(What’s Left of) Our Economy: Automotive’s Still in the U.S. Manufacturing Growth Driver’s Seat

Tags

aircraft, aluminum, appliances, automotive, CCP Virus, China, coal, coronavirus wuhan virus, COVID 19, Delta variant, electrical equipment, facemasks, Federal Reserve, industrial production, inflation-adjusted growth, inflation-adjusted output, infrastructure, lockdowns, machinery, manufacturing, masks, medical devices, metals, petroleum refining, pharmaceuticals, PPE, real growth, recovery, reopening, steel, stimulus, tariffs, Trump, vaccines, {What's Left of) Our Economy

Talk about annoying! There I was last Thursday morning, all set to dig into the new detailed Federal Reserve U.S. manufacturing production numbers (for June) in order to write up my usual same-day report, and guess what? None of the new tables was on-line! Fast forward to this morning: They’re finally up. (And here‘s the summary release.) So here we go with our deep dive into the results, which measure changes in inflation-adjusted manufacturing output.

The big takeaway is that, as with last month’s report for May, the semiconductor shortage-plagued automotive sector was the predominant influence. But there was a big difference. In May, domestic vehicles and parts makers managed to turn out enough product to boost the overall manufacturing production increase greatly. In June, a big automotive nosedive helped turn an increase for U.S.-based industry into a decrease.

The specifics: In May, the sequential automotive output burst (which has been revised up from 6.69 percent in real terms to 7.34 percent) helped push total manufacturing production for the month to 0.92 percent after inflation (a figure that’s also been upgraded – from last month’s initially reported already strong 0.89 percent). Without automotive, manufacturing’s constant dollar growth would have been just 0.47 percent.

In June, vehicle and parts production sank by an inflation-adjusted 6.62 percent , and dragged industry’s total performance into the negative (though by just 0.05 percent). Without the automotive crash, real manufacturing output would have risen by 0.40 percent.

Counting slightly negative revisions, through June, constant dollar U.S. manufacturing production in toto was 0.60 percent less than in February, 2020 – the economy’s last full pre-pandemic month.

Domestic industry’s big production winners in June were primary metals (a category that includes heavily tariffed steel and aluminum), which soared by 4.02 percent after inflation; the broad aerospace and miscellaneous transportation sector, which of course contains troubled Boeing aircraft, (more on which later), and which turned in 3.75 percent growth, its best such performance since January’s 5.62 percent pop; petroleum and coal products (up 1.36 percent); and miscellaneous durable goods, which includes but is far from limited to CCP Virus-related medical supplies (up 1.21 percent).

The biggest losers other than automotive? Inflation-adjusted production of electrical equipment, appliances, and components, which dropped sequentially by 1.73 percent in real terms; the tiny, remaining apparel and leather goods industry (1.44 percent); and the non-metallic minerals sector (1.07 percent).

Especially disappointing was the 0.55 percent monthly dip in machinery production, since this sector’s products are used so widely throughout the rest of manufacturing and in major parts of the economy outside manufacturing like construction and agriculture.

But in one of the biggest surprises of the June Fed data (though entirely consistent with the aforementioned broad aerospace sector), real output of aircraft and parts shot up by 5.24 percent – its best such performance since January’s 6.79 percent. It’s true that the May production decrease was revised from 1.47 percent to 2.61 percent. But with Boeing’s related and manufacturing and safety-related woes continuing to multiply, who would have expected that outcome?

And partly as a result of this two-month net gain, after-inflation aircraft and parts output as of June is 7.83 percent higher in real terms than in pre-pandemicky February, 2020 – a much faster growth rate than for manufacturing as a whole.

The big pharmaceuticals and medicines sector (which includes vaccines) registered a similar pattern of results, although with much smaller swings. May’s originally reported 0.22 percent constant dollar output improvement was revised down to 0.15 percent. But June saw a 0.89 percent rise, which brought price-adjusted production in this group of industries to 9.33 percent greater than just before the pandemic.

Some good news was also generated by the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. Its monthly May growth was upgraded all the way up from the initially reported 0.19 percent to 1.18 percent. And that little spurt was followed by 0.99 percent growth in June.

Yet despite this acceleration, this sector is still a mere 2.27 percent bigger in real terms than in February, 2020, meaning that Americans had better hope that new pandemic isn’t right around the corner, that the Delta variant of the CCP Virus doesn’t result in a near-equivalent, or that foreign suppliers of such gear will be a lot more generous than in 2020.

As for manufacturing as a whole, the outlook seems as cloudy as ever to me. Vast amounts of stimulus are still being pumped into the U.S. economy, which continues to reopen and overwhelmingly stay open. That should translate into strong growth and robust demand for manufactured goods. The Trump tariffs are still pricing huge numbers of Chinese goods out of the U.S. market. And the shortage of automotive semiconductors may actually be easing.

But the spread of the Delta variant has spurred fears of a new wave of local and even wider American lockdowns. This CCP Virus mutation is already spurring sweeping economic curbs in many key U.S. export markets. Progress in Washington on an infrastructure bill seems stalled. And for what they’re worth (often hard to know), estimates of U.S. growth rates keep coming down, and were falling even before Delta emerged as a major potential problem. (See, e.g., here.)

