Following Up: Podcast Now On-Line of National Radio Interview on U.S. China Strategy

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allies, Asia, Buy American, CBS Eye on the World with John Batchelor, Central America, China, decoupling, Following Up, friend-shoring, Gordon G. Chang, Immigration, Mexico, NAFTA, North American Free Trade Agreement, tariffs, Trade, U.S.-Mexico-Canada Agreement, USMCA

I’m pleased to announce that the podcast of my interview last night on John Batchelor’s nationally syndicated radio show is now on-line.

Click here for a timely discussion – with co-host Gordon G. Chang – on whether President Biden’s Trump-y Buy American-focused trade policies are undermining his efforts to build effective global alliances to contain China.

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

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Making News: Back on National Radio Examining the U.S.’ China Containment Strategy

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Asia, CBS Eye on the World with John Batchelor, Central America, China, decoupling, DR-CAFTA, friend-shoring, Gordon G. Chang, Immigration, Latin America, Making News, manufacturing, Mexico, NAFTA, national security, North American Free Trade Agreement, tariffs, Trade, U.S.-Mexico-Canada Agreement, USMCA

I’m pleased to announce that I’m scheduled to be back tonight on the nationally syndicated “CBS Eye on the World with John Batchelor.” Our subject – whether the trade and security elements of America’s strategy for countering the China threat are too often tripping over each other.

No specific air time had been set when the segment was recorded this morning. But the show – also featuring co-host Gordon G. Chang – is broadcast beginning at 10 PM EST, the entire program is always compelling, and you can listen live at links like this. As always, moreover, I’ll post a link to the podcast as soon as one’s available.

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

(What’s Left of) Our Economy: (Much) More Evidence That Tariffs Can Work

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aluminum, Biden administration, China, economics, free trade, inflation, mercantilism, metals, output, prices, protection, protectionism, steel, subsidies, tariffs, Trade, Trump administration, {What's Left of) Our Economy

An independent U.S. government agency that most of you have never heard of just issued a blockbuster report full of evidence that further lobotomizies the clearly brain-dead but longstanding and still-prevailing conventional wisdom on a major economic issue facing Americans – how to deal with the global economy.

The agency is the U.S. International Trade Commission (USITC) and the conventional wisdom is that the sweeping, often towering Trump (and now Biden) administration tariffs on metals and on imports from China have cost the American economy on net.

Just as important: The report’s findings also shred the equally enduring belief that such trade protection causes the beneficiary companies or industries to become fat and lazy – and in particular to stop investing in expansion – because it’s so much easier and lucrative to reap higher profits from the higher prices they can charge from their existing operation.

The tariffs most comprehensively examined were those imposed on steel and aluminum imports starting in early 2018. The USITC looked at both their impact on those metals producers themselves, and on the “downstream industries” that use steel and aluminum.

As might be expected, the study reported that the metals levies – imposed to counteract massive foreign subsidies and other predatory practices – reduced imports of the products they covered significantly between 2018 and 2021 (the last year for which full statistics were available). U.S. purchases of affected foreign steel products sank by an annual average of 24.0 percent, and of their aluminum counterparts by an annual average of 31.1 percent

Further, as might also be expected, users of these metals often had to turn to buying domestically produced steel and aluminum in many instances. (In others, where U.S,-made alternatives weren’t available, they needed to eat the increased prices of the imports.)

But here’s where the conventional wisdom starts breaking down. According to USITC researchers, the price of Made in America steel and aluminum barely budged as a result of the tariffs. For steel, it rose by an annual average of 0.74 percent between 2018 and 2021. For aluminum, these increases were 0.87 percent. That sure doesn’t sound like price-gouging.

And one big reason undermines another claim of the tariff conventional wisdom. These prices hikes were so modest due significantly to output increases of these metals. And the higher output wasn’t due simply to the (modestly) higher prices metals-makers could charge. It reflected greater quantities of steel and aluminum that were manufactured. Between 2018 and 2021, because of the tariffs alone, steel companies boosted production volume (not dollar value) by an annual average of 1.9 percent and aluminum companies by an annual average of 3.6 percent. (See the table on p. 21.)

In fact, as the report notes, “Many domestic steel producers announced plans to invest in and greatly expand domestic steel production in the coming years” and capacity utilization in the industry hit a 14-year high in 2021. That’s resting on their laurels?

But the worst blow delivered by the report to the conventional wisdom was to the claim that the metals tariffs damaged the U.S. economy overall because whatever benefits the metals sectors enjoyed were completely swamped by the harm done to much larger metals-using sectors. (Here’s a detailed version. Unlike the USITC study, it focuses on employment and not output impacts, but undoubtedly there’s a pretty close relationship between the two.) According to the USITC, nothing of the kind happened.

