(What’s Left of) Our Economy: With Allies Like These….

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allies, Asia, auto tariffs, China, Europe, Germany, intellectual property theft, Japan, Robert J. Samuelson, South Korea, steel tariffs, tariffs, The Washington Post, Trade, Trump, value-added taxes, {What's Left of) Our Economy

Nationally syndicated Washington Post columnist Robert J. Samuelson intended this week’s essay to show how foolish, and possibly disastrous, President Trump’s emerging new trade policy will be – including for the national security goals the administration has set. That’s why it’s so ironic that his column instead unwittingly revealed how thin a reed the nation’s long-time security strategy has been, and nowhere more so than in the importance it’s assigned to its long-time security alliances in Europe and Asia.

Samuelson’s piece conveys a warning that the administration’s trade policy moves so far are on course to undermine national security in two related ways: by ignoring the alleged imperative of enlisting its major allies in a multilateral campaign to discipline predatory Chinese intellectual property and related trade and industrial policies that need curbing; and by actually antagonizing these countries and thereby jeopardizing the very existence of those alliances.

This argument conveniently overlooks several big trade and security fundamentals. First, globalist pre-Trump American leaders themselves have insisted that they’ve long tried to create multilateral pressure on China’s rogue economic behavior for years before Mr. Trump became president – though it’s unclear how serious these efforts were. For example, the Trans-Pacific Partnership (TPP) trade deal largely touted by the Obama administration for its potential to curb China’s influence contained a back door for numerous imports with major levels of Chinese content.

Second, it’s anything but obvious that U.S. alliances strengthen American security on net. As I’ve pointed out frequently (including this past week), they continue to expose the American homeland to the risk of nuclear attack even though the Soviet-style kinds of global threats their nuclear guarantees were intended to counter have been (literally) gone for nearly three decades. Moreover, as has been widely reported, the militaries of many of these allies have deteriorated so markedly that their potential as force multipliers for the United States is open to serious doubt.

But Samuelson’s analysis makes no sense even if these considerations are put aside. The key is in his own portrayal of leading U.S. allies – which he describes as livid about recent American steel tariffs, and sure to become even angrier is levies are imposed on their motor vehicle exports to the United States. Indeed, he worries, major auto-exporting countries like Germany, Japan, and South Korea could well become so upset with the United States that they not only retaliate in kind, but unhesitatingly move to supply China with whatever high tech goods and services Washington embargoes or restricts.

In other words, these allies would redouble their efforts to feed the Chinese beast even though all of them face China trade, technology, and/or national security threats of their own, and even though the United States continues to provide them with crucial military protection – including, in the case of Japan and South Korea, from Chinese designs. But these same allies were supposed to be amenable to cooperating with Washington to deal with China? Even more revealing, the allies would choose to intensify confrontation with the United States instead of (finally) proposing concrete steps to deal with the China problem over which they profess concern.

And they would display no interest whatever in meaningfully removing the formidable obstacles they have created to block American automotive exports. (The recently reported German auto-makers’ proposal to eliminate all tariffs in the sector on both sides of the Atlantic would leave in place towering European value-added taxes – e.g., 19 percent in Germany – on motor vehicles and most other imports. No such U.S. equivalent exists either for autos or for light trucks and sport utility vehicles.)

No one can fault these European and East Asian countries from acting in their own perceived interests – or even for trying to have their cake and eat it, too. Indeed, for decades, globalist American foreign policies have encouraged and actively enabled precisely this kind of free-riding. What these countries should be faulted for is posing as allies (let alone allies with justifiably hurt feelings), and worse, as paragons of sobriety and free market values nobly resisting a wrecking ball of an American President. As for any Americans and U.S. leaders who keep fooled by this act for so long and, more important, failing to take the policy hints – shame on them.

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Our So-Called Foreign Policy: North Korea, China, & the (Inevitable) Limits of Diplomacy

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agriculture, China, commodities, diplomacy, energy, Iran, Kim Jong Un, LIbya, Made in China 2025, manufacturing, Muammar el-Qaddafi, North Korea, nuclear weapons, Our So-Called Foreign Policy, Russia, Saddam Hussein, Saudi Arabia, South Korea, tariffs, technology, Trade, trade deficit, tripwire, Trump, Ukraine

Diplomacy has sure taken a beating these last few days. And revealingly, that looks like a good thing.

Let me explain: I have no problem whatever with countries trying to resolve their differences peacefully, through dialogue and compromise. But in the nuclear age, and especially after America’s Vietnam debacle, this age-old concept has turned into a foreign policy magic bullet in the United States – including among the nation’s bipartisan globalist establishment. So the collapse (for now) of plans for a summit between President Trump and North Korean dictator Kim Jong Un, and the failure so far of the President to make any headway in curbing China’s predatory trade practices, could be welcome developments. For these developments could remind Americans of diplomacy’s limits in promoting U.S. national interests (the overriding priority of the nation’s foreign policy), and how even on crucial issues of war and peace, it can be completely pointless and even dangerously distracting.

On North Korea, there have always been strong grounds for skepticism that negotiations could achieve America’s main objective – the complete elimination of Kim Jong Un’s nuclear weapons. It’s true that Kim has appeared more interested in economic reform than his father or grandfather – who preceded him in power. Therefore, in principle, he would be more responsive to economic carrots and sticks. On the one hand, he might be amenable to surrendering his arsenal in exchange for foreign investment and aid (along with security-related concessions from the United States like formal recognition of his regime, a peace treaty ending the decades-long state of war between Pyongyang and its enemies). On the other hand, he might be more concerned about the impact of the sanctions that President Trump has both broadened and intensified.

Yet it was always difficult to believe that Kim would prize any of these considerations above his regime’s defense against overseas threats, and for these purposes, nuclear weapons are hard to beat. As widely noted, he’s surely been impressed by the gruesome fates of fellow autocrats who gave up their nuclear hopes (Libya’s Muammar el-Qaddafi) or who hadn’t the chance to develop these weapons (Iran’s Saddam Hussein).

Further, Kim also is no doubt aware of a third recent example of a country paying heavily for signing away its nuclear weapon status: Ukraine. In 1994, that nation agreed to dismantle the large nuclear force stationed on its soil when it was part of the Soviet Union, and left there after the USSR’s demise. In return, it received security promises from the United States, the United Kingdom, and Russia that its territorial integrity would be respected. A quarter century later, Moscow has seized effective control over much of the country’s eastern half.

Moreover, if a Trump-Kim summit and follow-on negotiations resulted in a compromise that left the North with some kind of nuclear arsenal, this “victory” could eventually become disastrous for America and its homeland. For there would be no guarantee that Kim would have truly abandoned his family’s goal of dominating the Korean peninsula through nuclear-aided conquest or intimidation of the South. And as long as large U.S. ground forces remained in South Korea, the outbreak of war would still threaten to draw Washington into a conflict with a foe capable of hitting its territory with nuclear warheads.

