(What’s Left of) Our Economy: Another Big Demographic Blow to Those Chinese Century Forecasts

Tags

China, demographics, GDP, gross domestic product, national security, per capita GDP, population, Trade, {What's Left of) Our Economy

China just came out with its final – for now – 2021 population growth figures, and they strengthen the case against the People’s Republic becoming rich and powerful enough to dominate the world before too long. Indeed, combined with stunning recent figures on Chinese performance on a key measure of prosperity, they add to the evidence that far from becoming a “Chinese Century,” the 21^st century is likeliest to become one of Chinese stagnation and even relative decline.

The demographic figures show that China’s population during 2021 increased by only about 480,000 – or 0.03 percent. For comparison’s sake, the U.S. population last year rose by about 392,600 – or 0.10 percent. That rate is widely viewed as alarmingly slow (see, e.g., here), but it’s triple that of China’s. Moreover, China’s population growth has been historically sluggish for the last decade. Its last decennial census revealed an increase of only 72 million between 2010 and 2020 – the smallest rise since the first such headcount in 1953.

Even worse, these developments are entirely consistent with recent authoritative predictions that, if not somehow reversed, China will experience a population bust for the rest of this century that will be nothing less than mind-blowing. Specifically, by 2100, it will fall by fully one half – and be just twice as large as the projected U.S. population (as opposed to being 4.24 times bigger today).

These population trends debunk the Chinese Century forecasts because of a related economic trend – China’s growth in per capita gross domestic product (GDP). This statistic gauges how much total economic output (GDP) a country is generating divided by each one of its inhabitants. If a country’s per capita GDP is growing, then its economy is growing faster than its population, and therefore the average individal is generating more wealth every year, and that therefore there’s more wealth (in theory) to spread among the population each year. If per capita GDP is shrinking, then there’s less wealth being created per person and therefore less available to share.

China’s per capita GDP isn’t shrinking. But according to the International Monetary Fund (IMF), it hasn’t been growing very rapidly, either, for the past forty years despite the country’s very fast overall growth. More important, when it comes to those Chinese Century forecasts, it’s been growing much more slowly than U.S. per capita GDP; the gap has widened greatly; and it’s forecast to continue widening for the next few years at least. And of course, China’s wealth per head as of 2020 was less than one-sixth of America’s to begin with.

If this forecast is correct, and China’s population and per capita GDP keep falling relative to their U.S. counterparts, the strategic and economic implications, as I’ve discussed, are game-changing. They mean that even measured by total size of economy, far from turning in China’s favor, or even narrowing, the U.S.-China gap would double in America’s favor. So the United States would have many more resources to devote to its millitary, or to improving its technological competitiveness, than its chief rival. (Whether Americans wind up spending this money wisely is another question altogether).

Economically, the implications mean that the United States would become a much more promising growth market than China, both in terms of the total sizes of their GDP and in terms of how much wealth the average Chinese and average  American could actually spend.

Interestingly, moreover, these trends played out between 2020 and 2021 alone. On a quarter-to-quarter basis, the United States has been growing faster than China. And America slightly widened its per capita GDP lead.

China of course remains a huge market in absolute terms, and its massive military buildup and impressive technological progress will enable it to keep mounting major and worsening threats to American security, ranging from an attack on global semiconductor manufacturing kingpin Taiwan to the cyberhacking of U.S. government agencies and private businesses (along with their customers). Nor is there any guarantee that Americans will avoid catastrophic policy mistakes or other problems.

But it’s hard to escape the notion that much of America’s China policy in recent decades (the Trump years excepted) was heavily influenced by defeatist attitudes on the part of its leaders (that is, those that weren’t in effect on Beijing’s payroll in one way or another). China’s latest Census results make clear that such gloom, which produced so many decisions that enriched and strengthened China because “There was no alternative,” is getting ever harder to justify.

(What’s Left of) Our Economy: November Was an Awfully Cruel Month for U.S. Trade

Tags

Advanced Technology Products, Canada, CCP Virus, Census Bureau, China, coronavirus, COVID 19, European Union, exports, Federal Reserve, goods trade, imports, inflation, Japan, manufacturing, non-oil goods trade deficit, Omicron variant, services trade, stimulus, supply chains, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

So maybe the global and especially U.S. supply chain snags of the last year are finally unraveling? That could well be a message being sent by this morning’s official release on American trade figures for November – which was dominated by huge increases in the nation’s goods imports, often to record levels.

Interestingly, though, little of this surge in goods from abroad came from China – probably reflecting some combination of the continuing effects of the Trump (and now Biden) tariffs, the ongoing semiconductor shortage that creates outsized problems for a country so reliant on electronics exports, and widespread power outages stemming from tight coal supplies.

