FRIDAY, FEBRUARY 16, 2024

 

It’s a bank holiday! It’s a mattress sale! It’s… Presidents Day! 

Yes, Presidents Day: The one day each year when Americans celebrate our nation’s leaders by binge-watching the History Channel, arguing over which one was the coolest, and desperately hoping for a discount on something they wouldn’t buy any other day (air fryer, anyone?). It’s a day when Abe Lincoln and George Washington are more like rock stars, and political trivia is a competitive sport. Forget Valentine’s Day. We’d rather be swooning over those founding fathers! So, grab your powdered wig, fire up the grill for some presidential-themed comestibles, and let’s party like it’s 1776! After all, who wouldn’t want to spend a day honoring dead presidents by shopping for bargains?

Happy Friday!

In recent weeks, we’ve seen a barrage of attacks against a former president’s new tariff proposals as he campaigns to be president again. Too easy, it’s Donald Trump.

The criticisms of the former president’s tariff policies comes from journalists, business figures, and economists, mostly. They aim not just at new Trump proposals like the 60% tariff on all imports from China, but the track record of the 2018/2019 Trump tariffs which have been largely continued by President Biden.

Don’t be fooled. The attacks on tariffs are wrong…and bad economics. They use misleading or fabricated information and draw false conclusions.

Trump’s steel and washing machine tariffs have made a powerful contribution to rebuilding those industries and created thousands of jobs. Section 301 China tariffs have brought manufacturing production back to the U.S. and also initiated a process of decoupling the U.S. from China. China’s exports fell 4.6% last year, despite the growth in its exports reaching the U.S. indirectly (via Mexico and Vietnam for example).

WWWD? (What Would Washington Do?)

President George Washington, as the first President of the United States and a founding father, held deeply-rooted beliefs in protecting American sovereignty, promoting economic independence, and maintaining a strong national defense. While Washington didn’t have to grapple with issues specific to China’s economic aggression during his presidency, his principles and insights into trade and foreign policy can offer valuable perspectives on the use of tariffs.

Washington emphasized the importance of fair and reciprocal trade agreements, advocating for policies that would safeguard American industries and workers. He believed in nurturing domestic manufacturing and fostering self-reliance to reduce dependence on foreign powers. In dealing with economic challenges, Washington favored diplomacy and negotiation but also recognized the need for decisive action to protect national interests.

Given these principles, it’s plausible President Washington might’ve considered tariffs as a tool to counter Chinese economic aggression if he perceived it as a threat to American sovereignty, economic stability, or national security. 

HISTORY LESSON: What about the other 45 presidents? In order to understand where we are, it’s important to understand where we’ve been. Here’s a brief rundown on where America’s most recent presidents stand/stood on tariffs and the U.S.’ economic relationship with China…

Joe Biden (2021-present):

  • President Biden has maintained tariffs on Chinese goods implemented by the previous administration but has signaled a willingness to review and potentially adjust tariffs as part of broader trade negotiations.
Donald Trump (2017-2021):
  • President Trump pursued an aggressive trade policy towards China, imposing tariffs on billions of dollars’ worth of Chinese goods in an effort to address trade imbalances and intellectual property theft. This led to a significant escalation in the trade tensions between the two countries.
Barack Obama (2009-2017):
  • President Obama’s administration implemented some tariffs on specific Chinese products, particularly in response to unfair trade practices, but generally pursued a more measured approach to trade relations with China, focusing on diplomatic engagement and multilateral agreements.
George W. Bush (2001-2009):
  • President Bush faced growing concerns about China’s trade practices during his tenure but generally favored dialogue and engagement over punitive tariffs. However, he did impose tariffs on certain Chinese goods, particularly in the steel industry.
Bill Clinton (1993-2001):
  • President Clinton pursued a policy of constructive engagement with China, seeking to integrate China into the global economy through trade and investment. While his administration did not impose significant tariffs on Chinese goods, trade tensions with China began to emerge during his presidency.
George H. W. Bush (1989-1993):
  • President Bush’s approach to China was characterized by a desire to balance economic engagement with human rights concerns. His administration did not implement significant tariffs on Chinese goods but faced challenges related to trade imbalances and intellectual property issues.
Ronald Reagan (1981-1989):
  • President Reagan’s administration focused on expanding trade with China as part of its broader strategy to counter Soviet influence. While he did not impose tariffs on Chinese goods, trade relations with China evolved significantly during his presidency.
Jimmy Carter (1977-1981):
  • President Carter’s administration established diplomatic relations with China in 1979, paving the way for increased trade and economic cooperation. While tariffs were not a major feature of Carter’s approach to China, trade between the two countries grew during his presidency.
Gerald Ford (1974-1977):
  • President Ford’s tenure saw the normalization of relations with China, including the establishment of formal diplomatic ties. While tariffs were not a central aspect of his China policy, his administration worked to expand trade and economic cooperation with China.
Richard Nixon (1969-1974):
  • President Nixon’s historic visit to China in 1972 marked a turning point in U.S.-China relations, leading to the normalization of diplomatic ties. While tariffs were not a major feature of Nixon’s China policy, his administration pursued détente with China as part of its broader Cold War strategy.

