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Alan Tonelson's Blog
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). Alan Tonelson

New GDP Figures Confirm Trade Keeps Slowing the Already Feeble Recovery
Thursday, May 29, 2014
Today’s new first quarter GDP figures (the second of three estimates the government will release) confirm last month’s finding that trade significantly damaged the nation’s economic performance for the first three months of 2014.  

The relative damage inflicted by a growing inflation-adjusted U.S. deficit fell short of the record levels reported in April’s advance figures.  But this smaller role stemmed solely from considerably worse deterioration in other parts of the economy – notably inventories – than initially estimated.  

In absolute terms, the new GDP report revised the real U.S. trade deficit for the first quarter up from $414.4 billion to $418.9 billion at an annualized rate.  The annualized deficit for the fourth quarter of 2013 was $382.8 billion.

As a result, according to the new GDP figures, the real trade deficit’s worsening has cut cumulative inflation-adjusted U.S. growth by 3.80 percent during the already sluggish American recovery.  

Even more important, the growth hit from trade flows heavily affected by U.S. free trade agreements and other elements of trade policy is much bigger.  The reason?  Those components of the trade deficit only slightly affected by such Washington decisions – trade in energy and services – have seen their balances improve since the recovery technically began in mid-2009.

According to the new GDP figures, real U.S. exports fell sequentially during the first quarter at a slightly slower rate than initially reported – by 6.00 percent on an annualized basis rather than by 7.60 percent.  (The deficit worsened because the U.S. import change was revised from a decrease to an increase.)

Nonetheless, the new GDP reports still leave the economy certain to fall far short of achieving President Obama’s export-doubling goal.   In the first quarter of 2009 – the baseline for the President’s commitment – U.S. real exports of goods and services stood at $1.5348 trillion on an annualized basis.  The new first quarter 2014 figures show them at $2.0232 trillion.  The increase has so far totaled only 31.82 percent.  Since these exports need to increase by 100 percent from the start of 2009 through the end of this year to reach doubling, it’s clear that the President’s goal remains on life support.


The Drug Pusher from Harvard
Friday, May 23, 2014
Martin Feldstein doesn’t look like a drug pusher.  Rather than some seedy miscreant hanging around a schoolyard, he’s an economics professor at Harvard, and a former chair of President Reagan's Council of Economic Advisors, among other prestigious titles and roles.

Nonetheless, Feldstein is pushing a narcotic – and one ultimately far more dangerous than the controlled substances that have ruined so many lives.  He’s pushing the kind of economic narcotic that has already helped trigger a near-world financial meltdown and the worst recession since the Great Depression, and that still threatens an even worse catastrophe:  the narcotic of overly easy money.

This serious charge is justified by Feldstein’s May 15 Financial Times essay urging an end to the debate over China’s currency manipulation.  His “primary reason”?  The trade and current account surpluses amassed by countries like China largely due to manipulation and to numerous other predatory economic practices “finance their purchases of American government bonds.”

These massive buys of official American debt have been crucial in keeping U.S. interest rates low.  Therefore, they have kept the U.S. economy afloat since the financial crisis and of course before – even though, especially recently, the resulting growth and job-creation rates have not been remotely satisfactory.

Yet the continuing flood of cheap money into the United States has not only failed to restore genuine economic health.  It’s served as a major obstacle.  Economically, it keeps plunging the nation even more deeply into debt and encouraging investors to take reckless risks.  In particular, as the last decade’s bubble should have taught, overly easy money tends to foster dangerous overheating in the prices of assets like housing and stocks, and shortchanges productive activity like manufacturing and innovation.  And let's not forget how foreign currency manipulation further damages American industry.  

Politically, by keeping the economy artificially alive, practically free money enables America’s leaders to avoid taking the structural steps – on trade policy overhaul, on infrastructure building, on tax reform, and on so many other fronts – vital to rebuilding real prosperity.

A special irony is that Feldstein himself has warned about the dangers of excessive credit creation – notably in a January 2, 2013 Wall Street Journal op-ed predicting not only bubble-ization and “explosive” debt growth, but higher inflation.  The Federal Reserve, he charged, “is heading in the wrong direction.”  Why, then, when the Chinese and other foreign exchange rate protectionists supply the financial raw material for these dangers, is he brimming with gratitude?