Today’s report from the Census Bureau showed that the overall U.S. trade deficit swelled sequentially from $67.16 billion in October (the smallest since April’s $66.15 billion) to $80.17 billion. That total was the second largest ever (after September’s $81.44 billion). In addition, the 19.38 percent monthly increase was the most since July, 2020’s 19.87 percent. (The worst all-time relative month-to-month increase was 44.12 percent way back in December, 1996, when U.S. trade flows were much smaller, and therefore percentage increases much easier to generate.)

The November goods deficit of $98.99 billion was a record (topping the previous $97.83 billion all-time high of September), and the18.04 percent increase over October’s $83.86 level was the second greatest ever (after the 25.18 percent spurt of March, 2015 that resulted largely from a recovery after the previous month’s harsh winter weather).

Although November’s petroleum trade deficit more than quadrupled on month (to a still-modest $1.07 billion), the month’s shortfall in non-oil goods – the trade flows most influenced by U.S. trade policy decisions – soared by 17.06 percent, to $96.97 biillion. That total is a new record (eclipsing September’s $93.67 billion), and the increase was the biggest since the record 31.24 percent also set in March, 2015.

The roughly $13 billion absolute monthly rise in the November overall trade deficit resulted entirely (and then some) from combined goods and services imports, which were up $13.44 billion. The month’s $304.89 billion total was a second straight record (besting October’s $291.04 billion), and the 4.60 percent increase the biggest since March’s 7.18 percent. (The record relative total monthy import incease was July, 2020’s 10.58 percent.)

The story was similar in goods imports. They, too, set a second straight record, with the $254.93 billion level 5.05 percent higher than October’s previous all-time high of $242.67 billion, and the rate of increase the fastest since March’s 7.73 percent. (This record, too, was set in July 2020 – at 11.93 percent).

Continuing November’s string of consecutive all-time highs was the non-oil goods category of imports. At $232.30 billion, these purchases broke October’s previous record of $221.82 billion by 4.73 percent, a relative rise that was the fastest since March (7.12 percent). Their fastest increase came in July, 2020, too (11.88 percent). 

As indicated earlier, though, goods trade with China departed from this pattern. These imports advanced as well – but by just 0.73 percent. Their $48.39 billion level was the year’s highest, but only slightly above October’s $48.03 billion. Moreover, though elevated, these inflows fell short of the record $52.08 billion in October, 2018 – when U.S. companies were “front-running” their China purchases to bring them into the country before steep tariffs kicked in.

Moreover, the $32.32 billion goods deficit with China was far from the high for the year (September’s $36.50 billion), much less anywhere close to the monthly record ($42.89 billion, which also came in October, 2018).

So geographically speaking, where did U.S. goods deficits go up the most month-to-month in November? Among the nation’s biggest trade partners, Canada was the biggest culprit percentage-wise. America’s $6.12 billion of goods purchases from its northern neighbor were the most of 2021 and the biggest such total since September, 2008’s $7.36 billion. And the sequential leap of 60.67 percent (which, to be fair, followed a big October decline of 26.09 percent) was the fastest since January, 2021’s 74.04 percent surge.

The goods deficit with the European Union was up 28.59 percent sequentially in November to a record $20.85 billion. The increase, moreover, was the greatest since the 73.82 percent rate of March, 2020, as Europe was climbing out of its first CCP Virus wave.

And the goods gap was up by 17.74 percent with Japan to $4.16 billion. The total was the year’s second lowest (after February’s $4.02 billion) but the increase was the fastest since July’s 27.43 percent (though it followed a 23.21 percent plunge in October).

Turning to specific products, more new trade records came in the manufacturing sector. The November trade deficit for industry hit a new all-time high of $124.06 billion – a total that broke the old mark (September’s $118.75 billion) by 8.06 percent. Manufacturing exports sank sequentially in November by 4.15 percent, from $102.752 billion to $98.488 billion, and the 2.29 percent increase in manufacturing exports brought them to their second straight monthly worst – $222.553 billion.

With one month left in data year 2021, the manufacturing trade deficit stands at $1.209 trillion, and is running 11.63 percent ahead of 2020’s record rate.

Not that the records stop with manufactures. In Advanced Technology Products, imports of $52.52 billion set their third staight all-time high, and the November deficit of $21.76 billion trailed only November, 2020’s $21.90 billion in this data series’ 33-year history.

One positive all-time trade high was set in November: At $224.22 billion, total exports established their second record monthly total. But the monthly improvement was a measly 0.16 percent.