As stated in footnote 342 on p. 125, thanks to the tariffs, steel production climbed by $1.90 billion in 2018, by $1.86 billion in 2019, by $0.92 billion in 2020, and by $1.33 billion in 2021. That adds up to $6.01 billion.

Aluminum production was $1.74 billion higher in 2018, $1.72 billion in 2019, $0.88 billion in 2020, and $0.92 billion in 2021 (footnote 347 on p. 126). That adds up to $5.26 billion. Add these steel and aluminum totals, and you get $11.27 billion in production gains by value attributable to the tariffs.

On p. 132, the USITC estimates that the tariff-induced production decline of steel- and aluminum-using industries averaged $3.40 billion from 2018 through 2021 – or $13.60billion in toto. So American output did indeed fall overall?

Not so fast. As the authors note (p. 125), the annual impact of the tariffs decreased during these years because the percentage of metals imports covered by the tariffs shrank – in part due to deals struck by Washington with various foreign metals producers to end levies on their products in return for agreeing to end illegal practices like dumping and to work harder to prevent previously tariff-ed Chinese metals pass through their countries to America via customs fraud.

So it’s likely that the gap between the U.S. metals output increases generated by the tariffs and the users’ output losses generated by the levies – pretty measly to begin with – would have shrunk and even vanished completely had all the tariffs remained in place. And who can reasonably rule out the possibility that the tariffs would have wound up boosting more American manufacturing production than they reduced – especially if the metals users were able to increase their production despite higher costs by improving their productivity. (See this post for a fuller discussion of the relationship between import use and productivity.)

The report didn’t look at the downstream effects of the much greater tariffs on Chinese goods, but presented evidence that they’ve been economic winners for the United States as well. As the study concluded, the China tariffs per se – also imposed to offset systemic economic predation by the People’s Republic – cut the value of Chinese imports by an annual average of 13 percent, and increased the price of domestically produced competitor products and the value of domestic competitor production by an annual average of 0.2 percent and 0.4 percent, respectively. between 2018 and 2021.

In other words, the China tariffs raised domestic production twice as much as domestic prices. And the problem is….?

The USITC authors admit that their model for evaluating the tariffs can’t capture all their effects. And their conclusions certainly don’t mean that all tariffs will work splendidly all of the time. But it’s arguable that for all the trade liberalization achieved since the end of World War II, protectionism and mercantilism by foreign governments remains widespread.  The USITC report strengthens the case that comparable U.S. responses should be used much more often.     

P.S. I published a detailed look at the impact of the 1970s and 1980s tariffs (including those imposed during the Reagan years) back in 1994 in Foreign Affairs and reported similar conventional wisdom-debunking findings.          

(What’s Left of) Our Economy: A Deceptively Calm January for U.S. Trade?

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Advanced Technology Products, ATP, Biden, Buy American, Canada, CCP Virus, China, Donald Trump, European Union, exports, Federal Reserve, goods trade, imports, India, Inflation Reduction Act, infrastructure, Japan, Made in Washington trade flows, manufacturing, monetary policy, non-oil goods trade, semiconductors, services trade, stimulus, Taiwan, tariffs, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Pretty calm on the surface, pretty turbulent underneath. That’s a good way to look at yesterday’s official release of the U.S. trade figures for January. Many of the broadest trade balance figures moved little from their December levels, but the details revealed many multi-month and even multi-year highs, lows, and changes – along with one all-time high (the goods deficit with India).

The combined goods and services deficit most strongly conveyed the impression of relatively calm trade waters. It rose sequentially for the second straight month, but only by 1.61 percent, from a downwardly revised $67.21 billion to $68.29 billion.

The trade shortfall in goods narrowed, but by even less – 0.69 percent, from an upwardly revised $90.71 billion to $90.09 billion.

More volatility was displayed by the services trade surplus. It sank for the first time in two months, from upwardly revised $23.50 billion (its highest monthly total since December, 2019’s $24.56 billion – just before the CCP Virs’ arrival stateside) to $21.80 billion. Moreover, this shrinkage (7.26 percent) was the greatest since last May’s 11.05 percent.

Meanwhile, total U.S. exports in January expanded sequentially for the first time since August. And the the 3.41 percent rise, from a downwardly revised $249.00 billion to $257.50 billion was the biggest since April’s 3.62 percent.

Goods exports in January also registered their first monthly increase since August, with the 6.02 percent improvement (from a downwardly revised $167.69 billion to $177.79 billion) the biggest since October, 2021’s 9.09 percent.

