(What’s Left of) Our Economy: Is Trump Finally Getting It on NAFTA?

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automotive, Bill Clinton, Canada, Inside U.S. Trade, Mexico, NAFTA, North American Free Trade Agreement, Politico, Ronald Reagan, rules of origin, tariffs, Trade, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

It’s still unconfirmed, but if true, a development reported in the (usually reliable) newsletter Inside U.S. Trade would reveal that the Trump administration is finally recognizing a major weakness in its approach to revising the North American Free Trade Agreement (NAFTA). And special bonus – the proposal in question would also go far toward solving the trade problems with China and most of the rest of the world that have been rightly identified by the administration.

Here’s a good summary of the scoop provided Tuesday by Politico:

“Three sources close to the [NAFTA] talks said the U.S. has demanded that Mexico, and possibly Canada, accept a higher tariff rate for autos that don’t meet the pact’s new content rules. That would essentially force companies that build cars in Mexico to agree to have exports to the U.S. that don’t conform to the rule be subject to a tariff beyond the 2.5 percent rate Washington bound itself to at the World Trade Organization. USTR [the Office of the U.S. Trade Representative] also declined to confirm this development….”

The key here is the point about higher tariffs. The three NAFTA signatories have now come to agree that the treaty’s regional content rules need to be made more strict. So far, in order to qualify for tariff-free treatment anywhere inside North America, autos and light trucks (which comprise an outsized share of intra-North American trade, and have attracted the most attention in the talks) need to be made of 62.5 percent North American parts and components. The aim, at least ostensibly, has been to encourage producers outside North America to relocate production and jobs inside the free trade zone.

The Trump administration has been pressing to raise the content levels needed for such tariff-free treatment to at least 70 percent for passenger vehicles, and reportedly Mexico is now on board in principle (though the exact number has yet to be agreed on). But so far, the administration has not demonstrated much, if any, awareness that higher mandated local content levels alone won’t bring many new factories or jobs to the signatory countries – and have under-performed on this front so far – for a very simple reason. As I’ve noted repeatedly, the penalty that non-North American producers need to pay for non-compliance is only 2.5 percent – an extra cost they can easily absorb.

The Inside U.S. Trade item suggests that this point has been taken, which would be great news for all three NAFTA countries if the eternal tariff is raised high enough to foster North American production and discourage imports. Even better, this proposal – which would essentially turn North America into a genuine trade bloc if extended to all traded goods and services – would by definition limit American imports from all the countries long regarded in Washington as troublesome trade partners (like China, Germany, and Japan). For they would all find it much more difficult to supply the United States – along with Canada and Mexico – with exports, and would face great pressure to serve North American customers instead with products overwhelmingly made in the free trade zone by North American workers.

It’s true that an increase in the external NAFTA tariff would violate WTO rules and would therefore expose all three North American economies to retaliation from outside the continent. But all three countries have run chronic trade deficits with the rest of the world, so they stand to come out ahead if a full-fledged trade conflict actually resulted. And as former President Ronald Reagan emphasized when he originally broached the subject (back in 1979), North America is self-sufficient, or could easily become so, in every significant product or service used by a prosperous economy.

Indeed, Reagan subsequently and explicitly contended that NAFTA was needed as a trade bloc to fend off the challenges posed by regional consolidation in Europe and East Asia. (The Wall Street Journal article in which this argument was made is now behind a pay wall, but the quote is found in my Marketwatch.com op-ed linked above.)  So did former President Bill Clinton. Both were known – and rightly so – as free trade supporters. Donald Trump, a decided free trade skeptic, should settle for no less.

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(What’s Left of) Our Economy: Productivity Growth Slowdown Keeps a Cloud Over U.S. Manufacturing

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Labor Department, labor productivity, manufacturing, non-farm business, productivity, Trump, wages, {What's Left of) Our Economy

As made clear once again yesterday by two releases of significant statistics, American manufacturing under the Trump administration remains a puzzling good news/bad news story.