That still-live prospect should be an awfully powerful reason for switching to a strategy I’ve long advocated – ditching diplomacy, withdrawing the U.S. troops in South Korea that expose the United States to nuclear danger, and permitting North Korea’s neighbors to handle Kim and his nuclear ambitions any way they wish.

Trade diplomacy with China doesn’t threaten to turn an American city into a glowing ruin. But it’s all too likely to result in open-ended talks that do as little to combat the economic and security threats created by Beijing’s trade predation as previous negotiations involving President Trump’s predecessors. As I’ve recently written, even if his administration could come up with a coherent set of priorities, adequately verifying any Chinese compliance with U.S. positions is a pipe dream.

But this latest American attempt at trade diplomacy faces two other seemingly insuperable obstacles. First, the President’s objective of reducing the U.S.’ massive bilateral trade deficit with China appears to neglect the makeup of this deficit – which matters more than its size. Specifically, his proposals to date envision narrowing the trade gap mainly by boosting American exports of farm products and energy to China.

Both sectors of the U.S. economy are obviously important. But neither can become a major driver of sustainable American prosperity, because they’re essentially involved in producing commodities – which have never added nearly as much value to national economy as manufactures. That’s why developing countries invariably view a transition from agriculture to industry as the key to their hopes for rising living standards, and why even wealthy energy producers like Saudi Arabia have resolved to focus more on manufacturing and other higher value activities.

And P.S. – that’s no doubt why the Chinese clearly consider this American demand the most appealing on the Trump agenda.

As for the intertwined threats of continued and rampant Chinese intellectual property theft, and of China’s master plan to lead the world in a wide array of “industries of the future” (the Made in China 2025 program), U.S. tariffs on the goods and services these policies already enable Beijing to produce and export could well deal its ambitions a major blow. And clearly, that’s the Trump administration’s aim.

But if so, why negotiate over these matters? The United States has made reasonably clear what it wants China to do. And it’s declared its intent to retaliate with trade curbs if China balks. If the Trump administration is serious about this approach, and confident that it will succeed, what is there left to talk about? Either the Chinese accede (in which case, as I wrote this week, towering verification challenges would remain), or they dig in their heels and the tariffs follow.

Further talks, unless they’re simply aimed at clarifying American positions, can only muddy the waters and encourage endless Chinese foot-dragging – including regularly throwing Washington a few crumbs of market share – by telegraphing a Trump reluctance to pull the trigger. All the while, the Chinese tech prowess ostensibly alarming Americans across the political spectrum will keep growing.

And as with the case of the Korean crisis, a far better American approach would be disengagement – i.e., a series of measures aimed at reversing the disastrously wrongheaded twenty-year U.S. effort to more closely link the nation’s fate to a country with which mutually beneficial commerce was never possible. The Trump administration has already taken some important steps in this direction. Chiefly, it has greatly tightened restrictions on Chinese takeovers of economic assets in the United States. And the President’s threatened tariffs have induced some factories to move from China to the United States. But as previously indicated, the administration also seems bent on helping U.S. companies invest more in the Chinese economy, which can only further widen the trade deficit and hand China more cutting edge American technology. And it’s given no hint of a comprehensive strategy to bring manufacturing supply chains now concentrated in China back to the United States.

The latter task, in particular, will entail a long-term effort – not exactly the American governing system’s strong suit these days. And success will also depend on thoroughgoing domestic policy reform. (See this article for one sensible list.) But compared with the apparent belief that, over any policy-relevant time frame, China’s will become an economy compatible with America’s, it’s the height of realism.

(What’s Left of) Our Economy: As Beijing Talks Begin, Lower March U.S. China Trade Deficit Reported – But the Drop Looks Seasonal

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Canada, Census Bureau, China, EU, European Union, exports, high tech goods trade, imports, Made in Washington trade deficit, manufacturing trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, {What's Left of) Our Economy

The onset of top-level U.S.-China trade talks in Beijing roughly coincided with the release of the March monthly U.S. trade figures, which showed that the monthly American merchandise deficit fell to its lowest level ($25.88 billion) since the previous April ($27.63 billion). Nonetheless, this new figure was the second biggest such total for March on record, behind 2015’s $31.24 billion. In addition, the U.S. goods deficit with China is still running 15.52 percent ahead of 2017’s record yearly rate.

Partly as a result of the China improvement, the combined U.S. goods and services trade shortfall in March plunged to its lowest monthly level ($49.86 billion) since last September’s $45.30 billion. And the sequential decline of 15.22 percent was the biggest since the 17.47 percent plunge in March, 2016. March’s totals for combined U.S. exports, goods exports, and high tech goods exports were all monthly records ($208.53 billion, $140.88 billion, and $34.85 billion, respectively). The all-time high in total exports was the third monthly record in the last four months. And the sequential high tech goods gain was a new all-time best (33.95 percent) even for this volatile category.

America’s merchandise trade with Canada racked up its largest monthly surplus on record ($306.1 million), but the U.S. goods deficit with its other NAFTA trade partner, Mexico, jumped to its biggest monthly total ever ($8.05 billion). Amid trans-Atlantic wrangling over American metals tariffs, new monthly records were also set for U.S. goods exports to and imports from the European Union ($29.85 billion and $41.99 billion, respectively), while the March U.S. goods export figure for South Korea was also the best on record ($5.09 billion).

America’s huge and chronic manufacturing trade deficit rose from $73.21 billion in February to $74.53 billion in March, and stayed on course to exceed $1 trillion this year. The March figure also showed that the drag on the current economic recovery from the growth of the Made in Washington trade deficit – that portion of U.S. trade flows most heavily influenced by trade deals and other trade policy decisions – dipped from 18.37 percent in real terms in the fourth quarter of last year (or $538.38 billion in constant dollars) to 17.66 percent ($535.09 billion in constant dollars) in the first quarter of this year.

Here are selected highlights of the latest monthly (March) trade balance figures released this morning by the Census Bureau:

>As a top-level Trump administration delegation arrived in Beijing for possibly contentious trade talks with China, the Census Bureau reported that the massive American goods deficit with the PRC – whose reduction is a leading on the U.S. goal – fell in March by 11.57 percent to its lowest level ($25.87 billion) since the previous April ($27.63 billion).

>At the same time, because U.S.-China goods trade is strongly influenced by seasonal factors, it was also noteworthy that this new March total was the second highest of all time – behind only 2015’s $31.24 billion.

>In addition, even this latest improvement left the bilateral merchandise shortfall running 15.52 percent ahead of last year’s rate, which produced an annual record of $375.23 billion.

>American goods exports to China jumped by 26.27 percent sequentially in March – the biggest such increase since the 32.70 percent advance in October, 2016 – to reach $12.38 billion.