November’s $155.94 billion worth of goods exports were the second highest monthly total on record – but the level was down 1.81 percent sequentially.

The pandemic-beleaguered services sector delivered some good trade news, too. Its longstanding trade surplus remains low by historic standards, but did climb by 12.68 percent, to $18.82 billion. The increase was the fastest since the 28.08 percent recorded in September, 2004 (when services trade flows were much smaller than today’s), and the total was the best since June’s $20.33 billion.

Services exports enjoyed a strong November, too. They hit $68.27 billion, for their highest mark since the $69.12 billion reached in February, 2020 – just before the pandemic arrived in the United States and began seriously distorting its trade flows and entire economy. Further, the 4.97 percent improvement was the best since January, 2002’s 5.56 percent.

Will November prove to be the cruelest month – at least for the time being – for U.S. trade? A further removal of supply chain bottlenecks and the huge savings still amassed by American consumers say “No.” But the opposite conclusion could easily be reached by pointing to a reduction in the Federal Reserve’s economic stimulus programs, the unlikelihood of Congress approving big spending bills during this midterm election year, and still lofty inflation rates – which at some point will produce a consumer pullback.

The impact of the CCP Virus, it’s highly infectious Omicron variant, and possible future strains? Those are the $64,000 questions that trade and economic policy analysis may well find excruciatingly difficult to answer.

Im-Politic: A Year After

Tags

Biden, Capitol assault, Capitol riots, China, Constitution, Democrats, Donald Trump, election 2024, GOP, Im-Politic, Immigration, impeachment, January 6, January 6 committee, Populism, Republicans, Trade

Tomorrow is the first anniversary of last January 6’s Capitol riot, and it’s also when we’ll see the new monthly U.S. trade figures (which I’m really anxious to cover). So I figured I’d post today on what to me is the most fascinating and important development stemming from that day’s tumult:  Contrary to my expectations, the impact on American elective politics has been pretty slight so far and may well stay minimal. And that includes on the question of Donald Trump’s political future.

Before starting the political analysis, let me recap my main views on the actual events of January 6, the run up to them, and their immediate aftermath.

First, anyone who forced their way into the Capitol building, or even past the security barricades then erected around its perimeter, should be punished severely. Ditto for anyone who planned these actual attacks, and anyone illegally present in the building or anywhere on the Capitol grounds who resisted arrest and/or destroyed property.

Second, anyone illegally inside the building who didn’t act violently should be punished, too, though less severely (for reasons explained nicely by CNN here and here). For even if they just wandered in once the entrances were left unguarded, it should have been obvious from the chaos and violence they must have seen and/or heard that something was very wrong. Moreover, it’s a well established principle that ignorance of the law (in this case, trespassing on government grounds) is no defense.

Third, I see no valid argument for going after individuals who were simply present on the Capitol grounds outside the building and stayed outside, and even less of a case for action against those who simply attended the Trump rally that preceded the attack. And this includes actions taken by public or private employers.

Fourth, too many important, disturbing, and unanswered questions about Capitol security procedures and preparations remain unanswered. Principally, why weren’t the big metal doors on the Capitol’s ground level closed immediately after it became obvious that a crowd was milling about that included folks with bad intent? And why was the security presence so light to begin with?

Fifth, Nothing said by Trump at the rally qualified in legal terms as incitement to riot. Consequently, that argument for impeachment and removal was always bogus. Another argument was stronger, but in my view still inadequate – Trump’s delay (which I described as “reckless”) in urging the Capitol breachers to cease and desist at once, and in condemning their actions. It’s inadequate because it was a delay (in carrying out his Constitutional duties to “take Care that the Laws be faithfully executed”), not a refusal or a failure.

It’s possible that the investigations into the January 6 events by the (Biden) Justice Department or Congress’ January 6 committee might uncover stronger evidence of Trump culpability on any of these counts. But we simply haven’t arrived at that point yet.

These positions led to the three main political conclusions I drew about January 6:

>the former President would remain influential in Republican circles (particularly at the grassroots level), but that these favorability ratings would fade;

>Republican political fortunes would take a major and possibly lasting hit, as Democrats would miss no opportunity to remain voters about January 6, especially as elections approached; and

>support for Trump-ian positions on his core issues, notably China and trade policies, and immigration, would be significantly undermined.

As of today, however, these quasi-predictions are looking overblown at best, at least if numerous major national polls are generally on target.

Is Trump’s standing in Republican ranks diminished? As it’s been throughout the year (see, e.g., here and here), the evidence continues to be all over the place. For example, this CBS News survey shows that only 56 percent of self-identified Republicans want the former President to seek reelection in 2024.

