Our So-Called Foreign Policy: Time to Test U.S. “Allies” on China

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allies, America First, Asia-Pacific, Barack Obama, China, Emmanuel Macron, EU, European Union, France, globalism, Our So-Called Foreign Policy, RCEP, Regional Comprehensive Economic Partnership, TPP, Trade, Trans-Pacific Parternship, Trump

President Trump’s globalist critics in the foreign policy Blob (the Washington, D.C.-centered complex of former diplomats and military officers, genuine academics, think tank hacks, and their Mainstream Media mouthpieces) think they’ve uncovered major new proof that the administration’s America First-type foreign policies and trade policies are failing catastrophically. Actually, the developments they’ve seized upon make clearer than ever the dangerous folly of their own outdated strategies, and the urgent need for a Trump-ian course change.

What’s gotten the globalists excited: Reports that America’s allies the world over are turning their backs on Washington and either moving into China’s orbit or cultivating better relations with the People’s Republic.

In the Asia-Pacific region, fifteen countries, including American treaty allies Australia, Japan, and South Korea, have decided to join the Regional Comprehensive Economic Partnership (RCEP) – a Chinese spearheaded trade agreement that doesn’t include the United States. Although Washington is apparently free to join, RCEP’s progress is seen as a big defeat for the United States, and for Mr. Trump in particular, because for years Beijing has been pushing it as an alternative to the Asia-Pacific-focused Trans-Pacific Partnership (TPP) deal signed by former President Barack Obama but nixed by President Trump on his first full weekday in office.

TPP was touted as a counter to RCEP that was vastly preferable for the United States because its protections of the environment and labor rights, and its curbs on state-owned enterprises, created standards that China could not hope to meet any time soon. Therefore, the agreement allegedly represented both a means of containing Chinese power and a powerful inducement to the kinds of Chinese reform long sought by Washington (and at least nominally sought by the President).

In other words, it supposedly was a globalist masterstroke that was foolishly trashed by Mr. Trump. And he’s now getting his richly deserve comeuppance via the Chinese-developed RCEP, which, it’s said, doesn’t address the above issues nearly as effectively as TPP, but which has nonetheless attracted many other signatories also spurned by the Trump rejection.

As known by RealityChek regulars, the anti-China case for TPP was bogus from the start, along with its claims to promoting the kinds of reforms throughout the Asia-Pacific region that would benefits American exporters. For the agreement contained a wide open backdoor for numerous products with high levels of Chinese content, which would have enabled Beijing to realize many of TPP’s benefits without incurring any of its obligations. Nearly as bad, for all their lofty ambitions, those obligations would have been impossible for Washington to monitor and enforce adequately, as most signatory governments’ bureaucracies, along with their national industrial bases, were too large (and in the case of the governments, secretive) to track.

Moreover, these glaring TPP weaknesses raise questions that hardly strengthen confidence in globalist views both of the agreement and, just as important of U.S. Allies. Specifically, TPP’s China back door and verification shortcomings weren’t exactly secrets. And they surely reveal that the Australias, Japans, and South Koreas of the world were never very interested in containing China or pressuring it to reform in the first place. The decision of these countries to go along with an RCEP that doesn’t even try seriously to achieve these goals casts even deeper doubt on their reliability for any future American efforts to work multilaterally to cope with China.

And as for the inevitable counter-argument that the Trump TPP pullout gave these Asia-Pacific countries little choice but to accept a second-best deal more advantageous to Beijing, it doesn’t withstand scrutiny. After all, all these countries had years to work with the George W. Bush and Obama administrations to develop regional trade arrangements that could realistically hope to achieve their intertwined China and reform objectives. They all (along with those globalist Presidents) completely blew the opportunity.

On the other side of the world, the Associated Press has just reported on a similar shift by the European Union, that huge economic bloc that also contains many countries allied with the United States through the North Atlantic Treaty Organization. In an article titled “Europeans look to China as global partner, shun Trump’s US,” correspondent Sylvie Corbet wrote that “When France’s president wants to carry European concerns to the world stage to find solutions for climate change, trade tensions or Iran’s nuclear ambitions, he no longer calls Washington. He flies to Beijing.”

She added that on his recent visit to Beijing, Emmanuel Macron “portrayed himself as an envoy for the whole European Union, conveying the message that the bloc has largely given up on Trump, who doesn’t hide his disdain for multilateralism.”

In the process, though, the author made a powerful, if completely unwitting, case for American unilateralism. For according to Corbet, Macron and Chinese dictator Xi Jinping “issued a ‘Beijing call’…for increased global cooperation in fighting climate change and better protecting biodiversity. Both countries have deplored the U.S. withdrawal” from the Paris climate change accord.

Macron apparently stood by as Xi “said the two leaders were sending ‘a strong signal to the world about steadfastly upholding multilateralism and free trade, as well as working together to build open economies.’”

And for good measure, the French president touted China’s record of helping to reduce tensions in the Persian Gulf, and potential contributions to using diplomacy to persuade Iran to return to full compliance with the nuclear proliferation deal rejected by Mr. Trump. In addition, he touted China’s ability to help “develop stable and cooperative trade rules at the international level.”