>U.S. goods imports from China fell sequentially in March for the second straight month, to $38.26 billion. That total was the lowest monthly figure since last May’s $41.80 billion.

>The monthly improvement in goods trade with China helped push the combined U.S. goods and services trade deficit down 15.22 percent sequentially, from an upwardly adjusted $57.74 billion in February to $48.96 billion. The February figure was the highest since October, 2008.

>The monthly drop, moreover, was the biggest since March, 2016’s 17.47 percent.

>U.S. total exports hit a new record in March, with the $208.53 billion figure standing 2.04 percent higher than February’s downwardly revised figure of $204.35 billion. In addition, this was the third all-time monthly total export high achieved in the last four months.

>America’s merchandise exports reached an all-time high in March as well, rising 2.37 percent from February’s downwardly revised $137.13 billion to $140.88 billion.

>Another monthly trade best: high tech goods exports. At $34.85 billion, they were 33.95 percent higher than February’s $26.02 billion. High tech goods trade numbers tend to be volatile, but this advance was the greatest on record.

>Largely as a result, the high tech goods trade deficit sank 23.04 percent on month, from $7.93 billion to $6.11 billion – the second straight post-May, 2017 low.

>High tech imports soared on month in March, too – by 20.64 percent, to $40.96 billion. That was the biggest such increase since last March’s 24.58 percent. And the total was the biggest ever for a March.

>The high tech goods deficit is running fully 33.89 percent ahead of last year’s rate – which resulted in the biggest such shortfall on record.

>U.S. merchandise trade with Canada reached its own milestone in March – the biggest monthly American surplus of all time ($306.1 million). In February, the United States ran a deficit of $404.2 million.

>American goods exports to Canada surged by 15.26 percent on month in March, to $27.10 billion. That was the highest monthly total since October, 2014’s $28.39 billion.

>U.S. goods imports from Canada rose robustly, too – by 12.04 percent, to $26.80 billion. That was their highest monthly total since June, 2015’s $27.34 billion.

>The U.S. merchandise deficit with Canada is running 44.72 percent behind last year’s rate.

>The March trade picture for America’s other NAFTA partner, Mexico, was strikingly different. The U.S. goods deficit of $8.05 billion set a new monthly record.

>U.S. merchandise exports to Mexico rose by 8.31 percent on month, to $21.91 billion (the third highest total on record). But merchandise imports climbed by 13.96 percent, to a new record $29.96 billion.

>The merchandise deficit with Mexico is running 9.01 percent ahead of last year’s pace, which at $71.06 billion was the second highest annual total ever (after 2007’s $74.80 billion).

>Amid continued feuding between the United States and the European Union (EU), America’s merchandise trade deficit with the grouping inched up by 0.82 percent on month in March, from $12.05 billion to $12.15 billion.

>Though this total was far from an all-time high, both U.S. goods exports to and imports from the EU set new monthly records in March – $29.85 billion and $41.99 billion, respectively.

>The 19.51 percent percent monthly export increase was the biggest since March, 2011’s 22.51 percent.

>America’s goods deficit with the EU is running 17.71 percent ahead of last year’s rate, which resulted in the second highest annual figure ever ($151.42 billion, with the record being 2015’s $155.66 billion).

>The U.S. merchandise trade deficit with South Korea soared by 58.61 percent on month in March, to $1.08 billion. But this total was at the low end of the recent range. Moreover, in February, the goods shortfall cratered by 65.28 percent.

>The immense and longstanding American manufacturing trade deficit 73.21 to 74.53

>More notably, American goods exports to South Korea climbed to $5.09 billion – a new all-time high. Further, the 18.53 percent sequential advance was the fastest monthly rate of increase since the previous March’s 22.04 percent.

>U.S. merchandise imports from South Korea rose even faster on month in March – by 23.96 percent, to $6.17 billion. That increase, however, followed a 12.05 percent monthly decrease, repeating a roller-coaster pattern that has been typical for the first quarter of the year.

>Nonetheless, the year-on-year shrinkage of the U.S. merchandise trade gap with South Korea has been impressive – 64.30 percent.

>Volatility has also marked the immense and longstanding U.S. manufacturing trade deficit. After sinking dramatically in February from January’s $86.62 billion (the second highest monthly total on record, following last October’s $88.98 billion), the shortfall rebounded by 1.80 percent – from $73.21 billion to $74.53 billion.

>Manufactures exports increased robustly on month, by 18.56 percent, to $10.5.35 billion. But the far greater amount of manufactures imports rose by 10.99 percent, to $179.88 billion.

>This manufacturing trade gap is now running 13.87 percent ahead of last year’s pace – which produced a record total $927.48 billion annual total.

>As a result, if current trends continue, the manufacturing trade shortfall will top $1 trillion this year.

>The March trade figures permit calculation of the drag exerted as of the first quarter of 2018 on the current American economic recovery of the growth of the Made in Washington trade deficit. This consists of the trade flows, adjusted for inflation, that are most heavily influenced by U.S. trade agreements and similar trade policy decisions – i.e., the nation’s non-oil goods trade.

>As of the fourth quarter of last year, this trade drag had reduced cumulative recovery growth by 18.37 percent, or $538.38 billion in constant dollars.

>In the first quarter of this year, the drag was lower – 17.66 percent, or $535.09 billion in constant dollars.

Our So-Called Foreign Policy: The Trump-Kim Summit is a Spectacular – but Dangerous – Distraction

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Barack Obama, Kim Jong Un, North Korea, nuclear buildup, nuclear deterrence, Our So-Called Foreign Policy, preventive strike, South Korea, Trump

The more the circumstances surrounding the North Korea nuclear crisis change, the more they remain fundamentally the same – and that includes the dramatic recent news that President Trump and North Korean dictator Kim Jong Un have decided to hold the first ever meeting between the top leaders of the two countries presumably to energize efforts to reach some kind of negotiated solution. As a result, it’s still the case, as I’ve argued repeatedly, that America’s only sane course of action is not to plunge even more deeply into the potentially deadly affairs of this far-off peninsula. It’s to disengage, especially militarily, and let North Korea’s big, wealthy neighbors deal with Pyongyang’s nuclear forces any way they wish.

Before the historic announcement of the Trump-Kim summit – which is far from certain actually to be held – the case for U.S. disengagement was growing more compelling by the day. The North’s rapid progress toward building a nuclear-tipped missile that could strike targets in the continental United States meant that America’s decades-old strategy of deterring Northern aggression against the South had become dangerously obsolete. Before North Korea had reached this stage, this U.S. defense guarantee was risk-free for the American homeland. Because Pyongyang could pose no threat to the United States itself, Washington could even safely afford to station nearly 30,000 combat troops directly in harm’s way in South Korea literally to trap a President into using nuclear weapons to defend the South against attack from the North and its superior non-nuclear military. And precisely because of America’s nuclear weapons monopoly, the promise was supremely credible.