At the same time, a new Reuters poll shows that no other likely alternative candidate is even close to him as the GOP’s favorite in the next White House race.

Does this mean that Trump’s only looking good to Republicans because his intra-party competition appears so unimpressive? That’s possible. Yet this Pew Research Institute poll shows that these same voters rate Trump’s presidential performance as nearly as highly as that of the revered Ronald Reagan.

Some similarly, seemingly contradictory, trends can be found in the national electorate’s views of Trump. That aforementioned CBS survey reported that a mere 26 percent of all U.S. adults want Trump to run again in 2024 (including only 23 percent of independents). According to recent RealClearPolitics.com averages, though (which combine the results of several individual soundings), Trump would beat President Biden in the popular presidential vote if the contest were held today.

And public opinion on the blame for January 6 seems pretty irrelevant. How else can you explain this Washington Post-University of Maryland finding that 60 percent of American adults believe that Trump bears “a great deal” or “a good amount” of blame for the riot?

Nor are there many signs that the GOP’s image overall has been tarnished by January 6 or by the party’s response to the Capitol attack or its reaction to whatever responsibility Trump deserves. The strongest evidence: Since November, Democrats have fallen behind Republicans in RealClearPolitics‘ gauge of which party Americans would support in a “generic” race for a seat in Congress. 

Most alarmist of all have been my fears that the public would turn against Trump-ian trade and immigration policies. Indeed, hard lines on China (which Mr. Biden has largely embraced) and on border security (which the President has clearly botched) are more popular among the electorate than ever.

In my defense, my initial reaction to the politics of January 6 did include the caveat that any damage to the Trump or Republican images could be limited, and even overcome, either if Americans’ characteristically short memories simply reasserted themselves again, or if they soured big-time on Mr. Biden. Clearly, the nation has seen a good deal of both.

Yet could outrage over the Trump and Republican January 6 roles and responses still be successfully stoked by Democrats going forward? To date, that doesn’t seem likely. Democrat Terry McAuliffe tried this tack in last November’s Virginia governor race – explicitly warning that a victory by Republican rival Glenn Youngkin would boost Trump’s future presidential prospects. He failed miserably. And these two polls (here and here) reveal only middling-at-best national trust in the fairness of the January 6 committee. 

Again, future bombshell revelations can’t be ruled out. But for the time being, it looks like for better or worse, the American public is steadily moving on from January 6. Will the Democrats? Can they?       

       

(What’s Left of) Our Economy: New U.S. Growth Figures Reveal Historic Service Trade Surplus Collapse

Tags

CCP Virus, coronavirus, COVID 19, exports, GDP, goods trade, gross domestic product, imports, real GDP, real trade deficit, services trade, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

The second official read on U.S. economic growth for this third quarter of this year, released by Washington last month, showed such marginal change from the advance report – and so paled in importance to other developments (chiefly, faster U.S. inflation) – that I didn’t post my usual analysis of the trade highlights.

This morning, the final (for now) numbers came in, and the results once more underscore how thoroughly the CCP Virus and official mitigation efforts (like lockdowns), voluntary behavior changes, and resulting supply chain bottlenecks keep distorting the economy.

And remember: These statistics on changes in the country’s gross domestic product (GDP) after adjusting for inflation all predate the arrival stateside of the highly infectious Omicron strain of the virus.

More specifically, it’s now clear that the third quarter saw a widening of the U.S. trade deficit despite relatively slow national growth rate (2.28 percent in real terms at annual rates), in contrast to the stabilization of the trade deficit during a second quarter of much stronger (6.56 percent) growth. That’s exactly the opposite of what almost always happens, since faster U.S. economic expansion tends to pull in more goods and services from abroad on net.

In addition, these latest after-inflation U.S. trade figures make clearer than ever that much of the virus-related damage to the nation’s trade flows is concentrated on the services side.

So let’s begin with services trade. The United States has long run an inflation-adjusted surplus in these sectors, and the surplus continued in the third quarter of this year. But at $107.6 million, it was the smallest since the first quarter of 2007 ($106.1 million). Moreover, the surplus shrank all the way from its $152.4 million second quarter level.

That’s a deterioration of just under 30 percent – which is not only the most dramatic narrowing of all time (in a data series that began in 2002), but the most dramatic narrowing by a huge margin. The runner up? The 17.62 percent fall-off between the third and fourth quarters of 2004 (17.62 percent), when the absolute totals were much smaller, and therefore big percentage changes much easier to generate.

Most of this deterioration came on the services imports side. Between the second and third quarters, they jumped by 7.80 percent, to $492.2 million. That rate was the fastest since the 8.30 percent increase in the fourth quarter of last year. Services exports were off sequentially by 1.51 percent, to just under $600 million.

