(What’s Left of) Our Economy: No Shortage of Steel Trade Fakeonomics

Tags

Biden, Donald Trump, free markets, free trade, IHS Markit, National Bureau of Economic Research, productivity, Rajesh Kumar Singh, Reuters, steel, steel prices, steel tariffs, steel-using industries, subsidies, tariffs, Trade, {What's Left of) Our Economy

Here’s one likely byproduct of President Biden’s unexpected decision so far to maintain most of Donald Trump’s tariff-centric trade policies – including undermining the workings of the deeply anti-American World Trade Organization (WTO): shoddy or just plain incoherent attacks on these economic nationalist measures seem certain to be just as numerous as they were during the Trump years. Indeed, two have just been released.

In the shoddy category is a Reuters article from yesterday reporting that American manufacturers are suddenly very short of steel, that prices are therefore soaring to extortionate and profit-killng levels, and that the Trump steel tariffs – among the previous administration’s measure that Mr. Biden has so far decided to keep – are largely to blame. Even worse, the piece tells us (and entirely predictable according to standard economic theory), the protected U.S. steel industry is taking full advantage by keeping its own production low, and therefore maximizing upward pricing pressures and therefore its own profits.

Yet the statistical basis for these claims falls apart on close analysis. Author Rajesh Kumar Singh starts off by writing that

“Domestic steel mills that idled furnaces last year amid fears of a prolonged pandemic-induced economic downturn have been slow in ramping up production, despite a recovery in demand for cars and trucks, appliances, and other steel products. Capacity utilization rates at steel mills – a measure of how fully production capacity is being used – has moved up to 75% after falling to 56% in the second quarter of 2020 but is still way below 82% in last February.”

That’s not, however, what’s said by the Federal Reserve, the offical source of U.S. capacity utilization data. Its tables show that for iron and steel products, capacity utilization rates stood at 76.03 percent last February, and at 77.84 percent last month. Where I learned ‘rithmetic, that’s an increase. Moreover, since bottoming last May, just after the worst of the CCP Virus and shutdowns’ first wave, it’s up 56 percent.

Indeed, steel’s capacity utilization performance is especially impressive – and especially destructive to Singh’s article – given that from last February to this past January, capacity utilization in domestic manufacturing overall is down slightly (by 0.60 percent).

And what Singh somehow left out is that during that same period, different Fed tables show, while overall manufacturing production adjusted for inflation dipped by 0.75 percent, iron and steel products output was off by just 0.71 percent.

His reporting is no more responsible on U.S. steel prices. Yes, they’ve risen strongly lately. But that’s largely because they fell so steeply almost immediately after the tariffs went on, in February, 2018. As made clear by the (chartreuse?) line from the chart below, from the respected consulting firm IHS Markit, they’re still much lower than they were three years ago. Nor, contrary to another claim of his, do they look much different from Chinese and European prices.

In the incoherent category is a study released by the National Bureau of Economic Research (NBER), widely seen as one of the gold standard for American economics, whose main theme is that, contrary to the Trump administration’s claims, American consumers and businesses, not the Chinese or any other foreign countries, paid all the costs of the Trump tariffs.

I’ve repeatedly pointed out the lack of evidence for this contention. (See, e.g., here).  Today, however, I’m more interested in a finding made along the way by the three blue-chip economist authors: When it comes to steel, “The data show that U.S. tariffs have caused foreign exporters…to substantially lower their prices into the U.S. market.”

What they didn’t do is ask themselves why and, even more important, how this could be. That’s especially puzzling because the answer obviously is that foreign steel industries are subsidized by foreign governments. Consequently, they don’t face the same earnings pressures as their U.S.-owned counterparts, and can stay in business – and even ramp up production – despite major price cuts.

So the idea that there’s now or for decades has been free trade in steel has no basis in fact, and anyone who keeps ignoring this global landscape can’t possibly place any value on America retaining a steel industry worthy of the name – or on any definition of free trade that’s remotely reciprocal and therefore sustainable, not to mention one that serves U.S. economic interests realistically defined.

At least as important, as I’ve noted before, anyone blasé about huge quantities of artificially cheap foreign steel flooding into the United States can’t be serious about ensuring that the American economy is predominantly influenced by free market forces of any kind, or about understanding the central importance of productivity gains in spurring technological progress and even durable prosperity.

For the record shows that the recent wide availability of subsidized, cut-rate steel has provided the steel-using industries generally with a crutch that’s relieved them of the need to anchor satisfactory profits in ever-improving efficiency – and kneecapped their productivity performance. And since steel is hardly the only imported product subsidized by foreign governments, there’s no reason to believe that this kind of economic damage is limited to steel-users.

