(What’s Left of) Our Economy: Why This Trade War Hasn’t Been “Easy to Win”

Tags

China, Hong Kong, Huawei, One Belt One Road, Taiwan, tariffs, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Friday’s U.S.-China trade war escalation leaves little doubt that I was wrong about the conflict in one major respect. So was President Trump.

Just as Mr. Trump was first unilaterally tariff-ing Chinese products in response to Beijing’s wide-ranging economic predation (which of course extended far beyond trade flows into intertwined investment and technology issues), I confidently stated that Beijing wasn’t about to risk antagonizing its most important market by far with any retaliatory moves. Indeed, although I didn’t agree with his near-blanket statement that “trade wars are good,” I was fully on board with his claim that they’re “easy to win” – or at least reasonably so.

China’s announcement yesterday of new tariffs on $75 billion worth of American goods in response to the most recent round of Trump trade levies was just the latest evidence that Chinese leader Xi Jinping in fact has little compunction about risking American official ire and even believes he might prevail.

Even so, the President and I have an excuse. Our mistake wasn’t maintaining that the bilateral economic balance of power didn’t overwhelmingly favor the United States. Just check out the new claim by the founder of Huawei that U.S. national security sanctions – which could cut the Chinese tech giant off from access to the  U.S.-brand semiconductors central to its products operations – has confronted this entity with a “life and death” crisis. Moreover, trade flows remain as grotesquely lopsided as ever, meaning that the export-heavy Chinese economy still remains much more dependent for adequate growth on selling to the United States than vice versa.

Instead, our mistake has been underestimating just what a delusional bonehead Xi is, and how he can’t seem to resist the temptation to overestimate China’s power and prospects. He’s clearly overreaching in his treatment of Hong Kong, in the process courting a global public opinion backlash that’s likely to dwarf that following the Tiananmen Square massacre of 1989 – and turn him into a rival and even replacement for President Trump himself as a worldwide punching bag. He’s clearly overreaching regarding Taiwan, even given Beijing’s longstanding view of the island as a renegade province and equally longstanding practice of threatening it militarily. As a result, the United States will be selling the Taiwanese armed forces $8 billion worth of advanced fighter jets. He’s also clearly overreaching in connection with his ballyhooed One Belt One Road global infrastructure project – which is increasingly being recognized as at best the biggest potential white elephant in world history and at worst an equally gargantuan engine of pollution and corruption.  (See, e.g., this post for a typically negative review.)

Even more noteworthy are the signs that Xi’s trade war overreaching is seriously damaging China’s own economy. Just a few of the recent signs: the lowest overall economic growth rate in 27 years; the worst industrial production growth (which includes mining and utilities as well as manufacturing) in 17 years; and all-time record official unemployment in China’s cities.

That last milestone is especially important, since keeping people at work is the top economic priority for China’s leaders. The reason: jobless Chinese workers could turn into politically restive Chinese workers, and pose big dangers to the employment status of Xi and the rest of the ruling Central Committee.

And surely more worrisome for Xi: He must know better than most that China’s official economic data strongly tend to overstate China’s economic performance. In other words, the domestic economic picture is likely even worse than Beijing is letting on.

Why then does Xi keep standing on his high horse? Of course, I have zero inside info. But the only answer that makes sense to me is that he and his colleagues have decided that if they can prick enough American economic fingers (whether among consumers or farmers or investors), the resulting complaints will be amplified through a deafening chorus of gloom-mongering from the staunchly anti-Trump Mainstream Media. Eventually, Americans could talk themselves into a recession that would ensure the election in 2020 of a much more pliable Democrat – chiefly, former Obama Vice President Joe Biden.

That’s not a crazy plan by any means, especially since the President is no slam dunk to win reelection. At the same time, it’s far from clear that Xi or whoever’s advising him on American politics are such whizzes on the subject. If they were, would China under his rule have acted belligerently enough on trade, national security, and human rights to have helped elect Mr. Trump in the first place?

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Making News: On i24News Tonight Updating the Escalating Trade War!

Tags

China, Huawei, i24News, Making News, tech, tech war, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to return to the U.S.-Israeli TV network i24News tonight to analyze all the China trade war news that’s broken lately.  The network’s programs are normally available only to paying subscribers, but you can watch the segment, slated to start at 7:00 PM EST, if you sign up in time for a free trial at this link.

If that’s not possible, as soon as I get it, I’ll post a link that will enable you to watch a video of the appearance.

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

Making News: On National Radio Tonight Updating the Trade and Tech Wars

Tags

China, Gordon G. Chang, Huawei, Making News, tariffs, tech, The John Batchelor Show, Trade, trade war, Trump

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight.  The planned subjects:  both the latest twists and turns in the trade conflict between President Trump and China (which RealityChek readers were briefed on last week); and the latest developments in the bilateral “tech war” that’s revolving around Chinese telecom giant Huawei.

The segment is slated to begin at 10:15 PM EST, and by clicking here, you can listen on line to what’s sure to be a lively, informative discussion among John, co-host Gordon G. Chang, and me.  As usual, if you can’t make it, I’ll be posting a link to the podcast as soon as one’s available.