Yesterday, as reported here, the Federal Reserve came out with industrial production data for July showing that domestic industry’s real output growth has sped up during the Trump Era, and remains strong even in those metals-using industries supposedly suffering because of the President’s metals tariffs. These findings are also consistent with figures showing that manufacturing employment under this administration has growing faster than overall employment – increasing its share of the latter from 8.49 percent in February, 2017 to 8.55 percent last month.

But yesterday also saw the issuance of new labor productivity data, and it contained new evidence that manufacturing has changed from a leader in U.S. labor productivity growth to a serious laggard. And that’s entirely consistent with the dismal performance being turned in by manufacturing wages lately.

The latest labor productivity figures (the narrower of the two measures of efficiency tracked by the Labor Department, but the one for which results are published on by far the timeliest basis) provide the preliminary results for the second quarter of this year. They’re the first indication of serious troubles for manufacturing. Quarter-to-quarter, industry’s labor productivity improved by 0.9 percent on an annualized basis, and that was its best such performance since the whopping 4.4 percent jump registered for the fourth quarter of last year (and which, for reasons to be discussed below, seems to have been a major outlier).

But labor productivity for all non-farm businesses (the Labor Department’s U.S. economy’s productivity universe) rose by 2.9 percent sequentially at an annual rate – its best such performance since the first quarter of 2015 (3.1 percent).

Manufacturing’s laggard status showed up in the first quarter revisions, too. Here it’s important to observe that, as of today, these numbers have been revised twice since the initial statistics were released in early May. As is normally the case, the following month, new estimates for that time period came out. But yesterday, as it not normally the case, the Labor Department’s first report on the second quarter includes sweeping revisions of the Labor Department data that go back all the way to 1947! And these include yet another set of figures for the first quarter.

So here’s how the estimates of sequential annualized labor productivity growth have changed since May:

                                             Non-farm business   Manufacturing (both annualized)

1Q 2018 preliminary                    +0.7 percent                     +0.5 percent

1Q 2018 1^st revision                     +0.4 percent                      -1.2 percent

1Q 2018 final (for now!)             +0.3 percent                       -1.0 percent

2Q 2018 preliminary                   +2.9 percent                       +0.9 percent

Any way you cut it, manufacturing’s recent labor productivity growth has trailed that of all non-farm businesses. And since manufacturing is a part of that non-farm business category, non-manufacturing non-farm businesses exceeded manufacturing’s labor productivity growth by an even wider margin.

Now let’s perform the same exercise looking at labor productivity growth for the last three economic recoveries (including the current, ongoing expansion). As known by RealityChek regulars, comparing similar stages of the economic cycle is the best way to get the most reliable long-term insights.

                                                                      Non-farm business     Manufacturing

1990s expansion (2Q 1991-1Q 2001) last pre-big revision estimate:

                                                                        +23.25 percent           +45.86 percent

1990s expansion latest:                                  +23.77 percent                    same

bubble expansion (4Q 2001-4Q 2007) last pre-big revision estimate:

                                                                      +16.03 percent            +30.23 percent

bubble expansion latest:                                +16.60 percent                     same

current expansion: (2Q 2009 to present): (as of preliminary 1^st quarter estimate)

                                                                         +9.70 percent            +9.69 percent

as of first 1^st quarter revision:                          +9.62 percent            +8.28 percent

latest (as of big revision 1^st quarter estimate)  +9.43 percent            +8.36 percent

2d quarter preliminary estimate:                    +10.21 percent            +8.61 percent

The bottom line here: The latest big revision confirms earlier findings that during the current recovery, manufacturing has lost its labor productivity lead, mainly because its labor productivity growth has slowed down compared with that of previous recoveries much more dramatically than the labor productivity growth in non-farm businesses.

As of the first quarter, this relative manufacturing slowdown was not quite as significant as previously thought. But the preliminary second quarter figures show that it’s regained major “momentum.”

Measuring productivity growth if of course still one of the most controversial exercises in economics. But it’s also still the case that the profession hasn’t come up with an alternative that’s attracted widespread support. So the safest assumptions continue to be that American manufacturing’s productivity slump is dragging on, and that until it’s reversed, American manufacturing wages will keep disappointing.