All the same, a continuing flood of trade and tariff fakeonomics may produce a silver lining.  As long as the Biden administration hews to the Trump line, at least the American people will still have an Executive Branch with an interest in pushing back strongly.     

(What’s Left of) Our Economy: Mainstream Media Article Debunks its Own Trump-Caused Shortage Claim

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automotive, China, fake news, Mainstream Media, Reuters, sanctions, semiconductors, tech, Trump, {What's Left of) Our Economy

For all the dreadful journalism I’ve read in recent years (and it’s a lot), I never considered the possibility that a Mainstream Media article could come out in which the thrust of the story changed, and changed substantially, no less than three times between the headline and the story’s 15^th paragraph (two-thirds in). In fact, the thrust changed so substantially that it finally became clear to a reader diligent enough to stick with the article that long that the headline was genuine Fake News.

Here’s the header for the Reuters report in question: “Trump’s China tech war backfires on automakers as chips run short.” The clear implication: “That moronic President! He and his stupid China policies are ruining a major U.S. and global industry!”

Which makes the first change of thrust awfully strange – especially since it came in the very first paragraph. “Automakers around the world are shutting assembly lines because of a global shortage of semiconductors that in some cases has been exacerbated by the Trump administration’s actions against key Chinese chip factories, industry officials said.”

That is, it hasn’t been just the Trump policies. They’ve been a problem in only “some cases.”

Even that development would be newsworthy – although not terribly so. Except just five paragraphs later, readers learn that “In at least one case, the shortage ties back to President Donald Trump’s policies aimed at curtailing technology transfers to China.”

One case! And the company concerned isn’t even named, which is fishier still. In addition, keep in mind that when reporters or anyone else use phrases like “in at least one case,” that means they looked for other cases and couldn’t find any. According to this reputable source, the number of vehicle (including heavy duty truck) manufacturers in the world as of 2018 was 56 – making me wonder how with how many such companies the two reporters who wrote the story checked – before arbitrarily giving up and concluding that what they found couldn’t possibly the only such instance of this Trump policy effect.

And finally, nine paragraphs later, comes the third change – a context-setting observation that further demolishes the storyline: “The chipmaking industry has always strained to keep up with sudden demand spikes. The factories that produce wafers cost tens of billions of dollars to build, and expanding their capacity can take up to a year for testing and qualifying complex tools.”

In other words, buyers of semiconductors have been dealing with sudden shortages literally since chips first starting being used in significant volumes in other goods and services industries.

So the only reasonable conclusion that can be drawn from this article is that, although there’s no meaningful shortage of automotive semiconductors that can be attributed to President Trump’s policies, there’s a major shortage of either journalistic integrity or maybe plain old competence at Reuters.

Im-Politic: It’s Americans Last for the Courts as Well as Business on Immigration

Tags

Biden, businesses, CCP Virus, coronavirus, COVID 19, guest workers, Im-Politic, immigrants, Immigration, Joe Biden, judges, labor shortages, lockdowns, recession, Reuters, Trump, unemployment, visas, wages, workers, Wuhan virus

So here I was about to give myself a day off from blogging today and spend most of it reading and then watching the big New Year’s Day college football games, but the news just keeps newsing. And I couldn’t forgive myself if I didn’t immediately seize on the opportunity to comment on today’s Reuters report titled “Trump extends immigration bans despite opposition from U.S. business groups.”

The piece wasn’t most remarkable for the kind of pro-globalist or Never Trump bias I often cover, or for the headline development. Everyone who’s followed the issue knows that the President has long favored and put into effect many measures aimed at curbing both legal and illegal immigration – and long before the CCP Virus and ensuing lockdowns-type government orders and consumer caution combined to create a genuine U.S. jobs depression.

Nor should anyone be especially struck by the observation that business groups are seeking to reopen American borders to green-card applicants (who will be seeking U.S. employment) and foreign guest workers (who enter the country in response to request from companies claiming labor shortages) even though, as the piece notes, 20 million Americans are currently receiving unemployment benefits.

No, what blew me away about the story were these two sentences:

“In October, a federal judge in California blocked Trump’s ban on foreign guest workers as it applied to hundreds of thousands of U.S. businesses that fought the policy in court.

“The judge found the ban would cause ‘irreparable harm’ to the businesses by interfering with their operations and leading them to lay off employees and close open positions.”

In other words, this judge supported allowing the number of workers overall available to American business to start growing again at a time when enormous numbers of domestic workers nationally have lost their jobs because enormous numbers of the businesses they worked for are being closed (many for good) by the aforementioned shutdown orders and consumer behavior changes.

