Following Up: Podcast Now On-Line of National Radio Interview on a Dawning U.S.-China Trade Policy 2.0

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CBS Eye on the World with John Batchelor, China, decoupling, Following Up, Gordon G. Chang, manufacturing, tariffs, Trade, U.S-China Economic and Security Review Commission, World Trade Organization, WTO

I’m pleased to announce that the podcast of my interview last night on the nationally syndicated “CBS Eye on the World with John Batchelor” is now on-line.

Click here for a timely discussion, with co-host Gordon G. Chang, about the latest evidence that both Democrats and Republicans in Washington believe that America’s approach to economic relations with China needs a total rethink.

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

 

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(What’s Left of) Our Economy: A Big New Victim of China’s Tech Blackmail

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automotive, China, electric vehicles, EVs, FDI, foreign direct investment, free trade, Stellantis, tariffs, tech transfer, {What's Left of) Our Economy

For many years (see, e.g., here), it’s been obvious to me that China’s strategy toward foreign businesses allowed to operate within its borders has been to chew them up and spit them out as soon as they’re not needed. In particular, Beijing has been happy to welcome these businesses if they possessed technologies China hadn’t yet mastered, and then to make life miserable enough to force their exit once this knowhow had been shared with Chinese partners in return for (temporary) access to Chinese customers.

(P.S. Beijing began pursuing this approach long before the advent of current dictator Xi Jinping and his emphasis on boosting China’s economic and technological self-sufficiency.) 

This stategy isn’t exactly consistent with the central tenet of the academic theory that long supported the bipartisan U.S. policy of recklessly expanding trade and investment policy with China. You know – the one holding that the whole world is better off if countries permit market forces to determine where goods and services should be generated.  But aside from the U.S. workers whose jobs were wiped out, or never created to begin with, who in Washington or Corporate America cared as long as the U.S. tech lead seemed insurmountable?

Those days of course are long gone, and now it looks like (a) the multinational auto manufacturing company Stellantis is falling victim to this Chinese strategy; and that (b) others in this industry might be next.

As reported by Reuters yesterday, Stellantis – the product of a merger between Fiat Chysler and Peugot – announced that its Jeep-making joint venture (JV) with a Chinese partner would file for bankruptcy. In July, Stallentis decided to exit this operation in China.

The latest iteration of an investment in China that began way back in 1984 as Beijing Jeep, Stellantis itself deserves much blame for this failure. As noted by Reuters, the company was far too slow in adjusting to a change in Chinese consumer tastes away from conventionally powered sport utility vehicles to electric cars and light trucks – a shift that’s been encouraged by the Chinese government (and more recently by the Biden administration for American consumers).

But echoing complaints heard more and more often from China’s foreign business community, Stellantis’ CEO Carlos Tavares has griped about growing “political” interference in working with its various Chinese partners and about the tariffs Beijing uses to protect its auto market. Further, as Tavares noted, Chinese-made vehicles don’t face such barriers in the European market, meaning they can enjoy scale economies denied outside competitors.

More important, at the root of the troubles suffered by Stellantis in China, and its other foreign-owned counterparts, has clearly been Beijing’s policy of requiring the foreign companies to form JVs with Chinese-owned entities in order to sell to the Chinese market, and to transfer their knowhow to those new partners. (Tesla has been an exception – so far.)

This extortion – which has been Chinese policy for its entire economy – can’t be blamed/credited for China’s success in electrification. But it can absolutely be blamed for enabling Chinese-owned automakers to reach the point at which they could make fully competitive vehicles and then proceed to electrification.

And it’s not like Stellantis is the only foreign auto company being bitten by submission to such blackmail. The total foreign share of the Chinese auto market (now the world’s largest) fell well below 50 percent last year.

The bottom line? As observed by an industry consultant quoted by Reuters, thanks to decades of tech blackmail, Chinese auto entities are more “confident that they have closed the gaps with or even surpassed their foreign partners” and therefore, “we have to expect more JVs to unwind in the coming years.” In other words, the entire foreign-owned auto sector may be in the process of being spit out of China by the rivals it helped create.

(What’s Left of) Our Economy: Faint Recession Signs Visible in the Latest U.S. Trade Figures

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CCP Virus, China, coronavirus, COVID 19, dollar, Donald Trump, energy, exchange rates, exports, goods trade, imports, manufacturing, non-oil goods, recession, services trade, tariffs, Trade, trade deficit, {What's Left of) Our Economy

If you’re in the market for (still more) signs of how weird the American economy remains as it emerges from the CCP Virus pandemic, last week’s latest official U.S. trade figures (for August) are just the ticket.

