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Following Up: Podcast Now On-Line of National Radio Interview on Manufacturing Defeatism

05 Thursday May 2022

Posted by Alan Tonelson in Following Up

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CBS Eye on the World with John Batchelor, China, Following Up, Gordon G. Chang, inflation, manufacturing, reshoring, supply chain, tariffs, Trade, trade policy

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

Click here for a timely discussion – including co-host Gordon G. Chang – of whether the U.S. manufacturing revival pessimists are right, and bringing factories back from China really is a fool’s quest.

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

Following Up: Podcasts of National and New York City Radio Interviews Now On-Line

26 Tuesday Apr 2022

Posted by Alan Tonelson in Following Up

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American politics, Bernie Sanders, Biden, Biden administration, China, decoupling, Democrats, Donald Trump, election 2022, election 2024, Following Up, Frank Morano, inflation, Market Wrap with Moe Ansari, midterms 2022, Moe Ansari, prices, recession, Republicans, Ron DeSantis, tariffs, The Other Side of Midnight, trade policy, trade war, Ukraine, Ukraine-Russia war

I’m pleased to announce that the podcasts are now on-line of my two radio interviews yesterday (and one technically this morning) on a wide range of foreign policy, economic, and U.S. political topics.

Click here to listen to my appearance on Moe Ansari’s nationally syndicated “Market Wrap” show, where we did a deep dive into the questions of whether or not President Biden’s thinking seriously of cutting some of the Trump tariffs on imports from China, and the likelihood and wisdom of America pulling off any kind of significant divorce from the Chinese economy. The segment starts at about the 21:40 mark.

At this link, you can access my conversation with host Frank Morano on his late-night WABC-AM (New York City) show “The Other Side of Midnight.” It covered the impact of tariffs on consumer prices, the outlook for America’s inflation-ridden economy, the chances that the Ukraine war goes nuclear, and the odds of (figurative) earthquakes down the road for American presidential politics – for starters!

In addition, click here for the second half of my interview on the U.S. government-run Voice of America – which zeroes in on Ukraine war-related global economic disruptions. (Yes, the segment was pre-my latest haircut!)

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

(What’s Left of) Our Economy: More of the (Wrong Kind of) Records in the New U.S. Trade Figures

05 Thursday Aug 2021

Posted by Alan Tonelson in (What's Left of) Our Economy

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Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, Europe, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, Taiwan, tariffs, Trade, trade deficit, trade policy, trade war, Wuhan virus, {What's Left of) Our Economy

About a week ago, I wrote here that the new (second quarter) figures on U.S. economic growth displayed some tentative signs of pre-pandemic normality returning to the nation’s CCP Virus-disrupted trade flows. This morning’s release of the detailed official U.S. trade figures for June reveals that those signs (which came from the inflation-adjusted numbers) were awfully tentative, and that pandemic distortions remain the order of the day.

Indeed, the June trade data brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data. As known by RealityChek regulars, those trade flows can be called the “Made in Washington” portion of U.S. trade, since they make up the category of imports and exports whose levels and changes are most influenced by U.S. trade policy. In that way, they differ from oil trade (which is almost never the subject of trade negotiations and other policy decisions) and services trade (where liberalization efforts worldwide have made only modest progress). Moreover, manufacturing trade in June exhibited the same discouraging characteristics. 

There is one important exception to June’s trend break: The China goods deficit and goods import numbers changed only slightly (for the worse). In fact, they’ve stayed in the same neighborhoods since China’s export-heavy economy rebounded from its own virus-induced shutdown in early 2020. These results look like strong indicators that the Trump tariffs have played major roles in reducing the harm done to the U.S. economy by Beijing’s predatory trade practices. So does the resilience throughout the pandemic shown by U.S. domestic manufacturing – since industry dominates Sino-American trade flows.

But the trade records set in June remain noteworthy. After staying right around $70 billion on average since January (with the exception of a brief March move to just over $75 billion), the combined goods and services shortfall rose 6.70 percent,from $70.99 billion in May to $75.75 billion in June – an all-time high that broke the record set in March.

Since goods make up the great majority of U.S. trade flows, it wasn’t surprising that their deficit pattern was identical. They remained consistently in the high $80 billions since January (also with the exception of March) and then grew in June by 4.53 percent, from $70.99 billion to $75.75 billion. And this total also replaced March’s total as the new record.

The pattern was the same for Made in Washington trade. Its monthly deficit totals, except for March, remained in the high $80 billion range since January, too, then broke out in June from $86.73 billion to $92.42 billion – a rise of 6.56 percent to another all-time high that surpassed a previous March record.

