(What’s Left of) Our Economy: The IMF Strikes Out on Supply Chain Security

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antitrust, Biden administration, Buy American, CCP Virus, competition, coronavirus, COVID 19, health security, IMF, International Monetary Fund, manufacturing, national security, reshoring, supply chains, Ukraine, Ukraine-Russia war, World Trade Organization, WTO, {What's Left of) Our Economy

An impressive body of evidence (see, e.g., here and here) is now shedding light on the dangers of letting specialists in a single field (in this case, public health) dictate policy toward a multi-dimensional challenge like the CCP Virus. For all their supposed expertise on virology and epidemiology, the leaders of the U.S. Centers for Disease Control and Prevention and the National Institutes of Health simply weren’t qualified to take into account the affects of indiscriminate lockdowns and mandates on measures of well-being like economic growth, employment and living standards; educational attainment; and even other dimensions of physical and psychological well-being like opioid use and childhood development.

The best outcomes were always likeliest to come from elected leaders able to see the bigger picture (at least in theory) by drawing on the views of experts from all relevant disciplines.

Just recently, the International Monetary Fund (IMF) has unwittingly exposed the dangers of letting economists dictate national responses to the varied perils underscored first by the pandemic and now by the Ukraine war of over-reliance on problematic suppliers of critical goods in a wide range of industries.

According to a chapter in its new forthcoming World Economic Outlook, the kinds of “Policy proposals to reduce dependence on foreign suppliers, especially in strategic sectors [that] have gained prominence…including in major markets such as Europe and the United States…may be premature, if not misguided.” Instead, “greater diversification in international sourcing of inputs and greater substitutability in input sourcing” would be a much better approach to strengthening supply chain resilience and ensuring adequate access to these products.

But at least when it comes to the United States, the IMF doesn’t even describe the situation accurately. It’s true that during his presidential campaign, Joe Biden set a goal of boosting U.S. manufacturing output, that a principal aim has been improving supply chain security, and that one element of his plan has been to replace imports with U.S.-made goods via better enforcement of the federal government’s Buy America programs. Moreover, the President has been following through.

But it’s also true, as I’ve pointed out repeatedly, that the Biden approach also includes exactly the kind of supplier diversification urged by the IMF – specifically to countries like treaty allies that supposedly deserve to be “trusted.”

And even though these new supply chain policies are mainly intended to achieve crucial goals like enhanced national security and health security, the Fund’s study defines these aims out of existence. As observed in the Wall Street Journal‘s coverage, “The analysis didn’t address that some countries are seeking to bolster domestic supply chains as a national-security issue, and not strictly as the most economically efficient option.”

In fact, like the Biden administration, the IMF study also overlooks a major lesson on the reliability of diversity that became glaringly obvious during the worst days of pandemic. During that terrible first wave in early 2020, no fewer than 80 countries imposed limits on their exports of healthcare goods. These countries – which clearly prioritized the health of their own citizens over that of foreign populations, much less over global trade rules – included all the major economies of Western and Central Europe (even the United Kingdom), along with South Korea.

Yet this IMF study fails on some major purely economic grounds, too. Most important, it ignores the United States’ vast and distinctive degree of self-sufficiency in a wide range of goods and services, and its impressive potential to achieve more. As I wrote in this 2019 article, there’s no reason to doubt that the huge and already highly diverse U.S. economy can handle the great majority of its own economic needs while maintaining entirely satisfactory degrees of the benefits of competition (e.g., low prices, high quality, continuous innovation) by taking anti-trust enforcement much more seriously.

In short, I noted, what’s essential for keeping pressure on businesses to keep getting better isn’t “international competition.” For an economy the scale of the United States, domestic competition should nearly always suffice if government policies help maintain its intensity.

In fact, some confirmation of this claim just appeared in a new study by the World Trade Organization (WTO) on how the Ukraine war could well affect global trade and economic development. Looking further down the road, the WTO examined five possible post-Ukraine scenarios for global trade, with the most extreme being the splitting of the world “into two hypothetical blocs with only low trade barriers remaining within each bloc. This means that trade between blocs would be replaced by trade within blocs in this scenario.”

The WTO’s economists believe that this outcome would reduce global output of goods and services by five percent as compared with a future in which world trade patterns remain basically the same. But the cost to the U.S. economy was much less – just one percent.

The WTO calls all these projections under-estimates because trade within these blocs probably won’t increase, and because for several other reasons, such decoupling would create a much messier and even less efficient structure for global trade.

Yet the United States, for its part, has ample incentive to replace its imports of relatively unsophisticated manufactures from East Asia with purchases from Mexico and Central America – curbing immigration. In fact, the American textile industry has just informed us that this scenario is beginning to play out.

Moreover, there’s no reason to think that even WTO’s relatively optimistic decoupling projections for the United States have taken into account America’s extensive possibilities for replacing imports with domestic goods if competition levels within the country are ratcheted up by breaking up monopolies and oligopolies.

Finally, both the IMF and the WTO completely overlook the enormous purely economic advantages the U.S. economy would reap from decoupling – like better chances of preventing and mitigating the staggering economic costs of future pandemics, and the greater certainty businesses would enjoy from reduced vulnerability from geopolitical turmoil abroad, or from the caprice that even allied countries displayed during the pandemic. Think of decoupling as insurance – which businesses and individuals alike seem to view as a pretty economically sensible investment, even if the IMF and the WTO apparently have never heard of the concept.

(What’s Left of) Our Economy: Lots to Like in Biden’s (Trump-y) China Trade Policy Vision

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allies, Biden, Biden administration, Center for Strategic and International Studies, China, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, decoupling, Donald Trump, economics, economists, exports, Katherine Tai, managed trade, multilateralism, multinational companies, Phase One, tariffs, U.S. Trade Representative, USTR, Wall Street, World Trade Organization, WTO, {What's Left of) Our Economy

Despite my strong interest in U.S.-China trade issues, I’d originally decided not to post on chief U.S. trade official Katherine Tai’s Monday speech on the Biden administration’s strategy for these challenges for two main reasons. One, her remarks were widely (and reasonably well) covered by major news organizations; and two, the big news they revealed was, as expected (including by me), making clear that the Trump administration’s sweeping and often steep tariffs on Chinese goods would remain in place for the foreseeable future.

Since then, however, the think tank that hosted the event (the Washington, D.C.-based Center for Strategic and International Studies) has posted not only her presentation as delivered, but the transcript of a lengthy Q&A session that followed. And those exchanges, along with passages from her speech that have received little attention, shed lots of new light on a great many other significantly promising points about the Biden China trade approach that Tai only touched on in her speech, and one-and-a-half points that are still worrisome.

The grounds for encouragement?

First, Tai made an especially forceful and pointed argument that the pre-Trump China trade and broader economic policies (which Biden strongly supported as a Senator and as Barack Obama’s Vice President) had been a major failure. In her prepared text’s words, “For too long, China’s lack of adherence to global trading norms has undercut the prosperity of Americans and others around the world.”

In addition, China’s predatory policies (my term, not hers)

“have reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based democratic economies. And that is why we need to take a new, holistic, and pragmatic approach in our relationship with China that can actually further our strategic and economic objectives for the near term and the long term.”

In other words, after decades of promises and hopes that commerce between the two countries would become a winning proposition for both (as mainstream economists also insisted), the Biden administration has officially declared such interactions to have been win-lose – with the United States and especially its workers the losers.