Services exports dipped on month in January, from a downwardly revised $81.32 billion to $79.71 billion. And the 1.98 percent decrease was the biggest since last January’s 3.05 percent. But the December total was the highest on record, and the seventh straight all-time high over the preceding nine months, so January could be a mere bump in the services export recovery road.

On the import side, total U.S. purchases from abroad advanced for the second straight month in January, with the 3.03 percent increase (from a downwardly revised $316.21 billion to $325.79 billion standing as the biggest since last March’s 9.64 percent.

Goods imports were up, too – from a downwardly revised $258.40 billion to $267.88 billion. The climb was the second straight, too, and its 3.67 percent growth rate also the biggest since March (11.00 percent).

Services imports in January were up for the first time since September, but by a mere 0.17 percent, from a downwardly revised $57.81 billlion to $57.91 billion.

Also changing minimally in January – the non-oil goods deficit (which RealityChek regulars know can be considered the Made in Washington trade deficit, since non-oil goods are the trade flows most heavily influenced by U.S. trade agreements and other trade policy decision. The 0.32 percent month-to-month decline brought this trade shortfall from $91.97 billion to $91.68 billion.

Since Made in Washington trade is the closest global proxy to U.S.-China goods trade, comparing trends in the two can indicate the effectiveness of the Trump-Biden China tariffs, which cover hundreds of billions of dollars worth of Chinese products aimed at the U.S. maket.

In January, the huge, longstanding U.S. goods trade gap with China widened by 7.01 percent, from $23.51 billion to $25.16 billion. That third straight increase contrasts sharply with the small dip in the non-oil goods deficit – apparently strengthening the China tariffs critics’ case.

Yet on a January-January basis, the China deficit is down much more (30.82 percent) than its non-oil goods counterpart (14.07 percent). The discrepancy, moreover, looks too great to explain simply by citing China’s insanely over-the-top and economy-crushing Zero Covid policies. So the tariffs look to be significantly curbing U.S. China goods trade, too.

U.S. goods exports to China fell for the third straight month in January – by 5.05 percent, from $13.79 billion to $13.09 billion.

America’s goods imports from China increased in January for the second straight month – by 2.55 percent, from $37.30 billion to $38.25 billion.

Revealingly, however, on that longer-term January-to-January basis, these purchases are off by 20.50 percent (from $47.85 billion). The non-oil goods import figure has actually inched up by just 0.71 percent – which also strengthens the China tariffs case.

The even larger, and also longstanding, manufacturing trade deficit resumed worsened in January, rising for the first time in three months. The 2.83 percent sequential increase brought the figure from $113.61 billion – the lowest figure, though, since last February’s $106.49 billion.

Manufacturing exports declined by 3.01 percent, from $105.71 billion to $102.52 billion – the weakest such performance since last February’s $94.55 billion.

The much greater value of manufacturing imports rose fractionally, from $219.31 billlion to $219.36 billion – also near the lows of the past year.

In advanced technology products (ATP), the trade gap narrowed by 11.36 percent in January, from $18.45 billion to $16.35 billion. The contraction was the third in a row, and pushed this deficit down to its lowest level since last February’s $13.42 billion.

ATP exports were down 8.78 percent, from $35.16 billion to $32.07 billion – their lowest level since last May’s $31.25 billion. And ATP imports sank by 9.68 percent, from $53.60 billion to a $48.42 billion total that was the smallest since last February’s $42.44 billion.

Big January moves took place in U.S. goods trade with major foreign economies, though much of this commerce often varies wildly from month to month.

The goods deficit with Canada, America’s biggest trade partner, jumped by 39.02 percent on month in January, from $5.09 billion to $7.07 billion. The increase was the second straight, the new total the highest since last July’s $8.47 billion, and the growth rate the fastest since last March’s 47.61 percent.

But the goods shortfall with the European Union decreased by 10.83 percent, from $18.36 billion to $16.37 billion. The drop was the third straight, the new total the lowet since last September’s $14.44 billion, and the shrinkage the fastest since last July’s 19.97 percent.

For volatility, it’s tough to beat U.S. goods trade with Switzerland. In January, the deficit plummeted 42.07 percent, from $2.28 billion to $1.32 billion. But that nosedive followed a 77.84 percent surge in December and one of nearly 1,200 percent in November (from a $99.9 million level that was the lowest since May, 2014’s $45.3 million).

