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Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).
A Currency Hawk in Dove's Clothing?
Wednesday, December 11, 2013
Hank Paulson, closet China currency hawk? According to Wall Street Journal reporter Ian Talley, that’s an intriguing finding from a forthcoming book on the financial crisis by veteran journalist Paul Blustein.
I haven’t yet read the book, titled “Off Balance: The Travails of Institutions that Govern the Global Financial System” (already available digitally for Kindle). So I haven’t yet evaluated Blustein’s findings in detail, which Talley says are based on “confidential documents interviews, and financial forensics.”
But there’s another conclusion that can be drawn from Blustein’s apparent narrative, and one that’s much more consistent with former Treasury Secretary Paulson’s charter membership in a Wall Street plutocracy that tends to treat public service as a means to preserve a hugely lucrative financial status quo, and that prizes China in particular as a gargantuan potential money-maker.
This alternative? At a crucial juncture, Paulson’s determination never to rock the U.S.-China economic boat continued to blind him to the decisive leverage his country has always held in this relationship.
As summarized by Talley, the episode that reveals Paulson’s hard-line impulse on currency issues began in the fall of 2008, just before the Lehman Brothers’ collapse tipped the entire world into a terrifying, historic financial crisis. Paulson was allegedly spearheading a Bush administration drive to push a balky International Monetary Fund to conclude that the yuan was “fundamentally misaligned” versus the dollar – and therefore distorting bilateral and global trade flows to China’s advantage in ways that violate international rules.
Of course, offsetting the effects of this long-time yuan undervaluation has for years been a key goal of American domestic manufacturers and others worried about the towering trade deficits, mountains of debt, and destruction of U.S. industry that have resulted.
Paulson, we’re told, was on the verge of success with the IMF. But just a week before the Fund ostensibly was set to rule as Washington wanted, Lehman went bust. All global financial heck broke loose, the IMF meeting was cancelled, and (in Talley’s words),“Instead of winning international public criticism of China’s currency policies, Washington had to beg Beijing to keep buying U.S. debt to help stabilize markets.”
The myriad problems with this account, though, start at the beginning. One of Paulson’s top priorities at Treasury was preventing Congress from forcing effective U.S. action against China’s currency manipulation, not pursuing realistic remedies. His outlook was shaped by those of two powerful lobbies.
The first was Wall Street, which was working hard to expand its role in China’s state-dominated financial system, and therefore to start earning much bigger profits from the country’s economic boom. The second lobby was that of offshoring U.S. multinational companies – Wall Street clients worried that any meaningful U.S. responses to the artificially cheap yuan would jeopardize their own exports to the United States from factories they owned or worked with in China.
In other words, far from being a problem for Big Finance and the multinationals, currency manipulation was a major boon, and former Goldman Sachs chief Paulson was always a loyal, powerful ally.
Pursuing the IMF route, therefore, was actually nothing more than a Bush-Paulson dodge. As made clear by Talley’s summary of the Blustein book, the Fund’s leaders had no interest in antagonizing China, and in fact, had long coddled Beijing themselves. Who can doubt that Paulson knew this? As Paulson knew as well, the IMF has no enforcement authority over Chinese policy.
It’s true that an IMF determination of major yuan misalignment might have marginally helped move U.S. unilateral sanctions legislation through Congress. But the reason Bush and Paulson sought this decision was to fool House and Senate fence-sitters into thinking that – in some unspecified manner – the currency problem could and would be solved multilaterally.
Another big problem with Blustein’s apparent reading of these events concerns Paulson’s reported actions after the Lehman collapse. Of course, those days and weeks were chaotic for policymakers, and evaluations of their actions need to recognize the immense and frightening pressures they felt. But that’s why they pay the Hank Paulsons of the world the big bucks when crises strike private sector businesses (isn’t it?). And that’s presumably why such Wall Street veterans get powerful jobs like Treasury Secretary.
Yet if Blustein is right about Paulson’s intent to halt Beijing’s currency manipulation, then it’s painfully obvious that the former Treasury chief outright panicked vis-à-vis China during that fateful period. For as perilous as that financial crisis zenith was for the United States, it was even scarier for China – a country much poorer, much more dependent on exports and thus on a healthy world economy.