With that monopoly nearly gone, the tables are turning completely. Once the North gains reasonably reliable intercontinental nuclear attack capability, America’s policy will become one of risking the complete destruction of U.S. cities for the security of another country – and a relatively unimportant one at that. And since even the landing of a single warhead one such a target would create a catastrophe never even remotely approached in American history, the current U.S. strategy will become completely non-credible. Even worse, however: As long as such a large American military force remains in South Korea, a U.S. President still may have no real choice but to proceed down the nuclear road – or accept mass American military casualties inflicted by a North Korean invasion.

It’s entirely possible that the big new twist in this story could wind up bringing the United States (and South Korea and East Asia in general) the best of all possible worlds: a verifiably denuclearized North and the preservation of American security alliances that Washington has long prized (with little evidence to be sure) as guarantors of decisive American influence in this economically vibrant region. President Trump’s stance toward the North is indeed a striking contrast to the can-kicking Obama posture of “strategic patience,” and a case can be made that the new administration’s combination of stronger military threats and economic sanctions has convinced the North that its historic truculence and defiance has become too risky. In this vein, it’s also possible that, as erratically as he’s often acted, Kim is a North Korean leader with a difference – specifically, one who significantly values his country’s economic well-being and who might be willing to trade some regained access to the world economy for his nuclear arsenal.

Sadly, it’s at least as easy to make the case that Kim will never give up his nuclear weapons (because he views them as his best guarantor of survival given the United States’ recent record of miltarily deposing other despots like Iraq’s Saddam Hussein and Libya’s Muammar Qaddafi), and that a U.S. administration ardently desiring the semblance of diplomatic victory will accept a compromise that leaves at least much of Kim’s nuclear arsenal in place, that provides valuable economic support for his regime, and that leaves at least many of the American forces in harm’s way in Korea. But this outcome would simply leave the United States in the same position as today – hostage to events in a region retaining far too many powder keg characteristics, and vulnerable to entrapment in a nuclear war if its reading of Kim and his ultimate intentions isn’t largely accurate.

Alternatively, President Trump could well continue insisting on full, verifiable denuclearization by the North, end or suspend negotiations if he’s persuaded that he’s getting conned, tighten the sanctions further in the hope that they’ll ultimately push Kim to accept U.S. terms – and even resume talk of preventive attack to (try to) make sure that the North never finishes building nuclear weapons that can be used against the America’s homeland or any of its territories, or simply to coerce greater cooperation from the North. Of course, this outcome would also leave the United States in substantially the same perilous position as at present.

As a result, the only way to drive down the risk of nuclear attack from North Korea to an acceptable level – and to enable Washington to run this risk in the first place as a matter of choice and not necessity (in order to save the troops deployed in the South) – is to pull those troops out ASAP, or by some date certain.

As I’ve noted, continued nuclear progress could still bring North Korea the ability to attack the United States with these weapons. But with the United States playing no military role in his backyard, why would it do so? Moreover, although in these circumstances an American promise to defend the South with nuclear weapons lacks would lack needed credibility (because of America’s own vulnerability), an American promise to defend itself with these devices would be supremely credible.

U.S. disengagement would indeed leave North Korea’s neighbors with many of these dangerous dilemmas. But because they’re neighbors, they have far greater stakes in dealing with them successfully than the distant United States. And because they’re among the world’s leading powers (China, Japan, and Russia, as well as South Korea), they surely have ample capabilities, or at least potential, to meet the North Korea challenge.

Are they guaranteed to succeed? Absolutely not. In fact, as supporters of the U.S. policy status quo keep insisting, an American withdrawal could destabilize the region, and even trigger conflict. But the real choices facing the United States are not between the good and the bad, but between the bad and the worse. And when the worse carries any significant possibility of a nuclear attack on American soil, the call shouldn’t even be close.

(What’s Left of) Our Economy: February’s Big New U.S. Trade Deficit Driven by Lots of Volatile Internals

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Canada, China, exports, Financial Crisis, Great Recession, high tech goods, imports, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, services, South Korea, Trade, Trade Deficits, Trump administration, {What's Left of) Our Economy

The U.S. monthly trade deficit rose for the sixth straight month in February, to its highest level ($57.79 billion) since some of the darkest days of the last financial crisis (October, 2008’s $60.19 billion). Combined U.S. goods and services exports set their third monthly record ($204.45 billion) in the last four months, but total imports (at $262.04 billion) hit their fifth straight monthly all-time high. New monthly records were also set for goods imports ($214.49 billion), services exports (for the tenth straight month, with a total of $67.27 billion) and services imports ($47.85 billion).

With U.S.-China trade tensions rising, the huge and chronic American trade shortfall with the PRC sank by 18.61 percent on month in February, but the drop was from an unusually high January figure ,and the new total ranked as the biggest February number ever ($29.26 billion). Similar volatility was on display with the U.S. deficits with other trade partners in the Trump administration’s crosshairs, including South Korea, Canada, and Mexico, as well as in manufacturing and high tech goods.

Here are selected highlights of the latest monthly (February) trade balance figures released Thursday morning by the Census Bureau:

>In the process of revealing several new all-time records and multi-year highs and lows, this morning’s U.S. trade balance report also made clear how volatile the nation’s monthly trade figures can be – including those describing the nation’s commerce with major foreign economies whose trade policies have evoked first criticism and now tariffs and threatened levees from the Trump administration.

>The combined U.S. goods and services trade deficit rose in February sequentially for the sixth straight month. The $57.59 billion total, a 1.63 percent increase from January’s upwardly adjusted $56.67 billion figure, was the biggest monthly trade shortfall since October, 2008’s $60.19 billion – when the Lehman Brothers bankruptcy pushed the global financial crisis into a dangerous new phase and ultimately helped usher in America’s worst downturn since the Great Depression of the 1930s.

> U.S. total exports in February set their third new record in the last four months. At $204.45 billion, they were 1.74 percent greater than January’s upwardly adjusted $200.95 billion and 0.41 percent higher than the previous best of $203.61 billion, set last December.

>But U.S. total imports in February set their fifth straight monthly record. The $262.04 billion total was 1.72 percent higher than the upwardly adjusted January level of $257.61 billion – the previous record.

>The $77.01 billion February U.S. trade deficit in goods was also the biggest such total since the last recession – specifically, the $77.63 billion figure for July, 2008. Sequentially, it grew 0.39 percent from January’s upwardly adjusted $76.71 billion.

>America’s services trade remained healthily in surplus in February. But the $19.42 billion excess of exports over imports was the smallest such total since December, 2012’s $18.63 billion. Month-on-month, the services surplus sank by 3.12 percent in February from January’s upwardly adjusted $20.04 billion – the biggest such drop since last April’s 4.88 percent plunge.

