(What’s Left of) Our Economy: Trump is Winning the Trade and Decoupling Wars

Tags

CCP Virus, China, coronavirus, COVID 19, decoupling, FDI, foreign direct investment, goods trade, merchandise trade, MSCI, non-oil goods trade deficit, pension funds, Rhodium Group, Securities and Exchange Commission, tariffs, Trade, Trade Deficits, trade war, Trump, Wuhan virus, {What's Left of) Our Economy

It’s become increasingly clear in the last few days that President Trump’s trade war with China and his apparent efforts to decouple the U.S. and Chinese economies have achieved real successes. Just why exactly? Because of a recent flurry of claims in the Mainstream Media that the trade war has been an ignominious defeat for the President and his tariffs, and that decoupling can only backfire on America if it’s taken too far (an outcome that’s supposedly imminent). (See here, here, and here in particular.)

As RealityChek regulars know, such media doom- and fear-mongering – spread both by journalists and by the purported experts they keep quoting who have been disastrously wrong literally for decades about trade and broader economic expansion with China – are now well established contrarian indicators. And here’s some of the key data that these proven failures have overlooked.

Let’s start with the least controversial measure of decoupling – two-way trade. Let’s generally use the end of the previous administration as our baseline, since decoupling really is a Trump-specific priority. And let’s generally end with the end of 2019, not only because it’s our last full data year, but because the coronavirus pandemic clearly is distorting the data, and won’t be with us forever (although some of its effects on supply chains and the like might – also because of reinforcement from the trade war). We’ll also stick with goods trade, since detailed service trade figures are always late to come out, and because they’re rarely major subjects of trade policy.

Between 2016 and 2019, combined US goods imports from and goods exports to China actually grew by 2.92 percent. So where’s the decoupling, you might ask? It becomes clear from using economic analysis best practices and putting these figures into context – mainly, the performance of the entire economy.

And in this case and many of those below, it’s crucial to know that the economy grew during this period, too. As a result, in 2016, this two-way goods trade (also called merchandise trade) amounted to 3.08 percent gross domestic product (GDP) – the nation’s total output of goods and services. In 2019, it was down to 2.60 percent. That is, like a supertanker, this trade doen’t turn around right away.

Therefore, it is indeed legitimate to fault Mr. Trump for claiming that trade wars are easy to win. But the supertanker is turning. And the impact on the economy? In 2016, it expanded by 2.78 percent. In 2019? 3.98 percent. So not much damage evident there. (All these figures are pre-inflation figures, because detailed inflation-adjusted trade figures aren’t available.)

Similar trends hold for the U.S.-China goods trade deficit, which the President views as the most important scorecard for his China trade policy success. Between 2016 and 2019 in absolute terms, it barely budged – dipping by just 0.47 percent. That could be a rounding error.

But viewed in the proper context, this trade deficit fell from 1.85 percent of GDP to 1.61 percent. And again, the economy grew much faster in 2019 than in 2016.

It’s still possible to ask what any of the trade decoupling had to do with the President’s ballyhooed tariffs. But the only reasonble answer? “A lot.” That’s because even after the signing of the so-called Phase One U.S.-China trade deal in January, levies of 7.5 percent remain on categories of imports from China that have been totalling about $120 billion annually lately, and tariffs of 25 percent remain on $250 billion more. (That’s most of the $451.65 billion in total goods imported by the United States from China in 2019.)

For comparison’s sake, between 2016 and 2019, the U.S. worldwide non-oil goods trade deficit – that’s the deficit that’s most impacted by trade policy decisions like tariffs, and the portion of the deficit that’s most like US-China trade – rose by 24 percent. That’s more than 50 times faster than the increase in the China goods deficit.

So there can’t be any serious doubt that the Trump China tariffs have worked both directly (by keeping Chinese goods out of the U.S. market) and indirectly (by encouraging companies that had been producing in China for export to the United States to move elsewhere). Moreover, since that “elsewhere” is always to much friendlier countries, that’s a plus for Americans even though the decoupling by most accounts has only returned modest amounts of jobs stateside.

Moreover, there’s a strong case to be made that the Trump tariffs on China have prevented the U.S. economy’s CCP Virus-induced recession from being much worse. That contention is borne out by the fact that, as RealityChek reported earlier this month, the latest available apples-to-apples statistics show that China’s goods trade surplus with the world as a whole had increased by some 25 percent between July, 2019 and July, 2020. But during that period, the China goods surplus with the United State fell by about 18 percent.

As a result, according to the standard way of measuring the economy and how developments in areas like trade affect its growth or shrinkage, China over roughly the last year has been growing at the expense of the world as a whole, but not at America’s. Indeed, quite the opposite. After decades of trade with China slowing U.S. growth, such commerce is now supporting growth.

The decoupling picture, however, wouldn’t be complete without investment flows. Here, on one front, the disengagement has been even more extensive. The consulting firm Rhodium Group does a good job of crunching the numbers on foreign direct investment (FDI) – those transactions that involve so-called hard assets, like real estate and factories and warehouses and entire companies, as opposed to portfolio investment, which involves stocks, bonds, and other financial instruments.

By a happy coincidence, Rhodium has just issued its latest report, which takes us through the first half of 2020. Yes, that covers the virus era, when it’s natural to expect all kind of economic and commercial activity to decline. But the pre-virus era trends will become clear enough, too.

According to Rhodium, two-way FDI flows between the United States and China in the first six months of this year (measured by the value of completed deals) hit their lowest level since the second half of 2011. And the peak came during comparable periods between early 2016 and late 2017 – when these investments were running nearly four times their current levels. Moreover that peak, not so coincidentally, bridged the Obama-Trump transition.

Chinese FDI into the US during that first half of this year actually rose a great deal – from $1.3 to $4.7 billion. But this increase resulted entirely – and then some – from a single purchase by the big Chinese social media company WeChat of a 10 percent stake in the U.S. company Universal Music. Without that transaction, Chinese flows into the US would have dropped, and even the current somewhat artificially high level is only about a fifth as high as its peak – hit in late 2016. So you can see a decided Trump effect here, too.

