(What’s Left of) Our Economy: A New U.S. Manufacturing Growth Report That’s the Good Kind of Boring

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aerospace, aircraft, aircraft parts, automotive, Boeing, Build Back Better, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, infrastructure, interest rates, Iran, Iran deal, Israel, Joe Manchin, machinery, manufacturing, medical devices, nuclear deal, Omicron variant, personal protective equipment, pharmaceuticals, plastics and rubber products, PPE, quantitative easing, Russia, semiconductors, stimulus, supply chains, Taiwan, tariffs, therapeutics, Trade, Ukraine, vaccines, Wuhan virus, {What's Left of) Our Economy

Today’s Federal Reserve after-inflation U.S. manufacturing data (for November) were refreshingly (though encouragingly) boring, with one exception – some genuinely eye-popping revisions in specific, high-profile industries.

Overall real manufacturing output improved on month by 0.68 percent, adding to the evidence that domestic industry has bounced back from summer and early fall doldrums caused partly by damage from Hurricane Ida and partly by a global semiconductor shortage that depressed automotive production.

And in this vein, the November results weren’t dramatically impacted by the vehicle and parts sector, whose inflation-adjusted production rose by a 2.22 percent figure that’s clearly strong but decidedly un-dramatic compared with the roller-coaster it’s been on for most of the year.

In addition, revisions for manufacturing as a whole were modest and mixed.

The list of November’s biggest monthly manufacturing growth winners indicates how broad-based industry’s sequential constant dollar output gains were in November. No fewer than six of the major manufacturing subsectors tracked by the Fed enjoyed price-adjusted production advances of more than one percent. Aside from automotive, they were aerospace and miscellaneous transportation (whose 1.64 percent increase included another strong rise in aircraft, as will be detailed below); paper (up 1.63 percent); plastics and rubber products (1.45 percent); non-metallic mineral goods (1.25 percent); and textiles (1.21 percent).

The biggest losers were petroleum and coal products (down 1.24 percent on month); machinery (off by 0.66 percent); apparel and leather goods (0.53 percent); and printing and related support activities (0.50 percent).

But even in this group, hopeful signs can be found. As RealityChek regulars know, drps in machinery production are worrisome because its products are used so widel in the rest of manufacturing and in big non-manufacturing sectors like construction and agriculture.

But the November decline followed one of those eye-popping revisions. October’s originally reported 1.27 percent sequential decrease is now judged to be a 0.59 percent increase.

Moreover, the printing and petroleum and coal products fall-offs were both preceded by October real production advances that have been downwardly revised (from 4.97 percent to 3.79 percent for the former, and from 1.41 percent to 1.18 percent for the latter) but were still impressive.

Manufacturing industries that have been prominent in the news during the pandemic generally performed worse in November, save for aircraft and parts – whose performance was spurred by news from industry giant Boeing that continues to be pretty good. (See, e.g., here and here.) After-inflation production climbed by 1.90 percent month-to-month in November, and October’s 1.43 percent increase was revised up to 1.54 percent.

Even with a second downward revision to September’s inflation-adjusted output (from 0.45 percent all the way down to a negligible 0.09 percent), constant dollar output in aircraft and parts is now 15.86 percent higher than in February, 2020 – the last full data month before the CCP Virus began seriously distorting the U.S. economy.

Pharmaceuticals and medicines, however, lost even more growth momentum. Despite major demand for and use of vaccines, their price-adjusted output dipped by 0.15 percent sequentially in November, and October’s decrease was revised from 0.51 percent to 0.76 percent. But September saw another one of these enormous revisions – from a downgraded 1.04 percent production fall to a 0.76 percent gain. All told, these industries are now 13.54 percent bigger in constant dollar terms as of November than in February, 2020.

The news was worse in the crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators. Real production in November was off by 0.61 percent month-to-month in November, and October’s previously reported 1.08 percent decrease is now estimated at a greater 1.91 percent. Moreover, September’s results saw their second big downgrade – first from an initially reported 1.53 percent growth to a 0.73 percent gain, and this morning to one of just 0.16 percent. So since February, 2020, after-inflation production in this sector is up a mere 0.65 percent.