Yet the judge’s stated reason for admitting these new (foreign) workers at a time when business are shedding enormous numbers of (domestic) workers is that enormous numbers of these same businesses would suffer “irreparable harm” – that is, harm for good – without the foreign workers. (See this post for an exceptionally intelligent discussion of the national business closure numbers, which so far are anything but from definitive.)

Even worse: The business lobbies that have opposed the Trump restrictions are the same groups that for months have condemned what they regard as overly sweeping lockdowns-type mandates for killing off enormous numbers of businesses, and threatening the survival of many others by sharply limiting the amount of customers they serve. And these business organizations insist that companies need more employees? Even though there’s every reason to believe that, at least through the winter, these shutdowns are much likelier to become tighter, not looser?

This isn’t to say that every business in this highly diverse economy during these highly difficult times is facing the same issues or dealing with the same labor market conditions. In fact, there can’t be any reasonable doubt that some companies are experiencing troubles finding the workers they need. Nor can there be any reasonable doubt that pandemic-related travel curbs are complicating their efforts to attract the necessary employees from other parts of the country, even if they raised wages strongly – the response identified by standard economic textbooks for ending labor shortages (even though this wage effect is overwhelmingly ignored by economists who use the same textbooks to support lenient immigration policies).

But how would new foreign workers solve this problem? They’d be subject to the same travel restrictions. And even if employers were willing to pay to bring them safely to their facilities, why couldn’t they extend the same services to any qualified domestic workers they could identify – if they bothered to look for them?

As for other businesses, chances are they favor reopening the immigration sluice gates now during a CCP Virus-induced economic slump for the same reason they favored it in normal times: They simply want to pump up the U.S. labor supply, and thereby drive down the price that labor can command.

Apparent President-elect Joe Biden ran as a champion of American workers. But he’s also taken many strongly pro-Open Borders positions. According to Reuters, although the Trump bans are “presidential proclamations that could be swiftly undone” and Biden has criticized them, the former Vice President “has not yet said whether he would immediately reverse them.”

But if he – not to mention the judge and the business groups – were really concerned about business survival, they’d all focus more on rolling back unjustified lockdown measures and securing more federal aid for struggling enterprises rather than delivering yet another immigration-related slap in the face to an already historically hammered domestic workforce.

Im-Politic: The Swalwell Spy Scandal News Blackout Extends Far Beyond the NY Times

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ABC News, Associated Press, Bloomberg.com, CBS News, China, Christine Fang, Eric Swalwell, espionage, Fang Fang, Fox News, Im-Politic, Mainstream Media, McClatchy News Service, media bias, Michael Bloomberg, MSM, MSNBC, NBC News, NPR, PBS, Reuters, spying, The New York Times, The Wall Street Journal, USAToday

If you’re a news hound, you know that The New York Times, long – and long justifiably – seen as the most important newspaper in the world, has devoted exactly zero coverage to a bombshell report earlier this month that California Democratic Congressman Eric Swalwell several years ago was pretty successfully targeted by a spy from China.

And if you don’t know about this Swalwell story, you should. He’s a member of the House Intelligence Committee, which means that he’s been privy to many of the nation’s most important national security secrets. In addition, he has long been a genuine super-spreader of the myth that President Trump is a Russian agent. So although there’s no evidence so far that Swalwell either wittingly or unwittingly passed any classified or otherwise sensitive information to this alleged spy, understandable questions have been raised about his judgement and therefore his suitability for a seat on this important House panel. Further, he hasn’t denied having an affair with this accused operative, who was known as Christine Fang here, and Fang Fang in her native country.

In other words, it’s a pretty darned big story, and The Times decision to ignore it completely (not even posting on its website wire service accounts of developments) is a flagrant mockery of its trademark slogan “All the News That’s Fit to Print” and clearcut example of media bias – especially since the paper showed no reluctance to report on his abortive presidential campaign this past year or his (always unfounded) attacks on Mr. Trump.

At the same time, if you don’t know about l’affaire Swalwell, you’ve got a pretty compelling excuse. Because The Times has by no means been alone in its lack of interest. Joining it in the zero Swalwell coverage category since the China spy story broke on December 8 have been (based on reviews of their own search engines):

>The Associated Press – possibly the world’s biggest news-gathering organization

>Reuters – another gigantic global news organization

>Bloomberg.com – whose founder and Chairman, Michael Bloomberg, is a leading fan of pre-Trump offshoring-friendly China trade policies

>USAToday

>NBC News

>CBS News

>MSNBC (The FoxNews.com report linked above says this network covered this news once briefly, but noting shows up on its search engine.) 

