(What’s Left of) Our Economy: New Fed Manufacturing Figures Nudge Tariffmageddon a Bit Further Away

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aluminum, China, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, metals, metals tariffs, metals-using industries, real growth, steel, tariffs, Trade, trade war, {What's Left of) Our Economy

Today’s industrial production figures from the Federal Reserve showed not only that U.S. domestic manufacturing regained some strength in May following a string of poor monthly results. They also provided more evidence that President Trump’s tariffs have had little, if any, effect on the performance of either the metals-using industries impacted by levies on steel and aluminum imports, or of sectors supposedly affected by China-related duties.

Two more points come through pretty loud and clear from the new figures on domestic industry’s inflation-adjusted growth. First, the weakness displayed in April by manufacturing as a whole and by metals-using sectors could well have been confined to that month. Second, the safety problems revealed in the Boeing Company’s aircraft have begun to influence the picture and may distort the readings for several more months.

The overall readings for manufacturing were mildly encouraging, with the 0.22 percent sequential rise in real output representing domestic industry’s best reading since December’s 0.64 percent improvement. Revisions were ever so slightly positive.

Most of the leading metals-using industries – where the role played by tariffs is relatively easy to identify – fared better in May than in April, too, as the following table shows. The columns show the changes in after-inflation output for these sectors starting with April, 2018 (the first full month the metals levies went into effect) and each of the last three data months of this year. And as usual, the numbers for manufacturing overall are used as a control group.

                                             April thru March   April thru April   April thru May

overall manufacturing:          +0.45 percent        -0.07 percent      +0.89 percent

durables manufacturing:       +1.34 percent       +0.68 percent      +0.98 percent

fabricated metals products:   +2.76 percent      +1.88 percent       +1.73 percent

machinery:                            +2.31 percent       -0.12 percent       +0.11 percent

automotive:                            -3.10 percent       -3.86 percent        -1.55 percent

major appliances:                   -5.27 percent       -8.24 percent        -3.27 percent

aircraft and parts:                  +5.75 percent      +3.34 percent       +1.15 percent

durable mfg ex-automotive: +2.10 percent       +1.48 percent       +1.41 percent

In general, it’s clear that the metals-using industries are still losing growth momentum versus the rest of manufacturing. But do the duties deserve all or even much of the blame? If so, then why did so many of these sectors turn in better growth numbers in May than in April – especially automotive and major appliances? The latter’s relative comeback is especially striking, given that it’s been experiencing not only metals tariffs, but separate levies on large household laundry equipment and a weakness in U.S. housing. Ditto for automotive, where output has been highly volatile for many months.

The Boeing effect is apparent, too, from the falling output numbers since March, when safety problems started generating grounding decisions and airspace national airspace bans for its widely used 737 Max models. Further, both automotive and aerospace are major users of machinery and fabricated metals products.

The impact of the tariffs on products from China remains much more of a puzzle, and for the same reasons that have been apparent since their onset, in August, 2018. They have covered thousands of products, most of which so far have been intermediate goods, and their role as these kinds of inputs for manufacturing industries varies dramatically from final product to final product. In addition, Washington uses different manufacturing classification systems for designating the tariff-ed products and for measuring manufacturing production. The levies have been in place for a shorter period of time than the metals duties. And their scope has widened since the first batch went into effect in August, along with many rates having changed.

Nonetheless, here are some figures for the handful of industries for which I’m sure the numbers create a reasonably accurate picture, with each column measuring real output changes since last August.

                                        August thru March   August thru April   August thru May

overall manufacturing:       -0.45 percent           -0.96 percent         -0.75 percent

ball bearings:                     +0.22 percent          +0.11 percent        +0.01 percent

industrial heating equip:     -0.83 percent          -5.41 percent          -4.70 percent

farm machinery & equip: -11.65 percent         -10.27 percent         -7.51 percent

oil/gas drilling platform    +4.08 percent          +2.58 percent         +4.59 percent

   parts

Unfortunately, no consistent trend emerges. Two of the sectors’ improved between March and May (farm machinery and equipment, and oil and gas drilling platform parts), and two worsened (ball bearings and industrial heating equipment).

And although as long as the China tariffs continue , the future will provide results over a more statistically significant time frame, because the footprint of Chinese inputs in most of U.S. Manufacturing sectors will continue to be so broad and deep, their costs are likely to remain just as hard to discern.