And even that analysis understates China’s vulnerability to the crisis, because the Chinese leadership’s very hold on power depended heavily (and still depends) on maximizing exports in order to maintain employment and therefore preserve political stability.
As a result, China had absolutely no choice but to keep subsidizing American consumption of its output by recycling its mega-trade surpluses back into the U.S. economy. Paulson, therefore, had no valid reason to ease his purported pressure on China’s currency policies even at the crisis’ zenith. There was even less justification for agreeing to a quid pro quo (although it’s not clear from Talley’s article whether such a tradeoff was actually discussed).
Talley deserves a lot of credit for spotlighting Blustein’s telling of this tale, and Blustein’s book sounds like a must-read for anyone concerned with these central economic issues. But it also sounds like the book should be read with care, for such contemporary histories rely heavily on the word of actors with reputations to enhance or protect, and much of the documentary record surely remains highly classified.
Its Jobs Gains Quicken but Manufacturing Employment Remains a Recovery Laggard
Friday, December 06, 2013
The Labor Department's jobs report for November this morning contained good news for American manufacturing and therefore for the entire U.S. economy. But this morning's numbers also indicate that the sector's widely predicted renaissance remains a long way off, especially in non-durable goods, where nothing less than a jobs recession continues. Here are the highlights:
>Manufacturing gained 27,000 jobs in November, its best monthly performance since March, 2012. The sector also saw its total employment surpass 12 million (12.014 million) for the first time since April, 2009.
>Revisions for manufacturing employment were small, with the October gain reduced from 19,000 to 16,000 and the September gain increased from 4,000 to 8,000.
>Manufacturing, however, remains a major jobs laggard during the present recovery. The sector has regained only 24.23 percent (554,000) of the 2.286 million jobs it lost from the onset of the recession in December, 2007 through the manufacturing jobs nadir of February, 2010. By contrast, 85.36 percent of the 8.722 million nonfarm jobs lost during that period have been regained – a performance more than 3.5 times better than manufacturing’s.
> Because of this relatively slow growth, manufacturing’s share of total nonfarm employment remains at 8.78 percent – below even its level at its February, 2010 jobs trough (8.86 percent).
>The nondurable goods sector, which represents nearly half of all U.S. manufacturing, remains stuck in a jobs recession. Nondurables employment rose by 10,000 in October, but at 4.454 million, has fallen slightly year-on-year, and remains lower than its level in March, 2012 (4.458 million). An economic recession is defined as two straight quarters of GDP contraction. USBIC defines a job recession as two quarters of cumulative decline.
>Manufacturing’s year-on-year jobs growth is still slower than at the beginning of the year, but the comparisons keep improving. From January, 2012 to January, 2013, the sector created 124,000 net new jobs. In November, this figure was 76,000, up from 56,000 in October. The low point for the year was July, when 9,000 manufacturing jobs actually were lost on a year-on-year basis.
>Manufacturing’s job gains continue to be concentrated significantly in the automotive sector. Automotive jobs represented 12.89 percent of all manufacturing jobs lost from the onset of the recession in December, 2007 through industry’s overall jobs nadir in February, 2010. But since then, they have represented 29.67 percent of total manufacturing jobs regained.
>The dramatic recent slowdown in manufacturing job gains shows that industry’s jobs rebound earlier during the economic recovery was purely cyclical, not structural, and that contrary to President Obama and others, no structural domestic manufacturing renaissance is in sight.
My takeaway: Continuing record manufacturing deficits indicate that industry is slowly creating jobs in spite of President Obama’s trade policies, not because of them. Congress, therefore, should grant him limited trade negotiation authority only after he starts producing better results, not before.
October Trade Gains Masks Record 2013 Manufacturing & High Tech Deficits
Wednesday, December 04, 2013
Here are some highlights of this morning’s Census Bureau report on the economy’s trade performance in October:
>A surprising jump in U.S. exports to China and a sizable upward revision in the September gap helped push America’s overall trade deficit down by 5.42 percent in October, from $42.97 billion to $40.64 billion.