(What’s Left of) Our Economy: The Tariff-Induced Carnage in U.S. Metals-Using Manufacturing is Still MIA

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appliances, automotive, durable goods, fabricated metal products, Federal Reserve, industrial production, machinery, manufacturing, metals tariffs, metals-using industries, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

The July figures for after-inflation U.S. manufacturing production came in this morning from the Federal Reserve, and they further debunk widespread reports that President Trump’s tariff-heavy trade policies – and particular his levies on steel and aluminum imports – are backfiring badly by decimating metals-using manufacturing sectors that dwarf the steel and aluminum makers.

Let’s first look at the monthly numbers, and compare the (preliminary) real growth of major metals-using sectors and manufacturing overall from June to July:

overall manufacturing:  +0.31 percent

durable goods:   +0.39 percent

fab metals:  -0.03 percent

machinery:  +0.56 percent

automotive:  +0.94 percent

small appliances:  -1.41 percent

major appliances:  -4.56 percent

Clearly, most metals-using sectors actually outperformed overall, with the top exceptions being appliance makers. Those in the major appliance category, of course, have been hit not only with the metals tariffs, but with safeguard tariffs on one of their actual products – large residential laundry machines.

Moreover, the output data since the advent of the first metals tariffs – in late March – show that the metals-using sectors in general have at least held their own. Here are the inflation-adjusted output percentage changes since April; they include the initially reported numbers through June (released by the Fed last month), and the revised June and initial July figures (released this morning).

                                                       old thru June   new thru June    new thru July

overall manufacturing                     – 0.21                +0.06                 +0.25

durables manufacturing                    -0.05               +0.09                  +0.48

fabricated metals products               +0.90               +0.82                 +0.79

machinery                                         -0.75                -0.47                  +0.09

automotive                                        -0.68                -1.56                   -0.63

small appliances                               -3.31                -3.98                   -5.33

major appliances                              -3.16                -0.73                    -5.25

Although the results for the very large machinery and automotive sectors look worse than the overall manufacturing numbers at first glance, they’ve each been undermined by some one-off developments.

In machinery, as reported here last month, the subpar post-April constant dollar growth clearly reflects some giveback from a big production jump between March and April. This increase was initially reported as a 2.27 percent surge, and it was estimated this morning at a still impressive 2.21 percent.

In automotive, production is still recovering from the effects of a fire in early May at a factory that produced parts for a popular Ford pickup truck, and which depressed after-inflation output that month by a huge 8.52 percent.

The post-April numbers confirm that both appliance sectors continue to be the big tariff losers, but the rest of the data show that they’ve been the exceptions, not the rule.

As usual with data, “past performance does not guarantee future results.” But the new Fed figures (along with comparable employment figures I’ve reported) also make clear that, so far, claims of major tariff-induced losses for domestic metals-using manufacturing belong in the realm of speculation, not of facts.

(What’s Left of) Our Economy: Mainstream Media Trade Coverage that’s a Public Service

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{What's Left of) Our Economy, China, Trade, agriculture, exports, tariffs, Washington Post, Trump, trade war, Meg Kelly, soybeans, Heidi Heitkamp

The Mainstream Media is so often accused these days by President Trump and others (sometimes rightly) of propagating “fake news” that it seems only fair to point out an important example of such news organizations fighting fake news: a Washington Post article yesterday exposing the phoniness underlying key claims that the Trump administration’s tariff-heavy China policies either have nothing to do with the woes being experienced lately by America’s soybean farmers, or that they’ve already devastated cultivators of this key crop.

At first glance it seems odd that the fate of soybeans growers has moved to center stage in the China trade debate. It’s true that this crop has become America’s second-leading export to China, and that a huge share (25 percent) of the annual U.S. harvest has relied on the Chinese market. At the same time, it’s hard to think of a time since the Great Depression Dust Bowl when America’s leading journalists paid nearly this much attention to American farmers.

As the Post‘s Meg Kelly (unsurprisingly, in my view) noted, President Trump got it wrong when he responded to soybean-focused critiques of his China trade policies by contending that “Farmers have been on a downward trend for 15 years. The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries.”

In all fairness, though, soybean prices did begin sinking dramatically in mid 2012 – more than four years before he was even elected President.