U.S. FDI flows into China have held up better, if that’s the term you want to use. But they were off 31 percent between the second half of 2019 and the first halfof this year – to $4.1b. And their peak level – hit in 2014 – was $8.5b. So that’s another big Trump-related drop.

One disturbing counter-trend that the Trump administration has been too slow to address: There’s abundant evidence that U.S. financial investment into China – buys of assets like stocks and bonds – keeps surging.

One indication: According to the Financial Times earlier this month, since the Wall Street firm MSCI in June, 2017, first announced plans to include Chinese domestically listed “A-share” companies into one of its widely followed indices, “roughly $875bn in foreign investment has flowed into Chinese equities through stock connect programmes linking Hong Kong with onshore bourses in Shanghai and Shenzhen.”

And although the U.S. share is difficult to quantify, between private investors and state-level government workers’ pension funds, this analysis from the U.S. Securities and Exchange Commission makes clear that it’s considerable.  (Due to Trump administration pressure, the body overseeing federal pension plans’ investments has delayed a decision to channel funds into the aforementioned MSCI index.)   

So can anyone reasonably claim “Mission accomplished” for the Trump trade and decoupling policies? Not yet. But is a “job well done so far” conclusion merited? Certainly for anyone who’s not Trump-ly Deranged.

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

Tags

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

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

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

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

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

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

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

biggest trade balance improvers                                                               2019 rank

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

2 miscellaneous grains:                             +503.71 percent                             –   S

3. semiconductor production equipment:  +245.18 percent                             –   S

4. iron ores:                                               +234.48 percent                              –   S

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

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

7. semiconductors:                                      +86.87 percent                            1     S

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

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

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

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

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

13. specialty canned foods:                         +42.37 percent                          20     S

14. cheese:                                                  +40.06 percent                           13     S

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

16. construction machinery:                       +36.34 percent                            –      D

17. peanuts:                                                +36.12 percent                            –      S

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

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

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

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

22. pulp mill products:                             +33.16 percent                             –      S

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

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

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

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

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

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

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

biggest trade balance losers                                                                2019 rank

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

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

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

4. miscellaneous textile products:              -399.55 percent                  –      D

5. computer storage devices:                      -271.11 percent                  –      D

6. jewelry and silverware:                            -98.97 percent                  –      D

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

8. computer parts:                                        -60.12 percent                  –      S

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

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

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

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

13. motor vehicle bodies:                           -39.49 percent                  –       S

14. computer storage devices:                   -39.07 percent                   –      D

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

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

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

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

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

20. misc electronic components:               -23.92 percent                   –     D

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

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

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

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

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

Tags

CCP Virus, coronavirus, COVID 19, goods trade, manufacturing, merchandise trade, recession, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

It’s June! Or it’s June at least according to the folks at the U.S. Census Bureau who track America’s international trade flows. And the arrival of this mid-year point means it’s a good time to see effectively various segments of the country’s economy are competing in the global economy, including here at home.

As with most of American life, this regular RealityChek exercise has been deeply affected by the arrival of the CCP Virus, and in particular, by the historic recession (and maybe depression) it’s triggered due to widespread lockdowns. But even though the figures below – which cover the nation’s goods industries but leave out services (because the government database I rely doesn’t report on the latter, and because comparably detailed data won’t be released for a while) are seriously distorted by the pandemic, they’re useful for three reasons.

First, they suggest which parts of the economy are holding up better and worse during a public health crisis the likes of which are, scarily, likely to recur more than once down the road. Second, the goods industries examined here (manufacturing, agriculture, minerals, and energy) have been affected less dramatically than most service industries, which depend heavily on various degrees of personal contact with customers. Therefore, the virus distortion isn’t nearly so great as might be initially supposed. Third, since all these goods sectors s have been affected by the CCP Virus, their trade performance could well reveal important information about their underlying strengths and weaknesses.

We’ll focus today on actual trade balances – deficits and surpluses – and how they’ve changed between the first half of last year and the first half of this year. As usual, the figures come from the U.S. International Trade Commission’s terrific Trade Dataweb interactive search engine. The goods categories used are those of the North American Industry Classification System (NAICS) – the federal government’s main way to slice and dice the U.S. economy. And the level of disaggregation I’m using is the sixth, since it’s the level at which you can keep the numbers of sectors analyzed manageable, and at the same time make distinctions between final products on the one hand, and their parts and components on the other (vitally important given much more specialized manufacturing has become).

One anomaly you may notice right away: Although these are both Top 20 lists, they each have more than 20 entries. The reason? Truly bizarre changes in the way the government reports results from the aerospace sector. Once upon a time, Washington used separate NAICS 6 categories for aircraft, non-engine aircraft parts, and aircraft engines and parts. Now they’re all being combined – except where they’re not! The best way I could think of to offset these inconsistencies was to include all the aircraft-related figures when they showed up in the Top 20, but add the twenty-first or twenty-second industry on that list to get the closest approximation of a real Top 20.

Let’s start with those parts of the economy that posted the biggest trade surpluses in the first half of 2020, the actual totals in billions of current (i.e., pre-inflation) dollars, and how this list compares with its counterpart from last year. A dash here means that that sector didn’t appear on the top 20 2019 list at all.