Indeed, Tai wasn’t even close to being finished horrifying the economic mainstream or the corporate China Lobby. She pointedly refused to call Trump’s January, 2020 Phase One trade deal a “failure,” and declared that even though it “did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy,” it ”is useful and has had value in stabilizing the relationship.”

In addition, going forward, Tai told her audience that more trade Trump-ism was likely. She indicated that the administration might approve a new Trump-like initiative to impose new tariffs to enforce Phase One more effectively. She also poured decidedly cool water on the idea that the President would move to join a Pacific Basin trade deal (now called the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” or CPTPP) touted as a means of containing China, but nixed by Trump partly because its rules created wide open backdoors for goods with lots of China content.

More broadly, Tai signalled that the United States was now perfectly fine with dispensing with free trade orthodoxy in practice much of the time in favor of “managed trade” – which a questioner defined correctly as “governments setting targets [for exports and imports] and trying to achieve them” and which was embodied in China’s Phase One commitments (not yet satisfied) to boost buys of U.S. imports. ‘

Tai depicted such arrangements as having “evolved out of a frustration with the previous model. [which she described as “let’s seek market access and then, you know, let the chips fall where they may.”] And so the question that I bring to this issue that you’ve presented is not ideologically how do I feel about it, but what is actually going to present results and what is actually going to be effective.”

And she plainly portrayed them in a much more favorable light than the notion of relying on the World Trade Organization (WTO), which trade policy traditionalists have fetishized as the globe’s best hope for creating an international trade system that promoted free and fair competition through a set of detailed rules and regulations, along with a supposedly impartial legal system for resolving disputes.

In Tai’s words, however, “We brought 27 cases against China, including some I litigated myself, and through collaboration with our allies. We secured victories in every case that was decided. Still, even when China changed the specific practices we challenged, it did not change the underlying policies, and meaningful reforms by China remained elusive.”

As a result, Tai said, “as much as we will continue to invest and commit and try to innovate in terms of being a member at the WTO and seeking to bring reform to the WTO…we also need to be agile and to be open-minded and to think outside of the box with respect to how we can be more effective in addressing the concerns that we really have been struggling to address with China on trade.”

In addition,Tai also surely shocked her audience (and yours truly – pleasantly) by openly questioning the decades-long bipartisan push to increase U.S. exports to China:

“I think that part of the story of the U.S.-China trade relationship over these recent few decades has been about this thirst on the part of our business sector in particular for increased market access to China. In business sector I include our agriculture sector, obviously. You know, I think along the traditional lines of the way we’ve thought about trade and how benefits come from trade, it has been very focused on securing market access. I think that what we’ve seen is our traditional approach to trade has run into a lot of realities that are today causing us to open our eyes and think about, is what we’re looking for more liberalized trade and just more trade or are we looking for smarter and more resilient trade?”

With China facing mounting economic troubles due largely to its Ponzi-like real estate housing system and a stagnating population, that’s a valuable warning for American producers who still expect China to keep growing spectacularly and to offer gigantic, ever-expanding new markets for their goods and services.

Nonetheless, Tai specified that the Biden administration isn’t on board with widespread calls to decouple America’s economy from China’s:

“I think that the concern, maybe the question is whether or not the United States and China need to stop trading with each other. I don’t think that’s a realistic outcome in terms of our global economy. I think that the issue perhaps is, what are the goals we’re looking for in a kind of re-coupling? How can we have a trade relationship with China where we are occupying strong and robust positions within the supply chain and that there is a trade that’s happening as opposed to a dependency?”

I understand Tai’s reluctance to embrace decoupling openly. It runs too great a risk of making life in China for U.S. companies doing entirely ordinary, unobjectionable business there even harder than it’s already become, especially lately. But the reference to “re-coupling” struck me as totally unnecessary – and as unrealistic as the notion that Washington is skilled enough to preserve just as many connections to make sure that bilateral commerce does serve mutual legitimate interests, but not so many as to maintain or worsen dangerous dependencies on China, or increase its economic and technological power.

And Tai’s speech lauded the Biden aim of dealing with the China economic and technology challenges in concert with U.S. allies way too enthusiastically. As I’ve written, my prime worry has always been that priotizing this kind of multilateral approach will force the US to accept lowest-common-denominator measures that will always be sorely inadequate because so many of these allies depend so heavily on trading with and investing in China.

Nevertheless, Tai declared that “vitally, we will work closely with our allies and likeminded partners towards building truly fair international trade that enables healthy competition,” and even called this approach “the core of our strategy” on China and trade generally.

As I’ve written, U.S. Trade Representatives are rarely the last word on trade policy. So whatever Tai’s just said, I’m still not ruling out the possibility that the President will use some pretext (promises of climate change progress?) to bring back the bad old days. Certainly, that’s what Wall Street and multinational businesses want. But these Tai observations have made such a U-turn much more difficult politically. And if you agree with my cynical view that politics (mainly due to growing American public hostility toward China) and not principle is what’s produced Mr. Biden’s unexpectedly Trumpy positions toward the People’s Republic, that ain’t bean bag.

(What’s Left of) Our Economy: Why That China Competitiveness Bill Urgently Needs Trade Fixes

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China, competitiveness, consumers, health security, inflation, Robert E. Lighthizer, Section 301, Senate, supply chains, tariffs, technology, Trade, Trade Act of 1974, U.S. Innovation and Competition Act, World Trade Organization, WTO, {What's Left of) Our Economy

Nearly two months ago, I complained here on RealityChek that Congress was working way too slowly on legislation aimed at helping restore the U.S. competitiveness needed to reopen a wide lead over China in the dust in the race for future global technological competitiveness. Now I see that more time to pass the bill is needed after all – because the version approved by the Senate June 8 contains some fatal trade policy flaws that urgently need fixing.

Trade policy, as I’ve explained previously is a vital dimension of beating back the China challenge. But as reported yesterday in a New York Times article by former Trump chief trade official Robert E. Lighthizer, key amendments to the U.S. Innovation and Competition Act

“would harm U.S. interests in three important ways: It would cut tariffs on medical supplies needed in a pandemic; reauthorize the so-called Miscellaneous Tariff Bill to cut tariffs on Chinese and other imports; and amend our enforcement laws in a way that will make it more difficult to battle predatory trade practices by our foreign competitors.”

And if you read the (2,300-page) bill, you see that he’s right. For example, a section titled “Facilitating Trade in Essential Supplies” (beginning on p. 1588) refers to America’s need “to maintain readiness and to surge production of essential supplies in response to an emergency” in national security and public health and safety, or in the security and functioning of “critical infrastructure.”

But consistent with an approach taken to this challenge by President Biden, the act makes clear that achieving these goals includes developing “a whole-of-government strategy to ensure that the United States has reliable access to essential supplies from its trading partners….” In other words, it will be equally fine if the nation remains dependent on imports of such goods. These two objectives clash with each other directly and violently.

If Washington could count on lots of reliable trade partners out there to step in in a pinch and fill supply gaps, this strategy of defining “Made in America” as “Made Overseas, Too” would be defensible (if not, in my view, optimal). But although the legislation directs federal officials to “identify unreliable trading partners,” its authors seem oblivious to just how many foreign governments qualified for this label with their bans and other curbs on vital medical goods during the height of the pandemic. It was 80 according to no less than the World Trade Organization (WTO).

