Following Up: Podcast Now On-Line of TNT Radio Interview

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abortion, China, conservatism, culture wars, election 2022, electric vehicles, energy, Europe, Following Up, gay marriage, inflation, left-wing authoritarianism, midterms 2022, migrants, national conservatism, National Conservatism Conference, national security, politics, Sanctuary Cities, The Hrjove Moric Show, TNT Radio, Trade, Ukraine War

I’m pleased to announce that the podcast is now on-line of my appearance Tuesday night on “The Hrvoje Moric Show” on the internet network TNT Radio. Click here for a timely discussion on the future of American conservatism, on the culture wars that should and shouldn’t be fought, and a on a wide range of other domestic and international subjects, both strategic and economic.

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

(What’s Left of) Our Economy: Two Needed Changes in U.S. China Policy

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auditing, Biden, Biden administration, China, currency, dollar, Donald Trump, fraud, investors, national security, SEC, Securities and Exchange Commission, stock market, stocks, tariffs, Trade, Wall Street, yuan, {What's Left of) Our Economy

Although I’ve been pleasantly surprised by how much of former President Donald Trump’s China policies have been retained by President Biden (like the tariffs and tech-related sanctions and tighter export controls), two recent developments reveal how much room for improvement remains – on permitting Chinese entities to list on U.S. stock exchanges, and on those Trump tariffs.

Regarding the stock market issue, Washington incomprehensively keeps giving these entities (they shouldn’t be called “companies” or “businesses” becauuse they have nothing in common with organizations meriting those labels in largely free market economies) the kind of special treatment afforded to members of its stock exchanges from no other countries – including America itself.

Specifically, these Chinese entities continue to be able to raise vital capital in U.S. markets even though they haven’t yet been required to comply with the standards for opening their books fully that are mandatory for every single one of their domestic and foreign counterparts. Therefore, investors can’t make informed decisions, and regulators can’t discover much fraudulent activity.

It’s true that U.S. authorities have just struck a deal with Beijing that potentially gives them the access to Chinese records that they need. But that’s the problem. It’s still “potential.” And the U.S. Securities and Exchange Commission (SEC) may still be bending over backwards to coddle China. Why else would it have agreed with its Chinese counterparts to keep the text of the deal secret? What devils lie in the always crucial details? Full disclosure here is especially important because of Beijing’s long record of violating signed agreements (see, e.g., here) and because the Chinese government’s statement describing its interpretation of its obligation differs significantly from Washington’s – which is virtually guaranteed to produce protracted further bickering.

This typical bobbing and weaving, in fact, raises the question of why the United States has engaged recently – or ever – in any negotiatons in the first place. After all, Washington has been seeking adequate access to the entities since 2007. China has resisted American demands by citing the important national security and other state secrets that unfettered audits might reveal. But as the SEC itself has pointed out (see the preceding link), more than fifty other countries have required their companies to turn over all records as a condition for listing. China clearly has the right to withhold any information it wishes. The U.S. response from the beginning should have been that if a Chinese entity’s operations are so critical to China’s national security, it doesn’t belong in the U.S. financial system, and able to win U.S. and other investment attracted by the Good Housekeeping seal provided by being listed,to begin with.

Washington’s position all along also should have been that there’s literally nothing to talk about. The United States should have declared listing to be a take-it-or-leave-it proposition for China, and that it will serve as judge, jury, and court of appeals (as it is in all cases). As of this past spring, America’s long failure to do so has permitted these entities to amass a market value of $1.3 trillion. And because all of them are always subject to all of Beijing’s whims, that means these valuable resources have been put at the disposal of the Chinese regime.

What to do now?  Ditch the diplomacy stuff and tell Beijing that unless each of its listed entities turn over to U.S. auditors every scrap of information demanded by date certain (meaning real soon), they all get kicked off Wall Street immediately.

When it comes to trade issues, the Biden administration’s mistake is much simpler – and easier to correct. The President deserves considerable praise for the September announcement that the Trump tariffs will be kept in place for the foreseeable future. But China’s predatory trade policies have not remained in place, and in at least one vital respect, have gotten worse – on the value of its currency, the yuan.

For many years, especially in the first decade and a half of this century, Beijing kept the value of the yuan versus the U.S. dollar artificially low. As known by RealityChek regulars, this practice gave goods made in China (including by offshoring-happy U.S.- and other foreign-owned multinational companies) big price advantages the world over for reasons having nothing to do with market forces. The result were equally artificial boosts to Chinese exports and artificial reductions of Chinese imports.

This year, China has doubled down (not literally!) on this tactic, depressing the yuan’s value versus the greenback by fully nine percent. So the American response should be obvious: The tariffs on each of the roughly $370 billion worth of Chinese goods intended each year for the U.S. market should be raised by nine percent also. And each future Beijing move to devalues the yuan another one percent or more should be matched by another equivalent U.S. tariff hike.

