(What’s Left of) Our Economy: Chip Derangement Syndrome

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CCP Virus, Chad Bown, China, coronavirus, COVID 19, East Asia, export controls, fabless, Foreign Affairs, Huawei, infotech, lockdowns, Mainstream Media, manufacturing, metals, offshoring lobby, Peterson Institute for International Economics, reopening, semiconductor shortage, semiconductors, supply chains, tariffs, Trade, Trump Derangement Syndrome, Wuhan virus, {What's Left of) Our Economy

As some RealityChek regulars may have noted, I’m spending somewhat less time lately batting down ill-conceived, off-base, and downright incoherent individual books or articles etc on key subjects like trade and globalization, foreign policy, and immigration. It’s not that there’s any less “nonsense out there” these days. Goodness knows there remain enough mouthpieces of the Offshoring-, Forever Wars-, and Cheap Labor-Lobbies in and out of the Mainstream Media paid handsomely cranking out this bilge.

It’s just that they’re clearly so much less important these days, as the American political system has so markedly been ignoring their missives. I mean, even a longtime China coddler and offshoring trade deal supporter like President Biden knows – at least politically – that these stances don’t fly any more. Not that enough progress has been made. But champions of what I think can fairly be called the pre-Trump conventional wisdom in these areas are increasingly giving off those “wrong side of history” vibes – and lashing out at Trump policies in ever more desperate and arguably deranged ways.

I’m making an exception today, however, because Chad P. Bown’s new article in Foreign Affairs blaming the former president significantly for the global semiconductor shortage, appeared in such a (still) influential publication, and is such a thoroughly pathetic example of the marginalized trade policy establishment’s Get Trump and Trumpism obsession.

For the last few years, Bown has served as the MSM’s go-to economist for swipes at Trump’s tariffs and trade wars – every single one of them. As a result, it’s almost inevitable that, with Trump out of power, and Mr. Biden now having retained for months the principal Trump China and metals tariffs – every single one of them – that he’d be looking for new ways to show how mistaken these measures have been.

Although Bown admits that the unprecedened stop-start nature of the CCP Virus-era U.S. economy, the suddently booming demand for microchip-intensive infotech products during the pandemic, and weather-related production disruptions all contributed substantially to the shortage, he also claims that Trump’s trade and tech policies also “squeezed supply” – by definition enough to write about.

His main arguments: First, Trump’s tariffs on semiconductors made in China reduced U.S. imports on net because American purchases from other countries didn’t make up for those chips. Second, his restrictions on the sale of American-made semiconductors to Huawei led the Chinese telecommunications gear giant and other Chinese tech companies to start hoarding chips from everywhere for fear of inadequate overall supplies, and left fewer semiconductors for other users to buy. Third, these curbs on sales of U.S.-made semiconductor to such an enormous customer discouraged chip-makers from all over the world from investing in production capacity in the United States in favor of building factories that could supply China from elsewhere.

But even though, as noted above, Bown admits that other culprits deserve responsibility as well, he not only downplays their effects. He completely ignores the impact of much more fundamental, indeed root, causes. Highly conspicuous, for example, are the consequences of decades of the kinds of offshoring-happy trade policies so strongly supported by Bown and his Offshoring Lobby-funded think tank, the Peterson Institute for International Economics. These policies persuaded U.S.-owned semiconductor manufacturers to move to China and the rest of East Asia much production capacity that could have been installed in America – in large part because they sent to China and the rest of East Asia so much production of the infotech hardware production that buys so many semiconductors.

Nor does Bown mention the dangerously shortsighted decisions of so many U.S.-owned semiconductor companies to eschew manufacturing for a “fabless” business model of researching and designing chips and then farming out the production “foundries” run by separate contract companies – mainly in Asia. Largely as a result, the growth of inflation-adjusted American semiconductor output fell by fifty percent between the U.S. economic expansion of 2001-2007 and the longer expansion of 2009-2019. (See my National Interest article on the subject from last October for the statistics presented above and below.) 

The growth during the latter period (73.68 percent) seems impressive in isolation. But it wasn’t nearly enough to prevent the U.S. share of global semiconductor manufacturing capacity from sinking to 12 percent – less than half the percentage in 1990. And it’s not like the growth of this global capacity has been killing it lately, especially considering it’s an archetypical “industry of the future.”

You wouldn’t know this if you if you were relying solely on Bown, but by one key measure, this capacity’s 2013-2019 cumulative expansion (14.29 percent, as shown in the chart below (which comes from the main trade association of the global semiconductor manufacturing equipment industry) was actually slower than the after-inflation growth of total global output of everything (18.29 percent). And if that’s not a surefire formula for a global shortage to me, tariffs and export controls or not, I don’t know what is. Nor do Chad Bown, or the Foreign Affairs editors who published a diatribe that’s factually unhinged even by the rock bottom standards of Mainstream Media coverage of U.S. trade policy.      

(What’s Left of) Our Economy: Why Inflation Isn’t Worrisome So Far

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CCP Virus, CNBC, coronavirus, COVID 19, Federal Reserve, inflation, logistics, reopening, semiconductor shortage, shutdowns, Steve Liesman, stimulus, supply chains, transportation, West Coast ports, Wuhan virus, {What's Left of) Our Economy

By now you’ve surely seen or heard – or should have seen or heard – that the new U.S. official figures (for April) show that inflation is back big time and could all too easily spin out of control. The emphasis should be on “could,” because, as also widely observed (including by the Federal Reserve, which is a major U.S. government line of inflation defense), the recent price rises arguably stem from developments that are temporary byproducts of America’s utterly unprecedented economic circumstances these days – reopening in fits and starts, but overall quickly, from lengthy government-mandated shutdowns aimed at fighting the CCP Virus.

I’m pretty firmly convinced that the inflation optimists are right, even though the pessimists make strong points in observing that (a) prices have been rising faster on a monthly basis with each passing month this year; and (b) inflation tends to generate its own momentum. That is, the expectation of rising prices typically encourages households and businesses alike to step up their purchases in order to avoid paying more for the same goods and services later on. Further, more expensive inputs for specific businesses can easily prompt those companies to compensate by raising the prices they charge their customers, while at the same time generating the same reactions from other businesses that are their customers, and so on.