I’m still most impressed, though, by the still lofty levels of optimism (see, e.g., here)  expressed by U.S. manufacturers themselves when they respond to surveys such as those sent out by the regional Federal Reserve banks (which give us the most recent looks). Since they’re playing with their own, rather than “other people’s money,” keep counting me as a domestic manufacturing bull.

(What’s Left of) Our Economy: As Trump’s Tariffs Stay in Place, U.S. Manufacturing Output Keeps Surging

Tags

aerospace, aircraft, aircraft parts, Boeing, CCP Virus, China, coronavirus, COVID 19, Federal Reserve, gloves, imports, industrial production, inflation-adjusted output, manufacturing, masks, pharmaceuticals, PPE, real growth, recession, tariffs, Trump, Wuhan virus, {What's Left of) Our Economy

It’s tough to describe this morning’s manufacturing production figures from the Federal Reserve (for January) as anything but excellent, and anything but another strong endorsement of the stiff, sweeping tariffs former President Trump imposed on goods, especially from China. By shielding industry from a flood of imports from the People’s Republic, these trade curbs have undoubtedly contributed to a manufacturing recovery that entered its ninth straight month in January, and brought its production to within a whisker of pre-CCP Virus levels.

Moreover, as noted last month, the sector’s prospects seem bright, since not only has the entire economy kept recovering as CCP Virus vaccination proceeds and accelerates, but the aerospace industry revives both from its Boeing safety-related woes and the pandemic-related travel slump, and vaccine production surges.

Domestic manufacturers’ real output rose by 1.04 percent sequentially, increases were broad-based, and revisions were strongly positive. Although December’s previously reported 0.95 percent growth was downgraded to 0.94 percent, November’s was revised up for the second straight time (from 0.83 percent to 1.10 percent), and October’s for a third straight time (from 1.34 percent to 1.51 percent).

Due to these revisions, despite the severely recessionary impact of the CCP Virus both at home and abroad, domestic manufacturing’s inflation-adjusted 2020 production decline now comes in at just 2.01 percent, rather than the 2.63 percent reported last month. In addition, price-adjusted manufacturing output has advanced by 24.11 percent since its April nadir, and is now a mere 0.75 percent below its last pre-pandemic level last February.

As encouraging as the January figures and revisions were was their breadth. In fact, for the second straight month, the constant dollar output improvement came despite a small (0.72 percent) sequential dip in the automotive sector, whose major ups and downs have heavily influenced overall manufacturing production results for much of the pandemic period.

One cautionary note: January monthly after-inflation output growth for the big machinery category – which turns out production equipment for the rest of manufacturing, and devices crucial for other major industries like construction and agriculture – was only 0.52 percent, just half that for the entire manufacturing sector. And revisions were mixed.

More encouraging: Machinery’s growth has been strong enough that its real output is now back to within 1.12 percent of its February pre-pandemic levels.

January also saw accelerating growth in aircraft and parts production. Monthly output in expanded by 2.89 percent in January, December’s strong initially reported 2.78 percent increase is now judged to have been 3.03 percent, and November’s has been upgraded from 2.39 percent to 2.50 percent.

In fact, recovery in these aerospace sectors has been so vigorous that their output is now 6.77 percent greater than their February pre-pandemic levels.

Probably reflecting the vaccine effect, price-adjusted production of pharmaceuticals and medicines increased by 2.42 percent on month in January – the best showing since July’s 2.57 percent. But revisions were mixed, and this vital sector’s real output is only 4.11 higher than in February, just before the pandemic struck the U.S. economy in full force. On the brighter side, immense vaccine demand makes clear that the industry’s upside is enormous for the time being.

As for medical equipment and supplies – including virus-fighting items like face masks,face masks, protective gowns, and ventilators – their production performance keeps lagging badly. Inflation-adjusted output for this category (which encompasses many other products as well) actually fell in January for the second straight month – and by 0.54 percent. In fact, constant dollar output in this sector is 2.18 percent lower than during the last pre-pandemic month of February, 2020.

Making News: New Article on the GOP’s Future Now On-Line

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Capitol riots, conservatives, election 2020, GOP, impeachment, Making News, Republicans, The National Interest, Trump

I’m pleased to announce that my newest freelance article is on-line – an essay for The National Interest on the Republican party’s post-Trump and post-second-Trunp-impeachment future (and whether the former President is even likely to be left behind).

Here’s the piece, which I think you’ll find unusually interesting because of the poll results it describes about the demographic and ideological makeup of Trump voters last November. After all, they still comprise the vast bulk of Republicans. Please note: This is not a re-posting of a previous blog item. 