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

(What’s Left of) Our Economy: The Trump Effect on U.S. Manufacturing Workers

Tags

blue-collar workers, election 2020, inflation-adjusted wages, Jobs, manufacturing, Obama, real wages, Trump, wages, {What's Left of) Our Economy

There’s no question that President Trump has compiled a solid record when it comes to boosting American manufacturing employment, and the numbers look especially good compared with that of his predecessor, Barack Obama.

Wages, though? They remain another story entirely, and keep raising the question of how convincingly during his reelection campaign the President will be able to portray himself as a godsend to U.S. industry’s workers.

According to the most valid comparison that can be made to date, during the 29 months since Mr. Trump settled into the Oval Office (February, 2017), overall manufacturing employment and blue-collar manufacturing employment are both up considerably faster than during the last 29 months of the Obama administration. Here are the specific percentage gains for the manufacturing sector overall, and for industry’s non-supervisory and production workers – often informally dubbed “blue-collar workers”:

                                                Last 29 Obama months        First 29 Trump months

Manufacturing:                            +1.31 percent                        +3.86 percent

Blue-collar manufacturing:         +0.92 percent                         +3.40 percent

But the average hourly wage figures adjusted for inflation actually flip these results on their head:

                                              Last 29 Obama months          First 29 Trump months

Manufacturing:                           +3.05 percent                           -0.09 percent

Blue-collar manufacturing:         +3.22 percent                          +2.31 percent

It’s true that manufacturing’s blue-collar workers during the Trump era so far have been faring far better than their supervisors (who remain better paid in absolute terms). But the price-adjusted paychecks are growing significantly more slowly than they were during the final Obama years.

Of course, this politics-centric post on manufacturing wouldn’t be complete without discussing how President Trump’s tariffs have affected the picture. And here the script is arguably flipped once again to some extent, at least during the Trump years alone. The table below shows the average monthly jobs gains recorded for manufacturing and blue-collar manufacturing before the first metals tariffs were imposed (March, 2018) and after. Since the time frames differ somewhat, I thought the monthly averages would illustrate the trends more clearly.

                                                   Pre-tariffs                                  Post-tariffs

Manufacturing:                            17.38K                                       15.07K

Blue-collar manufacturing:         11.54K                                           8.6K

After the tariffs, the pace of manufacturing employment increases slowed somewhat, but it slowed much faster for blue-collar manufacturing workers.

Now for the wages results, presented as the average monthly changes in absolute (dollars and cents) terms:

                                               Pre-tariffs                                     Post-tariffs

Manufacturing                        -3 cents                                         +2 cents

Blue-collar manufacturing    +8 cents                                          +5 cents

In sum, after-inflation hourly pay rose slightly after the trade curbs came on after having fallen beforehand. Real wages for blue-collar manufacturing workers rose during both periods, but more slowly after the tariffs.

These results indicate that the President can make a decent case that his administration, and even his tariffs, have helped manufacturing workers on balance. But on the pay front in particular, the story gets complicated – and the kind of rhetorical precision Mr. Trump will need to display to date in order to tout these achievements credibly doesn’t seem to be one of his strong suits.

Im-Politic: Why The New York Times Shouldn’t be Writing the History of Slavery – or Anything Else

Tags

1619 Project, Dean Baquet, history, Im-Politic, Mainstream Media, media bias, race, race relations, racism, Russia, slavery, The New York Times, Trump, Trump-Russia

It’s bad enough that The New York Times all but admitted last week that its news operations lately have been driven by over-arching missions and “visions” centering on specific issues. In the words of Executive Editor Dean Baquet at an internal “town hall” meeting of Times staff, the paper is now shifting from investigating “Did Donald Trump have untoward relationships with the Russians, and was there obstruction of justice?” to focusing on “what it means to be an American in 2019” and more specifically writing “about race and class in a deeper way than we have in years” because “America [has] become so divided by Donald Trump.”

Possibly worse is how The Times has also decided that this mission includes throwing much of its still considerable resources behind what Baquet called “the most ambitious examination of the legacy of slavery ever undertaken in [inaudible] newspaper….”

For although it’s disturbing that a news organization would in effect bet the house on probing an issue – and thereby create overwhelming incentives for its staff to assume continually that any and all appearances of smoke, even from clearly conflicted sources, add to the case of underlying fire – this Times decision at least dovetails generally with commonly used definitions of journalism that have long served the country and its democratic system well.

Not that the press should get into the habit of proactively designating issues as existential priorities well before the outcomes and implications are reasonably clear. But Baquet deserves some slack here given the charges that the President was a Manchurian candidate beholden to Russian dictator Vladimir Putin – unmistakably an earth-shattering story at least potentially. Therefore, it’s hard to blame him for in effect establishing a major priority and allocating his resources accordingly, and it’s nitpicking to insist that he still might have gone somewhat too far.