Services trade set no records in June, but its $17.43 billion surplus was the smallest since August, 2012’s $17.08 billion. Because the CCP Virus’ Delta variant hadn’t raised the prospect of more economic curbs back in June, this figure will be worth following closely, since services are so vulnerable to virus-prompted restrictions.

Combined U.S. goods and services exports did bump up by 0.58 percent on month in June, from May’s $206.47 billion to $207.67 billion. In addition, that represented the biggest monthly total since the $209.88 billion recorded in December, 2019 – just before the pandemic is thought to have arrived in the United States. But the much greater amount of total imports climbed by 2.15 percent, from $277.46 billion to a new record of $283.42 billion.

At $145.91 billion, goods exports set their fourth straight monthly record in June. But they continued to improve slowly – by just 0.19 percent over the May total. In fact, since March, they’ve only advanced by 1.57 percent in all on a monthly basis, no doubt in part to relatively sluggish growth in most of the world outside the United States.

The much larger amount of goods imports climbed much faster in June – by 1.84 percent on month, to reach their second straight all-time high of $239.09 billion.

As for services, exports in June advanced by a respectable 1.53 percent, to $61.76 billion. The monthly improvement was the fourth straight, and their best performance since February, 2020’s $69.12 billion. But clearly these levels remain depressed.

Services imports in June also set a post-February, 2020 high ($44.35 billion versus $47.06 billion) and increased for the fifth straight month. But they rose more than twice as fast (3.84 percent) as services exports, and their levels are also well below pre-CCP Virus levels.

America’s non-oil goods exports actually fell sequentially on month in June – by 1.62 percent, from a record $129.66 billion in May to $127.56 billion. The much greater amount of imports, however, grew by 1.66 percent, to $219.98 billion, a level that slightly topped the previous all-time high of $219.68 billion set in March.

The U.S. goods trade deficit with China did worsen in June – from May’s $26.32 billion to $27.84 billion. But the 5.79 percent increase trailed that of the non-oil goods gap, the closest global proxy (6.56 percent). The year-to-date totals tell the same story: The China goods shortfall is up more slowly ( 20.81 percent) than the global Made in Washington deficit (24.59 percent).

Back to the monthly figures, U.S. goods exports to China fell by 2.49 percent between May and June – from $12.41 billion to $12.10 billion. Imports, however, were 3.13 percent higher ($38.73 billion to $39.95 billion).

Especially interesting: On a monthly basis, U.S. goods imports from China have inched up only from $39.11 billion to $39.95 billion. For all non-oil goods by this measure, U.S. imports have risen much faster – from $205.08 billion to $219.98 billion. So it seems clear that the Trump tariffs keep pricing many Chinese goods out of the U.S. market.

But although America’s China and non-oil goods trade shortfalls have stayed fairly stable on a monthly basis since January, its manufacturing trade gap has widened substantially. Already lofty enough during the first month of the year at $99.79 billion, it stood 4.87 percent higher in June – $114.06 billion.

Further, this total broke the previous record of $110.20 billion, set last October.

Domestic manufacturing exports improved by 1.81 percent on month, from $95.33 billion to $97.06 billion. But the much greater amount of imports jumped by 4.49 percent, from $202.04 billion to $211.11 billion.

On a year-to-date basis, moreover, the manufacturing deficit has surged by just under 30 percent. At $622.12 billion as of June, it’s headed toward an all-time annual record.

Other manufacturing records or multi-year highs revealed by the June data included a record monthly deficit of $28.14 billion goods deficit with Europe (including its eastern and western regions, as well as Russia); the third consecutive record monthly goods deficit with new world semiconductor manufacturing technology leader Taiwan ($3.49 billion); and the highest goods deficit with Canada ($5.46 billion) since October, 2008 ($5.65 billion).

A single month’s worth of data doesn’t prove anything, so truly credible judgments about the possible return to pre-pandemic U.S. trade normality still can’t be made based on the data. Also crucial is examining trade figures and their changes against the backdrop of the entire economy’s size and its changes, in order to provide crucial context. When looking at growth and contraction rates in particular the challenge is difficult because trade flow changes only affect the rest of the economy after the passage of some time. 

And of course, if the virus’ Delta variant prompts major, nation-wide U.S. economic restrictions and behavior changes, all trade – and broader economic – forecasting bets are off for the time being.        

Making News: Back on National Radio…& More!