Top 20 2020 trade surpluses                                                          2019 rank

1. civilian aircraft, engines, equipment, parts:        $39.475b              –

2. petroleum refinery products:                               $16.138b              1

3. natural gas:                                                          $12.647b              –

4. other special classification provisions:               $10.927b               2

5. plastics materials and resins:                                $8.720b               3

6. waste and scrap:                                                   $6.403b               5

7. soybeans:                                                             $5.882b                4

8. semiconductors:                                                  $5.748b              12

9. corn:                                                                    $4.678b                9

10. used or second hand merchandise:                   $4.635b                7

11. non-poultry meat products:                              $3.388b              10

12. non-anthracite coal & petroleum gases:          $2.982b                 6

13. motor vehicle bodies:                                      $2.915b                 8

14. wheat:                                                             $2.847b                13

15. semiconductor production equipment:           $2.651b                 –

16. tree nuts:                                                         $1.890b               14

17. prepared or preserved poultry:                       $1.825b               17

18. invitro diagnostic substances:                        $1.653b               18

19. paperboard mill products:                              $1.621b               20

20. surface active agents:                                     $1.614b                –

21. computer parts:                                              $1.586b               15

What jumped out at me right away is that, with three exceptions, the top 20 (actually, top 21) for this year and the list last year were identical. Only three sectors – natural gas, semiconductor production equipment, and surface active agents were newcomers to the 2020 list. And shuffling around between these groups was pretty mimimal. Eight of the sectors either maintained their exact same rank between 2019 and 2020, or only moved one spot. Three more moved only two spots. Given the stunning disruption of life in the United States all around the world, those results seem remarkably stable – and indicate that this group of big American trade winners boasts impressive resilience.

From another vantage point, ten of the 21 sectors on the list were manufacturing industries. In 2019, manufacturing placed only eight representatives in the top 21. So for manufacturing fans (as everyone who’s hoping for enduring American prosperity should be), 2020 has been a year of progress so far.

Below are the goods sectors of the economy with the 21 biggest trade deficits.

Top 20 2020 trade deficits                                                           2019 rank

1. autos and light trucks:                                        $42.120b             1

2. goods returned from Canada:                            $39.008b             2 

3. pharmaceutical preparations:                            $34.867b              4

4. computers:                                                         $29.647b             5

5. broadcast & wireless communications equip:  $26.848b              3

6. smelted/ refined non-ferrous non-alum metal: $19.228b              –

7. miscelleaneous extruded non-ferrous metals:  $15.885b              –

8. women’s cut and sew apparel:                          $14.691b             6

9.crude oil:                                                           $13.658b              –

10. non-diagnostic biological products:              $12.486b            14

11. men’s cut and sew apparel:                              $9.706b              7 

12. printed circuit assemblies:                               $9.571b            15 

13. footwear:                                                         $9.276b              9

14. miscellaneous motor vehicle parts:                 $9.176b            10 

15. miscellaneous textile products:                       $8.892b             –

16. aircraft engines and parts:                               $8.709b             8

17. audio and video equipment:                            $8.107b            11

18. major household appliances:                           $6.801b             –

19. medicinal & botanical drugs & vitamins:       $6.651b             –

20. iron and steel products:                                   $6.460b             –

21.miscellaneous plastics products:                      $6.454b           20

One big difference between this list and the trade surplus list: Fully seven industries this year are newcomers. Even so, however, of the 13 sectors that made it onto both lists, shuffling was actually more limited as on the trade surplus list. Nine of them either held the same ranking or only moved one rung up or down the latter.

This trade deficit list, however, is much more manufacturing-heavy than the surplus list. In fact, it’s nearly twice as manufacturing-heavy, with such sectors accounting for 19 of the 21 on each A final, discouraging, difference: The trade deficits of the leading deficit industries are much bigger than the surpluses of the leading surplus industries. That’s a good reminder that even though the overall goods trade deficit (also called the merchandise trade deficit) is down 5.15 percent on a year-to-date basis so far, it was still more than $391 billion.  Similarly, although the manufacturing deficit is down 4.53 percent on a year-to-date basis, it’s still come in at $476.90 billion so far in 2020.  

But we’re far from finished analyzing the year-to-date trade flows. When it comes to trade balances, we still need to look at more dynamic figures – that is, at which sectors have seen the greatest improvements in their trade balances, and which have seen the greatest deterioration. And of course we can’t forget the export and import figures that comprise the trade balance data, and how they’ve changed between January and June of last year and January and June of this year. Keep checking in with RealityChek for those results!

(What’s Left of) Our Economy: Good – & Promising – News on Manufacturing Reshoring

Tags

Canada, China, Commerce Department, East Asia, Forbes.com, GDP-by-industry, Kearney, Kenneth Rapoza, manufacturing, manufacturing production, manufacturing trade deficit, Mexico, North America, Trade, Trade Deficits, {What's Left of) Our Economy

When two separate sources of information agree on a conclusion, the conclusion obviously becomes a lot more important than if it’s got only a single supporter. That’s why I’m excited to report that a major economic consulting firm has just released data showing that American domestic manufacturing has been coping just fine with all the challenges it faces from Trump tariffs aimed at achieving the crucial goal of decoupling U.S. industry and the the broader economy from China.

I’m excited because these results track with my own analysis of U.S. trade and manufacturing output data – which I’ve been able to update because of a new Commerce Department release measuring manufacturing production through the end of last year. And you should be excited, too – because the more self-reliant U.S.-based industry becomes, the better able it will be to add to the nation’s growth without boosting its indebtedness. In addition, the more secure the country will be both in terms of traditional national security and America’s ability to provide all the military equipment it needs, and in terms of health security and its ability to provide all the drugs and medical equipment it needs to fight CCP Virus-like pandemics.

The consulting firm data comes from Kearney, and I need to tip my hat to Forbes.com contributor Kenneth Rapoza for initially spotlighting it. According to the company, its seventh annual Reshoring Index reveals that last year, imports from low-cost Asian countries like China (well, none are really “like China,” but you get it) as a percentage of U.S. industry’s output hit its lowest annual level since 2014. The decrease was the first since 2011, and the yearly drop was by far the biggest in percentage terms since 2008.

What’s especially interesting is that the Kearney figures show that manufacturing imports from Asia made inroads even during much of the Great Recession. Last year, their prominence dwindled notably even though the American economy as a whole was growing solidly. And although domestic manufacturing output slowed annually last year – due partly to the inevitable short-term disruptions and uncertainties created by major policy shifts, and partly due to the safety problems of aerospace giant Boeing – the Kearney report noted, it “held its ground.”