According to Lighthizer, the bill would also undercut American industry’s broader ability to compete with China by renewing a Miscellaneous Tariff Bill that would reduce duties on more than 900 goods produced and exported by the People’s Republic. The list – which also includes hundreds of other goods, begins on p. 1526 and goes on (in tiny type) for thirty pages.

And the text also supports Lighthizer’s claims that the bill would “gut a provision that President Trump used to impose tariffs on Chinese goods in 2018,” and “also effectively surrender sovereignty over our own trade policy to the World Trade Organization by permanently weakening Section 301 unless the United States first wins a multiyear litigation before that body.”

Possibly, the most disturbing feature of the bill’s treatment of these so-called “301 tariffs” (named after the section of the 1974 Trade Act that initially authorized suc measures is the measure that bars the imposition of these duties without an analysis of their impact “on United States entities, particularly small entities, and consumers in the United States” (p. 1607), and additionally of whether they would “unreasonably increase consumer prices for day-to-day items consumed by low- or middle-income families in the United States” (p. 1609).

Although numerous RealityChek posts have documented (see, e.g., here) that none of the 301 tariffs had lasting effects on U.S. retail or wholesale price levels (largely because importers absorbed the higher costs), there’s no guarantee that significant time frames would be examined. In addition, there’s never any shortage of businesses or business organizations in particular ready to predict disastrous price hikes from any tariff increases regardless of the historical record. So the most powerful tool possessed by Washington to enforce trade agreements and combat foreign protectionism could well be neutered unless changes are made.

Finally, Lighthizer’s contention about permanently weakening America’s Section 301 authority appears borne out by pp. 1610-1611, which states that the process for excluding certain goods from that measure’s tariffs “shall not apply” in cases under consideration by the “dispute resolution process under the World Trade Organization [WTO].” In other words, if such U.S. tariffs are challenged at the WTO, they can’t legally be imposed until the WTO decides they’re kosher.

There shouldn’t be any doubt in anyone’s mind that time is not on America’s side as it tries to raise its competitiveness game, both against the Chinese and in general. But it’s also true that haste makes waste — and even worse. And these trade policy flaws in this China competitiveness bill aren’t eliminated, Americans will see a crucial economic and national security opportunity squandered.     

(What’s Left of) Our Economy: The Public Outscores the Experts on China Trade Policy

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(What's Left of) Our Economy, allies, America First, Blob, Center for Strategic and International Studies, China, CSIS, elites, globalism, multilateralism, tariffs, Trade, trade war, Trump, World Trade Organization, WTO

So many big takeaways from a new poll on U.S. and global attitudes toward China and U.S. China policy (both the economic and national security dimensions), I hardly know where to begin! But if I could only write a lede paragraph for a single news article (or blog item), here’s what I’d say: The American public is a great deal more sensible on how to deal with the People’s Republic than so-called “thought leaders.” And what I mean by “more sensible” is more “America First-y” and less globalist.

The survey was conducted by the Center for Strategic and International Studies (CSIS), a Washington, D.C.-based think tank not only squarely in the globalist camp, but a charter member of the globalist, bipartisan U.S. foreign policy “Blob” (which includes a sizable trade and economic sub-Blob) that exerted dominant influence over America’s course in world affairs until Donald Trump came along, and whose supposed expertise still mesmerizes the Mainstream Media.

Of special interest, CSIS sampled opinion from everyday Americans, those so-called thought leaders (whose follower-ship, as implied above, is greatly diminished), and thought leaders from countries that are U.S. allies or “partners.”

The gap between public and elites on China policy views seems widest on the economic and trade issues that President Trump has made so central to his approach towards the People’s Republic, and the CSIS survey contains decidedly good news for him and his fans in this area: The general public is much more supportive of the “go-it-alone,” unilateral sanctions and tariffs imposed by Mr. Trump to combat and/or eliminate Chinese transgressions in this area than the Blob-ers.

Although a multilateral approach (using “international agreements and rules to change China” economically) won plurality backing among the general public (34.8 percent), fully 69 percent of the U.S. thought leaders favored this route. Yet nearly a third of the U.S. public (32.8 percent) endorsed employing “U.S. government tools like sanctions and tariffs”, versus only three percent of the deep thinkers.

As I’ve written repeatedly, (e.g., here and here) a multilateral China trade strategy is bound to fail because international institutions (like the World Trade Organization) are too completely filled by countries that either rely heavily on China-style predation to compete in the global economy, and because even (or especially?) longstanding U.S. treaty allies had been doing business so profitably with the People’s Republic that the last development they wanted to see was a disruption of the pre-Trump status quo. So support for multilateralism in this case can legitimately be taken as support for do-nothing-ism – especially since the vast majority of these elites so enthusiastically pushed for the reckless U.S. expansion of commerce with China that’s lined many of their pockets, but that’s undermined American prosperity and national security.

The CSIS poll, moreover, provides some indirect evidence for this argument: Nearly as high a share of the foreign thought leaders backed a multilateral approach for dealing with China economically (65 percent) as their U.S. counterparts. And their support of U.S.-only approaches (seven percent) was only slightly higher than that of the U.S. thought leaders’ three percent. (The foreign thought leaders may be slightly more gung ho for America going it alone due to confidence that their own products will fill any gaps in the China market left by U.S. producers shut out by the trade wars. On a net basis, though, their countries are coming out losers this year.)

At the same time, one surprising (at least to me) economics-related finding emerged from the survey: Whether we’re talking about the American people generally, or thought leaders at home or abroad, just under 20 percent favor substantial decoupling from China as the best economic approach for the United States.

When it comes to messaging, however, the survey isn’t such great news for Mr. Trump – and Trumpers – on China trade issues. On the one hand, answers to the question on evaluating his performance in this area can – although with a stretch – be interpreted to show majority support for the view that his record has achieved noteworthy gains. Principally, 27.8 percent of U.S. public respondents agreed that the President’s China measures have “been effective in producing some tactical changes in Chinese economic policy” and 9.9 percent believe they have “been effective in forcing long-term changes.” Those groups add up to 37.7 percent of the sample.

Another 20.5 percent checked the box stating that Trump policies have “hurt U.S. consumers and exporters but protected important U.S. industries.” A case can be made that at least some members of this group would give these policies good grades, or that many would give them partly good grades, possibly bringing the total for positive views somewhere in the mid-40 percent neighborhood.

Much more certain, however, is that the most popular single answer (with 41.8 percent support) was that the trade war “has damaged U.S. economic interests without achieving positive change in China.”

Also signaling a Trump China messaging problem – as with much other commentary, the CSIS survey mostly measures China policy success as changing Chinese behavior. In my view, that goal is much less important – because it’s much less realistic, at least in terms of producing verifiable reform – than protecting U.S.-based producers from China’s economic predation. The relative resilience shown by domestic industry both throughout the trade war and into the CCP Virus-induced recession indicate that this goal is being achieved. But neither the President nor his economic nor his campaign team mentions it much, if at all.

CSIS’ polling also found that fully 71 percent of U.S. thought leaders gave Trump’s China economic policies the big thumbs down – and although they don’t vote, their aforementioned influence in the Mainstream Media could partly explain why broader American opinion on the Trump record seems so divided. (For the record, foreign thought leaders weren’t asked to rate the Trump strategy.)