>Despite the improvement, and export increases, big U.S. trade deficits in manufacturing and advanced technology products both grew even bigger, with both climbing to 2013 highs. The towering manufacturing trade deficit contrasts notably with the impressive results of the Institute of Supply Management’s recent monthly surveys of the sector, and with the strong manufacturing optimism they have generated.
>At its $40 billion-plus recent average levels, the trade deficit continues to deprive the U.S. economy of much more demand each month than January’s tax increases ($15.8 billion monthly) and sequester spending cuts ($12.1 billion) combined. Even worse, virtually all of this trade damage comes in the economy’s private sector.
>The September combined goods and services trade deficit was revised upward by a remarkable 2.85 percent. This update reflected a 0.21 percent upward revision in September’s export total (from $188.91 billion to $189.31 billion) and a 0.69 percent upward revision in imports (from $230.69 billion to $232.28 billion).
>A stunning 36.10 percent surge in U.S. goods exports to China reduced the U.S. merchandise trade deficit with the PRC by 5.28 percent, from September’s monthly record of $30.47 billion to $28.86 billion. The China merchandise deficit is still running 2.06 percent ahead of last year’s all-time annual high.
>U.S. merchandise exports to new U.S. free trade partner Korea rose strongly in September – by 15.37 percent in October, and the monthly shortfall shrank by 17.49 percent, to $1.71 billion. But since the trade pact came into effect in March, 2012, the monthly deficit has more than tripled.
>By contrast, the U.S. merchandise deficit with Japan increased by 15.17 percent in October, to $6.38 billion, on 7.33 percent import growth and slightly lower exports.
>Widespread claims by President Obama and others of a U.S. manufacturing renaissance were again undercut by an 11.13 percent rise in the sector’s chronic trade deficit, to a 2013 high of $63.51 billion. Manufactures exports expanded by 6.67 percent on month in October, to $103.43 billion, but the much larger amount of imports increased even faster, by 8.32 percent, to $166.94 billion. Year-on-year, the U.S. manufacturing deficit is running slightly less than half a percent over 2012’s all-time high.
>The volatile trade deficit in high tech goods also hit a 2013 high in October, widening by 20.75 percent to $9.83 billion. Exports rose 4.09 percent on month, to $27.70 billion, but imports again rose much faster – by 7.99 percent – to $37.53 billion. The high tech trade deficit is still down by 10.80 percent from last year’s January-October total, but the year-on-year improvement has been shrinking in recent months.
My take: Record 2013 monthly deficits in manufactures and high tech goods, and an overall shortfall whose economic damage dwarf s that of fiscal contraction, are telling Congress unmistakably not to endorse President Obama’s trade record by granting him fast track negotiating authority. He’ll deserve sweeping scope to pursue new trade agreements only after proving he can turn trade into a growth and jobs engine, not before.
A Crawl, not a Renaissance
Friday, November 15, 2013
Today’s new industrial production figures from the Federal Reserve show that real manufacturing production grew 0.32 percent on month in October – up from its 0.05 percent gain in September. But so far this year, inflation-adjusted manufacturing output is expanding at a mere 1.41 percent annual rate, versus last year’s 3.68 percent pace. In 2010, the first full year of the economic recovery, domestic manufacturing expanded by 5.85 percent in real terms.
In other words, despite registering its third straight monthly increase, real manufacturing production output growth has slowed significantly since the recovery began. The evidence keeps mounting that, far from representing the renaissance touted by President Obama and other cheerleaders, the sector’s rebound from an historic recession has been cyclical, and has virtually petered out.
On a year-on-year basis, real manufacturing output has gained some momentum since the beginning of the year. Its January year-on-year real output gain was 2.47 percent. By October, the pace had quickened to 3.56 percent. At the same time, inflation-adjusted manufacturing output still stands 3.29 percent lower than its level when the last recession began – in December, 2007, nearly six years ago.