Two possible and related qualifications to these conclusions, though, should be kept in mind. First, it’s painfully obvious from the meeting transcript linked above (and not disavowed by any participants) that any number of Times staffers are virulently anti-Trump – which logically raises suspicions about whether any of the paper’s reporters or editors cooperated with the equally virulent Trump opponents in the Obama Justice Department and intelligence agencies to keep the story artificially alive through publishing obviously selected leaks selectively, and even through knowingly trafficking in sheer rumor and innuendo.

Second, as I’ve written, given the abundance of Never Trump-ers in the federal bureaucracy and in the D.C. Swamp generally speaking, and given how commonplace leaks of even the most sensitive material had become, long before the release of Special Counsel Mueller’s report, it was becoming increasingly apparent that if no smoking guns had yet been found, chances are they didn’t exist. But there’s no reason to believe that the paucity of genuinely damning evidence ever gave Baquet any second thoughts about his initial decision – which indicates troubling stubbornness at best and even more troubling bias at worst.

But I can’t prove either of the these two points. Moreover, just as I can’t legitimately fault Baquet for per se focusing, at least for a serious period of time, tightly on the Trump-Russia story, I can’t fault him per se for deciding subsequently to devote much of the paper’s attention to race relations. For times change, and news coverage priorities need to change with them – although Baquet’s link of the decision to a Trump record that he plainly views as uniquely and dangerously divisive strongly indicates that he’s prejudging the results awfully early in the game.

The examining slavery thing, however – that’s fundamentally different. It’s the kind of endeavor, after all, that can’t be squared with any longstanding tradition of American journalism. Instead, the “1619 Project” at its heart is nothing less than an effort to change the way Americans view their history, and how it’s been impacted down to the present by slave-holding. (1619 was the year in which the first enslaved African blacks arrived in North America – specifically, near British-held Jamestown, Virginia.  Just FYI, African slaves didn’t arrive in French-held North America until a decade later.) If you’re skeptical about this 1619 project claim, check out how it’s described by The Times:

“The 1619 Project is a major initiative from The New York Times observing the 400^th anniversary of the beginning of American slavery. It aims to reframe the country’s history, understanding 1619 as our true founding, and placing the consequences of slavery and the contributions of black Americans at the very center of the story we tell ourselves about who we are.”

For good measure, the paper tells us that “it is finally time to tell our story truthfully.”

Any thinking person understands the need for continual reassessments of history – and all fields of knowledge – if only because new information is constantly coming to light. In addition, you don’t need to fall prey to “present-ism” (judging or merely viewing past events and works through the prism of contemporary standards) to recognize that standards do change; that they can change for legitimate and considered, as well as for faddish and/or partisan, reasons; and that whenever such circumstances warrant, reassessments are needed. Indeed, these exercises are especially important when engaged in the always hazardous but ultimately needed effort to identify the past’s lessons.

And what thinking, informed person doubts that the nation’s professional historians fully understand this imperative, and that in fact their discipline isn’t in a constant state of reassessment?

But even if these scholars were failing their country and academe’s best traditions and practices, why would any thinking person consider The Times institutionally qualified to fill the gap competently? What evidence has the paper presented that it can carry out satisfactorily a project that even it describes as “unprecedentedly ambitious” and that’s surely more accurately described as “unprecedented” period? And as a result, from where does The Times draw its confidence in declaring that it’s able to “finally…tell our story truthfully.”

My answers to all these questions: “Beats me.”

And if you believe that the paper is up to this task, you really need to read the full transcript of the town hall meeting. For it makes distressingly clear that many of the paper’s staffers have no use for notions like sticking to the facts and enabling readers to make up their own minds – at least not since the civilization-menacing emergence of the Trump presidency. (Or was it the Trump candidacy?) As for views of race and its proper role in Times journalism, take a look at these remarks from one staffer:

“I’m wondering to what extent you [Baquet] think that the fact of racism and white supremacy being sort of the foundation of this country should play into our reporting. Just because it feels to me like it should be a starting point, you know? Like these conversations about what is racist, what isn’t racist. I just feel like racism is in everything. It should be considered in our science reporting, in our culture reporting, in our national reporting. And so, to me, it’s less about the individual instances of racism, and sort of how we’re thinking about racism and white supremacy as the foundation of all of the systems in the country. And I think particularly as we are launching a 1619 Project, I feel like that’s going to open us up to even more criticism from people who are like, ‘OK, well you’re saying this, and you’re producing this big project about this. But are you guys actually considering this in your daily reporting?’”

His boss’ response (in part)?

“I do think that race and understanding of race should be a part of how we cover the American story. Sometimes news organizations sort of forget that in the moment. But of course it should be. I mean, one reason we all signed off on the 1619 Project and made it so ambitious and expansive was to teach our readers to think a little bit more like that.”

Translation: “You’re right. And the 1619 Project is aimed at persuading Americans to think ‘a little bit more’ like you.” P.S. The transcript records zero pushback against this wildly distorted, reductionist view. That is, like too much of the rest of the Mainstream Media, The New York Times has drifted dangerously far from the notion that journalism amounts to “writing the first draft of history.” It’s going to start writing that history itself. And it’s firmly convinced that it has a monopoly on wisdom.