Among other results, they showed astronomical monthly deficits for the nation’s manufacturing-heavy China trade, and for industry as a whole – along with passage of industry’s cumulative trade gap this year beyond the trillion-dollar mark, and toward a fifth straight year of annual shortfalls exceeding this level.

But as reported in the latest official figures, domestic manufacturing keeps boosting output and hiring new workers so far anyway – due mainly to the enormous new demand for manufactured goods from everywhere created by the unprecedented stimulus still coursing through the economy.

Less encouragingly, even though the overall trade deficit fell again sequentially, total exports retreated for the first time in seven months. Combined goods and services imports fell, too – with these two developments suggesting that the gap is now beginning to narrow not because U.S. growth is becoming healthier (which would be the case if exports were expanding and imports decreasing), but because the economy is weakening – and maybe heading into a recession.

More specifically, the total trade deficit sank by 4.34 percent on month in August, from $70.46 billion to $67.40 billion. The sequential decrease was the fifth in a row (the longest such stretch since May-November, 2019) and the level the lowest since May, 2021’s $66.33 billion.

The aforementioned combined goods and services exports decrease was modest – just 0.26 percent. And the monthly total – $258.92 billion – was still the second highest on record. It was all the more noteworthy given the continuing rapid rise in the value of the U.S. dollar, which undercuts the price competitiveness of American-origin products and services the world over.

Overall imports were down for the third straight month – the longest such streak since the five-month stretch from December, 2019 to May, 2020, during the pandemic’s first wave – and decreased by 1.04 percent. So we’re hardly talking about a collapse.

The trade deficit in goods – which make up the vast majority of U.S. exports and imports – also shrank for the fifth straight month in August, and this streak also was the longest since May-November, 2019. Having fallen by 3.74 percent from $91.07 billion to $87.64 billion, this shortfall is now the smallest since October, 2021’s $86.23 billion.

Goods exports were off for the second straight month, slumping 0.36 percent, from a record $183.26 billion to $182.50 billion. But the total was still the third highest ever.

Goods imports decreased for the third straight month (the longest such stretch since pandemic-y December, 2019 to May, 2020, too), and fell by 1.49 percent, from $274.23 billion to $270.14 billion.

The nation’s long-time services trade surplus, however, narrowed in August for the first time in three months – by 1.82 percent, from $20.62 billion to $20.24 billion.

Services exports were fractionally lower, but the $76.42 billion total remained an all-time high for all intents and purposes.

Services imports climbed by 0.66 percent, from $55.81 billion to $56.18 billion – the third highest monthly level on record (after June’s $57.09 billion and May’s $56.41 billion).

It’s easy to conclude that the August drop in the overall trade deficit was entirely an energy story. And indeed, while the combined goods and services shortfall stood at $3.06 billion, the monthly improvement in the petroleum balance ($2.27 billion) and in the natural gas surplus ($1.09 billion), was slightly greater.

But significant movement came in other sectors of the economy as well. As indicated above, the chronic and huge deficit in manufacturing became huge-er, jumping 7.87 percent, from $122.09 billion to $131.71 billion – the third highest monthly total ever (after March’s $142.22 billion and May’s $132.60 billion).

Strikingly defying that high dollar, manufacturing exports improved by 3.50 percent, from $109.50 billion to $113.34 billion – the second best total ever after June’s $114.78

But the much greater volume of manufacturing imports also hit their second highest level on record (behind March’s $256.18 billion) after increasing from $231.59 billion to $245.05 billion.

The August data brought this year’s manufacturing deficit to $1.01033 trillion, and it’s running 19.37 percent ahead of last year’s annual record pace.

Since China accounts for so much of U.S. manufacturing trade, it’s no surprise that in August, the American goods deficit with the People’s Republic surged by 8.85 percent, from $34.40 billion to $37.44 billion.

U.S. goods exports to China expanded on month by 5.22 percent – from $12.27 billion to $12.91 billion. But goods imports from China are about four times greater, and they rose faster – by 7.90 percent, from $46.66 billion to $50.35 billion. That was the second highest total ever, after October, 2018’s $52.08 billion, when Chinese exporters and U.S. importers were scrambling to conclude transactions before former President Donald Trump’s tariffs came into force.

On a year-to-date basis, the China goods deficit is now up 25.23 percent – considerably faster than its closest global proxy, the non-oil goods deficit (19.33 percent). That could indicate that whatever the impact of the Trump tariffs, it’s faded.