Manufacturing’s performance has been considerably bleaker in non-durable goods industries. These sectors represent nearly half of real manufacturing output, and include companies in processed food and beverages, paper, chemicals, and plastics and rubber. Last month, nondurables real output returned to growth (0.32 percent) for the first time since June.
Yet production in this sector is still 0.51 percent lower than in December – a 10-month stretch of cumulative decline that signals the continuation of a technical recession (two or more straight quarters of net output contraction).
The new Fed data also makes clear the outsized role played by the automotive sector in spurring manufacturing’s recovery from a deep (20 percent) recessionary dive. Whereas total domestic industrial production remains 3.29 lower than at the start of the last recession, take away vehicle and auto parts production and this figure grows to 5.53 percent.
A New China Record Boosts September Trade Deficit
Thursday, November 14, 2013
Here are the highlights of this morning’s Census Bureau report on the economy’s trade performance in September:
The overall U.S. trade deficit rose 7.96 percent in September to move back over $40 billion per month for the first time since May. Combined goods and services exports fell for the second time in three months.
The overall deficit is still running 11.72 percent below last year’s levels. Yet notably, more than 80 percent of this improvement, however, stems from America’s much better oil trade performance, which has nothing to do with U.S. trade policy or trade agreements.
The U.S. goods deficit with China reached a new monthly record of $30.47 billion. This total surpassed the previous record of $30.08 billion set only two months before. The manufacturing-dominated China goods deficit is now running 2.72 percent of last year’s annual record level, even though President Obama and many others claim that China has recently lost considerable manufacturing competitiveness versus the United States.
America’s chronic U.S. manufacturing deficit rose 3.65 percent in September, from $55.14 billion in August to $57.15 billion. Manufactures exports fell 4.11 percent in September while the much greater amount of imports dipped by 1.37 percent. The manufacturing trade shortfall is now running slightly (0.12) percent higher than 2012’s January-September total, despite widespread claims of a domestic manufacturing renaissance.
The U.S. merchandise deficit with new free trade partner Korea shot up 23.43 percent in September, from $1.68 billion to $2.07 billion. U.S. goods exports to Korea fell 8.75 percent in September despite the new trade deal’s aim of opening Korea’s tightly closed markets, while the sluggish U.S. economy pulled in only 1.65 percent fewer imports from Korea.
Since the trade deal went into effect in March, 2012, the U.S. merchandise trade deficit with Korea has nearly quadrupled (from $551 million) on a monthly basis. U.S. goods exports to Korea are down 28.70 percent, and goods imports are up only 6.38 percent.
Finally, the often volatile U.S. high tech goods trade deficit jumped 38.58 percent in September to $8.14 billion – this year’s second highest level. Exports dipped 0.43 percent and imports increased 6.60 percent to a 2013 high of $34.75 billion. On a year-to-date basis, the $56.24 billion high tech deficit is running 12.32 percent higher than in 2012, largely – and encouragingly – on higher exports.
My interpretation of the September numbers: They reflect major trade policy mismanagement from President Obama – especially regarding currency-manipulating China and Korea. They also add to the copious evidence that the domestic manufacturing renaissance often touted by the President is completely imaginary. No wonder more than half the House of Representatives has just declared its opposition to granting the President sweeping – and Constitutionally dubious – new fast track authority to negotiate more job- and growth-killing trade
Despite October Gains, Manufacturing Still a Recovery Job Laggard
Friday, November 08, 2013
The Labor Department released the October monthly jobs report this morning; here are the manufacturing-related highlights:
>Manufacturing gained 19,000 jobs in October, bringing its total to 11.986 million – the highest figure since February.
>Revisions for September (+2,000) mean that the manufacturing jobs recession that began in January ended that month. An economic recession is defined as two straight quarters of GDP contraction. USBIC defines a job recession as two quarters of cumulative decline.
>Manufacturing remains a jobs laggard during the economic recovery. The sector has regained only 23.01 percent (526,000) of the 2.286 million jobs it lost from the recession’s onset through the industrial job trough (February, 2010). During this period, the total nonfarm sector (the Labor Department’s jobs universe) has regained 82.94 percent (7.234 million) of the 8.722 million jobs it lost – a performance 3.6 times better than manufacturing’s.