And that’s fine in principle – if the paper wants to turn itself into something like an opinion publication, a think tank or a lobby group. For a newspaper, however, it represents a bright and dangerous line crossed, and is certain to further erode the public’s confidence in journalists – thereby adding to a list of dangers facing American democracy that’s already far too long.

Our So-Called Foreign Policy: How Trump Can Pass His Afghanistan Test

Tags

Afghanistan, Al Qaeda, America First, border security, globalism, Immigration, Iraq, ISIS, jihadism, Our So-Called Foreign Policy, September 11, Syria, Taliban, terrorism, Trump, Tucker Carlson

So it seems we’re soon going to see another major test of how much of an America First-er on foreign policy President Trump really is: Will he or won’t he withdraw the U.S. troops remaining in Afghanistan if he can strike an acceptable deal with that country’s Taliban insurgents?

Globalists across the political spectrum – that is, supporters of America’s pre-Trump decades of seeking to address foreign policy challenges through various forms of active engagement in foreign affairs around the world – and especially conservative globalists, are awfully skeptical, to say the least, and they have numerous understandable and specific reasons. One that stands out: Why should anyone trust the Taliban to keep the promise that the President is seeking – a pledge to ensure that no part of Afghanistan left under its effective control by any agreement to end or even suspend the conflict between it and the Afghan government becomes a terrorist base once again.

After all, the Taliban was the group that permitted Al Qaeda to use such territories as safe havens from which to plan and train for the September 11 terrorist attacks. A U.S. invasion and nearly twenty years of ongoing military operations have clearly played a major role in ensuring that no September 11 repeats have taken place, or at least strikes emanating from Afghanistan. And there’s no sign of any ebbing in the Taliban’s violent, anti-American nature. In addition, similar American-led and assisted operations against ISIS have prevented that group from creating safe havens in Iraq and Syria large enough to possess September 11-like potential.

All in all, therefore, such interventions look like a resounding success for the idea that defeating terrorists “over there” is the best guarantee that they won’t do any harm “over here.” And there’s compelling evidence that the President has bought into this argument.

As he told Fox News talk show host Tucker Carlson in an early July interview:

“…I would like to just get out [of Afghanistan].  The problem is, it just seems to be a lab for terrorists.  It seems — I call it the Harvard of terrorists. 

“When you look at the World Trade Center, they were trained.  They didn’t — by the way, they attacked the wrong country.  They didn’t come from Iraq, all right.  They came from various other countries.

“But they all formed in Afghanistan, and it’s probably because it’s at the base of so many countries, but they all formed and it’s rough mountains and you get a lot of — you know, you get a lot of good hiding places.

“But I would leave very strong intelligence there.  You have to watch because they do — you know, okay, I’ll give you a tough one.  If you were in my position and a great looking central casting and we have great generals, a great central casting general walks up to your office, I say, ‘We’re getting out.’  ‘Yes, sir.  We’ll get out.  Yes, sir.’

“I’ll say, ‘What do you think of that?’  ‘Sir, I’d rather attack them over there, then attack them in our land.’  In other words, them coming here.  That’s always a very tough decision, you know, with what happened with the World Trade Center, et cetera et cetera.

“When they say that, you know, no matter how you feel, and you and I feel pretty much very similar.  But when you’re standing there, and you have some really talented military people saying, ‘I’d rather attack them over there than have them hit us over here and fight them on our land.’  It’s something you always have to think about.”

But what the President surprisingly seems to forget is that the September 11 terrorists were able to come “over here” not only because they were able to organize in Afghanistan, but because American border security was so unforgivably lax. This description of that situation comes from a group strongly on the restrictionist side of the immigration debate (as am I). But the evidence presented of visa overstays and examples of other hijackers being in the country illegally when they launched the attacks is highly specific and comparably convincing.

Further, then-U.S. Representative Candice S. Miller, a Republican from Michigan and former chair of the House Subcommittee on Border and Maritime Security, stated at hearings in 2012 that “more than 36 visa overstayers have been convicted of terrorism- related charges since 2001.”

As I’ve written previously, tightening border security enough to quell the terrorist threat completely is no small task. At the same time, it should also be clear that stepped up border security measures, along with intensified domestic counter-terrorism activities, have played some role in not only preventing more September 11 attacks but in greatly reducing the number of attacks from jihadist-inspired homegrown lone wolves.

Just as important, whenever making policy seriously, and therefore determining priorities and thus allocation of resources, the question always needs to be asked which of any competing approaches is more promising. In the case of anti-terrorism approaches, this challenge boils down to whether the nation is best advised to focus on further improving border security (a situation over which it has relatively great control) or on continuing to police the terminally dysfunctional Middle East (a situation over which is has relatively little control).

Given that the Taliban is still a force to be reckoned with in Afghanistan after eighteen years of fighting the U.S. military and forces from allied countries plus those of Afghan governments in Kabul; and given new Pentagon claims that ISIS is already “solidifying” its “insurgent capabilities in Iraq” and “resurging in Syria,” the case for a domestic, i.e., America First-type focus instead of continuing to play whackamole in the Middle East looks stronger than ever. And that’s the case whether America’s generals look like they come from central casting or not.