More noteworthy, given the rash of soybean stories and widespread fears of soy-mageddon, was Kelly’s debunking of a claim by North Dakota Democratic Senator Heidi Heitkamp (also communicated by tweet) that “A study shows that corn, soybean and wheat farmers across the U.S. have already lost $13 billion because of the administration’s trade war. We need trade policies that make sense for North Dakota, protect farmers and ranchers, and open up markets.”

Thanks to Kelly, we now know that there was no such study – or even close. Let’s allow the author’s words show how flimsy this claim really was:

“When the [Post] asked to see the study, Heitkamp’s office pointed us to an op-ed from the National Farmers Union that was referenced in a New York Times article. But the National Farmers Union said the calculation was not its work. Instead, it said, it obtained the factoid from a quote in an article in the Wall Street Journal.”

Kelly further explains that the source of the quote was eminently respectable – an agricultural economist from Purdue University. But she also made painfully clear how shoddy his methodology was: His soybean crop loss estimates never distinguished between the impact of tariffs and the impact of weather. That’s like a sportswriter examining an athlete’s performance and never disclosing whether he or she plays for a good or a bad team.

But the importance of Kelly’s diligent reporting goes far beyond soybeans, or even trade. For Heitkamp-type sleights of hand take place in the American political and policy world’s all the time. Here’s another example, reported here about a year ago, about the popular meme that the beneficiaries of former President Obama’s “Dream Act” granting amnesty to many illegal immigrant children brought to this country by their parents were an unusually well educated group – and that therefore, revoking their amnesty would backfire on an economy that urgently needed highly knowledgeable workers.

Heitkamp, however, deserves some credit for taking down her misleading tweet. President Trump hasn’t – which is disappointing since, as made clear above, and is so often the case, he could have made a completely valid point by displaying just a moderately greater respect for accuracy.

(What’s Left of) Our Economy: The New York Fed Whiffs on Tariffs and Trade Policy

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China, currency manipulation, imports, intermediate goods, New York Fed, non-tariff barriers, subsidies, tariffs, Trade, Trade Deficits, Trump, Trump tariffs, value-added tax, VAT, {What's Left of) Our Economy

Do you want to know how slipshod a new post from the New York branch of the Federal Reserve on tariffs and trade deficits is? I’m not a Ph.D. economist, and it took me about thirty seconds to spot no less than four fatal flaws.

The post, written by a senior Fed economist and three academic colleagues (including one from a Chinese university), argues that President Trump’s tariff-heavy trade policies are likeliest to backfire on the administration and the entire U.S. economy by widening, not narrowing, the country’s trade deficit. Their main evidence? The experience of China after it entered the World Trade Organization (WTO) at the end of 2001.

According to the authors:

“While more costly imports are likely to reduce the quantity and value of imports into the United States, the story does not stop there, because we cannot presume that the value of exports will remain unchanged. In this post, we argue that U.S. exports will also fall, not only because of other countries’ retaliatory tariffs on U.S. exports, but also because the costs for U.S. firms producing goods for export will rise and make U.S. exports less competitive on the world market. The end result is likely to be lower imports and lower exports, with little or no improvement in the trade deficit.”

The Chinese example, they claim, supports this hypothesis because China significantly reduced its tariffs following WTO entry (i.e., pursued a policy exactly the opposite of that sought by Mr. Trump), and both its exports as well as its imports soared. Moreover, the authors found that

“Focusing on China’s exports to the United States…shows that by lowering its own tariffs on imported inputs, China reduced its production costs and increased productivity, enabling Chinese firms to enter the U.S. export market and compete with other firms. With a fall in production costs, Chinese firms charged lower prices on goods exported to the United States and increased their U.S. market shares.”

But the weaknesses in this analysis are positively jaw-dropping. First, the data supporting that latter key finding is no less than a dozen years out of date.

Second, the post completely fails to take into account the possible effects over time of a U.S. failure to provide trade protection for sectors, like steel, that represent key inputs for manufacturing. Although obviously the cheaper they are, the more competitive the industries that utilize them will be, intermediate goods sectors (including not only materials like metals but machinery and equipment of all kinds) could represent as much as nearly half of America’s entire manufacturing complex. Should the United States just sit back and watch those sectors trashed by foreign competition?