>Manufacturing’s year-on-year jobs growth remains much slower than at the beginning of the year. From January, 2012 to January, 2013, the sector created 124,000 net new jobs. In October, this figure was 55,000. The low point for the year was July, when 9,000 manufacturing jobs actually were lost on a year-on-year basis.
>Manufacturing’s job gains continue to be highly concentrated in the automotive sector. Such
jobs represented 30 percent of October’s net new industrial employment, and the figures for the entire economic recovery so far are nothing less than astonishing. From the last recession’s technical onset in December, 2007 until its technical end in June, 2009, the vehicles and part-making sector suffered 16.41 percent of the 2.028 million manufacturing jobs lost during that period. Since then, automotive jobs have represented 74.60 percent of the 265,000 manufacturing jobs recreated.
>Largely as a result of automotive’s strength, durable goods industries have accounted for all of the net new manufacturing job creation since June, 2009 – and then some. Durables sectors have gained 364,000 jobs during this period, but employment in non-durables is down 99,000.
>The dramatic recent slowdown in manufacturing job gains shows that industry’s jobs rebound earlier during the economic recovery was purely cyclical, not structural, and that contrary to President Obama and others, no structural domestic manufacturing renaissance is in sight.
> Manufacturing’s share of total nonfarm employment has still sunk to 8.78 percent
– below even its level at its February, 2010 jobs trough (8.86 percent).
>The new Labor Department figures revised August’s manufacturing job gains up from 13,000 to 15,000. They were initially pegged at 14,000. The new figures revised the sector’s September jobs gains up from 2,000 to 4,000.
>Given manufacturing’s heavy exposure to international trade, and given President Obama’s continued coddling of currency manipulation and other predatory trade practices by major U.S. rivals, the sector’s continuing jobs struggle strongly undercuts the case for Congress granting President Obama sweeping new fast track authority to pursue new trade deals.
The Manufacturing Jobs Recession Drags On
Tuesday, October 22, 2013
With recessions defined as two consecutive quarters of economic contraction, today’s jobs figures show that American manufacturing is now suffering a jobs recession that has lasted for eight months.
Payrolls for American industry last month stood 2,000 less (11.963 million) than in January (11.965 million). In addition, year-on-year job growth for the sector has slowed from 124,000 in January to 38,000 in September.
With manufacturing employment still unmistakably under pressure from foreign predatory trade practices that President Obama continues to coddle – including continued currency manipulation by countries such as China and Japan – the new jobs data show conclusively that Mr. Obama does not deserve the negotiating blank check that Congress would give him if he won fast track authority.
The jobs recession and the marked year-on-year slowdown in manufacturing employment – which is even more dramatic when 2011-2012 data is added – also make clear that domestic manufacturing is not experiencing the renaissance touted by the president and other cheerleaders. Instead, the sector engineered a thoroughly cyclical rebound early in the present economic recovery that is now petering out.
The new Labor Department data show that manufacturing created 2,000 net new jobs between August and September. This improvement was offset by downward revisions in the previous July and August figures (from job loss of 16,000 to job loss of 17,000, and from job gains of 14,000 to job gains of 13,000, respectively.)
Manufacturing also continued to lag the overall U.S. economy in job creation by orders of magnitude. Since its February, 2010 employment bottom, the sector has regained 503,000 of the 2.286 million jobs it lost during the recession (22 percent). Job recovery for the total nonfarm economy (the Labor Department’s U.S. employment universe) during this period has totaled 6.97 million of the 8.722 million positions lost during the same period (79.91 percent) – more than 3.5 times greater than manufacturing’s progress.
Largely as a result, manufacturing’s share of total nonfarm employment has sunk to 8.78 percent
– below even its level at industry’s February, 2010 recessionary jobs nadir (8.86 percent).
Since President Obama assumed office, China has been joined by Japan as a major U.S. trade competitor deliberately undervaluing its currency to gain economic advantage. New free trade deals have been approved with Korea and much smaller Colombia and Panama. And most significant foreign economies have continued subsidizing their industries and protecting their markets.