To which the only serious reply from the American standpoint is, “If Macron and anyone else in Europe really believe this nonsense, and assume that they’re better off aligning with China than with the United States, then America is better off without them.” And this holds not only for trade but for security issues like Iran.

It’s been unconvincing enough for globalists to insist that the United States has no choice but to maintain alliances with countries famous for being defense deadbeats and free-riders, and fence-sitters in the campaign to create a truly open world economy (as opposed to one that winks at all instances of protectionism except America’s). But it’s positively goofy for globalists to claim that these countries would be strong and active supporters of security or economic goals compatible with U.S. and traditional free world interests if only President Trump showed more patience with them.

Of course, it’s possible – and perhaps likely – that these Asian and European moves are ultimately bluffs aimed at curbing Mr. Trump’s perceived worst excesses. But it’s at least as possible that these countries hope to create pressure on the President to accept their longstanding, “Heads we win, tail you lose,” strategy vis-a-vis the United States.

All of which reminds me of episodes when I was little, and blurted out remarks like, “I’m going to run away.” My parents often replied, “Is that a promise or a threat?” That sounds to me like a necessary and indeed long overdue U.S. response to its worrisomely feckless allies.

(What’s Left of) Our Economy: Obama’s TPP Case is Staler than Ever

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ADB, AIIB, APEC, Asia Pacific Economic Cooperation, Asian Development Bank, Asian Infrastructure Investment Bank, China, environmental standards, export-led growth, exports, Free Trade Area of the Asia Pacific, FTAAP, Japan, labor standards, NAFTA, North American Free Trade Agreement, Obama, RCEP, Regional Comprehensive Economic Partnership, SOEs, state-owned enterprises, TPP, Trade, Trans-Pacific Parternship, World Bank, {What's Left of) Our Economy

Maybe President Obama believes that repeating even the most laughably off-base contentions endlessly will make them true? Or convincing? It’s hard to look at his new Washington Post op-ed urging passage of his Pacific Rim trade deal and conclude anything else. The article makes clearer than ever that the Trans-Pacific Partnership (TPP) makes sense for the United States only if Americans ignore everything known about the agreement itself, about U.S. trade with the eleven other signatories, and about the region’s economics and commerce.

The President’s fraudulent case for TPP starts with his first claim – that “some of our greatest economic opportunities abroad are in the Asia-Pacific region.” Trouble is, as I’ve noted, the only truly fast growers on the list of TPP countries are economies like Vietnam and Malaysia, whose growth depends on not only exporting, but on amassing large trade surpluses. They lack both the capabilities and the intention of becoming significant net buyers of U.S.-origin goods and services. Compared with the United States, most of the other TPP countries are growth laggards.

Similarly, Mr. Obama’s description of the proposed TPP zone as representing a whopping 40 percent of the global economy ignores how the American economy represents more than 60 percent of total TPP area output. Moreover, the United States already has negotiated trade deals with many of the largest signatories, notably Australia, Canada, and Mexico. So Americans have long reaped nearly all of whatever benefits the President argues will result from this exercise in trade expansion.

No more credible is Mr. Obama’s insistence that the TPP will benefit America by enabling the United States to influence writing the rules that govern regional commerce rather than permitting Chinese-led arrangements shape this environment.

After all, as critics like Republican presidential front-runner Donald Trump has pointed out, China already stands to gain from the TPP, thanks to loose origin requirements that permit free or freer trade of goods with high levels of content from non-TPP countries. And since China for decades has been a key node in the multinational production chains that bind together so many Asian economies, much of this non-TPP content will obviously be Chinese.

Further, nothing could be clearer than the determination of the TPP countries to avoid making either-or choices when it comes to rule-writing exercises for East Asian commerce. No less than six TPP signatories – including Australia and New Zealand – have signed up to participate in the Asian Infrastructure Investment Bank (AIIB) that China set up recently in part as a TPP counterweight. And although the largest by far non-U.S. TPP signatory, Japan, has so far declined to bandwagon, the Asian Development Bank (ADB) that it has traditionally co-dominated has started working actively with the AIIB. So has the World Bank.

These last two developments, by the way, mean that the United States has also decided to work with the Chinese initiative rather than continuing to oppose it, since Washington plays a major role in both institutions.

And what about the Chinese-initiated regional trade agreements about which Mr. Obama expressed so much alarm? The Regional Comprehensive Economic Partnership singled out by the president has already attracted seven TPP signatories – including Japan, along with Australia and New Zealand.

Interestingly, Mr. Obama didn’t mention a second Chinese regional trade scheme – a Free Trade Area of the Asia Pacific (FTAAP). Maybe that’s because he’s decided to cooperate with Beijing on this front, too, at least to the extent that he approved a study of the proposal under the auspices of the Asia Pacific Economic Cooperation (APEC) process in which Washington participates.