As with the entire economy, the manufacturing sector is being pushed and pulled by what seems to be an unprecedented number and type of forces and government decisions. On balance, though, unless the Omicron variant of the CCP Virus prompts much more voluntary or officially mandated disruption at home or abroad than seems likeliest now, further manufacturing growth still looks like the best bet for the foreseeable future.

Although prospects for stimulus from President Biden’s Build Back Better bill seem barely on life support due to West Virginia Democratic Senator Joe Manchin’s continuing objections, and the Federal Reserve yesterday announced further reductions in its stimulative bond-buying (AKA quantitaive easing), infrastucture bill money should soon begin flowing.  Further, the central bank still made clear that heavy levels of quantitative easing will continue for months more, and is in no rush to start raising interest rates.

Most consumers still have plenty of money to spend, even though further inflation could weaken their appetites. U.S. employment levels keep rebounding strongly by most measures. Supply chain knots continue untangling, albeit not always quickly. Mr. Biden is keeping nearly all of his predecessor’s China tariffs in place, which is preventing predatory Chinese competition from taking customers from domestic manufacturers. The brightening Boeing picture will help its entire vast U.S.-based supply chain. And American and overseas demand for both CCP Virus vaccines and now therapeutics will surely keep growing whatever the rest of the domestic or global economies do.

One set of gathering clouds shouldn’t be neglected, however. I don’t mean to sound alarmist, and don’t believe conflicts are imminent, but what the investment community calls “geopolitical risk” is troublingly on the rise in Asia (due to mounting Chinese pressures on Taiwan) and Europe (due to Russia’s military buildup on the Ukraine border). Moreover, although negotiations to slow Iran’s progress toward nuclear weapons capability have resumed, this has been ongoing and nearing critical threshholds. And it’s far from clear how well a nuclear Iran would go down with Israel – just as it’s far from clear how well domestic manufacturing and the rest of the economy could withstand a second major non-economic disruption in a very few years.

Following Up: Podcast Now On-Line of New National Radio Interview on the U.S. Economy & Biden’s China Stategy

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Biden administration, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, Following Up, inflation, interest rates, Market Wrap with Moe Ansari, monetary policy, sanctions, stimulus, taper, tariffs, tech, Trade, Wuhan virus

I’m pleased to announce that the podcast is now on-line of my interview today with Moe Ansari on his nationally syndicated “Market Wrap” radio program.

Press the “play” button under “Current Market Wrap” at this link for a timely discussion of the puzzling state of the CCP Virus-distorted U.S. economy – including what kind of policy changes (if any) the Federal Reserve is likely to and should announce tomorrow – plus an assessment of the Biden administration’s approach to China. The segment begins at about the 21:50  mark.

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

(What’s Left of) Our Economy: U.S. Trade Figures Still on a (CCP Virus) Roller Coaster

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Biden, CCP Virus, China, consumers, coronavirus, COVID 19, Donald Trump, exports, Federal Reserve, goods trade, imports, Janet Yellen, manufacturing, non-oil goods deficit, recovery, stimulus, supply chains, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

Just as September’s official U.S. trade figures revealed numerous records and multi-month or year highs and lows (mainly of the bad kind), today’s October release reported its share of startling results – but mainly of the good kind. One black spot deserves mention right away, though – the country’s manufacturng trade deficit passed the $1 trillion mark for the fourth straight year. And we still have two data months left in 2021.

Still, the all-time monthly bests and similar extraordinary readings from October were nonetheless impressive. And combined with the September statistics, they make clear that the CCP Virus and government efforts to fight it are far from done distorting the U.S. and world economies. 

The chief records set were:

>Combined goods and services exports of $223.63 billion, which beat May, 2018’s previous record of $216.09 billion by 3.49 percent. Moreover, the 8.14 percent sequential improvement was the biggest since June, 2020’s 8.69 percent – which came during the strong national and global economic recoveries from the first wave of the CCP Virus and the short but sharp depression it caused.