But having established that everyday Americans have a good deal to teach the experts on China trade and economic policy, how do the two compare on China-related national security policies? As indicated above, the gap here isn’t nearly so wide, but worth exploring in some detail – as I’ll do in a forthcoming post!

Our So-Called Foreign Policy: Evidence that the Multinationals Really Did Sell the U.S. Out to China

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capital spending, chemicals, China, computers, electronics, health security, healthcare goods, information technology, investment, Lenin, manufacturing, multinational companies, national security, offshoring, offshoring lobby, Our So-Called Foreign Policy, pharmaceuticals, research and development, supply chains, tech, tech transfer, U.S-China Economic and Security Review Commission, USCC, World Trade Organization, WTO

RealityChek readers and anyone who’s familiar with my work over many years know that I’ve often lambasted U.S. multinational companies for powerfully aiding and abetting China’s rise to the status of economic great power status – and of surging threat to U.S. national security and prosperity. In fact, the dangers posed by China’s activities and goals have become so obvious that even the American political and policy establishments that on the whole actively supported the policies – and that permitted money from this corporate Offshoring Lobby to drive their decisions – are paying attention.

If you still doubt how these big U.S. corporations have sold China much of the rope with which it’s determined to hang their own companies and all of America (paraphrasing Lenin’s vivid supposed description of and prediction about the perilously shortsighted greed of capitalists), you should check out the latest report of the U.S-China Economic and Security Review Commission (USCC). As made clear by this study from an organization set up by Congress to monitor the China threat, not only have the multinationals’ investments in China figured “prominently in China’s national development ambitions.” They also “may indirectly erode the United States’ domestic industrial competitiveness and technological leadership relative to China.”

Worst of all, “as U.S. MNE (“multinational enterprise) activity in China increasingly focuses on the production of high-end technologies, the risk that U.S. firms are unwittingly enabling China to achieve its industrial policy and military development objectives rises.”

And a special bonus – these companies’ offshoring has greatly increased America’s dependence on China for supplies of crucial healthcare goods.

Here’s just a sampling of the evidence presented (and taken directly by the Commission from U.S. government reports):

> U.S. multinationals “employ more people in China than in any other country outside of the United States, primarily in the assembly of computers and electronic products.” Moreover, this employment skyrocketed by 574.6 percent from 2000 to 2017.

> “China is the fourth-largest destination for U.S. MNE research and development (R&D) expenditure and increasingly competes with advanced economies in serving as a key research hub for U.S. MNEs. The growth of U.S. MNE R&D expenditure in China is also comparatively accelerated, averaging 13.6 percent yearon-year since 2003 compared with 7.1 percent for all U.S. MNE foreign affiliates in the same period. This expenditure is highest in manufacturing, particularly in the production of computers and electronic products.”

> “U.S. MNE capital expenditure in China has focused on the creation of production sites for technology products. This development is aided by the Chinese government’s extensive policy support to develop China.”

> The multinationals’ capital spending on semiconductor manufacturing assets “has jumped 166.7 percent from $1.2 billion in 2010 (the earliest year for which complete [U.S government] data is available) to $3.2 billion in 2017, accounting for 90 percent of all U.S. MNE expenditure on computers and electronic products manufacturing assets in China.”

> “China has grown from the 20th-highest source of U.S. MNE affiliate value added in 2000 ($5.5 billion) to the fifth highest in 2017 ($71.5 billion), driven primarily by the manufacture of computers and electronic products as well as chemicals. The surge is especially notable in semiconductors and other electronic components.”

> “[P]harmaceutical manufacturing serves as the largest chemical sector in terms of value-added [a measure of manufacturing output that seeks to eliminate double-counting of output by stripping out the contribution of intermediate goods used in final products]…” And chemicals – the manufacturing category that include pharmaceuticals – has become the second largest U.S-owned industry in China measured by the value of its assets (after computers and electronic products).

Incidentally, the report’s tendency to use 2000 as a baseline year for examining trends is no accident. That’s the year before China was admitted into the World Trade Organization (WTO) – and the numbers strongly reenforce the argument that the multinationals so avidly sought this objective in order to make sure that the value of their huge planned investments in China wouldn’t be kneecapped by any unilateral U.S. tariffs on imports from China (including those from their factories). For the WTO’s combination of consensus decision-making plus the protectionist natures of most of its members’ economies created a towering obstacle to Washington acting on its own to safeguard legitimate American domestic economic interests from Chinese and other foreign predatory trade and broader economic activity.

At the same time, despite the WTO’s key role in preserving the value of the multinationals’ export-focused China investments, the USCC study underestimates how notably such investment remains geared toward exporting, including to the United States. This issue matters greatly because chances are high that this kind of investment (in China or anywhere else abroad) has replaced the multinationals’ factories and workers in the United States. By contrast, multinational investment in China (or anywhere else abroad) that’s supplying the China market almost never harms the U.S. domestic economy and in fact can help it, certainly in early stages, by providing foreign customers that add to the domestic customers of U.S.-based manufacturers.

There’s no doubt that the phenomenal growth of China’s own consumer class in recent decades has, as the China Commission report observes, generated more and more American business decisions to supply those customers from China. In other words, the days when critical masses of Chinese couldn’t possibly afford to buy the goods they made in U.S.- and other foreign-owned factories are long gone.

But the data presented by the USCC does nothing to support this claim, and the key to understanding why is the central role played by computer, electronics, and other information technology-related manufacturing in the U.S. corporate presence in China. For when the Commission (and others) report that large shares of the output of these factories are now sold to Chinese customers, they overlook the fact that many of these other customers are their fellow entities comprising links of China-centric corporate supply chains. These sales, however, don’t mean that the final customers for these products are located in China.

In other words, when a facility in China that, for example, performs final assembly activities on semiconductors sells those chips to another factory in China that sticks them into computers or cell phones or HDTV sets, the sale is regarded as one made to a Chinese customer. But that customer in turn surely sells much of its own production overseas. As the USCC documents, China’s consumer market for these goods has grown tremendously, too. But China’s continually surging share of total global production of these electronics products (also documented in the Commission report) indicates that lots of this output continues to be sold overseas.

Also overlooked by the USCC – two other disturbing apects of the multinationals’ activities in China.

First, it fails to mention that all the computer and electronics-related investment in China – which presumably includes a great deal of software-related investment – has contributed to China’s economic and military ambitions not only by transferring knowhow to Chinese partners, but by teaching huge numbers of Chinese science and technology workers how to generate their technology advances. The companies’ own (often glowing) descriptions of these training activities – which have often taken the form of dedicated training programs and academies – were revealed in this 2013 article of mine.

Second, the Commission’s report doesn’t seem to include U.S. multinationals’ growing investments not simply in high tech facilities in China that they partly or wholly own, but in Chinese-owned entities. As I’ve reported here on RealityChek, these capital flows are helping China develop and produce high tech goods with numerous critical defense-related applications, and the scale has grown so large that some elements of the U.S. national security community had been taking notice as early as 2015. And President Trump seems to be just as oblivious to these investments as globalist former President Barack Obama was.

These criticisms aside, though, the USCC has performed a major public service with this survey of the multinationals’ China activities. It should be must reading in particular for anyone who still believes that these companies – whose China operations have so greatly enriched and therefore strengthened the People’s Republic at America’s expense – deserve much influence over the U.S. China policy debate going forward.

