(What’s Left of) Our Economy: 2022 Saw More U.S. Trade Deficits but More Secure Supply Chains

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Advanced Technology Products, ATP, Biden adminstration, Canada, Central America, Dominican Republic, European Union, friendshoring, Germany, Immigration, Japan, manufacturing, Mexico, offshoring, South Korea, supply chains, Taiwan, Trade, Trade Deficits, U.S.-Mexico-Canada Agreement, USMCA, Vietnam, {What's Left of) Our Economy

Sometimes the best-laid plans of mice and men etc etc. So this second look by RealityChek at the final (for now) year-end 2022 official U.S. trade figures is coming out today, rather than yesterday, as I expected.

The big takeaways: First, record deficits were set practically everywhere the eye can see – and on top of sizable increases – when it comes to trade flows in manufacturing, advanced technology products (ATP), and with nearly all of America’s major trade partners (except China, which was covered Friday).

Second, and more encouragingly, regionalization of U.S. trade within the Western Hemisphere kept growing, which is (a) surely making supply chains more secure; and (b) creating more economic opportunity in countries that have long sent the United States large numbers of migrants. In other words, the Biden administration goal of “friendshoring” keeps becoming a thing. 

The biggest absolute numbers were turned in by U.S. manufacturing, which saw its huge, chronic deficit rise by 13.46 percent, from $1.32544 trillion to a twelfth straight record $1.50379 trillion. (Unless otherwise specified, all figures in this post will be in pre-inflation dollars, which are the trade data most closely followed by students of the economy.)

And in context, these figures look just as bad. Although full-year, 2022 results won’t be available until late March, when the pre-inflation manufacturing output numbers come out, as of the third quarter, the manufacturing shortfall stood at 53.09 percent of its value-added production (a measure that avoids significant double counting for complex goods made up of lots of parts and components). That marks the first time this number has topped fifty percent.

Moreover, it could well climb further, since in inflation-adjusted terms, manufacturing output has weakened significantly in the fourth quarter.

The only remotely optimistic development: The growth rate of the manufacturing trade deficit last year slowed from 2021’s 18.84 percent.

The trade gap in advanced technology products widened even faster last year – by 24.58 percent, from $195.95 billion to a sixth consecutive all-time high $244.11 billion.

An even stronger goods trade deficit increase was registered by America’s partners in the United States-Mexico-Canada Agreement (USMCA) – the successor to the North American Free Trade Agreement (NAFTA). This shortfall worsened by 34.12 percent, from $158.19 billion to a second straight record .$212.17 billion.

The most dramatic USMCA deficit change came in U.S-Canada goods trade. Here, the gap soared by 63.14 percent, from $50.03 billion to $81.62 billion. That new record deficit was the highest since 2005’s $78.49 billion..

The goods trade deficit with Mexico surged more slowly – by 20.73 percent. But 2022’s $130.55 billion total was a new all-time high as well, surpassing 2020’s $112.08 billion.

American trade with the European Union (EU) was an exception to the 2022 pattern. The goods shortfall fell by 6.78 percent, from $218.74 billion to $203.91 billion, largely reflecting supercharged American exports of natural gas to the continent to make up for reduced post-Ukraine war Russian supplies.

But the goods deficit with the EU’s largest economy, Germany, increased by 5.44 percent, from $69.88 billion to $73.69 billion.

Turning to U.S. goods trade with Asia, the deficit with Japan grew by 12.80 percent on year, from $60.30 billion to $68.01 billion.

The gap with South Korea jumped by 51.39 percent, from $28.98 billion to a third straight record $43.87 billion.

In swelling by 19.65 percent, from $40.23 billion to $48.13 billion, the goods shortfall with Taiwan set recorded its fourth consecutive all-time high.

And consistent with its growing role as an alternative to offshoring export-oriented production to China, the U.S. goods deficit with Vietnam ballooned by 27.77 percent, setting a thirteenth straight record in the process.

At the same time, these geographic trade statistics show that despite the emergence of Asia altenatives to China, U.S. goods trade is becoming increasingly concentrated within the Western Hemisphere.

Between 2021 and 2022, two-way U.S. goods trade with Canada and Mexico combined as a share of total U.S. goods trade rose from 28.76 percent to 29.33 percent. And in 2019, the last full-year before the pandemic’s arrival state-side, this share was just 25.71 percent.

The numbers for Dominican Republic and Central America are much smaller but the trends more dramatic. Between 2021 and 2022, their share of total U.S. goods trade improved from 5.25 percent to 5.34 percent, but since 2019, it’s way up from 1.23 percent.   

 

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(What’s Left of) Our Economy: The U.S. Trade Deficit Falls Again — For the Wrong Reasons

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Advanced Technology Products, ATP, Canada, CCP Virus, China, coronavirus, currency, euro, Eurozone, exchange rates, exports, goods trade, imports, Japan, lockdowns, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, trade deficit, Vietnam, yen, zero covid policy, {What's Left of) Our Economy

As of this morning’s official data, May makes two straight months during which the total U.S. trade deficit has fallen. The last time that’s happened? The second half of 2019, and then, the shortfall dropped sequentially six consecutive times – between June and November.

Normally such declines would be good news. But of course, these times still aren’t normal thanks to the lingering effects of the CCP Virus and more recently to the Ukraine War. And indeed, back in 2019, this trade gap narrowing took place as economic growth was slowing moderately, but the post-financial crisis expansion was nonetheless continuing. The more recent improvement is likely coming, as often happens, while the economy likely has slipped into recession.

The new Census Bureau release shows that right after it tumbled sequentially in April by a whopping 19.47 percent (a little more than first reported), the combined goods and services trade deficit shrank by another 1.32 percent in May, from $86.69 billion to $85.55 billion. For good measure, this shortfall was the lowest since December’s $78.87 billion.

The gap narrowed because exports advanced respectably and imports rose more sluggishly – a bit of encouraging news, especially considering the dollar’s recent strength (which by itself boosts the prices of U.S. goods and services both at home and abroad versus the foreign competition), and the many weak and/or weakening economies overseas (which increases the pressure they feel to grow by exporting to stronger and/or more open economies).

Even so, combined goods and services exports climbed by 1.20 percent on month in May, from an upwardly revised $252.85 billion to $255.89 billion – their fourth straight monthly record.

Overall imports, however, grew by just 0.56 percent – from a downwardly revised $339.54 billion to $341.44 billion.

The goods trade deficit sank by 2.65 percent sequentially in May, from an upwardly revised $107.82 billion to $104.96 billion – which, as with the overall trade gap was the best monthly level since December ($100.52 billion).

Unfortunately, in May the big services trade surplus that the United States has run for so long dropped sequentially for the first time in three months – and by 8.52 percent, from an upwardly revised $21.13 billion to $19.41 billion.

Goods exports were up 1.71 percent month to month in May, from a downwardly revised $176.02 billion to fourth straight all-time high of $179.03 billion.