As for the other figures, the combined inflation-adjusted goods and services trade deficit hit $1.3166 trillion annualized in the third quarter, still the fifth straight quarterly record, and an increase of 5.79 percent over the second quarter’s $1.2445 trillion.

That growth rate was much higher than the 1.50 percent between the first and second quarters, but remained the second lowest of the pandemic era.

Significantly, though, that after-inflation trade deficit increase was enough to cut overall third quarter economic growth by a sizable 1.26 percentage points. That’s seven times deeper than the 0.18 percentage point reduction in the second quarter, and means that, had the trade gap remained the same, third quarter real growth would have been 3.54 percent annualized – or 55.26 percent stronger.

In fact, on a relative basis, that was the biggest trade hit to U.S. economic expansion since the fourth quarter of 2018, when the gap’s widening knocked 0.51 percentage points off the feeble 0.89 percent annualized real growth rate.

And in another gloomy worst-ever result, the real trade defiicit as a share of the economy hit 6.76 percent – eclipsing the old first quarter record of 6.43 percent.

The third quarter’s goods deficit of $1.4215 trillion annualized was also just modestly (1.43 percent) higher than the second quarter’s $1.4014 trillion. But it, too, was a fifth straight all-time quarterly high.

Total price-adjusted exports dropped by 1.35 percent sequentially in the third quarter, to $2.2730 trillion annualized. The decrease was the biggest since the 20.44 percent nosedive between the first and second quarters of 2020, when the virus first began distorting trade and the entire economy.

Combined goods and services imports only rose by 1.15 percent, to $3.5896 trillion at annual rates – the best performance in this category since the second quarter of 2020 as well, when they sank 17.24 percent. But the absolute import figure still represented the third straight monthly record.

Constant dollar goods exports sagged during the third quarter, too – by 1.29 percent seqentially – to $1.7013 trillion annualized, while goods imports dipped fractionally from the second quarter’s record $3.1255 trillion annualized to $3.1228 trillion.

With strong GDP growth expected for the fourth quarter of this year, the real trade deficit seems sure to keep extending further into record territory. Unless the virus-distorted economy throws observers yet another curve ball?

(What’s Left of) Our Economy: A New U.S. Manufacturing Growth Report That’s the Good Kind of Boring

Tags

aerospace, aircraft, aircraft parts, automotive, Boeing, Build Back Better, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, inflation-adjusted output, infrastructure, interest rates, Iran, Iran deal, Israel, Joe Manchin, machinery, manufacturing, medical devices, nuclear deal, Omicron variant, personal protective equipment, pharmaceuticals, plastics and rubber products, PPE, quantitative easing, Russia, semiconductors, stimulus, supply chains, Taiwan, tariffs, therapeutics, Trade, Ukraine, vaccines, Wuhan virus, {What's Left of) Our Economy

Today’s Federal Reserve after-inflation U.S. manufacturing data (for November) were refreshingly (though encouragingly) boring, with one exception – some genuinely eye-popping revisions in specific, high-profile industries.

Overall real manufacturing output improved on month by 0.68 percent, adding to the evidence that domestic industry has bounced back from summer and early fall doldrums caused partly by damage from Hurricane Ida and partly by a global semiconductor shortage that depressed automotive production.

And in this vein, the November results weren’t dramatically impacted by the vehicle and parts sector, whose inflation-adjusted production rose by a 2.22 percent figure that’s clearly strong but decidedly un-dramatic compared with the roller-coaster it’s been on for most of the year.

In addition, revisions for manufacturing as a whole were modest and mixed.

The list of November’s biggest monthly manufacturing growth winners indicates how broad-based industry’s sequential constant dollar output gains were in November. No fewer than six of the major manufacturing subsectors tracked by the Fed enjoyed price-adjusted production advances of more than one percent. Aside from automotive, they were aerospace and miscellaneous transportation (whose 1.64 percent increase included another strong rise in aircraft, as will be detailed below); paper (up 1.63 percent); plastics and rubber products (1.45 percent); non-metallic mineral goods (1.25 percent); and textiles (1.21 percent).

The biggest losers were petroleum and coal products (down 1.24 percent on month); machinery (off by 0.66 percent); apparel and leather goods (0.53 percent); and printing and related support activities (0.50 percent).

But even in this group, hopeful signs can be found. As RealityChek regulars know, drps in machinery production are worrisome because its products are used so widel in the rest of manufacturing and in big non-manufacturing sectors like construction and agriculture.