>Total imports of $290.75 billion, which edged outthe previous month’s record of $288.23 billion by 1.06 percent.

>Goods exports, where the $158.73 billion figure exceeded the former record of $149.92 billion set in August by 5.87 percent. And the monthly increase of 11.07 percent was the biggest since March’s 10.18 percent.

>Goods imports of 242.67 billion, also the second straight all-time high, and a level that topped September’s $240.89 billion by 0.74 percent.

Another all-time best and worst came in non-oil goods trade. As known by RealityChek regulars, these trade flows deserve special attention, because they consist of exports and imports whose levels are significantly affected by trade agreements and other U.S. trade policy decisions (unlike trade in oil and services, where liberalization efforts are still at early stages at best).

The best? Non-oil goods exports climbed to an all-time high, with their $138.82 billion total standing 5.87 percent higher than the previous record of $131.12 billion set in August. Moreover, their monthly growth of 9.57 percent was the biggest such advance since the 10.65 percent increase of July, 2020 – also during that recovery from the first CCP Virus-related downturns.

The worst? Non-oil goods imports set their second straight record, coming in at $242.67 billion, or 0.74 percent higher than the September total of $240.89 billion.

And finally, when it comes to new records, imports of advanced technology products (ATP). Their $51.54 billion level also was a second straight, and surpassed September’s $50.50 billion by 2.06 percent.

But multi-month and even multi-year highs and lows abounded in the October trade report:

>The overall deficit plummeted from the record (and upwardly revised) $81.44 billion figure for September to $67.12 billion. The monthly total was the lowest since April’s $66.15 billion, and the sequential drop of 17.58 percent the greatest since April, 2015’s 18.16 percent.

>Similarly, in October, the goods deficit hit its lowest level ($83.95 billion) since November’s $86.23 billion, and the month-to-month decline of 14.33 percent (from September’s record $97.98 billion, was the biggest such drop since the 20.79 percent nosedive of February, 2009 – when the Great Recession following the global financial crisis was in its depths.

>The 11.40 percent monthly decrease in the non-oil goods deficit (the steepest fall-off since April, 2015’s 13.76 percent), brought this trade gap to its lowest level ($82.99 billion) since last November’s $85.73 billion.

October’s trade report contained some eye-popping numbers in U.S.-China goods trade, too.

>Goods exports to the People’s Republic shot up from $10.91 billion to a new record of $16.64 billion. Further, not only did this figure top the previous best (October, 2020’s $14.77 billion). But the 52.46 percent sequential jump was the biggest since the 71.04 percent recorded back in November, 1996 – when much smaller trade numbers made big percentage improvements much easier to generate.

>In addition, the U.S. goods trade deficit with China of $31.40 billion was the lowest since July’s $28.65 billion read, while the 13.99 percent monthly improvement was the biggest since the 25.19 percent figure reported for March, 2020 – when China had still shut down much of its economy due to the pandemic.

The China data also show that U.S. trade with the People’s Republic continue to perform better than U.S. trade in non-oil goods – the best global proxy for U.S. goods trade with China – and as a result, that the Trump (now Trump-Biden?) tariffs continue to work well.

For example, that 13.99 percent sequential narrowing of the U.S. goods trade gap with China in October was faster than the comparable 11.40 improvement in the non-oil goods deficit. That 52.46 percent monthly increase in goods exports to China, moreover, was nearly ten times greater than the 5.87 percent rise in non-oil goods exports.

The 1.30 percent increase in U.S. goods imports from China was nearly twice as fast as the 0.74 percent increase in America’s non-oil goods imports, but both absolute increases are modest.

And on a year-to-date basis, the U.S. goods deficit with China is still up less (13.67 percent) than the non-oil goods shortfall (16.73 percent).

On the down side, the U.S. manufacturing deficit did decline in October – by 3.32 percent, from a record $118.75 billion to $114.81 billion. But it remained astronomical by any reasonable standard.

Manufacturing exports improved on month by a healthy 10.99 percent, from $92.58 billion to $102.75 billion. But although manufacturing imports climbed by a much slower pace (2.95 percent, from $211.33 billion to $217.56 billion), they’re still more than twice as great.