Kearney reported even better news on the “trade shifting” front, and its findings also track with mine. One major criticism of the Trump China tariffs in particular entails the claim that they won’t aid American domestic manufacturing because they’ll simply result in the U.S. customers of tariff-ed Chinese products buying the same goods from elsewhere – especially from Asian sources.

The Kearney study refutes that claim, reporting that not only did the role of Asian imports decrease in 2019, but that due to the tariffs, this decrease was led by a China fall-off, that production reshoring rose “substantially,”and that a major import shifting beneficiary was Mexico – which is good news for Americans since it means that the globalization of industry is now doing more to help a next-door neighbor whose problems do indeed tend to spill across the border. (I’ve also found important trade shifting away from East Asia as a whole and toward North America – meaning both Canada and Mexico.) 

As for my own research, the release Monday of the Commerce Department’s latest Gross Domestic Product by Industry report, combined with the monthly trade statistics, these data also shed light on the relationship between U.S.-based manufacturing’s growth, and the economy’s purchases of manufactured goods from abroad.

The big takeaway, as shown by the table below: The relationship has continued its pattern of weakening – suggesting less import dependence – during the Trump years, although production growth did indeed slow because of that aforementioned tariff-related disruption and the Boeing mess.

The figure in the left-hand column represents U.S.-based manufacturing’s growth during the year in question (according to a gauge called “value added), the middle column represents the growth that year of the manufacturing trade deficit, and the right-hand column shows the ratio between the two growth rates (with the trade gap’s growth coming first). The higher the ratio, more closely linked manufacturing output growth is to the expansion of the manufacturing trade deficit. All figures are in pre-inflation dollars.

2011:             +3.93 percent              +8.21 percent                2.09:1

2012:             +3.19 percent              +6.27 percent               1.97:1

2013:             +3.36 percent              +0.77 percent               0.23:1

2014:             +2.93 percent            +12.39 percent               4.23:1

2015:             +3.72 percent            +13.22 percent               3.55:1

2016:              -1.19 percent              +3.07 percent                 n/a

2017:             +3.99 percent              +7.22 percent              1.81:1

2018              +6.23 percent            +10.68 percent              1.71:1

2019              +1.67 percent              +1.09 percent              0.65:1

Domestic manufacturers obviously haven’t completed their adjustments to the new Trump era trade environment, and the CCP Virus crisis clearly won’t make this task any easier. But Kearney expects that the pandemic will wind up moving more U.S.-owned or -related manufacturing out of China, and so do I. And although the Kearney authors don’t say so explicitly, it’s easy to read their report and conclude that the crisis and the resulting national health security needs will help ensure that the domestic U.S. economy will keep getting a healthy share.

(What’s Left of) Our Economy: Which Industries Were 2019’s Biggest U.S. Trade Winners & Losers?

Tags

Barack Obama, manufacturing, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

President Trump has set out to overhaul America’s trade policy, and RealityChek has presented abundant evidence showing that, from the proverbial 30,000-foot level and somewhat below, his years in office have seen impressive progress that’s laying the foundations for a healthier economy.

But what about the makeup of U.S. trade flows? Similar progress has been documented here in the recent leveling off of the still-enormous American trade gap in manufactured goods (despite the safety-related woes of aircraft giant and mega-exporter Boeing) and minimal growth in the Made in Washington trade deficit – the shortfall in those flows most strongly influenced by American trade policy decisions (i.e., which leave out oil and services trade).

At the same time, a detailed industry-by-industry examination of U.S. trade patterns reveals changes that have been more modest, though worth examining, especially when a reasonably obvious comparison is made with their counterparts during the last year of the Obama administration – which the President and his supporters (including me) view as a trade policy failure. Specifically, over these three years, the lists of the American industries that ran the biggest trade surpluses and deficits remained practically the same. By contrast, the lists of sectors that saw their trade balances improve or worsen to the greatest extent had almost nothing in common.

Let’s begin with one of Mr. Trump’s priority objectives – reducing the trade deficit. Despite the different look of aggregate deficits, one key measure of the industries winning and losing out most from trade looks remarkably similar last year to its appearance in the final Obama year, 2016. That’s the sectors of the U.S. economy with the biggest trade surpluses. Below are the Top 20 for 2019, in descending order. The magnitude of the 2019 surplus in value terms comes after the sector’s name, and the right-hand column shows how these industries ranked in 2016. Last year’s trade surplus champions that didn’t make the 2016 list are designated with a hyphen.

The categories come from the federal government’s North American Industry Classification System (NAICS), which has become Washington’s predominant system for slicing and dicing the domestic economy. They represent NAICS’ most granular level of disaggregation – the sixth level. And they leave out a catchall aerospace category that includes both planes and their parts – as opposed to many other NAICS-6 categories, which present the two separately.

Leading 2019 trade surplus sectors                                  2016 rank

1. petroleum refinery products: $30.71b                               1

2. special classification goods: $26.27b                                3

3. plastics materials & resins: 18.74b                                   4

4. soybeans: $18.46b                                                            2

5. waste and scrap: $13.11b                                                 5

6. non-anthracite coal & petroleum gases: $9.27b            16

7. used or second-hand merchandise: $9.16b:                  10

8. motor vehicle bodies: $9.12b                                         7

9. corn: $7.57b                                                                   6

10. non-poultry meat products: $7.36b                            11

11. cotton: +$6.23b                                                          14

12. semiconductors: +$5.91b                                            –

13. wheat: $5.84b                                                            13

14. tree nuts: +$5.10b                                                      15

15. computer parts: +$4.76b                                             9

16. misc basic inorganic chemicals: $3.88b                     –

17. prepared or preserved poultry: $3.75b                      18

18. in-vitro diagnostic substances: $3.39b                      20

19. surface active agents: $3.23b                                    19

20. paperboard mill products: $3.12b                              –

As the table makes clear, there’s been some reshuffling in this group, but not much. Indeed, 17 of the 2016 Top 20 made the 2019 Top 20, and all of the top five in 2016 were top five in 2019, though three of these industries switched orders. And the only major ranking changes occurred in non-anthracite coal and petroleum gases (which move up six places), and in computer parts (which moved down six).