But the story becomes much more complicated after examining the separate export and import flows. Year-to-date, goods imports from China have risen faster (18.31 percent) than their global non-oil goods counterparts (16.94 percent). But the difference isn’t all that big, especially considering China’s still formidable worldwide competitiveness edge in so many industries.

What is all that big is the difference on the China import side. U.S. foreign sales of non-oil goods have increased by 15.31 percent so far ths year. But goods exports to China edged up by just 2.43 percent. Since China’s economy this year is widely expected to grow about as fast as the global economy, clearly something wrong and indeed quite protectionist is going on. Time for some new U.S. tariffs in response, I’d say.

Following Up: Podcast Now On-Line of My Latest National Radio Appearance Warning of a Ukraine-Induced “Lehman Moment,” & the Video of My Talk on the Economic Competition America Really Needs

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America First, antitrust, competition, Following Up, Lehman moment, Market Wrap with Moe Ansari, monopoly, National Conservatism Conference, oligopoly, tariffs, Trade, Ukraine

Sorry for the loooong headline here, but it’s a daily double today.

First, I’m pleased to announce that the podcast is now on-line of my interview Wednesday night on the nationally syndicated “Market Wrap with Moe Ansari.” Click here, scroll down a bit to the link featuring my name, and then click on the little “POD” symbol. My segment starts at about the 22-minute mark, and what you’ll get is an unusually spirited debate on why the U.S.’ strong support of Ukraine might trigger exactly the kinds of calamities it seeks to prevent (see here for background), and why America’s torrid inflation isn’t likely to peak anytime soon.

Second, a video is now available of my presentation to last month’s important conference on the future of conservatism. Here’s the link to the talk. It made the case for U.S. national economic strategy emphasizes promoting more competition among America-based companies over the current approach – which bizarrely appears to value competition from abroad much more highly. (This recent post contains a lightly edited text of these remarks.)

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

(What’s Left of) Our Economy: Two Needed Changes in U.S. China Policy

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auditing, Biden, Biden administration, China, currency, dollar, Donald Trump, fraud, investors, national security, SEC, Securities and Exchange Commission, stock market, stocks, tariffs, Trade, Wall Street, yuan, {What's Left of) Our Economy

Although I’ve been pleasantly surprised by how much of former President Donald Trump’s China policies have been retained by President Biden (like the tariffs and tech-related sanctions and tighter export controls), two recent developments reveal how much room for improvement remains – on permitting Chinese entities to list on U.S. stock exchanges, and on those Trump tariffs.

Regarding the stock market issue, Washington incomprehensively keeps giving these entities (they shouldn’t be called “companies” or “businesses” becauuse they have nothing in common with organizations meriting those labels in largely free market economies) the kind of special treatment afforded to members of its stock exchanges from no other countries – including America itself.

Specifically, these Chinese entities continue to be able to raise vital capital in U.S. markets even though they haven’t yet been required to comply with the standards for opening their books fully that are mandatory for every single one of their domestic and foreign counterparts. Therefore, investors can’t make informed decisions, and regulators can’t discover much fraudulent activity.

It’s true that U.S. authorities have just struck a deal with Beijing that potentially gives them the access to Chinese records that they need. But that’s the problem. It’s still “potential.” And the U.S. Securities and Exchange Commission (SEC) may still be bending over backwards to coddle China. Why else would it have agreed with its Chinese counterparts to keep the text of the deal secret? What devils lie in the always crucial details? Full disclosure here is especially important because of Beijing’s long record of violating signed agreements (see, e.g., here) and because the Chinese government’s statement describing its interpretation of its obligation differs significantly from Washington’s – which is virtually guaranteed to produce protracted further bickering.

This typical bobbing and weaving, in fact, raises the question of why the United States has engaged recently – or ever – in any negotiatons in the first place. After all, Washington has been seeking adequate access to the entities since 2007. China has resisted American demands by citing the important national security and other state secrets that unfettered audits might reveal. But as the SEC itself has pointed out (see the preceding link), more than fifty other countries have required their companies to turn over all records as a condition for listing. China clearly has the right to withhold any information it wishes. The U.S. response from the beginning should have been that if a Chinese entity’s operations are so critical to China’s national security, it doesn’t belong in the U.S. financial system, and able to win U.S. and other investment attracted by the Good Housekeeping seal provided by being listed,to begin with.