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Making News: New Spectator Article on Trump’s Mexico Tariffs Threat – & More!

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American Enterprise Institute, Breitbart.com, Claude Barfield, consumers, i24News, inflation, John Carney, Making News, Mexico, migrants, tariffs, The Spectator USA, Trade, Trump

I’m pleased to announce my publication of my newest magazine article.  The piece, which appears in The Spectator USA, explains why President Trump won his bet that a tariff threat would push Mexico to work harder to stop migrants traveling through its territory to the United States – and why he shouldn’t resort to this gambit again.

In addition, it was great to be quoted in John Carney’s post on Tuesday for Breitbart.com reporting that all those supposed experts who predicted raging consumer price inflation resulting from Mr. Trump’s various tariffs were dead wrong.  Here’s the link.

The video is also available of my Tuesday appearance on the American-Israeli TV network i24News.com.  Click here, and press the download button to access this interview on the Trump Mexico tariffs threat.  I also appeared (on short notice) on this subject on i24 on June 5, but unfortunately, the recording is no longer available.

Last Friday, June 7, I debated trade specialist Claude Barfield of the American Enterprise Institute at a lunchtime event at AEI.  The program was not video-ed, though.

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

(What’s Left of) Our Economy: Tariffs-Led Wholesale Price Inflation Going, Going….

Tags

aluminum, China, inflation, metals, metals-using industries, Producer Price Index, steel, tariffs, Trade, trade war, Trump, wholesale prices, {What's Left of) Our Economy

Amid all the recent trade policy-related news, I’ve struggled (unsuccessfully) to keep up with the U.S. inflation data, but kept my nose to the grindstone this week and have now managed to scrutinize the new producer price figures (for May) in detail. These Bureau of Labor Statistics (BLS) figures contain unmistakable signs that whatever tariff-led inflation had begun to be generated in the American wholesale sector has been dramatically dissipating lately – which no doubt has much to do with continuingly weakening core inflation on the consumer side.

As usual, let’s start with the impact of President Trumps metals tariffs, which have lasted the longest (their first full month was April, 2018), and it’s easiest to identify the industries affected, since steel and aluminum-heavy sectors are pretty obvious (along with the metals themselves), and since we’re not dealing with the dependency on metals from any one trade competitor.

And a special bonus: It’s with steel and aluminum prices per se that the loss of any inflationary momentum comes through most clearly. Specifically, after rising 12.37 percent between April and their most recent (September) peak, prices for steel mill shapes fell 6.44 percent through May. As a result, they’re now 5.14 percent higher than during their first tariffs month. In their control group (the processed goods minus foods and feeds – or “core” – super-category) prices rose by 3.41 percent from April through their peak (in October), and have since declined by 2.62 percent. Consequently, they’re now 0.70 percent higher than during the first metals tariffs month.

So although in absolute terms, steel prices remain higher than those in their super-category, they peaked earlier and have come down faster.

Aluminum prices have been much weaker for much longer. After rising by 6.66 percent between April and their (latest) June peak, aluminum mill shapes prices are down by 6.53 percent. As a result, they’re now actually 0.30 percent lower than during their first full tariffs month.

Significantly, signs of markedly decelerating inflation are just as evident in numerous metals-using manufacturing sectors. In past posts on producer price trends, I looked first at industries where price increases since the metals tariffs onset had initially been faster than that for their super-category – final demand goods minus food and energy products.

The table below makes plain that a sizable, widespread slowdown has taken place. The columns show the percentage price changes between April and whichever month saw such prices hit their latest peak; and such changes for such goods since January. In every instance, the percentage changes for the latter have been much smaller than for the former. And in the cases of mining machinery and equipment and construction machinery and equipment, the slowdowns were more dramatic even than that for the super-category (which was awfully dramatic).

                                                               April to peak (month)          Since Jan.

Final demand less food and energy:       +1.73 (May, 2019)              +0.17

pumps/compressors:                               +3.82 (May, 2019)              +0.57

mining mach & equipment:                    +7.52 (April, 2019)            +0.03

construction machinery & equipment:   +5.75 (April, 2019)            +0.04

metal-forming machine tools:                +3.77 (Feb.,2019)              +0.77

But it would be reasonable to counter that four manufacturing sectors are too few to show anything conclusively. So here are results for nine more whose early inflation numbers were stronger than that of the core final demand super-category. Every single one has experienced an inflation slowdown since January, and except for railroad equipment and possibly oil and gas field machinery, all involved several orders of magnitude.