Also of note: In 2016, eight of the Top 20 trade surplus sectors were manufactures, and this number rose to only nine in 2019. So despite the Trump administration’s focus on strengthening domestic manufacturing, little change is evident from this list of leading net exporters.

Yet very different results emerge from a different measure of trade excellence – the twenty industries that have seen their trade balances improved the most between 2018 and 2019, and between 2015 and that final Obama year 2016. Here, for three reasons, I’ve limited the total number of industries I’ve examined to the hundred biggest trade surplus and trade deficit industries.

First, these sectors represent the vast bulk of U.S. goods trade. Second, they enable a filtering out of the “small numbers effect” (that is, big percentage moves that are generated when sectors with small trade flows experiencing changes that are small in absolute terms but big in relative terms). Third, including the big deficit industries enables the identification of sectors whose trade shortfalls have shrunk the most – which on in trade accounting means just as much as boosting surpluses. (These sectors are the ones marked “DF,” for “deficits fell.”)

Just as with the first table, also presented here is where 2019’s biggest trade balance improvers ranked in 2016. And the big takeaway is that overwhelmingly, they didn’t rank at all. An amazing sixteen out of twenty sectors that improved their trade balances the most last year weren’t even on this Top 20 list just three years ago.

Leading trade balance improvers 2018-19                                       2016 rank

(including percentage changes)

1. semiconductors: +196.2 percent                                                         –

2. perfumes, makeup & other toiletries: +147.4 percent                        –

3. dental laboratories products: +120.0 percent                                     –

4. non-small arms ammunition: +79.8 percent                                      6

5. dried peas & beans: +60.4 percent                                                    7

6. carbon & graphite products: +55.9 percent                                      –

7. oil & gas field machinery & equip: +49.3 percent                           –

8. animal fats, oils & byproducts: +48.9 percent                                 –

9. petrochemicals: +44.9 percent                                                         1

10. computer storage devices: +42.7 percent                                    19

11. ships: +40.2 percent                                                                      –

12. misc chemicals: +35.1 percent                                                     –

13. cheese: +34.0 percent                                                                   –

14. potatoes: +33.6 percent                                                                 –

15. jewelry & silverware: +32.1 percent (DF)                                    –

16. search, navigation, detection instruments: +31.1 percent (DF)    –

17. printed circuit assemblies: +31.6 percent (DF)                            –

18. missile & space vehicle engines & parts: +30.0 percent             –

19. motor homes: +28.0 percent                                                        –

20. specialty canned foods: +27.6 percent                                         –

But also interesting – despite the extensive turnover, for both years, 13 of the twenty top trade balance improvers were manufacturing industries.

Maybe, however, the story is significantly different on the deficit side of the trade ledger? Not meaningfully. Below is a list of the twenty American sectors with the biggest trade shortfalls in absolute terms, in descending order. The actual deficits are included, too. In the right-hand column is their ranking on a similar 2016 table. And as with the surplus table above, that catchall aerospace category is excluded.

Leading 2019 trade deficit sectors                                                 2016 rank

1. autos & light trucks: $126.60b                                                        1

2. goods returned: $91.06b                                                                 4

3. broadcast & wireless communs equip: $73.74b                             3

4. pharmaceutical preparations: $62.36b                                            5

5. computers: $59.62b                                                                        6

6. female cut & sew apparel: $42.13b                                               7

7. male cut & sew apparel: $30.97b                                                   8

8. aircraft engines & engine parts: $25.68b                                     12

9. footwear: $25.62b                                                                        10

10. misc motor vehicle parts: $23.69b                                             11

11. audio & video equip: $21.71b                                                     9

12. dolls, toys & games: $17.37b                                                    13

13. iron & steel & ferroalloy products: $17.03b                             16

14. non-diagnostic biological products: $16.97b                             –

15. printed circuit assemblies: $16.75b 1                                         4

16. motor vehicle electrical & electronic equip: $14.63b              15

17. aircraft parts & auxiliary equip: $14.02b                                 18

18. light truck & utility vehicles: $13.19                                        –

19. misc plastics products: $13.03b                                                –

20. curtains & linens: $12.18b                                                       17

In this case, 17 of the 2019 Top 20 were in the 2016 Top 20. And the order hasn’t changed much, either – except arguably in the case of aircraft engines and engine parts, iron and steel and ferroalloy products, and curtains and linens. One major change does need to be noted, though: You may have observed that the second biggest trade deficit industry in 2016 didn’t make the 2019 list at all. That sector? Crude oil and natural gas, thanks to the U.S. energy production revolution of recent years.

All the same, the 2016 and 2019 lists of biggest trade deficit industries are pretty much…all the same. They’re also both manufacturing dominated, with that super-category accounting for 19 of the Top 20 deficit sectors in 2019 and 18 in 2016.

Turn to the industries whose trade balances have worsened the most (including sectors whose surpluses have declined), and you see a substantially different 2016-2019 comparison – but one strongly resembling that between the sectors whose trade balances have improved the most in 2016 and 2019: showing big-time turnover. (As with the biggest trade balance improvers’ list, the following are drawn from the hundred biggest trade surplus and trade deficit industries.) Those sectors whose surpluses fell are designated with (SF):

Leading trade balance “worseners”                                                      2016 rank

(including percentage changes)

1. non-aluminum, non-ferrous metal refining/extruding: +74.0 percent     1

2. semiconductor machinery: +70.8 percent (SF)                                       –

3. military armored vehicles & parts: +53.9 percent (SF)                          –

4. tobacco: +51.4 percent (SF)                                                                   –

5. electricity measuring & testing instruments: +50.8 percent (SF)          –

6. construction machinery: +47.4 percent                                                10

7. misc non-ferrous secondary smelting/refining: +47.3 percent (SF)     –

8, iron ores: +45.4 percent (SF)                                                                –

9. corn: +39.2 percent (SF)                                                                       –

10. non-reinforced plastic plate & sheet: +35.3 percent (SF)                   –

11. margarine & edible fats & oils: +34.6 percent (SF)                           –