Also dramatically up and down have been the goods trade shortfalls with Japan and Taiwan. For the former, the deficit plunged by 30.33 percent in January – from $7.09 billion to $4.94 billion. But that drop followed a 20.58 percent increase in December to the highest level since April, 2019’s $7.35 billion.

The Taiwan goods deficit soared by 52.44 percent in January, from $2.80 billion to $3.68 billion. But this rise followed a 33.65 percent December drop that was the biggest since the 43.18 percent of February, 2020 – when the CCP Virus was shutting down the economy of China, a key link of the supply chains of many of the island’s export-oriented manufacturers.

Finally, the goods deficit with India skyrocketed by 106.55 percent in January, from $2.41 billion to that record $4.99 billion. That total surpassed the $4.44 billion shortfall the United States ran up with India last May, but the more-than-doubling was far from a record growth rate. That was achieved with a 146.76 percent burst in July, 2019.

Since the widely forecast upcoming U.S. recession seems likely to arrive later this year (assuming it arrives at all) than originally forecast, the trade deficit seems likely to continue increasing, too. But that outcome isn’t inevitable, as shown by the deficit’s shrinkage in the second half of last year, when America’s economic growth rebounded from a shallow recession.

The number of major wildcards out there remains sobering, too, ranging from the path of U.S. inflation and consequent Federal Reserve efforts to fight it by cooling off the economy, to levels of net government spending increases (including at state and local levels), to the strength or weakness of the U.S. dollar, to the pace of China’s economic reopening, to the course of the Ukraine War. 

On balance, though, I’ll stick with my deficit-increasing forecast, since (1) I’m still convinced that the approach of the next presidential election cycle will prevent any major Washington actors from taking any steps remotely likely to curb Americans’ borrowing and spending power significantly for very long; and (2) I’m skeptical that even the strong-sounding Buy American measures  instituted by the Biden administration (mainly in recently approved infrastructure programs and semiconductor industry revival plans, and in the green energy subsidies in the Inflation Reduction Act) will enable much more substitution of domestic manufactures for imports – least in the foreseeable future.          

Our So-Called Foreign Policy: Maybe Biden Has Decided to Fleece China?

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Biden, China, foreign direct investment, Hunter Biden, Hunter Biden laptop, Our So-Called Foreign Policy, Taiwan, tariffs

President Biden’s China policy is one of the biggest mysteries I’ve ever encountered. It’s not just that he’s continued Trump administration policies that he strongly criticized as a 2020 candidate for the White House (notably the former President’s towering and sweeping tariffs). It’s not just that he’s gone much further than Trump (notably on controls of exports to China’s high tech industries and on several pledges to come to Taiwan’s defense if the Chinese attack the island). It’s not just that on other policy fronts he’s been much less hawkish – as on some Chinese acquisitions of sensitive U.S. assets (see, e.g., here) and the recent spy balloon mess.

It’s not even just that he’s supported any hard line (and long overdue) approaches to China after a lifetime in public service strongly supporting the strategy that’s actually helped enable China’s development as a powerful, dangerous U.S. adversary.

After all, it’s still reasonable to argue that that was then and this is now, that the China threat is now front and center rather than simply potential, and that Mr. Biden has changed with the times. Or that the President has concluded that, whatever his personal beliefs might be, he’s had no choice but to shift with an American public that’s grown deeply alarmed by that China threat.

It’s that the Biden China policies have been in my view overall praiseworthy despite clear evidence that before his election, he and his family were greatly enriched by the Beijing regime – and that despite his indignant denials, he knew about at least some of this all the while.

There are his son Hunter’s lucrative dealings with various Chinese entities and individuals that were amply documented in materials found on his laptop computer. There’s the email showing that “the big guy” would get a ten percent share of the business created by one of these agreements. There are numerous other indications that Hunter’s finances were completely commingled with those of the rest of his family – including his father. And now there’s the revelation that Chinese donors have given major sums to not one but two American universities once these schools set up facilities related to the former U.S. Senator from Delaware and Vice President – and that the so-called research center set up in his name at the University of Pennsylvania paid him handsomely for token on-campus appearances.

Yet the President’s record unmistakably shows, despite endless charges by his (overwhelmingly Republican) and conservative critics, that he’s by no means been consistently, much less mainly, soft on China. So what could be going on here?

One possible explanation, which I’ve seen nowhere else, is that suggested by the headline: that Mr. Biden has simply decided to fleece the Chinese – to take the money and run. Not that he’s chosen to confront Beijing at every possible opportunity, or turn up the pressure to the max. Rather, despite his family’s ill-gotten gains, he’s concluded (whether rightly or wrongly is a separate matter) that he can defy China’s will with impunity whenever he believes necessary on the merits or politically expedient. Or both.