Year-to-date, the 18.78 percent advance in manufacturing exports and the 19.56 percent rise in manufacturing imports has resulted in that trillion-dollar-plus manufacturing deficit ($1.083 trillion, to be precise). As of October, moreover, it’s running 18.26 percent ahead of last year’s pace.

The outlook for America’s trade flows? I’m still pretty sure that the deficits will keep rising in the near term – mainly because overall economic growth, and therefore consuming and importing are expected to stay so strong.  Longer term, though, uncertainties are still noteworthy and arguably could frustrate forecasts even more. 

After all, it’s still not clear how America’s and other governments will respond to the new Omicron variant ofthe virus (or whatever other strains come down the pike).

There’s the seemingly likely ebbing of the fiscal stimulus that’s boosted savings, and therefore purchasing and importing power, for the entire population during the pandemic period. Continued high inflation could start depressing consumer spending on its own – although less government stimulus all else equal should start restraining prices at some point.

Additionally, don’t forget the Federal Reserve, which has been prompted by faster-than-expected price increases to reduce the bond-buying program that’s provided another massive source of economic stimulus.  Is Treasury Secretary Janet Yellen right to be confident that consumer demand will stay strong nonetheless?  Beats me. 

Finally, it’s encouraging to read various claims that the global supply chain crisis is easing (e.g., here). But even if progress on this front continues and accelerates, new geopolitical threats to global commerce have emerged – especially rising tensions between China on the one hand, and the United States and most of China’s neighbors on the other, over the future of Taiwan and whether it gets decided peacefully.     

Since America’s economic growth is expected to be torrid in the final three months of this year (including, of course, October), I suspect that, despite all these questions and complications, the next few months of trade figures will worsen considerably (as I wrote last month). But the farther down the road I look, the cloudier my crystal ball gets

Following Up: National Radio China Interview Podcast Now On-Line

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CBS Eye on the World with John Batchelor, China, decoupling, finance, Following Up, Gordon G. Chang, investment, John Batchelor, logistics, supply chain, tariffs, Trade, tradewar, transport, Wall Street

True to my word, I’m pleased to announce that the podcast is now on-line of my appearance last night on John Batchelor’s nationally syndicated radio show. Click here for a terrific discussion among John, co-host Gordon G. Chang, and me on how successfully Washington has – or hasn’t – been decoupling its economy from that of an increasingly hostile and powerful rival.

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

Making News: Back on National Radio on China Trade, Beijing’s Wall Street Funders…& More!

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CBS Eye on the World with John Batchelor, China, finance, Gordon G. Chang, investment, logistics, Making News, supply chain, tariffs, Trade, tradewar, transport, Wall Street

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight. In fact, I’m especially pleased to announce this because for a change I have enough notice to give RealityChek readers a heads up!

The conversation – which will include co-host Gordon G. Chang – will cover headline subjects like whether U.S. tariffs on China are still working, why Wall Street has been channeling ever more enormous amounts of capital from abroad in China’s state-controlled economy, and where the global supply chain crisis stands.

As usual, I don’t know when exactly the segment will air, but John’s show is on nightly from 9 AM to I PM, and you can listen live at this link. P.S. John’s other interviews are likely to be must-listening, too. Further, if you can’t tune in, I’ll be posting a link to the podcast as soon as one’s available.

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

(What’s Left of) Our Economy: Now Oil’s Fueling the U.S. Trade Deficit’s Boom

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Advanced Technology Products, Biden, CCP Virus, China, climate change, COP26, coronavirus, COVID 19, exports, Glasgow, imports, lockdowns, manufacturing, non-oil goods deficit, oil, oil imports, oil trade, OPEC, supply chains, tariffs, Trade, trade deficit, Trump, UN Climate Change Conference, vaccine mandates, Wuhan virus, {What's Left of) Our Economy

So many records and multi-month or year highs and lows were revealed in this morning’s official report on U.S. trade flows (for September) that it’s tough to know where to begin. What caught my eye immediately, though, was a development that concerned a product that hasn’t generated much major trade news lately, but has produced quite a few headlines in the last few weeks alone: oil.

