, it has registered several two-quarter (and longer) stretches periods during which manufacturing by this measure of inflation-adjusted output fell cumulatively.

Commerce’s tables for real value-added (a measure of manufacturing production that tries to prevent counting the production of inputs both as such, and as parts, components, and materials of finished goods) do report that industry’s production dropped between the fourth quarter of 2018 and the first quarter of 2019, and between the first and second quarters of this year. Cumulatively, moreover, this production level was lower in the second quarter of this year than in the third quarter of 2018 – revealing that on this basis, manufacturing suffered a three-quarter downturn.

At the same time, according to this series, both by the consecutive quarters and the cumulative methodology, the manufacturing recession ended in the third quarter, when it topped both the second quarter level and the output figure for the third quarter of 2018.

And don’t forget: According to the Fed’s real manufacturing output figures, domestic industry’s price-adjusted production peaked in December, 2007 – i.e., it’s never pulled out of the slump that began with the Great Recession. Further, as I documented last month, the Fed’s data show that within this long manufacturing recession, several shorter recessions have begun and ended by the cumulative criterion.

So that’s some of context needed for the Fed finding that after-inflation U.S. manufacturing production fell by 0.09 percent in January. That represented its first sequential decline since October, and left year-on-year production down 0.72 percent. By that standard alone, therefore, manufacturing’s recession has continued.

At the same time, industry’s constant dollar production is up since last April – by 0.70 percent. It’s also up 0.34 percent since April, 2018 – the first full month when the Trump administration’s tariffs on steel and aluminum imports went into effect,  and signaled that the President’s tariffs-heavy approach to trade had begun in earnest.

But the Boeing effect also needs to be considered as well. January saw a nosedive in aircraft and parts production of 1.07 percent sequentially, due to the company’s December announcement that production of its flawed 737 Max model would be suspended. The drop-off was the sector’s biggest monthly decline since the nearly 24 percent plunge in recessionary September, 2008.

I’ve wondered whether Boeing’s troubles had already been dragging down manufacturing output – given the company’s huge domestic supply chain, and given that the 737s had been grounded or banned from national airspaces nearly worldwide since March. But today’s report leaves no doubt that their effects have shown up. Indeed, the Fed explicitly stated that “excluding the production of aircraft and parts, factory output advanced 0.3 percent” on month in January.

So without the Boeing effect, January manufacturing output would be up cumulatively since last February – by 1.09 percent, not by 0.70 percent. And the increase since the advent of the main Trump tariffs would have been 0.74 percent, not 0.34 percent. These figures certainly don’t reveal a manufacturing boom – or even close. But given that even after the Phase One trade deal was signed with China, tariffs on hundreds of billions of dollars worth of Chinese products remain in place (many of them levied against goods that are manufacturing inputs), they cast new doubt on how damaging the President’s trade war has been for domestic industry.

Boeing’s 737 Max crisis will end some day. But the company itself warned that it could last “several quarters” more. Moreover, Boeing’s troubles scarcely end with this ill-fated aircraft. In other words, the company’s woes will keep impacting both all U.S. manufacturing data for the foreseeable future. Therefore, it’s up to the nation’s economists and journalists (along with think tank hacks, no matter who’s funding them) to keep this in mind when judging the effect of the President’s trade wars and other economic policies. Let’s see how many can meet this challenge.

Im-Politic: How Trump is Letting the China Virus Crisis Go to Waste

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CDC, Centers for Disease Control and Prevention, China, China trade deal, China virus, coronavirus, Im-Politic, National Institutes of Health, pandemics, pharmaceuticals, Phase One, Trump, Wuhan, Wuhan virus, Xi JInPing

As tragic as the coronavirus has been for victims in China and elsewhere and their loved ones, both the humanitarian and the Machiavellian in me can’t help but think that President Trump is squandering some great and closely related opportunities being created by the outbreak.

To be sure, the President hasn’t completely ignored the disease. He tweeted yesterday that “China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!.”

He stated at a January 22 press conference at the big global economy conference in Davos, Switzerland that the U.S. government has a plan to contain the virus in the United States. The federal Centers for Disease Control and Prevention (CDC) and National Institutes of Health say they’re working on a cure – in tandem with the U.S. pharmaceutical industry.

But given that the United States is the world leader in medical research, and given that the President has just (justifiably) eaten China’s lunch with the new Phase One trade deal, it seems like much more could and should be done, and in a much higher profile way.

For example, the President, who isn’t shy about broadcasting his achievements and intentions, should announce that’s he’s directing federal research agencies to treat the coronavirus threat as a top priority, as well as seek a similar commitment from U.S. medical schools and drug companies. And how about a summit of American medical research leaders from the public and private sectors to brainstorm both on addressing the present danger and the overall growing threat of pandemics resulting from the ever smaller world being created every day by increasing worldwide commerce and travel?