This American retaliation isn’t likely to fuel inflation at home, because of falling U.S. demand due to a slowing economy and a shift in consumer spending to services. So importing U.S. companies won’t have the pricing power to pass on their higher costs. But it will put further pressure on a Chinese economy whose other growth engines (like the real estate sector and the domestic consumer market) are faltering mainly because of the deflation of a ginormous Chinese housing bubble and dictator Xi Jinping’s politically inspired crackdown on his own tech companies and his over-the-top Zero Covid policies.

P.S. If China starts strengthening the yuan again, I wouldn’t lower the tariffs in response. For the aim of U.S. policy toward the People’s Republic now can’t afford to be an indulgence like fairness, but weakening this increasingly hostile and dangerous government, and maximum U.S. economic disengagement (often called “decoupling”). But I’d be amenable to some easing of economic pressure and decoupling if I saw major evidence of big, concrete improvements in Beijing’s economic and military policies – say over a five- or ten-year period for starters.

Im-Politic: A New, Promising but Still Flawed Form of Conservatism

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abortion, America First, China, Christianity, conservatism, crime, culture wars, Dobbs v. Jackson Women's Health Organization, education, family policy, foreign policy, identity politics, Im-Politic, Immigration, industrial policy, inflation, national conservatism, politics, religion, Roe vs. Wade, sovereignty, Supreme Court, Trade, wokeness

Don’t get me wrong. It’s not like I’m not grateful to have been invited to last week’s third National Conservatism Conference. The interest displayed by this crowd in economic policy ideas that depart dramatically from the right-of-center’s longstanding free market dogmatism was especially gratifying, and there was no shortage of thought-provoking and compelling speakers.

It’s just that my four days at the session left me unconvinced that National Conservatism as it presently seems to be constituted can create or contribute to a winning American political coalition. The main problem: Most of those spearheading the drive to establish National Conservatism as a major national force haven’t recognized which culture wars they should be fighting, and which they shouldn’t — and how this failure to discriminate is endangering other objectives that the movement (and others) rightly deem crucial.  In fact, unhappiness expressed to me by more than a few conference attendees with the stances on social and cultural issues taken by those putative leaders make me skeptical that it’s a movement yet to begin with – or can be if their vision prevails.

The economic dimension of national conservatism, at least judging by the presentations and hallway conversations, is not only politically astute; it’s substantively sound. All the speakers who addressed these issues – including such nationally prominent figures like Florida Governor Ron DeSantis, and the state’s Republican Senators Marco Rubio and Rick Scott (the event was held in Miami) supported smarter, more restrictive trade and other economic policies (especially toward China), reduced immigration inflows and genuine border security, and federal policies to promote strategically important industries and to ease economic pressures on the middle and working classes.

The same goes for National Conservatism’s critique of the overly, and often recklessly, adventurist foreign policies pursued by the mainstreams of both major political parties for decades.

But the conference organizers and another set of speakers seem wed to other goals and measures that are already backfiring among the American electorate and that, intriguingly, clash with other elements of their agenda. The most important by far were near-total opposition to abortion and a determination to tout the United States as a “Christian nation.”

The political folly of these priorities couldn’t be more obvious. As I’ve written, there’s long been a strong national consensus favoring the right to an abortion early-ish during a pregnancy and then favoring broad restrictions later on with significant exceptions (rape, incest, life of the mother, health of the mother). Indeed, that’s why comparable majorities have supported maintaining the abortion policy framework established by the Supreme Court’s 1973 Roe vs. Wade ruling – which was entirely consistent with that common sensical compromise. P.S. Contrary to the claims of the extreme pro-lifers on an off the Court, Roe gave states plenty of latitude to enact all manner of abortion curbs. (The other major misconception or falsehood surrounding Roe comes from the pro-choice movement: It never established an unfettered right to an abortion.)

If you’re skeptical, consider that the day that a draft of the Supreme Court’s eventual decision striking down Roe was leaked to the press (May 3), Republicans held a 4.1 percentage point lead in the RealClearPolitics.com average of polls gauging the public’s preference for control of Congress in November’s midterm elections. The latest figures show Democrats with a 1.1 percentage point lead in the so-called Generic Ballot.

It’s true that abortion isn’t the only reason, that the actual votes determining control of Congress aren’t cast nationally but state-by-state, and that Republicans hold enough built-in advantages in the Congressional map to keep their hopes of prevailing very much alive. But the polls also show that the Court’s Dobbs decision, the enactment of and efforts to enact near-abortion bans in Republican-run states that the ruling has permitted, and GOP talk of more such moves (including on the national level) is increasing Democrats’ interest in voting and boosting the party’s prospects. (See, e.g., here.) And not so coincidentally, Republican candidates and leaders all over the country are backing away from hard-line anti-abortion positions.

Adamant opposition to abortion in practically all circumstances also seems to clash violently with other stated National Conservative positions. For example, many speakers at the conference emphasized their support for individual liberty. But what about the right of women uninterested in becoming mothers to lead the lives they wish? Even if the unborn must indeed be deemed human life very early in pregnancies, should the wishes of those women count for absolutely nothing the minute they conceive – and simply because they failed to take adequate precautions, or because precautions taken failed? According to many, and possibly most, at the conference, the answer is “Yes.”