26 Saturday Jun 2021

Posted by Alan Tonelson in Making News

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Airbus, Biden, Biden border crisis, Boeing, Central America, China, Dominic Gates, G7 Summit, Gordon Chang, Immigration, IndustryToday.com, Iran nuclear deal, JCPOA, Jobs, Making News, Market Wrap, migrants, Moe Ansari, Seattle Times, The Epoch Times, The Hill, Trade, trade policy, wage inflation, wages

Time to catch up with the updates on recent media appearances – in reverse chronological order!

It was great to return this past Wednesday to Moe Ansari’s nationally syndicated “Market Wrap” radio program. Click here for the podcast of an exceptionally wide-ranging segment covering topics from the recent summit meeting of the world’s leading economies to the future of the Iran nuclear deal.

On June 16, leading China policy analyst Gordon Chang quoted me in an op-ed for The Epoch Times explaining how some features of President Biden’s economic proposals might backfire and promote employment in China, not the United States. Here’s the link.

On June 15, the Seattle Times‘ Dominic Gates featured my views in his coverage of the recent settlement of a long-running trade dispute between Europe’s Airbus and America’s Boeing. Incidentally, if there’s a U.S. journalist more knowledgeable than Dominic about the aerospace industry, I’ve never met him or her. So it was especially flattering that he sought out my perspective. Click here to read. In addition, the article was widely distributed throughout the country via the Tribune News Service syndicate.

On June 10, Chang again highlighted some of my opinions – this time in an op-ed for The Hill some of my thoughts on using U.S. trade policy more effectively to help foster prosperity in Central America and thereby stem the flow of migrants, and why previous such efforts have failed. Here’s the link.

Finally, on June 2, IndustryToday.com re-posted (with permission!) my RealityChek essay arguing that, despite numerous alarm bells, wage inflation overall in the United States seems pretty unexceptional. Click here to read.

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

(What’s Left of) Our Economy: Recent Revisions Muddy the U.S. Manufacturing Picture Still Further

14 Monday Jun 2021

Posted by Alan Tonelson in (What's Left of) Our Economy

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Barack Obama, CCP Virus, China, Commerce Department, coronavirus, COVID 19, Donald Trump, Federal Reserve, inflation-adjusted output, manufacturing, manufacturing output, metals, real value-added, tariffs, Trade, trade policy, trade war, value added, Wuhan virus, {What's Left of) Our Economy

As if the CCP Virus pandemic and its aftermath haven’t made gauging the real health of the U.S. economy difficult enough, the Federal Reserve late last month came out with its latest long-term (“benchmark”) revision of its domestic manufacturing production data that confuse the picture of industry’s recent status still further.

These revisions cover the 2017-2019 period, and as such, they’re especially important in gauging how U.S.-based industry fared under President Trump and the trade policy revolution he launched versus their performance during the second term of Barack Obama’s presidency and his standard trade policies. (As known by RealityChek regulars, these two time periods provide the best basis for comparison, since they came closest together during the same – expansionary – business cycle.) Moreover, because the revisions create a different baselines, they also affect the post-2019 period’s growth results for manufacturing, which include the pandemic period.

The Fed’s summary makes clear that the revisions show the inflation-adjusted expansion of manufacturing output during that Trump period to have been significantly slower than previously reported. That finding indicates that far from boosting manufacturing production, and particularly compared with the Obama years, the Trump tariffs (on steel and sluminum, and on hundreds of billions of dollars worth of goods from China) actually held it back.

Indeed, the revisions are so substantial that the picture they draw is a mirror image of the predecessor data – which showed that, at least before the virus struck, Trump-era manufacturing growth in real terms considerably bested the Obama-era performance. For that matter, the previous Fed numbers showed that domestic industry fared relatively well under Trump even counting the pandemic-induced recession year 2020.

Here are the results side-by-side for after-inflation manufacturing production growth in percentage terms:

                                                                   pre-revision               with revision

last four Obama years:                                   +2.45                          +1.30

Trump years pre-pandemic:                           +3.60                           -0.41

all four Trump years:                                     +2.13                           +0.82

So when it comes to growth – an especially important metric, since it’s tough to imagine creating many jobs without it – the new Fed revisions show that the second Obama term was better for U.S. manufacturers than Trump’s single term, CCP Virus or no.