Services exports rose, too, and to their second straight all-time high. But the increase was only 0.05 percent, from an upwardly revised $76.52 billion to $76.83 billion.

Goods imports also increased on month in May by just 0.05 percent, from $283.84 billion to $283.99 billion.

But services imports in May grew much faster – by 3.15 percent, from a downwardly revised $55.70 billion to a fourth straight monthly record of $57.46 billion.

The non-oil goods trade deficit is known to RealityChek regulars as the Made in Washington trade deficit, because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

In May, this shortfall was down 3.43 percent sequentially, from an upwardly revised $108.47 billion to $104.68 billion. That’s the lowest monthly total since February’s $103.29 billion.

No such luck with America’s enormous and persistent manufacturing trade deficit. It rose month to month in May by 6.58 percent, from $124.41 billion to a $132.60 billion level that was the second worst of all-time after March’s $142.22 billion.

U.S. exports of manufactures increased sequentially in May by 2.55 percent. And the new $112.15 billion in such sales was their second best ever, after March’s $113.96 billion.

But the much greater amount of manufacturing imports jumped by 4.82 percent, to $244.75 billion – another second best ever (after March’s $256.18 billion).

On a year-to-date basis, the manufacturing deficit is running 24.07 percent ahead of last year’s total, ($504.94 billion to $626.48 billion) which almost guarantees that this shortfall will hit its eleventh straight all-time high, in the process topping last year’s $1.3298 trillion.

Manufactures exports year-to-date have risen by 15.87 percent, but imports have surged by 20.01 percent.

The trade deficit in Advanced Technology Products (ATP) worsened in May as well, advancing 11.94 percent on month to $20.48 billion. ATP exports dipped by 0.71 percent, but imports were up by 3.94 percent.

Given the prominence of both manufactures and Advanced Technology Products in U.S.-China trade, it’s no surprise that as their global trade gaps widened in May, so did the U.S. goods deficit with the People’s Republic. Also at work on all these fronts: the partial easing of the Zero Covid policy-induced lockdowns that halted so much economic activity in China this spring.

The China goods shortfall rose by 3.18 percent, from $30.57 billion to $31.54 billion. And in a continuing departure from a recent pattern, this growth contrasted with the aforementioned 3.43 percent drop in the non-oil goods deficit that’s its closest global proxy.

For most of the time since the Trump tariffs on China started being imposed in 2018, the goods deficit with the People’s Republic actually had been falling while that Made in Washington gap kept growing, suggesting that the former President’s ongoing trade curbs had been achieving a major stated goal. On a year-to-date basis, the China deficit is still up slightly less (26.23 percent) than the Made in Washington deficit (27.56 percent). But clearly the difference between the two is shrinking.

One entirely possible reason is that China has devalued its controlled currency versus the dollar by 5.45 percent since the end of last year – which of course cheapens the price of Made in China products for reasons having nothing to do with free trade or market forces, and which suggests that rather than thinking about cutting or eliminating tariffs on these products, President Biden should be mulling some increases.

For May, U.S. goods exports to China improved sequentially by 9.99 percent, from $11.20 billion to $12.32 billion, while imports grew by 5.01 percent, from $41.77 billion to $43.86 billion.

In other May developments with major U.S. trade partners:

>The U.S. goods deficit with Canada soared by 35.84 percent on month, from $7.25 billion to $9.84 billion. That total was the second biggest ever after the $9.88 billion recorded back in July, 2008;

>A new record was set by the goods gap with Vietnam, and in fact, May’s $10.66 billion figure was the third new all-time high in the last three months and the fourth this year. These results largely reflect Vietnam’s mounting attractiveness versus China as a destination for export-focused foreign investment – in part due to the Trump tariffs and in part due to all the worsening difficulties of doing business in China;

>The goods deficit with the eurozone was up 8.08 percent, and worse is likely to come as the single currency keeps weakening versus the dollar and Europe, too, seems heading into or is already mired in a new recession;

>But despite the continuing weakening of the yen, the goods deficit with Japan fell by 6.86 percent. The ongoing global semiconductor shortage still plaguing the auto industry in particular looks like a big culprit here.

Our So-Called Foreign Policy: Afghanistan and the Credibility Crock

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Afghanistan, Bay of Pigs, Biden, Central America, Cold War, communism, credibility, Cuba, Cuban Missile Crisis, Gideon Rachman, Grenada, John F. Kennedy, Laos, Lebanon, Lyndon B. Johnson, Our So-Called Foreign Policy, Reagan Doctrine, Richard M. Nixon, Ronald Reagan, Samuel Johnson, Southeast Asia, Soviet Union, Vietnam

Forgive me if this header makes it sound like I’m unusually ticked off. But I sort of am. Because I’ve been dealing for decades with the claim that the United States can’t set meaningful foreign policy priorities because tolerating any international setbacks of any kind would destroy its global credibility forever.

I haven’t heard this argument lately, no doubt because it’s rooted in the Cold War era, and the absence of a superpower adversary determined to engage in a full-fledged contest for global supremacy (and no, the Chinese aren’t there yet, especially when it comes to fighting proxy wars) drained it of lots of its…well…credibility as a rationale for sweeping American global activism.

Now, however, the seeming certainty of a Taliban takeover following the nearly completed U.S. military withdrawal from Afghanistan has brought it back (see, e.g., here and here), and it’s even less convincing than during its Cold War heyday.

As a review of U.S. Cold War history makes clear, there were actually several varieties of the credibility theory. For example, John F. Kennedy’s effort to halt the spread of Communism in Vietnam clearly was influenced by the acute need he felt to bolster his own credibility after the Bay of Pigs debacle, a performance at a summit with Soviet leader Nikita Khrushchev that he himself viewed as a dangerous flop, and a widely criticized diplomatic settlement to a conflict in neighboring Laos. In other words, Kennedy perceived an urgent need to salvage a reputation for simple foreign policy competence.

Credibility throughout the early Cold War decades in particular had an ideological dimension, too. As this study handily summarizes, U.S. leaders strongly believed that prevailing against the Soviets and Chinese required that Americans help threatened countries demonstrate to the world at large that non-Communist systems had the vigor to repel subversion and outright revolt by adherents of that creed. So establishing credibility during that period was also an exercise in global morale building. (Interestingly, echoes of this idea permeate the rhetoric of the Biden administration and other globalists on the subject of China.)

But the main version of Cold War credibility theory held any U.S. failure to resist Communist expansionism the world over would convince friend and foe alike that American declarations of resolve were shams and that American security commitments were worthless whenever push came to shove. The resulting shift in the global balance of power and influence, as U.S. allies and neutrals alike scrambled to accommodate ascendant Communist forces as best they could, would leave an internationally isolated America much weaker and poorer.

Such fears were behind Lyndon B. Johnson’s declaration that America would not “cut and run” from Vietnam because “We must meet our commitments in the world….”