>U.S. goods imports set their third record in the last four months in February. At $214.19 billion, they exceeded the January total (the previous record, which has been upwardly adjusted) of $210.86 billion by 1.58 percent.

>Services exports in February set their tenth straight monthly record, rising sequentially by 0.70 percent from an upwardly adjusted $66.80 billion to $67.27 billion.

>Services imports in February set their fourth straight monthly record, rising sequentially by 2.34 percent from a downwardly adjusted $46.76 billion to $47.85 billion. The monthly increase, moreover, was the biggest since August 2016’s 3.67 percent.

>At the same time, reportedly, the February services imports total was fueled in part by payments made by American broadcasters for the rights to televise the Seoul Winter Olympics.

>With U.S.-China trade tensions escalating, the February figures showed that the massive, chronic goods trade surplus run by China with the United States plunged by 18.61 percent sequentially, from $35.95 billion (the second highest monthly total ever) to $29.26 billion.

>The February figure was the lowest since April, 2017’s $27.63 billion, and the monthly decrease was the biggest since last February’s 26.64 percent. Yet the February figure was an all-time February high.

>U.S. goods exports in February declined by 0.30 percent, from $9.84 billion to $9.81 billion – the lowest such total since last April’s $9.84 billion.

>The much larger amount of U.S. goods imports from China sank sequentially by 14.68 percent in February, from $45.79 billion to $39.07 billion.

>The goods import decline was the biggest since last February’s 20.82 percent, and the monthly total was the lowest since April’s $37.47 billion. Yet as with the goods deficit, the new February goods import total was a new monthly record for February.

>A similar story is told by the new statistics for U.S. merchandise trade with South Korea, whose bilateral trade deal with the United States was recently renegotiated.

>America’s goods trade deficit with South Korea also shrank dramatically on month in February – by 65.28 percent, from $1.97 billion to $0.68 billion.

>The February total was the lowest since the 0.56 billion figure recorded for March, 2012 – as the trade agreement went into effect. The month-on-month plummet, moreover, was the biggest since the 70.50 percent drop in February, 2012.

>Yet the January U.S.-South Korea merchandise trade deficit was the biggest since October’s $2.51 billion.

>Still, the composition of the monthly U.S.-South Korea goods trade deficit change differed dramatically from that of the U.S.-China deficit.

>Not only did U.S. merchandise imports from South Korea fall sequentially by 12.05 percent – to $4.97 billion, the lowest such total since last February’s $4.87 billion, and the greatest monthly percentage drop since that month. U.S. merchandise exports to South Korea also jumped on month by 16.36 percent, to $4.92 billion.

>That increase was the biggest percentage-wise since last March’s 22.04 percent.

>The U.S.’ merchandise shortfall with Canada nosedived in February, too – by 89.59 percent on month, from January’s $3.70 billion to $0.38 billion.

>The total was the lowest since last September’s $0.25 billion, and the sequential drop was the steepest since May, 2016’s 95.84 percent.

>But the January deficit was the biggest since December, 2014’s $4.07 billion.

>Most of the U.S.-Canada merchandise deficit’s February monthly decrease came on the American imports side, as these purchases declined by 8.95 percent to $23.92 billion – the largest such decrease since last July’s 11.49 percent, and the lowest such total since that month’s $22.89 billion.

>But U.S. goods exports to Canada also rose on month in February – by 4.28 percent, to $23.53 billion.

>A different kind of volatility was exhibited by U.S. merchandise trade with its other North American Free Trade Agreement (NAFTA) partner, Mexico.

>The American goods trade shortfall with Mexico soared by 46.62 percent sequentially in February, to $6.06 billion. That’s the biggest such increase since the 81.73 percent of March, 2001 – nearly 17 years ago.

>Yet the $4.14 billion January U.S. merchandise deficit with Mexico was the smallest since last January’s $3.95 billion.

>U.S. goods exports to Mexico sank by 7.24 percent on month in February, to a five-month low of $20.22 billion, while goods imports from Mexico climbed by 1.35 percent, to $26.29 billion.

>Volatility in these bilateral deficits was mirrored in February by volatility in the manufacturing trade deficit. This chronic and enormous shortfall plunged sequentially by 15.48 percent, to $73.21 billion. But the January total of $86.62 billion was the second highest of all time.

>Manufacturing exports improved by 2.89 percent sequentially in February, to $88.86 billion, while imports skidded by 6.31 percent, to $162.07 billion.

>High tech goods trade displayed major ups and downs, too. In February, the shortfall cratered 30.96 percent, to $7.93 billion. That was the smallest total since last April’s $6.04 billion.

>But the $11.49 billion January gap was 14.25 percent bigger than the December figure.

Our So-Called Foreign Policy: Keeping an Eye on the North Korea Ball

Tags

alliances, Kim Jong Un, North Korea, nuclear weapons, Our So-Called Foreign Policy, South Korea, Trump

It’s all too understandable that the stunning announcement of a possible summit between President Trump and North Korean dictator Kim Jong Un has triggered a torrent of comment and speculation about a series of critical details. And they’re all important, including:

>identifying the exact preconditions;

>figuring out how to verify that North Korea is abiding by them;

>determining whether more groundwork should have been laid at lower government levels by both sides before the leaders meet in person;

>evaluating whether Pyongyang’s interest in talks differs from previous such offers;

>more specifically, assessing whether Kim’s move stems from offensive considerations (like splitting the U.S.-South Korea alliance) or defensive (seeking relief from sanctions that may be starting to bite deeply);

>mapping out a strategy for talks assuming that the summit doesn’t produce a comprehensive agreement; and deciding how to foster genuine North Korean denuclearization.

Nonetheless, none of these issues should distract American leaders from what remains their overriding priority – realizing that the North’s major progress toward developing nuclear weapons that can strike the United States has fundamentally changed America’s paramount interest in the region.

As I’ve written in many previous posts, before Pyongyang’s nuclear weapons program reached this stage, it was reasonable (though not without major dangers) for the United States to focus on deterring a North Korean conventional military attack on South Korea, and to stick tens of thousands of American troops in harm’s way on the peninsula to convince the North that any such move would trigger a devastating U.S. nuclear response. The simple reason: This strategy posed no risk to the American homeland.

Now that North Korea apparently is on the verge of being able credibly to threaten the United States with nuclear attack, America’s ongoing strategy is exposing the nation to one of the worst catastrophes imaginable, and for stakes that to me are impossible to justify – the security of a medium-sized country located halfway around the world. Unless you think Kim ultimately hopes to conquer all of East Asia, or bring it under his sway? Or even the Western Hemisphere?

That’s why I keep insisting that the only sensible move for the United States is to pull the troops out, let the wealthy, powerful countries of the region deal with North Korea however they wish, and thereby completely remove any plausible reason for Kim even to threaten nuclear weapons use against the United States, much less follow through if a conflict breaks out.