12. timber & logs: +33.4 percent (SF)                                                     –

13. mobile homes & trailers: +30.5 percent (SF)                                    –

14. missiles, space vehicles & parts: +29.8 percent (SF)                        –

15. misc electrical equip & components: +27.4 percent                         –

16. non-diagnostic biological products: +23.1 percent                           –

17. aircraft engines & engine parts: +19.8 percent                                 –

18. light trucks & utility vehicles: +19.7 percent                                   –

19. chocolate & confectionary products: +18.4 percent                         –

20. fabricated structural metals: +17.2 percent                                     12

No fewer than 18 of the 20 sectors on the 2019 list don’t appear on the 2016 list. As for the two that did, construction machinery worsened its relative performance (moving up from the tenth worst sector in this respect to the sixth worst) and fabricated structural metals improved its relative performance (moving from the twelfth worst to the twentieth worst industry).

Of modest significance, though, for manufacturing: It accounted for only 15 of these Top 20 biggest trade losers in 2019, down from 18 in 2016.

The implications seem strikingly clear – though one is much more surprising than the other. The not-so-surprising conclusion: Because the supertanker of U.S. trade flows is so big, changing it dramatically is a long-haul affair. So industries that are the biggest trade losers and winners in 2016 can be expected to hold the same positions in 2019.

But on a more dynamic basis (improving and worsening trade balances) substantial change is possible in a three-year period – both for better and for worse.

Tomorrow we’ll turn from industries’ trade balances to how well these generalizations hold for the sectors with the most and the fastest-growing exports and imports.

(What’s Left of) Our Economy: Why 2019 Was a Winner for Trump Trade Policies & America

Tags

Barack Obama, Boeing, China, GDP, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

OK, let’s cut to the chase regarding the new U.S. trade deficit data. (We’ll analyze today’s report from the Census Bureau more comprehensively tomorrow.)

The most important result revealed by the figures – which bring the story up to December and therefore give us our first look at full-year 2019 development – isn’t that the overall U.S. trade deficit fell year-on-year last year (which alone indicates that President Trump is starting to keep one of his signature campaign promises). It isn’t that the huge annual China goods deficit cratered (by 17.62 percent, the biggest such drop on record – including Great Recession year 2009 – and indicating another promise being kept). It isn’t that the still-huge manufacturing deficit has virtually stabilized despite the safety woes of Boeing, long the generator of major trade surpluses. And it isn’t even that these trade gaps have narrowed even as the economy has continued growing acceptably (which most economists insist is practically impossible, especially for a consumer-heavy country like the United States).

Instead, the most important result is that this economic growth continued in 2019 even as that portion of the trade deficit most influenced by trade policy increased at a particularly slow rate. The obvious conclusions? Trade policy can influence the size and rate of change in the trade deficit, and that the Trump trade policies are working.

To remind, this portion of the trade deficit (which I call the Made in Washington trade deficit) sheds light on the above points because it’s the non-oil goods deficit. It’s highly trade policy sensitive because it strips out of the total trade balance numbers the services balance (because so little progress has been made in worldwide services trade liberalization) as well as the oil balance (because oil is rarely the subject of trade deals or other trade policy decisions).

The table below presents the numbers for the last three years of the Obama administration and the first three of the Trump administration – a comparison that’s apt because these time periods are right next to each other in the current (expansionary) business cycle.

Made in Washington trade deficit % change     GDP % change          ratio

2013-14:        +19.35                                                 +4.42                4.38:1

2014-15:        +21.23                                                 +3.98                5.33:1

2015-16:          +2.41                                                 +2.69                0.97:1

2016-17:          +8.05                                                 +4.30                1.87:1

2017-18:        +12.66                                                 +5.43                2.33:1

2018-19:          +1.75                                                +4.12                 0.42:1

As is obvious from the above, the Made in Washington deficit’s growth rates during the Obama years (measured in pre-inflation terms) have been considerably slower than those of the Trump years. And yet the GDP (gross domestic product) growth rates of the first three Trump years have been notably faster than those of the last three Obama years.

In other words, as made clearest by the right-hand column, which shows the ratio between the two, the link between economic growth and trade deficit growth has been weakening significantly during the Trump years. And the President’s tariff-heavy trade policies have plainly played a major role. All else equal, moreover, that means growth that’s more nationally self-sufficient (no small achievement in a still dangerous world), healthier, and therefore more sustainable.

President Trump makes way too many false or exaggerated boasts about the economy (among other subjects). But the 2019 trade data show that when it comes to trade policy, he’s entitled to considerable bragging rights.

(What’s Left of) Our Economy: U.S. Manufacturing’s Not Only Decoupling from China

Tags

737 Max, aircraft, Boeing, China, Commerce Department, decoupling, GDP-by-industry, manufacturing, output, Trade, Trade Deficits, {What's Left of) Our Economy

The Commerce Department’s GDP-by-Industry series is almost always overlooked by followers of the economy, and partly that’s the Commerce Department’s fault. Its updates are invariably a quarter behind, so it’s what analysts call a (seriously) lagging indicator that says relatively little about the more important question of what’s in store.

Nonetheless, even when they’re lagging, distinctive and detailed indicators can clarify long-term trends considerably, and that’s why I like GDP-by-Industry and track it so closely. Because it sheds lots of light on some of the most important economic and trade-related issues of the day – and especially on the impact of President Trump’s tariff-heavy policies. Specifically, the latest set of figures, which were issued January 9, reveal that during the Trump administration, the United States has continued to progress toward the worthy goal of reducing domestic manufacturing’s dependence on imports (and especially imports from increasingly hostile countries like China) for acceptable levels of growth. 

In other words, the People’s Republic isn’t the only country from which American manufacturing is decoupling. 

According to the new data, the latest year-on-quarter results show that between the third quarter of 2018 and the third quarter of 2019, U.S. manufacturing output (measured according to a gauge called gross value added) increased by 1.21 percent. That’s not much. But the manufacturing trade deficit during this period rose by only 2.55 percent. (Both figures are in pre-inflation dollars, because inflation-adjusted manufacturing trade figures aren’t available.)