They were behind Richard M. Nixon’s Vietnam-induced fear that “If, when the chips are down, the world’s most powerful nation, the United States of America, acts like a pitiful, helpless giant, the forces of totalitarianism and anarchy will threaten free nations and free institutions throughout the world.”

And they were explicitly behind Ronald Reagan’s case for his doctrine of resisting Moscow’s efforts to expand its influence in Central America, sub-Saharan Africa – and Afghanistan: “The U.S. must rebuild the credibility of its commitment to resist Soviet encroachment on U.S. interests and those of its Allies and friends, and to support effectively those Third World states that are willing to resist Soviet pressures or oppose Soviet initiatives hostile to the United States, or are special targets of Soviet policy.”

Thankfully, today’s credibility-mongers are outside of power in Washington, not inside. But these members of the globalist foreign policy Blob concentrated in the Mainstream Media, the think tank world, and some factions in Congress, are hardly devoid of influence, especially if the optics coming out of Afghanistan are ugly, as can be counted on. So it’s worth reviewing the main reasons that this form of obsessing about U.S. credibility has no claim to be taken seriously both for that reason, and because their fatal flaws remain the same, too.

In the first place, credibility-mongering falls on its face because its main animating fears have simply not materialized over any stretch of time. The fall of Vietnam, most prominently, clearly led to Communist takeovers in Laos and Cambodia, too. But in the immediate aftermath of Vietnam, no U.S. treaty allies defected into the Communist camp, or turned neutral. Even in Southeast Asia, no more dominoes topped – despite the clear lack of any American appetite to help with any resistance.

In fact, as (globalist) Financial Times columnist Gideon Rachman just noted, “within fourteen years of the fall of Saigon, the cold war was over, and the west had won.”

A least as interesting, as I noted way back in 1985, successful American demonstrations of credibility have displayed little long-term value. For example, Reagan’s 1983 invasion of Grenada was a clear-cut win for the United States. But for years afterwards, Soviet- and Cuban-backed leaders and insurgents in nearby Central America continued defying his administration’s will for years afterward. Outside the Western Hemisphere, the Grenada victory did nothing to stop deadly attacks on U.S. Marines stationed in civil war-torn Lebanon. Meanwhile, many American allies viewed Grenada as more evidence that Reagan was a dangerous cowboy. Even staunch Reagan ally and close personal friend Margaret Thatcher, the British Prime Minister, was unnerved.

More important, though, as I argued in that 1985 article, given inevitable limits on American power and will, the real measure of U.S. credibility isn’t a stated determination to respond strongly to every single foreign challenge that arises, or even to try doing so. In fact, because its post-Vietnam circumstances and behavior have made those limits obvious globally, such pretensions are likeliest to have the opposite effect – to fuel doubts about American judgment and wisdom.

Rather than depending on “convincing the rest of the world that the United States will respond to all instances of aggression,” I continued, building and preserving American credibility “must depend on convincing the world that the United States will respond to some instances of aggression” based on the identification of specific interests that are regarded as important enough to defend (or to advance, for that matter, when such opportunities appear). And operationally, “this translates into an ability to use finite assets efficiently and rationally – to convey a clear sense of priorities.”

Of course, adversaries might as a result view countries or regions left off an American definition of crucial interests as tempting targets. But precisely because these would be low priorities, by definition any adversary wins in these areas would pose few if any risks to the United States.

The 18^th century British literary giant Samuel Johnson famously proclaimed that false, cynical expressions of patriotism are “the last refuge of a scoundrel.” I wouldn’t go so far as to attach that label to the credibility-mongers. But resort to  this ploy too often has been the last refuge of globalists who are completely out of any other reasons to insist on dubious forms of international activism, and the current hysteria over Afghanistan is clearly the latest example.

Our So-Called Foreign Policy: A Neglected Lesson of Afghanistan

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Afghanistan, Biden, border security, China, Donald Trump, forever wars, globalism, Immigration, jihadism, Muslims, nation-building, Our So-Called Foreign Policy, Russia, special forces, Tajikistan, Taliban, terrorism, Uighurs, Uzbekistan, Vietnam, women's rights, Xinjiang

Let’s get one matter straight right away: When it comes to the (always important) optics, and to humanitarian considerations, there is no good way for the United States to end its military involvement in Afghanistan that would meet any sensible or decent person’s definition of “good.”

Indeed, much of the news that’s come out of that war-torn country (and I use that term advisedly) is sickeningly reminiscent of the final U.S. pullout from Vietnam in April, 1975 – complete with the almost certain abandonment of many locals who had cast their lot with the Americans in various ways, and therefore face many forms of retaliation if the jihadist Taliban do indeed triumph.

Further, the U.S. departure could produce an Afghan aftermath far worse than that suffered in Vietnam, as the social and economic strides made by many Afghan women of all ages under the umbrella of the American presence seem to be doomed if the country is taken over by a movement wed to Islam’s most misogynistic version.

In fact, a couple of years ago, by which time the American mission’s failure looked inevitable, I came up with the idea of offering all Afghan females asylum in the United States – complete with transportation expenses. I never published it, but wouldn’t it have served the women-haters right to leave them as women-free as possible?

That chance looks to be gone – though I’m still hoping that somehow the interpreters and other U.S. employees can be saved. Otherwise, the best that Americans can hope for now is figuring out what went wrong and how to avoid such fiascoes going forward. There’s been no shortage of post-mortems, and especially encouraging has been the bipartisan globalist U.S. foreign policy establishment’s (belated) agreement that nation-building where no true nation exists is folly. (See, e.g., here.)

Another big lesson, however, remains largely unlearned – even by long-time opponents of the Afghan War like former President Trump: As I’ve written repeatedly, since the only self-interested (and therefore sensible) reason for direct American involvement in the first place was preventing the country’s re-emergence as an officially sponsored and protected base for September 11-like terrorism, Washington should have focused on seriously securing U.S. borders rather than on fighting the jihadis “over there.”

Trump tried in his own characteristically ragged way to beef up border protection, and achieved some impressive progress. But as made clear here, he never seemed to make the connection fully. And now President Biden appears determined to create the worst of all possible worlds from the U.S. standpoint – an Afghanistan policy unlikely to enable the Tailban’s containment through special forces guerilla-type operations until the U.S. border was strengthened adequately, and an immigration policy that actually opens the border still wider.

Meanwhile, a third big lesson hasn’t evidently even made it onto official or unofficial U.S. policy screens (including mine), but it was suggested in this Bloomberg news item on Monday: A Taliban-run Afghanistan could well have been kept off balance – and frustrated in its efforts undertake the major initiatives needed to foster September 11-scale terrorism – by the nearby countries its extremism would surely have alarmed and antagonized. And these regional concerns seem compelling enough to keep the lid on in Afghanistan by hook or by crook from this point on in the American military’s absence.