Washington’s position all along also should have been that there’s literally nothing to talk about. The United States should have declared listing to be a take-it-or-leave-it proposition for China, and that it will serve as judge, jury, and court of appeals (as it is in all cases). As of this past spring, America’s long failure to do so has permitted these entities to amass a market value of $1.3 trillion. And because all of them are always subject to all of Beijing’s whims, that means these valuable resources have been put at the disposal of the Chinese regime.

What to do now?  Ditch the diplomacy stuff and tell Beijing that unless each of its listed entities turn over to U.S. auditors every scrap of information demanded by date certain (meaning real soon), they all get kicked off Wall Street immediately.

When it comes to trade issues, the Biden administration’s mistake is much simpler – and easier to correct. The President deserves considerable praise for the September announcement that the Trump tariffs will be kept in place for the foreseeable future. But China’s predatory trade policies have not remained in place, and in at least one vital respect, have gotten worse – on the value of its currency, the yuan.

For many years, especially in the first decade and a half of this century, Beijing kept the value of the yuan versus the U.S. dollar artificially low. As known by RealityChek regulars, this practice gave goods made in China (including by offshoring-happy U.S.- and other foreign-owned multinational companies) big price advantages the world over for reasons having nothing to do with market forces. The result were equally artificial boosts to Chinese exports and artificial reductions of Chinese imports.

This year, China has doubled down (not literally!) on this tactic, depressing the yuan’s value versus the greenback by fully nine percent. So the American response should be obvious: The tariffs on each of the roughly $370 billion worth of Chinese goods intended each year for the U.S. market should be raised by nine percent also. And each future Beijing move to devalues the yuan another one percent or more should be matched by another equivalent U.S. tariff hike.

This American retaliation isn’t likely to fuel inflation at home, because of falling U.S. demand due to a slowing economy and a shift in consumer spending to services. So importing U.S. companies won’t have the pricing power to pass on their higher costs. But it will put further pressure on a Chinese economy whose other growth engines (like the real estate sector and the domestic consumer market) are faltering mainly because of the deflation of a ginormous Chinese housing bubble and dictator Xi Jinping’s politically inspired crackdown on his own tech companies and his over-the-top Zero Covid policies.

P.S. If China starts strengthening the yuan again, I wouldn’t lower the tariffs in response. For the aim of U.S. policy toward the People’s Republic now can’t afford to be an indulgence like fairness, but weakening this increasingly hostile and dangerous government, and maximum U.S. economic disengagement (often called “decoupling”). But I’d be amenable to some easing of economic pressure and decoupling if I saw major evidence of big, concrete improvements in Beijing’s economic and military policies – say over a five- or ten-year period for starters.

Making News: Back on National Radio with a Trump China Tariffs Update — & More!

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anti-trust, CBS Eye on the World with John Batchelor, China, Donald Trump, Gordon G. Chang, Making News, manufacturing, monopoly, National Conservatism Conference, oligopoly, One America News, tariffs, Trade

I’m pleased to announce that the podcast of my interview Monday night on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line. I’m a little late posting this because, as some of you know, I’ve been in Miami, Florida the last few days attending and speaking at this conference.

All the same, click here for a still timely discussion, with co-host Gordon G. Chang, of the latest evidence that the Trump tariffs continue both to put the squeeze on China’s economy, and to give U.S.-based manufacturing the breathing room needed to keep expanding output and employment.

In addition, speaking of that Miami conference, some of my presentation was excerpted here Sunday by One America News, followed by a short interview. The snippets strung together are missing some transition sections, but you can read the whole (lightly edited) text of the talk in yesterday’s post. And I’ll put up a link to the entire session once one’s available.

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

(What’s Left of) Our Economy: Getting American Competition Priorities Right

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American Affairs, anti-trust policy, competition, globalization, monopoly oligopoly, National Conservatism Conference, tariffs, Trade, {What's Left of) Our Economy

Greetings from Miami, Florida, where I’m attending the final day of the third annual National Conservatism conference. (I spoke on Sunday.) I’ll be posting soon about my general impressions of this event, and the broader effort it represents to develop a new school of right-of-center policies and politics. But since today’s early afternoon sessions aren’t my speed, I’m back in the (cavernous!) hotel room because I thought folks would be interested in seeing a lightly edited version of the remarks I delivered.

The subject – the often weird and arguably counterproductive views long held by most U.S. leaders, along with the national policy and business establishments, about the different priorities deserved by promoting economic competition at home, and economic competition from abroad. In addition, I should note that the conference organizers plan to post videos of this and other presentations very soon, and I’ll send out an alert when it’s up. For more background, see this article in the journal American Affairs from 2019, when I first made versions of the following observations and arguments:

There seems to be broad agreement at this conference that the U.S. economy should undergo some kind of transformation from one that’s extremely open to the world economy – to all of its opportunities and benefits as well as all of its risks and dangers – to one that’s less open (because those risks and dangers don’t seem to have been accounted for adequately).