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

Our So-Called Foreign Policy: Biden’s Just Been Fooled Twice by Europe

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alliances, allies, America First, AstraZeneca, Belgium, Biden, CCP Virus, China, coronavirus, COVID 19, EU, European Union, Financial Times, globalism, health security, Northern Ireland, Our So-Called Foreign Policy, supply chains, The New York Times, Trump, United Kingdom, vaccines, Wuhan virus

It’s beginning to look like a pattern: President Biden keeps making clear that he’s determined to repair the vital U.S. alliance relationships he believes Donald Trump disastrously weakened, and the Europeans, anyway, keep flipping him the bird either explicitly or implicitly. And as the old saying goes, shame on anyone who’s been fooled more than once.

The explicit example came before Inauguration Day. The European Union (EU) – whose members were touted by candidate Biden as eager potential partners in a multilateral coalition against a common Chinese economic and national security threat – were on the verge of finalizing an investment treaty with Beijing. A top Biden aide publicly asked the EU to think twice and consult with the United States before proceeding. In response, the Europeans…proceeded. (See here for the details.) 

The implicit example came last week. During the campaign Mr. Biden, as noted here, made clear (except to every American journalist who covered the matter) that his plan to strengthen U.S. supply chains and make sure that the nation would never again be reliant on adversaries like China for crucial medical equipment and other vital products was by no means an “America Only” or even an “America First” proposal. Instead, one of its planks pledged to

“engage with our closest partners so that together we can build stronger, more resilient supply chains and economies in the face of 21st century risks. Just like the United States itself, no U.S. ally should be dependent on critical supplies from countries like China and Russia. That means developing new approaches on supply chain security — both individually and collectively — and updating trade rules to ensure we have strong understandings with our allies on how to best ensure supply chain security for all of us.” (Here’s the full document.)

In principle, this characteristically multilateral Biden approach made sense. Yet the blueprint came out scant months after (as reported here) many of these allies reacted to the outbreak of the CCP Virus by blocking exports of key medical equipment to ensure they could supply themselves.

You’d think that Mr. Biden, therefore, would have learned this lesson and recognized that the United States simply can’t afford to define “Made in America” as “Made in Lots of Other Countries, Too.” But you’d be wrong.

The day after his inauguration, the new President issued an executive order to create “a Sustainable Public Health Supply Chain.” And one of it directives charged various Cabinet and other agencies and senior advisers to study “America’s role in the international public health supply chain, and options for strengthening and better coordinating global supply chain systems in future pandemics….”

Again, therefore, Mr. Biden specified that this “sustainable public health supply chain” would stretch far beyond America’s shores, and that he believed various kinds of these “global supply chain systems” could ensure the nation’s health security in “future pandemics.”

How did the Europeans react? Little more than a week later, the European Union moved to restrict exports of the CCP Virus vaccine made by pharmaceutical giant AstraZeneca because its own supplies were so short. As a top EU official explained, “The protection and safety of our citizens is a priority and the challenges we now face have left us with no choice other than to act.”

The EU almost immediately reversed its decision – but only in part. It agreed to maintain shipments to the United Kingdom (which has recently left the union under a complicated agreement negotiated after the “Brexit” referendu vote of 2015) and to Northern Ireland (which is a part of the UK, but which remains part of the Union’s single market for goods). But the Europeans, according to The New York Times, still intend “to introduce export controls that could prevent any vaccines made in the European Union from being sent to non-E.U. countries, but without involving Northern Ireland….”

For good measure, great potential remains for a big vaccine-related dispute between the United Kingdom and the EU due to differences over which party is contractually entitled to the highest priority when it comes to vaccine shipments.

And the Financial Times reported that “Belgium, a key location for vaccine production in the EU, has notified the Commission of a draft health law that would give it new powers to curb medicines exports. The proposed legislation would allow Belgian authorities to restrict or ban the shipment of critical medicinal products and active ingredients, in case of shortages or potential shortages.”

Vaccines apparently are not included, but how could any responsible leader inside the EU or outside count on Belgium keeping its word during emergencies?  The same goes, incidentally, for the word of a United States led by an adult thinker, as opposed to a globalist determined to return to the pre-Trump days of Uncle Sucker.   

President Biden clearly needs to learn that lesson, too – and also needs to start asking himself whether the Europeans are holding his administration and his allies uber alles globalism up for ransom, and if the price for securing their cooperation on any number of issues is turning out to be dangerously unaffordable.

(What’s Left of) Our Economy: No Trade Highlights in the Year-End 2020 U.S. GDP Figures

Tags

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

With this morning’s release of the official figures on fourth quarter and 2020 U.S. gross domestic product (GDP), the process of closing the books on the Trump economy took a big step forward. For even though several more revisions of this advance result will be coming (starting next month), these data show preliminarily how the American economy shrank during the first CCP Virus year, and of course the final year of Trump’s presidency, and how the pandemic influenced the nation’s trade flows.

The headline figures will be widely reported, but are worth presenting anyway. The new numbers show that the economy shrank in 2020 in inflation-adjusted terms (the most widely followed gauge) of 3.50 percent. How bad is that? It’s not only the worst such performance since the Great Recession that followed the global financial crisis. (In 2009, real GDP sank by 2.53 percent.) It’s the worst such performance since 1946. The year after the end of World War II, when bloated levels of military output understandably nosedived, national output cratered by 11.60 percent.