As the piece makes clear, in the near term, smallish Afghanistan neighbors like Tajikistan and Uzbekistan are anxious to prevent chaos on their borders – including no doubt massive refugee flows. And both countries have long been cooperating with Washington for many years to bolster “overall regional security” – which won’t be helped by a jihadist regime in their midst. (See here and here.)

And don’t forget Russia – whose help those two central Asian countries are seeking. Its own disastrous 1979 invasion and decade-long occupation of much of the country was triggered largely by fears that the rise of Islamic extremism in Iran and elsewhere in the Middle East would infect the Muslim populations of adjacent Soviet “republics” (like Tajikistan and Uzbekistan). Moscow can’t be anxious to repeat that mistake, but the fear of jihadis persists, and like it or not, Russia’s deep reinvolvement in Afghanistan consequently seems inevitable – and bound to cause big problems for the Taliban.

China’s bound to be pulled in, too. All indications are that Beijing hopes to keep post-U.S.-withdrawal Afghanistan stable in a softer way – with big economic development projects that ironically look a lot like nation-building (though apparently lacking its political dimension). More power to Chinese dictator Xi Jinping if he succeeds. But mainly because it’s had its own huge problems (many surely self-created) with its own Muslim population in Xinjiang province (which also shares a short border with Afghanistan) China’s bottom line clearly is maintaining stability and making sure that Afghanistan doesn’t become “a haven or transit corridor” for the Uyghur militants who have aroused its ire. (See the above-linked Economist piece for the quote.)

As a result, it’s more than a little interesting that a Chinese academic recently felt free to tell a Financial Times reporter that “Even though China has for a long time been extremely cautious about sending military forces overseas, if it is supported by a United Nations resolution, China might join an international peacekeeping team to enter Afghanistan.”

Alternatively, the Chinese bet that they can cultivate the Taliban’s pragmatic instincts by financing massive road-building and mining operations could pay off – in which case, the terror-base scenario feared in the United State may not materialize.

But the crucial strategic insight for Americans is that China and all of Afghanistan’s neighbors have compelling stakes in curbing Taliban jihadism and related terrorism, and that these stakes exist precisely because Afghanistan’s in their own neighborhood – and always has been. In other words, however important Afghanistan’s stability, moderation, etc has been for Americans thousands of miles away, it’s always been and remains far more important for the folks right next door. Even better, because some big powers are involved, a strong case can be made not only for their persistence in addressing the problem but their success.

If they fail, however, or get bogged down in their own forever war, that’s OK from the U.S. perspective as well – because they’ll keep the Taliban too busy to concentrate on attacking America. That’s not to say that the United States can therefore forget about sealing the border. After all, Afghanistan is hardly the world’s only concentration of jihadis.

But it does mean that the strategic case for the United States carrying the burden of intervening in Afghanistan specifically is weakening; that the case may have been weak all along – or at least once the Taliban was ousted from power and significantly weakened right after September 11 – and that as long as the neighbors can be relied on to act in their own self-interest (surely a long time), and especially if Washington tends to its border knitting, this case won’t emerge again.

Our So-Called Foreign Policy: Big Decisions Coming on Asia

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Asia, Asia-Pacific, Central America, China, containment, currency manipulation, deterrence, East Asia-Pacific, Japan, Mexico, New Journalism, Norman Mailer, nuclear deterrence, Our So-Called Foreign Policy, semiconductors, South Korea, Taiwan, tripwire, U.S. Army, Vietnam, Walker D. Mills, Western Europe

Whenever I think about what to blog about, I ask myself a question that I first heard one of my all-time writing idols answer many years ago when he faced similar decisions. The occasion came during a college writing seminar where the guest lecturer was none other than Norman Mailer.

The seminar probably took place sometime in 1974, and one of my fellow students asked Mailer why he hadn’t turned out anything about the Watergate scandal. I had been wondering this myself. After all, Mailer’s world renown by then stemmed both from his novels and from his forays into the “new journalism” that was emerging in that era, in which gifted writers tried to employ some key techniques from fiction (especially their keen insights into human nature and their considerable descriptive and narrative skills) to shed light on the events of the day. On top of turning out numerous important non-fiction works, Mailer had also run (unsuccessfully) for Mayor of New York City in 1969. So he was by no means shy about sounding off on headline subjects, and I’m sure I wasn’t the only one of his fans anxious to hear about the Nixon-centric drama.

But his answer was disarmingly simple. He decided to give Watergate a pass because he couldn’t think of anything distinctive and important to say.

And that’s an (admittedly roundabout) way of explaining why today’s post won’t be about any aspect of President Trump’s contraction of the CCP Virus. At the very least, events are moving so quickly that it’s hard to know the score. Instead, I’m focusing on foreign policy, and in particular two major, under-reported developments in U.S.-Asia relations that are underscoring the return of Cold War-like challenges across the Pacific, but that should be teaching American policymakers very different lessons.

I’ve already dealt to some extent with the first here on RealityChek: The U.S.’ loss of global leadership in the manufacture of cutting-edge semiconductors to companies in South Korea and especially Taiwan. In a journal article scheduled for publication this week, I’ll be laying out the key the technical details and some of the main policy implications. But in brief it amplifies my argument that the location of the world’s most advanced producers of the vital building blocks of modern economies and militaries right at China’s doorstep means that the defense of Taiwan in particular has now become a vital U.S. national security interest that requires the kinds of military forces and strategies (including a threat to use nuclear weapons) employed to protect major treaty allies like Japan and Western Europe both during the Cold War decades and since.

After all, those Cold War commitments – which exposed the United States to the risk of Soviet and to a lesser extent Chinese nuclear attack – were reasonably justified by the belief that Japan and Western Europe were centers of industrial and technogical power and potential that could create decisive advantages for the communist powers if they gained control or access to their assets. The importance of advanced semiconductors today means that Taiwan now belongs in the same category.

As I detail in the upcoming article, Washington has rightly been building closer diplomatic and military ties to Taiwan in response (though I also argue that it’s ultimately far more important for the United States to restore its semiconductor leadership ASAP). But this fall, an article in an official journal of the U.S. Army argued for taking a net step that, however logical, would be nothing less than momentous – and comparably sobering. In the words of Marine Corps Captain Walker D. Mills,

“The United States needs to recognize that its conventional deterrence against [Chinese military] action to reunify Taiwan may not continue to hold without a change in force posture. Deterrence should always be prioritized over open conflict between peer or near-peer states because of the exorbitant cost of a war between them. If the United States wants to maintain credible conventional deterrence against a [Chinese military] attack on Taiwan, it needs to consider basing troops in Taiwan.”

To his credit, Mills goes on to make explicit that such troops would in part be performing the kind of “tripwire” function that similar units in South Korea serve – ensuring that aggression against an ally ensures the start of a wider war involving all of America’s formidable military capabilities. The benefit, as always, would be to prevent such aggression in the first place by threatening consequences the attacker would (presumably) find prohibitive.