With the United Nations’ latest global climate change conference still underway in Glasgow, Scotland, and President Biden still asking members of the Organization of Petroleum Exporting Countries to boost their production to ease national and global energy shortages, it’s more than a little interesting that September saw America’s oil trade deficit balloon from $28 million (yes, with an “m”) in August to $3.38 billion (with a “b”).

That monthly total is the biggest since May 2019’s $3.98 billion and the $3.35 billion sequential worsening is the greatest such change for good or ill in absolute terms since the $3.52 billion improvement in this deficit in Dec., 2012 (when the monthly oil deficits were regularly some five or six times larger). It’s also the biggest increase in the oil trade shortfall since Jan., 2013 ($3.86 billion).

At least as interesting: On a year-to-date basis, the oil trade balance has shifted from a $13.98 billion surplus to a $6.84 billion deficit, mostly because oil imports are up 23.55 percent during this period.

The monthly spurt in the oil trade deficit weighed heavily on the overall September trade figures, accounting for 41.26 percent of the rise in the total deficit to a record $80.93 billion.

Moreover, not only was the September combined goods and services trade shortfall an all-time high. It beat the previous record (set in June) by a healthy (or sickly?) 10.52 percent, and the 11.52 percent monthly jump was the greatest such widening since the 19.87 percent recorded in July, 2020, when the U.S. economy was rebounding sharply from the short but deep downturn produced by the CCP Virus’ initial wave and the shutdowns and lockdowns mandated in response, along with major consumer caution.

September’s deficit resulted from both major trade flows moving in exactly the wrong way. Total imports set their third straight monthly record, increasing by 0.58 percent to $288.49 billion. And overall exports sank by 3.01 percent, to $207.56 billion. That total was the first monthly falloff since February and the biggest since the 19.96 percent plunge in April, 2020 – when the pandemic’s impact on the U.S. economy was peaking.

Still worse was the trade story in goods, where the $98.16 billion gap grew by 9.99 percent over the August total to a new record $98.16 billion. That figure broke the old mark (also set in June) by 5.25 percent, and the monthly increase was also the biggest since July, 2020 – when it rose by 12.20 percent.

Here, too, both exports and imports can be blamed. As with total exports, the former also decline for the first time since February, and the 4.71 percent sequential decrease to $142.71 billion was the steepest since the 25.10 percent crash dive suffered in pandemic-y April, 2020.

Goods imports, meanwhile, climbed by 0.78 percent to $240.86 billion – a new record , too.

Since manufacturing dominates U.S. goods trade, it’s not surprising that much of this September deterioration on the merchandise side came in industry. This sector saw its own longstanding and massive deficit hit a second straight monthly record, rising 1.60 percent to $118.75 billion.

Manufacturing exports dropped on month by 4.69 percent, from $97.13 billion to $92.58 billion. But the much greater amount of imports was down only 1.25 percent, from $214.041 billion to $211.33 billion.

These new records have pushed the 2021 manufacturing deficit so far to $968.25 billion – 22.52 percent bigger than last year’s January-through September number. So the full-year shortfall is sure to top $1 trillion for the fourth straight year – and by October.

Yet another all-time high was reported in an important manufacturing sub-sector – advanced technology products (ATP). The $50.50 billion worth of these goods imported by Americans in September set a monthy record, and one that broke the previous mark of $47.24 billion set in October, 2019, by 6.91 percent. Largely as a result, the ATP deficit surged sequentially by 22.82 percent in September, to $19.74 billion. The total was the biggest since last November’s $21.90 billion and the increase the fastest since May, 2020’s 22.98 percent – early during that US rebound following the CCP Virus’ first wave.

With many of these ATP goods coming from China, the import boom in this category understandably led to a big (15.01 percent) increase in the bilateral merchandise deficit. Indeed, the monthly rise, from $31.74 billion to $36.50 billion was the biggest since the shortfall’s near-doubling in April, 2020 – when the Chinese economy was bouncing back from its own broad virus-related shutdown – and the level was the highest since December, 2018’s $36.60 billion.