Third, and even more important, should the United States accept this result if much of the foreign competition faced by its manufacturers is predatory? In this vein, the Fed post contains not a single word about China’s currency manipulation – which kept the value of the yuan significantly and artificially suppressed throughout the early post-WTO admission years (and arguably still does) for reasons completely unrelated to trade liberalization, and which gave Chinese products a major and wholly artificial advantage in China’s own market, the U.S. market, and markets around the world.

Fourth, the authors similarly ignore the impact of China’s value-added tax (VAT) system, which not only surrounds the entire Chinese economy with high, tariff-like walls that nonetheless aren’t technically considered tariffs, but which provides comparably impressive subsidies for China’s exports.  Not to mention the other massive supports Beijing offers to manufacturing, or its still (and perhaps increasingly) formidable array of non-tariff trade barriers.

Indeed, all these non-market practices no doubt largely explain why China has both supercharged its exports since it entered the WTO and impressively raised the levels of Chinese inputs they contain. 

In baseball, three strikes means “you’re out.” At the New York Fed, by contrast, four strikes apparently earns a “well done.”

(What’s Left of) Our Economy: China Trade Derangement Syndrome Strikes Again

Tags

Bloomberg.com, China, Mainstream Media, Michael Schuman, tariffs, Trade, Trade Derangement Syndrome, Trump, {What's Left of) Our Economy

I’m sure that there have been more stunning examples than provided by Michael Schuman yesterday on Bloomberg.com of a writer unwittingly devastating the very argument he’s seeking to make. But even in the fields of trade and globalization policy analysis, which have demonstrated an unusual power to turn otherwise working brains into neural oatmeal, I’m equally sure they’d be hard to find.

Schuman, a well regarded Beijing-based journalist and student of China and its relations with the United States, sought to show that both Americans and Chinese could come to regret deeply any policy or policies that produce a result he views as alarmingly likely – an unwinding of the thick web of economic ties created in recent decades between them.

Strangely, the author does a good job of explaining why the bilateral relationship has benefited China, correctly observing that “Open access to the U.S. market has been a cornerstone of China’s growth since the 1980s.”

Indeed, he goes on to point out that: “No ambitious Chinese company could claim to be truly global without a U.S. presence”;

>that “Restricted access to the U.S. would force Chinese and foreign companies to reorder their supply chains in a host of sectors, from electronics to clothing to toys, dealing a serious blow to Chinese manufacturing”;

>and that losing share of the U.S. market “would also dent China’s hopes of becoming a global hub for cutting-edge products. Without competitive access to the American market, at least some of the capacity that could’ve been built in China would have to be located elsewhere.”

But it’s precisely because the costs to China would be so great that his claim of comparable losses for the United States is so weird. Specifically, if China can’t rely on selling much to Americans, is it really reasonable to expect its share of global middle class spending to surge, as Schuman expects, and to become a titanic new market that could be denied to U.S. business?

If American trade restrictions prevent Chinese entities (I resist calling them “companies” or “businesses” because they have nothing in common with commercial organizations originating in national economies dominated by market forces) from becoming genuinely global players, including in high tech sectors; if they cause worldwide supply chains to start leaving or skipping China; and if China’s growth therefore is seriously slowed, where are all those new Chinese middle class consumers supposed to come from?

Similarly, if such trade curbs can crimp Chinese entities’ ambitions to invest in the United States and elsewhere abroad, then it’s implausible to think that the American economy could lose out to other economic competitors on much in the way of new capital inflows from China. (And that’s of course assuming that Americans should even want China’s state-controlled economy to create a major footprint in their own.)

This latest version of Trade Derangement Syndrome doesn’t stop with these internally contradictory claims. For example, Schuman also speculates that, if U.S.-China economic ties wither, the PRC’s continued rise to major power status might not remain so peaceful, and that “outright conflict could become more likely.” Evidently, he’s unaware that it burgeoning integration with the American economy has not only made China more prosperous, but strong enough militarily to start challenging the U.S. position in the East Asia-Pacific region.