Where Mills (like U.S. strategists for decades) should have been much more explicit was in explaining that because the threatened major conflict could easily entail nuclear weapons use, and since China now in particular, has ample capability to strike the U.S. homeland, the deployment of tripwire forces can result in the nuclear destruction of any number of American cities.

So this course of action would greatly increase at least theoretical dangers to all Americans. But what’s the alternative? Letting Beijing acquire knowhow that could eventually prove just as dangerous? As my upcoming article demonstrates, the blame for this agonizing dilemma belongs squarely on generations of U.S. policymakers, who watched blithely as this dimension of the nation’s technological predominance slipped away. And hopefully, as I just stated, this predominance can be recreated – and dangerous new U.S. commitments to Taiwan’s security won’t become permanent.

But that superiority won’t come back for years. Therefore, it seems to me that, as nuclear deterrence provided for Western Europe and Japan succeeded in creating the best of both possible worlds for the United States, this strategy could well work for protecting Taiwan for essentially the same reasons.

I’ll just insist on one proviso: At some point before it becomes a fait accompli, this decision should be run by the American people – as has never been the case.

Unfortunately, as I’ve also pointed out, Taiwan has become so important to the United States that even an America First-inclined U.S. President will have to look the other way at its longstanding trade protectionism and predation in order to maintain close ties – just as it winked at German, Japanese mercantilism in particular during the Cold War. But that kind of linkage needn’t apply to other countries in East Asia (and elsewhere in the world), who lack the kinds of assets Taiwan possesses, and in that vein, I hope the Trump administration (and a Biden presidency, if the former Vice President wins in November) won’t let strategic considerations prevent a thoroughgoing probe of Vietnam’s possible exchange rate manipulation and one other trade offense.

The former concern, of course, stems from the effects of countries’ sometime practice of keeping the value of their currencies artificially low. An under-valued currency just as artificially lowers the prices of a manipulator’s goods and services in markets all over the world vis-a-vis their U.S.-origin counterparts, and therefore makes the latter less competitive for reasons having nothing do with free markets.

The argument against the investigation (which I’ve so far seen only on Twitter, but by folks who are thoughtful and well-informed) is that in an economic conflict with China, the United States needs all the friends it can get. In addition, these critics point out, if tariffs are placed on Vietnamese goods, then companies thinking of leaving China because of the Trump levies on hundreds of billions of dollars’ worth of Beijing’s exports will face greater difficulties exiting, since Vietnam is such a promising alternative for so many products.

What these arguments overlook, however, is that, as a neighbor of increasingly aggressive China, and a country that’s struggled for centuries to prevent Chinese domination, Vietnam has plenty of powerful reasons of its own to help with any anti-China efforts initiated by the United States So it’s highly likely that Vietnam will keep cooperating with American diplomacy and other policies regardless of what the United States does on the trade front.

Moreover, Vietnam lacks Taiwan-style leverage over and value to the United States because it’s not a world-class producer of anything. So there’s no need for Washington to grin and bear Vietnamese trade abuses that may be harming the U.S. domestic economy.

And finally, although it’s great that Vietnam has been a prime option for companies thinking of moving factories and jobs out of China, it would be even better for Americans if those companies seeking low-cost production sites moved to Mexico or Central America, since greater economic opportunity for those Western Hemisphere countries will be so helpful to the United States on the immigration and drugs fronts.

Mark Twain is reputed (possibly incorrectly) to have said that “History doesn’t repeat itself but it often rhymes.” That is, it holds important lessons, but discovering them can be challenging, and both American security and prosperity are about to depend heavily on U.S. leaders getting them right.

Im-Politic: Is This 1968 All Over Again?

Tags

1960s, 1968 election, 1972 election, African Americans, Chicago Democratic Convention riots, conservatives, D.C. riots, Democrats, Derek Chauvin, Garry Wills, George C. Wallace, George Floyd, Hubert H. Humphrey, Im-Politic, John Judis, King assassination, law and order, liberals, Martin Luther King, Minneapolis riots, Nixon Agonistes, political violence, race riots, racism, Republicans, Silent Majority, Trump, Vietnam

The short answer is “in lots of ways.” Not in all ways, though. And the differences could decisively affect the results of the upcoming presidential election. But at this point, the turmoil might still be at such an early stage those of us who aren’t completely clairvoyant can only sketch out the similarities, differences, and plausible scenarios.

First, the similarities. As with the riots that shook and burned numerous U.S. cities following the April 4 assassination of Dr. Martin Luther King, Jr., today’s violence is both widespread and racially related. As in 1968, public opinion is deeply divided as to whether any of the violence has been warranted by past and ongoing iwrongs, and whether those responsible are mainly the victims of longstanding and widespread bigotry along with their sympathizers, or whether they’re mainly “outside agitators” who either simply want to cause and profit from trouble, or who seek to advance different or broader political agendas. As a result, as in 1968, a seeming chasm has opened up between those who would focus the initial national response on the racial injustices that have clearly contributed to the large-scale protests (if not necessarily the violence), and those who are more concerned with restoring public order.

As in 1968, the national mood has been inflamed for months by anger over issues other than race relations (then the Vietnam War, now all the political and social and cultural conflicts laid bare by President Trump’s rise to power and his policies during his first term – not to mention the pandemic!). Consequently, both in 1968 and today, worries appear to be growing that, as Garry Wills wrote (then) in is brilliant polemic Nixon Agonistes:

“There was a sense everywhere…that things were giving. That man had not only lost control of his history, but might never regain it. That palliatives would not serve, but that nothing but palliatives could be found. That we had slipped gears somewhere, and a chain of mismeshings was chewing the machinery up.”

And as mentioned, as in 1968, Americans are now in the middle of a presidential election year, and the aforementioned split concerning the initial response seems to break down pretty neatly along Left-Right, Democratic-Republican lines.

But don’t forget the differences. And let’s lead off with some badly needed good news: Specifically, so far, the deaths and the damage in 1968 far exceed today’s so far. Then, according to this review, “[I] the 10 days following King’s death, nearly 200 cities experienced looting, arson or sniper fire, and 54 of those cities saw more than $100,000 in property damage.” It continues: “Around 3,500 people were injured, 43 were killed and 27,000 arrested.”

Not that the King assassination riots were the only instances of violent upheaval in 1968. A multi-day conflict erupted outside the Democratic Convention in Chicago that August between protestors on the one hand, and Chicago cops, National Guardsmen, regular U.S. Army troops, and Secret Service agents on the other. Labeled a “police riot” by a federal commission appointed to investigate, the “Battle of Michigan Avenue” nonetheless resulted in no fatalities although 119 police and 100 protestors suffered injuries.