But the November decline followed one of those eye-popping revisions. October’s originally reported 1.27 percent sequential decrease is now judged to be a 0.59 percent increase.

Moreover, the printing and petroleum and coal products fall-offs were both preceded by October real production advances that have been downwardly revised (from 4.97 percent to 3.79 percent for the former, and from 1.41 percent to 1.18 percent for the latter) but were still impressive.

Manufacturing industries that have been prominent in the news during the pandemic generally performed worse in November, save for aircraft and parts – whose performance was spurred by news from industry giant Boeing that continues to be pretty good. (See, e.g., here and here.) After-inflation production climbed by 1.90 percent month-to-month in November, and October’s 1.43 percent increase was revised up to 1.54 percent.

Even with a second downward revision to September’s inflation-adjusted output (from 0.45 percent all the way down to a negligible 0.09 percent), constant dollar output in aircraft and parts is now 15.86 percent higher than in February, 2020 – the last full data month before the CCP Virus began seriously distorting the U.S. economy.

Pharmaceuticals and medicines, however, lost even more growth momentum. Despite major demand for and use of vaccines, their price-adjusted output dipped by 0.15 percent sequentially in November, and October’s decrease was revised from 0.51 percent to 0.76 percent. But September saw another one of these enormous revisions – from a downgraded 1.04 percent production fall to a 0.76 percent gain. All told, these industries are now 13.54 percent bigger in constant dollar terms as of November than in February, 2020.

The news was worse in the crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators. Real production in November was off by 0.61 percent month-to-month in November, and October’s previously reported 1.08 percent decrease is now estimated at a greater 1.91 percent. Moreover, September’s results saw their second big downgrade – first from an initially reported 1.53 percent growth to a 0.73 percent gain, and this morning to one of just 0.16 percent. So since February, 2020, after-inflation production in this sector is up a mere 0.65 percent.

As with the entire economy, the manufacturing sector is being pushed and pulled by what seems to be an unprecedented number and type of forces and government decisions. On balance, though, unless the Omicron variant of the CCP Virus prompts much more voluntary or officially mandated disruption at home or abroad than seems likeliest now, further manufacturing growth still looks like the best bet for the foreseeable future.

Although prospects for stimulus from President Biden’s Build Back Better bill seem barely on life support due to West Virginia Democratic Senator Joe Manchin’s continuing objections, and the Federal Reserve yesterday announced further reductions in its stimulative bond-buying (AKA quantitaive easing), infrastucture bill money should soon begin flowing.  Further, the central bank still made clear that heavy levels of quantitative easing will continue for months more, and is in no rush to start raising interest rates.

Most consumers still have plenty of money to spend, even though further inflation could weaken their appetites. U.S. employment levels keep rebounding strongly by most measures. Supply chain knots continue untangling, albeit not always quickly. Mr. Biden is keeping nearly all of his predecessor’s China tariffs in place, which is preventing predatory Chinese competition from taking customers from domestic manufacturers. The brightening Boeing picture will help its entire vast U.S.-based supply chain. And American and overseas demand for both CCP Virus vaccines and now therapeutics will surely keep growing whatever the rest of the domestic or global economies do.

One set of gathering clouds shouldn’t be neglected, however. I don’t mean to sound alarmist, and don’t believe conflicts are imminent, but what the investment community calls “geopolitical risk” is troublingly on the rise in Asia (due to mounting Chinese pressures on Taiwan) and Europe (due to Russia’s military buildup on the Ukraine border). Moreover, although negotiations to slow Iran’s progress toward nuclear weapons capability have resumed, this has been ongoing and nearing critical threshholds. And it’s far from clear how well a nuclear Iran would go down with Israel – just as it’s far from clear how well domestic manufacturing and the rest of the economy could withstand a second major non-economic disruption in a very few years.

(What’s Left of) Our Economy: How to Really Make Trade Fair

Tags

automotive, BBB, Biden administration, bubbles, Build Back Better, Canada, consumption, Donald Trump, electric vehicles, EVs, fossil fuels, manufacturing, Mexico, NAFTA, North America, production, tax breaks, Trade, U.S.-Mexico-Canada Agreement, USMCA, {What's Left of) Our Economy

There’s no doubt that the next few weeks will see a spate of (low-profile) news articles on how unhappy Canada and Mexico are about proposed new U.S. tax credits for purchasing electric vehicles (EVs) and how these measures could trigger a major new international trade dispute.

There’s also no doubt that any such disputes could be quickly resolved, and legitimate U.S. interests safeguarded, if only Washington would finally start basing U.S. trade policy on economic fundamentals and facts on the ground rather than on the abstract and downright childishly rigid notions of fairness that excessively influenced the approach taken by Donald Trump’s presidency.