>National Public Radio (partly funded by the American taxpayer)

>McClatchy (another big news syndicate)

Performing slightly – but only slightly – better have been:

>PBS (one reference on its weekly McLaughlin Group talk show – nothing on its nightly NewsHour)

>ABC News (one news report)

>The Wall Street Journal (one news article, one opinion column)

The Swalwell story isn’t the world’s, or the nation’s, or even Washington’s biggest. But it’s unmistakably a story, and the apparent blackout policy of so many pillars of journalism today, coming on the heels of similar treatment of the various Hunter Biden scandal charges, further strengthens the case that a national institution that’s supposed to play the critical role of watchdog of democracy has gone into a partisan tank.

The only bright spots in this picture? Social media giants Twitter and Facebook haven’t been censoring or arrogantly and selectively fact-checking Swalwell-related material. Yet.

(What’s Left of Our Economy: The Case for Decoupling from China Just Got Even Stronger

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China, consumption, consumption-led growth, decoupling, domestic demand, double-circulation, export-led growth, exports, Financial Times, Michael Pettis, rebalancing, Reuters, semiconductors, tariffs, The Race to the Bottom, Trade, Trump, {What's Left of) Our Economy

Double-circulation is all the rage nowadays in China – or at least among its leaders. No, it’s not anything related to treating the CCP Virus and the blood system. It’s the idea that the People’s Republic needs to shift its economic model away from heavy reliance on growing by exporting to dependence on growing by supplying its own commercial entities and especially consumers.

Double-circulation also could well be seized on by supporters of the pre-Trump U.S. trade policy status quo for easing off on the high tariffs on literally hundreds of billions of dollars worth of Chinese goods aimed at American markets. After all, if China needs to export less, logically anyway, it will also need to resort less to predatory tactics like intellectual property theft, massive subsidies, and technology extortion to juice these exports – whether they come from Chinese-owned entities or from foreign owned companies selling from China in foreign markets like America’s.

A China more focused on domestic demand might even give a break to foreigners trying to reach Chinese consumers, by giving Chinese households and commercial entities greater choices. But even though this point doesn’t follow as closely, the domestic consumption focus of double circulation could produce more opportunities for foreign producers and service providers anyway simply by putting more money in Chinese consumers’ pockets. If so, double circulation could make the Trump administration’s apparent aim to decouple the United States from China whoppingly self-defeating for American businesses and their workers. 

I haven’t bought the double circulation thesis – and its policy implications in particular – ever since I wrote my book on globalization and the U.S. economy, The Race to the Bottom, back in 2000. So I’m especially pleased to report that my case has just been reenforced by a genuinely excellent authority on the Chinese economy, and by the Chinese regime itself. Even better – these reenforcements also strongly support the apparent Trump administration objective of decoupling America’s economy from China’s.  

Just to be clear: At no time during the last twenty years have I doubted that, on the trajectory it was on, China would become much wealthier, and that the purchasing power of Chinese consumers would rise considerably. Moreover, there was no reason to believe that even the protectionists ruling in Beijing would want to shut imports out of the Chinese economy completely.

But I also had no doubt that, however much more the Chinese would consume in absolute terms, the economy’s export dependence would continue for the foreseeable future simply because Chinese incomes were starting from such meager levels. Therefore, the policy challenges created by the growing integration of the Chinese economy into the U.S. and larger global economies would continue as well – and actually intensify.

The reason? The combination of China’s rock-bottom purchasing power in absolute terms, its ambitious and understandable economic development goals, and its determination to advance them by hook or by crook, would keep confronting America and the world with a country that would long need to produce far more than it could consume in order to keep making economic progress.

For it would take decades at best before China’s population could absorb by itself the output needed to fuel Chinese economic development – or even close. The domestic market simply would remain too small. And since that excess output needed to be bought by someone, it needed to be sold overseas. In fact, Beijing would need to constrain the growth of domestic consumption, since in order to keep churning out the goods needed to power more production, most of the economy’s capital needed to be channeled to producers, not consumers.

And just this past week appeared two items strongly indicating that this analysis has always been and remains on target, and highly relevant to the decoupling debate 

The Chinese economy authority I’m talking about is Michael Pettis – who actually teaches at a Chinese university! In an August 25 Financial Times essay, Pettis made the following key points:

>”Double circulation” is nothing more than a fancy new term for “rebalancing” – and has been an officially proclaimed goal in China “since at least 2007.”