I’ll also grant that the pessimists shouldn’t be dismissed when they contend that even temporary inflation can cause serious damage to an economy, especially when we’re talking about price increases that only come to an end after, say, a year or longer rather than after two or three months. Therefore, it’s important to note that the optimists’ case depends heavily on the relatively rapid end to the price-boosting combination of sudden increases in consumer demand resulting from the reopening, and of all the supply bottlenecks that have emerged as businesses struggle to catch up with that demand – which of course is being buoyed by the immense doses of stimulus being injected into the economy, and that may be increased in the near future.   

Indeed, the prolonged shipping backups at West Coast ports should be making clear that the more optimistic definition of “temporary” might rest on some pretty dicey assumptions. In addition, we’re unlikely to see a quick end to the global semiconductor shortage that’s shut down considerable automobile production and thinned inventories all over the world – curbing supply and of course driving up prices.

So why am I optimistic? Largely for a reason that’s been generally overlooked in the inflation uproar. (One major exception has been CNBC’s Steve Liesman, whose segment yesterday partly inspired this post.) When you look at where prices actually are now in the economy as a whole, and even in particularly hot sectors, you find that they’re not much higher than they were just before the pandemic hit (in February, 2020, which will be the baseline month I’ll use). And that’s because they had been falling or weak for so many months while much of the economy was closed.

This methodology, to start, puts an entirely different shine on the news that the overall April inflation rate of 4.2 percent year-on-year was the strongest such surge since September, 2008. But from February, 2020 to April, prices by this broadest measure increased by just 3.1 percent. That’s much higher than the 1.3 percent increase during the previous comparable period (February, 2019-April, 2020). Remember, however: April, 2020 was the depth of the virus-related lockdowns and consequent recession.

During the February-April period before that, prices rose 2.4 percent – and that’s with none of the stop-start distortions currently being experienced. The period before that it was 2.6 percent. And the period before that – also a normal stretch – it was 2.9 percent. And in comparable (also normal) 2011-2012 timespan, it was 3.3 percent. So the new 3.1 percent doesn’t seem all that exceptional when you consider all the abnormalities of this post-virus recovery.

Another widely watched inflation gauge is called “core inflation.” It strips out food and energy prices because they can be volatile over whatever timeframe examined for reasons having nothing to do with the economy’s fundamentals – and supposedly fundamental vulnerability to inflation (e.g., unusual weather that impacts agriculture, or oil price decisions by the OPEC cartel and other major foreign producers).

On a monthly basis, they advanced by 0.9 percent, and year-on-year they were up three percent in April. The former figure was the worst since 1982, and the latter is on the high side as well. But let’s look at the February-April numbers. Between 2020 and 2021, core inflation was 2.6 percent. It was just two percent during the previous comparable period, but again, those numbers are distorted by deflationary April, 2020. The period before it was 2.6 percent – the same as this year, but without the reopening issues. And as recently as 2016, it was even higher – 2.7 percent – even with no virus-related confusion.

As they say in the investment advice world, past performance is no guarantee of future results. Nor should it be forgotten that many economists still find inflation frustratingly difficult to measure, and criticisms of the U.S. government’s methodology abound as well. (See, e.g., here.) But the official American figures are still widely followed, and certainly lie at the heart of the latest bout of inflation angst. And until these data start showing outsized price gains compared with pre-CCP Virus levels that haven’t been affected by virus-era abnormalities, I’m going to stay pretty relaxed about the U.S. inflation picture.*

Please note: This inflation analysis should not be used as investment advice, because I’m not in that business and don’t feel qualified to be in that business. Also, what I do know of that business teaches that asset prices are much more profoundly influenced by what investors as a whole think about the economy than by what I think about it.

(What’s Left of) Our Economy: A Record U.S. Trade Gap – & Cause for Trade Optimism??

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American Jobs Plan, Biden, Buy American, CCP Virus, Census Bureau, China, coronavirus, corporate taxes, COVID 19, Donald Trump, exports, goods trade deficit, green energy, imports, lockdowns, Made in Washington trade flows, Pacific Rim, reopening, semiconductor shortage, services trade, subsidies, supply chains, tariffs, tax policy, taxes, Trade, trade deficit, vaccines, West Coast ports, Wuhan virus, {What's Left of) Our Economy

Despite the overall U.S. trade deficit hitting an all-time monthly high in February, the new trade figures released by the Census Bureau this morning contained lots of encouraging news – including for fans of the Trump tariffs on China and on aluminum and steel (like me). I’m wary of running or continuing a victory lap, because there’s still too much short- and perhaps longer term economic noise surely masking the underlying trends. But the case for trade optimism and its possible policy causes deserves attention.

As for that economic noise, it comes of course not only from the ongoing stop/start CCP Virus- and lockdowns-/reopenings/vaccinations-related distortions of all economic data, but from the harsh winter weather that depressed February economic activity in key areas of the country like Texas; the global shortage of semiconductors that’s impacting output throughout the manufacturing sector (and that’s due in part to the pandemic); and the big backups at the West Coast ports that are greatly slowing the unloading of container ships containing lots of imports from China and the rest of Asia.

As for the data, the combined goods and services trade shortfall of $71.08 billion in February surpassed the previous record, November’s $69.04 billion, by 2.95 percent, and represented a 4.80 percent increase over January’s downwardly revised level of $67.82 billion.

The increase resulted both from a rise in the goods trade gap (of 3.27 percent, to its own record of $88.01 billion) and a shrinkage of the services surplus (of 2.93 percent, to $16.93 billion – the smallest since August, 2012’s $17.08 billion).

Trade flows not setting records, though, notably included any of the imports categories – despite numerous reports of the rapidly rebounding U.S. economy sucking in massive amounts of products (though not services, which have suffered an outsized CCP Virus blow) from abroad.