CPA Economic View: Tariffs Have Strengthened the U.S. Economy

 

CPA Chief Economist Jeff Ferry: 

A typical attack on tariffs was contained in a Wall Street Journal article, Trumponomics 2.0, which claimed that the tariffs produced “disarray” in international business. This article and a similar one in the Financial Times reflected the views of executives at large global corporations who would prefer to maintain their production in a low-wage country like China and remain untroubled by the dangers of excessive dependence on China and the depressing effect on U.S. wages especially of workers without college degrees of competition with low-wage countries.

These articles repeated the false claim of higher consumer prices due to tariffs. Hard for these critics to accept, consumer price inflation actually fell after the Trump tariffs, from 2.4% in 2018 to 1.8% in 2019. In the wake of the Covid pandemic, inflation took off as supply chain snafus and shipping difficulties made goods hard to get. At that point, more tariffs and more domestic production would have helped hold down inflation.

. . .

Economists are recognizing, slowly but irresistibly, that tariffs and other industrial policies are essential in a world of low travel costs, large wage differences, and nations like China willing to deploy any and every beggar-thy-neighbor policy trick to increase their trade surplus. Journalists and multinational executives are slower to acknowledge reality, but it will come.

ALL EYES ON AUROBINDO

ENTERED INTO THE RECORD ➔ CPA’s groundbreaking new report that exposes Aurobindo Pharma’s substantial, alarming ties to Chinese companies sanctioned by the U.S. caught significant attention in Congress last week, so we put together a re-cap video for your viewing pleasure. Take a look!

As first reported by Bloomberg, CPA’s report exposes that “Aurobindo does business with at least four suppliers that have ties to organizations under US sanctions for their connections to China’s military industry.”

CPA’s report covers Aurobindo’s well-documented, numerous safety and quality issues, as well as instances of corruption and lack of transparency. Aurobindo’s position as the main supplier of generic pharmaceutical prescriptions to the U.S. poses significant legal, safety, and national security concerns. Aurobindo and the Indian pharmaceutical industry’s competitiveness are nearly wholly reliant on the PRC’s ability to produce cheap active pharmaceutical ingredients (API). 

The report further documents numerous product quality lapses, recalls, corruption, and lack of transparency on the part of Aurobindo and its subsidiaries in India create significant risks. Reflecting prevalent quality control shortcomings, corruption, and regulatory capture in the Indian pharmaceutical sector, inspections and investigations of Aurobindo and its subsidiaries by EU and U.S. regulatory agencies during the past five years revealed significant problems in Aurobindo’s manufacturing process and substandard drugs.

THE SOLAR INDUSTRY AND CHINA'S STRANGLEHOLD ON IT

 

An alarming new report from Horizon Advisory details China’s distortion of the global solar industry and how that threatens the national and economic security of the United States as it “risks making the United States dependent, and dependent on an adversary, for a strategic, future energy source.” The report, titled “Out of China’s Shadow: Building a Clean, Trusted Solar Industry”, documents how China’s stranglehold on the global solar market exacerbates the industry’s environmental footprint due to China’s dirty, high-emission and coal-intensive energy production to support its solar production.

CPA CEO STUMO: “Horizon’s report is an alarming documentation of the CCP’s dedicated predation to dominate the global solar market by providing massive subsidies to its solar industry, using forced labor and coal-fired power plants, and exploiting terrible policy decisions by the U.S. government. It’s time for the Biden administration and Congress to show they are serious about building a domestic solar manufacturing industry. That means stopping China from continuing to flood the U.S. market with cheap, subsidized solar products and prohibiting Chinese solar firms from being eligible for Inflation Reduction Act tax credits.”

