(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

Tags

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

Tags

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

Tags

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.

(What’s Left of) Our Economy: (Inadequate) Establishment Progress on China Trade

Tags

China, decoupling, dual-use technologies, national security, reciprocity, Trade, Trade Deficits, trade war, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

Normally, it’s bad news for anyone seeking a realistic, sustainable U.S.-China trade policy when a group like private “The U.S.-China Trade Policy Working Group” issues a statement outlining “a new framework for trade negotiations” out of concern that bilateral economic relations “have taken a very concerning turn.”

Such phrases usually signal that the group of supposed experts in question is going to “Blame America First” for the current trade war (albeit with token acknowledgments of problematic Chinese policies) and urge a return to a cosmetically altered pre-Trump status quo. A quintessential example is this July letter to the President and Members of Congress from “members of the scholarly, foreign policy, military and business communities, overwhelmingly from the United States, including many who have focused on Asia throughout our professional careers.” Pessimism seemed especially appropriate given that this latest Working Group is comprised of “economists and legal scholars from China and the United States,” since members from the PRC can be accurately seen only as mouthpieces for the dictators in Beijing.

So I’m as pleased as I am surprised to report that the Group’s October 18 statement reinforces the case for a Trump-ian turn in China policies in two important ways. First, it made clear that, contrary to the economic conventional wisdom, lopsided U.S.-China trade flows (i.e., U.S. trade deficits) are an important, legitimate concern for Americans and their leaders. Second, it echoed increasingly common criticisms that the World Trade Organization (WTO) is a sorely inadequate forum for dealing adequately with these as well as the grave threats to U.S. security created by China’s rapid progress toward superpower status.

Not that the Working Group’s endorsement of a concentration on economic imbalances was emphatic, or even explicit. In fact, it was disappointingly implicit, and justified partly for political, not economic reasons. But nonetheless, endorsement it was, and it came twice, in the following passages:

>”In today’s interdependent global economy, a broad assortment of divergent domestic policies (including policies that have not historically been regulated through WTO rules) can trigger calls to ‘rebalance’ the structure of cross-border market access and trade barriers between countries.”

>”One advantage of [the Group’s proposed new framework for world trade] is that it offers a structure whereby the US and China can, together, make choices about how to rebalance their trading relationship in the future.”

At the same time, some individual Group members have accorded considerably more importance to the bilateral imbalances, both in economic and political terms. For example, University of Cambridge (United Kingdom) economist Meredith A. Crowley wrote in a concurring statement:

“Economic research has documented that the US’s trade policy commitments at the WTO have resulted in a higher level of penetration of the US market by producers based in China than China’s trade policy commitments have generated for producers based in the US. This asymmetry in border policy commitments, in conjunction with changes in technology, domestic and regulatory policies, and the wider economy have resulted in an asymmetry in the real and perceived benefits of the US-China economic relationship between these countries and across groups within the United States.”

And according to Dartmouth College economist Robert W. Staiger:

“US expectations of reciprocal market access expansion into the Chinese market arising from China’s 2001 entry into the WTO have not been met. This requires a rebalancing of the existing WTO market access commitments between the US and China to achieve the degree of reciprocity in these commitments that was intended to arise from their 2001 negotiations.”

Indeed, Staiger both went on to note that the same criticism could be made of the 1994 Uruguay Round global trade agreement that produced some trade barrier cuts along with creating the WTO:

“US expectations of the balance between the internal benefits and costs of its own tariff commitments agreed to at the…Uruguay Round have not materialized. This may require a rethinking and possible renegotiation of some of the Uruguay Round tariff commitments made by the US, subject to the preservation of reciprocity (once achieved) with China and with other US trading partners who would be impacted by this renegotiation.”

His mention of reciprocity as a trade diplomacy goal is noteworthy as well, for although this objective has been sought by the Trump administration and long supported by trade policy critics, it was never a goal enshrined by the WTO (or its predecessor, the General Agreement on Tariffs and Trade) and is roundly rejected by most economists.  (See, e.g., here.)