For example, total merchandise imports actually fell on month in February – by 0.89 percent, to $221.14 billion, from January’s record total of $221.12 billion. Still, the February figure remains in second place historically speaking.

Non-oil goods imports inched up by 0.38 percent sequentially in February – from $85.36 billion to $85.68 billion. But they still fell short of the November record of $86.40 billion. As known by RealityChek regulars, this trade category sheds the most light on the impact on trade flows of trade policy decisions, like tariff changes and trade agreements. (Hence I call the resulting shortfall the Made in Washington trade deficit.) But despite the lofty level, they’re actually down on net since November. Could it be those West Coast ports snags or the harsh winter storms of February or semiconductor-specific problems? Maybe.

The evidence for those propositions? U.S. goods imports from Pacific Rim countries – which are serviced by the West Coast ports – did sink by 11.81 percent on month in February. That’s a much faster rate than the 1.54 percent decrease in overall non-oil goods imports (a close proxy).

But goods imports from China dropped by a greater 13 percent even, which points to some Trump tariff effect as well. In fact, the $34.03 billion worth of February goods imports from China was the lowest monthly number since pandemicky last April. And February’s $24.62 billion bilateral merchandise trade deficit with China was 6.22 percent narrower than the January figure, and the smallest such total since April, too.

America’s goods deficit from Pacific Rim countries in total fell slightly faster than the gap with China (6.84 percent). China’s economy and its exports, however, are supposed to be recovering at world-and region-beating rates, so if that’s the case, it appears that the Trump trade curbs are preventing that rebound from taking place at America’s expense.

U.S. manufacturing trade numbers were encouraging, too, though again, the impact of tariffs as opposed to that of the virus distortions or the February weather or the ports issues or the semiconductor shortage or some combination thereof  is difficult to determine. But industry’s trade shortfall did tumble by 10.53 percent in February, from January’s $99.79 billion to $89.29 billion. That figure also was manufacturing’s lowest since June, 2020’s $89.16 billion and the 10.52 percent decrease was the by far the biggest in percentage terms since November, 2019’s 12.70 percent.

February manufacturing exports declined by 2.64 percent sequentially, from $81.66 billion to $79.51 billion. But the much greater volume of manufacturing imports sank by 6.98 percent, from $182.46 billion to $168.79 billion.

The China and manufacturing numbers could certainly change – and boost these U.S. trade gaps and the overall trade deficit – as Americans begin to spend their latest round of stimulus checks, as the U.S. recovery continues, and as the West Coast ports and semiconductor issues clear up. 

But especially due to those Chinese exports, this worsening of the U.S. trade picture was reported late last year. And the official U.S. trade figures show that such a surge simply never took place. Moreover, if executed properly, President Biden’s Buy American plans for federal government procurement and support for strengthening critical domestic supply chains could boost American manufacturing and other goods output without increasing imports. His budget requests for major subsidies for key U.S.-based manufacturing operations could help brighten the trade picture, too. Mr. Biden has also decided for now to retain the Trump trade curbs. And P.S. – those clogged West Coast ports hamper American exports as well.    

In addition, trade problems could reappear at some point due to the President’s proposed green energy mandates and corporate tax increases that would inevitably hike the relative cost of producing in the United States. But right now, it looks like due to ongoing and possibly upcoming economic nationalist American policies, the burden of proof is on the U.S. trade pessimists. And that’s quite a switch.

Our So-Called Foreign Policy: Biden’s Just Been Fooled Twice by Europe

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alliances, allies, America First, AstraZeneca, Belgium, Biden, CCP Virus, China, coronavirus, COVID 19, EU, European Union, Financial Times, globalism, health security, Northern Ireland, Our So-Called Foreign Policy, supply chains, The New York Times, Trump, United Kingdom, vaccines, Wuhan virus

It’s beginning to look like a pattern: President Biden keeps making clear that he’s determined to repair the vital U.S. alliance relationships he believes Donald Trump disastrously weakened, and the Europeans, anyway, keep flipping him the bird either explicitly or implicitly. And as the old saying goes, shame on anyone who’s been fooled more than once.

The explicit example came before Inauguration Day. The European Union (EU) – whose members were touted by candidate Biden as eager potential partners in a multilateral coalition against a common Chinese economic and national security threat – were on the verge of finalizing an investment treaty with Beijing. A top Biden aide publicly asked the EU to think twice and consult with the United States before proceeding. In response, the Europeans…proceeded. (See here for the details.) 

The implicit example came last week. During the campaign Mr. Biden, as noted here, made clear (except to every American journalist who covered the matter) that his plan to strengthen U.S. supply chains and make sure that the nation would never again be reliant on adversaries like China for crucial medical equipment and other vital products was by no means an “America Only” or even an “America First” proposal. Instead, one of its planks pledged to

“engage with our closest partners so that together we can build stronger, more resilient supply chains and economies in the face of 21st century risks. Just like the United States itself, no U.S. ally should be dependent on critical supplies from countries like China and Russia. That means developing new approaches on supply chain security — both individually and collectively — and updating trade rules to ensure we have strong understandings with our allies on how to best ensure supply chain security for all of us.” (Here’s the full document.)

In principle, this characteristically multilateral Biden approach made sense. Yet the blueprint came out scant months after (as reported here) many of these allies reacted to the outbreak of the CCP Virus by blocking exports of key medical equipment to ensure they could supply themselves.

You’d think that Mr. Biden, therefore, would have learned this lesson and recognized that the United States simply can’t afford to define “Made in America” as “Made in Lots of Other Countries, Too.” But you’d be wrong.

The day after his inauguration, the new President issued an executive order to create “a Sustainable Public Health Supply Chain.” And one of it directives charged various Cabinet and other agencies and senior advisers to study “America’s role in the international public health supply chain, and options for strengthening and better coordinating global supply chain systems in future pandemics….”

Again, therefore, Mr. Biden specified that this “sustainable public health supply chain” would stretch far beyond America’s shores, and that he believed various kinds of these “global supply chain systems” could ensure the nation’s health security in “future pandemics.”