But the author’s inability even to recognize these clashing positions, much less attempt to reconcile them, deserves special attention because they show how little genuine scrutiny trade and globalization cheerleading receives either from the policy community that generates it, or the mainstream media that showcases so much of it.

Democracy, one of America’s leading newspapers has taken to warning, “dies in darkness.” But given the importance of a truly free marketplace of ideas, and the central role that the mainstream media is supposed to play in fostering such exchange, it’s also clear that democracy can die from intolerance and groupthink, and from the intellectual arrogance and laziness it encourages.

(What’s Left of) Our Economy: More Historically Bad Wage News for U.S. Manufacturing Workers

Tags

inflation adjusted wages, Labor Department, manufacturing, private sector, real wages, recovery, wages, {What's Left of) Our Economy

This morning’s real wage data from the Labor Department contained a double dose of bad news for American workers – and in one case, historically bad news.

Just as with a main finding from the pre-inflation wage data released earlier this month along with the monthly Labor Department jobs report, today’s after-inflation figures showed that hourly wages for manufacturing workers fell behind those of private sector workers in general for the first time – at least on a preliminary basis – on record. (These figures for each category of workers were first released in March, 2006).

To achieve this result, price-adjusted hourly pay for private sector workers in July stayed unchanged month-on-month (at $10.76), while such pay for manufacturing workers dipped by 0.09 percent (to $10.75). Price-adjusted wages for the two groups of workers first converged in May at $10.75.

When the initial set of these real wage figures was released more than twelve years ago, constant dollar manufacturing wages exceeded constant dollar overall private sector wages by 3.19 percent.

The new Labor Department data also showed that technical real wage recessions (periods of cumulative decline lasting for two consecutive quarters or more) for both groups of workers continued through July.

In manufacturing, inflation-adjusted wages are down on net by 0.19 percent since January, 2016 – a period of more than two-and-one-half years. In the private sector generally, the real wage recession became one year old, as after-inflation hourly pay is now down 0.19 percent on net since last July.

Manufacturing’s real wage woes were also made clear in its latest year-on-year figures. Since last July, such pay is down 1.56 percent – the worst such annual performance since October, 2012’s 2.09 percent plunge. Between the previous Julys, industry’s real wages grew by 0.65 percent.

In the private sector overall, the newly reported July annual real wage decline of 0.19 percent also contrasts with its own 0.65 percent advance the year before.

During the current economic recovery, which began in mid-2009, real private sector wages are up 4.36 percent. But in the private sector, they’ve improved by only 0.28 percent during this more than nine-year stretch – less than one-fifteenth as fast.

(What’s Left of) Our Economy: The China Trade Cheerleaders Make their Failures Painfully Clear

Tags

Bill Clinton, Bob Davis, Charlene Barshefsky, China, Financial Crisis, Global Imbalances, Great Recession, The Wall Street Journal, Trade, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

This is how abysmal America’s pre-Trump China policies were: Wall Street Journal reporter Bob Davis recently gave supporters of China’s 2001 accession to the World Trade Organization (WTO) ample opportunity to defend their positions on this landmark decision. And what were the most convincing rejoinders they could muster to claims that the benefits of WTO membership (chiefly, legally sheltering China from unilateral U.S. responses to its wide array of predatory trade practices) enabled China’s rise as a dangerous economic and military power – and that American trade policy needs to respond vigorously? Observations that the biggest gains have indeed flowed to China.

According to Davis, WTO admission advocates “can point to real gains from integrating China into the global economy. According to the World Bank, some 400 million Chinese have been lifted from extreme poverty—that is, from living on less than $1.90 a day—since 1999.”

In addition, “After the deal, foreign investment in Beijing mushroomed from $47 billion in 2001 to $124 billion a decade later. The lower investment and import restrictions required of China as part of its WTO entry also encouraged multinationals to rush in, as did the prospect of serving the vast Chinese market. China became the world’s manufacturing floor, and Chinese imports [sic] to the U.S. soared.”

Evidently, the WTO admission supporters tried to identify benefits for the United States, too. For example, “Today, technology companies tap the Chinese market to boost profits and defray research costs.” And “The low inflation associated with cheap imports, together with Chinese purchases of U.S. government bonds, has also helped to hold down interest rates, making it cheaper for Americans to buy not only clothes and electronics but also homes and cars.”

