(What’s Left of) Our Economy: Another U.S. Trade Deficit Surge on the Way?

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Biden administration, Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, exports, goods trade, imports, lockdowns, manufacturing, manufacturing trade deficit, merchandise trade, semiconductors, services trade, South Korea, Taiwan, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

A day after the Biden administration began laying out its “strategic vision” for trade policy toward China (which looks an awful lot like the tariff-heavy Trump administration policies decried by candidate Biden), this morning’s latest official U.S. monthly trade figures reminded that the predatory People’s Republic is hardly the only obstacle to an improved national trade performance.

Some of the distorting effects of the stop-start nature of the CCP Virus-era U.S. and global economies can be seen in the statistics. Principally, the last three data months have seen a month-on-month increase in the overall U.S. deficit in June, a decrease in July, and the rebound reported in today’s August release.

At the same time, through May, the growth of this total goods and services deficit was pretty sluggish. Since June, though, it’s remained above $70 billion for three straight months. (as will be detailed below).

At least as troubling – the rates of change in trade deficit increases and decreases, and in the economy’s rates of growth and shrinkage never match up exactly in the short run, because of lag times between orders and the receipt of supplies of traded goods in particular. But it’s not good news that whereas the U.S. economy grew at after-inflation annual rates topping six percent in each of the first and second quarters (ending in June) while the trade gap’s growth was pretty sluggish, third quarter growth could well be much slower (see, e.g., here), and the trade deficit seems to be settling in at higher levels.

To return to the China data – not that they were good. The S$31.74 billion U.S. merchandise deficit with the People’s Republic was the biggest monthly total since July, 2019’s $32.68 billion, and was up sequentially by 10.79 percent. Goods imports rose 6.51 percent on month to just under $43 billion for their highest level since last November. But merchandise exports sank month-to-month by 3.94 percent, to $11.26 billion – their lowest level since February.

Even so, the August trade report showed again that, longer term, the Trump tariffs are bringing and keeping America’s huge and longstanding China goods trade gap under control. Specifically, this deficit is up 13.65 percent year-to-date – much more slowly than the closest global proxy, America’s non-oil goods deficit (19.11 percent).

As for the headline U.S. combined goods and services trade deficit, it rose in August by 4.19 percent, from a slightly upwardly revised $70.30 billion to a new record $73.25 billion.

The merchandise trade shortfall increased, too – but by just 1.82 percent sequentially. And the $89.41 billion total, while high by historic standards, still trailed the $93 billion-plus top-two levels hit in March and June (the latter’s $93.26 billion remaining the record).

The August services trade surplus of $16.16 billion, however, was the lowest since December, 2011, and fell by 7.74 percent from July.

Several other records were set by the August results in the broadest U.S. trade flow categories. On the negative side, total U.S. imports hit an all-time high of $286.99 billion during the month, as did goods imports ($239.11 billion). But at $149.69 billion, August goods exports hit their second consecutive historical best.

And speaking of records, manufacturing’s $116.88 billion trade shortfall represented another. The August total was 5.76 percent greater than July’s $110.05 billion and exceeded the previous all-time worst (June’s $114.06 billion by 2.47 percent).

Delving more deeply into the manufacturing numbers, industry’s exports did improve by 1.95 percent sequentially, from $95.22 billion to $97.13 billion. But the much greater amount of imports jumped more than twice as fast – by 4.03 percent, from $205.72 billion to $214.01 billion.

On a January-August basis, the manufacturing deficit has ballooned by 23.77 percent, from $686.36 billion to $849.50 billion – making a fourth straight trillion-dollar trade gap for industry all but certain.

Year-to-date, manufacturing exports have grown by 19.28 percent, but imports remain more than twice as great, and they’ve swelled by 21.64 percent.

Some more records and notable results:

>At $3.73 billion, the August goods trade deficit with global semiconductor manufacturing superpower Taiwan set a fifth straight monthy record.

>The merchandise gap with South Korea, another leading semiconductor manufacturer, soared by 51.18 percent to $3.15 billion – its third highest total all-time.

>And the goods shortfall with Canada, America’s third largest goods trade partner (after the European Union and China, respectively) surged 24.48 percent, to a $5.33 billion level that was the loftiest monthly amount since October, 2008 ($5.65 billion).

The bear case for the trade deficit is easy to identify: For example, if it’s been rising even as the CCP Virus’ highly contagious Delta variant and related economic and behavior curbs are depressing growth, it’s sure to rise higher and faster as the Delta wave keeps showing signs of weakening, and growth picks up again. Further, whenever unsnarling begins of the kinds of logistical snags that have disrupted supplies of semiconductors and created long backups at ports on America’s West Coast and elsewhere, U.S. imports in particular will rise even more rapidly.

The bull case seems to depend mainly on the winding down domestically and internationally of the virus – which will help America’s trade partners finally to start catching up with the United States recovery-wise, and therefore to step up net buys of U.S. imports. (See, e.g., here.) There are also the arguments that supply chain normalization will help restore domestic U.S. business’ export potential; and that the Biden administration has just made clear that the vast bulk of the steep and sweeping Trump China tariffs will remain in place for the foreseeable future – which will keep pricing enormous amounts of imports from China out of the U.S. market.

At this point, the fence looks like the safest place to be analytically, as has often been the case for the pandemic economy. So that’s where I’ll sit regarding future prospects for the trade deficit – but leaning a little toward the bearish side for now.

Our So-Called Foreign Policy: Could U.S. Protectorates in Asia Finally Become Real Allies?

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Afghanistan, alliances, allies, Asia, Asia-Pacific, AUKUS, Australia, Biden, China, credibility, Donald Trump, extended deterrence, globalism, Indo-Pacific, Japan, nuclear umbrella, Our So-Called Foreign Policy, semiconductors, South Korea, submarines, Taiwan, transactionalism, United Kingdom, vital interests

Lots of stuff going on lately in security affairs in the Asia-Pacific region (which foreign policy congoscenti have been calling the Indo-Pacific region, reflecting India’s new prominence). And I’m not just talking about the new agreement (which goes by the awkward acronym “AUKUS”) by which Australia will acquire nuclear-powered submarines provided by the United States and the United Kingdom (acing out the furious French in the process), and gain access to lots of advanced militarily-relevant American technology, like artificial intelligence and quantum computing.