The Canadian and Mexican complaints concern a provision in the Biden administration’s Build Back Better (BBB) bill that’s been passed by the House of Representatives but is stuck so far in the Senate. In order to encourage more EV sales, and help speed a transition away from fossil fuel use for climate change reasons, the latest version of BBB would award a refundable tax break of up to $12,500 for most purchases of these vehicles.

The idea is controversial because the administration and other BBB supporters see these rebates as a great opportunity to promote EV production and jobs in the United State by reserving his subsidy for vehicles Made in America. (As you’ll see here, the actual proposed rules get more complicated still – and could change some more.) And according to Canada and Mexico, this arrangement also violates the terms of the U.S.-Mexico-Canada-Agreement (USMCA) governing North American trade that replaced the old NAFTA during the Trump years in July, 2020.

Because USMCA largely reflects those prevailing concepts of global economic equity, Canada and Mexico probably have a strong case. But that’s only because this framework continues classifying all countries signing a trade agreement as economic equals. Even worse, there’s no better illustration of this position’s absurdity is the economy of North America.

After all, the United States has always accounted for vast majority of the continent’s total economic output and therefore market for traded goods. According for the latest (2020) World Bank figures, the the United States turned out 87.51 percent of North America’s gross product adjusted for inflation. And when it comes to new car and light truck sales, the U.S. share was 84.24 percent in 2019 (the last full pre-pandemic year, measured by units, and as calculated from here, here, and here).

But in 2019, the United States produced only 68.88 percent of all light vehicles made in North America (also measured by units and calculated from here, here, and here.) Moreover, more than 70 percent of all vehicles manufactured in Mexico were exported to the United States according to the latest U.S. government figures. And for Canada, the most recent data pegs this share at just under 54 percent (based on and calculated from here and here).

What this means is that, without the American market, there probably wouldn’t even be any Canadian and Mexican auto industries at all. They simply wouldn’t have enough customers to reach and maintain the production scale needed to make any economic sense.

So real fairness, stemming from the nature of the North American economy and the North American motor vehicle industry, leads to an obvious solution: Give vehicles from Canada and Mexico shares of the EV tax credits that match their shares of the continent’s light vehicle sales – just under 16 percent.

Therefore, using, say, 2019 as a baseline, from now on, the first just-under-16 percent of their combined light vehicle exports to the United States would be eligible for the credits for each successive year, and the rest would need to be offered at each manufacturer’s full price (a pretty plastic notion in the auto industry, I know, but a decision that would need to be left to whatever the manufacturers choose).

Nothing in this decision would force Canada or Mexico to subject themselves to these requirements; they would remain, as they always have been, completely free to try to sell as many EVs as they could to other markets (including each other’s).

What would change dramatically, though, is a situation that’s needlessly harmed the productive heart of the U.S. economy for far too long, resulting from trade agreements that lock America into an outsized consuming and importing role, but an undersized production and exporting role. In other words, what would change dramatically is a strategy bearing heavy responsibility for addicting the nation to bubble-ized growth. And forgive me for not being impressed by whatever legalistic arguments Mexico, Canada, any other country, or the global economics and trade policy establishments, are sure to raise in objection.

Following Up: Podcast Now On-Line of New National Radio Interview on the U.S. Economy & Biden’s China Stategy

Tags

Biden administration, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, Following Up, inflation, interest rates, Market Wrap with Moe Ansari, monetary policy, sanctions, stimulus, taper, tariffs, tech, Trade, Wuhan virus

I’m pleased to announce that the podcast is now on-line of my interview today with Moe Ansari on his nationally syndicated “Market Wrap” radio program.

Press the “play” button under “Current Market Wrap” at this link for a timely discussion of the puzzling state of the CCP Virus-distorted U.S. economy – including what kind of policy changes (if any) the Federal Reserve is likely to and should announce tomorrow – plus an assessment of the Biden administration’s approach to China. The segment begins at about the 21:50  mark.

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

Making News: Back on National Radio Tonight for a Check Up on the Economy

Tags

CCP Virus, China, coronavirus, COVID 19, inflation, Making News, Market Wrap with Moe Ansari, Omicron variant, Trade

I’m pleased to announce that today I’m scheduled to be back on the nationally syndicated “Market Wrap with Moe Ansari” radio program to discuss the general state of the CCP Virus-rocked U.S. economy – including no doubt the outlook for inflation. And don’t be surprised if we bring up the latest in U.S.-China relations as well.