Im-Politic: A World Trade Organization Pull-Out Proposal that Falls Sadly Short

Tags

America First, CCP Virus, China, conservartives, coronavirus, COVID 19, export bans, GATT, General Agreement on Tariffs and Trade, health security, Im-Politic, Josh Hawley, Marco Rubio, national treatment, nationalism, non-discrimination, Populism, protectionism, reciprocity, Republicans, rules-based trade, sovereignty, Trade, unilateralism, World Trade Organization, WTO, Wuhan virus

I can barely describe how much I wanted to like Missouri Republican Senator Josh Hawley’s May 6 op-ed piece in The New York Times calling for a U.S. withdrawal from the World Trade Organization (WTO). That’s why I can also barely describe the growing disappointment I felt as I read through it.  At best, it deserves only an “A for effort” grade.

First, let’s give Hawley (considerable) credit where it’s due. As I’ve been arguing since it went into business at the start of 1995, and in fact was predicting during the national debate preceding Congress’ approval of the idea the fall before, the WTO has gravely harmed crucial American economic interests. (This recent post briefy summarizes my views.)

Let’s also give The Times op-ed page credit for running an article that’s even more strongly opposed to the pre-Trump U.S. trade policy status quo than President Trump has been – because although he’s approved policies that have thrown the WTO’s future into doubt, he’s never explicitly called for a pull-out, and in fact his administration has portrayed these measures as vital steps toward WTO reform.

Hawley, moreover, articulates many powerful indictments of the WTO’s failure to defend or advance U.S. interests satisfactorily – notably, the cover it’s given to China and other protectionist economies. 

Unfortunately, Hawley’s anti-WTO case and recommendations for going forward are fundamentally basedsed on two big misunderstandings. The first is that the pre-WTO global trading order set up by the United States was based on reciprocity, and therefore adequately safeguarded the interests of American workers. Absolutely not. In fact, the concept of reciprocity – holding that a country has no obligation to reduce its trade barriers any more than those of its partners – was explicitly rejected by the pre-WTO rules, which were known collectively as the General Agreement on Tariffs and Trade (GATT).

Instead, this global trade regime was based on two principles that actually entitled protectionist countries to maintain higher trade and related economic barriers than those of freer trading countries. The first was called non-discrimination. It simply urged all member countries to treat all other countries the same trade-wise. So if, say, Japan largely closed its markets to one country, all it needed to do to satisfy GATT rules was to treat other countries just as badly.

The second core GATT principle was called national treatment. Under its terms, member countries agreed to treat foreign-owned companies the same as their own companies. So if, say, a country like (again) Japan, which was is still known for fostering cartel-like arrangements that favored some of its own companies over others wanted to discriminate against whatever foreign companies it wished, that was OK according to the WTO.

Some limited exceptions were permitted to both principles. But they explain in a nutshell why Japan’s trade predation (among others’) inflicted so much damage on U.S.-based manufacturing during the WTO period, and why its own economy (among others’) remained so hermetically sealed throughout.

The GATT’s only saving grace – as I just tried to hint by using terms like “urged” and “agreed”  – was that its rules were essentially unenforceable. All told, though, it’s a lousy model for post-WTO U.S. trade policy.

The WTO has featured a strong enforcement mechanism, which is why Hawley (and other critics, like me) have rightly argued that the organization has eroded U.S. national sovereignty. But at the same time, Hawley wants to replace it with “new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty and allow this country to practice again the capitalism that made it strong.”

If the rules are for all intents and purposes voluntary, as with the GATT, then fine – although the question then arises of why the rules are needed in the first place. And the question becomes particularly pointed when it comes to the United States, whose longstanding role as the world’s importer of last resort has long given it more than enough unilateral leverage to create all by itself whatever terms of trade it wishes with any trade partner.

At the same time, this business about creating new arrangements with “other free nations” reveals a second major flaw in Hawley’s argument: a belief that there are lots of other countries out there that agree with the United States on defining what is and isn’t acceptable in international trade and commerce. That kind of consensus is a sine qua non of any rules-based system. In fact, it needs to predate the formal creation of that system. The existence of the system itself can’t summon it into existence – unless one or a group of members can force holdouts to accept the consensus, which brings us back to the question of why countries with those capabilities need a system in the first place.

But if anyone really believed in the required preexisting consensus before the CCP Virus struck, their conviction should lay in smoking ruins now. Because as of March 21, no fewer than 54 countries worldwide had been imposing export curbs of some kind on medical supplies, and the same think tank that compiled this data reported that, as of early April, that number had risen to 70. And their ranks included many U.S. allies. So it should be obvious that, when major chips are down, global trade becomes more of a free-for-all than ever.

Hawley has been among those leading U.S. conservatives and Republicans who are trying to develop a nationalist and populist approach to both domestic and international U.S. policy-making that can survive President Trump’s departure from the White House. (Another has been Florida Republican Senator Marco Rubio.) And I’ve been very impressed by much of their work so far.

But if they’re genuinely concerned about transforming U.S. trade policy, they’ll recognize the need not only to pull the United States out of the WTO, but to replace that organization with a unilateral strategy incorporating the street smarts and the flexibility to free up America to handle its trade policy needs on its own. If others want to sign on and accept U.S. rules and unilateral enforcement, so much the better. But that kind of “America First” arrangement is the only kind of international regime that can adequately serve the national interest.

Im-Politic: Biden’s Massive China Fakery

Tags

2020 election, Biden, CCP Virus, CDC, Centers for Disease Control and Prevention, China, China trade deal, coronavirus, COVID 19, currency, currency manipulation, Hunter Biden, Im-Politic, Joe Biden, Obama, Trade, travel ban, WHO, World Health Organization, World Trade Organization, WTO, Wuhan virus, xenophobia

Imagine the gall that would’ve been required had Republican nominee Mitt Romney campaigned for President in 2012 by blaming incumbent Barack Obama for the financial crisis and Great Recession of 2007-09. Not only did these economic disasters erupt well before Obama took office, but the White House at that time had been held for eight years by the GOP. (The Democrats did win control of the House and Senate in the 2006 midterm elections, but still….) 

Multiply that gall many times over and you get this year’s presumptive Democratic candidate for President, Joe Biden, charging that Donald Trump is largely responsible for the devastating hit the nation is taking from the CCP Virus because Mr. Trump has been too soft on China. The Biden claims are much more contemptible because whereas Romney played no role in bringing on the Wall Street meltdown and subsequent near-depression, Biden has long supported many of the China policies that have both greatly enriched and militarily strengthened the People’s Republic, and sent key links in America’s supply chains for producing vital healthcare-related goods offshore – including to a China that has threatened the United States with healthcare supplies blackmail.

The Biden campaign’s most comprehensive indictment of President Trump’s China and CCP Virus policies was made in this release, titled “Trump Rolled Over for China.” Its core claim:

“We’d say Trump is weak on China, but that’s an understatement. Trump rolled over in a way that has been catastrophic for our country. He did nothing for months because he put himself and his political fortunes first. He refused to push China on its coronavirus response and delayed taking action to mitigate the crisis in an effort not to upset Beijing and secure a limited trade deal that has largely gone unfulfilled.”

More specifically, the Biden organization claims that even long before the pandemic broke out, Mr. Trump has “never followed through” on his 2016 campaign’s “big promises about being tough on China” and simply conducted “reckless trade policies that pushed farmers and manufacturers to the brink” before he was “forced to make concessions to China without making any progress toward a level playing field for American industry.”