The current violence following the death at a white policeman’s hands of subdued African-American suspect George Floyd may not be over, but so far only about thirty cities have been hit with violence. Moreover, after several days, the toll isn’t nearly as heavy. Especially encouraging, as of this writing, only three deaths seem to have been recorded (in Indianapolis, Indiana, and in Oakland, California). I haven’t yet found a national injury count, but the Associated Press reports arrests at “at least 4,100.” It’s enough to make you wonder whether the social media- cable news-driven 24/7 news cycle in and of itself is heightening anxiety.– and worse – these days.

Moreover, for all the national divides that have opened up recently, broad consensus seems evident on the outrage perpetrated by fired and indicted Minneapolis police officer Derek Chauvin, and a weaker but not negligible consensus that something has been unacceptably wrong between how the nation’s law enforcement system deals with racial minorities in situations ranging from traffic stops to inherently dangerous apprehensions to prison sentencing.

And despite the aforementioned apparent neatness of the Left-Right divide over initial responses, the actual political situation is thoroughly scrambled and confusing. Then, Democrats controlled the White House and both Houses of Congress. Now, a Republican (however unconventional) sits in the White House, and the House and Senate are split.

Therefore, it was readily understandable then that a critical mass of American voters would blame the incumbent President and his party for that Annus Horribilis and reject the Vice President who carried the Democrats’ tattered banner. (Nonetheless, the electoral results were much more mixed than might have been expected. The Democrats held on to the whole of Congress. And although Republican Richard M. Nixon triumphed handily in the Electoral College, his popular vote margin was narrow. Of course, it’s also possible that third party candidate George C. Wallace drew more individual votes from Nixon than from Democrat Hubert H. Humphrey.

It seems clear that President Trump is hoping to avoid the Democrats’ 1968 fate by taking the law-and-order route.that aided Nixon I strongly suspect that this choice is wise in principle. After all, as in 1968, a critical mass of the electorate is likely to value preventing perceived chaos over righting racial wrongs, at least for the foreseeable future. I’d also bet that the failure thus far of the Democrats’ national leaders to condemn the violence forthrightly will boost Mr. Trump’s chances all else equal.

But here’s the catch. They’re not equal. Most important, President Trump himself is incumbent. However legitimate his complaints that protecting public safety is first and foremost the province of mayors and governors, does anyone seriously believe he’ll dodge all blame if events keep seeming to spin out of control? Might even some of his base start asking where his avowed “take charge,” “get things done” qualities have gone in an hour of urgent national need? At the least, for all his tough talk, the longer Mr. Trump seems to dither, the blurrier the contrast he’ll be able to credibly draw with the Democrats.

And perhaps most damaging of all: How will many Trumpers view his failure to maintain order literally in his own backyard, as a church was set on fire last night just a cross Lafayette Park from his (White) house? Sure, District of Columbia Mayor Muriel Bowser screwed up royally by setting the local curfew at 11 PM. But as indicated in this key Supreme Court decision, the Constitution seems to say that the President can unilaterally call out not only the National Guard but the entire U.S. military to “protect each State…against domestic Violence.” And even if it didn’t, how much pushback would he have gotten from even moderate, swing voters from taking emergency measures?

John Judis, a left-of-center political writers whose judgments I greatly respect, has suggested, albeit obliquely, that the most important comparison politically speaking isn’t between now and 1968, but between now and 1972.  During his first term, Republican incumbent Nixon arguably presided over a country just as turbulent and violent as in 1968. Yet his “silent majority” helped him win one of the greatest landslides in the nation’s history. I’m the last person who’d dismiss this possibility altogether. But Nixon wasn’t also dealing with a pandemic and a national economy that had been flattened by shutdowns. Counting President Trump out has been one of the worst bets in recent U.S. political history. But mightn’t there be a first time for everything?

Our So-Called Foreign Policy: The Globalists’ Dangerous Tantrums over Syria and Ukraine

Tags

America First, Cold War, Eastern Europe, FDR, Franklin D. Roosevelt, globalism, globalists, Harry S Truman, ISIS, jihadis, Middle East, Our So-Called Foreign Policy, Russia, Soviet Union, spheres of influence, Syria, terrorism, Trump, Turkey, Ukraine, Vietnam, World War II, Yalta

If you know more than a little something about contemporary American history, you’ve no doubt been struck (or you should be struck if you haven’t been already) by the close resemblance in one key respect between the firestorms around the two big foreign policy-related uproars of the day these days, and the big foreign policy uproar of the late 1940s and early 1950s: The cries of “Betrayal” and “Backstabbing!” generated by President Trump’s withdrawal of the small American troop deployment in Syria, and his lack of interest in keeping Ukraine fully independent of Russian designs, fully recall similar charges that followed Washington’s early Cold War acquiescence in the Soviet Union’s establishment of control over Eastern Europe.

And there’s a very good reason for the similarities among these over-the-top reactions in all three cases – today’s version of which is all too capable of pushing the nation into repeating catastrophic foreign policy mistakes. In all of them, a combination of immutable geography and irrefutable common sense has established ironclad limits on American power. In all of them, America’s existential security and prosperity rendered these limits entirely acceptable. And in all, crusading globalists have reacted not with gratitude for the nation’s favored circumstances, but with tantrums that have slandered any support for the prudence logically suggested by these circumstances as evidence of treason and/or degeneracy. It’s the policy equivalent of refusing to take “Yes” for an answer.  (See this 2018 article of mine for the fullest statement of these views.) 

The Cold War event mainly responsible for the McCarthyite claims of spies and traitors shot through the U.S. government was Yalta conference of 1945 held by U.S. President Franklin D. Roosevelt and his British and Soviet counterparts Winston S. Churchill and Josef V. Stalin,  At that late-World War II meeting in Crimea, FDR agreed to accept Moscow’s clam to the countries located between German and Soviet territory as a sphere of influence.

Roosevelt’s decision reflected his awareness that the enormous Red Army had planted stakes in Eastern Europe after having fought it way through the region on its way to Berlin, that it had no intention of leaving, and that dislodging these forces militarily at remotely acceptable cost was impossible. Interestingly, his successor Harry S Truman fully agreed, even though by the time he became President, the United States enjoyed a monopoly on nuclear weapons.

“Yalta,” however, became a synonym for treason for many Americans, and the next few years (including under the Democrats) became an time of loyalty oaths, persecution, and show trials, Although many of the charges that the U.S. government had become a nest of spies turned out to be true, “McCarthyism” nonetheless ruined numerous innocent lives as well, and for more than a decade stifled badly needed dissent within the national security bureaucracy.

But guess what? Despite Soviet domination of Eastern Europe, and the mass, multi-generation human tragedy that unfolded behind the Iron Curtain, the United States not only survived but generally prospered. Further, the serious problems it did experience had absolutely nothing to do with the fates of Poland, Czechoslovakia, Hungary, or even the former East Germany etc.