Also discouraging – the sequential growth during the fourth quarter was only 3.95 percent at an annual rate. This pace both came in well below generally reliable forecasts like that put out by the Atlanta branch of the Federal Reserve, and means that little lasting momentum was created by the third quarter’s virus- and reopening-related record rebound of nearly 30 percent annualized after inflation.

The only positive takeaway possible this news is that this “miss” largely reflected government orders literally to shut down or keep shut down economic activity, as opposed to the kinds of market-related forces (and purely economic policy decisions) that normally determine growth and contraction rates. So once the pandemic is over, economic normality and some degree of growth should return. In fact on Tuesday, the International Monetary Fund projected that, by the end of 2022, the United States will be the country that’s back closest to its pre-CCP Virus growth path. (The Fund’s prediction, though, of course preceded these new subpar fourth quarter U.S. GDP figures.

The trade component of the GDP figures has been just as thoroughly distorted as the overall numbers. At $925.8 billion in price-adjusted terms, the 2020 trade gap set a new annual record, and represented an increase of 0.89 percent over 2019’s total. And this rise, however modest, was startling on its face since the shortfall almost always decreases when growth shifts into reverse. Should Donald Trump’s trade policies therefore be labeled a failure? We’ll find out more when the detailed year-end trade statistics as such come out (on February 5).

Interestingly, the new GDP figures indicate that most of the trade deficit’s year-on-year worsening ($8.2 billion in real absolute terms) came on the goods side, even though national and global services industries have taken the biggest economic hit by far during the pandemic. Yet the American inflation-adjusted services surplus dipped by only $24.7 million between 2019 and 2020.

For all of 2020, total U.S. real exports plummeted by 12.96 percent, from $2.5466 trillion to $2.2165 trillion. The latter is the lowest level since 2012, and the fall-off was the biggest percentage-wise since the 13.49 percent decline in 1958 – when trade flows were much smaller in absolute terms, and therefore big percentage moves in either direction much easier to generate.

Goods exports last year dropped by 9.46 percent in price-adjusted terms, from $1.7825 trillion to $1.6138 trillion. The latter was the lowest level since 2013, and the decrease the biggest in percentage terms since 2009’s 11.86 percent. (Goods and services trade figures began to be reported separately by the Commerce Department only since 2002).

As expected, the damage to services exports was considerably greater. They plunged by 19.20 percent between 2019 and 2020 – by far the biggest plunge ever – and last year’s $620.2 billion level was the lowest since 2010.

Overall U.S. imports worsened as well in 2020, sinking by 9.29 percent, from $3.4642 trillion to $3.1423 trillion. The year’s total was the lowest since 2015, and the drop the biggest in percentage terms since the 13.08 percent slump in 2009.

As with exports, the goods imports decrease was relatively modest. Yet their 6.05 percent decline (from $2.9234 trillion to $2.7644 trillion) was also the greatest relatively speaking since 2009’s 15.30 percent, and consequently they reached their lowest level since 2016.

Services imports, by contrast, contracted by 22.59 percent, from $543.1 billion to $420.4 billion. This decrease was by far the biggest ever by any measure, and dragged these purchases to their lowest level since 2009.

The fourth quarter’s combined inflation-adjusted goods and services trade deficit hit an all-time high for such three-month periods as well, with its $1.1211 trillion annualized total slightly surpassing the previous record (set in the third quarter) by ten percent.

Quarterly total real exports of $2.2770 trillion annualized were 5.10 percent higher than the third quarter total of $2.1665 trillion. But they remained well below the first quarter’s $2.4951 trillion – just before the virus’ first wave and full economic effects hit with full force.

The comparable goods exports total rose by 7.65 percent, to $1.7232 trillion annualized. But they, too are off their last pre-CCP Virus levels – by 2.89 percent.

After-inflation services exports improved sequentially, too – by 1.07 percent, from $581.3 at an annual rate to $587.5 billion. But in the first quarter, they stood at $730.1 billion – 19.53 percent higher.

Total real imports increased faster during the fourth quarter than total real exports, expanding by 6.67 percent, from $3.1855 trillion annualized to $3.3981 trillion. As a result, they’re now actually higher than their last quarterly pre-pandemic level – by 3.50 percent.

Constant dollar goods imports have risen robustly, too. They passed their first quarter level by the third quarter, and in the fourth quarter advanced by another 5.13 percent (from $2.8723 trillion annualized to $3.0238 trillion.

Real services imports improved significantly as well. Their $413.6 billion annualize fourth quarter total represents a 5.16 percent gain from the third quarter total. But they’re still 17.69 percent below their last pre-pandemic quarterly level of $502.5 billion.

Two other findings of note: First, although the increase in the annual constant dollar trade deficit reached an all-time high last year, its effect on economic performance was relatively slight. The trade gap’s widening accounted for 0.13 percentage points of that 3.50 percent annual real GDP drop. Proportionately, that’s less damage than was inflicted in 2019, when the higher trade deficit cut 0.18 percentage points from the 2.16 percent overall growth rate.