In fairness, the more serious threat evidently alarming supporters of the American policy status quo is that such a U.S. withdrawal from the scene is that Asia-Pacific countries lose faith in various U.S. defense guarantees it’s enjoyed for decades, look to China to rein in Kim and maintain peace and stability in the region, and let China write the rules for doing business in this economically dynamic area in ways that largely shut out America.

The obvious rejoinders are:

>It’s already excruciatingly difficult for many American companies and entire industries to compete satisfactorily in the region’s often highly protectionist economies – indeed, for decades, Washington has permitted these inequities to persist precisely out of the (bizarre) fear that pressing for genuinely free trade would antagonize these allies and protectorates; 

>whoever sets the framework for trade and other forms of commerce the region, most of its economies will need to access the U.S. market to sustain the exports that have fueled so much of their growth. So (as always) Washington will have all the leverage it needs in economic diplomacy, and will simply need to start using it; and

>however important economic interests are (and I’d be the last to belittle them), it’s unimaginable that, if the security of the entire nation is not at risk in a given situation (which it clearly need not be in the current Korean crisis), any American objectives even begin to compare with the imperative of preventing the nuclear destruction of any major U.S. cities. And if crucial American economic interests can only be protected satisfactorily by courting such nuclear risks, then the country urgently needs a new approach to economics and business.

Incidentally, the one aspect of the apparent (and we need to underscore the continuing uncertainties here) terms under which the summit will take place that deserves greater attention has to do with the seeming North Korean pledge to halt missile testing. I’ve worried that the summit and any subsequent talks could proceed while enabling the North to continue perfecting its nuclear capabilities. For example, despite North Korea’s apparent promise to halt all nuclear-related tests, it doesn’t seem possible to verify that Kim’s scientists have stopped trying to master challenges such as affixing a miniaturized nuclear warhead onto a missile (though reportedly, American intelligence officials believe they’re pretty darned close).

But a missile test freeze at this time does seem especially valuable, given how close Pyongyang appears to be to being able to deliver these weapons across oceans. More such testing is absolutely essential to creating a weapon that could accomplish this goal with high confidence, which presumably (though with North Korea, you never know) Kim would desperately want in a crisis. And verifying a test freeze is pretty easy. The missiles either come out of their silos or they don’t.

So since that’s the North Korea capability that the United States needs most to worry about by far, Pyongyang’s apparent commitment on this front could buy America valuable time. Nonetheless, nuclear risk would remain for the United States, and for reasons that no one taking seriously the principle of “America First” – or anyone other American with their head screwed on right – should tolerate. As a result, I’d still much rather wash America’s hands of this mess and let the locals deal with it.

(What’s Left of) Our Economy: On Eve of Trump Tariffs, a Big Increase for the (January) U.S. Trade Deficit

Tags

Canada, China, European Union, exports, high tech goods trade, imports, manufacturing, merchandise trade, Mexico, NAFTA, North American Free Trade Agreement, oil, South Korea, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

The U.S. monthly trade deficit surged in January to its highest level ($56.6o billion) since October, 2008 ($60.19 billion) – when the Lehman Brothers bankruptcy sparked a worldwide financial and economic panic.

New all-time records were set by monthly services exports ($66.66 billion) and imports ($46.78 billion), and December results for both were revised significantly upward (0.77 percent for the former, and 2.07 percent for the latter). The trade deficit in petroleum products jumped by 116.64 percent on month in January – the biggest sequential percentage increase ever – to $7.08 billion. That total was a post-March ($8.28 billion) high.

America’s January merchandise trade deficit in goods ($76.49 billion) was a post-July, 2008 ($77.63 billion) high, while the trade gaps in manufacturing and in goods with China bounced back on month to their second highest all-time totals ($35.95 billion and $86.62 billion, respectively). Moreover, U.S. merchandise exports to China sank by their greatest percentage on month (28.05 percent) since January, 1999 (43.37 percent). Total exports fell on month (by 1.30 percent) for the first time since October, and combined goods and services imports dipped fractionally (to $257.51 billion) from the upwardly revised record set in December.

Here are selected highlights of the latest monthly (January) trade balance figures released this morning by the Census Bureau:

>The combined U.S. goods and services trade deficit rose on month in January to its biggest total ($53.91 billion) since October, 2008 ($60.19 billion) – when the world economy teetered on the brink of meltdown due to the Lehman Brothers bankruptcy.

>The figure represented a 4.99 percent increase from a December figure of $53.91 billion that was revised up by an unusually large 1.49 percent.

>January saw all-time records for monthly services exports and imports. The former improved sequentially from by 0.41 percent, from $66.39 billion to $66.66 billion, while the latter grew by 0.38 percent, from $46.60 billion to $46.78 billion.

>At the same time, both services trade figures also saw major revisions in the December – both upward. The exports number was raised by 0.77 percent, and imports upgraded by an enormous 2.07 percent.

>January’s trade deficit increase was led in relative terms by the nation’s oil trade deficit – which more than doubled sequentially, from $3.27 billion to $7.08 billion. That was the highest such total since last March’s $8.28 billion.

>Partly as a result, the U.S. merchandise trade deficit widened sequentially in January by 3.79 percent, to $76.49 billion – its highest such level since July, 2008’s $77.63 billion.

>But manufacturing contributed significantly to the rise in the overall trade deficit and the merchandise shortfall as well. Its chronic trade shortfall ballooned by 14.54 percent on month to hit $86.62 billion – just shy of October’s record of $88.98 billion.

>Manufacturing exports slid by 8.99 percent sequentially in January, from $94.89 billion to $86.36 billion, while imports were off by only 0.08 percent, from $173.13 billion to $172.99 billion.

>In turn, helping to fuel this deterioration in the manufacturing trade balance was the 16.70 percent worsening of the U.S. merchandise deficit with China. The January figure of $35.93 billion was the second highest of all time, too – trailing only September, 2015’s $36.29 billion. The increase, moreover, was the biggest since May, 2016’s 19.43 percent. 

>Mainly responsible for the China trade deficit’s increase was a 28.05 percent nosedive in U.S. goods exports to the strongly growing People’s Republic. Although the decrease followed a record December export total of $13.67 billion, it was still the biggest such percentage drop since January, 1999 (43.37 percent). 

>The $9.84 billion in U.S. goods sales to China in January, moreover, was the lowest such figure since June’s $9.71 billion. 

>U.S. merchandise imports from China rose – by 2.95 percent, to $45.79 billion.

>Total goods exports were down in January by 1.30 percent (to $200.91 billion) from December’s upwardly revised $203.61 billion. The drop was the first since October.

>Total imports in January dipped only fractionally – to $257.510 billion – from December’s upwardly revised record of $257.514 billion.

>The high tech goods trade deficit rose by 14.25 percent on month in January, from $10.06 billion to $11.49 billion.