Self-interest and restraint in foreign policy go hand-in-hand just as neatly these days when it comes to Ukraine and Syria. As I’ve written, even more than Eastern Europe, Ukraine’s independence has never been considered a vital American interest because it’s never been a significant determinant of the nation’s safety or well-being; because it’s located even closer to the center of Russian military might than Eastern Europe; because as a result the United States is militarily incapable of mounting a sane challenge with conventional forces; and because on top of these assets, Moscow has long possessed nuclear forces that can obliterate the United States many times over.

As for Syria, Mr. Trump’s critics are caught in one or both intellectual time warps. The first has hurled them back to the era when the United States was thoroughly addicted to Middle East oil. However long it lasted, though, it’s now unmistakably over, thanks to the fossil fuels production revolution of the last decade or so.

It’s true that this oil still matters a great deal to Europe and East Asia, huge chunks of a global economy whose health still matters in turn to the United States (though less lately, since both regions seem chronically incapable of or unwilling to generate acceptable growth other than by amassing enormous – and unsustainable trade surpluses with America). But both regions are eminently capable of fielding the military forces needed to preserve the oil flow. P.S. So do the Middle East’s two biggest powers, Saudi Arabia and Iran. Their deadly struggle for geopolitical supremacy notwithstanding, both would collapse economically without the revenue brought in by their oil exports. Just ask Iran, which is being bankrupted by President Trump’s – unilateral – sanctions.

The second time warp has the foreign policy Never Trump-ers trapped in the early post-September 11 period, when the nation discovered its shocking vulnerability to Middle East-borne terrorism. Yet as I’ve repeatedly written, and experience can not have made clearer, the best way by far to protect the American homeland from this deadly threat is not continuing to chase jihadist groups around an uncontrollable region whose terminal dysfunction will keep them appearing and reconstituting, but securing America’s far more controllable borders.

Additionally, though less important, terrorist organizations like ISIS and Al Qaeda have been blessed with the unique gift of antagonizing every other significant actor in the Middle East, for either ethnic (Arab versus Persian versus Turk) or religious (Sunni versus Shia Muslims) reasons. And the Russians, who are now supposedly the new kingpins in the Middle East, have no interest in seeing a serious jihadist revival on their borders. So an American exit from the region will leave it full of countries with every reason to sit on Islamic lunatics, not to mention rife with their own mutual antagonisms and historic rivalries. A chaotic balance of power to be sure, but an entirely durable one. (These arguments have just been made powerfully here.)

During the Cold War, it took debacle in Vietnam, with all the devastation it brought to America’s economy, society, and domestic and national security institutions (some of which still haven’t fully recovered), to teach globalists and the public they led, that geography and common sense mustn’t be completely ignored. Let’s all hope that their America First-oriented opponents, including a critical mass of the body politic, can keep them away from the levers of power before they produce a similar disaster.

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

Tags

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

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

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

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

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

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

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

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

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

Even more suspicious, according to the article:

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

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

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

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

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

Im-Politic: The Mainstream Media’s Latest Immigration Fakery

Tags

criminal aliens, Im-Politic, immigrants, Immigration, Mainstream Media, The Atlantic, Trump, Vietnam, Vietnam War

Just when I thought that it had become impossible for the Mainstream Media’s pro-Open Borders bias and Trump Derangement Syndrome to make me genuinely angry, along came The Atlantic‘s article yesterday on Trump administration policy toward refugees from Vietnam – including those who arrived in the Vietnam War’s tragic aftermath.

The piece – loudly advertised as an “exclusive” – clearly sought to convey the impression that the Trump administration has decided to start deporting certain groups within this population simply because it’s determined to rid America of as many foreign-born residents as possible, along with preventing the entry of as many newcomers as possible. In the case of the Vietnamese, of course, this policy would be morally outrageous both because so many refugees aided the U.S. military effort and (along with their descendants) face grim fates if they return; and because the United States inflicted so much damage on the country during its decade-plus of massive armed involvement. (I’m not trumpeting a position on the war – which I opposed – here. Just stating a fact.) When I saw the headline, I was up in arms myself.

Imagine my surprise, then, to discover (in the fourth paragraph) what’s really changing:

“The administration last year began pursuing the deportation of many long-term immigrants from Vietnam, Cambodia, and other countries who the administration alleges are ‘violent criminal aliens.’”

Why is that a change? Because, in the authors’ view, this decision violates

“a unique 2008 agreement  [between Washington and Hanoi] that specifically bars the deportation of Vietnamese people who arrived in the United States before July 12, 1995—the date the two former foes reestablished diplomatic relations following the Vietnam War.”

But Trump administration officials have concluded, and told The Atlantic on the record, that the agreement “does not explicitly preclude the removal of pre-1995 cases.”

Which seems eminently reasonable when the article finally makes clear that the U.S. intent now is not indiscriminately to round up Vietnamese-Americans and kick them out of the country in order to advance (circle one or both) nativist or racist goals. Instead, the intent was to treat as exempt from the 2008 deal “people convicted of crimes.”

Indeed, these folks were not only convicted of crimes. According to the Department of Homeland Security’s Katie Waldman, “these are non-citizens who during previous administrations were arrested, convicted, and ultimately ordered removed by a federal immigration judge.”

But how did the Atlantic authors describe a U.S. government effort finally to get rid of convicted criminals who clearly have been using delaying tactics to put off removal orders by the American judicial system? As

>”the latest move in the president’s long record of prioritizing harsh immigration and asylum restrictions….”

>a ”new stance [that] mirrors White House efforts to clamp down on immigration writ large, a frequent complaint of the president’s on the campaign trail and one he links to a litany of ills in the United States.”

>a “shift” that “leaves the fate of a larger number of Vietnamese immigrants in doubt.”

>a betrayal of many “refugees from the Vietnam War. Some are the children of those who once allied with American and South Vietnamese forces, an attribute that renders them undesirable to the current regime in Hanoi, which imputes anti-regime beliefs to the children of those who opposed North Vietnam.”

In fact, if anything, the new Trump policy changes a 2017 administration decision that makes no sense at all for anyone who believes that criminal aliens have no business remaining in the United States one minute longer than necessary: exempting these criminals from deportation if they arrived in the country before 1995. What on earth was that about? And why does The Atlantic, by posting this “scoop” seem to object so strongly – especially since nowhere does this piece challenge the convictions?

(What’s Left of) Our Economy: U.S. Trade Policy Deserves Blame for the Caravans

Tags

apparel, asylum seekers, Bangladesh, CAFTA, caravan, Caribbean Basin Initiative, Central America, Central America Free Trade Agreement, China, economic development, El Salvador, globalization, Guatemala, Honduras, immigrants, Immigration, manufacturing, migrants, Multi-Fibre Arrangement, NAFTA, North American Free Trade Agreement, Northern Triangle, Trade, Uruguay Round, Vietnam, World Trade Organization, WTO, {What's Left of) Our Economy

Hot on the heels of the current caravan of Central Americans heading through Mexico to the U.S. border, another such procession is gathering in Guatemala. And these two have followed the flood of unaccompanied migrant children from the area that reached the United States in 2014.