Goods imports from China hit $47.41 billion – their highest level since October, 2018’s $52.08 billion. And their 10.27 percent jump in September was the biggest such monthly change since the 18.23 percent increase of this past March, at the start of the U.S.’ last post-CCP Virus recovery.

The China goods deficit in September did worsen faster than its closest global proxy – the U.S. non-oil goods deficit (which widened by 6.47 percent). It’s still also growing more slowly on a year-to-date basis – 14.89 percent versus 18.60 percent, which indicates that the Trump tariffs continued by Mr. Biden are still restraining it. But the gap is narrowing.

What’s especially sobering about these and other recent trade figures is that the overall deficit rose by 7.50 percent between the second and third quarters of this year while the rate of economic growth fell by 40.31 percent.  That’s not supposed to happen. Clearly, virus- and lockdowns- and mandates- and supply chain-related disruptions are distorting normal economic patterns, but that’s a huge discrepancy nonetheless.  Worse (in this sense), the American economy’s expansion is so far expected to speed up again in the fourth quarter. Although trees aren’t supposed to grow to the sky, it seems a safe bet that the U.S. trade deficit going forward will do a pretty good imitation.     

(What’s Left of) Our Economy: Biden Goes Full Trump on His New Metals Tariff Deal

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allies, aluminum, Biden, Biden administration, China, Donald Trump, EU, European Union, metals, metals tariffs, quotas, steel, steel tariffs, tariff-rate quota, tariffs, Trade, trade wars, transshipment, Trump administration, {What's Left of) Our Economy

I’m old enough to remember when Donald Trump’s decision to tariff steel and aluminum imports from many U.S. allies was almost universally condemned outside his administration as not only unimaginably stupid and economically ignorant (as the supposed case for all tariffs) but downright heinous.

After all: These were U.S. allies that would be paying the price for Trump’s troglodyte protectionism. For decades they’d stood shoulder to shoulder with America in numerous foreign policy crises and showdowns with hostile dictatorships (or at least much of the time) and served as valuable force multipliers (even though their skimpy defense budgets prevented them from providing the United States with much concrete defense help when push came to shove, and needlessly exposed Americans to nuclear war risk). How, moreover, could relying on imported metals from friendly countries endanger U.S. national security – as the Trump administration legally needed to claim in order to slap on the trade curbs. Worse, the Trump metals levies as such left China, by far the biggest metals trade offender, untouched.

Even Trump’s own first Defense Secretary agreed on the tariffs’ cockeyed targeting. So did a fellow named Joe Biden, who during his presidential campaign last year upbraided his opponent for “picking fights with our allies” vowed to “focus on the key contributor to the problem [of a global metals glut] – China’s government.”

So although it’s been telegraphed for some weeks now, it’s still worth noting not only that since his inauguration, President Biden has kept the steel and aluminum tariffs firmly in place, but that his administration has just reached an agreement with the European Union (EU) that makes clear that the two major assumptions that drove Trump’s approach were completely correct.

First, as I’ve demonstrated repeatedly (e.g., here), the evidence is overwhelming both that global metals capacity stems not only from China’s own mammoth overproduction, but from numerous other metals manufacturing countries, and that all of these economies were working in any number of clandestine ways to make sure that most of this overcapacity was dumped into the U.S. market.

That is, they either responded to Chinese product flooding their own markets and threatening their own metals industries by ramping up their own exports to the United States; by modifying these Chinese metals slightly and then sending them state-side as their own products; or by simply permitting Chinese steel and aluminum to be transshipped through their own ports to the United States under false labels.

(This new report shows that China’s strategy of evading U.S. trade barriers has taken another mportant form”: acquiring metals production capacity in third countries – especially in the most profitable, specialty and other high-value metals segments – and using these facilities to ship to America.)

As a result, any U.S. tariffs needed to be universal to be effective – either simply to keep imports under control, or to secure foreign agreement to stop playing footsie with the Chinese. Any other approach would have left Washington continuing to play Uncle Sucker in a game of global whack-a-mole – whose latest round began when direct Chinese exports to the United States were sharply limited by tariffs put in place during the last year of the Obama administration.