I’d say “the mind reels” but that phrase doesn’t begin to capture the mendacity at work here. Not to mention the sheer incompetence. After all, the trade deal was signed on January 15. It was only two weeks before that China told the World Health Organization (WHO) that an unknown illness had appeared in Wuhan. On January 3, China officially notified the U.S. government. It was only the day before the trade deal signing that WHO broadcast to the world China’s claim (later exposed as disastrously erroneous – at best) that no evidence of person-to-person transmission had been found. It wasn’t until the very day of the deal signing that the individual who became the first known American virus case left Wuhan and arrived in the United States. It wasn’t until January 21 that the U.S. Centers for Disease Control and Prevention (CDC) confirmed him as the first American victim.  (See this timeline for specifics.)

So evidently the Biden folks don’t know how to read a calendar.

Meanwhile, in early January, The New York Times has reported, CDC offered to send a team of its specialists to China to observe conditions and offer assistance. China never replied. On January 7, four days after Washington received its first CCP Virus notification, but two weeks before it identified the first U.S. virus case, the CDC began planning for tests. We now know that it bungled this challenge badly.

But did Trump coddle China in order to keep Beijing from terminating the agreement? Surely Biden’s team isn’t calling that failure an effort to appease China. It’s also true that on February 7, the Trump administration announced its readiness to provide Beijing with $100 million worth of anti-virus aid to China (and other countries), and had just sent nearly 18 tons of medical supplies (including protective gear) to help the People’s Republic combat the pandemic. But is the Biden campaign condemning these actions? From its indictment, it’s clear that its focus instead is on the numerous Trump statements praising China’s anti-virus performance and transparency, and reassuring the American public that the situation was under control.

Where, however, is the evidence that these remarks amounted to the President treating China with kid gloves, and stemmed from desperation to save the trade deal? Just as important, here we come to a fundamental incoherence in Biden’s treatment of the agreement – descriptions that are so flatly contradictory that they reek of flailing. After all, on the one hand, the Phase One agreement is dismissed as a fake that fails to safeguard American trade and broader economic interests adequately. On the other, it assumes that China has been eager from the start to call the whole thing off. Yet if Phase One had accomplished so little from the U.S. standpoint, wouldn’t Beijing actually have been focused on sustaining this charade?

But even if the Biden read on trade deal politics is correct, how to explain the January 31 Trump announcement of major restrictions on inbound travel from China that went into effect February 2? Clearly China didn’t like it. Or were these reactions part of a secret plot between the American and Chinese Presidents to snow their respective publics and indeed the entire world?

How, moreover, to explain such Trump administration policies as the continuing crackdown on Chinese telecommunications giant Huawei, and its effort to kick out of the U.S. market  Chinese services provider China Telecom? Or the ongoing intensification of the Justice Department’s campaign against Chinese espionage efforts centered on U.S. college and university campuses? Or yesterday’s administration announcement that although some payments of U.S. tariffs on imports would be deferred in order to help hard-pressed American retailers survive the CCP Virus-induced national economic shutdown, the steep tariffs on literally hundreds of billions of dollars’ worth of prospective imports from China would remain firmly in place?

In addition, all these measures of course put the lie to another central Biden claim – that Mr. Trump is not only soft on China today, but has been soft since his inauguration. A bigger goof – or whopper – can scarcely be imagined.

Unless it’s the companion Biden insistence that the Trump trade wars have devastated American agriculture and manufacturing? When, as documented painstakingly here, U.S. farm prices began diving into the dumps well before the Trump 2016 victory (when Biden himself was second-in-command in America)? When manufacturing, as documented equally painstakingly, went through the mildest recession conceivable, when its output was clearly hobbled by Boeing’s completely un-tradewar-related safety woes), and when every indication during the pre-virus weeks pointed to rebound? When the raging inflation widely predicted to stem from the tariffs has been absolutely nowhere in sight?

Which leaves the biggest lies of all: The claim that Biden is being tough on China now – the promise that he’ll “hold China accountable,” and the implication that he’s always been far-sighted and hard-headed in dealing with Beijing

According to the campaign’s Trump indictment, the former Vice President “publicly warned Trump in February not to take China’s word” on its anti-virus efforts. But this Biden warning didn’t come until February 26. As to making China pay, the campaign offers zero specifics – and given Biden’s staunch opposition to Mr. Trump’s tariffs (and silence on the other, major elements of the Trump approach to China) it’s legitimate to ask what on earth he’s talking about. In addition, Biden insinuated that the Trump curbs on travel from China were “xenophobia” the very day they were announced – before pushback prompted him to endorse them.

Finally, the Biden China record has been dreadful by any real-world standards. In the words of this analysis from the Cato Institute, “he voted consistently to maintain normal trade relations with China, including permanent NTR in 2000” – meaning that he favored the disastrous decision to admit China into the World Trade Organization (WTO), which gave Beijing invaluable protection against unilateral U.S. efforts to combat its pervasive trade predation. He did apparently vote once for sanctions to punish China for its currency manipulation (which has artificially under-priced goods made in China and thereby given them government-created advantages against any competition), but many such Senate trade votes were purely for show. (I apologize for not being able to find the specific reference, and will nail down the matter in an addendum and post as soon as possible.)  

Revealingly, once he was in the Obama administration, he failed to lift a finger to continue the battle against this Chinese exchange-rate protectionism, and served as the President’s “leading pitchman” for the Trans-Pacific Partnership, whose provisions would have handed China many of the benefits of membership without imposing any of the obligations. More generally, there’s no evidence of any Biden words or actions opposing an Obama strategy that greatly enriched the People’s Republic, and therefore supercharged its military potential and actual power. 

For good measure, despite constant bragging that his personal contact with numerous foreign leaders during his Senate and Vice Presidential years, he completely misjudged Xi Jinping, writing in a 2011 article that the Chinese dictator (then heir apparent to the top job in Beijing) “agrees” that “we have a stake in each other’s success” and that “On issues from global security to global economic growth, we share common challenges and responsibilities — and we have incentives to work together.”

There clearly are many valid reasons to support Biden’s Presidential bid.  But if China’s rise and its implications worry you (as they should), then the former Vice President’s record of dealing with Beijing just as clearly shouldn’t be one of them. 

(What’s Left of) Our Economy: How Pre-Trump Trade Policies Devastated U.S. Protective Gear Capacity

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apparel, CCP Virus, China, coronavirus, COVID 19, Fed, Federal Reserve, free trade, garments, health security, manufacturing, manufacturing capacity, NAFTA, non-durable goods, North American Free Trade Agreement, offshoring, textiles, Trade, Trump, World Trade Organization, WTO, Wuhan virus, {What's Left of) Our Economy

Recently I put up a post expressing gratitude that, despite their best efforts, pre-Trump U.S. trade policies didn’t manage to send the entire U.S. textile and apparel industries offshore. After all, companies in these sectors are the companies with the greatest expertise and capabilities in making all the personal protective equipment (PPE) crucial in the anti-CCP Virus fight.

Of course, the nation is therefore reliant for these and other medical products on countries, like China, which have responded to the emergency at various times with export bans. And in the case of pandemic-prone China, much production of all kinds was shut down temporarily because of the original virus outbreak.