Finally, the president’s belief that the TPP will greatly boost U.S. exports through enforceable new rules remains a monument to delusion. As I’ve explained, enforcing labor and environmental standards would require an army of American officials to inspect hundreds of thousands of facilities in low-income countries like Vietnam and Malaysia. Who’s going to pay for these personnel? And that’s not even including the vast manufacturing complex that’s been created in Mexico since it joined a North American Free Trade Agreement (NAFTA) more than twenty years ago, and in which evidence abounds such provisions remain overwhelmingly ineffective.  (Hence, largely, the president’s insistence that “this time, it will be different” in TPP.)  

As for the state-owned enterprises (SOEs) whose trade-distorting activities TPP will supposedly curb, how will U.S. officials gain access to these notoriously secretive constructs and their financial records? Moreover, since low (at best) labor and environmental standards along with opaque SOEs are keys to competitiveness throughout Asia, why would the region’s TPP signatories give Washington the power to weaken these arrangements through dispute-resolution hearings?

President Obama writes that the alternative to Congress passing the TPP is “building walls to isolate ourselves from the global economy.” That’s the most pernicious trade policy and TPP myth of all. The real alternative is developing trade policies based on global economic realities, not his own fantasies about the power of mere pen strokes.

(What’s Left of) Our Economy: RIP, Manufacturing Renaissance – & Reshoring – Claims

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Asia, China, competitiveness, Deloitte, investment, local content, Manufacturers Alliance for Productivity and Innovation, manufacturing, manufacturing renaissance, MAPI, Mexico, multinational corporations, North America, Obama, offshoring, reshoring, TPP, Trade, Trans-Pacific Parternship, {What's Left of) Our Economy

Because manufacturers (and others) don’t always do what they say, surveys of their intentions on hiring and investment and the like should always be taken with a big boulder of salt – the more so since the questions are often asked and the answers given in a political and policy context. So when one of these surveys clashes with manufacturing reshoring and renaissance claims that America’s most powerful manufacturers – the offshoring multinationals – have been energetically pushing, they deserve special attention. That’s why it’s worth looking closely at a new sounding on where new factories are likely to be built from a major consulting firm and a leading manufacturers association.

As the nation has heard endlessly from the biggest names in American industry and their witting and unwitting political dupes, U.S. domestic manufacturing is either enjoying an historic comeback, or is on the verge of one. These boasts and predictions have become a little less common lately, as manufacturing data keeps disappointing, but they haven’t been recanted or simply dropped because they serve two powerful purposes.

First, at a time of continued U.S. economic weakness, contentions that American-owned manufacturing firms are boosting their U.S. production and employment counter fears and accusations that they have abandoned their home country wholesale. Second, a crucial feature of these renaissance claims – that China’s competitiveness has faltered so dramatically that American industry is actually abandoning the PRC and returning stateside – helps the multinationals defend the offshoring-friendly trade deals they worked so hard to pass by indicating that they did little, if any, long-term harm to the U.S. economy despite critics’ accusations.

It’s hard, however, to read the Footprint 2020 study just released by Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI), and take any of the above seriously for one minute longer.

Take the reshoring narrative so central to the renaissance story. According to the Deloitte-MAPI report, “reshoring is a real phenomenon.” But get a load of this kicker: “[A] common misconception is it represents a return of previously offshored operations to US soil. In practicality, reshoring may include returning operations to Mexico. This offers greater access to the US market, but allows companies to maintain advantageous operating cost structures. Sixty-six percent of survey respondents offshored their operations in the past 20 years, and a third are now considering bringing them back to North America. These moves focus on primary production and assembly operations currently located in China, India, and/or Brazil. Mexico is the first choice destination to re-shore operations, followed by the US.”

To be fair, there is a respectable argument made that even reshoring (and other) investment in Mexico helps domestic U.S. industry, too. The supposed reason: Manufactured goods made in Mexican factories, especially if they’re owned or related to American firms, use much more in the way of Made in the USA parts and components than similar products made in Asia and elsewhere.

But this argument overlooks the reality that the U.S. content of America’s imports from Mexico has been falling, and that this trend will accelerate if Congress approves the Pacific Rim trade deal just concluded by the Obama administration. That Trans-Pacific Partnership (TPP) will make it easier for countries like Japan to send more goods, like automobiles from Mexican assembly plants into the United States that contain more parts and components from outside Mexico and “North America.”

The idea that investing in Chinese manufacturing doesn’t make much sense nowadays also takes a body blow from Footprint 2020. The study found that 98 percent of the companies surveyed plan to expand operations in countries where they’re already in business, either through adding on to existing facilities, or by opening new factories or labs or warehousing and distribution centers. The country that will get the biggest share of this new capital? China. (The United States is second.) Moreover, between the 2002-2007 period (before the financial crisis struck) and the 2010-2015 period (when the American manufacturing renaissance was supposed to have taken off), “North America’s” appeal to American-owned companies increased only slightly, while “Asia’s” (meaning largely China) nearly doubled.

Of course, for literally years, manufacturing renaissance claims have been steadily punctured by the most authoritative data available on production, trade balances, productivity, and wages. With hitherto cheerleading multinational manufacturers themselves now throwing cold water on this idea, too, it’s legitimate to wonder whether domestic industry is closer to suspended animation than to rebirth.