The Korea Trade Deal: A Preliminary Second Anniversary Scorecard
Tuesday, May 13, 2014
Recent second-anniversary analyses lambasting America’s record under the 2012 trade deal with Korea were a little premature.  The agreement did enter into force that March 15, but given the lag in releasing the monthly U.S. trade figures, the March, 2014 statistics were not then available.

Now two full years of data are in, though, and the distressing story remains the same.  I’m still working on the detailed sector-by-sector data.  But under the KORUS deal, America’s chronic merchandise trade deficit with Korea has surged, meaning that it’s undercut U.S economic growth and hiring, and added to the national debt.  At least as bad, the Obama administration has touted KORUS as the template for the much broader, “high standards” Trans-Pacific Partnership (TPP) deal it’s seeking.  Yet U.S. merchandise trade by key measures has performed worse under KORUS than U.S. merchandise trade with the world as a whole – despite not only the deal, but a sizable currency edge that also should have turned KORUS into a big winner for Americans.

Under KORUS on a monthly basis, U.S. goods exports to Korea have risen by 3.27 percent – from $4.226 billion to $4.364 billion.  But U.S. merchandise imports from Korea have increased more than five times faster – by 17.60 percent, from $4.778 billion to $5.619 billion      

As a result, the merchandise trade shortfall with Korea has more than doubled – from $551 million to $1.256 billion.  Either American producers of manufactures, farm products, and other commodities experienced a sudden, dramatic loss of competitiveness versus their Korean counterparts, or the ballyhooed Obama approach has left Korea’s economy pretty much as hermetically sealed to U.S. products as ever on a net basis.

In fact, American manufacturers, farmers, ranchers, and producers of energy and fuels have traded more successfully with the world economy as a whole than with Korea under KORUS.  The growth in their global exports has trailed the growth of their Korea exports – rising by just 2.45 percent during the KORUS years on a monthly basis.  But U.S. global imports have actually fallen slightly between March, 2012 and March, 2014 – by 0.77 percent, versus the nearly 18 percent jump in merchandise imports from Korea.  So although the goods trade gap with Korea has greatly worsened under KORUS, it’s improved by 7.26 percent with the entire global economy.

But the story gets worse from the U.S. standpoint.  From mid-March, 2012 to mid-March, 2014, the dollar weakened versus Korea’s currency, the won, by 4.75 percent.  Yet it strengthened versus the broadest index of foreign currency values kept by the Federal Reserve – by 3.81 percent.  If commerce between the U.S and Korea really had been substantially freed up by the Korea deal, the exchange rate effect alone should have generated a significantly better relative performance with Korea for America’s producers, their employees, and the entire U.S. economy.  Instead, Korea trade became an even bigger relative loser for Americans.

In principle, KORUS cheerleaders can explain the lagging U.S. trade performance with Korea by pointing out the near-absence of any energy trade between the two countries.  America's dramatically improving oil trade accounts in particular have generated all the improvement in U.S. global merchandise trade -- and then some.

At the same time, the energy factor underscores the more important reality that America's non-energy merchandise trade flows -- which have been profoundly affected by deals like KORUS - keep deteriorating.
The industry-by-industry statistics may paint a brighter picture than these broad aggregates.  America’s trade with Korea might also start dramatically improving after a rocky first 24 months.  And there are still Korea tariffs on U.S. exports yet to be reduced or eliminated under KORUS’ terms – although the lion’s share of these moves have already been made.  

But barring a startling turnaround for these or other reasons, the messages being sent to Congress and the public by the Korea trade agreement could not be louder or clearer:  The Obama approach to trade has failed the U.S. economy with this major trade partner.  Equally bad and completely unaffordable results logically can be expected from the TPP if this Obama blueprint is any guide.  And whenever lawmakers vote on the issue of approving sweeping fast track negotiating authority for the President in the trade arena, their only responsible choice is an emphatic thumbs down.


What You Need to Know About China's Currency Manipulation
Friday, May 09, 2014
Talk about bad timing!  Or is it good timing?  I guess it depends on your perspective.  But two influential Washington think tank analysts picked a heck of a week to issue a report claiming that China’s long undervalued yuan is now fairly valued – that is, right where it should be if its exchange rate versus the dollar reflected fundamentals, not the Chinese government’s determination to boost its net exports by artificially under-pricing foreign competition.

A heck of a week because throughout the early spring, the yuan had been weakening so dramatically that even the Obama administration – which has consistently coddled this currency manipulation in deeds if not in words – stepped up its criticism a notch.