(What’s Left of) Our Economy: Manufacturing’s Recession Lengthens but Tariffs’ Role Stays Fuzzy

Tags

aluminum, China, Fed, Federal Reserve, industrial production, manufacturing, metals, metals tariffs, metals-using industries, real output, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

The modest momentum showed by domestic manufacturing in the previous two Federal Reserve industrial production reports disappeared in this morning’s edition of the monthly survey, as overall real manufacturing output in July fell month-to-month (by 0.36 percent) for the first time since April. Worse, the new data lengthened domestic industry’s recession, with inflation-adjusted production now off by a hair (0.004 percent) since April, 2018 – a stretch much longer than the two straight quarters of cumulative decline that qualify as a downturn for most economists.

This morning’s Fed numbers also provide some additional evidence that President Trump’s tariff-centric trade policies have begun to erode manufacturing’s performance. But only some. Specifically, whereas in the first months following the imposition of metals tariffs in particular, metals-using sectors were handily beating the rest of manufacturing by every major metric, July’s industrial production numbers showed that their more recent relative performance continues to have been much more mixed.

As usual, nearly all of the best evidence concerns the impact of the tariffs on steel and aluminum, for reasons including their relatively long duration (April, 2018 was the first full month they were in place), and the ease with which metals-using sectors can be identified. And as usual, the table below presents the output data for these sectors since April, 2018, with the data for manufacturing overall used as a control group.

                                              April thru May      April thru June       April thru July

overall manufacturing:          -0.20 percent        +0.36 percent             0 percent

durables manufacturing:       +0.96 percent        +1.47 percent        +1.23 percent

fabricated metals products:  +1.34 percent         +1.89 percent        +0.95 percent

machinery:                            +0.86 percent        +0.57 percent         -0.57 percent

automotive:                           -1.88 percent         +0.60 percent        +0.43 percent

major appliances:                  -2.00 percent          -4.47 percent        -5.99 percent

aircraft and parts:                 +0.73 percent         +2.46 percent        +4.23 percent

These figures show that for three of the five major metals-using sectors tracked (fabricated metals products, machinery, and major appliances), constant dollar output has worsened compared with such production in manufacturing as a whole. Relative performance for automotive and aircraft and parts, however, has improved – as it has for the durable goods super-sector in which the metals users are located.

Keep in mind also that results for the major appliance sector also remain affected by a separate set of product-specific levies on large household laundry equipment that began in February, 2018.

In contrast with the metals tariffs, the first full month for China tariffs of any kind was August, 2018, and the set of goods involved was relatively small. Complicating matters further is the U.S. Trade Representative’s office’s practice of listing the dutied products according to a classification scheme that differs significantly from that used by the rest of the U.S. government to monitor most major indicators of economic performance – including industrial production.

And as previously noted, most of the Made in China products tariff-ed so far have been intermediate goods (parts, components, materials, etc.) whose use by American manufacturers varies widely. Therefore, the impact of tariffs on these products undoubtedly varies widely, too. Moreover, the number of Chinese goods facing tariffs has increased dramatically since last August. Not only were the levies extended to an additional $200 billion worth of such imports from China in late September, 2018, but these duties were raised from ten percent to 25 percent in May, 2019. (See this time-line for the specifics.)

All the same, here are results for a handful of sectors reasonably certain to have faced tariff pressure since last August. Each column measuring real output changes since last August.

                                         August thru May     August thru June     August thru July

overall manufacturing:     -1.09 percent            -0.55 percent           -0.90 percent

ball bearings:                    -2.20 percent            -2.46 percent           -2.27 percent

industrial heating equip:   -4.11 percent            -5.16 percent           -5.21 percent

farm machinery & equip: -7.51 percent            -6.53 percent           -6.91 percent

oil/gas drilling platform: +4.03 percent            +2.22 percent           -0.17 percent      parts

A greater percentage of these sectors (three of four) generated worse performance versus manufacturing overall than was the case for the metals-using sectors. But the sample size is so small, and the the uncertainties so considerable, that these more downbeat results should still be viewed with the utmost caution. Ditto for claims that the Trump tariffs are killing U.S. manufacturing.

(What’s Left of) Our Economy: Trump’s Latest China Tariff Moves – & Why They’re Mistaken

Tags

China, consumer goods, consumers, Hong Kong, inflation, producer goods, tariffs, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

If you’re confused by President Trump’s latest China tariffs moves, don’t feel bad. They’re really confusing!

Much clearer is their main implication: Once more, the President has needlessly let China off the trade war hook – and significantly reduced the odds of U.S. success no matter how it’s defined.

To summarize the chain of announcements and decisions that have produced the present situation: As of August 1, in various stages, the United States had imposed 25 percent tariffs on $250 billion worth of goods imports from China based on the latest data. And on May 5, Mr. Trump threatened to place tariffs of 25 percent on the rest of China’s merchandise shipments to the United States (about $300 billion worth).