Or were they? As also known by RealityChek regulars, the constant dollar output figures used by the Fed aren’t the only way to measure growth in manufacturing (or any other sector of the economy). Another is value-added, which attempts to avoid the double counting built into the standard output numbers created by their failure to distinguish between the value of the parts and components of a final product, and that of the final product itself. That’s why economists generally view them as the more revealing statistics. And in the above-linked announcement describing the revision and its methodology, the Fed says that the new numbers incorporate insights gleaned from the latest value-added figures (which are reported by the Commerce Department).

But when the latest version of these statistics are examined, they still show that domestic manufacturing grew much faster during the Trump years than during the final four Obama years. Here are the results in percentage terms when value-added is adjusted for inflation:

last four Obama years:                                    +3.88

Trump years pre-pandemic:                            +7.56

all four Trump years:                                       +9.22

One especially interesting feature of the above – the real value-added numbers show that U.S. manufacturing output actually grew further during the pandemic. In fact, even the revised Fed growth numbers show that industry has fared a good deal better so far during the pandemic than previously reported – with after-inflation production shrinking by just 0.92 percent between February, 2020 and this past April, not 1.42 percent.

Tomorrow the Fed will publish its first read on real manufacturing output for May. It will of course shed some more light on the status of domestic industry. But never forget that, given how the results will be revised not only several times during the next several months, but also about two years from now, the degree of illumination may be relatively modest.

Those Stubborn Facts: A Trump China Trade Deal Scorecard Without the Hysteria

08 Monday Feb 2021

Posted by Alan Tonelson in Those Stubborn Facts

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China, China trade deal, Phase One, tariffs, Those Stubborn Facts, Trade, trade agreements, trade policy, trade war

China’s global imports, calendar year 2020 y/y: -1.1 percent

China’s imports from the U.S., calendar year 2020 y/y: +9.8 percent

 

“Thus [Trump’s] Phase 1 agreement appears to have contributed to 

some improved U.S. export performance to China, even if China is

far away from meeting the year one commitments.”

 

(Source: “U.S.-China Phase 1 Trade Agreement – Data Through December 2020; China has increased purchases of agricultural and energy products above 2017 levels but did not reach first year agreed purchases in 2020 and won’t reach the agreed level even if measured from March 2020-February 2021,” by Terence P. Stewart, Current Thoughts on Trade, February 6, 2021, https://currentthoughtsontrade.com/2021/02/06/u-s-china-phase-1-trade-agreement-data-through-december-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-did-not-reach-first-year-agreed-purchases-in/)

(What’s Left of) Our Economy: Biden Trade Policy’s Off to a Flying Stop

14 Thursday Jan 2021

Posted by Alan Tonelson in (What's Left of) Our Economy

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China, inflation, Joe Biden, Katherine Tai, National Foreign Trade Council, offshoring lobby, tariffs, Trade, trade policy, trade war, Trump, U.S. Trade Representative, USTR, {What's Left of) Our Economy

Any minimally intelligent discussion of the incoming Biden administration’s trade policy and the role of his pick for U.S. Trade Representative (USTR) needs to recognize at the start that Katherine Tai will make exactly none of the big calls on trade.

That’s not a knock on her specifically. But as nearly always the case (and the Trump administration was a major exception, as its trade envoy, Robert Lighthizer, was a prime author of specific, central initiatives), these decisions will be made way above her pay grade – almost certainly by the President himself or Treasury Secretary-designate Janet Yellen, or a combination of those two, along with the various special interests they need to please.

Even so, Tai will play an important message-bearing and policy defense role, especially in testimony before Congress, and in this vein, her first effort following her brief remarks following her nomination announcement got the Biden team’s record off to a start just ever so slightly above “same-old-stuff” level.

Most noteworthy, puzzling, and perhaps revealing was the choice of audience: the National Foreign Trade Council. For with its membership consisting of U.S. multinationals and big firms from highly protectionist economies like Germany and Japan, it’s long been a pillar of the corporate Offshoring Lobby.

Sure, many of these members have started to voice complaints about their China-related troubles in particular. But they’ve made equally clear that they have no clue as to realistic ways of solving them. In fact, their dogged opposition to unilateral, Trump-like U.S. tariffs as remedies (which have sharply curbed the access to the American market of their overseas production, and the availability of massively subsidized Chinese inputs for their domestic operations) has rendered them big obstacles to the remaining overhaul national trade policy needs.

It’s also true that everything known about Biden’s own long record on the matter, and his own statements during the campaign, makes clear the incoherence – and just as likely cynicism – of his own current stated approach (notably, stressing the imperative of working with – deeply conflicted and chronically fence-sitting — American allies to counter China’s trade and broader economic abuses).