On May 1, however, analysts from the venerable Peterson Institute posted a study contending  “with some confidence” that the yuan “is now fairly valued, which is a striking change from even 2005, when the currency was undervalued by nearly 30 percent.”  The authors, Martin Kessler and Arvind Subramanian, went on to venture that “This change possibly heralds the end of nearly two decades of China's mercantilist development strategy based on boosting exports by keeping the currency artificially low.”

This study is especially important because although the Peterson Institute has been a staunch supporter of offshoring-focused trade deals starting with NAFTA, it has for years provided much of the intellectual heft not only for claims of major yuan undervaluation, but for recommendations that U.S. tariffs offset the effects.

Nonetheless, according to the authors, comprehensive new World Bank data on the prices of goods around the world sheds new light on the subject.  Specifically, they reveal whether prices and incomes in China (or anywhere else) in the non-tradable part of an economy remain low enough to “allow…resources to flow to tradable sectors.”  If they do, they “reflect…a depreciated exchange rate.”  

The authors conclude that this new data show that the yuan’s appreciation versus the dollar since 2005 – when Beijing began loosening the “peg” that tied its value to the dollar’s at a level chosen by the government – has indeed represented comparable movement toward proper valuation.  Even better, the new data show that this movement is now complete.

Wall Street Journal reporter Bob Davis was nice enough to ask for my reaction, and presented a short excerpt in a blog posting on May 2.  But there’s much more to be said, so here’s a lightly edited version of my full response – which also sought to dispel some widespread broader misconceptions about China’s currency manipulation:  

First, though, some context.  The U.S. Business and Industry Council originated the idea of treating currency manipulation as a countervailable subsidy under U.S. trade law.  So we and our members have been deeply concerned with the problem for many years.  At the same time, we have never stated or implied that even the most effective U.S. responses to this practice would eliminate the problem of mercantile Chinese trade and broader economic policies.  These not only include intellectual property theft, widespread industry subsidization, technology extortion, discriminatory government procurement policies, etc.  They are also thoroughly fungible.  And China's opaque governing system has from time to time eased up on one only to intensify another.  A prime example came in the wake of the Asian financial crisis of the late-1990s, when Beijing (to loud international applause) refrained from devaluing the yuan a second time during that decade, but proceeded to gain many of the benefits of a devaluation by increasing its VAT rebates for many leading export products.

So the Peterson conclusion that China may have ended the era of exchange rate-driven protectionism is largely beside the point as far as impacts on the U.S. economy are concerned, since the underlying Chinese mercantilist approach to trade takes so many different forms.  And as made clear each year by an annual report from the U.S. Trade Representative’s office (among other sources), many Chinese trade barriers remain firmly in place.

Second, I'm puzzled by the methodology's emphasis on Chinese prices.  After all, the prices of so many goods and services in China are set by the state, not by market forces.  Chinese production costs are also profoundly affected by the government's subsidization of so many key inputs, including land, energy, water, and the price of labor (through systematic repression of internationally recognized labor rights), as well as by its flagrant disregard for worker safety, pollution, etc.  So a price-based analysis of currency valuation seems completely inappropriate for what remains largely a command economy.
Third, it appears that the methodology makes a crucial mistake similar to that found in many analyses of China's currency policies.  It assumes that proper currency values are fixed targets (in this case, a certain relationship between income levels and certain prices in the economy in question).  But when currency values are set by market forces rather than government fiat, they inevitably are moving targets.  And they are moving because they reflect investors' judgments regarding the strengths and weaknesses of the economy in question.

In the case of the yuan, its appreciation versus the dollar until recently should not be confused with movement toward proper valuation because, during the period in question, China's economic fundamentals improved so dramatically versus America's.  Indeed, it's most reasonable to argue that the yuan's appreciation brought it no closer to proper valuation during this period - because had it been traded freely, it would have appreciated much more.  

Importantly, the Treasury Department's latest report on foreign exchange rate policies made this very point.  It noted that, because of China's rapid productivity growth, continuing yuan appreciation would be necessary "to prevent the exchange rate from becoming even more undervalued."  

Nor are we reduced to proving counterfactuals when discussing where the yuan would be in the absence of manipulation.  As this latest Treasury report and several predecessors have documented, Chinese monetary intervention intended to control the exchange rate, and the resulting accumulation of foreign exchange reserves, continues at a very sizable level.  As a result, combined with developments like improved productivity, this intervention arguably is conferring artificial competitiveness advantages on Chinese-produced goods at least as great as those they received when the yuan was weaker versus the dollar in absolute terms.    