The repeated references to America as a Christian nation are just as problematic. For reasons like those suggested above, if that’s a rationale for insisting that U.S. policies conform with scriptural teachings (and Section 4 of this “Statement of Principles” by the movement’s leading lights certainly suggests this “Where a Christian majority exists” – i.e. in most of the country), that simply won’t wash with big majorities of voters. But the historical arguments advanced for this view don’t impress, either.

Sure, the Founding Fathers were Christians, and for the most part, observant Christians at that. But so what? The England they came from was overwhelmingly Christian. What else realistically could they be? For similar reasons, the Founders were ovewhelmingly white, too. Does that mean that America should be seen as a Caucasian nation?

And does Christian dogma really deserve much credit for the ideals that make up the American creed of freedom of expression and conscience and other major liberties for the individual; representative, accountable government; equal justice under the law; and the like? Clearly, in most of Christendom at the time (e.g., Russia, Spain, Germany) these notions were unknown or actively rejected. Instead, the great American experiment in self-government is rooted in specifically English thought and practice. And ironically, the major contribution made by Christianity that hasn’t been present outside Europe has been the faith’s willingness to leave big swathes of human life to secular institutions and authorities (as in Jesus’ admonition to “Render to Caesar the things that are Caesar’s, and to God the things that are God’s.”)

Even worse, precisely because they’re so unpopular as well as intellectually feeble, National Conservatism’s focus on these particular culture wars is weakening the ability of the entire conservative movement (except the libertarians) to fight effectively the culture wars that must be fought – specifically, over woke school public curricula; the metastasis of left-wing authoritarianism in so many major, powerful American institutions; and the related spread of divisive identity politics.

I have nothing but respect for those National Conservatives I met – and other Americans – to declare that they’re less concerned with winning politically than with remaining true to their consciences. But their version of the perfect is shaping up as a powerful enemy of the good and formula for defeat – especially if they wish to contend, as they clearly do, in an arena that rightly values the art of the possible.

That’s why I was so encouraged to find out that many of those I met at the National Conservatism Conference agreed that hard-line anti-abortion stances and pro-Christian nation preaching need to be dropped if any of National Conservatism’s other worthy causes are to be advanced.

For me, nothing could be clearer than the following as a recipe for political victory and national well-being: focusing tightly in an America First-type way on  confining U.S. foreign policy to advancing and protecting U.S. sovereignty and core security (especially against foes like China), on taming inflation and building sustainable prosperity; on securing the border; on fighting crime; on removing propaganda from public schools; on preserving a strong voice for parents in their children’s education; and on resisting the intolerant woke and rigid identity politics ideologies being pushed by our most powerful institutions.

National Conservatism as it exists now is close to being on board. If it can go the extra mile, show better judgment politically, and accept a more inclusive, more historically accurate view of “Americanism,” I’ll be happy to join its ranks.

Making News: Back on National Radio with a Trump China Tariffs Update — & More!

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anti-trust, CBS Eye on the World with John Batchelor, China, Donald Trump, Gordon G. Chang, Making News, manufacturing, monopoly, National Conservatism Conference, oligopoly, One America News, tariffs, Trade

I’m pleased to announce that the podcast of my interview Monday night on the nationally syndicated “CBS Eye on the World” with John Batchelor is now on-line. I’m a little late posting this because, as some of you know, I’ve been in Miami, Florida the last few days attending and speaking at this conference.

All the same, click here for a still timely discussion, with co-host Gordon G. Chang, of the latest evidence that the Trump tariffs continue both to put the squeeze on China’s economy, and to give U.S.-based manufacturing the breathing room needed to keep expanding output and employment.

In addition, speaking of that Miami conference, some of my presentation was excerpted here Sunday by One America News, followed by a short interview. The snippets strung together are missing some transition sections, but you can read the whole (lightly edited) text of the talk in yesterday’s post. And I’ll put up a link to the entire session once one’s available.

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

(What’s Left of) Our Economy: Getting American Competition Priorities Right

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American Affairs, anti-trust policy, competition, globalization, monopoly oligopoly, National Conservatism Conference, tariffs, Trade, {What's Left of) Our Economy

Greetings from Miami, Florida, where I’m attending the final day of the third annual National Conservatism conference. (I spoke on Sunday.) I’ll be posting soon about my general impressions of this event, and the broader effort it represents to develop a new school of right-of-center policies and politics. But since today’s early afternoon sessions aren’t my speed, I’m back in the (cavernous!) hotel room because I thought folks would be interested in seeing a lightly edited version of the remarks I delivered.

The subject – the often weird and arguably counterproductive views long held by most U.S. leaders, along with the national policy and business establishments, about the different priorities deserved by promoting economic competition at home, and economic competition from abroad. In addition, I should note that the conference organizers plan to post videos of this and other presentations very soon, and I’ll send out an alert when it’s up. For more background, see this article in the journal American Affairs from 2019, when I first made versions of the following observations and arguments:

There seems to be broad agreement at this conference that the U.S. economy should undergo some kind of transformation from one that’s extremely open to the world economy – to all of its opportunities and benefits as well as all of its risks and dangers – to one that’s less open (because those risks and dangers don’t seem to have been accounted for adequately).