Second, on a quarterly basis, the trade bite was much deeper, as the deficit’s increase subtracted 1.52 percentage points off of the 3.95 percent sequential inflation-adjusted GDP increase. But not even this blow was the biggest ever relatively speaking – or even close. (The all-time worst such performance came in the second quarter of 1952, when 0.85 percent after-inflation annualized growth would have been a full 2.23 percentage points higher if not for the sequential increase in the trade deficit.)

(What’s Left of) Our Economy: More Evidence of U.S. Manufacturing’s Tariff-Bolstered Resilience

Tags

CCP Virus, China, Commerce Department, coronavirus, COVID 19, imports, Jobs, Labor Department, manufacturing, recession, recovery, tariffs, The Wall Street Journal, Trade, Trump, value added, Wuhan virus, {What's Left of) Our Economy

I must confess that I’m more than a little confused. On the one hand, I read in The Wall Street Journal two days ago that the Trump administration “used tariffs to try to drive manufacturing back home, although growth in factory jobs stalled once the administration resorted to levies that drove up costs for many factories.”

On the other hand, I read in The Wall Street Journal yesterday that U.S.-based manufacturing is recovering “quicker than expected” from the CCP Virus- and lockdowns-induced American recession. Moreover, this stellar performance is taking place amid “higher costs for materials used in everything from kitchen cabinets to washing machines to automobiles.”

Stranger still: Unquestionably, among the cost drivers for these materials have been those Trump tariffs, especially on imports from China – which are not only wide-ranging (covering some $360 billion worth of Chinese-made products when they were imposed in phases), and steep (with most standing at 25 percent).

In fact, “stellar” really isn’t the best adjective for the manufacturing surge. Try “record-shattering.” For the Commerce Department’s “GDP by Industry” statistics show that between the second and third quarters of this year, manufacturing value-added (an output measure that tries to eliminate the double-counting that results from including in manufacturing production levels both final products and all the parts, components, and materials that go into those products) shot up by 13.34 percent at an annual rate. That’s not only never happened before. It’s never come close to happening before – at least since 2005, when the relevant data series began.

To be fair, this growth stemmed from the rubberband-like effect of partial virus-related reopenings of economic activity. Specifically, it followed a record 12.47 percent nosedive between the first and second quarters. But who can reasonably doubt that the immense scale of the Trump tariffs suppressed the amount of Chinese goods that could have satisfied this renewed demand, as they had done so typically in the recent past – especially since China’s export machine recovered exceptionally quickly from the People’s Republic’s own virus outbreak and massive shutdowns?

Moreover, who can reasonably doubt that the exclusion of these imports from the U.S. market more than offset whatever price increases the tariffs created? Because however much these levies are reducing companies’ earnings and profits, every sale lost to a China-based rival – whether at home or abroad – means much less in the way of earnings and profits. 

And this strong American manufacturing growth pickup has put an end to that short-lived manufacturing jobs slowdown. From April of last year (when the CCP Virus’ economic impact peaked on a monthly basis ) through December, Labor Department data show that U.S. industry’s payrolls are up by 820,000 – much faster growth than the 37,000 increase during the same period in 2019. Of course, the incredibly abnormal sudden stop-and-start of virus-era economies not just in the United States but the world over (and in largely unsynchronized ways) sharply limits the use of all such comparisons, because they have so relatively little to do with the economic fundamentals.

At the same time, though, it’s entirely reasonable to expect U.S. manufacturing production and employment to keep expanding as post-CCP Virus normality returns. And as long as the Trump tariffs remain largely in place, the prospect of a renewed Chinese import flood will be one major headwind that domestic industry won’t have to fear.

(What’s Left of) Our Economy: Why China Really is Like Nazi Germany

Tags

Albert O. Hirschman, allies, Biden, China, dumping, Information Technology and Innovation Foundation, intellectual property theft, Japan, multilateralism, NATO, Nazi Germany, nuclear umbrella, Robert D. Atkinson, sanctions, South Korea, tariffs, tech industry, technology extortion, Trade, tripwire, Trump, {What's Left of) Our Economy

Because Nazi references can be so irresponsibly inflammatory, and therefore have been so often abused, I haven’t yet compared the threat posed by China to the rest of the world to that posed by Nazi Germany. (In my view, these comparisons have been used even more recklessly lately in U.S. domestic politics, chiefly to describe former President Trump and his views and policies.) So even though the People’s Republic, its ambitions, and its burgeoning capabilities do scare the living daylights out of me (and should scare you), I was nonetheless pretty surprised to see precisely this comparison just made by Robert D. Atkinson.

Atkinson is the head of a technology-focused Washington, D.C. think tank who I’ve known since the early 1990s. I’ve admired some of its work and haven’t been so crazy about other examples of its output, but I’ve never, ever considered him a boat-rocker, much less a rhetorical bomb thrower. In fact, my criticisms of the numerous studies and articles issued by his Information Technology and Innovation Foundation stem from my view that they’re way too cautious when it comes to countering China’s wide range of predatory economic practices (which include predatory technology policy practices like the theft and extortion of intellectual property).