That announcement was seen as especially significant because the previous tariffs mainly hit what businesses and economist call “producer goods” or “intermediate goods.” They’re the parts, components, and materials that companies use to produce final products, including consumer products. As a result, even when they do lead to higher consumer prices, the role played by these duties is difficult for consumers (i.e., voters) to identify, much less complain about to the politicians responsible.

In addition, as I’ve frequently noted (e.g., here), tariffs on these producer goods often don’t lead to any inflation, or much inflation, at all, for a variety of reasons and combinations of reasons. In many instances, retailers and other businesses simply lack the needed pricing power. As a result, they often seek to persuade their entire supply chain to preserve market share by eating some or all of the higher prices and accepting lower profits. Alternatively, various parts of the supply chain – including the final customer – can try to offset tariff-induced price increases by boosting productivity. That’s actually good for the economy in the long run, as improved efficiency not only enables companies to absorb cost increases while maintaining and even increasing margins. Such better productivity tends to spur the development of new efficiency-enhancing products, services, and technologies – a great way to boost living standards in a healthy, sustainable way.

Yet the May Trump $300 billion threat – which stemmed from the President’s unhappiness with the lack of progress in the trade talks with China – would have finally hit most consumer goods imports. Therefore, it would have created the risk that shoppers would blame the President for any price increases they did encounter. Even worse, the timing of the threat practically ensured that these higher prices would start appearing just as holiday shopping heated up – or typically heats up.

In late June, however, after meeting with Chinese leader Xi Jinping at a global summit in Japan, Mr. Trump agreed to a trade truce and to hold off on the $300 billion threat. Two weeks later, though the threat was back on the table, according to a Trump tweet.

On August 1, following a new round of apparently unsuccessful trade negotiations and the President’s belief that China had broken a promise connect with the late June trade truce to buy more American farm products, Mr. Trump specified that ten percent tariffs on the $300 billion worth of consumer goods-dominated imports from China would begin on September 1. Just four days later, his administration announced another “hawkish” trade war decision – officially designating China as a country that manipulated its currency to gain trade advantages (by keeping its products artificially cheap and therefore making goods and services from trade competitors artificially expensive in comparison). At the same time, the currency decision by law doesn’t automatically result in new tariffs, although it could eventually bring about some other penalties.

And yesterday came the latest turnaround: Mr. Trump decided to postpone tariffs on an estimated $160 billion of the $300 billion from September 1 to December 15. Not coincidentally, as his remarks on benefiting holiday shoppers made clear, many of the items on the postponement list included particularly popular gift items like toys and smartphones.

In addition, tariffs on some $30 billion worth of imports from China would be lifted permanently (at least for now!). But new duties on some $110 billion worth of imports from China are at this point slated to go into effect at the beginning of next month, and this group, too, is dominated by consumer goods.

Commentators focusing on the postponed goods called the latest Trump move a cave to China spurred by the President’s fears of a falling stock market, weakening U.S. economy, and angry consumers. Others, pointing to the products that will be slapped with new levies, and to the continuation of previously announced tariffs, insisted that Mr. Trump was keeping considerable pressure on the Chinese.

I lean toward the former interpretation, for these reasons. First, there’s no sign that the President’s forbearance has won any concessions from China. Second, the tight Trump focus on appeasing holiday shoppers can only signal weakness to Beijing, and feed its hopes that it can prevail in the trade and broader economic conflict by waiting for the President to be replaced by a more conventional, more pliable chief executive in 2020. Third, the delay announcement came just before a batch of absolutely terrible economic data was released by China. And given Beijing’s history of publishing overly bullish figures, it’s a safe bet that its economy is even weaker than most recently indicated. Fourth, Xi Jinping is under pressure not only economically, but politically, due to the rising unrest in Hong Kong.

Fifth, it’s true that from the standpoint of China’s longer-term prospects, maintaining the tariffs on its producer goods matters crucially. For this category includes most of the high tech and other advanced manufactures that represent any economy’s hope for continued technological progress, and therefore faster, healthier growth and a stronger military. But the consumer goods matter politically – because since they’re largely labor-intensive in nature, they’re mass employers. And China’s dictators view high unemployment as a mortal danger to their rule.

Sixth, although it’s clear that U.S. investors hate the trade war, the President needs to remember that, however much he likes to tout the stock market as a barometer of his economic performance, these markets and the real economy are by no means identical. We’ll be getting some key economic data tomorrow, when the Federal Reserve releases its new report on industrial (including manufacturing) production. But so far, the manufacturing numbers have shown that, after a soft patch in the winter, both inflation-adjusted output and capital spending are trending upward again. So unless these and other upcoming data break notably from their most recent patterns, recession – and even further slowdown – predictions will keep looking far-fetched.