“Market Wrap” is broadcast nightly between 8 and 9 PM EST, the guest segments typically come in the second half-hour, and you can tune in by visiting Moe’s website and clicking on the “Listen Live” link on the right-hand side.

As usual, moreover, if you can’t tune in, the podcast will be posted as soon as it’s on-line.

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

(What’s Left of) Our Economy: Are Apple Products “Designed in California…& Extorted by China?”

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Apple Inc., Breitbart.com, China, Donald Trump, economics, forced technology transfer, free trade, globalization, infotech, John Carney, national security, privacy, surveillance, tech, TheInformation.com, Tim Cook, Trade, {What's Left of) Our Economy

You have to give Tim Cook credit for sheer gall, at least if a recent report is true (as it appears to be, since it he hasn’t yet denied it). There was the Apple, Inc. CEO in 2018, at a forum in Beijing no less, in effect warning former President Donald Trump to ditch his plans to impose America’s first ever serious tariffs on Chinese goods, largely because “What I’ve seen over my lifetime is that countries that embrace openness, that embrace trade, that embrace diversity are the countries that do exceptional — and the countries that don’t, don’t.”

And not two years before, according to this account, Cook had promised China that over the next five years, the infotech giant would make a $275 billion effort to strengthen the People’s Republic’s technology and manufacturing base if China’s thug regime would back off a major crackdown it had launched on the company’s massive Chinese operations.

Moreover, as made clear in the December 7 article in TheInformation.com, Cook’s commitments not only have inevitably and massively affected U.S. and China trade and broader economic flows, and will continue to do so going forward. They’re likely to endanger America’s national security. After all, Cook, for reasons having squadoosh to do with free trade or free markets or economic fundamentals, evidently pledged to

>invest “many billions of dollars more” than what the company was already spending annually in China: in part on building new research and development centers”;

>help Chinese manufacturers develop “the most advanced manufacturing technologies” and “support the training of high-quality Chinese talents”;

>collaborate on technology with Chinese universities and directly invest in Chinese tech companies”; and

>collaborate on technology with Chinese universities and directly invest in Chinese tech companies”;

>use more components from Chinese suppliers in its devices”; and 

>give business to Chinese software firms”.

Since every economic and academic entity in China is ultimately under the thumb of the Chinese government, Cook’s submission to Beijng’s pressure has made enormous amounts of resources and knowhow available to a Chinese regime that has challenged American security interests in East Asia and around the world, and that powerfully threatens Washington’s ability to protect Americans’ privacy and political freedoms through its increasingly impressive hacking and other surveillance capabilities (including via the wildly popular TikTok video-sharing app).

In the worst (but ever more plausible) case, in a future conflict with Beijing, Chinese weapons that kill U.S servicemen could be partly and/or indirectly financed and developed by Apple – and, as I’ve made clear, e.g., here and here, by the numerous other U.S. companies that have fueled China’s tech and therefore military prowess.

But also crucial to point out – the deal signed by Cook (far from the only target of China’s successful campaigns of forced tech and manufacturing production transfer over a period stretching back decades), also challenges a core idea of free trade theory in a way first pointed out by friend John Carney of Breitbart.com.

As Carney wrote more than two years ago, economists and others who were crticizing Trump’s tariffs were making an especially important mistake. They were assuming “that all of the goods that are imported from China are made there because China is the lowest cost manufacturer of those goods. If that were true, moving production out of China would necessarily increase costs of production and reduce efficiency.”

But as he proceeded to remind, China couldn’t be such a paragon of manufacturing value. If it were, why would Beijing have been relying for so long on such a wide variety of “mercantilist tactics to attract and retain manufacturing business from global businesses, including requiring companies to manufacture goods in China in order to access its domestic markets and imposing steep tariffs on imports for foreign-made goods”?

In fact, Carney continued, “China’s policies…impose what economists call ‘deadweight losses’ on the global economy by preventing companies from moving their supply chains to cheaper sources.” And tariffs can serve as an essential counter-weight. 

Apple is nothing if not public relations-obsessed, and several years ago responded to public concern about all its production in the People’s Republic with an ad campaign stressing that its products are “designed in California.”  At least for accuracy’s sake, the company should now add “and extorted by China.”  And the news should greatly energize Washington’s efforts to stop U.S. companies from strengthening and enriching this burgoning menace.               

Following Up: Podcast On-Line of National Radio Interview on U.S.-China Economic Divorce

Tags

CBS Eye on the World with John Batchelor, China, decoupling, Following Up, investment, sanctions, tech, Trade

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

Click here for a timely discussion of whether the United States really can afford to decouple from China’s gigantic economy – and how much progress has or hasn’t been made toward such a break up.

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