In conclusion, the U.S. Business and Industry Council does not find this analysis persuasive.  We believe that the yuan has remained substantially undervalued - and in fact may have grown even more undervalued during much of the time of its appreciation.  We believe that this undervaluation mainly stems from China's determination to create artificially cheap prices for its traded goods.  And we urge Congress and the President to put in place strong counter-measures that would fully offset the effects of this continued Chinese currency manipulation.


An Historically Awful Quarter for U.S. Trade
Monday, May 05, 2014
With March’s U.S. trade figures set to come out tomorrow, it’s worth reviewing the historically awful trade performance revealed by last week’s initial report on economic growth in the first quarter of 2014.  Tomorrow’s data will fill in some crucial details, but the broader numbers presented with the gross domestic product statistics once more make clear that the nation’s trade flows keep costing it far more growth and therefore jobs than they create.  In addition, they greatly strengthen the case that the President’s trade strategy, which, like his predecessors’, purportedly focuses on opening foreign markets, is a major part of the problem.

The new first quarter GDP figures released by the Commerce Department showed that trade not only subtracted from growth in the first quarter of 2014, but that on a relative basis, its drag was the biggest in U.S. history – or, more technically, since quarterly GDP data began to be released in 1947.  

According to the new Commerce Department results, the U.S. economy grew at an annualized inflation-adjusted rate of 0.1 percent in the first quarter of 2014.  But the sequential worsening of the inflation-adjusted U.S. trade deficit – from $382.8 billion in the fourth quarter of 2013 to $414.4 billion – subtracted 0.83 percentage points from that growth.  

By this measure, the next worse trade performance in U.S. history came in the fourth quarter of 2002.  Then, the economy grew at a real annualized rate of 0.2 percentage points.  But the widening of the real trade deficit subtracted 1.34 percentage points from that performance.  In absolute terms, the trade subtraction from growth was bigger in 4Q 2002 than it was in 1Q 2014.  But when growth is compared with the trade hit to growth, the 1Q 2014 trade drag was considerably greater.

For comparison's sake, in absolute terms, there have been much bigger quarterly hits delivered to growth by the inflation-adjusted trade deficit's worsening.  For example, in the fourth quarter of 1947, the real trade deficit's widening subtracted 4.22 percentage points from annualized real GDP growth.  But that GDP growth was 6.5 percent.  

U.S. inflation-adjusted exports turned in an historically bad performance in the first quarter of 2014 as well.  Their 7.6 percent drop from the fourth quarter 2013 levels represented the biggest percentage decrease since the first quarter of 2009 – when the last recession was peaking and world trade was in near-freefall.  Yet this latest export plunge took place during an ostensible economic expansion.  The last time inflation-adjusted U.S. overseas sales shrank by a greater amount at a time of economic growth was the fourth quarter of 1977.

The first quarter decrease in real U.S. imports was much smaller than that in exports – 1.4 percent – hence the spurt in the deficit.

Moreover, because real exports fell sequentially during the first quarter, the new GDP figures show that the nation moved farther away from President Obama's declared goal of doubling U.S. exports during the period 1Q 2009 through the end of this year.  

In the first quarter of 2009, U.S. real exports of goods and services stood at $1.5348 trillion on an annualized basis.  The new first quarter 2014 figures show them at $2.0232 trillion.  The increase has so far totaled only 31.84 percent.  Since these exports need to increase by 100 percent from the start of 2009 through the end of this year to reach doubling, it’s clear that the President’s goal is on life support.

But even this weak performance overstates U.S. exports gains in a crucial respect.  The reason?  The improvement has been heavily concentrated in the energy sector – which has almost nothing to do with the trade agenda the President is pursuing.      

Since Mr. Obama’s first inauguration, when his export-doubling clock began ticking, America’s inflation-adjusted oil exports have increased on a monthly basis from $3.454 billion to $6.312 billion (in February, 2014 – the latest monthly data available). That 82.74 percent rise has been much faster than the 31.63 percent gain in all other goods exports – from $82.478 billion to $108.569 billion.  In fact, on a monthly basis, real non-oil goods exports are actually down since last June.  

Further, these non-oil flows are crucially affected by the kinds of trade deals the President is aiming to sign.  Real non-oil imports so far in 2014 are generally below late 2013 levels, too, but the decrease has not been enough to keep the real trade deficit from worsening.