How did the Europeans react? Little more than a week later, the European Union moved to restrict exports of the CCP Virus vaccine made by pharmaceutical giant AstraZeneca because its own supplies were so short. As a top EU official explained, “The protection and safety of our citizens is a priority and the challenges we now face have left us with no choice other than to act.”

The EU almost immediately reversed its decision – but only in part. It agreed to maintain shipments to the United Kingdom (which has recently left the union under a complicated agreement negotiated after the “Brexit” referendu vote of 2015) and to Northern Ireland (which is a part of the UK, but which remains part of the Union’s single market for goods). But the Europeans, according to The New York Times, still intend “to introduce export controls that could prevent any vaccines made in the European Union from being sent to non-E.U. countries, but without involving Northern Ireland….”

For good measure, great potential remains for a big vaccine-related dispute between the United Kingdom and the EU due to differences over which party is contractually entitled to the highest priority when it comes to vaccine shipments.

And the Financial Times reported that “Belgium, a key location for vaccine production in the EU, has notified the Commission of a draft health law that would give it new powers to curb medicines exports. The proposed legislation would allow Belgian authorities to restrict or ban the shipment of critical medicinal products and active ingredients, in case of shortages or potential shortages.”

Vaccines apparently are not included, but how could any responsible leader inside the EU or outside count on Belgium keeping its word during emergencies?  The same goes, incidentally, for the word of a United States led by an adult thinker, as opposed to a globalist determined to return to the pre-Trump days of Uncle Sucker.   

President Biden clearly needs to learn that lesson, too – and also needs to start asking himself whether the Europeans are holding his administration and his allies uber alles globalism up for ransom, and if the price for securing their cooperation on any number of issues is turning out to be dangerously unaffordable.

(What’s Left of) Our Economy: A Troubling Biden Lapse on Supply Chain Security

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Biden, BPS, bulk power system, China, cyber-security, Donald Trump, electric power grid, Jen Psaki, national security, sabotage, supply chains, {What's Left of) Our Economy

Did President Biden start breaking his promise to reduce America’s reliance on dangerous foreign suppliers of critical goods on his very first day in office? It sure looks that way, judging from his January 20 executive order that included suspending a Trump administration directive last May barring U.S. government or private sector acquisitions of equipment used for the nation’s bulk power system (BPS) that comes from “persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” and that pose “an undue risk of sabotage to or subversion….”

The idea behind the Trump order was clear and shouldn’t be the slightest bit controversial. The BPS, as it noted, “provides the electricity that supports our national defense, vital emergency services, critical infrastructure, economy, and way of life.” In other words, it’s the nation’s electric power grid.

Therefore, the use of any inputs to this system that originate from hostile or otherwise unreliable countries exposes these power networks to “malicious cyber activities” and other threats (e.g., faulty goods whose malfunction or failure could produce major breakdowns and supply interruptions). And of course, even though it wasn’t explicitly stated, the main concerns centered on equipment produced in China.

The new Trump policy was still a work in progress, as it recognized that the Secretary of Energy and the heads of other relevant federal agencies needed to determine which products and transactions satisfied these criteria, and figure out how to monitor or replace potentially worrisome products that have been installed already.

But this work was cut off, for 90 days, by Mr. Biden’s Inauguration Day order suspending a wide variety of Trump administration executive actions that may fail to:

“listen to the science; to improve public health and protect our environment; to ensure access to clean air and water; to limit exposure to dangerous chemicals and pesticides; to hold polluters accountable, including those who disproportionately harm communities of color and low-income communities; to reduce greenhouse gas emissions; to bolster resilience to the impacts of climate change; to restore and expand our national treasures and monuments; and to prioritize both environmental justice and the creation of the well-paying union jobs necessary to deliver on these goals.”

Whatever you think of these goals, it’s difficult to understand why an administration that claims to be determined to improve the security of such critical systems and therefore their supply chains would single out the BPS executive order for suspension. Why couldn’t it be kept in effect while its consistency with the above objectives was being studied? 

Sure, the new President can ultimately decide to keep the BPS order in place, including in full. But for now, the only certain impact of outright suspension is to permit BPS agencies and companies to keep buying products that may cause problems in the future, and thereby make the task of of finding and eliminating vulnerabilities that much harder. 

In this vein, it was good to see a reporter ask White House Press Secretary Jen Psaki on January 25 why her boss made this decision “especially related to something so critical to our national security as the power grid?”  Psaki said she would “check on that specific piece, and we’ll — we’ll circle back with you directly.”  Clearly it’s time for a follow-up question and a real answer.    

(What’s Left of) Our Economy: U.S. Manufacturing Revival Plans Still Need Trump-like Tariffs

Tags

Buy American, carbon tariff, carbon tax, Dan Breznitz, David Adler, health security, infrastructure, Joe Biden, manufacturing, manufacturing trade deficit, research and development, supply chains, tariffs, taxes, technology, The New York Times, Trade, {What's Left of) Our Economy

I was thrilled to see today’s op-ed piece on U.S. manufacturing in The New York Times, and not just because co-author David Adler is a good friend. I was also thrilled to see it because a careful reading reenforces the essential notion that all the worthy proposals made by policy analysts and politicians lately (including apparent President-elect Joe Biden) on reviving industry will either come to naught or greatly underperform without steep, and indeed Trump-like, tariffs to shut a critical mass of imports out of the economy.

Those domestically-focused manufacturing revival measures have included more federal funding for research and developments, greater federal efforts to help smaller manufacturers in particular learn about and access research breakthroughs in academia and existing government labs, measures to help these smaller industrial firms access capital more easily, tax breaks to foster production and innovation in the United States, and more ambitious and better enforced Buy American requirement for federal purchases of manufactured products. In general, I’m strongly supportive, and have even criticized the Trump administration for giving them short shrift (even on the tax front, where the big 2017 cuts should have come with more investing and hiring strings).