I’m sure that there’s also broad agreement that a major obstacle stands in the way – that very considerable degree of recent and current openness, which becomes clear from examining data like the strong rise of trade (both exports and imports) as a share of the nation’s economic output, the similarly strong rise of two way both outgoing and incoming investment, and the amount of U.S. net debt held by foeign lenders. It’s also clear from what we’ve been learning lately about how dependent the nation has become on other countries for lots of goods that are crucial economically and militarily and healthcare-wise.

Almost completely overlooked though is another major obstacle – an apparent belief that’s powerfully fueled all that openness, and helped create the costs and vulnerabilities that have been neglected for o long. It’s the apparent belief that foreign competition is better for the economy than domestic competition.

I say “apparent” because this view isn’t often voiced. But something like it must be broadly accepted, especially by those who have been making national economic policy. Because for decades, until very recently (the year 1980 is a good starting point) U.S. leaders have worked especially hard to open the American economy wide to foreign competition (through numerous international trade agreements) while simultaneously permitting levels of domestic competition to fall quite significantly in a great many industries.

And it’s difficult to understand how a much more self-reliant American System can be created if the prioritization of foreign over domestic competition isn’t reversed. That is, if there’s a strong consensus – as there seems to be – that vigorous competition is needed to maximize the benefits of capitalism (notably, to spur technological progress, better product quality, more affordability, greater choice of stuff to buy), then the emphasis should be placed on boosting domestic, rather than foreign, competition.

For those seeking to limit the U.S. economy’s exposure to the global economy, the rationale for stressing an increase in foreign competition seems to have two sources that are two sides of the same coin – at least as best as I can figure out, since again, the case for actively preferring it is seldom made explicitly. The first is that since competition is good, the more the merrier. Therefore boosting foreign competition is an obvious way to get more competition.

The second reason for emphasizing foreign competition is that it’s simply not possible to generate needed levels of competition without foreign competition.

But regarding the first rationale – just how much more competition does foreign competition create for the U.S.? If we’re a fourth of global output, does that mean that foreign competition can triple the level of competition? Or twice as much, or 72 percent more, or whatever? Maybe. What I can say confidently, though, isthat no one has even asked that question, let alone answered it. But the assumption seems dubious given that much the three-fourths of that global economy outside the U.S. is less advanced than we are, not more.

And as for foreign competition filling some unavoidable domestic competition gap – that may be true for many other countries. But it’s far from true for the United States. After all, we have advanced technology. We have manufacturing. We have services. We have energy and minerals. We have agriculture. We still have dynamic, innovation-fostering economic and social systems. .In other words, to borrow from that Michael Jackson song, “We are the world.” We have satisfactory supplies of petty muc every type of product and service that the rest of the world boasts all together.

That is, we have a matchless degree of self-sufficiency and capacity for self-sufficiency – despite having spent much of the last half-century or more trying our best to squander this priceless advantage. We don’t have tropical fruit. Or coffee. Or chocolate. But I think we can figure those challenges out.

It’s true of course that the transition toward a less globalized American economy isn’t a short-term proposition. And it probably will never result in 100 percent self-sufficiency – at least not in the foreseeable future.

For example, precisely because we’ve permitted so many major gaps to emerge in our productive economy, we face enough alarming shortages to require some temporary degree of cooperation with other countries before they’re filled. Semiconductor manufacturing is a prime example. In turn, these shortfalls also extend to the professional workforces needed to reestablish domestic production. So some flexibility on immigration and visa policy will be needed, too – at least until we get our own science and technology workforce back up to speed.

And maybe the best de-globalized American economy shouldn’t even aim to hermetically seal the economy, or even close. After all, recognizing that foreign competition isn’t superior to domestic competition by no means requires dismissing the former as totally worthless. Similarly, the prioritizing of domestic competition doesn’t mean that all corporate concentration at home should be broken up.

Instead, what’s important for fostering a less globalized economy is realizing that it’s not necessarily, much less mainly, foreign competition that’s needed for economic success. It’s competition, period. And since the United States is eminently capable of supplying so many of its economic needs and wants on its own, without many of the downsides of foreign competition, why not reorient our national economic strategy to recognize the proper relationship between trade and competition policy, view them through different lenses, and base them on different default positions?