                                                                  April to peak (month)       Since Jan.

agricultural machinery & equipment:        +4.18 (April, 2019)          +0.04

tools, dies, jigs, fixtures, molds:                +2.82 (Feb., 2019)           +0.51

industrial material handling equipment:    +3.83 (May, 2019)          +0.22

oil and gas field machinery:                      +1.99 (March, 2019)       +1.01

household appliances:                               +4.53 (Feb., 2019)          +1.39

lawn & garden equipment:                        +2.19 (May, 2019)          +0.13

truck trailers:                                             +6.96 (May, 2019)          +0.81

aircraft:                                                      +2.20 (May, 2019)         +0.52

railroad equipment                                    +2.76 (March, 2019)      +2.67

For good measure, a slowdown is also occurring for metals-using industries where price increases have been relatively weak since the metals tariffs were imposed, as apparent from the table below: 

                                                                 April to peak (month)    Since Jan.

metal-cutting machine tools:                     +1.75 (May, 2019)        +0.69 

passenger cars:                                          +1.20 (Oct., 2018)         -0.30

heavy trucks:                                             +1.22 (Jan., 2019)           0.00

light trucks:                                                +2.43 (Nov., 2018)       -1.72

motor vehicle parts:                                   +0.71 (April, 2019)      +0.31

travel trailers & campers:                          +2.24 (March, 2018)    +0.42

Switch over to “intermediate demand” goods and you find a broad-based, often dramatic inflation deceleration as well – even though price increases in this super-category have accelerated!

                                                                 April to peak (month)    Since Jan.

core intermediate demand:                       +1.11 (May, 2019)         +1.26

metal containers:                                      +5.01 (May, 2019)         +2.95

fab wire products:                                  +11.49 (March, 2019)     +0.23

non-fluid power valves:                          + 4.01 (May, 2019)        +0.98

bolts, nuts, screws, rivets, washers:        +7.98 (April, 2019)        -0.43

fabricated structural metals products:     +5.10 (May, 2019)        +2.18

hardware:                                                 +5.10 (May, 2019)       +0.49

heating equipment:                                  +6.99 (May, 2019)       +1.85

fluid power equipment:                           +4.54 (May, 2019)       +1.33

mechanical power transmission equip:   +3.73 (May, 2019)      +0.40

A/C & refrigeration equip:                     +4.16 (April, 2019)     +1.37

ball and roller bearings:                          +5.85 (March, 2019)   +2.96

The first Trump China tariffs weren’t imposed until early July, so the sample size is smaller. And as previously noted, it’s relatively difficult identifying their precise effects because the list of tariff-ed sectors uses an industry classification system different from that used by BLS to monitor price changes, and the China content of these products can vary significantly. In addition, the group of tariff-ed goods have grown since then, the level of levies differs widely, and the original duties for many have been increased (not to mention the suspension of this major increase for several months earlier this year.  For the exact phases of the U.S.-China trade war until the latest – May 10 – Trump tariff increase, see here.).

But on this policy front, too, the exact same recent wholesale inflation slowdown is apparent as documented above for metals and metals-using industries. And for goods in the core intermediate demand super-category, the China tariff-affected goods have also seen produce price inflation slow as price inflation for the super-category has sped up. The only exceptions are the transformer category (where the inflation levels have been very low in absolute terms and the speed-up marginal) and possibly the oil and gas field machinery sector (where the monthly inflation rates for the two periods seem to be about the same_. Here, again, are the results for the entire August, 2018-May, 2019 period (covering the full duration of the China tariffs in toto), and for the post-January period.

                                                                              Aug.-May            Since Jan.

core intermediate demand goods:                     -1.85 percent       +1.26 percent

aircraft engines and engine parts:                    +1.32 percent       +0.35 percent

ball bearings:                                                   +4.23 percent       +2.96 percent

electric generators:                                          +2.41 percent       +0.18 percent

medical, surgical & personal aid devices:      +0.94 percent         -0.05 percent

core commodity final demand:                      +1.12 percent          0.00 percent

industrial heating equipment:                        +3.50 percent        +1.85 percent

oil and gas drilling platform parts:                +1.84 percent        +1.01 percent

farm machinery and equipment:                   +2.29 percent           0.00 percent

paper-making machinery:                             +2.92 percent         +0.88 percent

electricity transformers:                                +0.61 percent         +0.70 percent

X-ray and electro-medical equipment:         +0.35 percent          +0.12 percent

It might be an exaggeration to say “If you blinked, you missed tariffs-led inflation in the wholesale economy.” But as the above figures make clear, for now, it’s not much of an exaggeration.