There can be no doubt that the decades-old trade agenda that Mr. Obama seeks to advance has widened the trade gap – and thus depressed U.S. growth and hiring – by expanding trade with countries manifestly uninterested in mutual gains, by dithering (at best) as they ignore free market practices, and by promoting way too much production and job offshoring.  The only big remaining questions surrounding U.S. trade policy are how the President can possibly believe that This Time Will be Different, and whether Congress will join in in perpetuating the nation’s past trade failures.


Manufacturing Hiring Sinks Deeper into Laggard Territory
Friday, May 02, 2014
Even with a return to employment gains in the last two months, manufacturing’s job-creation pace during the recovery fell further behind that of overall economy’s, and its share of nonfarm employment hit a new low.  Worse, a Congressional blank check for President Obama to negotiate new trade deals with protectionist Asian and European countries is likeliest to wipe out even this inadequate improvement.
The new (preliminary) job gain for April was pegged at 12,000.  The Bureau of Labor Statistics also transformed last month’s 1,000 job loss for March into a 7,000 gain, and revised February’s improvement from 19,000 to 20,000.

Manufacturing has now recouped 647,000 of the 2.293 million jobs (28.22 percent) it lost from the last recession’s onset in December, 2007 through its employment bottom in February, 2010.   By contrast, the total, the total nonfarm sector of the economy – the Bureau of Labor Statistics’ U.S. employment universe – has now regained 98.87 percent of the 8.695 million jobs it lost from December, 2007 through February, 2010.  In other words, the total U.S. jobs recovery has been 3.5 times stronger than the manufacturing jobs recovery.

With the already large gap between the manufacturing job recovery and the overall U.S. jobs recovery widening even further, industry's share of total nonfarm employment fell on a monthly basis from 8.76 percent to a new low of 8.75 percent.  Both figures, moreover, are far lower even than the manufacturing share during February, 2010 employment bottom of the last recession (8.86 percent).

Manufacturing’s year-on-year jobs growth is now showing some acceleration.  Between April, 2013 and last month, the sector gained 99,000 net new jobs – up from March’s upwardly revised 85,000 number for 2013-14, February’s upwardly revised 81,000 figure, and January’s 79,000.  Yet except for the April number, all of the 2013-14 manufacturing gains remain below their 2012-13 counterparts.

Manufacturing's lagging hiring progress lately 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.

History teaches, moreover, that manufacturing employment will face new downward pressure if Congress awards President Obama sweeping new fast track authority to negotiate new trade agreements.

A Spring Thaw for Manufacturing - and a Steel Recession
Wednesday, April 16, 2014
The Federal Reserve’s new manufacturing production figures were a mixed-at-best bag for domestic manufacturing.  They confirmed the role played by the harsh winter in slowing industry’s inflation-adjusted expansion to a near crawl.  But the growth that has been recovered is much slower than the rates achieved earlier in the recession.  Moreover, the new data make clear that the critical steel sector has tumbled into a technical recession.

Manufacturing production’s real monthly growth hit 0.54 percent in March, and February’s output figure was revised upward from 0.90 percent to 1.40 percent.  The new Fed data also kept January’s 0.89% drop intact.  

The data also brought manufacturing’s post-inflation year-on-year growth to 2.93 percent in March – better than the upwardly revised 2.52 percent figure for February and the 1.76 percent rate for January.  But this improvement is markedly slower than the comparable 2012-13 figures of 3.50 percent, 3.08 percent, and 3.00 percent, respectively.

As a result, inflation-adjusted manufacturing production remains 0.70 percent lower than the peak it hit just before the last recession struck – more than seven years ago, in December, 2007.

In a departure from recent trends, real nondurable goods output in March grew faster on a monthly basis than real durable goods production – 0.65 percent versus 0.44 percent.  The revised February results were more typical, with durable goods output growing 1.83 percent on month and durable goods production expanding by 0.92 percent.

March’s relatively subdued durable goods production gains were held down by a 0.81 percent monthly drop in the long torrid automotive sector.  The harsh winter’s impact on inflation-adjusted output in motor vehicles and parts has been especially striking, with production sinking by 5.88 percent in January and then rebounding by 6.87 percent in February.

In another important durable goods development, primary metals industries, including steel, fell into technical recession in March.  Real output is now down on net since last July due to a 1.46 percent monthly decrease.  USBIC defines a technical recession as six months or more of net production decline.  