So before even considering new international trade agreements, Washington should ask whether the added increment of foreign competition and its expected benefits are worth the national security costs, the economic costs, and the social pathologies produced by the latter?

And for industries that do need a competitive kick in the pants, let’s first ask if that kick can come from some new domestic anti-trust-type action.

Before approving more mergers and acquisitions at home, Washington could ask if the firms involved could realize the greater scale economies and other gains they’re seeking by limiting their foreign competition.

If de-globalizing the American economy is the name of the game, then recognizing and overcoming the usually implicit but broad basis in favor of foreign over domestic competition looms not just as an important step. It will be an essential step.

(What’s Left of) Our Economy: New Official Data Show U.S. Trade Remains on a Winning Streak

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China, exports, goods trade, imports, Made in Washington trade flows, manufacturing, semiconductors, services trade, Taiwan, tariffs, Trade, trade deficit, {What's Left of) Our Economy

The official U.S. trade figures for July that came out this morning continued June’s encouraging pattern of smaller deficits amid continued (if subdued) American economic growth – but with a twist. The previous trade report showed that the overall goods and services shortfall shrank because exports rose healthily while imports slipped just slightly.

The July release showed a smaller trade gap due largely to lower imports. Exports improved, too, but just negligibly.

Yet the bottom line remained the same: an economic expansion that’s gotten a little healthier, because the nation is earning its way in the world to a modestly greater extent.

The specific numbers: The total trade deficit sank month-to-month by 12.65 percent in July – from $80.88 billion to a level of $70.65 billion that was the lowest for a single month since last October’s $68.16 billion. The drop, moreover, was the fourth straight – the longest such stretch since the six-month period between May and November, 2019 – months before the CCP Virus pandemic arrived state-side in force.

The only negative here: That June number was revised up a big 1.59 percent from the initially reported $79.61 billion.

Monthly shrinkage was also reported for goods trade – which comprises the lion’s share of total U.S. trade. Here in July the gap also declined for the fourth straight month – by 8.23 percent, from $99.26 billion to $91.09 billion, and the level was the lowest since October ($98.26 billion), too. And as with the overall deficit, this winning streak was the longest since that May-November span in 2019.

Meanwhile, the long-time U.S. services surplus – which has deteriorated dramatically during the pandemic era due to mandated and voluntary behavioral curbs that hammered industries like travel and tourism – widened by 11.19 percent sequentially in July, from $18.38 billion to $20.44 billion. The monthly increase was the third straight, the level was the highest since last December’s $21.66 billion, and the monthly jump the biggest since last November’s 12.22 percent.

A degree of skepticism may be in order, though, because the June services surplus was revised down a huge 7.47 percent.

Total exports edged up 0.20 percent on month in July, from $258.76 billion to $259.29 billion. However meager, the increase still produced the sixth straight monthly record and the sixth straight increase – matching the performance of Februay-August, 2021. But a sizable revision should be noted here, too, as June’s total was downgraded by 0.73 percent.

Goods exports dipped in July for the first time since January – by 0.16 percent, from an upwardly revised record $183.29 billion to $182.99 billion. But the figure is still the second ever and impressive considering the sluggish growth in which the global economy is mired and the multi-decade highs achieved by the U.S. dollar against most global currencies – which harms the price competitiveness of U.S.-made products.

Yet services exports climbed 1.10 percent, from a downwardly revised $75.47 billion to a record $76.30 billion. This increase was also the sixth in a row, and although June’s results were revised down by a substantial 2.94 percent, it remains the second best monthly performance ever.

Combined goods and services imports were down for a second straight month – by 2.86 percent from a downwardly revised $339.64 billion to $329.94 billion. This total was the lowest total since February’s $320.53 billion and the back-to-back decrease was the first such fall-off since the March-May, 2020 period – the peak of the CCP Virus’ first wave.

Goods imports also fell for a second straight month – by three percent, from $282.55 billion to $274.08 billion. And this back-to-back decrease was the first since March-May, 2020 as well.

Services imports in July experienced their first decline since January, weakening by 2.15 percent, from $57.09 billion to $55.86 billion. Even better: The June figure was revised down by a hefty 1.38 percent.

As known by RealityChek regulars, the non-oil goods deficit is a good global barometer for U.S. trade policy’s performance, because the oil and service trade flows it leaves out have rarely been the focus of U.S. trade agreements or other initiatives. This “Made in Washington” deficit tumbled for the fourth straight month too – by $100.29 billion to $89.96 billion.