>Almost no progress has been made toward rebalancing: “The consumption share of Chinese GDP remains extraordinarily low, just two percentage points higher in 2019 than it was in 2007. Meanwhile, and not coincidentally, during this period China’s debt-to-GDP ratio doubled.”

>And that progress is largely to blame for China racking up so much debt. After all (and here, I’m reading between Pettis’ lines), since the global financial crisis broke out starting 2007-08, slower U.S. and global growth have tightly limited China’s export opportunities. But since even the country’s iron-fisted dictators couldn’t afford politically to antagonize the population by slowing living standards advances, Beijing needed to borrow on an immense scale, and spend most of this credit on an infrastructure binge that included too many unproductive white elephant projects.

>China’s debts are so big that they’re becoming unsustainable. The best way out – while keeping the population’s income progress reasonably intact – is to reignite exports. But – and here’s where Pettis (who details the problem in a new book) echoes my own analysis in an absolutely striking way – such efforts face a fatal contradiction:

“China’s export competitiveness…depends on ensuring that workers are allocated, whether by wages or the social safety net, a very low share of what they produce. China’s export strength, in other words, depends, at least in part, on the low share workers retain of what they produce.”

At the same time, “China can only rely on domestic consumption to drive a much greater share of growth if workers begin to receive a much higher share of what they produce, so the very process of rebalancing must undermine China’s export competitiveness.”

So putting the issue in the terms I’ve been using, and zeroing in on the policy implications – including hopes for the China market – however much Chinese incomes and purchasing power grow in absolute terms, continued Chinese economic progress still depends on its exports growing considerably faster. As a result, whatever U.S. and other foreign producers as a whole gain in selling goods made in their home countries to Chinese customers, they’re bound to lose more in their domestic markets to Chinese-made products. Of course, any number of individual firms will come out ahead. But their domestic economies consistently will come out behind.

Consequently (and these are my ideas, not Pettis’), whatever short-term disruptions, inefficiencies and therefore weakening of growth and employment take place in the course of pursuing decoupling, this strategy is essential for boosting output and employment in the United States over the longer-term, and for making sure that its own economic progress is sustainable – not to mention the decisive strategic benefits of reducing dependence on China in key industries.

The Chinese government confirmation of these China concerns and ideas of mine appeared in a Wednesday Reuters article on the country’s imports of semiconductors from around the world. The fact that they’re so huge (on a pace to top $300 billion this year for the third straight year, despite the Chinese economy’s partly CCP Virus-induced slowdown) is awfully interesting. So is their rapid growth – up from the $200 billion neighborhood in 2013.

But here’s what’s much more interesting, at least for the U.S. debate on China policy: the statement by the vice-chairman of the China Semiconductor Industry Association that “of the chips that China imported, about half would be exported eventually as they are incorporated into other products.”

It’s interesting and crucially important because it undercuts the claim that U.S.-China decoupling could backfire most of all on the companies relied on by America for so much of its technological competitiveness – the semiconductor companies.

The claim is based on the widespread view that these companies earn much, and in some cases most, of their global revenues in China. (See here for specific numbers.) And that’s indeed what they state in their financial reports.

But as the Chinese semiconductor vice-chairman just made clear, these figures are true only in the narrowest, technical sense. Specifically, when firms like Qualcomm or Intel sell a chip to an electronics company that manufactures or assembles in China, the transaction is recorded as a sale in China whose revenue comes from China.

But since half of the chips used in China go into products for export, it’s clear that in many cases, the end user – the ultimate source of the revenue – isn’t in China at all. It’s elsewhere, including prominently the United States.

Put differently, China isn’t simply, or even mainly, a customer itself for foreign-made, including U.S.-made, semiconductors. It’s largely an assembly location and export platform. It’s true that its electronics industry production base overall is now the world’s largest, that much of its output now consists of information technology products as well as consumer electronics, and that reproducing it elsewhere will take major, protracted effort. But the base itself – including China’s own semiconductor industry – could not have been built without the investments of foreign multinational companies. (See, e.g., here and here.) And if the multinationals can create such an immense complex in China, they can create one elsewhere, too, especially presented with the right policy carrots and sticks.

And by the way, the vice-chairman of the China Semiconductor Industry Association isn’t anything like an official from a typical industry association in a place like the United States. He’s a Chinese government official. So there you have it from the dragon’s mouth.

Neither the Pettis article nor the China semiconductor official’s remarks means that the United States should rush headlong into decoupling. But they do indicate that, particularly over the long-term, this dis-integration exercise will be an economic – as well as a national security – winner for Americans.