I’m also talking about long overdue signs that key U.S. allies in the region are starting to take the threat they face from growing Chinese aggressiveness as seriously as the United States has been taking it. The interesting policy questions are (1) why they seem finally to be waking up and (2) what if anything the United States can or should do to convince Japan, South Korea, and Taiwan in particular to assume more of the burden of defending themselves, thereby enabling America to take a less risky, less costly role in the region.

For the time being, unfortunately, the United States is going to have to stay deeply involved in the defense of these countries, and to keep accepting a degree of nuclear risk that I’ve long described as unacceptable, and still consider unnerving. I’ve changed my mind, however, because the globalist and free trade-happy U.S. foreign policy establishment and the tech companies that write so many of its members’ paychecks boneheadedly let South Korea and especially Taiwan seize global leadership in the manufacture of the world’s most advanced and powerful semiconductors.

These devices are simply too valuable to the American economy as a whole and to its continuing military superiority to take the chance that the relevant Taiwanese and South Korean facilities and knowhow fall into Chinese hands. As for Japan, it continues to produce many of the materials and equipment on which cutting-edge semiconductor production relies, so it’s got to be kept safe from the likeliest threat it faces from China – which is some form of blackmail. (See this recent Biden administration report, and especially pp. 45 ff.)

As a result, until the United States gets its semiconductor act back together, the American nuclear umbrella needs to remain over Japan and South Korea – which means that America could well be sucked into a nuclear war with China and especially North Korea if hostilities break out. And such “extended deterrence” may need to be extended to Taiwan (which Washington is not yet as tightly committed to defend).

That’s why it’s not good that not only the Australians will be getting nuclear-powered (but not – so far – nuclear-armed) submarines. Because of their superior capabilities, these which will add quantitatively and qualitatively to the forces China would need to think about when contemplating, say, moves to increase its sway over the regional sealanes through which so much of the world’s trade flows.

It’s also good that South Korea has decided to build (so far non-nuclear) ballistic missiles that can be launched from its own submarines (in response to North Korea’s progress toward the same capabilities). Deserving of applause as well are Japanese and Taiwanese plans to boost defense spending – and acquire some impressive weapons along the way. Japanese officials are even talking seriously about what steps Tokyo can and should take to help defense Taiwan if the stuff hits the fan with China – although nothing like a clear decision had been made.

Defense spending levels in all three countries are still measly, especially considering what dangerous neighborhoods they live in. And it’s not as if time is necessarily on their side. But something new seems astir, and I’m not convinced that China’s worsened behavior is entirely responsible. Some credit undoubtedly goes to the Trump administration. Since his initial White House campaign, the campaign, the former President insistently asked why Americans should risk their own security for that of allied freeloaders, and foot so much of the bill. And throughout his presidency, he kept so much pressure on that the Asia allies clearly worried that the Uncle Sucker days were over, and that Trump’s complaints reflected much and possibly most American public opinion. (See, e.g., here.)

President Biden deserves some credit here, too – but I would argue in part in spite of himself. Mr. Biden of course is a card-carrying globalist who for the entirety of his long career in public life has agreed wholeheartedly with the need to maintain strong U.S. alliance relationships. Hence it was no surprise that during the 2020 campaign and immediately after his inauguration, he took great pains to assure U.S. allies that the United States would “be back” after years of Trump-ian neglect. And indeed, earlier this year, Mr. Biden showed every sign of coddling continued Asian defense free-riding.

But ironically, the biggest Biden spur to more Asian defense burden-sharing might be his botched withrawal from Afghanistan. In other words, whereas the Asians (and other allies) were worried mainly that Trump would cut them loose because he was unwilling to protect them if they didn’t change their deadbeat ways, it’s entirely possible that they fear Mr. Biden won’t be able to ride to their rescue – at least not in any effective way.

I know that there’s little evidence of such mistrust in official Asian rhetoric so far. And of course, one of the President’s main stated reasons for leaving Afghanistan in the first place was to free up more American energies and resources to focus on China. But some unofficial Asian voices seem less sure, and it would be surprising to see any governments pushing the panic button in almost any circumstances. And could it be a total coincidence that the aforementioned spate of Asian defense decisions came in the wake of the Afghanistan pullout?

I seriously doubt it.  And as a result, if Mr. Biden wants to turn America’s Asian protectorates into genuine allies, he should continue his own strategy of stepping up exports of advanced weapons to them (and to many of their neighbors, depending on each one’s solidarity), signaling his willingness to go even further (as with this excellent decision) and employ some of the Trump-ian “transactionalism” that’s had so many globalists clutching their pearls for so long. 

But instead of threatening American withdrawals if they don’t pony up more defense-wise, the President should promise them more hardware if they do.  Casually floating the idea of OKing the acqusition of nuclear weapons by various allies wouldn’t hurt, either.

And he should stop pretending that none of this activity is directed against China. Not only does such rhetoric signal credibility-shaking skittishness. It contradicts yet another example of transactionalism that should become part of the Biden strategy: Making clear to China that staying on its current belligerent course will be a great way to guarantee that it’s ringed with ever more neighbors that are armed to the teeth.        

(What’s Left of) Our Economy: Even Pre-Delta, the CCP Virus Kept Roiling U.S. Trade Flows

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CCP Virus, China, coronavirus, COVID 19, Delta variant, exports, goods trade, imports, Made in Washington trade flows, manufacturing, non-oil goods trade deficit, services trade, supply chains, Taiwan, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Today’s official monthly U.S. trade figures (for July) revealed once again how the tumultuous stop-start nature of the nation’s CCP Virus-era economy keep greatly complicating figuring out its real health and whether it’s improving. That goes double for assessing whether the economy is returning to pre-virus normality.

As you may remember, last month I wrote that the June data “brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data.” (The non-oil goods numbers represent that portion of U.S. trade flows most heaviy influenced by trade policy decisions – which is why I’ve dubbed this category “Made in Washington” trade.)

The reason: The U.S. Census Bureau, which tracks the trade flows, reported that the combined goods and services trade gap widened by 6.70 percent, to $75.75 billion in June – an all-time high that broke the $72.72 billion record set in March.

Today, however, the June total trade shortfall was revised down to $73.23 billion – a record till this morning, but 3.33 percent lower (a downgrade that’s really big by Census Bureau standards). Moreover, the July overall trade deficit came in at just $70.05 billion, which is right in line with the January-May average that so encouraged me last month.   