>High tech exports plunged on month by 18.11 percent to $27.46 billion – a post February, 2017 ($25.39 billion) low, and the biggest falloff since January, 2017’s 19.01 percent.

>High tech goods imports sank, too – by 10.64 percent, to $38.95 billion. That was the biggest drop since last February’s 13.31 percent.

>As the Trump administration’s efforts to renegotiate the North American Free Trade Agreement (NAFTA) face an uncertain future, America’s merchandise trade deficit with Canada shot up by 65.04 percent on month in January, to $3.64 billion. That’s its highest level since December, 2014 ($4.07 billion).

>Yet the U.S. goods trade shortfall with Mexico decreased by 23.03 percent – to $4.14 billion. That’s the lowest such total since last January ($3.95 billion).

>Trade tensions with the European Union (EU) seem to growing as well, due mainly to the Trump administration’s announcement of steel and aluminum tariffs. In January, however, the merchandise trade gap with the EU fell by 13.88 percent, to $13.62 billion.

>President Trump is also hoping to revamp the bilateral U.S.-South Korea trade agreement (KORUS). In January, America’s goods trade deficit with South Korea hit $1.97 billion – a 57.57 percent monthly rise. At the same time, December’s $1.25 billion goods trade gap was the smallest since December, 2016’s $1.17 billion.

Our So-Called Foreign Policy: Why America’s Alliance Strategy Can’t Have it All

Tags

alliances, allies, burden sharing, China, defense spending, Financial Times, Germany, James Mattis, Japan, NATO, North Atlantic treaty Organization, North Korea, nuclear war, Our So-Called Foreign Policy, Russia, smothering, South Korea, Trump

Decades ago (literally!) I came up with an insight that’s stood the test of time pretty well. When my main professional focus was American foreign policy, I began realizing that the best way to describe the U.S. approach to its major security alliances with East Asian and European countries was to call it a “smothering strategy.” That is, American leaders were trying not only to protect Japan and Western Europe specifically from communist aggression. They were also trying to make sure that those critical regions never exploded into major war again – and principally, that Germany and Japan never resumed their roles as aggressors.

The characteristic U.S. solution? Washington would try to smother these German and Japanese impulses by removing their need to conduct any kind of independent foreign policies of their own in the first place. That’s why the United States pledged to take care of both their national security interests (with dangerous nuclear defense commitments) and their economic interests (by opening its economy much wider to their exports than vice versa). As a result, for decades, Germans (and other Europeans) and Japanese could avoid the expenses of maintaining big military establishments and concentrate tightly on the peacetime pursuits of life, liberty, the pursuit of happiness – not to mention building great wealth.

How good was this insight? To me, the proof of the pudding was America’s determination to preserve these alliances almost unchanged even after the Cold War ended, the Soviet Union disappeared, and China had not yet launched a drive to boost its influence in East Asia. To put it bluntly, U.S. leaders were still terrified that, if they were forced to face the world on their own once more, the Germans and Japanese would go bonkers again.

But this past week came some evidence that the smothering strategy is still firmly in place – despite the election of an American President who has complained loudly as a candidate as well as in office about how these arrangements are inexcusable rip-offs of the American public and especially taxpayers. At a big national security conference held each year in Germany, Trump administration officials expressed alarm at the prospect that some European initiatives to boost military spending that have barely advanced past the talking stage could might result in European forces at least sometime operating independently of their alliance with the United States – the North Atlantic Treaty Organization (NATO) – and even excluding America.

According to a Financial Times account of the meeting, U.S. Defense Secretary James Mattis reacted by insisting that these European Union “defence plans…enhance Nato’s common defence rather than detract from it. And he put down an important marker: there was, he said, a clear understanding that common defence is a Nato mission that belongs to Nato ‘alone’.”

In other words, the Trump administration has now fallen into both of the traps that ensnared U.S. alliance policy during the Cold War. It has assured the allies that its commitment to their defense is absolute – including the risk of fighting a nuclear war on their behalf – thereby gutting any incentives for them to stop “free riding” on the United States militarily and bearing a greater share of the defense burden. And it has made clear that, although it wants the allies to assume more responsibilities for their own defense, it opposes the allies gaining any more control over their own defense. Instead, the United States must remain firmly in charge.

As a foreign policy realist, who believes that national interests are much more important than particular alliances, and can clash with the preservation of these alliances, I don’t blame the Trump-ers for wanting to have their cake and eat it, too on this score – i.e., more allied resources to use as Washington wishes. Nor do I blame the Europeans for wanting as much defense assistance from Americans as they can get while continuing to skimp on their military budgets.

But as an American, I wish the administration would recognize two fatal flaws in this alliance strategy status quo. The first is the un-realism of straining to freeze alliance structures in place when the common enemy that represented their raison d’etre has been gone for nearly thirty years. The second entails the needless dangers created by continuing to provide nuclear guarantees – and the tripwire forces needed to draw it into Armageddon – for these allies when not even the partial revival of Russian and Chinese threats (along with North Korea’s development of ever more advanced nuclear weapons) has fostered consensus in how to handle them.

Of course, dissolving these alliances will entail risks. But the risks of trying to square these circles look far greater. And when considering the nuclear threats they now pose (from those North Korean as well as Chinese forces that are much more capable of credibly threatening the United States with nuclear attack, along with Russia’s Cold War holdover arsenal), they look harder to justify than ever.

Our So-Called Foreign Policy: More Upside-Down U.S. Thinking on the Korea Crisis

Tags

alliances, allies, globalism, North Korea, nuclear war, Our So-Called Foreign Policy, South Korea, The Wall Street Journal, tripwire, Trump, Walter Russell Mead, Winter Olympics

It was great to see earlier this month that Walter Russell Mead was chosen by The Wall Street Journal to be its regular foreign affairs columnist. Mead has often (though not always) been an important voice for a broadly realist approach to American foreign policy (meaning one that understands the need to set at least some finite priorities because not all good things are possible simultaneously). He’s also been a serious and insightful student of U.S. diplomatic history. Therefore, his new position seemed to guarantee that some badly needed diversity would be added to a Mainstream Media pundits lineup that has long been completely dominated by globalists of the left and right. (The Journal has specialized in the latter.)

That’s why it was so disappointing to see that in his recent, second Journal offering, Mead has lapsed into the thoroughly bizarre (but characteristic) globalist habit of viewing America’s security alliances as mattering more to the United States than to the allies.

The passage in question comes about a third of the way in. According to Mead, the real diplomatic winner of the current Winter Olympics in South Korea is not, as widely reported, Kim Yo Jong, the visiting sister of North Korean dictator Kim Jong Un. Instead, it was South Korean President Moon Jae In. That’s a perfectly reasonable conclusion. So was the first part of Mead’s explanation: “Mr. Moon got a political boost from Ms. Kim’s visit and the appearance of a thaw between the Koreas, but he avoided the backlash from appearing naive or overeager.”