(What’s Left of) Our Economy: U.S. Jobs Report Again Shows Evidence of Tariffs Damage

Tags

China, Jobs, Labor Department, manufacturing, manufacturing jobs, metals tariffs, metals-using industries, tariffs, Trade, Trump, {What's Left of) Our Economy

A speaking engagement yesterday prevented me from posting promptly on that morning’s monthly U.S. jobs report (for May), but after crunching the numbers, two conclusions come through loud and clear. First, the overall results added up to a total stinker. And second, like last month’s release, they contained more evidence that President Trump’s tariff-centric trade policies are taking a toll on hiring in manufacturing.

As with economy-wide (“non-farm”) hiring in May, manufacturing employment creation in general grew weakly – and for the fourth straight month. Industry’s payrolls rose by a measly 3,000 on month in May. The revisions, meanwhile, left the discouraging situation basically intact, as April’s previously reported 4,000 net sequential job gain was upgraded to 5,000, but March’s former flatline is now judged to have been a 3,000 net monthly job decrease.

As usual, however, when it comes to the trade policy implications, the results that count are those in manufacturing sectors actually significantly affected by trade policy moves like Mr. Trump’s tariffs. First let’s examine industry’s major metals-using sectors – both the necessary data for these industries goes back to April, 2018 (the first full month when these levies were in effect) and because the industries themselves are much easier to identify.

Here are the figures for these sectors’ employment changes between that month and this past April (both the originally reported numbers and today’s revisions), and between April, 2018 and May, 2019. (All these results, incidentally, are still preliminary.) Serving as control groups are the results for the entire private sector in the United States, for all of manufacturing, and for the durable goods super-sector (where all the main metals-using industries have been found).

                                                    Old thru April   New thru April   April Thru May

entire private sector:                  +1.79 percent     +1.93 percent      +2.00 percent

overall manufacturing:              +1.58 percent     +1.60 percent      +1.62 percent

durable goods:                           +1.92 percent     +1.94 percent      +1.99 percent

fabricated metals products:       +1.82 percent     +1.71 percent      +1.65 percent

non-electrical machinery:         +2.68 percent     +2.52 percent      +2.64 percent

automotive vehicles & parts:    +0.42 percent     +0.20 percent     + 0.48 percent

household appliances:               not available       -4.57 percent       not available

aerospace products & parts:      not available      +7.02 percent       not available

The pattern is clear. Even in metals-using sectors that had been outperforming the overall private sector and overall manufacturing in absolute terms, hiring momentum has waned. Moreover, it’s recently been slackening at a faster rate than evident in those larger sectors. That’s clear from the narrowing of the gap that can generally be seen between the employment increases in the metals-using sectors and the broader parts of the economy.

The impact of the China tariffs remains a puzzle, though, because they’ve been in place for a briefer period of time, and because the industry classification system used by the Trump administration in developing its tariff lists is different from the system used by the Labor Department to track employment changes. In addition, the level of China content of domestic manufactured goods can vary considerably, meaning that the impact of the tariffs can vary just as considerably.

Nevertheless, some exact and reasonably close matches can be identified, and, at least through April (the latest month for which data are available for the specific sectors below, which are narrower than those in the table for metals-using industries), the same relative hiring weakness can be seen. That is, job creation in the China tariffs-affected sectors has been growing more slowly than job creation in the private sector in toto, or in manufacturing overall. This trend is visible even in sectors that have greatly bested the private sector and manufacturing control groups in absolute levels of job creation.

                                   July-March    Old July-April   New July-April    July-May

private sector:         +1.23 percent   +1.44 percent    +1.39 percent    +1.46 percent

overall                   +0.98 percent  +1.03 percent     +1.02 percent     +1.04 percent  

   manufacturing:

aircraft engines       +1.39 percent    not available    +1.51 percent    not available

   and engine parts:

industrial heating   +2.46 percent     not available    +1.45 percent    not available

    equipment:

oil & gas drilling   +5.83 percent      not available   +5.02 percent    not available

    platform parts:

farm machinery     +1.67 percent      not available   +0.17 percent     not available

    & equipment:

ball bearings:        +1.82 percent       not available   +1.54 percent     not available

These results don’t mean that the Trump tariffs, as some keep predicting, are going to throw the American economy into recession, much less that if they do start biting significantly, that they won’t be a price worth paying for overhauling decades of boneheaded, offshoring-friendly, national security threatening (especially in the case of China) trade policies. In fact, they don’t even add up to evidence that the levies are biting significantly now.