Year-on-year, real durable goods output is up 4.13 percent in March – better than the 3.96 percent annual improvement for February and the 3.16 percent rise for January.  But as with manufacturing overall, all of these increases are smaller than the comparable 2012-13 production gains of 5.02 percent for March, 4.79 percent for February, and 3.89 percent rate for January.

The March data have pushed real durable goods production 5.39 percent higher than its level at the last recession’s onset.

Nondurable goods production’s 0.65 percent after-inflation March increase represented a slowdown from the 0.92 percent February increase.  But January production had dropped by 1.00 percent on month.  

Year-on-year production for nondurable goods demonstrates the same longer-term slowdown pattern displayed by the rest of domestic industry.  March real output is up 1.64 percent on year – better than the 0.92 percent and 0.20 percent improvements for January and February, respectively.  But the 2013-14 real nondurable goods growth has been slower for each of its three months than 2012-13 growth – which hit 1.82 percent, 1.19 percent, and 1.33 percent, respectively.

Real nondurable goods output is still 7.88 percent below its pre-recession peak – hit in July, 2007.


Fast Track's Terrible Timing
Monday, April 14, 2014
Reading through the press coverage of the big international economic meetings held this past weekend in Washington, D.C. should make anyone wonder if anyone who makes U.S. trade policy has been paying attention.  If they were, they’d realize that the heated but still-inconclusive monetary policy debate between the world’s rich and poorer countries that highlighted these meetings reveals yet another major reason to put new trade deals on ice for the foreseeable future.

As made clear once more by the assembled central bankers and finance ministers, the immediate bone of contention is the set of easy money policies followed in response to the financial crisis and Great Recession by the wealthier countries (especially the United States).  

Where trade policy is concerned, however, the issue is not whether the United States – along with Japan and the European Union – should be taking the developing countries’ concerns more seriously as they consider scaling back their unheard-of money-printing used to restore acceptable growth.  Nor is the issue whether or not the developing countries should be reacting by hoarding dollars to protect themselves from the sudden capital outflows spurred by the “tapering” of the U.S. quantitative easing (QE) policy in particular.  Instead, the issue is how this impending accumulation of dollars will affect trade flows.

The answer could not be less promising for the U.S. economy.  First, developing countries will rely even less for their growth on their own consumers’ demand.  Few have ever been net importers – or even close – from the United States largely because of their low incomes.  But more consumption-based growth and more net importing became possible when the rich countries’ easy money policies plunged their own interest rates way down, and when investment consequently raced after the higher returns offered by the riskier debt of the likes of Brazil, India, Turkey, and Indonesia.  

When the Fed declared last year that easy money’s end was in sight, however, and U.S. interest rates rebounded, investors en masse forsook the developing countries’ markets for U.S. Treasuries, and suddenly staunched the flow of cheap credit.  

Yet the trade effects of tapering – or, more precisely, of all the monetary policy uncertainty engendered by the Fed lately – will hardly end with curbing developing country consumption.  For capital outflows from these economies have been so huge, and could become so much greater, that  the national finances themselves of many now look alarmingly vulnerable.  Since they can’t borrow significantly in their own currencies if financial emergencies arise, many such governments also will need to start earning and holding on to as many dollars and other foreign currencies as they can.  Or at least that’s what they believe.  

The most obvious way to achieve that goal is ensuring that exports stay greater and/or grow faster than imports.  And conveniently, the more dollars they earn from exporting to the United States and then simply keep in their own treasuries, the weaker their own currencies become and the easier it gets to boost their trade surpluses with America much higher.

So just as much of an already weak world economy seems certain to become even less enthusiastic about Buying American, President Obama is seeking ambitious trade agreements with both European and Pacific Rim countries, along with a near-blank check from Congress to pursue them.  

The Trans-Pacific Partnership is especially worrisome.  After all, it encompasses low-income Asian countries that have long and successfully pursued mercantile export-led growth at America’s expense.  Moreover, membership for other such protectionist countries, like South Korea, Taiwan, and China, appears unavoidable.  And ongoing global monetary policy volatility – as these governments see matters – could easily make their export obsessions stronger than ever.  So it’s hard to imagine a better recipe for higher U.S. trade deficits, and therefore for slower economic growth and greater job loss, than expanding trade with this region.  