It’s the second part of the author’s analysis that has gone off the deep end: Moon “also reminded the Americans that South Korea cannot be taken for granted; without Seoul’s support, the Trump administration’s North Korea policy is unsustainable.”

Actually, in a narrow sense, Mead makes a novel and (disturbingly) convincing case for this proposition: The campaign to force North Korea to the nuclear bargaining table

“has been Mr. Trump’s most effective diplomatic and political effort to date. The administration has moved B-1 bombers and F-35 fighters to the Korean Peninsula during annual military exercises. It has reached out diplomatically to countries ranging from China to Indonesia. It has coordinated speeches by officials at the Pentagon, State Department and White House to keep the government on message.

“This is the sort of orchestration that the Trump administration, and the president in particular, is supposed to be too undisciplined to carry out. The relative success of the North Korea process suggests that Mr. Trump and his staff may be more capable than critics expected in operating the complex machinery of American power.”

It’s certainly possible that, at least in an unwitting way, the President and his aides place precisely this value on their North Korea strategy. But if so, the administration would be prizing image-making over elements of strategy that are not only fundamental, but existential – and needlessly exposing the United States to the risk of nuclear attack in the process.

For even if the Trump-ers are clinging to the appearance of success or competence in their North Korea policy, the overriding reality is that American power right now is the only obstacle currently blocking a North Korean military conquest of the South, or a South Korean future dominated by endless blackmail from the militarily superior North.

Consequently, although a successful American North Korea strategy could burnish the Trump administration’s resume, and possibly shore up its domestic political support, for South Korea, it’s literally a matter of national survival at worst and of genuine independence at best.

Unfortunately, moreover, Mead’s column also explicitly makes the broader and completely ludicrous globalist argument that allies like South Korea enjoy at least as much leverage in these relationships as the United States. And as a result, he too overlooks the yawning asymmetry in the respective sets of national interests involved.

Hence his contention that crucial to any diplomatic effort to denuclearize North Korea is “the need to keep America’s alliances united. The Winter Olympics kerfuffle should remind the White House that maintaining coordinated policies with Mr. Moon will be vital in the months and years to come.”

Far more important to recognize, however – and especially given the emergence of nuclear risk to the U.S. homeland – is that by virtue of geography and military power, the United States boasts inherent options in the Korean crisis that South Korea lacks. And the principal such option is washing the nation’s hands of this entire mess.

So if any party to this relationship needs to avoid taking the other for granted, it’s South Korea. All the more so because, as I’ve written, the “tripwire” mission of U.S. forces in South Korea aims to ensure that, in the event of war, Washington comes to the South’s rescue with nuclear weapons – and before too long could thereby trigger a successful North Korean nuclear strike on an American city.

That’s not to say that South Korea lacks the right to take the lead in Korean Peninsula diplomacy, or any legitimate interests in doing so. It merits exactly these rights and interests, precisely because no country outside the peninsula has remotely comparable stakes in a peaceful resolution.

But by the same token, the United States has the right to insist that any country expecting America to run catastrophic risk on its behalf pay a price in the form of deferring to its judgment. And for the sake of the American people’s security, their leaders have an overriding obligation to remind such allies that, if they’re unhappy with these terms, they will be more than welcome to handle whatever threats they face on their own.

(What’s Left of) Our Economy: Trump Tariffs to Raise Washing Machine Prices? Good Luck with That!

Tags

consumer price index, consumers, CPI, inflation, PCE, personal consumption expenditures index, prices, South Korea, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

It’s painfully clear that none of the journalists and offshoring lobby-funded think tank hacks who have parroted the threats by South Korean washing machine makers to raise their U.S. retail prices to offset tariffs imposed by the Trump administration last month has shopped for a washing machine lately. Nor have they looked at the price data for home appliances in America. If they had, they’d recognize that the South Koreans seem to be blowing so much smoke. For no one could possibly look at the U.S. washing machine market either first hand or statistically and conclude that any producer thinks they have much pricing power.

The first-hand evidence? Just check the ads in your daily newspaper. Or take a look at this post from about a year ago offering tips to appliance shoppers. For example, consumers are told that: 

>in-store sales people and on-line shopping sites will often sell a machine for less (and “sometimes a lot less” than the advertised price;

>”If you’ve had your eye on an appliance but wish it were just a smidgen cheaper, try putting it in your cart. Then walk away (so to speak). If you leave it there for a few days, a retailer might send you a coupon to entice you to close the deal.”

>”Never be afraid to ask salespeople, cashiers, and store managers if they can do a little better on the price. In fact, Consumer Reports says that nearly all people who haggle over appliances are successful at least once—and save an average $200.”

The statistics? They mock even more cruelly the idea that the tariffs will drive washing machine prices up. Let’s start off with the Federal Reserve’s favorite measure of inflation, the personal consumption expenditures (PCE) index. And as the broadest gauge, let’s use the “core” PCE numbers, which strip out food and energy prices because they’re considered volatile for reasons having little to do with the main determinants of price changes for the rest of the economy.

According to the Commerce Department, which tracks this data, between 2009 (when the current U.S. economic recovery began) and 2016 (the latest figures), core PCE rose by a cumulative 13.10 percent. But for durable goods (the category containing home appliances), prices during this period fell by 13.54 percent. And although there are no statistics for washing machines specifically, prices for “household appliances” plunged by 18 percent over those seven years. These trends don’t exactly scream “Pricing power!”

Moreover, let’s look at what happened with appliances prices after 2013, when the Obama administration imposed tariffs on subsidized and dumped South Korean-brand washing machines from South Korea and Mexico. After having fallen by 2.39 percent the previous year, they fell even faster – by 5.61 percent, 4.96 percent, and 5.03 percent annually over the next three years. And in each instance, the rate of decrease for appliance prices was much steeper than for prices for other durable goods.

The Labor Department’s different sets of inflation data do extend through 2017. They’re grouped under the heading “consumer price index” (CPI), and show that prices for major appliances decreased that year by 2.57 percent, and for appliances generally by 1.03 percent. That year, the CPI for urban consumers less food, energy, and shelter rose by 0.72 percent.  And according to this CPI, appliance and major appliance prices have been falling throughout the current recovery, too.  

There’s a first time for everything, and so it’s possible that Korean washing machine manufacturers really will carry through on their price increase vows. And of course, since it’s their business, they may know something I don’t. But the first-hand evidence and the data strongly indicate that the tariffs will simply require them to charge closer to fair market value for their goods, and that until much stronger pricing pressures emerge, this fair market value will remain pretty low and could well keep falling.

As a result, there’s a heavy burden of proof not only for taking them at their word, but for continuing to accept blithely the standard assumption that tariffs always hit consumers hardest – or will at all.