Following Up: A U.S.-Less Pacific Trade Zone is Still Bogus After All These Years

Tags

Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, Following Up, globalization, Reuters, TPP, Trade, Trans-Pacific Partnership, United Kingdom

Time to pat myself on the back. It’s on a trade issue that may seem obscure, but that’s actually an important example of how completely dishonestly pre-Trump Presidents, and their enablers in the Mainstream Media, tried to sell offshoring-friendly trade agreements and similar policies.

The agreement in question was the Trans-Pacific Partnership (TPP), pushed hard by former Presidents George W. Bush and Barack Obama, but resisted in Congress through the end of 2016 and nixed by Donald Trump two days after his first White House term began.

Any number of arguments were advanced by globalization cheerleaders in government, business, academe, and journalism alike. Some were economic (e.g., the deal would “compel” the 11 other signatory countries throughout the Pacific Basin region to abide by high standards for respecting worker rights and environment protections that would level the proverbial playing field for U.S.-based companies and workers). Some were strategic (mainly, the TPP would be a great instrument for containing the rise of Chinese power and influence in the economically crucial East Asia-Pacific area). They’ve been parroted conveniently here. 

All were utter baloney. For example, as noted on RealityChek, the labor rights and environment provisions of the deal – and other parts aimed at limiting government subsidization of industries – were completely unenforceable. As for the China containment claims, they ignored the TPP rules that permitted the importation into the new free trade zone of products with lots of Made in China parts, components, and materials – meaning that Beijing would have enjoyed many key benefits of the agreement while incurring exactly none of its obligations.

But arguably the most laughable (but widely swallowed) pro-TPP talking point involved the contention that the agreement would open to U.S. exports markets representing an impressive 40 percent of the entire world’s economic output.

I put the torch to that bit of fakery in this 2015 op-ed, which pointed out that at the time, fully 62 percent of the new trade zone consisted of the U.S. economy, and that without America, the rest of the members combined added up to just slightly over 15 percent of global product.

More fun facts: Another 20 percent of the economies of the proposed free trade area was comprised by Mexico and Canada – which were already linked to the United States via the North American Free Trade Agreement (which has since been updated and improved). So the only way anyone could legitimately call the TPP a potential export bonanza for the United States was if they counted America trading with itself.

And just today, a news report came out showing that I’m still right about the minimal possibilities offered by the TPP to the United States’ domestic economy (that is, companies that make their products state-side and employ Americans). According to Reuters, the United Kingdom (UK) is planning to join the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).” That’s an effort by the other TPP countries to create a version of the former agreement without the United States.

The UK’s top trade official is making some familiar-sounding arguments: “Today we’re announcing our intent to pursue accession to CPTPP, one of the world’s largest free trading areas.” And to some extent, I can’t blame her. After all, the country’s trade opportunities will be significantly diminished by the Brexit decision to leave the European Union. So the UK clearly needs all the partial substitutes it can get.

But as Reuters’ coverage makes clear, the prize is even more underwhelming than when I quantified it five years ago, as the U.S.-less trade area right now represents only 13.5 percent of the global economy.

And by the way, as with the pre-Trump United States, London is bound to be disappointed with its new CPTPP partners in another important way: Most of them rely heavily on growing by racking up trade surpluses. That is, agreement or not, they’re unlikely to display any greater appetite for British products and services as they were for any U.S. counterparts or for any foreign products and services – they can’t create them themselves.

Since the 18^th century, “Rule Britannia” has been one of the most popular British patriotic songs. Joining the CPTPP could well prompt a composer to create a modern version titled “Rue Britannia.”

(What’s Left of) Our Economy: Why Rare Earths Independence is At Least as Important as Energy Independence

Tags

5G, Australia, Barack Obama, Canada, cesium, China, Ernest Scheyder, Lynsay Birdall, national security, OilPrice.com, rare earths, Reuters, telecommunications, Trump, {What's Left of) Our Economy

Amid the high and thankfully still-rising levels of concern about America’s dangerous levels of dependence on medical supplies from China, it’s critical to remember that what I call health security isn’t the only form of national security that’s been seriously compromised by reckless pre-Trump policies toward the People’s Republic. The nation’s technology security has been and remains at risk, too, as two recent reports on critical minerals valuably remind.

The problem centers on a group of 16 elements (some say 17) that are called “rare earths.” And they’re not only rare (at least in terms of amounts large enough and concentrations high enough to extract easily and at reasonable cost). They’re crucial to high tech manufacturing – including for all the hardware needed to capitalize on accelerating breakthroughs in artificial intelligence and robotics, and therefore vital to cutting-edge weapons and related military systems. Worst of all: China controls nearly all their worldwide production.