As with some of the other trade flows, this deficit was the lowest since last October ($84.37), and the monthly fall-off was 10.93 percent. Moreover, the four straight months of improvement were the longest such stretch since June-October, 2007 – when the economy was approaching its worst downturn since the Great Depression of the 1930s.

Made in Washington exports in July increased for the sixth straight month, too – by 0.96 percent, from $151.841 to $153.301 billion. These overseas sales also set their sixth consecutive record, and the winning streak was the longest since the eight-month period between June, 2020 and January, 2021 – during the recovery from the virst virus wave.

These non-oil goods imports in July sank for the fourth straight month, and the 3.52 percent sequential drop brought the level to its lowest – $243.26 billion – since February’s $242.25 billion. This winning streak was the longest since the five-month stretch between peak pandemic-y December, 2020 to May, 2020.

Manufacturing’s huge and chronic trade gap narrowed on month in July, too, and for the second straight time. The drop was 6.12 percent, from Jue’s $130.05 billion to $122.09 billion, and this level was the lowest since February’s $106.49 billion.

Manufactures exports fell back from June’s record $114.78 billion to $109.50 billion. The 4.60 percent retreat left these sales at their lowest level since April’s $109.36 billion.

Manufactures imports fell faster – by 5.41 percent, from $244.83 billion to $231.59 billion. This total was also the lowest since April ($233.50 billion).

On a year-to-date basis, manufactures exports are up by 16.10 percent (from $643.07 billion to $746.62 billion. But the much greater amount of manufactures imports have surged by 18.38 percent (from $1.37285 trillion to 1.62524 trillion).

As a result, the year-to-date manufacturing trade shortfall has already hit $876.62 billion – a 20.12 percent jump from last year’s $729.78 billion, and as early as next month’s trade report, industry’s deficit could pass the trillion-dollar annual level for the fifth year in a row.

The also huge and chronic U.S. goods trade deficit with China decreased for the first time since April, dropping 6.90 percent from $36.95 billion (the highest figure since November, 2018) to $34.40 billion.

American goods exports to China advanced month-to-month in July by 5.04 percent, from $11.68 billion to $12.27 billion. And the much greater volume of imports slumped by 4.03 percent, from $48.63 billion (the third highest monthly total on record) to $46.66 billion.

But on a year-to-date basis, the China goods deficit has worsened by 26.42 percent. Since its growth rate is now faster than the 21.75 percent of the Made in Washington gap (its closest global proxy), it looks as if the impact has faded of the sweeping Trump tariffs (which the Biden administration has just announced it will keep in place).  

One likely reason: the 8.41 percent devaluation of China’s currency, the yuan, versus the U.S. dollar engineered by Beijing so far this year.

And a final July U.S. trade development worth noting: the 25.10 percent monthly burst of the goods deficit with global semiconductor manufacturing technology leader Taiwan to a new record $4.74 billion.

American merchandise imports of microchips and other products from the island grew by 15.71 percent on month in July, from $7.33 billion to an all-time high of $8.48 billion. But U.S. goods exports (which include much semiconductor manufacturing equipment) were up as well in July. The 5.64 percent increase produced the second best monthly total ever ($3.74 billion – behind only March’s $3.89 billion).

Our So-Called Foreign Policy: Nothing to See About This Biden-Wall Street-China Connection?

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Biden, Biden administration, BlackRock, China, Donald Trump, globalism, inflation, Obama administration, oil, Our So-Called Foreign Policy, solar panels, State Department, Strategic Petroleum Reserve, tariffs, Thomas E. Donilon, Trade, Wall Street

It’s a good thing that conspiracy theories are never, ever true. Otherwise, several recent developments in U.S.-China relations would rightly alarm anyone hoping that U.S. policy toward the People’s Republic would reflect efforts to further American national interests rather than selfish special interests.

Those dangerously loony conspiracy theorists would probably begin by noting that last month, the State Department announced Secretary Antony J. Blinken’s appointments to a Foreign Affairs Policy Board that since 2011 has “provided independent advice on the conduct of U.S. foreign policy and diplomacy” on issues that today include “strategic competition with the People’s Republic of China.”

The new Board is chaired (as originally reported by The Washington Free Beacon) by Thomas E. Donilon, who the wingnuts would no doubt immediately observe was the White House National Security Advisor during the Obama administration, which compiled a consistent record of coddling China on both the national security and the economic fronts. And as the Free Beacon post makes clear, out office, Donilon had been a leading voice for continuing to coddle China, too. 