Even so, given the pains Biden took to portray himself as “Middle Class Joe” whose trade initiatives and related decisions would prioritize American worker interests above all else, it needs to be asked why, from a purely political standpoint, his choice for trade negotiator chose an audience whose members have long pushed for exactly the opposite. Why not appear before a union audience?

Just as bizarre, Tai emphasized to these died-in-the-wool offshorers that “The President-Elect’s vision is to implement a worker-centered trade policy. What this means in practice is that U.S. trade policy must benefit regular Americans, communities, and workers.”

What did she and her superiors (who of course cleared her remarks) hope to accomplish with this declaration? Agreement? Or even the beginnings of theological conversion?

Weirder still: Her observation that “people are not just consumers — they are also workers, and wage earners” and, more pointedly, that when thinking about trade, it’s crucial to emphasize that “Americans don’t just benefit from lower prices and greater selection in shops and markets.” After all, her boss emphasized throughout the campaign that “President Trump may think he’s being tough on China. All that he’s delivered as a consequence of that is American farmers, manufacturers and consumers losing and paying more.”

It’s of course possible that Biden and his team could figure out a way to shield the entire U.S. domestic economy, from Chinese – and other countries’ – predatory practices without reducing the price competitiveness of these imports in the U.S. market. But it’s suggestive at the very least that after months on the campaign trail – and many decades in public life – the President-Elect has offered no specifics. And Tai’s speech did nothing to clear up this mystery.

(Not that there’s been any sign of noteworthy trade-related inflation during the “trade war” period – as shown, e.g., here – but one way greatly to boost the odds that tariffs don’t send prices upward would be to accompany trade restrictions with greater anti-trust enforcement that increases domestic competition, as I’ve argued here.)      

Tai advertised her and the broader Biden trade policy points as part of the former Vice President’s promise to “Build Back Better.” So far, though, the most charitable description of these is actually more like “Pretend More Assertively.”

Im-Politic: More Evidence That Trump Should Really be Trump

31 Monday Aug 2020

Posted by Alan Tonelson in Im-Politic

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2018 elections, African Americans, Democrats, election 2020, establishment Republicans, Im-Politic, Immigration, impeachment, Jacob Blake, Joe Biden, Joseph Simonson, Kamala Harris, Kenosha, law enforcement, Mickey Kaus, Obamacare, Open Borders, police shooting, race relations, regulations, Republican National Committee, Republicans, riots, RNC, Rust Belt, tax cuts, trade policy, Trump, Washington Examiner, white working class

Since the early months of Donald Trump’s presidency, I and many of those who backed his election have been frustrated by his frequent support for and even prioritizing of issues and positions championed by orthodox Republicans and conseratives. After all, there was little reason to believe that he won the Republican nomination, much less the White House, because he was focused laser-like on cutting taxes and regulations or eliminating Obamacare. If that’s what either Republican or overall voters wanted, then you’d think that an orthodox Republican would have wound up running against Democratic nominee Hillary Clinton – and triumphing.

One reason I came up with to explain the early burst of conservative traditionalism from Mr Trump (highlighted by a failed effort at healthcare reform and a successful full court press waged to pass the Tax Cuts and Jobs Act of 2017) was his need to make sure that the establishment wing of his party stayed with him if he faced an impeachment.

His gambit worked, but even though the impeachment threat is gone, I still hear the President talking up the tax cuts and regulation thing way too much for my tastes. So it’s more than a little interesting to have just learned that, at least according to a report last week in the Washington [D.C.] Examiner, I haven’t been alone. (Or, more accurately, I and a handful of nationalist-populist analysts like Mickey Kaus haven’t been alone.) In this article, Examiner correspondent Joseph Simonson contends that some folks connected with the Republican National Committee (RNC) came to the same conclusion in the late summer and early fall of 2018. And just as important – their analysis came just before the GOP suffered major setbacks in that year’s Congressional elections after doubling down on conventional Republicanism.

Among the highlights of the report (whose existence the RNC denies):

>”Voter data from areas such as Kenosha County, Wisconsin, [we’ll return to this astonishing coincidence below] and other exurban communities, the individual said, showed a troubling trend. Although voters there very narrowly backed Trump in 2016, President Barack Obama’s margins were in the double digits in 2008 and 2012.”

>”Unlike members of Trump’s base, who can be trusted to vote for just about any Republican candidate, these voters feel no strong affinity toward the GOP. Moreover, the interests of those who live in communities such as Kenosha differ greatly from those who live in the Philadelphia suburbs in Pennsylvania.