I wish I could tell you that there’s a silver bullet for solving the problem – though nothing could be clearer than that these human tides will keep organizing in even greater numbers if Washington follows the general advice of the Open Borders lobby to view all of the caravan-ers as legitimate asylum-seekers entitled to full due process once they reach the border and request this status. Upon which time current procedures call for recording their claims and then releasing them based on the ludicrous assumption that they’ll report back to immigration court on the appointed date and risk being rejected and thus deported.

What I can tell you is that this crisis has been greatly aggravated by an unforgivably short-sighted U.S. trade policy strategy that emerged in the 1990s. It consisted of indiscriminately liberalizing trade with developing countries, and thereby ignoring the case for targeting trade diplomacy to ensure that countries and regions of greatest importance to the United States receive the lion’s share of the benefits. And the prime victims of this strategic failure – which mainly reflected the determination of offshoring multinational manufacturers and Big Box retailers to gain maximum flexibility to source imported inputs and final products – were the poorer countries of the Western Hemisphere. That group of course includes Mexico and the Central American countries that have sent so many migrants northward.

Interestingly, Central America and the Caribbean countries were placed prominently in line to receive significant shares of the vast U.S. market by a Reagan-era initiative aimed mainly at stemming the spread of left-wing revolutionary forces in the region. But scant years later, any hopes generated by this strategy for fostering more prosperity in these impoverished regions and strengthening the appeal of pro-Western leaders were kneecapped by two big decisions.

The first was the negotiation of the North American Free Trade Agreement (NAFTA) in 1993. The second was the phase out of U.S. and other developed countries’ quotas on apparel imports that was approved the following year as part of the Uruguay Round global agreement that reduced various trade barriers worldwide and created the World Trade Organization (WTO). And the third was the Clinton administration’s subsequent rush to liberalize trade with a host of low-income countries outside the Western Hemisphere.

In principle NAFTA’s tight focus on Mexico was justifiable given Mexico’s size, position as a U.S. neighbor, and history of political, economic, and social policy failure that seemed to be reaching a crisis point. But economic growth and employment could still have been greatly lifted in Mexico and Central American (along with the Caribbean countries) had American trade liberalization stopped or at least paused there.

Yet the quota phaseout forbade Washington from incorporating any strategic or non-economic considerations into apparel trade policy, whether conditions urgently required them or not.  As a result, it ensured that the benefits of freer trade would be greatly watered down (and many garnered by China and the rest of developing Asia in particular), and insult was added to injury by new liberalization deals reached or renewed, or decisions made, regarding Vietnam, sub-Saharan Africa, Jordan, most of developing Asia (in the form of a deal on information technology products, including labor-intensive consumer electronics), and China. Largely as a result, the poorer countries of the Western Hemisphere were left in the dust in the business models of the multinationals and the big retailers.

Nowhere does the opportunity lost by Mexico and Central America come through more clearly than in the apparel trade figures. This sector is almost always the first utilized by developing countries to begin their industrialization and modernization drives mainly because its own labor intensivity means that capital and technology requirements are pretty modest, the relevant skills can be taught fairly easily, and its job-creation promise is substantial.

Here are the figures for apparel imports from Mexico, the three “Northern Triangle” Central American countries, China, and two other current Asian textile giants (Bangladesh and Vietnam) for four key years. Next to them will be the figure for the share of American apparel consumption (market share) won at that point by each. We start with 1997 because that’s the year when the U.S. government began adopting its current dominant system for slicing and dicing trade and manufacturing data – which enables us to see statistics that are apples-to-apples. The second year is 2001 – the year China’s was admitted into the WTO – and thus gained substantial immunity from American laws aimed at curbing predatory trade practices. The third year is 2006 – when Congress approved a Central America Free Trade Agreement (CAFTA) negotiate by George W. Bush’s administration. And the fourth year is last year – the latest for which we have full-year numbers.

1997

Mexico:                       $5.317b                    11.29 percent 

El Salvador:                 $1.052b                     2.18 percent

Guatemala:                  $0.973b                     2.07 percent

Honduras:                    $1.689b                     3.59 percent

China:                          $7.279b                   15.46 percent

Bangladesh:                 $1.442b                      3.06 percent

Vietnam:                      $0.026b                      0.06 percent

2001:

Mexico:                       $8.112b                     12.99 percent 

El Salvador:                 $1.634b                      2.62 percent

Guatemala:                  $1.630b                       2.61 percent

Honduras:                    $2.438b                       3.91 percent

China:                          $8.597b                     13.47 percent

Bangladesh:                 $2.101b                      3.37 percent

Vietnam:                      $0.048b                       0.08 percent

2006:

Mexico:                       $5.514b                       7.16 percent 

El Salvador:                 $1.408b                      1.83 percent

Guatemala:                  $1.685b                      2.19 percent

Honduras:                    $2.519b                      3.27 percent

China:                        $22.405b                    22.09 percent

Bangladesh:                 $2.915b                       3.79 percent

Vietnam:                      $3.226b                       4.19 percent

2017:

Mexico:                       $3.806b                       4.52 percent 

El Salvador:                 $1.920b                       2.28 percent

Guatemala:                  $1.371b                       1.63 percent

Honduras:                    $2.522b                       3.00 percent

China:                        $29.322b                     34.85 percent

Bangladesh:                $5.046b                       6.00 percent

Vietnam:                    $11.613b                     13.80 percent

The big takeaway? Even during the decade after the Central America free trade deal was signed, the three Northern Triangle countries actually saw their share of the U.S. apparel market stagnate or actually shrink. Mexico’s share has been cut by about almost 60 percent. And the business won by China, Bangladesh, and Vietnam has exploded – since 2001 for China, and since 2006 for the two other Asians. Again, the year that the free trade deal that was supposed to benefit El Salvador, Guatemala, and Honduras was inked.

With Mexico, there are of course mitigating factors. Chiefly, although its apparel competitiveness in the U.S. market is way down, its competitiveness in higher value automotive manufacturing in particular is way up. But millions of poor Mexicans still could have benefited from apparel employment, and no such progress has been made in Central America – which is partly understandable since incomes are even lower, and governments and other institutions needed for economic development are so much weaker.

Apparel should have been the great hope for these populations, but that sector’s potential for expanding production (which of course needs to be export-oriented since these countries’ domestic markets are tiny) and employment has been virtually choked off. Just as important, the prospect that apparel wages in the Northern Triangle might rise adequately has been limited, too – since pay throughout developing East and South Asia (even in China, according to the chart below) remains so much lower.

American trade policy could have lent a big helping hand to Central America had it adopted a strategically sensible set of priorities. But it failed to learn a fundamental lesson of strategy: When everything is a priority, then nothing is a priority. You can see the victims of this failure in the flow of human misery heading up from the Northern Triangle.