I’m sure that there’s also broad agreement that a major obstacle stands in the way – that very considerable degree of recent and current openness, which becomes clear from examining data like the strong rise of trade (both exports and imports) as a share of the nation’s economic output, the similarly strong rise of two way both outgoing and incoming investment, and the amount of U.S. net debt held by foeign lenders. It’s also clear from what we’ve been learning lately about how dependent the nation has become on other countries for lots of goods that are crucial economically and militarily and healthcare-wise.

Almost completely overlooked though is another major obstacle – an apparent belief that’s powerfully fueled all that openness, and helped create the costs and vulnerabilities that have been neglected for o long. It’s the apparent belief that foreign competition is better for the economy than domestic competition.

I say “apparent” because this view isn’t often voiced. But something like it must be broadly accepted, especially by those who have been making national economic policy. Because for decades, until very recently (the year 1980 is a good starting point) U.S. leaders have worked especially hard to open the American economy wide to foreign competition (through numerous international trade agreements) while simultaneously permitting levels of domestic competition to fall quite significantly in a great many industries.

And it’s difficult to understand how a much more self-reliant American System can be created if the prioritization of foreign over domestic competition isn’t reversed. That is, if there’s a strong consensus – as there seems to be – that vigorous competition is needed to maximize the benefits of capitalism (notably, to spur technological progress, better product quality, more affordability, greater choice of stuff to buy), then the emphasis should be placed on boosting domestic, rather than foreign, competition.

For those seeking to limit the U.S. economy’s exposure to the global economy, the rationale for stressing an increase in foreign competition seems to have two sources that are two sides of the same coin – at least as best as I can figure out, since again, the case for actively preferring it is seldom made explicitly. The first is that since competition is good, the more the merrier. Therefore boosting foreign competition is an obvious way to get more competition.

The second reason for emphasizing foreign competition is that it’s simply not possible to generate needed levels of competition without foreign competition.

But regarding the first rationale – just how much more competition does foreign competition create for the U.S.? If we’re a fourth of global output, does that mean that foreign competition can triple the level of competition? Or twice as much, or 72 percent more, or whatever? Maybe. What I can say confidently, though, isthat no one has even asked that question, let alone answered it. But the assumption seems dubious given that much the three-fourths of that global economy outside the U.S. is less advanced than we are, not more.

And as for foreign competition filling some unavoidable domestic competition gap – that may be true for many other countries. But it’s far from true for the United States. After all, we have advanced technology. We have manufacturing. We have services. We have energy and minerals. We have agriculture. We still have dynamic, innovation-fostering economic and social systems. .In other words, to borrow from that Michael Jackson song, “We are the world.” We have satisfactory supplies of petty muc every type of product and service that the rest of the world boasts all together.

That is, we have a matchless degree of self-sufficiency and capacity for self-sufficiency – despite having spent much of the last half-century or more trying our best to squander this priceless advantage. We don’t have tropical fruit. Or coffee. Or chocolate. But I think we can figure those challenges out.

It’s true of course that the transition toward a less globalized American economy isn’t a short-term proposition. And it probably will never result in 100 percent self-sufficiency – at least not in the foreseeable future.

For example, precisely because we’ve permitted so many major gaps to emerge in our productive economy, we face enough alarming shortages to require some temporary degree of cooperation with other countries before they’re filled. Semiconductor manufacturing is a prime example. In turn, these shortfalls also extend to the professional workforces needed to reestablish domestic production. So some flexibility on immigration and visa policy will be needed, too – at least until we get our own science and technology workforce back up to speed.

And maybe the best de-globalized American economy shouldn’t even aim to hermetically seal the economy, or even close. After all, recognizing that foreign competition isn’t superior to domestic competition by no means requires dismissing the former as totally worthless. Similarly, the prioritizing of domestic competition doesn’t mean that all corporate concentration at home should be broken up.

Instead, what’s important for fostering a less globalized economy is realizing that it’s not necessarily, much less mainly, foreign competition that’s needed for economic success. It’s competition, period. And since the United States is eminently capable of supplying so many of its economic needs and wants on its own, without many of the downsides of foreign competition, why not reorient our national economic strategy to recognize the proper relationship between trade and competition policy, view them through different lenses, and base them on different default positions?

So before even considering new international trade agreements, Washington should ask whether the added increment of foreign competition and its expected benefits are worth the national security costs, the economic costs, and the social pathologies produced by the latter?

And for industries that do need a competitive kick in the pants, let’s first ask if that kick can come from some new domestic anti-trust-type action.

Before approving more mergers and acquisitions at home, Washington could ask if the firms involved could realize the greater scale economies and other gains they’re seeking by limiting their foreign competition.

If de-globalizing the American economy is the name of the game, then recognizing and overcoming the usually implicit but broad basis in favor of foreign over domestic competition looms not just as an important step. It will be an essential step.