“These Rust Belt voters favor stronger social safety nets and hawkishness on trade, rather than typical GOP orthodoxies such as lower tax rates and an easier regulatory environment for businesses. That is not to say these voters oppose those things, but the rhetorical obsession from GOP donors and members of the party do little to excite one-time Trump voters.”

>“Back in 2018 the general response to the report from others who worked at the RNC, said one individual, was, ‘well, we have socialism’ as an attack against Democrats and boasts about their new digital voter turnout apparatus.’”

>”Steve Bannon, the former aide to the president who was indicted last week on fraud charges, had viewed the same report a year ago and concluded that the upcoming election against Biden looked like a “blow out” in the former vice president’s favor.”

But let’s get back to the Kenosha point – which of course is unusually interesting and important given the race- and police-shooting-related violence that just convulsed the small city recently. It’s also interesting and important because the alleged report’s treatment of racial issues indicates that the authors weren’t completely prescient.

Specifically, they faulted the RNC for wasting time and resources on a  “coalition building” effort aimed at “enlisting the support from black, Hispanic, and Asian voters who make only a marginal difference in the Midwest and [that] can prove potentially damaging if more likely Republicans are neglected.”

Explained one person quoted by Simonson (and possibly one of the authors): “Lots of these people at the RNC are in a state of denial. The base of the GOP are white people, and that gives the party an advantage in national elections. You could not have a voter operation in California whatsoever, and it wouldn’t make any difference, but the RNC does because they don’t want to admit those states are lost forever.” .

Yet even before the eruption of violence in Kenosha (and too many other communities), this analysis overlooked a crucial reality: There was never any reason to assume that, in the Midwest Rust Belt states so crucial to the President’s 2016 victory and yet won so narrowly, that significant portions of the African American vote couldn’t be attracted without alienating the white working class. For both blacks and whites alike in industrial communities have been harmed by the same pre-Trump trade policies strongly supported by his chief November rival Joe Biden and many other Democrats. (For one example of the impact on African Americans, see this post.) Moreover, among the biggest losers from the Open Borders-friendly immigration policies now openly championed, instead of stealthily fostered, by the Democratic Party mainstream, have been African Americans.

It’s not that the President and Republicans had to convince massive numbers of African Americans with these arguments. A few dozen thousand could be more than enough to make a big difference this fall. And there’s some polling data indicating that the strategy was working even before the opening of a Republican convention that featured numerous African American speakers.

Now of course we’re post-the Jacob Blake shooting by Kenosha police and the subsequent rioting and vigilantism. We’re also post-the Biden choice of woman-of-color Kamala Harris as his running mate. Will those developments sink the Trump outreach effort to African Americans and validate the 2018 memo’s arguments?

Certainly the Harris choice doesn’t look like a game-changer. The California Senator, you’ll remember, was decisively rejected by African American voters during the Democratic primaries. I’m less certain about the Kenosha Effect. On the one hand, Mr. Trump has expressed precious little empathy for black victims of police shootings. On the other hand, he has villified the rioting and looting that are destroying the businesses – including African-American-owned – relied on by many urban black neighborhoods in cities that have long stagnated, at best, under Democratic Mayors. And this poll I highlighted a few weeks ago presents significant evidence that most African Americans have no interest in fewer police on the streets where they live.

It’s not hard to imagine a Trump campaign message developing over the next two months that strikes a much better balance. And an early test case looks set for tomorrow with the President’s planned visit to Kenosha. Somewhat harder to imagine is Mr. Trump significantly downplaying issues like tax and regulatory cuts, and ending Obamacare. As for his priorities if he wins reelection? At this point, the evidence is so mixed that I feel clueless. So stay tuned!

(What’s Left of) Our Economy: The Real Promise – & Pitfalls – of Foxconn’s New US Manufacturing Plan

30 Sunday Jul 2017

Posted by Alan Tonelson in Uncategorized

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assembly, Carrier, components, flat panel displays, Foxconn, incentives, innovation, Jobs, manufacturing, Paul Ryan, productivity, regulatory reform, Scott Walker, subsidies, tariffs, tax breaks, tax reform, Terry Gou, Trade, trade policy, Trump, Wisconsin, {What's Left of) Our Economy

Sorry for the recent absence – and during an incredibly newsworthy period!  There’s been lots of important economic data released recently, which I’ll be reporting on in upcoming days.  So what to focus on in this return offering?  One recent story that seems to reflect many of the biggest developments and trends of the Trump administration’s first six months is the announcement this past week that the Taiwanese electronics giant Foxconn will be spending $10 billion to build a new factory for flat panel displays in southeastern Wisconsin. 