These fluctuations came mainly before the virus’ Delta variant struck the United States with full force, so such progress could vanish by next month. All the same, it’s reasonable to observe that the combined deficit shrunk for the best combination of reasons from a U.S. standpoint. Total goods and services exports climbed by 1.31 percent to $212.83 billion, the highest such level since May, 2019’s $213.97 billion. And overall imports dipped by 0.15 percent, from June’s slightly downwardly revised $283.31 billion to $282.88 billion – a total that’s still the second highest ever.

Even better, this deficit’s 4.34 percent sequential decline was achieved even though the long-time U.S. services trade surplus plunged by 11.77 percent on month. Of course, services have been the segment of the American and global economies that have been hit hardest by CCP Virus-related disruptions (think, especially, travel and transportation in general). But it’s still noteworthy that this July level was the lowest since September, 2012 (way before the pandemic), and the monthly decrease was the biggest since August, 2008’s 14.03 percent plummet, in the midst of the Great Recession that followed the global financial crisis.

At the same time, the services trade surplus number reported today for June ($20.03 billion) was revised up a mind-boggling 14.94 percent from the previously judged level of $17.43 billion. So that’s another reason to suspend judgment on any of these most recent virus-era economic data.

Keeping this (big) caveat in mind, the goods trade numbers released today were definitely good news. The chronic deficit in this portion of America’s trade flows (by far the biggest) sank sequentially by a healthy 5.93 percent, to $87.72 billion. That’s the lowest such total since April’s $87.09 billion, and the new June figure was revised only slightly higher, so this decline looks genuine so far.

In addition, goods exports in July, which increased by 1.83 percent on month, to $148.59 billion, set their fourth straight monthly record. July goods imports were off 1.20 perent sequentially from June’s all-time monthly high of $239.18 billion. But the $236.31 billion total was still the third highest ever.

The deficit reduction in that non-oil goods trade category was encouraging as well. At 6.91 percent, it was bigger than that for goods overall, and the greatest monthly fall-off since February, 2020’s 7.91 percent – when the original outbreak of the CCP Virus was still keeping much of China’s export-heavy economy at a standstill.

Of course, continuing snags in global supply chains are doubtless holding down U.S. exports, imports, and deficits, so they add up to another virus-related reason for caution in interpreting any single month’s trade data. But these disruptions have marked the entire CCP Virus period, so the July improvements can’t be written off entirely.

That goes for China-related trade flows as well. Especially important is that the July bilateral goods deficit of $28.65 billion was just 2.89 percent larger than June’s $27.84 billion, and represents the eight straight month when these results have stayed in the same neighborhood. That development sure looks like a sign that the Trump administration tariffs that President Biden has continued are still impeding China’s access to the U.S. market. So does the fact that, on year, the China goods trade shortfall has risen much more slowly (14.98 percent) than the total U.S. non-oil goods shortfall that’s its closest global proxy (21.39 percent).

The news on the U.S. trade manufacturing front was good, too – but only in relative terms. Despite the 3.12 percent monthly decrease in domestic industry’s huge, chronic trade deficit from last month’s record $114.06 billion total, the July figure of $110.50 billion was still the second biggest on record.

On month, manufacturing exports dipped by 1.90 percent, from $97.06 billion to $95.22 billion. But the much greater amount of imports was down 2.56 percent, from $211.11 billion to $205.72 billion.

Year-to-date, the manufacturing deficit is up fully 25.42 percent this year, to $732.62 billion, and is on track to shatter the annual record of $1.11277 trillion set just last year.

From January-to-July, 2020 to the same seven-month stretch this year, manufacturing exports have jumpe by 18.80 percent, to $642.16 billion. But the much greater amount of manufacturing imports has surged by 22.24 percent, to $1.37477 trillion.

In other notable July trade developments, the U.S. goods deficit with Taiwan, now the world’s leader in semiconductor manufacturing technology, hit its fourth straight monthly record ($3.62 billion), and the goods gap with Japan, another tech and manufacturing powerhouse, rocketed up month-to-month by 27.43 percent, to $6.29 billion. This total was the highest since last November’s $6.78 billion. And the Canada goods deficit retreated by 22.05 percent from a June total of $5.46 billion that was its highest since October, 2008.

Our So-Called Foreign Policy: Biden’s Just Blundered on Taiwan, Too

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ABC News, Afghanistan, alliances, allies, Article Five, Biden, China, Cold War, Congress, credibility, George Stephanopoulos, Japan, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, Republic of China, semiconductors, South Korea, Taiwan, treaties, vital interests

Last week I tweeted that I was worried that President Biden would do something stupid and reckless to try to establish or reestablish (depending on our viewpoint) his global chops following the Afghanistan military withdrawal his administration has so disastrously conducted. As known by RealityChek regulars, American Presidents have followed this course before – notably John F. Kennedy.

And sure enough, on Wednesday he at least came uncomfortably close. No, Mr. Biden didn’t invade or threaten another country, or even move U.S. military forces into provocative positions versus, say, China or Russia or Iran or North Korea. But he did say something that should worry all Americans. In his interview with ABC News’ George Stephanopoulos, the President suggested that Taiwan now enjoys the same status in American eyes as Japan, South Korea, and the members of the North Atlantic Treaty Organization (NATO). That is, they’re allies in whose defense against external aggression the United States is treaty-bound to fight.

Specifically, when asked by Stephanopoulos if China could credibly tell the Taiwanese – who they claim run a renegade province that Beijing has vowed to bring back into its fold with force if necessary – “See? You can’t count on the Americans,” Mr. Biden’s response included:

“We have made– kept every [defense] commitment. We made a sacred commitment to Article Five that if in fact anyone were to invade or take action against our NATO allies, we would respond. Same with Japan, same with South Korea, same with– Taiwan. It’s not even comparable to talk about that.”

The President is right about NATO. In fact, that Article Five he mentioned is the keystone of the treaty that established the alliance. In 1949, the signatories agreed

“that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs…will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.”

The Japan-U.S. Security Treaty of 1951 contains its own Article Five. The key section:

“Each Party recognizes that an armed attack against either Party in the territories under the administration of Japan would be dangerous to its own peace and safety and declares that it would act to meet the common danger in accordance with its constitutional provisions and processes.”