(What’s Left of) Our Economy: New Official Data Show U.S. Trade Remains on a Winning Streak

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China, exports, goods trade, imports, Made in Washington trade flows, manufacturing, semiconductors, services trade, Taiwan, tariffs, Trade, trade deficit, {What's Left of) Our Economy

The official U.S. trade figures for July that came out this morning continued June’s encouraging pattern of smaller deficits amid continued (if subdued) American economic growth – but with a twist. The previous trade report showed that the overall goods and services shortfall shrank because exports rose healthily while imports slipped just slightly.

The July release showed a smaller trade gap due largely to lower imports. Exports improved, too, but just negligibly.

Yet the bottom line remained the same: an economic expansion that’s gotten a little healthier, because the nation is earning its way in the world to a modestly greater extent.

The specific numbers: The total trade deficit sank month-to-month by 12.65 percent in July – from $80.88 billion to a level of $70.65 billion that was the lowest for a single month since last October’s $68.16 billion. The drop, moreover, was the fourth straight – the longest such stretch since the six-month period between May and November, 2019 – months before the CCP Virus pandemic arrived state-side in force.

The only negative here: That June number was revised up a big 1.59 percent from the initially reported $79.61 billion.

Monthly shrinkage was also reported for goods trade – which comprises the lion’s share of total U.S. trade. Here in July the gap also declined for the fourth straight month – by 8.23 percent, from $99.26 billion to $91.09 billion, and the level was the lowest since October ($98.26 billion), too. And as with the overall deficit, this winning streak was the longest since that May-November span in 2019.

Meanwhile, the long-time U.S. services surplus – which has deteriorated dramatically during the pandemic era due to mandated and voluntary behavioral curbs that hammered industries like travel and tourism – widened by 11.19 percent sequentially in July, from $18.38 billion to $20.44 billion. The monthly increase was the third straight, the level was the highest since last December’s $21.66 billion, and the monthly jump the biggest since last November’s 12.22 percent.

A degree of skepticism may be in order, though, because the June services surplus was revised down a huge 7.47 percent.

Total exports edged up 0.20 percent on month in July, from $258.76 billion to $259.29 billion. However meager, the increase still produced the sixth straight monthly record and the sixth straight increase – matching the performance of Februay-August, 2021. But a sizable revision should be noted here, too, as June’s total was downgraded by 0.73 percent.

Goods exports dipped in July for the first time since January – by 0.16 percent, from an upwardly revised record $183.29 billion to $182.99 billion. But the figure is still the second ever and impressive considering the sluggish growth in which the global economy is mired and the multi-decade highs achieved by the U.S. dollar against most global currencies – which harms the price competitiveness of U.S.-made products.

Yet services exports climbed 1.10 percent, from a downwardly revised $75.47 billion to a record $76.30 billion. This increase was also the sixth in a row, and although June’s results were revised down by a substantial 2.94 percent, it remains the second best monthly performance ever.

Combined goods and services imports were down for a second straight month – by 2.86 percent from a downwardly revised $339.64 billion to $329.94 billion. This total was the lowest total since February’s $320.53 billion and the back-to-back decrease was the first such fall-off since the March-May, 2020 period – the peak of the CCP Virus’ first wave.

Goods imports also fell for a second straight month – by three percent, from $282.55 billion to $274.08 billion. And this back-to-back decrease was the first since March-May, 2020 as well.

Services imports in July experienced their first decline since January, weakening by 2.15 percent, from $57.09 billion to $55.86 billion. Even better: The June figure was revised down by a hefty 1.38 percent.

As known by RealityChek regulars, the non-oil goods deficit is a good global barometer for U.S. trade policy’s performance, because the oil and service trade flows it leaves out have rarely been the focus of U.S. trade agreements or other initiatives. This “Made in Washington” deficit tumbled for the fourth straight month too – by $100.29 billion to $89.96 billion.

As with some of the other trade flows, this deficit was the lowest since last October ($84.37), and the monthly fall-off was 10.93 percent. Moreover, the four straight months of improvement were the longest such stretch since June-October, 2007 – when the economy was approaching its worst downturn since the Great Depression of the 1930s.

Made in Washington exports in July increased for the sixth straight month, too – by 0.96 percent, from $151.841 to $153.301 billion. These overseas sales also set their sixth consecutive record, and the winning streak was the longest since the eight-month period between June, 2020 and January, 2021 – during the recovery from the virst virus wave.

These non-oil goods imports in July sank for the fourth straight month, and the 3.52 percent sequential drop brought the level to its lowest – $243.26 billion – since February’s $242.25 billion. This winning streak was the longest since the five-month stretch between peak pandemic-y December, 2020 to May, 2020.

Manufacturing’s huge and chronic trade gap narrowed on month in July, too, and for the second straight time. The drop was 6.12 percent, from Jue’s $130.05 billion to $122.09 billion, and this level was the lowest since February’s $106.49 billion.

Manufactures exports fell back from June’s record $114.78 billion to $109.50 billion. The 4.60 percent retreat left these sales at their lowest level since April’s $109.36 billion.

Manufactures imports fell faster – by 5.41 percent, from $244.83 billion to $231.59 billion. This total was also the lowest since April ($233.50 billion).