But empirical evidence of some damage is finally emerging, at least on the jobs front, and it should be seen as a warning to tariff supporters – including the President – to stop insisting that the current trade wars will entail no costs or need for sacrifice whatever.

(What’s Left of) Our Economy: Through the Policy Noise, More Evidence of Trade Progress Under Trump

Tags

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

Today’s new monthly U.S. trade figures (for April) from the U.S. Census Bureau come at an awkward time statistically speaking. As must be obvious, they predate President Trump’s latest escalation trade war escalations. They’ve been shaped significantly by the safety-related problems at the Boeing Co., long a major American export standout, which may or may not be solved relatively quickly. To make matters more complicated, they incorporate revisions – some of which go back to 2014.

All the same, the trade report contained some data worth noting.

Regarding the macro numbers, the combined U.S. goods and services trade deficit shrank by 2.15 percent on month in April, from an upwardly revised $51.91 billion to $50.79 billion. That’s the second lowest monthly total of this still-young year and, more important, the second lowest total (after February’s $50.03 billion) since June, 2018’s $47.43 billion.

And, in an unusual (literal) footnote, March’s figure was revised up by a substantial 3.81 percent.

Total U.S. exports fell by 2.16 percent on month in April, to $206.85 billion. That’s the biggest percentage sequential decrease since January, 2015’s 2.66 percent. And the April total was the lowest since last December’s $205.66 billion.

Total American imports, though, fell at the same 2.16 percent rate – but the decline was only the fastest since January’s 2.40 percent. The $257.64 billion total import figure was the nation’s lowest since April, 2018’s $257.10 billion.

Year-to-date, the overall trade deficit is 2.02 percent higher than in 2018, although overall economic growth is a little slower.

As known by RealityChek regulars, more insights on how Mr. Trump’s trade policies can be gleaned from examining the “Made in Washington trade deficit” – comprised of U.S. trade flows strongly influenced by trade policy decisions. Such figures strip out oil trade, which is rarely dealt with by trade policy makers, and trade services, where liberalization has still made only modest progress worldwide.

In inflation-adjusted terms (the figures that are used to help calculate overall American economic growth or contraction), this non-oil goods deficit dipped by 0.14 percent month-to-month in April. More revealing, so far in 2019 it’s up 6.13 percent. That sounds like an indictment of the Trump trade record.

But 2018’s comparable figure was 12.71 percent. So even though the economy’s growth changed little, the growth rate of the Made in Washington trade deficit plunged by more than 50 percent – unmistakably good news for anyone wanting the economy to rely less for growth on borrowing and consuming, and more on saving and producing.

The U.S. goods trade shortfall with China shot up 29.66 percent on month in April – which looks like a setback for the President’s trade policy. The more so since the jump was the biggest since the 37.01 percent surge of March, 2015.

All the same, this increase followed the biggest two-month plunge in this trade deficit (39.80 percent) since October-December, 2001 (39.87 percent). In addition, despite the tariff policy gyrations on both sides, the impact of seasonal factors on U.S.-China goods trade can still be detected, as bilateral commerce tends to wane temporarily after big Christmas holiday-related buildups.

Moreover, the China goods deficit through the first four months of 2019 is down 9.88% from the comparable 2018 period – even though the overall goods deficit year-to-date is up 0.33%.

The April widening of the China goods gap was led by a 24.27 percent monthly nosedive in American goods sales to the People’s Republic. This biggest such drop since January, 2018’s 27.35 percent surely represents one sign of the Boeing effect. Although country-specific data aren’t yet available, overall civilian aircraft overseas sales plummeted by 46.89 percent sequentially in April (or just under $2.30 billion in absolute terms).

Goods imports from China rose on month for the first time in six months – by 11.62 percent, to $34.80 billion. This increase was the biggest since May, 2018’s 14.78 percent, by which time tariffs front-running was clearly underway.