This theory has the advantage of simplicity. But that doesn’t necessarily make it right. For example, if the President has decided to shaft the Chinese, wouldn’t that mean recklessly risking Beijing’s exposure of its bribery campaign – which could well end Mr. Biden’s political career and open him to criminal and even worse charges if he needed to leave office? And yet, this course of action could backfire on China as well, whatever its effects on the President, by hardening anti-Beijing American opinion even further and turning U.S. policy even more confrontational for a very long time.

Of course, this is all speculation. But it’s more consistent with the ambiguous evidence than either the claim that Mr. Biden has sold out to China, or that there’s nothing to see about the bribery and influence-peddling allegations at all. I’m hoping that upcoming Congressional investigations shed some more light on the matter. In the meantime, what do you readers think?

(What’s Left of) Our Economy: The Real Deal with 2022’s U.S. Trade Deficits

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China, goods trade, non-oil goods trade, services trade, tariffs, Trade, Trade Deficits, {What's Left of) Our Economy

While I was on an odd (but not serious) medical hiatus from blogging this past week, the official U.S. trade data for December came out.  And since they contain the year-end results, I figured they’re amply worth reporting on even though they’re no longer breaking news.

But we’ll do it a little differently in this first cut at the numbers, which will focus on the broadest categories of U.S. trade flows and – at least as important – put them in context. That’s especially important because the raw statistics could easily prompt fears that the deficit is spinning out of control – including the gap with China – and from astronomical levels. Because it’s not – though the absolute numbers shouldn’t please anyone even given that CCP Virus pandemic-related distortions still permeate them. A particular reason for concern: The total deificit and most of the main sub-deficits have widened last year in the worst possible way, with exports down and imports up.

Let’s start with the combined goods and services trade shortfall, which grew by 12.19 percent on year in 2022 from $845.05 billion to $948.06 billion. (All these value figures are presented in pre-inflation dollars – the trade data most closely followed by students of the economy.) That’s the second straight new annual record, but the growth rate was down considerably from 2021’s whopping 29.21 percent and 2020’s 16.85 percent.

Moreover, at 3.72 percent, the overall trade deficit as a share of the nation’s economy (its gross domestic product, or GDP) inched up just from 3.62 percent in 2021. And the trade gap as a percentage of GDP was way off the record 5.53 percent, set in 2006.

The trade shortfall in goods hit a larger $1.19598 trillion – up from 2021’s $1.06835 trillion by 11.95 percent, and representing 4.68 percent of GDP. In this case, the growth rate was much lower than 2021’s 19.30 percent. And as a share of the economy, it was unchanged from the 2021 figure and a far cry from its peak of 6.06 percent, also set in 2006.

Services trade, long in surplus, saw its excess of exports over imports dip for the fourth straight year, although the 2022 decline of 0.63 percent (from $245.25 billion to $243.69 billion was much smaller than in 2021 (5.64 percent) or 2020 (12.66 percent).

As known by RealityChek readers, non-oil goods trade is the portion of U.S. trade flows that’s been most significantly affected by U.S. trade agreements and other policy decisions. This trade gap increased by 11.95 percent from 2021-2022, from $1.06835 trillion to $1.19598 trillion. That latter total was the eighth consecutive all-time high, but as a percentage of GDP, it climbed just from 4.58 percent to 4.70 percent between 2021 and 2022. The growth rate here was also considerably lower than in 2021 (16.58 percent) but slightly higher than 2020’s 10.24 percent.

In an important twist, however, this “Made in Washington” deficit’s share of the economy hit its eighth straight record, too – but mainly because the oil has become a much smaller proportion of the overall deficit and these non-oil goods a much bigger proportion.

Finally, goods trade with China is being kept under control as well – not insignificantly because of the steep, sweeping tariffs on goods imports from China imposed by former President Trump that have been substantially continued by President Biden.

As a percent of GDP, the goods trade gap with China of $382.92 billion came to 1.50 percent – a bit lower than 2021’s 1.52 percent, and well below the all-time high of 2.04 percent in 2018, the year the Trump tariffs began.

Also especially interesting: Since U.S. non-oil goods trade is a close proxy for U.S.-China goods trade, the continued increase in the former’s deficit as a share of GDP and the recent decrease in the latter also point to the effectivness of the Trump-Biden levies in curbing America’s economic engagement with an increasingly dangerous strategic adversary.

Tomorrow we’ll concentrate on .the 2022 annual results in manufacturing and high tech trade, as well as U.S. commerce with major trade partners

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

Tags

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.

 

(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

Tags

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.