As for the WTO itself, the Group as a whole made two key observations:

“It has been almost 18 years since China joined the WTO, the system of trade rules and dispute resolution mechanisms that, at that time, defined the state of the art. During the intervening years, the global economy and the technologies that sustain it have changed dramatically, in ways that very few people anticipated at the time”; and

“[T]hese changes have had significant impacts on the international trade ecosystem, and the political leaders of many WTO members have voiced concerns that globalization pursuant to the WTO system is no longer attuned to their countries’ needs.”

As a result, the Group declared its intent to offer an “intellectual framework” that would represent an “alternative” to that which “undergirded the global economy at the time of China’s 2001 Protocol of Accession to the WTO.” (In fairness, the Group has also described its recommendations as an alternative to more recent ideas, emphasizing geopolitical competition, that underlie more recent calls for U.S.-China economic decoupling.)

Most strikingly of all, although Group members clearly would like to preserve as much of the WTO’s multilateral dispute-resolution system as possible (in order to preserve to the great possible extent what they remain confident are the mutual gains resulting from maximum free trade), all are now on record as backing both the United States and China dealing with certain high priority issues “bilaterally outside the WTO framework initially, with subsequent WTO-compliance then achieved through the application of various WTO ‘flexibilities,’ or, in the case of new areas such as digital trade, through the development of new WTO norms.”

And despite the above qualifications to outside-the-WTO bilateralism, the references to “WTO ‘flexibilities’” and to “developing new WTO norms,” can only shrink the trade body’s role and legally accepted authority over the trade policies of both countries.

Unfortunately, the new Working Group report isn’t entirely a good news story for critics of pre-Trump China trade policies – mainly because it says so little about operational details, and what little is said is so unconvincing. For example, it uses a “buckets of policies” methodology to identify practices that the two countries (and the world trade system as a whole) should agree to prohibit or forswear, and practices that all parties concerned should be permitted in the name of sovereignty in general and economic development objectives more specifically.

But even keeping in mind the Group’s recognition that it work is only a start down this road, the suggested standards they propose for classifying practices as permissable and not seem hopelessly subjective. Even regarding rules they consider relatively uncontroversial, what will be the real world difference between “policies [that] cause harm to [another] country…without necessarily taking on a beggar-thy-neighbor character or entailing global economic losses” on the one hand, and on the other, policies that cause harm to another country that do take on a beggar-thy-neighbor character?

Similarly, in terms of the more controversial situations they explore, what’s the real world difference between “cases where Country A’s policies have adverse implications for Country B, but the harm is the incidental consequence of, and not the primary motivation for, those policies” and cases where the harm isn’t incidental and/or the primary motive?

And within these areas, huge definitional questions loom just as large. Like what kinds of compensation for various trade-related offenses will be deemed “adequate” and what kinds of responses considered “well-calibrated”?

The calibration point also brings up another problem never squarely faced by the Group to begin with: What’s the verification mechanism? That’s an especially important omission given China’s long record of violating official commitments. To date, if anyone’s thought of an answer that can adequately safeguard legitimate American interests other than reserving that authority unilaterally to Washington, they’ve very effectively kept it secret.

Moreover, the Group’s approach can be faulted for failing to recognize the systemic nature of China’s assault both on even minimally free market-oriented norms. “Well-calibrated domestic policy adjustments” and “proportionate and well-targeted” remedies sound great until the ease with which China’s vast and secretive bureaucracy can reorganize and rename offending entities is considered.

In fact, the Group seems to try to define the systemic nature of the China threat out of existence, touting the “advantage” created by its framework of “encouraging each country to refrain from aggregating the other’s extraterritorially injurious policies into a single grievance and to refrain from amalgamating extraterritorially injurious policies with other, non-economic concerns.”

Such aggregation is precisely what’s needed to deal with the China challenge satisfactorily from a U.S. standpoint, and avoid being drawn into the mug’s game of responding to offending Chinese behavior episodically.