From knowing David, I feel sure that he backs these intiatives, too; indeed, the article concentrates tightly on the Buy American slice of this agenda. And the piece gratifingly (but probably unknowingly) endorses an idea that I’ve made for many years, but that has gotten zero traction: requiring “all manufacturing industries to disclose how much of their sourcing and critical production takes place in the United States.” After all, how can Washington make the right manufacturing policy decisions when it relies so heavily for such crucial information from crumbs self-servingly cherry-picked by offshoring-happy companies themselves?

Yet as also suggested by David and co-author Dan Breznitz – who studies innovation policies at the University of Toronto – except for the Buy American proposals, the standard raft of manufacturing revival plans could work to  stimulate more production and supply, but pays inadequate attention to ensuring that all that supply is actually bought – which would eventually make companies think twice about producing more.

The authors place much stock in government’s ability to soak up this output, and so does Biden – who on top of making sure that more of what government currently purchases is American-made, has pledged to spend “$400 billion in his first term in additional federal purchases of products made by American workers, with transparent, targeted investments that unleash new demand for domestic goods and services and create American jobs.”

The former Vice President correctly contends that these measures will “provide a strong, stable source of demand for products made by American workers and supply chains composed of American small businesses.” The history of U.S. industrial policy also shows that early guaranteed government purchases helped new industries demonstrate the usefulness of innovative products that eventually interested the private sector and produced enormous new markets for their products on top of federal contracts. (Think “computers” and all the hardware and software used pervasively now not only in technology sectors but in virtually the entire economy.)

But U.S.-based manufacturers turned out just over $2.35 trillion worth of goods in 2019 (the last full pre-CCP Virus year). And the manufacturing trade deficit that year was $1.03 trillion. So unless it’s supposed that that 2019 level of domestic manufacturing production is remotely adequate (and clearly, the manufacturing policy reform supporters don’t), or unless they believe that government should buy much more of the output than the $400 billion Biden proposes over not one but four years (to sit in warehouses?), generating more private demand for industry’s output will be essential as well.

As indicated above, David and Dan Breznitz argue that more detailed, accurate labeling will help by enabling more consumers and private businesses to act effectively on their naturally strong preferences for Made in the USA goods – not only out of patriotism, but because of reasonable convictions that their quality and safety are superior. I remain all in favor, but the immense popularity of imports among both classes of customers (made clear by the huge and chronic manufacturing trade deficits) despite numerous news accounts over the years of shoddy, outright dangerous foreign-made products (especially from China), demonstrates that much more will need to be done to spur demand for U.S.-produced manufactures.

RealityChek regulars will not be the slightest bit surprised that I’m ruling out overseas demand as a promising net new source of customers for American domestic manufacturers. Unfortunately, the persistence of the huge manufacturing trade deficits is also evidence that most of America’s international trade partners are far too devoted to the health of their own industrial bases to permit major U.S. inroads. In fact, if anything, they’re likely to step up their own efforts to strengthen their own domestic industries by further curbing U.S. and other foreign competition. And that’s where the tariffs come in.

Not that David and Dan Bernitz, or Biden, overlook the need for U.S. market protection entirely. The former, for example, call for “Stopping predatory pricing by foreign manufacturers” – which entails slapping tariffs on these usually government-subsidized artificially cheap goods. The latter makes similar points, and has also mentioned a carbon tariff on products from countries that base their competitiveness on ignoring “their climate and environmental obligations.” (At the same time, Biden could use a similar levy to punish domestic companies that don’t measure up in his administration’s eyes climate-wise, leaving the net benefit to U.S.-based manufacturing minimal.)

Moreover, to ensure adequate domestic supplies of the healthcare goods needed to fight the next pandemic, simple stockpiling of products by government will be necessary. And since practically everything wears out over time, or becomes outmoded, lots of re-stockpiling will be necessary. Meanwhile, it should go without saying that many of the government purchases of manufactures will be used for critical national purposes – like repairing and building all kinds of traditional and technology infrastructure systems, and producing whatever new military equipment or refurbishing of old equipment the new Congress and the likely new administration wind up supporting.

But these are of course public purposes, and since the United States is still a strongly private sector-driven economy, that’s what’s inevitably going to determine the success of most manufacturing revival efforts. So unless manufacturing revivalists want government to play a veritably dominant role in production and consumption decisions, their strategy will employ tariffs – but not in a targeted, sector-specific, and reactive way, much less as an afterthought to domestic initiatives. Instead, they’ll be proactive, come in a flat-rate form, and stand high enough to encourage plenty of new market entrants that it makes sense to join established enterprises in vigorous, overwhelmingly domestic competition for America’s immense pool of customers.

Following Up: Podcast On-Line of Last Night’s National Radio Interview on Biden China Policy

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China, Following Up, Gordon G. Chang, health security, healthcare goods, Joe Biden, manufacturing, national security, supply chains, tariffs, tech, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that the podcast is now on-line of last night’s interview on John Batchelor’s nationally radio show on the future of U.S.-China relations. Click here for a timely conversation among John, co-host Gordon G. Chang, and me on whether a possible Biden administration will continue or end President Trump’s trade and tech wars with China, and keep his promises to bring back home key manufacturing supply chains.

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

Making News: New Article on Why I Voted for Trump

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Big Tech, Black Lives Matter, censorship, China, Conservative Populism, conservatives, Democrats, economic nationalism, election 2020, entertainment, environment, freedom of expression, freedom of speech, George Floyd, Hollywood, Hunter Biden, Immigration, industrial policy, Joe Biden, Josh Hawley, journalism, Mainstream Media, Making News, Marco Rubio, police killings, regulation, Republicans, Robert Reich, Russia-Gate, sanctions, Silicon Valley, social media, supply chains, tariffs, taxes, technology, The National Interest, Trade, trade war, Trump, Truth and Reconciliation Commission, Ukraine, Wall Street, wokeness

I’m pleased to announce that The National Interest journal has just published a modified version of my recent RealityChek post explaining my support for President Trump’s reelection. Here’s the link.

The main differences? The new item is somewhat shorter, it abandons the first-person voice and, perhaps most important, adds some points to the conclusion.