On a year-to-date basis, manufactures exports are up by 16.10 percent (from $643.07 billion to $746.62 billion. But the much greater amount of manufactures imports have surged by 18.38 percent (from $1.37285 trillion to 1.62524 trillion).

As a result, the year-to-date manufacturing trade shortfall has already hit $876.62 billion – a 20.12 percent jump from last year’s $729.78 billion, and as early as next month’s trade report, industry’s deficit could pass the trillion-dollar annual level for the fifth year in a row.

The also huge and chronic U.S. goods trade deficit with China decreased for the first time since April, dropping 6.90 percent from $36.95 billion (the highest figure since November, 2018) to $34.40 billion.

American goods exports to China advanced month-to-month in July by 5.04 percent, from $11.68 billion to $12.27 billion. And the much greater volume of imports slumped by 4.03 percent, from $48.63 billion (the third highest monthly total on record) to $46.66 billion.

But on a year-to-date basis, the China goods deficit has worsened by 26.42 percent. Since its growth rate is now faster than the 21.75 percent of the Made in Washington gap (its closest global proxy), it looks as if the impact has faded of the sweeping Trump tariffs (which the Biden administration has just announced it will keep in place).  

One likely reason: the 8.41 percent devaluation of China’s currency, the yuan, versus the U.S. dollar engineered by Beijing so far this year.

And a final July U.S. trade development worth noting: the 25.10 percent monthly burst of the goods deficit with global semiconductor manufacturing technology leader Taiwan to a new record $4.74 billion.

American merchandise imports of microchips and other products from the island grew by 15.71 percent on month in July, from $7.33 billion to an all-time high of $8.48 billion. But U.S. goods exports (which include much semiconductor manufacturing equipment) were up as well in July. The 5.64 percent increase produced the second best monthly total ever ($3.74 billion – behind only March’s $3.89 billion).

(What’s Left of) Our Economy: A Strong Case for Decoupling from China Much Faster

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China, China market, decoupling, exports, globalization, imports, Joseph C. Sternberg, protectionism, The Wall Street Journal, Trade, XiJinping, {What's Left of) Our Economy

What if Americans no longer had to pay so much attention to two of the biggest economic reasons for worry about China? Specifically, if Americans didn’t need to be nearly so concerned that much smarter, tougher measures against China’s predatory economic policies would cost their exporters access to a gigantic current and potentially bigger market? And they believed that decoupling from the hostile, dangerous People’s Republic could be much less economically damaging than widely supposed? 

Those are fascinating and important questions asked and suggested by Wall Street Journal columnist Joseph C. Sternberg in a piece over the weekend, and he presented some compelling evidence that, however “preposterous” it sounds now, these possibilities are surprisingly close to becoming realities. Moreover, they’re getting closer all the time, thanks to dictator Xi Jinping’s reversal of the free market-ish reforms and integration into the global economy begun by Beijing in the 1980s.

His evidence? The big payoff that supposedly motivated the U.S. and foreign governments and their multinational companies to push so hard to bring China into the world trading system – that aforementioned access to the Chinese market – is stalling out way short of expectations. In fact, as Sternberg documents, “China makes a disproportionately low contribution to Western firms’ bottom lines relative to its population and potential.”

To support these claims, the author cites data showing that the China market’s share of the revenues of several big Western economies’ multinational businesses (including America’s) remains well below ten percent. And this even though:

(a) more than twenty years have passed since China’s entry into the World Trade Organization (WTO), which entitled the People’s Republic to nearly all the benefits of integration with the global economy (while de facto enabling it to avoid most of the obligations); and

(b) China’s share of global economic output (which should approximate its share of the worldwide market for goods and services) had reached more than 15 percent in 2020 – and this percentage had jumped by some 50 percent in 2013.

But even these figures may be exaggerated, at least in the U.S. case. The financial research firm Calcbench has examined the share of revenues 67 of companies in the Standard & Poor’s 500 stock index earned in China in 2020. It came to a total of 10.48 percent – a little higher than Sternberg’s figure.

Most of the firms most reliant on China revenues, however, like Qualcomm (59.5 percent of its global total), Texas Instruments (55.5 percent), Lam Research (35.1 percent), and Applied Materials (31.7 percent) are either semiconductor manufacturers, producers of semiconductor manufacturing equipment, or makers of other advanced electronics parts and components. And large percentages of their China revenues are sold to the China-based factories that turn out consumer electronics products (like personal computers and cell phones), and that export huge shares of their own output. That is, those revenues aren’t really earned by sales to final customers located in China. They’re earned by sales to final customers located outside China (like the United States).

Just how large are some of these export percentages? According to this source and this source, 64.4 percent of all the cell phones made in China were sold overseas. According to this source and this source, 65.04 percent of the notebook computers made in the People’s Republic were exported that year. So that should more than satisfy the definition of “large”.   

One important claim that Sternberg gets wrong, however – that contention that “Countries wanted to open China to trade because of its population of more than 1.4 billion consumers. Their ascent into the global middle class, buying U.S. and European goods and services along the way, was the great prize to be won.”