Moreover, for all the potential benefits of delinking lower from higher hanging fruit, delinking economic concerns and strategic concerns created by Chinese transgressions clashes with the Group’s own recognition of the emergence and multiplication of “dual use” technologies with civilian and crucial military applications.

This U.S.-China Trade Policy Working Group deserves credit for breaking out of some dangerously outdated academic and policy molds. But compared with the growth of the Chinese threat, and the extent to which the economic decoupling it seeks in part to avoid is already proceeding, its work is way behind the times.

(What’s Left of) Our Economy: How Many Strikes Does Paul Krugman Get on Trade?

Tags

automation, China, China shock, globalization, hyperglobalization, Jobs, manufacturing, manufacturing employment, offshoring, Paul M. Krugman, protectionism, tariffs, The New York Times, Trade, Trade Deficits, World Trade Organization, WTO, {What's Left of) Our Economy

Contrary to what many trade mavens must think, Paul Krugman’s recent confession that he (and nearly all of his economics colleagues) have seriously misjudged the impact of international trade on America’s manufacturing workers isn’t his first. At least twice before (see here and here), this Nobel Prize-winning economist and New York Times columnist has admitted in print that the economics profession’s consensus was wrong to brush off (and often scorn) claims that post-Cold War trade agreements and similar trade policy decisions would foster a combination of wholly new and unbeatable (but economically unsustainable) forms of import competition for domestic industry, and related job and production offshoring. (I’m among those he’s mauled in print.) And he’s granted that trade policy critics who predicted these consequences and kept pointing to evidence of their emergence were right. (See here and here.)

Still, Krugman’s latest mea culpa is noteworthy for two reasons. First, it undercuts another tenet of trade economics dogma held almost as strongly believed as the belief that trade expansion in all circumstances is a net contributor to human welfare – the related conviction that imbalances like trade deficits don’t matter (at worst).

In particular, the author acknowledges that the rapid and massive increase in America’s manufacturing-dominated goods trade deficit – especially from super-low cost economies (and offshoring destinations) like Mexico and especially China – occurred at exactly the same time that U.S. industrial employment cratered. And not coincidentally, the destruction began right about when China was admitted into the World Trade Organization (WTO). That mattered greatly because the Beijing subsidies and other predatory trade practices that benefited both foreign- and Chinese-owned producers in the PRC gained invaluable protection from unilateral U.S. responses.

How greatly? According to Krugman, the worsening of the trade deficit “reduced the share of manufacturing in GDP by around 1.5 percentage points, or more than 10%, which means that it explains more than half the roughly 20% decline in manufacturing employment between 1997 and 2005.” In other words, most of the manufacturing job loss during this crucial period – which is a particularly important one because that’s when critical masses of recently offshored factories got up and running and began exporting to the American market – should be blamed not on supposedly impersonal and clearly positive forces of progress like containerization in global shipping, and automation generally, but on actions by American leaders.

Not that Krugman abandons conventional trade economics completely. Specifically, he contends that trade deficits generally speaking are still ultimately unimportant, partly because countries can’t grow indefinitely indebted to the rest of the world and “must pay their way eventually.” The post mid-nineties surge in the manufacturing trade shortfall hammered domestic American manufacturing, he explains, only because it skyrocketed so suddenly.

Readers, however, will ask themselves how the United States can pay its way in the foreseeable future when manufacturing still dominates its lopsided goods trade flows. And they should note that although the damage to manufacturing could still prove temporary, it’s already lasted nearly twenty years, with no imminent end in sight until the past year. (See this post for one of my recent claims that President Trump’s trade policies are starting to bend the curve.)

Second, and following logically from the first point, Krugman continues to insist that protective tariffs should be avoided. Now his opposition focuses on his contention that the trade-related danger to U.S. manufacturing is coming to an end. The China shock in particular, which spearheaded the recent period of “hyperglobalization,” was “a one-time event” that’s already showing signs of ebbing.