Think this is a stretch?  Then consider this:

The announcement, which could become a big win for the American economy – and a big feather in the president’s cap –was completely upstaged by a series of White House personnel shakeups orchestrated by Mr. Trump himself.

Moreover, the Mainstream Media accounts invariably combined their longstanding hostility to the president with their instinctive rejection of the possibility that unconventional economic ideas and policies can have any merit. 

For instance, they uniformly focused on the job-creation effects of the new factory – which, as typical for capital-intensive products and industries, will be relatively modest – to portray the news as ruse by the president to convince voters that he was keeping his campaign promise to revive manufacturing employment.  Their main evidence?  The tax breaks and other subsidies the project would receive, which came to many thousands of dollars per position, which were easy to depict as a first class boondoggle.

Further, the media uniformly depicted employment as the only possible upside to strengthening the nation’s high value manufacturing.  Its major contributions to the economy’s productivity growth – which could use a major helping hand – and to its innovative capacities, were completely ignored. 

At the same time, the reporting overlooked crucial questions that need to be answered to assess whether the new Foxconn factory will live up to its promise.  Principally, will it be engaged in components production – where so much of manufacturing’s value-added comes from?  Or will it simply be assembling final products from imported components, as has been the case with other recent foreign electronics investments?  If the latter, the subsidies it’s garnered will be much more difficult to justify.  And in this vein, have either federal or Wisconsin authorities imposed any conditions that would encourage genuine manufacturing?   

Not that the Foxconn announcement completely vindicates globalization policy critics, either – or at least not those who, like me, have insisted that manufacturing revival that matters will require a thorough recasting of American trade policy.  I’ve been especially skeptical of the idea that jaw-boning a la Trump plus some subsidies could make a real difference – though I’ve insisted since Mr. Trump as president-elect intervened in the Carrier company’s decision to offshore Indiana manufacturing jobs that his use of the bully pulpit could greatly aid the welcome transformation of America’s approach to manufacturing that he seemed to have in mind.  And for the record, I’ve been skeptical that subsidies can be decisive, either – because America’s financial support for manufacturing was so unlikely even to approach the scale of, say, China’s. Finally, I’ve never thought that the kinds of regulatory reform efforts Mr. Trump has launched would matter much, either, given that so many potent American trade rivals are practically regulation-free.  

At this early stage, the jury is still out.  But since the Foxconn announcement has hardly been unique, and no significant changes have taken place in U.S. trade policy other than a withdrawal from the Trans-Pacific Partnership trade agreement, the president so far is doing a pretty good job of proving me wrong.

Nonetheless, I’m still confident that, sooner rather than later, the manufacturing needle won’t be moved without imposing trade curbs of some kind.  Although avowed fiscal conservatives like House Speaker Paul Ryan (of Wisconsin) and his state’s governor, Scott Walker, enthusiastically supported the Foxconn incentives package, their appetite for such measures – even when reduced taxes are involved — is likely to be limited for other parts of the country because of their budget-busting effects.  Indeed, it looks like Ryan may wind up accepting a smaller corporate tax cut in Congress’ tax reform package for precisely this reason.  Moreover, these breaks could easily be offset by similar moves by foreign governments – and added to existing predatory practices like currency manipulation and tariffs of their own.  And I remain convinced that a high-income country, first world country like the United States can never rely heavily on deregulation to compete better against very low-income, largely regulation-free third world countries like China or Mexico. Nor should it want to. But no initiatives could match the power of policies that would limit or close off access to the world’s greatest economic and commercial prize by far, the American market.

In fact, as Foxconn’s CEO has strongly suggested, the threat of U.S. tariffs helped persuade him to promise to manufacture much more in America.  And he’s hardly alone in the corporate world, as I’ve reported.  That’s why I’m somewhat worried about the administration’s reluctance actually to impose tariffs, as opposed to threatening them.  If Mr. Trump keeps hemming and hawing about steel tariffs, and if he keeps opposing ideas like the border adjustment tax, which has just been stripped from Congress’ tax reform package, America’s competitors could easily conclude that his trade policy is largely bluff, and that they can keep using Americans as customers and not workers after all.