In fact, as Ohio Democratic Senator Sherrod Brown explained in 2007, the companies “really had way more interest in one billion Chinese workers” when they were lobbying so hard to bring China into the WTO. I.e., they recognized at that point that China would long remain far too poor to become a major final market for their goods and services. But they were rightly confident that, with foreign training and management, China’s vast population could become highly productive (but still extremely cheap workers) long before that. A 2000 study by yours truly presented abundant evidence 

And China’s continuing heavy reliance on exports means that for all its spectacular progress, the People’s Republic is still far from the point where it can generate acceptable levels of growth and employment by relying on its own market for sales. In other words, for decades, the United States in particular -which has run the by far the world’s biggest trade deficit with China – has enjoyed much more leverage over China than vice versa. 

This doesn’t mean that Sternberg is under any illusions that further decoupling the U.S. and other foreign economies from China’s would be painless (though the still relatively self-sufficient U.S. economy would obviously feel much less – short-term – pain). But as he notes, China’s economy is running into big, growing problems – in particular a massive, already deflating real estate bubble that is undercutting the ability to China’s consumers to maintain current levels of spending on anything. In addition, Xi Jinping’s evident determination to squeeze foreign companies out of China as soon as feasible is leaving these foreign companies and economies little choice over the longer run.  So shouldn’t the United States and the rest of the world take these hints more closely to heart and greatly step up decoupling from China?  

Making News: Podcast Now On-Line of National Radio Interview on Reviving U.S. Semiconductor Making…& More!

Tags

antitrust, Biden, CBS Eye on the World with John Batchelor, China, Chips Act, competition, conservatism, Gordon G. Chang, infotech, innovation, Jobs, manufacturing, microchips, near-shoring, reshoring, semiconductors, tech, Trade, {What's Left of) Our Economy

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

Click here for a timely discussion with John and co-host Gordon G. Chang, about whether a massive new array of subsidies and incentives just signed into law by President Biden will indeed revive American microship production, and prevent U.S.- and foreign-owned semiconductor companies from setting up state-of-the-art operations in China.

In addition, it was great to see IndustryToday.com reprint (with permission, as required!) my recent post on some of Mr. Biden’s factually challenged claims about the economy’s performance during his presidency. Here’s the link.

Finally, I’m honored to have been invited to speak at a big conference to be held in Miami, Florida on the future of American conservatism – including what it should be. My talk, on “An America First Approach to Trade and Competition,” is so far scheduled for Sunday, September 11. But sometimes these plans get reshuffled, so I’ll post any updates as soon as they become available. In the meantime, click this link for the rest of the agenda, and the all-star cast of speakers that’s been lined up, at this link. 

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

(What’s Left of) Our Economy: An Encouraging June Swoon for the U.S. Trade Deficit

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China, energy, exports, GDP, goods trade, gross domestic product, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, recession, services trade, supply chain, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

This morning’s official data (for June) show that U.S. trade was firing on practically all cylinders that month. In addition, the shrinkage in the combined goods and services deficit to the lowest level ($79.61 billion) since last December ($78.87 billion) was clearly attributable not only or even mainly to developments holding the nation’s imports down – ranging from a slowing in American economic growth (and therefore in most consumption) to the wounds China is inflicting on its export-heavy economy due to its insanely over-the-top Zero Covid policy to separate renewed backups at U.S. ports.

Instead, it’s also happening because many exports are up (to record levels), and that’s especally impressive because the dollar is so strong (which places U.S.-origin goods and services at price disadvantages all over the world, including in their home market) and because global growth is getting so weak (which tends to dampen demand for America’s offerings). And P.S. – these rising exports encompassed more than just the U.S. natural gas and other fossil fuels in such demand due to the Ukraine war and related sanctions on Russia.

The June figures reported one important exception, though: a monthly surge in the goods trade deficit with China to its highest level since November, 2018.

The June sequential drop in the overall trade deficit of 6.23 percent, from May’s $84.91 billion, was the third straight monthly decrease – a streak that hasn’t been seen since the second half of 2019, when the shortfall dropped sequentially six consecutive times – between June and November. Even better, the May total trade gap was revised down by a healthy 0.75 percent.

The deficit in goods trade – which dominates U.S. trade flows – tumbled 4.74 percent on month from $104.43 billion to $99.48 billion, its lowest level since last November. It, too, decreased sequentially for the third straight month, the first such stretch since December, 2019 through February, 2020 – just before the CCP Virus’ arrival in force began roiling and distorting the entire U.S. economy.

Meanwhile, the longstanding surplus in trade in services – which has been hit particularly hard by pandemic-related lockdowns and more cautious consumer behavior – advanced by 1.76 percent, from May’s upwardly revised (by 0.58 percent) $19.53 billion to $19.87 billion.

Combined goods and services exports hit their fifth straight monthly high in June, rising 1.67 percent from May’s upwardly revised $256.52 billion to $260.80 billion.

Energy goods exports were indeed way up – with natural gas overseas sales jumping by 26.51 percent, fuel oil exports increasing by 8.66 percent, and miscellaneous petroleum products climbing by 3.97 percent.