Although this growth rate is lower than that achieved between the second quarter of 2018 and the second quarter of 2019 (2.03 percent), that figure was accompanied by a much faster increase in the manufacturing trade deficit (7.83 percent). The first quarter to first quarter results? Manufacturing production growth of 2.76 percent, and manufacturing trade deficit increase of 1.29 percent. That is, manufacturing output actually grew faster than the trade deficit. So from that standpoint, the third quarter result are disappointing.

They look even more disappointing when compared with the results from the first two years of the Trump administration. In 2017, manufacturing production also grew somewhat faster (3.99 percent) than the increase in manufacturing’s trade gap (3.16 percent), and in 2018, output grew much faster (6.23 percent to 3.96 percent).

These Trump presidency figures, in turn, have been much better than those reported for President Obama’s administration. Once the current economic recovery entered a normal phase (2011), the manufacturing trade deficit grew much faster than output ever year except for 2013.

So what’s the case for the latest third quarter 2018-third quarter 2019 figures representing continued progress? And why should anyone be happy with 1.21 percent annual manufacturing output growth no matter what’s happening on the trade deficit side?

Two answers suggest themselves. First, since the President began imposing tariffs in earnest (essentially, in April, 2018), importers have been “front-running” their purchases from abroad.  Their efforts to secure these deals before various sets of tariffs kicked in has produced several short-term distortions in the trade deficit in particular. Second, since the spring, Boeing’s safety woes have exerted a major drag both on domestic manufacturing output and on industry’s trade performance – since the aircraft giant has long been America’s leading exporting company.

Just one example of the difference Boeing has made: Between the third quarters of 2018 and 2019, the U.S. civilian aircraft trade surplus dropped from just under $10 billion to just under $6.5 billion. Civilian aircraft is of course the product category containing Boeing’s troubled 737 Max jet, and the plane was grounded worldwide, or banned from many national airspaces, starting in March.

The relationship between trade balances and production is never one-to-one, especially over relatively short time frames. And the matter becomes more complicated in sectors like aircraft, with its long lead times and generally large backlogs. But it’s difficult to believe that the 737 Max crisis and the narrowing of the aircraft trade surplus hasn’t impacted American civilian aircraft production and exports at all. (In fact, between those two quarters civilian aircraft exports, which are strongly related to output levels, sank by $2.75 billion, or nearly 22 percent.)

Moreover, for the purposes of comparing manufacturing output growth and the manufacturing’s trade deficit growth, the aircraft troubles are significant. Had the category’s trade performance simply remained the same between the third quarters of 2018 and 2019, the trade shortfall would have increased not by 2.55 percent, but 1.25 percent – less than half the rate. As result, during that period, manufacturing’s output (1.21 percent) and trade deficit would have grown at very nearly the same pace.

What does the future hold for this key ratio? On the one hand, civilian aircraft production is bound to decrease for the foreseeable future due to the 737 Max production halt announced by Boeing in mid-December. On the other, numerous signs indicate that industry overall has come out of the recession that dogged it for much of the last year and a half (and that by some output measures, never happened at all). Moreover, the Phase One trade deal signed by the United States and China last week could well reduce at least some of the tariff-related uncertainty that’s clearly slowed manufacturing-heavy capital spending decisions by American business in general, and certainly in manufacturing itself.

That looks like a modest case for domestic manufacturing continuing its longer term trend of becoming more self-sufficient while growing adequately – a development that makes major sense in a world that’s far more uncertain.

Making News: Podcast Now On-Line of a Trade Policy Debate with Obama’s Former Top Economic Advisor

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Barack Obama, China, decoupling, Jason Furman, Jobs, Making News, manufacturing, metals tariffs, Munk Debates, tariffs, Trade, Trade Deficits, trade war, Trump, wages

I’m pleased to start off the New Year by announcing that a podcast is now on-line of a major debate over trade and globalization in which I participated in late this fall.  It was sponsored by Munk Debates – a series of policy exchanges that since 2008 have featured some of the world’s leading thinkers and policymakers in head-to-head events dealing with issues like the future of capitalism, the China threat, the rise of populism, and the emergence of political correctness.

I wasn’t crazy about the clickbait-y title (“Be it resolved, tariffs are terrific.”).  But I say “major” because my interlocutor was no less than Jason Furman, whose previous positions include chief economic advisor to former President Barack Obama. In addition to clashing over various individual on Trump tariffs (e.g., on metals), we also crossed verbal swords over the possibility and desirability of decoupling America’s economy from Chiina.

You can listen to the debate at this link, and given the importance of the subject and the prominence of my opponent, I’d be especially interested in your own reactions.

As usual, moreover, keep checking in with RealityChek for news of upcoming media appearances and other developments.

Those Stubborn Facts: How Protectionism Pays at the WTO

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China, Those Stubborn Facts, Trade Deficits, trade surpluses, World Trade Organization, WTO

Disputes brought against the United States since China joined the World Trade Organization*: 99

Share of total disputes brought to the World Trade Organization since China joined: 28.37%

Disputes brought against China since China joined the World Trade Organization: 44

Share of total disputes brought to the World Trade Organization since China joined: 12.61 percent

U.S. cumulative merchandise trade balance since China joined the World Trade Organization:** -$9.509 trillion

China cumulative merchandise trade balance since China joined the World Trade Organization: +$3.028 trillion

*December, 2001

**2002 through 2018

(Sources: “How to Revive the WTO,” by Shang-Jin Wei and Xinding Yu,” Project Syndicate, December 11, 2019, https://www.project-syndicate.org/commentary/world-trade-organization-revive-appellate-body-by-shang-jin-wei-and-xinding-yu-2019-12; and calculated from “Net trade in goods and services (BoP, current US$) – China, United States,” DataBank, World Bank, https://data.worldbank.org/indicator/BN.GSR.GNFS.CD?locations=CN-US)

(What’s Left of) Our Economy: Trade War(s) Update

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Argentina, Bloomberg.com, Brazil, business investment, China, CNBC, consumption, currency manipulation, debt, Democrats, digital services tax, election 2020, EU, European Union, export controls, Financial Crisis, France, Huawei, internet, investors, manufacturing, production, steel, steel tariffs, tariffs, Trade, Trade Deficits, trade enforcement, trade war, Trump, Wall Street, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

The most important takeaway from this post about the current status of U.S. trade policy, especially toward China, is that it may have already been overtaken by events since I began putting these thoughts together yesterday.