And I’ve attributed much of this caution to the Foundation’s donor base – which is dominated by the U.S. and in some cases foreign tech and manufacturing companies that have worked so hard to send so much production and employment, and (voluntarily) so much technology to China for decades. It’s true that many of these firms are now crying foul as Beijing in recent years has aimed to strengthen its own entities’ positions at the foreigners’ expense. Yet their stubborn opposition to the unilateral Trump tariffs and some key sanctions on the Chinese tech outfits that have been major customers made clear their vain hope that they could somehow have their China cake and eat it, too.

Yet here comes Atkinson in the Fall issue of The International Economy (a publication that’s as – proudly – establishment oriented as they come) with a piece titled “A Remarkable Resemblance” likening China’s international economic policies to those of “Germany for the first forty-five years of the twentieth century” – which of course include the twelve Nazi years (1933-1945).

As the author argues, Germany during these decades was:

“a ‘power trader’ that used trade as a key tool to gain commercial and military advantage over its adversaries. Likewise, China’s trade policy is guided neither by free trade nor protectionism, but by power trade, with remarkably similar strategy and tactics to those of 1940s Germany. Understanding how Germany manipulated the global trading system to degrade its adversaries’ capabilities, entrap nations as reluctant allies, and build up its own industries for commercial and military advantage, just as China is doing, can shed light and point the way for solutions to the China challenge.”

Atkinson reports that this description of German policies came from a 1945 book by the important economist Albert O. Hirschman, which concluded that “[I]t’s is possible to turn foreign trade into an instrument of power, of pressure, and even of conquest. The Nazis have done nothing but exploit the fullest possibilities inherent in foreign trade within the traditional framework of international economic relations.”

The author rightly observes that

“Hirschman’s key insight was that some countries— in this case Germany under three very different government regimes from 1900 to 1945—focus not on maximizing free trade or even on protecting their industries, but on changing the relative power of nations through trade to achieve global power. Germany’s policies and programs were designed not only to advance its own economic and military power, but to also degrade its adversaries’ economies, even if that imposed costs on their own economy relative to a free trade regime.”

Germany also consistently sought, as the author points out “to make it more difficult for its trading partners to dispense entirely with trade with Germany, thus creating dependency.” And if that’s not enough to convince you about the comparison with China today, Atkinson himself notes that the German policy recipe also included massive industrial espionage, and Hirschman identified a major element as the equally massive dumping (selling at prices way below production costs) of goods into foreign markets to destroy overseas competition.

Atkinson’s diagnosis of the problem is so spot-on that it makes his recommended solution especially disappointing. Kind of like President Biden, he believes that the best internationally oriented option by far (on top of more effective support for U.S. industry, which I strongly support) is forming a “NATO for trade” that would be

“governed by a council of participating [free trading] countries…if any member is threatened or attacked unjustly with trade measures that inflict economic harm, DATO [the “Democratically Allied Trade Organization] would quickly convene and consider whether to take joint action to defend the member nation.”

I’ve already pointed out that the consensus on standing against China economically among America’s allies is way too weak to enable such multilateral approaches to succeed. But as long as we’re talking in terms of NATO – the military alliance between the United States and much of first Western and now Eastern Europe – and the Cold War, let’s not forget two other big problems. First, NATO (and this also goes for America’s security ties with South Korea and Japan) was never so much an alliance as a protector-protectorate relationship. The vast bulk of the heavy lifting was always done by the United States.

This allied security dependence in turn has produced the second major obstacle to a DATO’s effectiveness. Because the United States coddled allied defense free-ridingcand opened its markets one-sidedly for so long, the allies’ protectorate status was substantially cost-free economically, and even came with trade rewards no other country could remotely offer. (In addition, as I’ve also written, the creation of an American nuclear umbrella combined with the stationining of U.S. “tripwire” forces on the NATO frontlines in Germany also greatly minimized the military risks of siding with Washington.)

Today, however, economic power between the United States and the allies is more evenly distributed, and the allies’ profitable trade with and investment in China has, as noted in my aforementioned writings, greatly increased the economic price they would pay for lining up against China.

Still, by comparing the China threat to the Nazi threat, Atkinson’s article significantly bolsters the case for the United States escalating its response to the “all of society” level – or at least intensifying it qualitatively. Let’s just hope, as the author writes, that this time around the United States fully awakens a lot faster.

Im-Politic: Did “The Science” Give Us the Virus?

Tags

Anthony S. Fauci, bio-weapons, CCP Virus, China, coronavirus, COVID 19, Im-Politics, Joe Biden, lockdowns, National Institutes of Health, New York, Nicholson Baker, pandemics, public health, SARS, stay-at-home, terrorism, Trump, virology, Wuhan virus

That’s a pretty stunning header, I know. But it’s anything but crazy, or even click-baity – at least if you take seriously a long, very serious, and very carefully reported article published January 4 about the CCP Virus’ origins in New York magazine, which hasn’t exactly been an enthusiast for President Trump or science- or China-bashing.

For author Nicholson Baker makes clear not only that for years before the Trump era, America’s top public health officials (who epitomize “The Science” that all the adults in the nation’s room from President-elect Joe Biden on down have anointed as the only valid sources of U.S. and global virus policy advice) pushed measures certain to boost the odds that something like Covid 19 would be created, and somehow escape from, a laboratory someplace in the world – including China.