Importantly, none of the above analysis means that I’ve changed my view that no China trade deal acceptable for U.S. interests is possible because of insurmountable verification obstacles. Instead, America’s only realistic option is to keep disengaging economically from China – both to reduce U.S. economic reliance on an increasingly hostile power, and to weaken further the only country capable of posing noteworthy national security threats. As a result, however, Washington should pass up no opportunity to inflict pain on China’s economy. And although no one would be shocked if he reversed course yet again before too long, that’s exactly the mistake that President Trump just made with his latest China tariffs delay.

(What’s Left of) Our Economy: A Big Fade for Tariffs-Led Consumer Inflation

Tags

aluminum, China, inflation, Labor Department, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Well, that was fast. Last month, when the Labor Department’s consumer price data came out (for June), I observed that they revealed some tariff-led inflation – especially in goods categories that by all rights should be affected by the duties on steel and aluminum that President Trump imposed in March, 2018.

(More such evidence appeared in categories in which tariffs have been placed on Chinese imports. But as continually noted, because of several complications – e.g., shorter duration, great variations in metals-intensity, data classification issues – these results should be considered much less reliable than the metals tariffs statistics.)

Yet this morning’s new consumer price data, for July, shows a significant fade in tariff pricing pressures for the metals users. Part of the reason no doubt is the lifting of the metals tariffs on imports from Mexico and Canada. But they were removed only in late May, so it’s difficult to believe that this decision deserves most of the credit.

Here are the price increases for metals-using industries between June and July, since April, 2018 (the first full month in which the duties were in place), and the year-on-year figures for this June and July. Also included, as always, are statistics for various control groups of goods, including so-called “core inflation” (which strips out volatile food and energy prices), and for the foods and beverages that are sold in metal cans outside of these containers:

                                 June-July      Since April, 2018      y/y June            y/y July

core inflation:      +0.29 percent      +2.79 percent     +2.13 percent   +2.21 percent

fresh fruits           +0.60 percent      +1.67 percent     +0.86 percent   +0.33 percent

  & vegs:

fresh fruits:             0 percent           -1.55 percent      -1.85 percent    -2.74 percent

fresh vegs:           +1.28 percent       +5.49 percent    +4.09 percent   +3.96 percent

processed             -0.68 percent        +0.04 percent    +1.70 percent   +1.45 percent

  fruits & vegs

canned fruits:       -1.56 percent        +2.30 percent    +3.93 percent   +2.87 percent

  & vegs

canned fruits:       -0.44 percent        +0.99 percent     +2.02 percent  +1.89 percent

canned vegs:         -2.33 percent       +3.28 percent     +5.28 percent  +3.13 percent

soups:                   -0.18 percent       +0.28 percent     +0.30 percent   +0.04 percent

malt bevgs           +0.72 percent       +3.13 percent     +1.69 percent   +2.58 percent

  at home:

alcoholic bevgs   +0.38 percent       +1.90 percent     +1.05 percent   +1.43 percent

  away from home:

non-frozen, non-  -0.05 percent       +2.99 percent     +2.71 percent   +2.33 percent

  carbonated non-

  alcoholic rinks:

carbted drinks:      -0.47 percent      +3.39 percent     +3.15 percent   +3.14 percent 

juices & non-        -0.23 percent      +3.11 percent     +2.86 percent    +2.62 percent

  alcoholic drinks

new cars/trucks:    -0.19 percent     +1.17 percent     +0.58 percent    +0.34 percent

motor vehicle        -0.51 percent     +2.07 percent     +1.91 percent    +1.42 percent

  parts:

appliances:            -0.83 percent      +2.00 percent    +2.56 percent    +0.62 percent

major                     -0.98 percent      +4.13 percent    +2.94 percent     -0.75 percent

  appliances:

laundry                     0 percent          +2.83 percent    -3.98 percent     -4.63 percent

  equipment:

non-electric         -1.78 percent          -5.14 percent    -1.94 percent    -2.94 percent

  cookware & tableware:

tools, hardware,  +0.62 percent        +0.83 percent    +1.06 percent   +1.35 percent

  outdoor equipment:

The waning of inflationary pressures can be seen by comparing the core inflation rate since the advent of the metals tariffs with the inflation rates of the metals-using industries.

The latest data show that prices rose faster than that core rate in only six of the sixteen metals-using categories shown. Moreover, in four of these categories (beer and other malt beverages consumed at home; non-frozen, non-carbonated, non-alcoholic drinks; carbonated drinks; and all juices and non-alcoholic drinks), the results need to be treated with caution, since these products are also sold in non-metal containers.

The previous month’s data showed that prices rose faster than core inflation in ten of these metals-using categories – with the results in three complicated by the use of non-metal containers.

That total in turn was up from the nine of sixteen instances of relatively strong inflation in metals-using industries in both February and March (with the non-metal container issue muddying the waters for four of those nine categories in February and three in March).

As for the China-related evidence, I’m hesitant to examine it for the time being not only because of the aforementioned data issues, but because U.S. policy has changed so dramatically in the last few weeks – with the President in early August threatening ten percent tariffs by September 1 for a $300 billion tranche of imports from China that would have been dominated by consumer goods, and then today postponing their imposition until December 15 (or until a satisfactory bilateral trade deal is struck).