Thanks to the release of the latest Federal Reserve industrial production data, it’s possible to quantify the damage done to these vital industries in ways other than the output figures I presented in that previous offering. That’s because the Fed’s monthly releases report in detail not only on increases or decreases in after-inflation output for manufacturing (and related) sectors. They also report the monthly changes in industrial capacity – the resources and facilities available to turn out various goods.

The results through last month are below. They use as baselines the month the North American Free Trade Agreement (NAFTA – which has now been turned into the U.S.-Mexico-Canada Agreement) went into effect, and the month that China entered the World Trade Organization (WTO). NAFTA’s January, 1994 onset signaled to many the transformation of U.S. trade policy into U.S. offshoring policy (see my book, The Race to the Bottom, for this argument). The January, 2002 beginning of China’s WTO membership gave the People’s Republic  overall, and its even-then-immense textile and especially apparel sectors, invaluable protection against American responses to its various forms of trade predation. (Limited safeguards versus “market-disrupting” surges in imports from China were written into the WTO agreement.)

For comparison’s sake, the industrial capacity changes for non-durable goods manufacturing (the super-sector into which textiles and apparel are grouped), and total manufacturing are provided as well:

                                                       Since NAFTA onset    Since China WTO entry

Textiles:                                              -37.05 percent              -44.05 percent

Apparel & leather goods:                   -81.97 percent              -77.18 percent

Non-durables manufacturing:           +17.06 percent                -2.23 percent

Total manufacturing:                         +75.54 percent             +10.78 percent

Clearly, the decimation of apparel capacity sticks out prominently. But although the more capital-intensive textiles industry didn’t suffer nearly as much, it fared much worse than either manufacturing in toto or the non-durables sectors overall. That’s largely because as the apparel industry disappeared, so did a prime domestic customer for textiles producers.

It’s also obvious for all these categories that although NAFTA was, to say the least, hardly a bonanza, the big trade-related damage was done by China’s WTO entry. Afterward that event has been when the shrinkage of textiles capacity accelerated, when the vast majority of the post-NAFTA apparel damage was done, when non-durables capacity gains shifted into reverse, and when total manufacturing capacity growth slowed to a crawl.

Calls are now abounding for remedies to the resulting shortages – like greater stockpiling and various tax and subsidy incentives for reshoring at least some of this production. But material in stockpiles can decay if unused too long, and companies would be foolish to spend heavily on new U.S. factories if they still face the likelihood of being subsidized and dumped out of existence by predatory foreign trade policies. As a result, there’s no substitute for stiff tariffs, and a credible national resolve to keep them in place, for ensuring that America’s health security never becomes so degraded again.

(What’s Left of) Our Economy: The CCP Virus is Also Killing the Economic Case for Free Trade

Tags

CCP Virus, China, corona virus, COVID 19, economics, economists, free trade, GDP, Goldman Sachs, gross domestic product, health security, inflation-adjusted output, intellectual property theft, Morningstar, offshoring lobby, Oxford Economics, Trade, U.S. International Trade Commission, U.S.-China Business Council, USITC, World Trade Organization, WTO, Wuhan virus, {What's Left of) Our Economy

In a nutshell, the mainstream economics case for the freest possible flows of international trade holds that, whatever losses may be suffered by individual parts of the economy and their workers, overall national (and global) wealth will grow – and that that’s an unmistakable good. A logical follow-on is also important: Since overall wealth increases, so does the capacity to compensate those who have lost out from trade expansion.

True, this compensation may not be dispensed. But don’t blame greater trade, most economists would insist (with not inconsiderable justification). Instead, blame national political systems or societies that fail to take advantage.

Let’s assume all these claims for the economic case (as opposed to the longstanding national security or emerging health security cases) for free trade are true. It’s noteworthy, then, that it looks like they’ve been blown out of the water by the almost certain impact of the CCP Virus emergency on the U.S. economy. At least there’s now an impressive case that trade expansion with China, anyway, has started reducing the nation’s GDP (gross domestic product – the standard measure of the economy’s size).

After all, the virus originally broke out in China, and spread to the United States because of the mushrooming of economic ties between the two countries that freer trade and commerce with the People’s Republic has produced. Some might counter that virus impact has nothing to do with trade expansion with China per se, and instead is due to the disease itself. But given the evidence that China is pandemic prone (arguably because of safety and hygiene standards that remain dreadful throughout the country despite its phenomenal recent economic progress, along with its regime’s obsession with secrecy), and the related likelihood that this problem won’t go away, it’s getting harder and harder to argue that the bilateral trade and investment boom and pandemic threats have nothing to do with each others. In other words, it’s at least reasonable to contend that rising pandemic threats have been an integral feature of freer trade and broader commerce with China.

For some specific numbers (uncertain as they inevitably remain), let’s look at a recent examination of the CCP Virus’ likely economic impact from the investment research and analysis firm Morningstar. Its take on the subject is worth highlighting because it’s the most bullish I’ve seen,

According to Morningstar, the virus’ spread as such is going to reduce the U.S. economy’s size by five percent this year in inflation-adjusted terms (the most closely followed GDP figures). That would amount to a loss of nearly $954 billion. The firm doesn’t explicitly quantify the long-term hit to the U.S. economy. But based on its assessment of the long- and short-term tolls on the global economy, and its belief that these short-term losses in percentage terms will be about half those for the United States itself, it appears that Morningstar expects the inflation-adjusted GDP losses to be some two percent. Using 2019 as the pre-virus baseline, that adds up to $381.46 billion during the (unspecified) first year of long-term effects. But since the economy would be in growth mode by then (although from a lower starting point), the yearly losses in absolute terms would grow each year, since they would represent some two percent of an ever larger pie as long as they lasted.

And remember – these forecasts are on the optimistic end. Another financial firm, Goldman Sachs, anticipates that this year, real U.S. GDP will plunge by as much as 3.8 percent this year. If correct, the national output shrinkage would be nearly $725 billion. (Unlike Morningstar, Goldman doesn’t isolate the specific CCP Virus share of these losses, but if its methodology is comparable, it could top $1 trillion.)

So those are (admittedly ballpark) figures for China trade-related losses for the whole economy. Have the claimed or estimated economic gains been greater? Not even close.

During the late-1990s, when it appeared likely that China would enter the World Trade Organization (WTO), and therefore trigger a surge in its trade with the United States and the entire world, Congress asked the U.S. International Trade Commission (USITC) to model the economic effects of the kinds of major tariff cuts to which China would agree. In its 1999 report, the Commission forecast a “minor” lift to real GDP – meaning an ongoing boost of less than 0.05 percent annually on an ongoing basis.

In 1999, that would’ve meant a $63 billion constant dollar GDP gain for the first year following China’s entry

To be sure, the USITC also tried to estimate the impact of the elimination of the multitude of non-tariff barriers China has long thrown up to the outside world – rules and regulations, often developed and carried out in secret, that can block or slow the growth of imports more effectively than tariffs. The Commission’s findings suggested that success on this crucial front – also predicted by supporters of China’s WTO entry – would double the U.S. GDP gains produced by expected tariff cuts. If correct, the ongoing American yearly output increase would be 0.10 percent of after-inflation GDP, or $126 billion, in the first year after these reforms were made.

Because of subsequent GDP growth, these annual gains would increase in absolute terms, and over the nearly two decades between China’s year-end 2001 WTO entry and today, could easily total trillions annually.