The promise to meet aggression with U.S. military force is a little looser here – and notice that the treaty creates no Japanese obligation to aid the United States with its own military if American territory comes under attack. The reasons are complicated – for example, in 1947, Japan, then under U.S. military cooperation, adopted a constitution containing a proposal from Supreme Allied Commander General Douglas MacArthur that pledged “never” to “maintain” “land, sea and air forces, as well as other war potential.” The idea, of course, was to prevent Japan from ever reemerging as the type of threat it became in the 1930s. And at that point, it wasn’t even a fully sovereign nation, much less an armed one.

Nonetheless, as the Cold War developed, and Washington’s priorities in East Asia shifted toward using any actual and potential assets available to resist communist aggression, the United States proceeded to push Japan to rearm and add to the regional forces that could fight the Soviets or the Chinese or the North Koreans. But even though Japan continuously balked, the United States’ determination to defend Japan could never be seriously doubted as long as tens of thousands of American servicemen were stationed on Japanese soil, representing a “tripwire” whose presence and possible vulnerability to the superior conventional militaries of potential regional aggressors would guarantee an armed U.S. response – poentially complete with the use of nuclear weapons – against an attack on Japan. 

A similar U.S. commitment – complete with unequal obligaions and tripwire forces – has been made to South Korea.

There’s now clearly a case for adopting the same policy toward Taiwan. From 1954 to 1979, the U.S. security relations with Taiwan were governed by a assymetrical defense treaty, too, complete wiith an Article Five American commitment. But since the United States decided to recognize the People’s Republic of China (yes, the Communists) as China’s sole legitimate government, its approach toward Taiwan’s defense has been informally called “strategic ambiguity” – which is just as fuzzy and plastic as it sounds.

Yet whereas that posture arguably made sense for most of the post-1979 period, since the People’s Republic has grown so much stronger and more important economically than Taiwan (which still calls itself the Republic of China), the island can now legitimately claim to boast an asset vital to America’s own national security and prosperity – world leadership in the manufacture of the world’s most advanced and powerful semiconductors.

At the same time, extending Article Five-type status even to a technological powerhouse like Taiwan isn’t a decision to be made on the spur of the moment. The impact on China – which has significantly closed the military gap with the United States especially in its own backyard (where Taiwan is located) – needs to be carefully considered. And more important, it’s a move that the United States can’t make by presidential fiat. Congress needs to approve.

On Thursday, a “senior Biden administration official” told reporters that American “policy with regard to Taiwan has not changed.” And the usual supposed experts and talking heads said that Mr. Biden had simply added to his long record as a “gaffe machine.” But who the heck is this senior official, anyway? Why should anyone believe him or her if they’re not willing to speak for attribution? And why should the Chinese take this walk-back seriously, or take comfort in (unofficial) assurances that the President was just Biden-ing again – especially since “strategic ambiguity” has become a lot bolder under both him and President Trump?

Moreover, if they’re not aware of it already, the Chinese should know that Presidents have used all sorts of ways short of formal treaties to tie the nation militarily to foreign countries, and even to use military force (Google “Tonkin Gulf Resolution,” or “Authorization for Use of Military Force”), and that timely, effective Congressional resistance is anything but a sure thing. That could go double for a national political establishment that today is united by a sense of humiliation due to the Afghanistan debacle – and possibly spoiling for an opportunity to regain global confidence.

Again, I’m not against a treaty commitment to Taiwan. But it needs to be made with full consideration of all the pluses and minuses, and according to clear Constitutional procedures. And it certainly shouldn’t result from an out-of-the-blue comment by a Chief Executive under heavy political fire, however richly deserved.

Our So-Called Foreign Policy: Follow Lithuania’s Lead on China

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China, diplomacy, European Union, Lithuania, One China policy, Our So-Called Foreign Policy, Taiwan

Don’t look now, but the Baltic country of Lithuania (yes, you read that right) has just shown the entire world a terrific way, low-risk and low-cost way to punish China for its worsening bellicosity and human rights atrocities by giving it a great, big black public relations eye. Even better: Though this action need not harm countries taking it one bit, the damage felt by the PRC’s thug leaders will be grievous and therefore capable of generating actual benefits – unlike most such political moves – especially if enough important (and even unimportant) countries participate.

The specific gambit? Permitting Taiwan to set up “a representative office under the name of Taiwan” on national territory. And Lithuania has demonstrated exactly how to do it – in the process demonstrating how this kind of decision can put China into a thoroughly humiliating box.

Lithuania set the process in motion July 20 when it announced its Taiwan decision. Since China’s Communist leaders have always regarded Taiwan as a renegade province whose claims to any form of autonomy amount to a mortal and thus intolerable threat to China’s sovereignty and territorial integrity, no one should have been surprised by Beijing’s response: withdrawing its own ambassador to Lithuania, demanding the departure of Lithuania’s envoy to China, and threatening to cut off diplomatic relations altogether.

Interestingly, Lithuania could have fudged matters in a way apparently acceptable to China had it clearly called the Taiwan facility a trade-focused office, or required it to use the name “Taipei” (the island’s capital) rather than “Taiwan.” However grudgingly, Beijing has tolerated other countries (and indeed the entire European Union, of which Lithuania is a member) taking this approach.

But even more interesting, Lithuania went “the full Taiwan.” Although insisting that it still regarded Communist China as the only legitimate government of China (thus like the United States and most other countries, maintaining full diplomatic relations solely with Beijing in line with a “One China” policy), it accepted the island’s decision to use its chosen name for the office. (That’s a first for Europe.). The “trade office” nomenclature has been rejected as well. (For the record, Taiwan does official business in the United States though “Economic and Cultural” facilities in Washington, D.C. and many other big cities. But the web page for the Washington location calls it an “embassy.”) And Lithuania has refused to back down in the face of China’s bluster.

So now it’s clearly time for every other country that values democracy, human rights, and its own self-respect to follow Lithuania’s lead either in permitting the establishment of explicitly Taiwanese government offices on their soil, or dropping the policy or pretense that existing offices must be strictly commercial entities.

Yes, unlike Lithuania, many major countries have the kinds of economic ties with China that make Beijing’s threats of retaliation understandably troubling. But if all or most act in concert, and stick to their policy guns, and for the time being stick officially with the One China policy, what realistically could or would China do? Withdraw its envoys from dozens of world capitals? Expel just as many foreign ambassadors from Beijing? Tariff imports from just as many trade partners? Cut off all their investments in China? Intensify harassment of all their companies operating in China?