But they were far from the only significant export winners. For example, machinery and equipment exports soared by 13.78 percent on month in June; of foods, feeds, and beverages exports improved by 5.81 percent; and high tech goods’ foreign sales gained 4.51 percent.

In fact, goods exports overall also reached unprecedented heights for a fifth straight month in June, rising 1.97 percent sequentially from $179.51 billion to $183.04 billion.

As for services, their foreign sales hit their third straight all-time high, growing 0.97 percent on month, from $77.01 billion to $77.76 billion.

Overall imports, as mentioned, inched down sequentially – by 0.30 percent – in June, from $341.43 billion to $340.41 billion.

Another small monthly June decrease was registered by goods imports, which sagged by 0.50 percent, from $283.94 billion to $282.52 billion.

Only services imports broke this pattern: They set their own fifth consecutive record, increasing by 0.70 percent, from $57.49 billion to $57.89 billion.

The news in manufacturing trade was good, too – but only in comparison to industry’s recent alarming performance. The sector’s chronic, mammoth trade deficit was down 1.92 percent on month in June, from $132.60 billion to $130.05 billion. But this most recent total was still the third highest ever, after March’s $142.22 billion and the May figure.

Manufacturing joined the list of June export winners, as foreign sales increased sequentially from $112.15 billion to a new record $114.78 billion.

Manufactures imports inched up by mere 0.04 percent on month in June, from $244.75 billion to $244.83 billion. But this number was the second worst on record, after March’s $256.18 billion.

All told, at the statistical midway point of the year, the manufacturing trade deficit is running 22.13 percent ($756.53 billion vs $619.42 billion) ahead of last year’s record total. As a result, it’s all but certain that the United States in 2022 will rack up its fifth straight $1 trillion-plus manufacturing trade gap.

Year-to-date manufacturing exports are up 16.26 percent – from $548 billion to $637.12 billion. But the much greater amount of manufacturing imports has risen even faster – by 19.38 percent, from $1.16742 trillion to $1.39365 trillion.

Until very recently in the pandemic period (and its possible aftermath), as noted here, domestic manufacturing output and employment have held up remarkably well despite U.S.-based industry’s ballooning trade gap. The reason, as I pointed out here, is that Americans’ demand for manufactured goods has grown so strongly that domestic producers have been able to boost output even as imports flooded in much faster.

But with domestic manufacturing output decreasing in inflation-adjusted terms in both May and June, it looks like an economy-wide U.S. slowdown is weakening this demand, and that U.S.-based industry is finally paying a price for the share of its home market that it’s been losing.

The June China trade front news was even worse than that for manufacturing. The U.S. goods deficit with the People’s Republic soared by 17.13 percent sequentially, from $31.54 billion to $36.95 billion. That level is the highest since November, 2018’s $37.69 billion, and the increase the biggest since the 20.45 percent recorded in May, 2020 – when China and the United States were making recoveries from the first CCP Virus wave.

U.S. goods exports to China slumped by 5.22 percent, from $12.32 billion to $11.68 billion, while imports popped by 10.85 percent, from $43.86 billion to $48.63 billion – the highest total since last December’s $49.53 billion.

At least as important, this bilateral goods trade deficit is now up 27.51 percent on a year-to-date basis, as opposed to the 24.34 percent increase over the same period for its closest global proxy – the U.S. non-oil goods deficit.

For most of the time since the imposition of the first China tariffs imposed by former President Donald Trump in early 2018, this “Made in Washington” trade deficit (so named because by omitting services and oil trade, it tracks the U.S. trade flows most heavily influenced by U.S. trade policy) has been rising more slowly than the China goods deficit. Yet the gap, as noted in last month’s trade report, has been narrowing lately, and the June figures signal that it might be gone for the time being.

In general, though, the June trade report was a pleasant surprise given the currency and global growth headwinds mentioned above. Additional cause for some optimism:  The latest official release on the size of the U.S. economy in inflation-adjusted terms told much the same story of the trade gap narrowing for the “right reasons.”

But can the trade deficit keep falling due mainly to better exports, rather than following the typical slowdown and recession pattern of shrinking mainly due to the falling exports caused by weaker demand? In other words, can the falling deficit contribute to the quality of U.S. growth rather than simply reflect a feebler economy? Those are different questions altogether.

Following Up: Podcast Now On-Line of National Radio Interview on Pelosi Taiwan Visit and U.S. Stagflation Prospects

Tags

Asia-Pacific, China, decoupling, Following Up, geopolitics, Indo-Pacific, inflation, manufacturing, Market Wrap with Moe Ansari, Nancy Pelosi, national security, Pelosi, recession, sanctions, semiconductors, stagflation, Taiwan, tech, Trade, trade deficit

I’m pleased to announce that the podcast is now on-line of my interview last night on the nationally syndicated “Market Wrap with Moe Ansari.” Click here for a timely conversation on two headline issues:  how U.S. House Speaker Nancy Pelosi’s controversial visit to Taiwan could hit U.S.-China economic relations and America’s access to Taiwan’s world-class semiconductor manufacturing prowess; and why what’s in store for the U.S. economy could be even worse than the recession that’s now widely forecast.

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