And yet with U.S. trade officials continuing to tout the TPP – and any trade expansion – as an engine of exports, growth, and hiring, it’s clear that neither the left nor the right hands of the President’s international economic policy knows what the other is doing.  As a result, it’s left to Congress to make the connections, and ensure at least minimal competence, by denying Trade Promotion Authority to Mr. Obama and keeping the deals he’s seeking off the legislative fast track.


Manufacturing Employment Still Stuck in the Slow Lane
Friday, April 04, 2014
The first month of manufacturing job losses since July and upward revisions for January and February created a mixed March performance for manufacturing employment.  Yet the latest government figures also confirm American industry’s status as a woeful job-creation laggard during the current recovery, with its employment gains less than 30 percent as strong as those of the total U.S. economy.  

And the question remains for Congress:  Why would anyone expect a brighter picture if lawmakers give President Obama a blank check to negotiate new trade deals with strongly protectionist Pacific Rim and European economies?

American manufacturing lost 1,000 jobs in March, according to this morning’s preliminary Labor Department data.  This dip brought industry's employment level down to 12.079 million.  Yet the Bureau of Labor Statistics also revised last month’s February’s results up from a 6,000 gain to a 19,000 gain, and January’s gain from 6,000 to 8,000.

As a result, as a share of total U.S. employment, American industrial jobs remained below the levels they reached even during manufacturing’s absolute employment nadir in February, 2010.

American manufacturing has now recouped 626,000 of the 2.293 million jobs it lost from the last recession’s onset in December, 2007 through its employment bottom in February, 2010.  

By contrast, the total, the total non-farm sector of the economy – the Bureau of Labor Statistics’ U.S. employment universe – has now regained 95.15 percent of the 8.695 million jobs it lost from December, 2007 through February, 2010.  In other words, the total U.S. jobs recovery has been more than 3.48 times stronger than the manufacturing jobs recovery.

Its weak March performance also kept manufacturing’s share of total nonfarm employment at 8.76 percent – well below even that reached at the sector's February, 2010 jobs trough (8.86 percent).

Manufacturing’s year-on-year jobs growth continues to fall as well.  Between March, 2013 and March, 2014, the sector gained only 72,000 jobs.  The comparable number for 2012-13 was 106,000 and for 2011-12, 226,000.  January’s 2013-14 manufacturing jobs increase was 79,000, and February’s was 76,000.

Manufacturing's lagging hiring gains lately show 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.


Germany's Trade Surpluses Now Under Fire from...Germany's Own Government
Monday, March 24, 2014
Although it hasn’t made the same kind of news (at least in the U.S.) as American complaints about China’s persistent trade surpluses, Washington has been grousing about Germany’s lopsided trade flows for several months.  In fact, in its latest semi-annual report on foreign currency manipulation, the Obama Treasury Department arguably used harsher language criticizing Germany’s trade imbalances than that employed to chide China.  

Some analysts have even gone so far as to accuse Germany of engaging in stealth currency manipulation – supporting monetary and other European Union economic policies that have conveniently kept the Euro much weaker than a German national currency would be if the euro was dropped.

Berlin has responded even less favorably to these charges than Beijing.  At least China pays lip service to the idea of rebalancing its economy away from exports, and its surpluses as a share of the Chinese economy have fallen considerably because of the post-financial crisis slump in world growth and trade.  (Germany's just rebounded to match its all-time record.)  But Chancellor Angela Merkel reacted to the Treasury report specifically by accusing critics of export envy and “absurdly” asking Germany to reduce its competitiveness.  

Now, however, it turns out some of those critics can be found in Merkel’s own government.  In late February, Berlin’s State Secretary for Europe agreed that surplus countries like Germany have obligations to rebalance their economies and even said that "Through the growing low wages sector and increase in flimsy employment contracts we have created an unfair advantage compared to our partner countries [in the European Union]."

In early March, the German Minister for Economics and Energy promised that his government would respond to European Union calls for smaller surpluses with measures including “increased employment, the introduction of a minimum wage, orientation of part-time and temporary work on their core purposes, appropriate conditions for a responsible wage policy and strengthening investment."

If anything, racking up trade surpluses is even more deeply ingrained in Germany’s economic DNA than in China’s.  And promises by surplus countries to rebalance are a lot more common than meaningful follow-through.  But one thing's certain:  The next time Washington or anyone else urges Germany to mend its ways on trade, efforts by Berlin to scapegoat foreigners shouldn't even pass the laugh test.