Much likelier: China’ dictators huff and puff, and wind up sitting there and taking it – meaning that a face-obsessed regime would suffer a major indignity in the eyes of its own (face-obsessed) population, and in the court of global public opinion.

More important, Beijing would have little choice but to end its campaign of pressuring other countries to limit strictly Taiwan’s overseas official presence. Unless it wanted to be exposed repeatedly as a paper tiger in this respect? And maybe some governments would want to push the Taiwan relations envelope further, which would only further undermine China’s global image and fears that it – and especially its high tech totalitarianism – represents the wave of the future, and spur more resistance to its dangerous global ambitions.

At the same time, the opposite scenario might be even more crucial: If most countries aren’t willing to call China’s bluff despite the scanty risk levels, Beijing could become even more aggressive, and wring more security-related and economic concessions those with which it interacts. Decades of reckless national policies have already fed this beast with immense wealth and cutting-edge knowhow. Will the world now start feeding it psychologically as well?    

 

(What’s Left of) Our Economy: More of the (Wrong Kind of) Records in the New U.S. Trade Figures

Tags

Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, Europe, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, Taiwan, tariffs, Trade, trade deficit, trade policy, trade war, Wuhan virus, {What's Left of) Our Economy

About a week ago, I wrote here that the new (second quarter) figures on U.S. economic growth displayed some tentative signs of pre-pandemic normality returning to the nation’s CCP Virus-disrupted trade flows. This morning’s release of the detailed official U.S. trade figures for June reveals that those signs (which came from the inflation-adjusted numbers) were awfully tentative, and that pandemic distortions remain the order of the day.

Indeed, the June trade data brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data. As known by RealityChek regulars, those trade flows can be called the “Made in Washington” portion of U.S. trade, since they make up the category of imports and exports whose levels and changes are most influenced by U.S. trade policy. In that way, they differ from oil trade (which is almost never the subject of trade negotiations and other policy decisions) and services trade (where liberalization efforts worldwide have made only modest progress). Moreover, manufacturing trade in June exhibited the same discouraging characteristics. 

There is one important exception to June’s trend break: The China goods deficit and goods import numbers changed only slightly (for the worse). In fact, they’ve stayed in the same neighborhoods since China’s export-heavy economy rebounded from its own virus-induced shutdown in early 2020. These results look like strong indicators that the Trump tariffs have played major roles in reducing the harm done to the U.S. economy by Beijing’s predatory trade practices. So does the resilience throughout the pandemic shown by U.S. domestic manufacturing – since industry dominates Sino-American trade flows.

But the trade records set in June remain noteworthy. After staying right around $70 billion on average since January (with the exception of a brief March move to just over $75 billion), the combined goods and services shortfall rose 6.70 percent,from $70.99 billion in May to $75.75 billion in June – an all-time high that broke the record set in March.

Since goods make up the great majority of U.S. trade flows, it wasn’t surprising that their deficit pattern was identical. They remained consistently in the high $80 billions since January (also with the exception of March) and then grew in June by 4.53 percent, from $70.99 billion to $75.75 billion. And this total also replaced March’s total as the new record.

The pattern was the same for Made in Washington trade. Its monthly deficit totals, except for March, remained in the high $80 billion range since January, too, then broke out in June from $86.73 billion to $92.42 billion – a rise of 6.56 percent to another all-time high that surpassed a previous March record.

Services trade set no records in June, but its $17.43 billion surplus was the smallest since August, 2012’s $17.08 billion. Because the CCP Virus’ Delta variant hadn’t raised the prospect of more economic curbs back in June, this figure will be worth following closely, since services are so vulnerable to virus-prompted restrictions.

Combined U.S. goods and services exports did bump up by 0.58 percent on month in June, from May’s $206.47 billion to $207.67 billion. In addition, that represented the biggest monthly total since the $209.88 billion recorded in December, 2019 – just before the pandemic is thought to have arrived in the United States. But the much greater amount of total imports climbed by 2.15 percent, from $277.46 billion to a new record of $283.42 billion.

At $145.91 billion, goods exports set their fourth straight monthly record in June. But they continued to improve slowly – by just 0.19 percent over the May total. In fact, since March, they’ve only advanced by 1.57 percent in all on a monthly basis, no doubt in part to relatively sluggish growth in most of the world outside the United States.

The much larger amount of goods imports climbed much faster in June – by 1.84 percent on month, to reach their second straight all-time high of $239.09 billion.

As for services, exports in June advanced by a respectable 1.53 percent, to $61.76 billion. The monthly improvement was the fourth straight, and their best performance since February, 2020’s $69.12 billion. But clearly these levels remain depressed.

Services imports in June also set a post-February, 2020 high ($44.35 billion versus $47.06 billion) and increased for the fifth straight month. But they rose more than twice as fast (3.84 percent) as services exports, and their levels are also well below pre-CCP Virus levels.

America’s non-oil goods exports actually fell sequentially on month in June – by 1.62 percent, from a record $129.66 billion in May to $127.56 billion. The much greater amount of imports, however, grew by 1.66 percent, to $219.98 billion, a level that slightly topped the previous all-time high of $219.68 billion set in March.

The U.S. goods trade deficit with China did worsen in June – from May’s $26.32 billion to $27.84 billion. But the 5.79 percent increase trailed that of the non-oil goods gap, the closest global proxy (6.56 percent). The year-to-date totals tell the same story: The China goods shortfall is up more slowly ( 20.81 percent) than the global Made in Washington deficit (24.59 percent).

Back to the monthly figures, U.S. goods exports to China fell by 2.49 percent between May and June – from $12.41 billion to $12.10 billion. Imports, however, were 3.13 percent higher ($38.73 billion to $39.95 billion).

Especially interesting: On a monthly basis, U.S. goods imports from China have inched up only from $39.11 billion to $39.95 billion. For all non-oil goods by this measure, U.S. imports have risen much faster – from $205.08 billion to $219.98 billion. So it seems clear that the Trump tariffs keep pricing many Chinese goods out of the U.S. market.

But although America’s China and non-oil goods trade shortfalls have stayed fairly stable on a monthly basis since January, its manufacturing trade gap has widened substantially. Already lofty enough during the first month of the year at $99.79 billion, it stood 4.87 percent higher in June – $114.06 billion.

Further, this total broke the previous record of $110.20 billion, set last October.