But apparently none could point to evidence of U.S. companies’ China earnings trickling down to the American domestic economy and its workers. Indeed, the reference to “defraying research costs” looks like a euphemistic way of describing how these businesses often moved white collar and professional as well as blue-collar manufacturing jobs to China.

Similarly, the low inflation and interest rate points amount to gushing that China’s WTO membership helped enable Americans to live way beyond their means. On that score, the only sane U.S. response should be “thanks but no thanks” – since the result was a decade of bubbles whose inevitable bursting triggered the terrifying global financial crisis and ensuing Great Recession.

The unprecedented bubble decade global trade imbalances fostered by the WTO’s enabling of China’s mercantilism, and their nearly cataclysmic results, also provide vital context to claims (chiefly by former U.S. Trade Representative Charlene Barshefsky) that China “became the world’s second-largest importer, giving a boost to rich and poor nations alike.” For these imports and their growth were clearly dwarfed by China’s export surge. And although China’s post-2009 spending spree did help “the global economy from tumbling even more deeply into recession,” it’s unquestionable that the “kitchen sink” stimulus from the Federal Reserve and other major central banks played a far more important role.

But perhaps the most compelling evidence offered in Davis’ article for the abject failure of the China WTO decision came from former President Bill Clinton – who led the campaign to support Chinese membership by promising both an economic boom for U.S. exporters and irresistible pressure for a democratization of China that would bring more global peace and freedom. As Davis reports, the normally loquacious Clinton “declined to comment for this article.”

(What’s Left of) Our Economy: Manufacturing Wages Just Sank Below the U.S. Average

Tags

Bureau of Labor Statistics, manufacturing, private sector, wages, {What's Left of) Our Economy

For several months, the U.S. manufacturing employment scene has been marked by strong job creation and weak-at-best wage growth, and last Friday’s jobs report (for July) took both contrasting trends to new highs and lows.

The 37,000 net new manufacturing jobs created in July not only represented the sector’s best monthly performance since last December’s 39,000. They resulted in the best annual employment gains (327,000) since the 345,000 figure registered in April, 1995. By contrast, manufacturing’s payrolls improvement between the previous Julys was only 53,000.

And how was industry’s wages performance affected? On a monthly basis, pre-inflation average hourly manufacturing pay nosed up by a mere 0.04 percent – much more slowly than the overall private sector’s 0.26 percent. Just as bad, July’s annual current dollar manufacturing wage gain of 1.31 percent was its lowest since June, 2015’s 1.25 percent, and less than half the private sector’s 2.70 percent. And although the private sector’s yearly wage increase represented an acceleration over 2016-17’s 2.49 percent, manufacturing’s increase was a (major) deceleration from the previous year’s 2.38 percent.

Even more striking, however: Thanks to the recent divergence between manufacturing and overall private sector pay, the July jobs report confirmed that, for all workers, pre-inflation manufacturing hourly wages have now fallen below those of the private sector for the first time since these figures have been compiled by the Bureau of Labor Statistics (starting in March, 2006).

Specifically, the new data finalized (for now) the preliminary May findings that current dollar wages in the overall private sector had hit $26.94 per hour, while comparable pay in manufacturing had stayed stuck at a penny lower. This development reversed itself in June, as pre-inflation manufacturing wages climbed to $27 per hour and nosed ahead of the private sector level of $26.98. But the preliminary July statistics once again put the private sector as a whole in the lead, by $27.05 to $27.01.

The pay gap between the two has closed especially quickly during the current economic recovery. At its start, in mid-2009, pre-inflation manufacturing wages were 3.97 percent higher than their counterparts in the private sector.

Wage data for production and non-supervisory workers go back much further (to 1964 for the private sector and to 1939 for manufacturing), and show that, from January, 1964 through December, 1975, current-dollar pay in the private sector in general exceeded manufacturing wages. The latter caught up in January, 1976, though, grabbed the lead in March, and stayed ahead until July, 2006. But since that September, manufacturing wages have been overtaken by those in the private sector, and as of June, 2018, the latter were 5.64 percent higher – a much wider gap than that between manufacturing and private sector wages for their entire workforces.