Nonetheless, the metals tariff-related data shows that inflation for these levies so far has never been especially strong (except, for a time, in large household laundry equipment – which had faced separate, product-specific duties since February, 2018), and whatever strength it’s shown, hasn’t lasted very long. (In fact, even for those laundry machines, the table shows that their super-charged price hikes are now turning into super-charged price drops.)

And of course, as Breitbart.com‘s John Carney keeps pointing out, the economy’s overall weak rate of inflation means that even when tariffs have pushed prices up, many other forces have been pushing other prices down.  (Further, these low overall inflation rates almost by definition mean that price pressures from the existing China tariffs can’t be impressive, either.)

That’s not to say that Mr. Trump’s trade policies therefore can’t be hurting the U.S. economy in other ways (although the evidence to date here is also pretty feeble). And it’s entirely possible that the widely tariff-mageddon could still hit Americans on a variety of fronts if the trade war with China in particular lasts long enough. But inflation claims have always been central to the Trump trade critics’ case, as made clear by how quickly #tariffsaretaxes became a hashtag, and how it’s persisted. And if the critics have been wrong on this crucial score, why should anyone be confident in any of their other predictions?

Im-Politic: Hyper-Partisans Across the Spectrum are Wrong; the Terrorist Threat is “All of the Above”

Tags

gun violence, Im-Politic, Islamic terrorism, jihadism, left-wing terrorism, mass shootings, September 11, terrorism, Trump, white supremacist terrorism, white supremacists

As if we needed another one, the latest upsurge in the intertwined national debates about gun violence, mass shootings, and terrorism provides another example of how hyper-partisan, encrusted thinking is obscuring the road to dramatically improved policies – and greater public safety. Specifically, way too many Americans are still mired in a dangerously distracting debate over where the biggest terrorist threats come from, rather than admitting that the nation faces numerous types of violent groups that fit any sensible definition of terrorism.

And as a result, way too many (including most prominent political leaders) are ignoring a crucial lesson of America’s post-September 11 experience – that concerted, innovative, well-funded national campaigns against terrorist movements actually work.

After the attacks of 2001, the focus understandably was Islamic terrorism. And if you doubt the impact, ask yourself why else no hijacked jetliners have crashed into U.S. skyscrapers and similarly big targets for nearly 20 years. And why in 2018, the last full data year, exactly one homicide in America was connected with Islamism.

Dumb luck? But as golf immortal Ben Hogan once said to an exasperated less successful rival who accused him of getting the lion’s share of the breaks, “[T]he more I practice, the luckier I get.” In that vein, surely massive American anti-terrorism efforts abroad and at home have played an important role. If you’ve forgotten what they’ve been, here’s a quick summary (from the Los Angeles Times article linked above):

“Despite horrifying abuses and mistakes, from torture to secret prisons, [the George W. Bush, Obama, and Trump administrations] have largely destroyed Al Qaeda and its most dangerous offspring. The U.S.-led war against Islamic State has killed thousands of militants and broken the group’s hold on territory in Iraq and Syria.

“Domestic law enforcement has monitored extremists at home and interrupted dozens of plots (including some that turned out to be insubstantial). And common-sense security measures have made us less vulnerable; no U.S. plane has been hijacked since 9/11.”

I’d add that, despite numerous calls for sharp increases from Democrats and others on the Left, U.S. admissions of asylum-seekers from Middle Eastern countries and elsewhere around the world remained exceedingly modest under former President Barack Obama, and have dropped sharply under President Trump.

The clear meaning? Yes, as President Trump’s critics have claimed, Islamic-inspired terrorism has been on the wane. But it looks glaringly obvious that deserving much of the credit have been measures many of them strongly opposed – and still oppose, mainly because they’ve been so determined to smear Mr. Trump and others backing such hard-line policies as simple Islamo-phobes who have long been chasing a mirage.

But don’t think this lets the President and many of his supporters off the hook. For until recently, they’ve acted as if they’ve been so bent on defending the anti-jihadist campaign and on justifying its continuation that they’ve soft-pedaled its clear success, and have been slow to acknowledge the more recent emergence of an unmistakably serious violent white supremacist threat.

Chiefly, there’s compelling evidence that since his inauguration, the President has reduced funding for government efforts to fight domestic terrorism springing from racist and other extreme right-wing roots, and increased the resources devoted to fight violent jihadists. That shift might have been justified early during the Trump presidency – shortly after two major Islamist-inspired shootings in San Bernardino, California in December, 2015, and in Orlando, Florida in June, 2016. But since then, the domestic racists etc have been much more dangerously active, and it’s not enough for the President to condemn them explicitly and emphatically. His money needs to move where his mouth is.

Not that anti-jihadism budgets need to be cannibalized to achieve this aim. Vigilance on that front remains essential as well, lest America be caught by surprise again a la September 11. Washington also needs to move much more decisively against violent leftists – like the Dayton, Ohio shooter seems to have been, along with antifa. 

In other words, U.S. anti-terrorism policy needs to be able to walk and chew gum at the same time – and be as agile and continually evolving as the sources of terrorism themselves.