What follows is a lightly edited version of talking points I put together for staffers at CNBC in preparation for their interview with me yesterday. I thought this exercise would be useful because these appearances are always so brief (even though this one, unusually, featured me solo), and because sometimes they take unexpected detours from the main subject. .

Before presenting them, however, let’s keep in mind this new Bloomberg piece, which came on the heels of remarks yesterday by President Trump signaling that a trade deal with China may need to await next year’s U.S. Presidential election, and plunged the world’s investors into deep gloom. This morning, however, the news agency reported that considerable progress has been made despite “harsh” rhetoric lately from both countries. It seems pretty thinly sourced to me, and the supposed course of the trade talks seems to change almost daily, but stock indices are up considerably all the same.

Moreover, even leaving that proviso aside, what I wrote to the CNBC folks yesterday seems likely to hold up pretty well. And here it is:

1. The President’s latest comments on the China trade deal – which he says might take till after the presidential election to complete – seriously undermines the claim that he considers a deal crucial to his reelection chances because it’s likely to appease Wall Street and thereby prop up the economy. Of course, given Mr. Trump’s mercurial nature, and negotiating style, this latest statement could also simply amount to him playing “bad cop” for the moment.

2. His relative pessimism about a quick “Phase One” deal also seems to reinforce a suggestion implicitly made yesterday by Commerce Secretary Wilbur Ross when he listed verification and enforcement concerns as among the obstacles to signing the so-called Phase One deal. I have always argued that such concerns are likely to prevent the conclusion of any kind of trade deal acceptable to US interests. That’s both because of China’s poor record of keeping its commitments, and because the Chinese government is too secretive and too big to monitor effectively even the most promising Chinese pledges to change policies on intellectual property theft, illegal subsidies, discriminatory government procurement, and other so-called structural issues.

3. Recent reports of the United States considering tightening (or expanding) restrictions on tech exports to Chinese entities like Huawei also support my longstanding point that the US and Chinese economies will continue to decouple whatever the fate of the current or other trade talks.

4. In my opinion, the President is absolutely right to play hard-to-get on China trade, because Chinese dictator Xi Jinping is under so much pressure due to his own weakening economy, and because of the still-explosive Hong Kong situation.

5. I’ll be especially interested to learn of the Democratic presidential candidates’ reactions to Mr. Trump’s latest China statement, as well as the announcement of the reimposed steel tariffs on Argentina and Brazil, and the threatened tariffs on French “digital services” [internet] taxes. With the exception of Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders, the candidates’ China policies seem to boil down to “Yes, we need to get tough with China, but tariffs are the worst possible response.” None of them has adequately described an alternative approach. The reactions of Democratic Congress leaders Nancy Pelosi in the House and Charles Schumer will be worth noting, too. The latter has been strongly supportive of the Trump approach in general.

6. The new steel tariffs, as widely noted, are especially interesting because they were justified for currency devaluation reasons, with no mention made of the alleged national security threats originally cited as the rationale. Nonetheless, I don’t believe that they represent a significant change in the Trump approach to metals trade, because the administration has always emphasized the need for the duties to be global in scope – to prevent China from transshipping its overcapacity to the US through third countries, and to prevent third countries to relieve the pressures felt by their steel sectors from Chinese product by ramping up their own exports to the US. Obviously, all else equal, countries with weakening currencies (for whatever reason) will realize big advantages in steel trade, as the prices of their output will fall way below those of competitors’ steel industries.

7. Regarding the tariffs threatened in retaliation for France’s digital services tax, they’re consistent with Trump’s longstanding contention that the US-European Union (EU) trade relationship has been lopsidedly in favor of the Europeans for too long, and that tariff pressure is needed to restore some sustainable balance. In this vein, I don’t take seriously the French claim that the tax isn’t targeting U.S. companies specifically. After all, those firms are the dominant players in the field. Second, senior EU officials have started talking openly about strengthening Europe’s “technological sovereignty” – making sure that the continent eliminates its dependence on non-European entities in the sector (including China’s as well as America’s). The digital tax would certainly further the aim of building up European champions – and if need be, at the expense of US-owned companies.

By the way, this position of mine in no way reflects a view that more taxation and more regulation of these companies isn’t warranted. But it’s my belief that these issues should be handled by the American political system.

Also of note: Trump’s suggestion this morning that the French tax isn’t a big deal, and that negotiations look like a promising way to resolve the disagreement.

Finally, here are two more points I wound up making. First, I expressed agreement that the President’s tariff-centric trade policies have created significant uncertainties in the economy’s trade-heavy manufacturing sector in particular – stalling some of the planned business investment that’s essential for healthy growth. But I also noted that much of this uncertainty surely stems from the on-again-off-again nature of the tariffs’ actual and threatened imposition.

As a result, I argued, uncertainty could be significantly reduced if Mr. Trump made much clearer that, whatever the trade talks’ fate, the days of Washington trying to maximize unfettered bilateral trade and investment are over, and a new era marked by much more caution and many more restrictions (including tighter export controls and investment restrictions, as well as tariffs), is at hand.

Second, at the very end, I contended that President Trump deserves great credit for focusing public attention on the country’s massive trade deficits in general. For notwithstanding the standard economists’ view that they don’t matter, reducing them is essential if Americans want their economy’s growth to become healthy, and more sustainable. For as the last financial crisis should have taught the nation, when consumption exceeds production by too great a margin, debts and consequent economic bubbles get inflated – and tend to burst disastrously.