More downward industrial employment and output pressure is almost certain if fast-track approval paves the way for Congressional ratification of Mr. Obama’s proposed Trans-Pacific trade agreement. In those negotiations, the administration is following the same blueprint that has helped produced a near-quintupling of the U.S. bilateral goods deficit with Korea on a monthly basis since that agreement went into effect in March, 2012.
With Trade Still Dragging on a Sluggish Recovery, Does President Obama Really Deserve a Negotiating Blank Check?
Thursday, September 26, 2013
Today’s final second quarter GDP data show that America’s huge and chronic trade deficit dragged on growth after all during this period, contrary to the previous revision’s finding that trade’s impact was a wash.
The newest data also reveal that although the trade drag on GDP shrank slightly over the first quarter’s level, the shortfall’s effect on the recovery since it officially began in mid-2009 continues to be negative.
The damage inflicted by U.S. trade flows on an already sluggish American recovery also casts grave doubt on the wisdom of Congress granting President Obama’s request for fast track trade negotiating authority. After all, a President meriting the blank check to reach new trade deals represented by fast track is presumably President who displays some ability to turn the nation’s trade performance into a growth engine, not a growth-killer.
In addition, according to the final second quarter data, real export growth remains far too slow to enable the President to achieve the goal of an export-doubling between early 2009 and the end of 2014.
The newest GDP figures reveal that trade subtracted 0.07 percentage points from the 2.50 percent real growth recorded by the economy in the second quarter. (All data presented on an annualized basis unless otherwise specified.)
According to the previous second quarter figures, reported last month, trade made no contribution to growth – but that development represented a major improvement from the 0.81 percentage point subtraction from 1.70 percent growth reported in the advance (first) estimate for the second quarter. In fact, the trade deficit reduction reported last month produced nearly all of the improvement in real GDP shown in last month’s revision.
The final second quarter figures also show that the trade deficit’s drag on growth was slightly less than the first quarter rate of -0.28 percent. Nonetheless, since the U.S. economy resumed growing four years ago, the widening of the trade deficit has reduced that growth by 4.86 percent.
The new GDP figures revised second quarter real exports down from just over $2 trillion to $1.998 trillion, or 0.14 percent. The greater amount of real imports was revised down as well, but by a mere 0.01 percent.
As a result, real exports increased by 1.93 percent between the first and second quarters, a rate far too slow to even increase the already negligible odds of U.S. exports doubling by late 2014. Since the first quarter of 2009, these overseas sales have risen by only 30.21 percent, with only 18 data months left to reach the 100 percent growth sought by the President.
A Mixed Summer at Best for Manufacturing
Monday, September 16, 2013
This morning’s Federal Reserve manufacturing production figures contained mixed short-term news at best for American industry and for the nation’s efforts to create an economy more durable than the previous decade’s bubble-fueled version. But they also showed that, despite continuing claims by President Obama and other cheerleaders, domestic manufacturing remains closer to stagnation than to a renaissance.
The new data reveal that inflation-adjusted manufacturing output rose by 0.70 percent month-on-month in August – its best such showing since last December. But July’s original 0.10 percent decline was revised down to a 0.40 percent drop-off. Further, the new Fed figures make clear that the non-durable goods sector, which contains such critical industries as chemicals, plastics, and food products, has entered its eighth month of a technical recession, with real production down on net since last December.
In addition, even with the August monthly bounce back, domestic manufacturing is growing at a mere 1.32 percent annualized rate this year – much lower than last year’s rate of 2.58 percent rate.
Manufacturing’s year-on-year growth dovetails with this trend. The 2.81 percent real production increase achieved from August , 2012 to August, 2013 more than doubled the comparable July figure of 1.40 percent and represented this year’s best expansion. But it lagged the 3.67 percent inflation-adjusted growth generated between August, 2011 and August, 2012.
As a result, real manufacturing output remains 3.67 percent below its pre-recession peak, recorded in December, 2007.
Most of the August monthly manufacturing production improvement came in the automotive sector, which grew by a torrid 5.21 percent. Excluding motor vehicles and parts, real manufacturing output expanded by slightly less than 0.40 percent in August.