(What’s Left of) Our Economy: New Peterson Pro-Globalization Study Only Deserves a “Nice Try”

18 Thursday May 2017

Posted by Alan Tonelson in Uncategorized

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Tags

China, Financial Crisis, Gary C. Hufbauer, Global Imbalances, globalization, Great Recession, Larry Summers, manufacturing, Peterson Institute for International Economics, productivity, secular stagnation, technology, Trade, trade agreements, trade liberalization, trade policy, World Trade Organization, {What's Left of) Our Economy

The Peterson Institute’s new study of the benefits to Americans of globalization apparently leaves no doubt that the nation should promptly forget about any retreat from conventional trade liberalization policies and resume its aggressive pursuit of new trade agreements like the Trans-Pacific Partnership (TPP). Or does it? A close reading of the report reveals gaping holes in these claims.

According to authors Gary C. Hufbauer and Zhiyao Lu, between 1950 and 2016, “trade expansion” has enriched the overall U.S. economy by $2.1 trillion, and boosted America’s output per head and per household by just over $7,000 and $18,000, respectively. Even better, lower-income households probably gained the most (since the greatest trade liberalization progress has been made in the goods that comprise so much of their consumption).

Yet the phrase quoted in that previous paragraph points to the first big hole in the Peterson findings. “Trade expansion’s” benefits, the authors specify, entails much more than either signing new trade deals or otherwise reducing trade barriers. It also includes “technological advances in transportation and communications [that] have drastically slashed the economic distance between countries.”

Of course, there’s been a lot of the latter over the last 66 years. What share of expanded trade’s benefits has come from trade liberalization policy decisions and what share from that technological progress? Darned if the authors know.

The long time frame, in turn, reveals a second major problem with the central argument. Obviously over that last two-thirds of a century, the world economy, and America’s position in it, have changed in numerous and fundamental ways. One prominent example: For the first roughly three post-World War II decades, the United States was the only fully intact developed country. How could trade liberalization not have been a major net benefit? America produced countless products that the rest of the world desperately needed. And none of its important industries faced significant import competition until the 1970s. That doesn’t sound much like current circumstances.

And in fact, Hufbauer and Lu acknowledge this problem, noting, for example, that “compared to previous decades, increased trade since 2003 has not delivered substantial gains.” At this point, however, their analysis gets dicey. For example, they speculate that that low recent payoff resulted partly from “the lack of fresh policy liberalization on a large scale (the failure of the Doha Round)….” But that period actually saw a hugely important liberalization initiative completed – China’s accession to the World Trade Organization. And don’t forget the numerous free trade deals signed by the George W. Bush and Obama administrations, including with South Korea’s very large economy.

Moreover, although Hufbauer and Lu rightly note that the financial crisis and Great Recession also have marked the post-2003 period, they claim that “The decade that experienced the greatest gains from increased trade was 1970 to 1980.” That decade witnessed no less than two recessions (three if you count the 1980 downturn).

Undaunted, the authors contend that returning to the trade liberalization policy course will result in even more American wealth creation. But here’s where their discussion of the post-2003 period fails badly – and unmistakably. They never mention that, thanks largely to that aforementioned boost to incredibly lopsided U.S.-China the first decade of this century produced the greatest U.S. trade deficits and associated global economic imbalances in world history. They ended in the financial crisis and the nation’s worst economic downturn since the Great Recession.

Since America’s main trade partners – including China – seem either just as export-dependent, and/or just as import-and consumption-phobic as ever, it’s difficult to understand why a return to conventional trade diplomacy, combined with the cumulative and often lagged impact of past deals (as noted by Hufbauer and Zu) wouldn’t end in near-catastrophe again.

Another big problem: Former Treasury Secretary and chief Obama economic adviser Larry Summers, along with many others, worry that the United States has fallen into an economic trap they call “secular stagnation.” They speculate that the nation has become so incapable of generating healthy growth that it’s grown dependent on blowing up credit and consumption bubbles to at least produce (misleading) signs of economic life – and that these bubble’s inevitable bursting keeps creating financial crises and serious slumps. Do Hufbauer and Zu believe that the sandbagging of domestic manufacturing (which hasn’t grown in real terms since 2006) due to import competition and offshoring isn’t partly to blame? 

Finally, and similarly, American leaders have finally recognized that the economy is experiencing a major productivity growth slowdown. Can trade liberalization’s real economic impact be measured without considering the effect on productivity of allowing all that trade damage to manufacturing, which historically has led the nation in productivity growth?  

It’s definitely encouraging that a major think tank like the Peterson Institute is looking in detail at globalization’s impact on America’s economy.  Let’s hope that its next effort reflects some actual thinking.  

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