And notably, one of the main pushers was one Dr. Anthony S. Fauci, Director of the National Institutes of Health’s (NIH) National Institute of Allergy and Infectious Diseases.

It’s important to make clear here what Baker isn’t saying. He isn’t saying that the Chinese manufactured the virus as a bio-weapon. He isn’t saying that Beijing loosed this pandemic on the world on purpose. And he certainly isn’t accusing Fauci and the rest of the public health establishment of acting maliciously.

But what he is saying is awfully damning, and urgently needs to be examined by the incoming Biden administration, the entire U.S. political and policy communities, and of course the public.  For Baker marshalls and summarizes voluminous evidence for the proposition that the most reasonable theory of the virus’ origin is not that in its highly infectious form it developed naturally in some mammal species (like a bat) and then jumped to humans (e.g., at a wet market) – the explanation offered at various times by the Chinese government and by many infectious disease specialists. Instead, the author supports the idea that it was produced by scientists from a naturally occuring mammalian virus, specifically by scientists at one of the three advanced virology facilities in and around the city of Wuhan.

And then, Baker – who is extremely careful to distinguish between facts and suppositions – speculates that “it eventually got out” by hazard. Release via “a lab accident — a dropped flask, a needle prick, a mouse bite, an illegibly labeled bottle,” he emphasizes, “isn’t a conspiracy theory. It’s just a theory.” But he rightly argues that “It merits attention…alongside other reasoned attempts to explain the source of our current catastrophe.”

But where do the roles of the U.S. and global public health establishments come in? During recent decades, as Baker reports, scientists have been conducting “’gain of function’ experiments — aimed to create new, more virulent, or more infectious strains of diseases in an effort to predict and therefore defend against threats that might conceivably arise in nature.” And many of these experiments were funded by the Fauci’s Institute at the NIH. (Similar work was being funded by the Defense Department, whose interest in bio-weapons and fighting them was reawakened by the increase in global terrorism in the 1990s and the prospect that germs like anthrax would be used to advance extremist goals. This threat, of course, materialized right after September 11 with letters containing the germs sent through the mail – in an immense irony – by a U.S. government bio-weapons researcher.)

As implied immediately above, Fauci and his colleagues had the best of intentions. But as Baker documents exhaustively, they ignored numerous warnings from fellow professionals that, in no less than two related ways, they might be creating a problem far worse than that they were trying to solve. First,in their determination to design in the lab super-dangerous bio threats that terrorists hypothetically might some day create and use, they lost sight of how their own experiments could unleash such actual threats in the here-and-now due to the real possibility of leaks (hardly unknown in the world of biological research).

In Baker’s words, “Why, out of a desire to prove that something extremely infectious could happen, would you make it happen? And why would the U.S. government feel compelled to pay for it to happen?” Echoing these worries were numerous scientists, such as Johns Hopkins biomedical engineer Steven Salzberg, who noted several years ago, “We have enough problems simply keeping up with the current flu outbreaks — and now with Ebola — without scientists creating incredibly deadly new viruses that might accidentally escape their labs.”

Second, no evidence has been found yet that any of the coronaviruses that are naturally occuring and that have infected humans (like the SARS “bird flu” – which actually came from mammals – of 2002-03) are remotely as contagious as their lab versions, or are found in animals that often come into contact with humans outside China and its wet markets. In fact, Baker quotes Rutgers University microbiologist Richard Ebright has describing Chinese virologists’ efforts to scour remote locations for animal sources of natural coronaviruses that can be supercharged in a lab as “looking for a gas leak with a lighted match.”

In addition, Fauci arguably magnified these dangers by channeling some of the U.S. government funding for “gain of function” research to the Wuhan virology labs. On the one hand, this decision made sense (as long as gain-of-function was being sought in the first place) because China has been the origin point of so many mammalian coronaviruses, and therefore the home of so many leading virus specialists. On the other hand, safety first hasn’t exactly been a national Chinese watchword.

So the implications for simply “following The Science” seem clear. And they go beyond what should be (but isn’t) the screamingly obvious point that, especially in a field as new and rapidly changing as this branch of virology, there is no “The Science.” Expert opinion almost inevitably will be mixed, and politicians and their journalist mouthpieces flocking to one side while completely ignoring the other is bound to end badly. Matters are bound to end even worse, of course, when the favored faction aggressively tries to stamp out and discredit as “conspiracy thinking” the other’s theories – as Baker shows indisputably was the case with public health authorities and experts (including Fauci) who continue to try absolving the Wuhan labs from any responsibility.

More important, this tale bears out what I and many others have written for months (e.g., here): The pandemic is a crisis with many dimensions – economic and social as well as medical. The public health establishment’s contributions are indispensible. But not only is its expertise limited. Like any other human grouping defined by common characteristics and experiences like fundamental interests and educational backgrounds and occupational environments, this establishment is influenced by its own distinctive unconscious biases and predispositions.