Of course, keep checking in with RealityChek for news of upcoming media appearances and other developments.

Im-Politic: Why I Voted for Trump

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Big Tech, Black Lives Matter, censorship, China, Conservative Populism, conservatives, Democrats, economic nationalism, election 2020, entertainment, environment, free expression, freedom of speech, George Floyd, Hollywood, Hunter Biden, Immigration, impeachment, industrial policy, Joe Biden, Josh Hawley, journalism, Mainstream Media, Marco Rubio, police killings, Populism, progressives, regulations, Republicans, Robert Reich, Russia-Gate, sanctions, Silicon Valley, social media, supply chains, tariffs, taxes, technology, Trade, trade war, Trump, Truth and Reconciliation Commission, Ukraine Scandal, Wall Street, wokeness

Given what 2020 has been like for most of the world (although I personally have little cause for complaint), and especially Washington Post coverage of endless early voting lines throughout the Maryland surburbs of the District of Columbia, I was expecting to wait for hours in bad weather to cast my ballot for President Trump. Still, I was certain that Election Day circumstances would be a complete mess, so hitting the polling place this week seemed the least bad option.

Hence my amazement that the worst case didn’t pan out – and that in fact, I was able to kill two birds with one stone. My plan was to check out the situation, including parking, at the University of Maryland site closest to my home on my way to the supermarket. But the scene was so quiet that I seized the day, masked up, and was able to feed my paper ballot into the recording machine within about ten minutes.

My Trump vote won’t be surprising to any RealityChek regulars or others who have been in touch with on or off social media in recent years. Still, it seems appropriate to explain why, especially since I haven’t yet spelled out some of the most important reasons.

Of course, the President’s positions on trade (including a China challenge that extends to technology and national security) and immigration have loomed large in my thinking, as has Mr. Trump’s America First-oriented (however unevenly) approach to foreign policy. (For newbies, see all the posts here under “[What’s Left of] Our Economy,” and “Our So-Called Foreign Policy,” and various freelance articles that are easily found on-line.). The Biden nomination has only strengthened my convictions on all these fronts, and not solely or mainly because of charges that the former Vice President has been on Beijing’s payroll, via his family, for years.

As I’ve reported, for decades he’s been a strong supporter of bipartisan policies that have greatly enriched and therefore strengthened this increasingly aggressive thug-ocracy. It’s true that he’s proposed to bring back stateside supply chains for critical products, like healthcare and defense-related goods, and has danced around the issue of lifting the Trump tariffs. But the Silicon Valley and Wall Street tycoons who have opened their wallets so wide for him are staunchly opposed to anything remotely resembling a decoupling of the U.S. and Chinese economies and especially technology bases

Therefore, I can easily imagine Biden soon starting to ease up on sanctions against Chinese tech companies – largely in response to tech industry executives who are happy to clamor for subsidies to bolster national competitiveness, but who fear losing markets and the huge sunk costs of their investments in China. I can just as easily imagine a Biden administration freeing up bilateral trade again for numerous reasons: in exchange for an empty promise by Beijing to get serious about fighting climate change; for a deal that would help keep progressive Democrats in line; or for an equally empty pledge to dial back its aggression in East Asia; or as an incentive to China to launch a new round of comprehensive negotiations aimed at reductions or elimination of Chinese trade barriers that can’t possibly be adequately verified. And a major reversion to dangerous pre-Trump China-coddling can by no means be ruled out.

Today, however, I’d like to focus on three subjects I haven’t dealt with as much that have reinforced my political choice.

First, and related to my views on trade and immigration, it’s occurred to me for several years now that between the Trump measures in these fields, and his tax and regulatory cuts, that the President has hit upon a combination of policies that could both ensure improved national economic and technological competitiveness, and build the bipartisan political support needed to achieve these goals.

No one has been more surprised than me about this possibility – which may be why I’ve-hesitated to write about it. For years before the Trump Era, I viewed more realistic trade policies in particular as the key to ensuring that U.S.-based businesses – and manufacturers in particular – could contribute the needed growth and jobs to the economy overall even under stringent (but necessary) regulatory regimes for the environment, workplace safety, and the like by removing the need for these companies to compete with imports from countries that ignored all these concerns (including imports coming from U.S.-owned factories in cheap labor pollution havens like China and Mexico).

I still think that this approach would work. Moreover, it contains lots for folks on the Left to like. But the Trump administration has chosen a different economic policy mix – high tariffs, tax and regulatory relief for business, and immigration restrictions that have tightened the labor market. And the strength of the pre-CCP Virus economy – including low unemployment and wage growth for lower-income workers and minorities – attests to its success.

A Trump victory, as I see it, would result in a continuation of this approach. Even better, the President’s renewed political strength, buoyed by support from more economically forward-looking Republicans and conservatives like Senators Marco Rubio of Florida and Josh Hawley of Missouri, could bring needed additions to this approach – notably, more family-friendly tax and regulatory policies (including childcare expense breaks and more generous mandatory family leave), and more ambitious industrial policies that would work in tandem with tariffs and sanctions to beat back the China technology and national security threat.

Moreover, a big obstacle to this type of right-of-center (or centrist) conservative populism and economic nationalism would be removed – the President’s need throughout the last four years to support the stances of the conventional conservatives that are still numerous in Congress in order to ensure their support against impeachment efforts.

My second generally undisclosed (here) reason for voting Trump has to do with Democrats and other Trump opponents (although I’ve made this point repeatedly on Facebook to Never Trumper friends and others). Since Mr. Trump first announced his candidacy for the White House back in 2015, I’ve argued that Americans seeking to defeat him for whatever reason needed to come up with viable responses to the economic and social grievances that gave him a platform and a huge political base. Once he won the presidency, it became even more important for his adversaries to learn the right lessons.

Nothing could be clearer, however, than their refusal to get with a fundamentally new substantive program with nationally unifying appeal. As just indicated, conventional Republicans and conservatives capitalized on their role in impeachment politics to push their longstanding but ever more obsolete (given the President’s overwhelming popularity among Republican voters) quasi-libertarian agenda, at least on domestic policy.