But if Krugman was so offbase in evaluating trade’s economic effects, why should such predictions deserve any credibility? Off the top of my head, I can think of several reasons for ongoing concern. For example, China still has massive reserves of super cheap, U.S. wage-depressing labor in its interior and, counter-intuitively, in its national student body. In addition, the progress Beijing has fostered in capital- and technology-intensive industries means that these sectors of American manufacturing will keep facing the same kinds of low-wage (but high productivity) challenges that decimated less advanced, more labor-intensive U.S.-based sectors in previous decades. Moreover, if China does lose competitiveness even in these portions of manufacturing, there’s no shortage of bargain basement third world population giants – like India, Indonesia, and Brazil – that would be more than happy to receive more manufacturing investment from the United States and other high-income countries.

Everyone’s entitled to make mistakes – even know-it-alls like Krugman, who’s known for torching those disagreeing with him as know-nothings and liars. And Krugman deserves praise for owning up to his own mistakes. But it’s also appropriate to ask this question: Since Krugman first established his economic chops as a trade expert, and since he’s clearly been proven wrong about the leading trade-related controversy of our time, how many more strikes does he get?

(What’s Left of) Our Economy: New U.S. Trade Figures Reflect More Policy Noise, but Reveal More Underlying Improvement

Tags

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

As with last month’s numbers, this morning’s U.S. trade figures need to be taken with a big grain (or boulder?) of salt due to President Trump’s on-again, off-again tariff decisions with major foreign economies like Mexico and especially China. The big takeaway, IMO: These May data show that the portion of the nation’s trade deficit most affected by trade policy decisions is still growing much more slowly this year than it did last year – even though the pace of overall U.S. economic growth looks to be just slightly weaker. And that’s clearly good news if you share my belief that humongous and ballooning trade deficits are bad news for the economy.

Specifically, I’m talking about the non-oil goods trade deficit – the shortfall which strips out oil (which is rarely dealt with by trade policymakers anywhere) and services (where liberalization remains in its infancy). 

On a monthly basis, this trade gap (which I like to call the Made in Washington trade deficit) jumped by 3.02 percent in May – the biggest such rise since last December’s 9.07 percent, when importers were “front-running” – that is, scrambling to bring in foreign product ahead of threatened and imminent tariffs. And its $70.85 billion level was the highest since December’s $78.06 billion.

But for the first five months of this year, this deficit is up just 6.76 percent – much less than the 11.14 percent increase registered between January and May last year. And although the second quarter’s economic growth figures aren’t yet in, the gross domestic product (GDP) for the first half of this year seems set to expand at a rate that’s eminently respectable compared with last year’s first half.

In addition, the May figures show that the United States continues making progress in reducing its chronic and huge goods trade deficit with China – a major Trump goal.

As with the non-oil goods deficit overall, the U.S. merchandise shortfall with China grew sequentially in May – by 12.24 percent. The increase was the biggest in percentage terms since the 20.64 percent monthly surge last May, during the tariffs front-running period.

U.S. goods exports to the People’s Republic were up fully 14.92 percent on month in May – their best such performance since February’s 18.21 percent improvement. Yet the much larger amount of goods imports from China shot up by 12.85 percent – the biggest such increase since last May’s 14.78 percent.

Interestingly, though, given the seasonal factors that shape so much trade with China, this month’s May U.S. merchandise trade deficit with China was the lowest May total since 2016 – when overall American growth was much slower.

On the manufacturing trade front, another major Trump priority, the longstanding and huge monthly deficit climbed by 6.08 percent sequentially in May – from $86.78 billion to $92.06 billion. The May level is also the highest since January’s $89.13 billion.

On month, May manufacturing exports advanced by 5.30 percent, from $92.62 billion to $97.53 billion. But the much larger amount of imports increased by 5.67 percent, from $179.41 billion to $189.59 billion.