If the overall private sector was widening the wage gap with manufacturing because of impressive absolute performance, manufacturing’s slippage into below-average ranks mightn’t be much of a concern. But of course private sector wage growth during this recovery has been historically slow, too. All of which puts President Trump’s favorite campaign slogan in a revealing light. If present trends continue much longer, he’ll be hard-pressed to make manufacturing wages mediocre again, let alone great.

(What’s Left of) Our Economy: Trump Metals Tariffs Coverage has Just (Again) Been Exposed as Largely Fake News

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In case you still think that President Trump’s charges of fake news-peddling by the national news media are fake news themselves, consider this: For the second time in two months, if you decided to hold your breath till you found a Mainstream Media item reporting that the America’s metals-using industries have been major job-creation leaders, not laggards, you’d have died.

Such omissions are especially important because since the Trump administration began imposing tariffs on steel and aluminum imports (in March), the media has been filled not only with predictions of massive employment and production losses in metals-using manufacturing (because the prices of two noteworthy inputs for these industries was bound to rise), but with accounts of actual economic damage that numerous companies in these sectors have already suffered. (See here and here for just two examples.) 

Last month, I noted that, for all these accounts, authoritative government data (through June) showed that the metals-using industries’ performance by both measures had both generally improved, and had indeed both generally improved more than job creation and output in the rest of manufacturing.

Since then, more steel and aluminum tariffs were put in place (mainly because some major U.S. trade partners initially exempted from the tariffs were subjected to the levies). And what did we learn from the newest jobs report, which was released last Friday, and took the story through July (on a preliminary basis)? That the metals-using industries continue to set the national job-creation pace for the entire economy, not simply for manufacturing.

Here are the percentage gains for employment in some major sectors of the economy from April (the first month during which any metals tariffs effects would have been felt) through July except for the industries noted:

entire private sector: +0.53 percent

overall manufacturing: +0.73 percent

durable goods: +0.96 percent

fabricated metals products: +1.10 percent

non-electrical machinery: +1.43 percent

automotive vehicles & parts: +1.06 percent

household appliances (thru June): -0.63 percent

aerospace products & parts (thru June): +1.05 percent

Unfortunately, it was not possible to learn any of this from America’s leading news organizations. For these figures were completely ignored.

To their credit, some leading media mentioned that Trump tariffs and trade war fears in general seemed to be having no effect on manufacturing job creation overall despite industry’s exposure in principle to the fall-out. These included the Associated Press, The New York Times, the Financial Times, CNN, ABC News, and NBC News. Yet the metals-using sectors were never mentioned.

As for The Wall Street Journal, the Washington Post, and CBS News, they made no connection of the tariff/trade war-manufacturing job connection whatever.

And several news organizations actually tried to rationalize the unexpected results. Reuters, for example, claimed that “With manufacturing payrolls increasing by the most in seven months, the moderation in hiring reported by the Labor Department on Friday likely does not reflect the rising trade tensions between the United States and other nations including China.”

According to PBS, “Economists say it is too early to tell whether the Trump administration’s tariffs on imported steel and aluminum are having a significant effect on manufacturing jobs.”

Bloomberg and Marketwatch.com weren’t as disingenuous, but still felt compelled to contend that rising trade tensions continued to cast a long shadow on the job markets’ future – without reporting that, if anything, new U.S. policies and statements were so far having exactly the opposite effect on parts of the economy most exposed to existing metals tariffs.

But no account of press coverage of these Trump trade policies would be complete without observing an equally weird development: Neither the President nor anyone else in his administration has pointed to the outperformance of the metals-using industries, either.

In a little over a week, the nation will get its next major opportunity to gauge the impact of metals and other tariffs, and future possibilities thereof – when the Federal Reserve releases the July industrial production data, which includes detailed statistics on inflation-adjusted manufacturing output. Will the Mainstream Media finally zero in on the sectors where the tariff rubber hits the road? At this rate, Americans should be grateful if they simply ended the string of job loss and other Chicken Little metals tariff impact stories.