In fact, why even restrict this meeting to American participants? The President should think about either inviting their foreign counterparts to the session as well, or to a follow-up meeting.

That’s what my humanitarian instincts tell me.

And my more political self? It would advise the President explicitly and publicly to offer his buddy, Chinese leader Xi Jinping, whatever assistance the Chinese need. For good measure, he should propose sending a team of American scientists and public health experts from the government and private sector to China to assess the situation first-hand (including the status of the disease and China’s progress in combating it) and develop recommendations to improve the Chinese response.

Clearly, these actions would serve humanitarian ends. But they would also put Beijing’s dictators in quite the pickle. Right after having their clocks cleaned in the trade negotiations, they’d be put in a position of accepting American help (which would involve a huge loss of the face so critical in Chinese culture), or declining assistance (which can only further anger a Chinese public that’s already not thrilled with the crisis management skills of either the central government or local officials). In other words, either way, the United States scores political points with public opinion both worldwide and in China in particular.

Meanwhile, no one could legitimately criticize Mr. Trump for declaring that all agriculture imports from China are being banned, since the CDC admits that, although it lacks “any evidence to suggest that animals or animal products imported from China pose a risk for spreading 2019-nCoV [the technical name for the virus in question] in the United States,” that “This is a rapidly evolving situation.”

It’s become a well-worn cliché that the Chinese word for “crisis” combines the characters for “danger” and “opportunity.” But even though this specific claim seems questionable at best, the underlying idea and logic are compelling, and need to be applied to U.S. coronavirus policy liji (Chinese for “immediately”).  There’s no excuse, to quote former Chicago Mayor Rahm Emanuel, for letting the opportunity go to waste.

(What’s Left of) Our Economy: Let’s Get Real When Criticizing Trump’s China Trade Deal

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Charles Schumer, China, dispute resolution, enforcement, Made in China 2025, Phase One, rule of law, tariffs, Trade, trade deal, {What's Left of) Our Economy

Of all the desperation- and Trump Derangement Syndrome-fueled arguments used to disparage the President’s new “Phase One” trade deal with China, one stands out as especially silly. It’s the complaint that the agreement hasn’t secured Beijing’s agreement to change its laws permitting the various predatory trade and broader predatory commercial practices that China is using to seize world leadership in key advanced industries and technologies, or otherwise promise verifiably to halt them. (Senate Democratic leader Charles Schumer of New York has been particularly outspoken on this point.)

And the complaint isn’t silly simply because the very title of the deal – Phase One – makes completely clear that it was never meant to once and for all solve all the grave problems that Chinese predation has created. It’s mainly silly for two reasons. First, the absence of anything remotely resembling rule of law in China means that Chinese promises to change laws and regulations and even actions to change what’s on paper could not be less important.

For China’s system is based on the arbitrary exercise of power  That is, by definition, its dictators and the bureaucracies they run feel absolutely no obligation to adhere to whatever text happens to be on paper at a given moment. In fact, one of the main purposes of publishing these fake measures is to keep outsiders ignorant of the practices both of the central government and of the various layers of sub-national government – i.e., the situation on the ground, and what needs to be done to become or remain viable in China.

Second, thanks to Phase One’s actual terms, whether the Chinese do or don’t change their laws, and even their practices, matters little now. That’s because the stiff remaining tariffs on massive amounts of Chinese goods intended for American customers effectively deny Beijing the ability to turn its technology extortion into advantages in the U.S. market – the market it needs to access and dominate in order to realize its ambitions. Indeed, the highest remaining tariffs (25 percent) penalize the very high value products targeted by the Made in China 2025 program that’s carrying out Beijing’s plans.

Moreover Phase One’s dispute-resolution and enforcement system – which ingeniously and crucially establishes a de facto American last word – goes far toward preventing China from using Made in China 2025 to turn its predation into advantages in the China’s own large market, either. If it makes the attempt, American victims can take their cases to the Washington, which enjoys broad authority under the deal to hike duties on key Chinese products even higher – and without fear of tit-for-tat Chinese retaliation. China’s only legal option is pulling out of agreement entirely – which given its continuing heavy reliance on accessing the American market, would amount to cutting off more than its nose to spite its face.

Thoughtful criticisms of Phase One have come from some quarters. Further, as I wrote in my initial assessment of the dispute-resolution system, realizing its benefits for the United States will require American leaders to show major poker-playing skills – which shouldn’t be taken for granted under the Trump administration, let alone under future Presidents. Neither development is guaranteed. But Phase One critics genuinely seeking to make certain that it works for the United States should focus on identifying actual weaknesses rather than trying to portray successes as failures.