As for Democrats and liberals, in conjunction with the outgoing Obama administration, the countless haters in the intelligence community and elsewhere in the permanent bureaucracy, and the establishment conservatives Mr. Trump needed to staff much of his administration, they concentrated on ousting an elected President they considered illegitimate, and wasted more than three precious years of the nation’s time. And when they weren’t pushing a series of charges that deserve the titles “Russia Hoax” and “Ukraine Hoax,” the Democrats and liberals were embracing ever more extreme Left stances as scornful of working class priorities as their defeated 2016 candidate’s description of many Trump voters as “deplorables.”

I see no reason to expect any of these factions to change if they defeat the President this time around. And this forecast leads me to my third and perhaps most important reason for voting Trump. As has been painfully obvious especially since George Floyd’s unacceptable death at the hands of Minneapolis police officers, the type of arrogance, sanctimony and – more crucially – intolerance that has come to permeate Democratic, liberal, and progressive ranks has now spread widely into Wall Street and the Big Business Sector.

To all Americans genuinely devoted to representative and accountable government, and to the individual liberties and vigorous competition of ideas and that’s their fundamental foundation, the results have been (or should be) nothing less than terrifying. Along with higher education, the Mainstream Media, Big Tech, and the entertainment and sports industries, the nation’s corporate establishment now lines up squarely behind the idea that pushing particular political, economic, social, and cultural ideas and suppressing others has become so paramount that schooling should turn into propaganda, that news reporting should abandon even the goal of objectivity, that companies should enforce party lines in the workplace and agitate for them in advertising and sponsorship practices, and that free expression itself needed a major rethink.

And oh yes: Bring on a government-run “Truth and Reconciliation Commission” to investigate – and maybe prosecute – crimes and other instances of “wrongdoing” by the President, by (any?) officials in his administration. For good measure, add every “politician, executive, and media mogul whose greed and cowardice enabled” the Trump “catastrophe,” as former Clinton administration Labor Secretary Robert Reich has demanded. Along with a Scarlet Letter, or worse, for everyone who’s expressed any contrary opinion in the conventional or new media? Or in conversation with vigilant friends or family?

That Truth Commission idea is still pretty fringe-y. So far. But not too long ago, many of the developments described above were, too. And my chief worry is that if Mr. Trump loses, there will be no major national institution with any inclination or power to resist this authoritarian tide.

It’s reasonable to suppose that more traditional beliefs about free expression are so deeply ingrained in the national character that eventually they’ll reassert themselves. Pure self-interest will probably help, too. In this vein, it was interesting to note that Walmart, which has not only proclaimed its belief that “Black Lives Matter,” but promised to spend $100 million on a “center for racial equality” just saw one of its Philadelphia stores ransacked by looters during the unrest that has followed a controversial police shooting.

But at best, tremendous damage can be done between now and “eventually.” At worst, the active backing of or acquiescence in this Woke agenda by America’s wealthiest, most influential forces for any significant timespan could produce lasting harm to the nation’s life.

As I’ve often said, if you asked me in 2015, “Of all the 300-plus million Americans, who would you like to become President?” my first answer wouldn’t have been “Donald J. Trump.” But no other national politician at that point displayed the gut-level awareness that nothing less than policy disruption was needed on many fronts, combined with the willingness to enter the arena and the ability to inspire mass support.

Nowadays, and possibly more important, he’s the only national leader willing and able to generate the kind of countervailing force needed not only to push back against Woke-ism, but to provide some semblance of the political pluralism – indeed, diversity – required by representative, accountable government. And so although much about the President’s personality led me to mentally held my nose at the polling place, I darkened the little circle next to his name on the ballot with no hesitation. And the case for Mr. Trump I just made of course means that I hope many of you either have done or will do the same.

(What’s Left of) Our Economy: Biggest Mid-Year U.S. Trade Winners & Losers II

Tags

CCP Virus, competitiveness, coronavirus, COVID 19, intermediate goods, manufacturing, supply chains, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

Last Friday, RealityChek launched its midyear 2000 review of U.S. trade flows – which speaks volumes about which parts of the economy have held up best and have been hit harrdest by the CCP Virus. Today, following that post’s look at the goods sectors that have racked up the biggest trade surpluses and deficits between January and June, 2019, and this January and June, we’ll examine which industries have seen their trade balances improve and worsen the most during this period, and how these lists compare with those of full-year 2019.

Three big takeaways here: First, in contrast to the lists of biggest trade surplus and deficit sectors presented last week, which featured surprisingly little change on a year-to-date basis, the lists showing the sectors where the biggest changes in trade balances took place revealed enormous turnover.

Second, although a majority of the industries that saw the greatest improvements in their trade balances were already running trade surpluses, a significant number (seven of the 22 that could be counted in this way) were industries running deficits. (Because figures for crude oil and natural gas are now reported separately, as opposed to being lumped together, no such conclusion was possible for them.) Even better, one sector – miscellaneous metal containers – turned its deficit into a surplus. One plausible interpretation is that most of the most globally competitive industries in the nation have retained competitiveness so far during the pandemic, and some have improved lagging competitiveness. All the same, clearly at work here, especially concerning the sectors whose deficits have shrunk markedly, are virus-related effects that may be relatively short-lived.

Third, although most of the 21 parts of the economy whose trade balances deteriorated the most were industries already in deficit – indicating that sectors in competitive trouble pre-CCP Virus remain in such trouble – eight were running trade surpluses. That pattern indicates that the virus has damaged them.

One methodological point that needs to be made right away: These “Top 20” lists both contain more than 20 entries because of confusion caused by apparent duplication for aerospace-related sectors in the government industry classification system I’ve used. So I decided to present any aerospace data that the government figures indicate belong in these Top 20s, but also added other sectors to maximize the odds that each list contains 20 sectors that truly qualify.