They’d surely further point out that he’s sure found lucrative employment in the right place. For Donilon is now Chairman of the BlackRock Investment Institute, an arm of the finance company of the same name that happens to be the world’s largest asset manager. These conspiracy-mongers would likely explain that BlackRock has been one of Wall Street’s most enthusiastic boosters of sending huge amounts of capital from the United States and around the world into China. Indeed, it’s just become “the first foreign-owned company to operate a wholly owned business in China’s mutual fund industry,” in CNBC.com‘s words.

The strategy will of course net immense fees for BlackRock and the other finance giants pursuing it. And we’d probably hear from the loons that BlackRock has touted major benefits for the People’s Republlc other than making available to its dangerous totalitarian government oceans of new resources – specifically by helping China “to address its growing retirement crisis by providing retirement system expertise, products and services.”

Then these paranoiacs would presumably try to bolster their credibility by arguing that even lefty zillionaire George Soros has warned that BlackRock-like operations in China will “damage the national security interests of the U.S. and other democracies.”

More grist for the conspiracy industry’s mills: Yesterday’s report in The Wall Street Journal that the Chinese government “is implementing changes to its rules governing publicly offered securities investment funds” that would “include requiring foreign-owned fund managers such as BlackRock and Fidelity to create Communist Party cells when operating in China.” Along with the failure of Donilon or BlackRock (or Fidelity, where I park most of my family’s financial accounts) to utter a peep of protest. Not to mention the silence of the Biden administration.

And the icing on this cake of delusion? Recent signs of a China policy shift by a Biden administration that had been surprisingly Trump-y on the subject given the President’s long history of supporting pre-Trump globalist policies of indiscriminately expanding trade and investment with China. Like the persistent talk of cutting tariffs on Chinese imports to help fight inflation. Like the suspension of new levies on Chinese solar panel imports that were transshipped through Southeast Asian countries to evade U.S. trade curbs. Like the sale of oil from America’s Strategic Petroleum Reserve to a Chinese entity (Unipec).

But obviously there’s nothing to see here. Because as I said, conspiracy theories are never, ever true.

Following Up: A Gift and a Goof on Tariffs and Inflation

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Biden, Biden administration, Bloomberg.com, business, CBS Eye on the World with John Batchelor, China, cost of living, economics, Following Up, inflation, prices, tariffs, Trade

Commentators usually don’t get gifts like the one I received in yesterday’s Bloomberg.com report on the latest developments in the continuing Will-He-Won’t-He drama concerning President Biden’s upcoming decision on cutting or eliminating some tariffs on U.S. imports from China in order to ease raging inflation.

As I’ve repeatedly emphasized (most recently in print, here), to anyone who knows anything about business, the idea that tariff levels and consumer prices have much to do with each other is nonsensical. The reason? It assumes that businesses base what they charge their customers on the costs they pay for the goods and services for whatever they’re trying to sell.

But actually, the predominant driver of their selling prices, at least over any significant period of time, is the level of demand for their products or services. If it remains strong, businesses will keep raising their selling prices as high as they can regardless of what their input costs are. That’s a great way to increase profits. And if they want to keep growing these profits (and what business doesn’t?), they’ll keep raising these prices as long as customers will pay them – as long as that demand stays strong.

When do businesses lower selling prices? For those that want to maximize profits (and what business doesn’t?), only when demand for their products and services weaken – that is, when customers decide for whatever reason that these prices have risen too high.

So there is absolutely no reason to believe that lower prices for inputs from China independent of demand will cause businesses to lower the prices they charge their customers, and thus help bring inflation rates down. Instead, they’ll just pocket the new profits. And according to the aforementioned Bloomberg piece, we just got confirmation from the horse’s mouth – businesses themselves.

Reported the Bloomberg correspondents:

“The White House has asked retail companies for a commitment to lower prices following any duty reductions but executives rebuffed that request and told US officials it was an unrealistic expectation,” said “people familiar with the deliberations, who asked not to be identified.”

And apparently there are no plans to seek public price-reduction commitments from sectors of the economy that receive any tariff relief. Maybe because at least some administration officials finally recognize how ludicrous the tariff-inflation connection has always been?

But even as the Bloomberg reporters gave me this gift on the subject, I made a goof. During my latest radio interview on the subject on “CBS Eye on the World with John Batchelor,” I spazzed out and several times referred to businesses never cutting their “costs” when their input costs fell. I hope that most listeners understood that I was trying to say that they never cut their selling prices, but the record needs to be set straight. Here’s a link to the podcast, and apologies for any confusion.