Second, the Trump approach recognized that the United States boasted the leverage to achieve success, and the terms of the new agreement with the EU make clear that the former president judged the balance of economic power correctly It’s true that the deal EU saves various American industries from retaliatory tariffs. But in return for restoring these sectors largely unimpeded access to the huge total EU economy, the Europeans have accepted sharply reduced access to American customers.

A U.S. government fact sheet states that tariff-free EU steel and aluminum exports to the United States will be limited to “historically-based” volumes (which have not been specified, but which reportedly will equal only about 60 percent of the immediate pre-Trump tariff totals). Practically all attempted European shipments above that total would be subject to the exact same Trump levies that clearly kept them mostly out of the United States – at least judging from the Europeans’ fundamental complaint. (Trade mavens call such arrangements “tariff-rate quotas.”) In this respect, this EU agreement mirrors those reached by the Trump administration with countries like Canada, Mexico, Argentina, Brazil, and South Korea.

The full details of the agreement haven’t yet been released, so questions remain about enforcement mechanisms – which of course matter decisively for any effort to combat secretive activity like transshipment. But because American-owned steel companies and U.S. steel unions have endorsed the deal, chances are they’ll be effective. And that’s likely to be true for the rest of his trade agenda as long as President Biden keeps going full Trump.      

(What’s Left of) Our Economy: New Doubts About U.S.-China Decoupling

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American Chamber of Commerce in Shanghai, Biden, China, decoupling, Donald Trump, exchange students, export controls, foreign direct investment, investment, tariffs, Trade, trade war, Wall Street, {What's Left of) Our Economy

As known by RealityChek regulars, the biggest question surrounding U.S.-China economic relations is probably whether the two countries will “decouple” their trade and investment relations with each other.

For several reasons, I’ve been pretty optimistic that the disentangling of the two big economies will continue and even speed up. These include the sizable decoupling progress that’s already been made; the strong and still growing criticisms of China’s behavior pretty much across the issue board by the American public and their leaders; the Biden administration’s surprising decision to continue most of the major Trump anti-China policies; and Beijing’s own determination to bring commercial entities often misleadingly described as “private” businesses even more completely under its thumb and make operating in China ever harder for foreign companies. (See, e.g., here and here.)

But after reading a summary of a recent survey by the American Chamber of Commerce in Shanghai, I’m not so sure.

The organization, comprised of more than 1,300 companies, is one of the leading foreign business groups in the People’s Republic, and last month released its latest annual China Business Report. Among the key findings:

>77.9 percent of the 338 respondents said they were optimistic or slightly optimistic about their next five years in China – the highest such level since former President Trump’s trade war began in 2018.

>77.1 percent reported that their latest profits were higher than expected.

>More than 82 percent expected higher revenues this year than last year – which would represent growth levels “last seen before the worst days of the US-China trade war.”

>The share of respondents reporting annual growth in investment in China (59.5 percent) is also nearly back to 2018 levels (62 percent).

>And only 28 percent of responding manufacturers producing in China had any plans to move production out of the People’s Republic.

Meanwhile, even though its economy is experiencing major problems due largely to mounting energy shortages to an overly aggressive anti-pandemic policy to signs that its mammoth real estate sector will turn into an equally mammoth burst bubble, Wall Street seems more enthusiastic than ever about channeling capital to China.

Signs that decoupling is proceeding are by no means entirely gone. Data on U.S. direct investment (that is, investment in tangible assets like factories as opposed to financial investments like stocks and bonds) for 2021 aren’t available yet, but figures for last year (reported in the above linked RealityChek post) showed that two-way flows continued a decline that dated from before the pandemic slowed both economies dramatically. Moreover, China’s crackdown on its big tech entities has included discouraging them from listing on American stock exchanges.

We do have 2021 goods trade data, and through the first half of this year, U.S. imports from China remained a smaller share of the entire U.S. economy (0.51 percent of annualized gross domestic product) than in the first quarter of 2018 – the last pre-trade war quarter (0.61 percent). Interestingly, the export ratio has returned to those 2018 levels (0.16 percent).