Domestic manufacturing exports improved by 1.81 percent on month, from $95.33 billion to $97.06 billion. But the much greater amount of imports jumped by 4.49 percent, from $202.04 billion to $211.11 billion.

On a year-to-date basis, moreover, the manufacturing deficit has surged by just under 30 percent. At $622.12 billion as of June, it’s headed toward an all-time annual record.

Other manufacturing records or multi-year highs revealed by the June data included a record monthly deficit of $28.14 billion goods deficit with Europe (including its eastern and western regions, as well as Russia); the third consecutive record monthly goods deficit with new world semiconductor manufacturing technology leader Taiwan ($3.49 billion); and the highest goods deficit with Canada ($5.46 billion) since October, 2008 ($5.65 billion).

A single month’s worth of data doesn’t prove anything, so truly credible judgments about the possible return to pre-pandemic U.S. trade normality still can’t be made based on the data. Also crucial is examining trade figures and their changes against the backdrop of the entire economy’s size and its changes, in order to provide crucial context. When looking at growth and contraction rates in particular the challenge is difficult because trade flow changes only affect the rest of the economy after the passage of some time. 

And of course, if the virus’ Delta variant prompts major, nation-wide U.S. economic restrictions and behavior changes, all trade – and broader economic – forecasting bets are off for the time being.        

Those Stubborn Facts: How the U.S. Lost the Global Semiconductor Manufacturing Tech Lead

Tags

capex, capital spending, China, infotech, innovation, Intel, investment, manufacturing, microchips, national security, Samsung, semiconductors, South Korea, Taiwan, Taiwan Semiconductor Manufacturing Company, tech, Those Stubborn Facts

“North America-” (i.e., U.S.-) Owned Firms’ Share of Global Semiconductor Capital Spending, 1990: 31 percent

“North America-” (i.e., U.S.-) Owned Firms’ Share of Global Semiconductor Capital Spending, 2019: 28 percent

“Asia-Pac/Others*- Owned Firms’ Share of Global Semiconductor Capital Spending, 1990: 10 percent

“Asia-Pac/Others*-Owned Firms’ Share of Global Semiconductor Capital Spending, 2019: 63 percent

*Excludes Japan. Includes Taiwan, South Korea, and China

(Source: “A Path to Success for the EU Semiconductor Industry,” by Michael Alexander and Thomas Kirschstein, Roland Berger, February 12, 2021, https://www.rolandberger.com/en/Insights/Publications/A-path-to-success-for-the-EU-semiconductor-industry.html)

Our So-Called Foreign Policy: More Reasons to Doubt Those “China Century” Predictions

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China, GDP, gross domestic product, Our So-Called Foreign Policy, per capita GDP, population, Taiwan, The Lancet

Predictions that China will soon overtake the United States as the world’s largest economy are now commonplace (see, e.g. here) – and understandably so given how much faster than America the People’s Republic has been growing in recent decades. As a result, I was startled six weeks ago when I came across data punching lots of holes in this forecast, and called attention to them in this post.

Still, as I explained, the implications were mainly economic – indicating that Americans and their businesses had much less to fear than widely supposed from a substantial U.S. decoupling from China because the Chinese people’s overall purchasing power would be hard-pressed to keep growing nearly as fast as generally assumed. That was because China’s gross domestic product (GDP) per capita – the amount of wealth it was creating for each of its huge, one billion-plus population – was growing at distinctly unimpressive levels. In fact, it was 

In terms of overall national power, however, and China’s consequent ability to threaten American national security, I noted that plenty of reasons for worry remained – because the narrowing of the U.S.-China gap in terms of the actual sizes of their economies meant that China’s ability to pour resources into its military and its security-related tech industries continued to threaten to surpass America’s.

But this week, new figures – on China’s population – have called these concerns into question, too, at least over the long run.

The data – China’s own new census – revealed that the People’s Republic’s population growth has slowed to a crawl. The numbers bested some forecasts – which anticipated Beijing reporting an actual population decline. But because this near-population stagnation has resulted largely from trends unlikely to be reversed any time soon (mainly the regime’s draconian multi-decade population control policies and the major rise in living standards that China unquestionably has achieved), they also add to the evidence that the People’s Republic is heading into a period of long-term population shrinkage. In turn, this fall-off – coupled with the weak China per capita GDP growth mentioned above – indicates that its world’s biggest economy status could be surprisingly short-lived.

The math underlying this analysis is pretty simple – and since the time frames are long, the specific results should by no means be taken literally. But the story they tell differs so dramatically from the current conventional wisdom, and because one of the key assumptions looks conservative, they deserve to be taken seriously.

Let’s begin with those per capita GDP figures. According to the World Bank, in 2019, it was $65,298 for the United States, and $10,217 for China. And let’s look at recent population predictions that have attracted considerable attention. They come from the prominent medical journal The Lancet, and peg the U.S. population growing by some three percent between 2017 and 2100, and hitting 335.81 million, but China’s population falling during the same period to just 732.89 million – a nosedive of nearly 50 percent.

That’s stunning enough by itself, but take a look at what these numbers would do to the two countries’ GDPs. Let’s assume that America’s GDP per capita in 2100 stays at its 2019 level of $65,298. Multiply that by the 335.81 million U.S. population, and you get an economy whose total output is $21.93 trillion (before accounting for inflation). If China’s GDP per capita stays the same, this calculation produces a GDP for the People’s Republic of just $7.48 trillion before inflation That is, its economy would be just a third the size of America’s. Moreover, this means that the economy gap will have doubled, since China’s $14.280 trillion GDP as of 2019 was two-thirds the size of America’s $21.433 trillion (again, according to the World Bank).

Granted any number of non-economic and economic developments over the next eight decades could make this scenario completely meaningless. But leaving out those utter unknowables, it’s significsnt that one plausible knowable suggests that the U.S.-China economy gap may become even bigger in 2100. And that’s the fact that the data I cited in March (from the International Monetary Fund) show that since 1980, that U.S.-China per capita GDP gap has widened substantially. If that trend continues (as opposed to per capita GDP differences staying exactly where they are now, as my scenario assumes), then by the turn of the next century, the United States would stand even further ahead of China. In principle, the military potential gap would widen strongly as well.