In this case, in Baker’s words, some of the most important are “scientific ambition, and the urge to take exciting risks and make new things.” All of which are perfectly fine and even praiseworthy – in their place.

Further, the medical dimension of the crisis is complex, too, as shown both by all the evidence of major public health costs generated by the lockdown and stay-at-home orders championed so singlemindedly by Fauci and his acolytes, and by the strong disagreements among the virologists and similar researchers laid out in such detail by Baker. So it’s the job of political leaders to take all these considerations into account, not to act as if only one cohort of advisers has a monopoly on wisdom in all relevant areas.

And let’s end on an O’Henry type note. I can’t resist pointing out that President Trump, too, has been one of those U.S. leaders whose administration has robustly funded this gain-of-function research – one of the few instances in which he’s, apparently with no objections, followed The Science.

Making News: Trump “Requiem” Post Re-Published in The National Interest…& More!

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allies, Capitol riots, Cato Institute, China, Ciaran McGrath, conservatism, Croatia, Daily Express, Dnevno, economic nationalism, EU, European Union, Geopolitika, globalism, GOP, impeachment, Joe Biden, Making News, Populism, Republicans, Ted Galen Carpenter, The National Interest, Trump

I’m pleased to announce that The National Interest has re-posted (with permission!) my offering from last Wednesday that could be my last comprehensive look-back at President Trump and his impact on politics and policy (at least until the next utterly crazy development along these lines). Click here if you’d like to read in case you missed it, or if you’d like to see it in a more aesthetically pleasing form than provided here on RealityChek.

One small correction still needs to be made: The last sentence of the paragraph beginning with “Wouldn’t impeachment still achieve….” should end with the phrase “both laughable and dangerously anti-democratic.” I take the blame here, because my failure to keep track of the several versions that went back and forth.

In addition, it’s been great to see my post on the first sign of failure for President-Elect Joe Biden’s quintessentially globalist allies’-centric China strategy (also re-published by The National Interest) has been cited in new and commentary on both sides of the Atlantic.

Two of the latest came from Zagreb, Croatia. (And yes, I needed to look up which former region of the former Yugoslavia contained Zagreb – though I did know it was some place in the former Yugoslavia!) They’re found on the news sites Geopolitika and Dnevno.  (These sites must be related somehow because since it’s the same author, it must be the same article.)

On January 14, Ciaran McGrath of the London newpaper Daily Express used my analysis to sum up a column analyzing the Europe-China investment agreement that prompted my post in the first place.

And on January 5, the Cato Institute’s Ted Galen Carpenter (full disclosure: a close personal friend) cited my piece in a post of his expressing general agreement.

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

(What’s Left of) Our Economy: Mainstream Media Article Debunks its Own Trump-Caused Shortage Claim

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automotive, China, fake news, Mainstream Media, Reuters, sanctions, semiconductors, tech, Trump, {What's Left of) Our Economy

For all the dreadful journalism I’ve read in recent years (and it’s a lot), I never considered the possibility that a Mainstream Media article could come out in which the thrust of the story changed, and changed substantially, no less than three times between the headline and the story’s 15^th paragraph (two-thirds in). In fact, the thrust changed so substantially that it finally became clear to a reader diligent enough to stick with the article that long that the headline was genuine Fake News.

Here’s the header for the Reuters report in question: “Trump’s China tech war backfires on automakers as chips run short.” The clear implication: “That moronic President! He and his stupid China policies are ruining a major U.S. and global industry!”

Which makes the first change of thrust awfully strange – especially since it came in the very first paragraph. “Automakers around the world are shutting assembly lines because of a global shortage of semiconductors that in some cases has been exacerbated by the Trump administration’s actions against key Chinese chip factories, industry officials said.”

That is, it hasn’t been just the Trump policies. They’ve been a problem in only “some cases.”

Even that development would be newsworthy – although not terribly so. Except just five paragraphs later, readers learn that “In at least one case, the shortage ties back to President Donald Trump’s policies aimed at curtailing technology transfers to China.”

One case! And the company concerned isn’t even named, which is fishier still. In addition, keep in mind that when reporters or anyone else use phrases like “in at least one case,” that means they looked for other cases and couldn’t find any. According to this reputable source, the number of vehicle (including heavy duty truck) manufacturers in the world as of 2018 was 56 – making me wonder how with how many such companies the two reporters who wrote the story checked – before arbitrarily giving up and concluding that what they found couldn’t possibly the only such instance of this Trump policy effect.

And finally, nine paragraphs later, comes the third change – a context-setting observation that further demolishes the storyline: “The chipmaking industry has always strained to keep up with sudden demand spikes. The factories that produce wafers cost tens of billions of dollars to build, and expanding their capacity can take up to a year for testing and qualifying complex tools.”

In other words, buyers of semiconductors have been dealing with sudden shortages literally since chips first starting being used in significant volumes in other goods and services industries.

So the only reasonable conclusion that can be drawn from this article is that, although there’s no meaningful shortage of automotive semiconductors that can be attributed to President Trump’s policies, there’s a major shortage of either journalistic integrity or maybe plain old competence at Reuters.