These new figures brought the year-to-date manufacturing trade deficit up to $416.23 billion in May – 5.28 percent higher than last year’s comparable total ($395.36 billion). Manufactures exports are actually down 1.93 percent this year so far while imports are up 1.33 percent.

Overall, the combined U.S. goods and services trade deficit widened by 8.39 percent on month in May – from an upwardly revised $51.22 billion to $55.52 billion. The May level was the highest and the sequential rise were both the highest since December ($60.81 billion and 13.35 percent, respectively).

On a January-May basis, the total trade deficit has worsened by 6.38 percent – a somewhat slower rate than the previous year’s 7.70 percent.

Total exports in May increased by 2.05 percent – their biggest such increase since last May’s 2.13 percent. But this improvement followed April’s 2.37 percent sequential decline – the worst such performance since January, 2016’s 2.66 percent.

Total imports, though, soared by 3.31 percent sequentially in May – from $257.64 billion to $266.16 billion. That total is the third highest ever (after last October’s $266.82 billion and last December’s $266.47 billion – during the tariffs front-running period). The monthly increase was the biggest since March, 2015’s 6.69 percent. But it also followed s big April monthly fall-off – 2.16 percent, the greatest since January’s 2.40 percent.

Making News: China Trade Talks National Radio Interview Podcast Now On-Line…& More!

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China, Gordon G. Chang, IndustryToday.com, Making News, The John Batchelor Show, TheDailyBeast.com, Trade, Trade Deficits, trade talks, trade wars, Trump

I’m pleased to announce that the podcast of my Thursday night interview on John Batchelor’s nationally syndicated radio show is now on-line.  Click here for a timely update on the fast-moving U.S.-China trade talks provided by John, me, and co-host Gordon G. Chang.

And to follow up, yesterday, the Daily Beast website posted Gordon’s column on the somewhat surprising result of these talks’ latest round – which ended with no announcement that a deal has been concluded or is close enough to warrant scheduling a U.S.-China signing summit.  Here’s the link.

Also, it was great to see IndustryToday.com last week reprint my recent post on the encouraging latest set of monthly U.S. trade figures released by the Census Bureau.  Click here to see it.

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

Making News: Quoted in the Washington Post Magazine — & More!

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Crain's Cleveland Business, Democrats, Jewish World Review, John Judis, Making News, Sherrod Brown, TechStockStandard.com, The Washington Times, Trade, Trade Deficits, Trump, Washington Post Magazine

I’m pleased to report a nice little spate of media appearances over the last few days.

Most were generated by journalist John B. Judis’ piece in the Washington Post Magazine on how Ohio Senator Sherrod Brown’s decision to skip the 2020 presidential race might have cost the Democrats their best chance to win back the White House.

The backstory of this March 19 article is kind of interesting – John intended it as an article on how Brown’s candidacy actually represented the Democrats’ best chance of 2020 success.  But just before it was scheduled to run, Brown decided to sit the presidential campaign out.  So kudos to John and his editors for turning the article into a retrospective that retains nearly all of its newsworthiness.

Somewhat confusingly, however, if you subscribe to the Post in print, you won’t see the article in your hard copy of the magazine this week.  So you need to access it via the link above.

In turn, John’s article and the point about Brown I made were covered in Crain’s Cleveland Business on March 20 and in Jewish World Review the following day.

Finally, on March 7, the TechStockStandard.com website re-posted my recent Washington Times article on accurately interpreting the latest annual trade figures – and President Trump’s performance on his front.

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

 

Making News: New Op-Ed on Why Trump is Still Winning on Trade

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aluminum, China, Making News, manufacturing, metals, steel, tariffs, The Washington Times, Trade, Trade Deficits, trade wars, Trump

I’m pleased to announce the publication of a new freelance article of mine.  This morning, The Washington Times posted my op-ed explaining why the huge increase in the monthly and annual U.S. trade deficits reported on Wednesday masked some surprising trends.  Specifically, the data made clear that President Trump’s trade policies continue progressing toward their two of their biggest goals.  Click here to read.

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