The Boeing effect can also be seen in the April manufacturing trade figures. The monthly deficit – which due to trade war factors has been volatile lately – increased sequentially by 12.76 percent, from $76.96 billion to $86.78 billion.

Exports slumped by 9.81 percent month-to-month – or $10.07 billion – with nearly a quarter of the decline due to aircraft.

The much larger amount of manufactures imports was down, too, sequentially in April, but by only 0.14 percent.

Year-to-date, the manufacturing trade deficit stands at $324.17 billion – 4.11 percent higher than the comparable 2018 figure. January-through-April exports are 1.18 percent lower than in the first four months of last year, while imports are 1.21 percent higher.

Making News: Back on National Radio on the China Trade Wars…& More!

Tags

Border Crisis, border security, China, Gordon G. Chang, i24News, Immigration, Making News, Mexico, migrants, tariffs, Thaddeus McCotter, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’ll be returning to John Batchelor’s nationally syndicated radio show tonight.  I’m not yet sure about the segment’s timing, though, and the best way to find out is to follow me on Twitter (@AlanTonelson) if you don’t so do already.  I’ll be sending out that info via that platform.  The subject, not surprisingly, will be an update of the U.S.-China trade wars.

You can listen live on-line here.  And as usual, I’ll post a link to the podcast as soon as one’s available.

Speaking of podcasts, one’s on-line of my latest appearance on the program – a very short notice interview on Monday night.  Click here for the usual robust discussion involving John, co-host Gordon G. Chang, former Michigan Republican Congressman Thaddeus McCotter, and me.

Also, the video is now available of my Monday night interview on the American-Israeli TV network i24News.  To view this segment, which covered President Trump’s proposed border security-related tariffs on Mexico, click here and then press the download button.  The file will take a few moments to transfer and, at least in this case, you might have to sit through a few more moments of ads before you can open it up.

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

(What’s Left of) Our Economy: Krugman’s (Embarrassingly) Phony Tariff History

Tags

1920s, agriculture, Economic History Association, history, Paul M. Krugman, protectionism, tariffs, The New York Times, Trade, Trump, World War I, {What's Left of) Our Economy

To the many reasons I have to envy Paul M. Krugman (his high profile perch as a New York Times pundit, his Nobel Prize in economics, his surely stratospheric income), one more can now be added:  As strongly indicated by his latest column for The Times, he works for folks who allow him to publish any claim he’d like without being fact-checked or even questioned in any way.

In that piece, Krugman sought to debunk President Trump’s recently tweeted claim that “TARIFF is a beautiful word indeed” by showing that “the actual history of U.S. tariffs isn’t pretty.”  One major example he used:  Because America “took a sharply protectionist turn before the infamous 1930 Smoot-Hawley Act,” the country’s farmers “spent the 1920s suffering from low prices for their products and high prices for farm equipment, leading to a surge in foreclosures.”

“Part of the problem was that U.S. tariffs were met with retaliation; even before the Depression struck, the world was engaged in a gradually escalating trade war.”

Sounds pretty convincing, right? In fact, not even close. And not least of which because the only two sources cited by Krugman contain absolutely no mention of low farm prices or foreclosures or unaffordable farm equipment stemming from any trade-related developments. In fact, there’s not even a mention of “high prices for farm equipment” at all.

The sources – articles on the Economic History Association’s website on the 1920s tariffs, and on the U.S. economy in the 1920s (you can read them here and here) – demonstrate that agriculture’s woes during this period (not surprisingly) resulted from many cases. But tariffs don’t make the list. 

Simply put, the main culprits were excessive borrowing by American farmers late in the previous decade based on the assumption that agricultural output in war-torn Europe would remain long depressed, and that this market would for many years be importing ever greater amounts of U.S. farm products; and a subsequent price-depressing glut in American supply when European output recovered faster than expected once World War I ended.

A a result, U.S. farmers were left with lots of new acreage and machinery that suddenly became superfluous even though their new owners still needed to pay off the debts they incurred to buy them.  No wonder so many weren’t able to meet their mortgage payments.

Adding to American agriculture’s problems during this period were a productivity boom triggered by surging mechanization and other advances that permitted agricultural production to rise much faster than domestic (and foreign) consumption; and an economy-wide depression in 1920 and 1921 that primarily resulted from excessive monetary tightening by the Federal Reserve. Again, nothing about tariffs.