And just as crucial to keep in mind: If China’s population plummets by nearly half by 2100, big time decline will have to have begun long before, which translates into a relatively brief spell of Chinese superiority in terms of that military potential. Further, this Chinese edge may be even more fleeting than these dry numbers indicate, since the United States by all accounts maintains Number One in that regard now, and military potential doesn’t turn into military strength overnight.

Nonetheless, there’s still a worrisome paradox to keep in mind. Precisely because China’s long-term prospects aren’t terrific, some leading strategists (see, e.g., here and here) argue that Beijing will be sorely tempted to capitalize on its relative gains to date and momentum to achieve high priority goals in the short-term – like taking over Taiwan.

I personally have no idea. And I’m the last person to preach complacency in China policy. In fact, I’m glad to see that the American political system has begun wakening to the dangers posed by China’s economic, technological, and military advances. But excessive pessimism has never led to any victories in any kind of struggle or competition, either, and hopefully The Lancet data will reinforce U.S. leaders’ confidence that if success in handling China isn’t guaranteed, it’s entirely achievable.

Our So-Called Foreign Policy: The Unanswerable Question Driving Biden’s China Policy

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Antony J. Blinken, Asia-Pacific, China, foreign policy, globalism, Indo-Pacific, liberal global order, national security, Our So-Called Foreign Policy, rules-based global order, strategy, Taiwan, Xi JInPing

Two of the first maxims of strategy in world affairs (and probably in some other realms, too) are that (a) intentions and capabilities are fundamentally different and that (b) the former are much harder to gauge than the latter. These rules of the road in turn lead promptly to a key lesson: The greater the extent to which plans are based on intentions, the likelier they are to produce failure.  

The difference between measuring intentions and capabilities and the resulting policy implications matters crucially these days. For the evidence keeps mounting that the Biden administration is relying more on gauging China’s intentions in formulating its approach to the People’s Republic (PRC) and less on the much sounder foundations of assessing Beijing’s wherewithal and, most important, how this capacity’s dangers to specific U.S. interests are evolving – including over Taiwan, the newest and scariest bilateral flashpoint.  . 

The reason for focusing on capabilities is no great mystery. Figuring out how strong or weak a country’s military and economy are entails dealing with matters that are readily measurable to begin with. Although dictatorships like China’s in particular often go to great lengths to present misleading economic data, and misinformation about the state of their armed forces, the PRC’s competitiveness can be judged pretty dependably by tracking its interactions with other economies – e.g., its export performance, its attractiveness as a magnet for foreign investment. And U.S. intelligence is good enough to determine roughly how many soldiers and weapons, and the quality of the latter, that China could bring to bear in various contingencies.

Even more obvious – and important – is the case for deciding on U.S. interests. For whatever a potential adversary’s overall capabilities, why should Americans care about those that can’t plausibly affect whatever goals and missions that the United States decides it values?

Identifying what China’s leaders want is a qualitatively different and more formidable challenge. Good intelligence can provide some valuable information, as can face-to-face dealings with Beijing’s representatives. But ultimately, measuring intentions is an exercise in mind-reading, and it’s rendered all the tougher because of the secretiveness of China’s political system and the cultural gaps dividing East Asian countries like China’s and their western counterparts like the United States.

Which is exactly why the Biden administration’s strategy toward the PRC is so troubling. A heavy emphasis on intentions is clear from at least two of its features.

The first is its obsession with playing word games to define how it wants the relationship with China to develop, which in turn faithfully reflects the globalist position that achieving various types of relationships with allies, adversaries, and countries in between should be a high foreign policy priority. As I’ve written previously, that’s a great way to substitute form for substance, and to rationalize failure to achieve or preserve particular valued objectives in the here and now for the sake of payoffs stemming from a sense of mutual obligation that could be entirely unilateral and imaginary, over a time frame that tends to keep lengthening. Think of it this way – it’s easy to avoid rocking the boat if you don’t care who owns or controls the vessel.

The Biden administration, however, has taken relationship fetishizing to a whole new level. How else could one reasonably characterize all the time and effort it’s devoted to terming U.S. dealings with Beijing as a “competition,” or an “extreme competition,” or “a steep competition,” or a “stiff competition” (see here for the last two) or a relationship that will be, in Secretary of State Antony J. Blinken’s words, “competitive when it should be, collaborative when it can be, adversarial when it must be.”

Why do the Biden-ites think anyone cares or should care? In particular, why do they think China cares or should care? Do they have any evidence of much thinking in Beijing along these lines? Or that any Chinese definition of a desirable relationship relationship would be remotely acceptable to the United States?

If anything, the President’s declaration that Chinese dictator Xi Jinping “is deadly earnest on [China] becoming the most significant, consequential nation in the world. He and others, autocrats, think that democracy can’t compete in the 21st century” can only mean he thinks that win-win ties are the last things on Beijing’s mind. Unless Mr. Biden believes that Xi is just interested in purely verbal bragging rights?

The second feature of Biden foreign policy that reveals a potentially dangerous emphasis on intentions is the refusal of the President and his top aides to define U.S. interests with any specificity – or even to speak concretely about the very idea of purely U.S. interests.

Their rhetoric is peppered with phrases like Mr. Biden’s claim that during his first phone call with Xi, “I made absolutely clear that I will defend American interests across the board.” But you’ll search in vain for meaningful elaborations beyond “I also told President Xi that we’ll maintain a strong military presence in the Indo-Pacific, just as we do with NATO in Europe — not to start a conflict, but to prevent one” – which of course refers to American commitments that have been in place for decades, not to anything new, much less that reflects concerns heightened for any reason.

What you will find – ad nauseam – are statements like Blinken’s declaration that the United States is “committed to leading with diplomacy to advance the interests of the United States and to strengthen the rules-based international order. “That system is not an abstraction. It helps countries resolve differences peacefully, coordinate multilateral efforts effectively, and participate in global commerce with the assurance that everyone is following the same rules. The alternative to a rules-based order is a world in which might makes right and winners take all, and that would be a far more violent and unstable world for all of us.”

Blinken of course might be entirely right on the merits. But it was more than a little interesting that the Chinese response to his remarks – which took place at that confrontational bilateral March meeting in Anchorage, Alaska – emphasized that the rules-based order is nothing more than a system selfishly “advocated by a small number of countries”; that “The United States itself does not represent international public opinion, and neither does the Western world;” and no doubt most important, “the United States does not have the qualification to say that it wants to speak to China from a position of strength.”