Even the Obama administration – which was at best brain-dead on China policy and at worst corrupt – recognized the fix America was in due to China’s dominant rare earths position. It’s concerns were roused by a Chinese ban on rare earths exports to Japan during a diplomatic dispute. But the Obama-nauts made no meaningful progress in reducing reliance – in part because of environmental regulations on the operations of the only remaining mine for the substances located in on U.S. territory that were actually tightened by Obama. Eventually, he approved the facility’s purchase by a new company, MP Materials, that’s almost a tenth owned by a Chinese investor – which of course means that it’s at least in part owned by the Chinese government.

The Trump administration seems more determined to create a genuine fix. But according to this Reuters report (which also contains most of the above background), it faces an excruciating dilemma. The fastest way to reduce America’s dependence on supplies from China may be to revive government business with that lone domestic mine (located in California and called Mountain Pass) that MP materials says has been suspended by Trump.

The other leading near-term option, observes author Ernest Scheyder, seems to be Pentagon approval (and funding for) the processing in the United States of rare earths imported from Australia – obviously another offshore source, but at least a longstanding U.S. treaty ally.

Washington is also sponsoring the search for more domestic deposits of rare earths that could substitute for supplies from China, as well as for ways to recycle these materials. But even if both projects succeed, any American efforts to revive a significant U.S. industry will need to overcome China’s cheap labor advantage and Beijing’s willingness to price the competition out of rare earths markets – two main reasons for the U.S.-based industry’s demise in the first place.

Meanwhile, a post yesterday on the OilPrice.com website explains the special importance of efforts to break China’s near-monopoly on worldwide supplies of one of these rare earths – cesium. According to author Lynsay Birdall, cesium is vital for its role and potential in advanced healthcare technologies as well as in next-generation 5G communications technologies – which will be key for so much further and closely related economic, overall technological, and national defense progress. When it comes to 5G (where China holds the global lead in much hardware manufacturing), cesium is needed for the super-accurate time-measurement capabilities central to creating its real-time connectivity capabilities. And these in turn are responsible for the vast potential of 5G-enabled advances in mobile networks, the entire internet, and GPS systems.

Birdall reports that only three mines in the entire world can produce this technological equivalent of the finest diamonds, and the only two still open for business (in Canada and Australia) are controlled by China.

Fortunately, another high-grade cesium deposit has been found. It’s also in Canada, but at least its fully controlled by a Canadian company – Power Metals Corp. Unfortunately, the only U.S. cesium-specific measure reported by Birdall is a 2018 decision to add it to the federal government’s official list of critical materials. The list’s creation was approved under Obama in 2010. But not until a December, 2017 directive by Mr. Trump was Washington directed to develop foreign dependence-reduction strategies.

“The Middle East has oil. China has rare earths,” then-Chinese leader Deng Xiaoping said in 1992. The United States has done a terrific job in enhancing its energy independence by reducing the dysfunctional Middle East’s role in its energy supply picture. Achieving rare earth independence should be viewed as at least as crucial.

(What’s Left of) Our Economy: Mainstream Media Never Trump-ism on Trade Gets Weirder and Weirder

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China, consumers, inflation, Mainstream Media, retail, Reuters, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

It’s like they can’t help themselves. Even when Mainstream Media organizations and reporters conduct detailed research showing that President Trump’s tariffs-heavy China trade policies aren’t hurting U.S. consumers in the slightest, they feel compelled to issue dire warnings about the possibility. If you doubt me, check out this Reuters piece from the day before Thanksgiving on how the levies are affecting America’s major retailers.

Reuters, to its credit, actually took the trouble to look at prices to gauge the impact of the Trump levies by examining actual prices – as opposed to economists and to analysts from think tanks and other groups bought and paid for by the corporate offshoring lobby, who toss out apocalyptic numbers based on bogus-at-best methodologies.

The findings, “based on a pricing study conducted for Reuters by retail analytics firm Profitero, which examined online prices from seven large retailers for 21,000 products”?

From the October and November, 2018 to the same months this year, for goods “in key holiday categories including appliances, electronics, toys and video games,” leading big box and other retailers overall have held prices “lower than the average rate of inflation during the same period….”

More specifically, at “Walmart, Walmart-owned Jet.com, Amazon, Target Corp, Best Buy, GameStop, and Staples,” electronics prices rose somewhat more than prices in the U.S. economy across the board, but prices for the other products rose at much lower rates, and toys and video games actually became less expensive in absolute terms.