Moreover, since the flow of people back and forth was another major measure of how the United States and China had been drawing closer together, it’s also worth noting evidence that even though overall foreign student applications to American colleges and universities have resumed rising, they’re falling from China.

Since I’m not clairvoyant, I’m not going to pretend to know whether decoupling will slow or stop or accelerate again. But this scenario seems at least plausible: Goods trade between the two countries will keep stagnating at best (especially if the bulk of the Trump tariffs stays in place, and if President Biden keeps expanding controls on defense-related tech exports); but unless the Biden administration puts new clamps on, flows of capital – especially from the United States to China – will keep picking up.

Moreover, as explained by a Financial Times columnist, not only will these investments greatly increase the resources available to China’s dictators. They will also inevitably help China “put its savings to good use.” Which means that U.S.-China commercial interactions could well boomerang in numerous dangeorous ways against Americans even more than they do already.

Im-Politic: American Journalism’s Editing Crisis Deepens

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Biden, Bloomberg.com, China, Donald Trump, editing, Im-Politic, imports, Jeff Bezos, journalism, Mainstream Media, Michael Bloomberg, tariffs, Trade, trade deficit, trade war, Washington Post

A RealityChek post last month suggested that America’s news media are experiencing a genuine editing crisis, and just yesterday appeared an example that left even me – someone who for decades has been tracking these lapses (or biases?) and the misinformation they’ve often spread – speechless.

Well, OK, not exactly speechless. But here’s what I mean.

The Bloomberg.com article in question, titled, “China’s Response to U.S. Trade Talks Shows Gap Between Two” was almost entirely unobjectionable. Indeed, for the most part, it focused quite competently on recent statements made by top U.S. and Chinese officials showing how far the two economies remain from resolving the trade and broader commercial issues they’ve clashed over for many years.

But then came this chart:

From the title, you’d expect it to show both that the immense U.S. trade deficit with China currently stood at an all-time high, and that the increase was being driven largely by still soaring American imports from the People’s Republic.

Except if you eyeball the chart with even a little care, you see that if America’s imports from China (the solid white line) are now in record territory, it’s not by much compared with the previous peak in mid-2018. Moreover, since they’ve barely budged since then, and the U.S. economy has grown by some ten percent during this period, the China shortfall has clearly become smaller as a share of gross domestic product – a crucial piece of context.

Moreover, it’s absolutely clear that the Chinese trade surplus with the United States hasn’t been surging at all lately. Indeed, according to the vertical orange-ish bars it’s represented by, it’s slightly below last year’s peak and has fallen slightly  since early 2018. Yes, there’s been a surge. But it took place during the decades before.

And kind of mysteriously left out: Mid-2018 is when former President Donald Trump began imposing tariffs on imports from China.

But that’s not the main point here. I’ve seen and written about headlines that misrepresent the body of the article they accompany. (That last post on editing provided one example.) But I don’t ever recall seeing a chart’s title contradicted by the chart itself. Like Amazon.com co-founder Jeff Bezos, who now owns the Washington Post, Bloomberg.com co-founder and majority owner Michael Bloomberg has more than enough bucks to at least try preventing such embarrassing goofs. Time to start opening up that wallet.  

Following Up: Podcast of National Radio Interview on Biden China Policy & Supply Chain Chaos Now On-Line

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Biden administration, CBS Eye on the World with John Batchelor, China, Following Up, logistics, shortages, supply chain, tariffs, Trade, trade war, transportation

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 of the state of the Biden administration’s China trade policy, and the outlook for untangling the CCP Virus-related global supply chain bottlenecks causing shortages and transport delays throughout the U.S. and world economies – and threatening to leave many holiday gifts undelivered.

I’m still hoping that a podcast will be posted of my segment yesterday morning on WAKR-AM’s (Akron, Ohio) “Ray Horner Morning Show,” but haven’t yet seen a recording of our discussion of those same topics. If one does go on-line, I’ll let everyone know ASAP.

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