BLACKLISTING CHINA-LINKED LOBBYISTS

 

SCOOP from POLITICO’s Daniel Lippman: “Several members of Congress are considering closing their doors entirely to lobbying firms that represent companies linked to the Chinese military even when they’re trying to discuss U.S. clients, five people familiar with the matter told me.”

  • “It’s definitely a conversation among members on the China committee,” said one Republican committee member, who noted that a bipartisan group of members was discussing the idea. “These companies represent our adversary and there is obviously an orchestrated effort on their part to buy us off with lobbying firms to gain influence.”
  • The ban lawmakers are considering would include firms that represent Chinese companies on the Pentagon’s so-called 1260H entity list, even if they’re trying to meet to discuss American clients — a potentially massive upheaval, given that several of the firms are among the most lucrative in town.

 

CPA CEO SAYS: “Good. Codify this.”

AMERICAN FACTORY BOOM

 

A new study shows America’s factory boom disproportionately favors poorer counties.

REUTERS: Industrial policy was long anathema to many U.S. economists & politicians who viewed it as unfairly favoring some industries & regions over others. But this strategy has gained support from a wide swath of the political spectrum, including Republicans.

Mark Muro, a senior fellow in Brookings’ Metro program and one of the authors of the study, said the data shows these federal programs are tiled “toward smaller-town areas that are less prosperous.”

To the extent that the new push toward industrial policy is a factor in some of these investments, the data suggests “that policy has not simply followed Democratic geography,” he said.

Indeed, a disproportionate share of the locales are Republican strongholds that regardless of Biden’s largesse lean heavily toward former President Donald Trump in the run-up to the Nov. 5 election, which is shaping up to be a rematch between the two men. In polling, Biden persistently gets low marks for his handling of the economy despite historically low unemployment, persistently strong job growth, and above-average wage increases, especially for the lowest-earning workers.

BE MINE

 

The discovery of 2.34 billion metric tons of rare-earth elements near Wheatland, Wyo., signals the beginning of a new era in the competition for the raw materials that power the global economy. If wisely exploited, this find—estimated to be the richest in the world—will give the U.S. an unparalleled economic and geopolitical edge against China and Russia for the foreseeable future.

The lode at Halleck Creek has the potential to make the U.S. the world’s largest processor of the minerals used to make computer chips, smartphones and aircraft engines. Rare earths are fundamental to advanced economic manufacturing. They are also critical in all military technologies, and thus have become central to national security.

If the U.S. refuses to press its natural advantages, it will cede global leadership to China. Wise stewardship and bold exploitation of the unending bounty of America’s natural resources will help ensure another century of U.S. wealth and security.

 

IN A RECENT OP-ED, MICHAEL STUMO advocates for Washington action to counter China’s stranglehold over the metals and minerals needed to make things like microchips possible: 

In recent years, the United States has embarked on a high-tech future dependent on microchips plus lithium-ion batteries, solar panels, and electric vehicles. That’s now forcing us to confront a serious problem–China’s stranglehold over the metals and minerals needed to make them possible.

The federal government just published an assessment on the global metals and minerals picture. And the outlook is bleak. China is in the driver’s seat–and is tightening its grip on these critical supply chains.

China’s dominance over global minerals now extends far beyond anything the United States ever experienced in the oil market. Americans may remember when OPEC once threatened to cut off oil supplies. But Beijing can now exert an even greater control over crucial minerals.

IN THE ELECTRIC VEHICLE RACE, CHINA IS WINNING

Just as Korea did in the 90s and Japan before that, China knows a native auto industry is the stuff that makes countries rich. The EV and its supply chains are their foray into the U.S. auto market. As it stands, the U.S. can barely make an EV without them.

CPA’s KENNETH RAPOZA:

Western governments love EVs. The European Union and the U.S. do everything possible to promote them to consumers. But you know who loves EVs even more? China.

China is the planet’s EV power center. Because China is the world’s leading auto market and the government is pushing EVs there too, BYD beat Tesla to become the No. 1 EV car maker in 2023.

 

IT'S THE USMCA, STUPID.

New data show the goods trade deficit with Canada and Mexico is more than double what it was in 2017 when Donald Trump became president. CPA’s NICK IACOVELLA says increased Chinese investment in Mexico is a ploy to gain duty-free access to the U.S.