Importantly, the 1920s economic history article in particular is a gold mine of information about many developments of that time that shed considerable light on today’s major economic challenges – as I’ll be describing in some future posts.  In the meantime, I’d strongly recommend that anyone with an interest in the American economic invest the time needed to read it – starting with Paul Krugman.

(What’s Left of) Our Economy: Time to Investigate China’s Enablers in the Trade War

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China, customs fraud, Malaysia, Mexico, Nikkei Asian Review, Taiwan, tariffs, Trade, transshipment, Trump, v, Vietnam, {What's Left of) Our Economy

For decades (decades!), when describing how U.S. trade policy should be overhauled, I’ve emphasized that Washington’s approach needs to be not onl “tougher” or “stronger” — as per the favored terms of politicians and reporters.  It needs to be smarter and more nimble as well.

So here’s to the Japanese publication Nikkei Asian Review. It’s just shown exactly why – and why such smarts and agility are especially important for an administration more than willing to use tariffs on China and other economies to achieve its policy goals. (And thanks also to my Twitter follower “DeSaram-MAGA” for calling my attention to the piece.)

For a team of Nikkei journalists has investigated a key subject that no one in the Trump administration, the Congress, or the American media (at least to my knowledge) has bothered to look at: How much of the falling U.S. imports from China are being replaced by supplies genuinely produced in other countries (like Mexico and Vietnam), and how much are being replaced by goods from China being shipped through other countries either simply by putting them in different boxes and containers, or by slapping a coat of paint on them or making some other superficial change before sending them on to the United States?

The answers matter because if it’s mainly or significantly the former, then it becomes clear that the Trump tariffs really are hurting China by denying it sale opportunities that are being snapped up by other competitors. True, the final result per se won’t achieve the major Trump-ian goal of reducing the overall U.S. trade deficit. But China will be weakened – clearly another one of the President’s objectives – and the beneficiaries at least won’t be a huge, wealthy, powerful dictatorship acting like it wants to expand its influence in East Asia and perhaps the world over at America’s expense.

If the answer is the mainly or significantly the latter, then it becomes clear that numerous other economies – including U.S. allies – helping China evade the American levies, and that unless they halt these practices pronto, the case for worldwide tariffs on lots of products becomes a lot stronger.

The Nikkei journalists present evidence for both propositions. But given the uproar that erupted over the global Trump metals tariffs (imposed precisely to prevent assistance given to the Chinese metals producers who had glutted global markets), signs of customs fraud, transshipment, and related practices are especially important.

The Nikkei team provides some anecdotal evidence on this score. But the data-based case described is much more compelling. For example, the journalists found that although exports of five categories of goods from China to the United States – machinery and parts; electrical equipment and parts; furniture; toys; and automotive equipment and parts – declined between January and March of this year declined by 16 percent, “exports from China to developing countries and from developing countries to the U.S. [of these goods] have generally climbed. Exports via Vietnam, Taiwan and Mexico have increased particularly steeply.”

The rising Chinese exports to these countries strongly suggest that Vietnam, Taiwan, Mexico and others aren’t simply filling the China gap in the U.S. market with goods originating in their own economies. To a great degree, they’re helping Chinese origin goods fill that gap on the sly.

Even more suspicious, according to the article:

“Since the U.S. first slapped punitive tariffs on a broad range of imports from China, the six major Southeast Asian nations and Taiwan have started shipping nearly 1,600 new categories of products to the U.S. that they had never exported to America before.

“Of these new U.S.-bound exports, about 1,000 items, or over 60% of the total, are on Washington’s blacklist.”

That is, unless you believe that in a matter of months, major production capacity for this huge number of products somehow suddenly appeared where little, if any, existed before, then circumvention has to be rife.

The Nikkei findings don’t mean that the Trump administration should build all-encompassing tariff walls immediately. But they do mean that Washington needs to demand prompt answers from the economies in question. U.S. leverage, moreover, in many cases isn’t only economic. It’s grounded in national security, too. Countries like Vietnam, Taiwan, and Malaysia aren’t official U.S. treaty allies, but are all quite pleased that the American military counters China geopolitically by basing lots of assets in their neighborhood.

President Trump plainly understands that the United States needs these countries much less than vice versa both economically and security-wise. But the trade policy overhaul he’s rightly pursuing still needs to do better at guarding against foreign efforts to game the system. In this case, that requites demonstrating one of the most reliable signs of intelligence – curiosity.