The automotive figures helped power the durable goods sector to a 1.21 percent monthly surge in August, a sharp turnaround from the 0.60 percent contraction in July. Year on year, August durable goods production rose 4.04 percent – its highest 2013 rate, too. But from August, 2011 to August, 2012, real durables output jumped by 6.43 percent. Real durable goods production is now 1.26 percent higher than its pre-recession peak, also hit in December, 2007.
Non-durable goods registered a meager 0.1 percent real monthly output increase in August – better than its 0.1 percent July decline. In addition, durable goods’ real August year on year growth of 1.45 percent was its highest such figure in 2013, and also beat the 2011-12 rate.
But inflation-adjusted non-durable goods output is down 0.25 percent since December, extending this latest technical recession to eight months, and the sector remains fully 9.64 percent smaller than at its pre-recession peak, which came in July, 2007.
Aside from the automotive sector, major industry groups that registered monthly real output gains in August included fabricated metals products; machinery; computer and electronics products; electrical equipment, components, and appliances; aerospace and miscellaneous manufacturing; furniture; textiles; apparel; food and beverage products; and printing.
Only five major industry groups tracked suffered monthly production declines in August: primary metals; miscellaneous manufacturing; chemicals; plastics and rubber products; and petroleum and coal products.
New Import Price Data Weaken Case for Handing President New Trade Negotiating Authority
Thursday, September 12, 2013
Import price data for August show that, although President Obama’s plans for a Trans-Pacific Trade Partnership including Japan and other Asian protectionists ignore currency manipulation, the yen devaluation resumed under the Abenomics program keeps distorting bilateral trade flows – and fueling rising U.S. deficits with Japan.
Mr. Obama’s coddling of Tokyo’s exchange-rate protectionism, as well as of ongoing trade transgressions by China and other major competitors, greatly weakens the case for Congress granting the President blank-check, fast-track authority to negotiate new trade agreements.
The Labor Department’s new import price data for China also once more belie claims by the President and other manufacturing cheerleaders that U.S. industry is engineering an historic renaissance largely at the expense of increasingly costly Chinese exports.
Prices of manufacturing-dominated Japan-made products entering the U.S. market fell another 0.1 percent in August, the Labor Department reported, following a 0.5 percent fall in July. Prices of all U.S. manufactures imports fell less in August – 0.09 percent.
Since Tokyo’s latest round of currency devaluation began in January, with the launch of Abenomics’ monetary easing campaign, the prices of America’s imports from Japan are down 2.72 percent. The prices of all U.S. manufactures imports have fallen only by 1.53 percent.
As the Labor Department’s analysis of these trends makes clear, the falling Japan import prices have “paralleled” the yen’s decline versus U.S. dollar.
Census data reveal that, since January, the U.S merchandise trade deficit with Japan has surged by 11.82 percent on a monthly basis. The overall merchandise trade deficit, by contrast, has decreased by 7.59 percent during this period. At the same time, the total U.S. manufacturing deficit has risen by 12.91 percent since January on a monthly basis – slightly more than the Japan deficit.
Trends for import prices from China, meanwhile, continue to clash with the widespread belief that rising wages and other production costs in the People’s Republic are rapidly pricing Chinese goods out of the U.S. and world markets.
Prices for these goods, also dominated by manufactures, stayed flat for the third straight month – closely resembling the results for all manufactures imports. Year-on-year, prices of Chinese imports are down 1.33 percent – just slightly less than the 1.36 percent drop-off of all manufactures import prices during this period.
Chinese import prices have not risen on a monthly basis since February, 2012. And they were lower last month than they were in July, 2008.
Ongoing Chinese currency manipulation plus other subsidies for manufacturing and for exporting provided by Beijing – notably its VAT system – account for some of the continuing price competitiveness of China’s manufactures.
But as typically forgotten by those pointing to an American manufacturing renaissance, productivity increases in China have the same effects on manufacturers’ bottom lines as they do everywhere. They allow businesses to absorb rising wages and other costs without passing them on in full or in part to their customers.
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