But before getting too deeply into the methodological weeds, here’s the list of the Top 20 sectors that generated the greatest improvements in their trade balances between the first six months of 2019 and the first six months of 2020, along with the percentage changes. And as mentioned above, their ranking on the comparable full-year 2019 list is included. Industries that didn’t make that 2019 list are indicated with a hyphen. Industries in surplus and deficit are identified with Ss and Ds, respectively.

biggest trade balance improvers                                                               2019 rank

1. miscellanous metal containers:       $91m deficit to $72m surplus              –

2 miscellaneous grains:                             +503.71 percent                             –   S

3. semiconductor production equipment:  +245.18 percent                             –   S

4. iron ores:                                               +234.48 percent                              –   S

5. electronic connectors and parts:            +144.56 percent                            –    S

6. gaskets, packing and sealing devices:   +103.91 percent                            –     S

7. semiconductors:                                      +86.87 percent                            1     S

8. animal fats and oils:                                +82.00 percent                            8     S

9. crude oil:                                                 +60.24 percent               (new category)

10. misc measuring & control devices:       +54.06 percent                           –      S

11. heavy duty trucks and chassis:              +48.74 percent                           –      D

12. aircraft parts & auxiliary equipment:    +43.89 percent                           –      D

13. specialty canned foods:                         +42.37 percent                          20     S

14. cheese:                                                  +40.06 percent                           13     S

15. misc non-ferrous smelted metals:         +37.01 percent                            –      S

16. construction machinery:                       +36.34 percent                            –      D

17. peanuts:                                                +36.12 percent                            –      S

18. autos and light trucks:                         +35.76 percent                             –     D

19. aircraft engines and engine parts:       +35.55 percent                             –      D

20. iron and steel products:                       +34.99 percent                            –      D

21. male cut and sew apparel:                  +33.37 percent                             –      D

22. pulp mill products:                             +33.16 percent                             –      S

Let’s return to the methodology briefly. All the statistics in these mid-year trade posts cover goods industries. Service industries are left out because the government database I rely doesn’t report on the latter, and because comparably detailed data won’t be released for a while.

This database is maintained by the the U.S. International Trade Commission, which enables users to access them with its terrific Trade Dataweb interactive search engine. The specific goods categories used are those of the North American Industry Classification System (NAICS) – the federal government’s main way to slice and dice the U.S. economy. And the level of disaggregation I’m using is the sixth, since it’s the level at which you can keep the numbers of sectors analyzed manageable, and at the same time make distinctions between final products on the one hand, and their parts and components on the other (vitally important given much more specialized manufacturing has become).

Aside from the substantial degree of turnover, one prominent feature of this list is its domination by intermediate goods. Parts, components, and materials used in the production of final manufactured goods, or the machinery used in that production, account for 15 of these 22 sectors. Perhaps it’s a sign that global supply chains have proven more resilient during the pandemic than is commonly supposed, and that U.S. links on these chains have been performing exceedingly well?

In addition, 17 of the 22 are manufacturing industries, compared with 16 of the 20 on last year’s list. That’s a step backward for fans of U.S.-based manufacturing, but not a big one.

Nevertheless, two of the sectors that have improved their trade balances most are in the aerospace sector, and regardless of classification issues, since both those industries are deficit industries, their performance undoubtedly reflects both the drastic reductions in air travel imposed due to the CCP Virus (which affect orders for imported engines, their parts, and other parts)nd these goods), as well as the troubles at Boeing, which also reduce demand for foreign-made inputs.

A third deficit manufacturing sector – men’s and boy’s apparel – has also surely seen its trade shortfall shrink because American consumers are buying so few of these largely foreign-made goods. (In an upcoming post looking at export and import changes, we’ll see if this domestic demand-related hypotheses holds any water.)

Now it’s time for the list of those sectors in which trade balances worsened the most.

biggest trade balance losers                                                                2019 rank

1. misc non-ferrous extruded metals:       -1,354.67 percent                 7      D

2. smelted non-ferrous non-alum metals: -1,254.08 percent                 1      D

3. farm machinery and equipment:             -404.19 percent                  –      D

4. miscellaneous textile products:              -399.55 percent                  –      D

5. computer storage devices:                      -271.11 percent                  –      D

6. jewelry and silverware:                            -98.97 percent                  –      D

7. non-diagnostic biological products:         -61.67 percent                16     S

8. computer parts:                                        -60.12 percent                  –      S

9. misc electrical equipment/components:  -50.76 percent                 15    D

10. misc apparel & apparel accessories:     -46.82 percent                   –     D

11. non-anthracite coal/petroleum gases:   -44.91 percent                   –      S

12. cyclic crude & intermediate products: -40.48 percent                   –      S

13. motor vehicle bodies:                           -39.49 percent                  –       S

14. computer storage devices:                   -39.07 percent                   –      D

15. civil aircraft, engines, equip, parts:     -36.95 percent                   –      S

16. medicinal/botanical drugs/vitamins:   -28.40 percent                   –      D

17. perfumes, makeup, and toiletries:       -28.19 percent                   –      S

18. communication and energy wire:        -25.63 percent                   –     D

19. power distribn/specialty transformers: -24.03 percent                  –     D

20. misc electronic components:               -23.92 percent                   –     D

21. corrugated & solid fiber boxes:           -23.61 percent                   –     S

Turnover here has been even greater than on the improvers’ list, with only four of the 21 sectors appearing on the full-year, 2019 list. And talk about manufacturing-heavy! Industry represents all of the sectors save one (non-anthracite coal and petroleum gases). That’s more than the 17 of 20 on the full-year 2019 list of trade deficit growers.

Moreover the dominance of intermediate goods industries (only four of the 20 manufacturing sectors – medicinal and botanical drugs and vitamins; perfumes, makeup, and toiletress, apparel and apparel accessories’ and jewelry and silverware) looks like evidence that not all such U.S. supply chain-related sectors have performed relatively well during the pandemic.

But neither actual deficits and surpluses nor how they’ve changed tell the whole story about the CCP Virus’ impact on American trade flows and competitiveness. The export and import flows that comprise them need to be examined, too, and they’ll both be coming up on RealityChek.