In other words, as the Chinese see it, whatever Washington’s view of “right,” what matters is that it lacks the might to create or maintain it over China’s objections – which evidently are legion.

None of this is to say that specifying concrete interests is a guarantee of foreign policy success. But how else can that goal be achieved without setting out objectives considered vital to the nation’s security and prosperity, communicating them abroad in no uncertain terms, and ensuring that enough power is available to prevail when they’re threatened whether Americans guess correctly about potential adversaries’ intentions or not?

And these questions have moved to the forefront lately because Sino-American tensions are rising steadily over Taiwan – the world’s new leader in semiconductor manufacturing technology, which near neighbor China views as a renegade province. Worries are understandably rising that Washington and Beijing might stumble into a conflict that neither truly seeks. If the Biden administration could straighten out its own thinking about Taiwan and other U.S. interests in the Indo-Pacific region, the odds of such an unnecessary catastrophe could at least be considerably reduced.    

 

(What’s Left of) Our Economy: Is More Immigration Really the Key to America’s Tech Future?

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Cato Institute, China, education, entrepreneurs, Germany, H-1B visa, immigrants, Immigration, India, innovation, Israel, Japan, skills, South Korea, start-ups, Taiwan, technology, Washington Post, Worldometers.info, {What's Left of) Our Economy

One of the most compelling – and most often made – arguments in favor of higher U.S. legal immigration levels has to do with innovation. Supposedly, without encouraging ever more foreign workers to move to America, the nation will never be able to maintain its global technology leadership, and ultimately an acceptable, much less improved, degree of prosperity. (See, e.g., here and here.)

Part of the rationale for a welcoming posture, as indicated above, has to do with policies toward highly skilled and educated immigrants in particular (like those admitted under the H-1B program), and the special visa quotas allotted to them. But as the Washington Post editorial board recently made clear, there’s a more general view that immigration is especially good at providing America with “a steady supply of working-age strivers” and that “This nation’s prosperity, pluck, ambition and effervescent character are the products of more than 100 million immigrants who have sought better lives in the United States since its founding.” In other words, immigrants are far more likely than the native-born population to possess the risk-taking and general entrepreneurial traits that lead to so much technological progress.

I’ve already debunked one aspect of these claims here, but because they keep popping up, I keep thinking more about them, and have come across more data that not only casts further doubt on the technology-related need for more immigrants, but that indicate that the immigration cheerleaders are putting the cart before the horse.

For instance, it’s widely agreed that the U.S. tech sector is considerably healthier than Germany’s. In this vein, a widely followed global innovation index issued each year by a United Nations agency ranks the former third in the world and the latter ninth. Ninth isn’t so bad, but it’s at the least curious in this regard that for decades at least, Germany has admitted many more immigrants as a share of total population than has the United States.

Indeed, in 1990 (a good starting point, since current Germany came into being with the reunification that year of the former Federal Republic that comprised the nation’s western part and the former Communist run east), Germany’s immigrant inflow of 1.256 million represented 1.59 percent of the new country’s 79.054 million inhabitants. The 1.536 million green cards awarded by the United States that year accounted for only 0.60 percent of its 252.120 million people. (My official sources for German and U.S. annual immigration totals are here and here, respectively. For population, I used the reliable Worldometers.info website.)

But maybe Germany has made up some ground on the United States during this nearly three-decade period? Not according to this study last year from the Cato Institute – one of America’s foremost supporters of much more lenient U.S. immigration policies. If you look at Figure 2, you see that in 2018, Germany was lagging the United States just about as badly in the number of patents it received in the United States (still the world’s most important market for technology) as it was in 1990.

There doesn’t seem to be much evidence that its relatively large immigration inflows have given Germany much of an edge in entrepreneurship, either. As of 2019, according to this source, Germany’s business start-up rate was less than half that of the United States.

This chart, moreover, makes clear that it’s not just the U.S.-Germany comparison that mucks up the ostensible relationship between tech prowess and entrepreneurship on the one hand, and immigration levels on the other. After all, in 2019, India’s start-up rate was also much higher than Germany’s – even though India is much better known for sending folks abroad than for attracting them. Foreigners aren’t exactly flocking to live in China, either, yet its start-up rate matches Germany’s.

That Cato Institute study provides more complicating international comparisons. That Figure 2 shows that as of 2018, Israel has forged into the lead as the country receiving the largest number of U.S. patents. And its performance started taking off in the mid-1990s. Yet in 1995, when Germany and Israel were roughly on a par in their ability to receive American patents, the 76,361 immigrants Israel admitted in 1995 equalled 1.36 percent of its population of 5.619 million – not far from relatively un-innovative Germany’s figures. By the time it became the international leader, Israel’s immigration rate had fallen to 0.32 percent of its 8.972 million population – much lower than that of Germany, which had become a clear als-ran on the U.S. patent scene – and roughly the same as the recent U.S. rate which has been decried as so woefully inadequate.

And look at the other top performers in Figure 2 other than the United States and Israel. Taiwan hasn’t been anything close to an immigration magnet, either, and ditto for South Korea. As for Japan, it’s long been known as one of the most xenophobic countries in the world (as noted in that Washington Post editorial).

What do the non-U.S. “patent tigers” identified by Cato have in common? As author Jonathan M. Barnett puts it:

“Short on consumers, resources, and labor (and saddled with geographic separation from key consumer markets), the patent tigers (especially Israel and Taiwan) were compelled to specialize in innovation-intensive segments of the global supply chain in which ingenuity, rather than labor or natural resources, conferred a competitive advantage.”

As a result, as widely agreed, they’ve worked hard to create top-notch educational systems for their own populations. German education is highly regarded, too, but it’s often observed that its history and culture in particular have discouraged self-starters.

The lessons for the United States seem pretty clear here.  On the one hand, it’s got lots of the overall population, raw materials and domestic markets that the patent tigers lack.  On the other, unlike Germany, it still enjoys an entrepreneur- and innovation-friendly culture.  If Americans did a much better job of educating their own people, especially in the math, science, and technology fields, they should be able to keep its global technology edge even while controlling immigration more tightly. 

If, however, the nation continues to coddle underperforming school systems, especially at the primary and secondary levels, the argument for relying on immigration to fill the tech gap will look all the stronger.  And in a supreme irony, the ready availability of highly skilled and educated immigrants will keep reducing national incentives to get the national education act together.