But many of these China tariff and especially China non-tariff barrier promises are still unkept, as even the Obama administration – a strong supporter of U.S. participation in the WTO – admitted in its final report to Congress on the subject. Maybe that’s why the private economic research firm Oxford Economics (in a study for the U.S.-China Business Council, a major pillar of the U.S. corporate Offshoring Lobby) pegged the annual GDP gains of U.S. business with China at $216 billion as of early 2017. That’s not much of a compounding gain.

Moreover, consistent with Offshoring Lobby practices, the Oxford report completely ignores the economic impact of U.S. imports from China – which have greatly exceeded exports for decades. And since China’s WTO entry through last year, the growth of the goods trade deficit has been a vigorous 235.36 percent. Nor did I see anything in its study about China’s massive theft of U.S.-owned intellectual property. Estimates vary, but even these China pollyannas admit it could amount to $600 billion each year. 

As with pandemics, you could argue that intellectual property theft’s growth isn’t a built-in feature of trade with China or any other country.  But since China has been far more theft-prone than it’s been pandemic-prone, and since its thieving ways were well known to Washington as WTO entry was being orchestrated, these costs clearly belong in the “costs of free trade” category – at least with China.      

Finally, of course, these purely economic arguments for free trade overlook non-economic arguments for trade curbs and national self-sufficiency that have always been compelling and that the virus outbreak has now turned into slam-dunk winners. Think “national security” and “healthcare security” – unless you’re thrilled with America’s current dependence on foreign sources of vital medicines, their building blocks, and medical devices.

Predictions understandably are abounding the the CCP Virus emergency will change some lasting behaviors and ideas nationally and globally. If the above, arguably realistic, view of the economic case is correct, free trade practice and ideology belong near the top of this list.

Im-Politic: The China/Biden Opportunity Sanders Needs to Seize

Tags

Bernie Sanders, China, China virus, coronavirus, Democrats, drugs, election 2020, health security, Im-Politic, Jobs, Joe Biden, manufacturing, Michigan primary, pharmaceuticals, technology, Trade, World Trade Organization, WTO

Since he emerged as a major rival to Hillary Clinton for the 2016 Democratic presidential nomination, Vermont Senator Bernie Sanders has been criticized for lacking a killer instinct. Specifically, he’s generally declined to attack his competitors as harshly as many supporters and supposed political pros would like. (The articles here and here nicely frame the history.)  

I don’t feel qualified to weigh in on this debate, but with a crucial primary coming up in Michigan tomorrow, it’s clear to me that the progressive standard-bearer could use more of a killer instinct on a big policy issue: former Vice President Joe Biden’s record on China issues.

Sanders has decided to assail Biden on his overall trade record, which makes sense considering the latter’s support for the kind of trade deals and policy decisions (like NAFTA, the North American Free Trade Agreement, and the rush to expand commerce of all kinds with China) that have hammered workers in manufacturing-heavy states like Michigan. 

But his focus is far too narrow, especially considering developments over the last few years and particularly the last few months. For the Democratic Socialist is solely emphasizing the job and wages loss resulting from agreements like the Biden-endorsed deal that supported China’s entry into the World Trade Organization (WTO) in 2001 – which granted Beijing vital legal protection against unilateral American efforts to fight its protectionism and other forms of economic predation. That mattered greatly because many of these Chinese transgressions persisted post-WTO and by all accounts have worsened under the regime of Xi Jinping.

It’s now clear, however, that the China threat is even worse because it’s far broader; that Biden as long-time Senator from Delaware in particular flunked those non-economic policy tests, too; and that the biggest arguably was the WTO vote. So despite signs from polls that Americans generally (though not necessarily in manufacturing centers) aren’t as opposed to pre-Trump trade policies as in the past, the same surveys make clear that all manner of China-related concerns are mounting, and that therefore hitting Biden for supporting measures that have clearly increased Beijing’s wealth, power, and consequent capacities to threaten key U.S. interests in many fields would succeed roaringly.

Indeed, Biden’s stated justification in 2000 for favoring the crucial WTO decision looks especially and dangerously loopy nearly two decades later, when a Chinese cover-up helped the coronavirus become a serious threat to the United States and the rest of the world at large, when American leaders have finally become aware of how the industrial offshoring accelerated by the WTO move has made the nation shockingly dependent on healthcare products from China, and when the PRC’s official press has just published an article all but threatening to plunge the United States into coronavirus hell by blocking the export of the drugs and their chemical ingredients needed to fight the pandemic.

For in 2000, Biden made clear that he mainly supported China’s entry into the trade body – and ending the policy of granting Beijing tariff breaks only on an annual basis and only if its repressive human rights practices improved – in the belief that this new approach would both promote political and economic freedom in China and help “encourage” its “development as a productive, responsible member of the world community.”

Moreover, Biden not only guzzled the kool-aid of claims that WTO entry would foster greater political as well as economic freedoms in China. He argued that such change was exactly what most of China’s leaders intended. These dictators, he argued,

“have consciously undertaken–for their own reasons, not ours–a fundamental transformation of the communist system that so long condemned their great people to isolation, poverty, and misery. They have been forced to acknowledge the failure of communism, and have conceded the irrefutable superiority of an open market economy.”

Biden was right in noting that economic reforms already by then undertaken had greatly improved living standards for enormous numbers of Chinese. But he was completely wrong in believing that “this growing prosperity” would start bringing more democratic reform and a move toward genuinely open markets. Nor did he foresee that because China’s economic progress depended on amassing ever greater trade surpluses in ever more sophisticated products – and especially with the United States, the world’s biggest, most lucrative market – much of the rise in Chinese living standards would come at the expense of American domestic manufacturing and its workforce.

In fact, Biden explicitly scoffed at fears that WTO entry would bring about “the collapse of the American manufacturing economy, as China, a nation with the impact on the world economy about the size of the Netherlands, suddenly becomes our major economic competitor.”

But in light of China’s growing international belligerence particularly under Xi Jinping, it’s disturbing that the then-Senator – supposedly a foreign policy expert – was equally blind to the likelihood that a WTO-fostered “emergence of a prosperous, independent, China on the world stage” would enable China to flout “international norms in the areas of trade, security, and human rights” whenever it chose, rather than strengthen China’s loyalty to that “liberal global order.” 

Sanders and other critics of the WTO decision rightly derided all of these declared convictions. But I’ve yet to hear him spotlight the dangers to America’s global technology leadership and therefore national security (including health security) generated and continually worsened by the richer, stronger China made possible by the policies supported by Biden and the rest of the bipartisan globalist establishment that ran Washington, D.C. – and U.S. China policy – before Donald Trump’s election as President. P.S. A China that achieved its strategic goals could decimate American living standards still further.

This presidential campaign has already featured so many ups and downs, and so many front-runners who have risen and fallen, that Michigan probably won’t be  Sanders’ last chance to mount a broad-brush attack on Biden’s atrocious China record. (Just FYI, as of this afternoon, the polls show Sanders getting thumped.) The continuing coronavirus fallout could create further opportunities for him as well.

What is clear, however, and to large, growing numbers of Americans, is that enabling the rise of China ranks as one of the most potentially calamitous mistakes in American history.  And the sooner Sanders starts exploiting Biden’s role in enabling it (which continued during the do-nothing Obama administration), the better.