Making News: Back on Israeli TV on Trump’s Mexico Tariffs – & a New Podcast!

Tags

border security, i24News, Immigration, Making News, Mexico, migrants, tariffs, Trade, Trump

I’m pleased to announce that I’m scheduled to return tonight to Israel’s i24News TV network to discuss President Trump’s threat to impose tariffs on imports from Mexico if Mexico doesn’t step up its efforts to ease the crisis on the two countries’ borders.  i24News is available by subscription only, but you can see the segment, which is slated to air at 8 PM EST, by clicking on this link and registering for a free trial subscription.

Moreover, I appeared on i24News last Friday, too, to participate in a panel discussion of the subject.  You can access the video by clicking on this link and downloading the file.

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

Im-Politic: A Better Way to Pressure Mexico on Immigration

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Border Crisis, border security, Central America, Charles Grassley, illegal aliens, Im-Politic, immigrants, Immigration, Mexico, migrants, remittances, tariffs, Trade, Trump, U.S.-Mexico-Canada Agreement, USMCA

It’s not every day that I praise veteran Republican Senator Charles Grassley of Iowa. In fact, I don’t believe I’ve ever praised him in print. On trade policy he’s often especially especially clueless – his last foray into this field consisted of threatening to use his chairmanship of the Senate Finance Committee to scuttle the U.S.-Mexico-Canada Trade Agreement (USMCA) unless President Trump withdrew his tariffs on metals imports from Mexico and Canada.

(Grassley was upset because Mexico in particular had retaliated by slapping tariffs on some key American farm products exported by states like Iowa. He didn’t seem to realize that, as I’ve written here, the tariffs needed to be global in scope to be effective. Meanwhile, however serious American farmers’ woes, they began in earnest years before any Trump tariffs went into effect.)

So imagine my surprise yesterday upon learning that Grassley has proposed a response to Mexico’s foot-dragging on helping to ease the crisis on its border with the United States that’s much better than President Trump’s tariffs.

According to Grassley, the way to pressure Mexico to tighten its own curbs on the floods of Central Americans streaming through its territory toward the United States is to tax the remittances sent to their home country by Mexicans who have moved northward both legally and illegally.

Remittances consist of money sent by immigrants back to their home country – usually to relatives. They encourage immigration because they come from wages earned by newcomers to the United States that are much higher than those they can make in their countries of origin.

And we’re unmistakably talking big numbers – especially for Mexico. The country’s own central bank pegged them at almost $31.5 billion last year. That’s more money coming into the Mexican economy than it makes from oil exports, and in fact its second largest foreign exchange earner after auto parts exports.

Unlike tariffs, remittances taxes wouldn’t harm Americans who buy imports from Mexico – whether consumers or businesses. All the victims would be Mexicans in Mexico. And because so many poor Mexicans in particular rely on these funds to help maintain and improve their living standards, a smaller flow would squeeze their finances and surely increase political instability in a country that’s long suffered more than its share of turmoil. Don’t think Mexico’s leaders – who are already sounding inclined to make concessions to Mr. Trump to avoid the threatened tariffs – could brush these sanctions off.

At least as important, unlike the proposed tariffs, remittance taxes wouldn’t endanger Congressional passage of the USMCA or undermine the Trump administration’s China trade policies by reducing Mexico’s attractiveness as an alternative export platform for companies looking to move in whole or in part out of the People’s Republic.

The President has actually spoken of taking this step to raise the resources needed to finance a Border Wall, but never followed through. At the time, covert and overt Open Borders supporters charged that the move could be counterproductive, since the remittances increased the well-being of their recipients enough to encourage them to stay in Mexico.

But since these payments still represent only a fraction of the earnings of Mexicans in the United States, it makes no sense to believe that many Mexicans in Mexico seriously contemplating moving across the border would be satisfied by receiving a fraction of a loaf if they thought it was all potentially available.

It’s possible that the Trump tariff threat could suffice to produce enough of a Mexican response to satisfy him on border security and declare victory with no levies. In this vein, it’s significant that Mexico’s president has already signaled his willingness to appease Mr. Trump somehow. But a remittances threat could have accomplished the same goal with much less muss and fuss. If negotiations with Mexico can’t resolve the issue by the announced Trump deadline of June 10, switching tactics to a remittances tax a la Grassley would be an unmistakable no-brainer.