Nor did Reuters try to hide these results, as the headline reads “Top U.S. retailers absorb tariff pressure ahead of holiday shopping season,” and the same point was made in the lead paragraph.

Nonetheless, the report felt compelled to warn that “America’s trade war with China threatens to push up product prices, which could hurt consumer spending this holiday season, a period which makes up nearly 40% of annual revenue for many retailers.”

Sure that’s true in a technical sense. But this sentence is also about as responsible and accurate as one stating that “disciplining a child threatens to alienate him or her” when there’s no sign of that outcome developing, and when in fact all the evidence shows the discipline working. And as for hurting consumer sales, that currently seems far-fetched as well, based on what’s known about the current holiday shopping season. How do I know this? I read it in another Reuters article.

Moreover, it’s legitimate to ask why Reuters didn’t draw the opposite conclusion from its research: The Trump administration and tariff supporters so far have been right in insisting that consumers could be shielded from tariff-induced inflation, and in fact would be, because retailers know full well that they lack the leverage needed to force prices up, and would need to offset them themselves – by eating the extra costs, offsetting them by becoming more efficient, or some combination of the two.

Yes, this would have entailed writing something positive about the President and his trade policies.  But noxious as that might seem to the Mainstream Media, it would have gad the added virtue of being true. 

Im-Politic: China Experts Who Obviously Ain’t

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: Will Trump Fall for an Old Chinese Trade Trick?

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Asian financial crisis, Canada, China, currency manipulation, Mexico, NAFTA, North American Free Trade Agreement, Reuters, tariffs, Trade, trade war, Trump, value-added tax, VAT, {What's Left of) Our Economy

Three cheers for Reuters! In a September 7 report that I somehow missed, the news agency provided a valuable reminder about a protectionist trick that China has trotted out once again to offset the impact of new U.S. tariffs. In fact, this ploy can be so important that failing to address it could negate many of the benefits created either by the American levies or by any potential agreement by Beijing to curb or eliminate its predatory economic practices. Worse, this stratagem has created loopholes capable of undermining the impact of other recent Trump trade initiatives, like the effort to renegotiate the North American Free Trade Agreement (NAFTA).

The trick in question entails China increasing the value-added tax (VAT) rebates it provides for exports of literally hundreds of products. VATs, of course, are imposed by countries on any goods and services consumed within their borders (including imports), but rebates (refunds) are typically provided to companies for domestically produced goods that are exported. As a result, VATs act as a tariffs and as export subsidies.

China has long used this system for promoting exports, and according to Reuters has just decided to tweak the policy in order to offset the impact of new and impending American tariffs by increasing the rebates that will be received by exporters of 397 categories of goods. As a result, Chinese entities relying on sales of these products to the United States will be relieved of at least some of the new costs these products will ultimately carry. And the export flows could survive relatively intact.

At this point, you might be wondering why the World Trade Organization (WTO) hasn’t been used to combat this subterfuge. Two related reasons: First, nearly all its member states (along with those of its predecessor organization, the General Agreement on Tariffs and Trade) use it. And second, no doubt as a result, the contemporary global trading regime has always viewed VATs as purely domestic taxes that lie beyond its purview.

China, incidentally, has successfully employed VATs to keep prospering at other economies’ expense and escape any global opprobrium in one major instance two decades ago. When much of East Asia fell into financial crisis, and export-reliant economies throughout the region were devaluing their currencies in a frantic effort to stay afloat, fears emerged that financially healthier but just as export-dependent China would follow suit to preserve its global market share. After all, Beijing’s dramatic weakening of its yuan several years earlier played a big role in triggering the crisis to begin with.

In 1997 and 1998, however, the peak crisis years, China held the line – and actually received copious praise for good global citizenship. What almost no one noticed was that the Chinese maintained their newly grabbed export competitiveness by boosting VAT rebates.

Today, this move could not only benefit Chinese trade flows, but enable Beijing to realize many of the gains of further currency devaluation without incurring any of the costs – e.g., triggering major new capital flight; increasing the costs of imported inputs still needed by the Chinese manufacturing base to turn out finished goods; and risking a defeat in the global propaganda wars.

Failure to deal adequately with VATs moreover, could endanger President Trump’s objective of improving NAFTA from a U.S. standpoint. For both Mexico and Canada use this system, too, and there’s no public record of American negotiators even raising the subject.

Fool me once, shame on you, fool me twice, shame on me, goes an old adage. It will apply in spades to the Trump administration if it allows its needed efforts to overhaul U.S. trade policy to be weakened by a continued failure to face up to foreign VATs.