 

BIDEN'S SIGNATURE BILL HAS CHINA PUMPED

 

No one saw that coming, right? Right?

RAPOZA FOR THE DAILY CALLER: The Inflation Reduction Act, often dubbed the Democrats’ “Green New Deal” law signed by Biden in 2022, has become a double subsidy for the China rivals the legislation sought to counter. 

American companies like First Solar of Ohio are expanding because of the IRA. But China solar powerhouses Trina, JA Solar, Longi and Canadian Solar – which is not Canadian other than maybe having an office in Ontario – are also investing in Arizona, Texas and Ohio. That’s four Chinese solar companies to one.

Chinese companies could gain up to $125 billion of U.S. funding for their plans to extend their domination of the solar industry. That is on top of the funding the Chinese government already gives them.

 

AFTER FREE TRADE: TRUMP'S LEGACY & THE FUTURE OF THE GLOBAL ECONOMY

 

Former Trump trade ambassador Robert Lighthizer attempts to educate the out-of-touch faculty lounge on trade, which is tough when the Ivy League desk jockey professors only know what they read in books. 

GORDON HANSON, 
a Peter Wertheim Professor in Urban Policy at Harvard’s Kennedy School recently reviewed Lighthizer’s book, No Trade is Free.

 

 

LIGHTHIZER REACTS: Any review that calls the book in question “captivating” and “clear-eyed” and that describes its author as the “most consequential U.S. trade representative of the last 30 years” cannot be all bad, and Gordon Hanson’s review of my book, No Trade Is Free, is no exception. I admire his scholarship on the impact of import competition on American communities, which I cite in the book. I only wish he could further undock himself from academic rigidity and allow current global economic realities to challenge old dogma.

The United States will struggle in a postindustrial world when its lethal adversary, bent on its demise, is the dominant manufacturer. Do the proponents of Hanson’s view really understand the nature of the threat China poses? These are the concerns that must shape a new economic theory. I appreciate Hanson’s review and hope that he and other top economists update economic theories to prioritize U.S. workers and communities and, most important, factor into their thinking the existential threat that is communist China.


WHAT WE THINK: Lighthizer’s book is full of important points, and he’s absolutely right that the U.S. can and should reduce its dependence on China. It’s essential not only for national security reasons but also for economic reasons. 

 

ON CHINA'S FORCED LABOR: A GROWING BODY OF EVIDENCE

 

China’s forced labor policies have been “directly linked to production of cotton, tomatoes, peppers & seasonal agricultural products, seafood, polysilicon for solar panels, lithium for EV batteries, aluminum for batteries, vehicle bodies, & wheels.”

POLITICO: The Chinese region of Xinjiang continues to subject members of the Uyghur ethnic group to forced labor two years after a damning U.N. report detailed the abusive practice, according to new research previewed exclusively by POLITICO. The findings will likely pressure Western lawmakers to further restrict imports of products from the region.

According to a report by Beijing-sanctioned academic Adrian Zenz, due to be published this week in the Jamestown Foundation China Brief, “forced labor transfers” of the Uyghur Muslim workforce in 2023 “exceeded those from the previous year and surpassed state-mandated quotas.” 

 

ICYMI: VALENTINE'S DAY MESSAGE FOR CONGRESS & THE BIDEN ADMINISTRATION

When it comes to America’s relationship with China, we have thoughts, and to keep it short and sweet like heart-shaped chocolate, here’s our relationship advice for Congress and the Biden Administration…

Don’t cling to a mistake just because you spent a long time making it. 

 

WEEKEND READER: A MOTHER'S PERSPECTIVE ON DE MINIMIS

 

BY ANDREA THOMAS:

“I wish I weren’t writing this. But in June 2016, my daughter Ashley Romero died from fentanyl poisoning. Ashley was 32 years old. She was a mother, daughter, sister and friend to many. Ashley did not know about illicit fentanyl, nor did she know that the pill she took — which looked just like her medication — would take her life.

. . .

It sounds hard to believe, but it’s true. Fentanyl has become so readily available that it killed more than 73,000 Americans in 2022 alone. It can be shipped straight from China, and frequently with a potency of more than 90%, according to the Department of Homeland Security.

 

What makes this shipping so easy is a loophole in U.S. customs law known as “de minimis.” Under de minimis, millions of small international mail packages are mailed directly to U.S. consumers each day, completely bypassing federal scrutiny.”

 

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