Op-Ed Analysis

Maybe It’s Time to Stop Negotiating with China

By Peter Morici


May 7, 2018 –

The battle lines are drawn in the trade war with China, and President Donald Trump can expect little support from the high tech and financial sectors or the economics profession. They argue the U.S. is doing quite well.

Donald Trump has lifted growth to 2.9% a year but that compares poorly with China, whose superior performance can no longer be written off as that of a developing country playing catch up.

Beneath the modern theory of free trade lurks an assumption that economists are disinclined to discuss – the textbook theorem assumes balanced trade accomplished through a reciprocal reduction of trade barriers and market-determined exchange rates. We haven’t had an overabundance of those with our three biggest competitors – Japan, Germany and most of all China.

Consequently, America’s trade deficit will exceed $675 billion in 2018, and about 60% is with China. This situation creates winners and some big losers-mostly, Middle Americans whose jobs are displaced by imports but are not re-employed to make exports.

West Coast high-tech executives who get rich shipping manufacturing jobs and technology to China, New York bankers who cut the deals to finance the process, and academic economists tell us lower-priced Chinese goods help us live better by consuming more. They soft peddle the massive foreign borrowing necessary to finance the deficit that will soon leave the country vulnerable to a financial meltdown similar to those that crippled Greece, Spain and many others.

China’s mercantilist tactics

China’s mercantilist tactics are well documented: high tariffs, subsidies and various restrictions on foreign investment including mandatory joint-venture requirements. Those encourage U.S. companies to move factories and transfer technology. Beijing has targeted a succession of U.S. industries – for example, aluminum, autos and solar panels.

Trump plans to levy tariffs on $50 to $150 billion on goods from China. However, China sends the United States more than $500 billion in goods but the United States ships less $150 billion the other way. In a tit-for-tat faceoff, China could virtually wipe out all of U.S. exports while maintaining access for most of its shipments to the United States.

The Chinese have indicated no appetite for real negotiations on U.S. grievances. They are strenuously resisting negotiations to draft a plan to reduce the bilateral imbalance by $200 billion as requested by the Trump administration or to curtail a planned $300 billion in new subsidies to upgrade advanced technology industries.

Now China is setting its sights on displacing American leadership in the industries that will drive global growth and define advantages in national security over the next quarter century – artificial intelligence, advanced microprocessors and the internet.

President Xi Jinping has floated speeding reforms in the insurance and financial sectors and lifting joint- venture requirements in the auto sector. Regarding the former, we have heard those promises before only to be disappointed by Beijing’s backsliding after the crisis has passed.

U.S. auto companies would face considerable difficulties extricating themselves from established joint ventures. And the Chinese have likely already obtained what they need – they appear to be leading in the race to develop affordable electric vehicles and critical battery technologies.

Displacing American leadership

Now China is setting its sights on displacing American leadership in the industries that will drive global growth and define advantages in national security over the next quarter century – artificial intelligence, advanced microprocessors and the internet.

State guidance, support, and preferences for domestic firms are deeply imbedded in the culture of China’s ruling oligarchy and concessions made in one area – for example, compulsory joint ventures – can easily be replaced by providing subsidies and exerting other levers on foreign firms – for example, extracting concessions through antitrust reviews during the endless rounds of merger and acquisitions that characterize the high-tech industry.

As China has no interest in reforming its mercantilist policies, the United States should require licenses for Americans to import Chinese goods. Exporters could be issued resalable import permits equal to the value of their sales in the Middle Kingdom. Those wishing to purchase items from China would then bid for those.

Any Chinese retaliation against U.S. exports would only reduce licenses for Americans to purchase Chinese products. Unlike a tariff, the revenue generated, by going to U.S. exporters, would serve to promote sales of U.S. products abroad.

This could be phased in by at first issuing import licenses of somewhat greater value than exports and gradually reducing those to parity over three to five years. And, it would challenge the Europeans, NAFTA allies and others to do the same.


Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award. (See his economic forecasts here.)




How China Has Targeted U.S. Industries – What to Do About It

By Peter Morici


May 4, 2018 –

China has long prosecuted a trade war against American industries and workers. Finally, we have a president willing to take up arms but he is widely disparaged by academic economists – who are generally sympathetic to the resist Trump movement and prescribe more Obama-era appeasement.

Supported, for example by New York Fed President William Dudley, they argue the economy is doing well and a trade war is not winnable – those are false and Beijing has left Washington little choice but to defend America or abandon our children’s future.

The 2.9 percent economic growth accomplished so far by President Trump compares poorly to the better than 6.5 percent China has posted in recent years. Beijing is using the dividends from unchallenged mercantilism to finance instruments of soft power – foreign aid and state directed overseas investment – and build an impressive navy to subvert U.S. security arrangements in the Pacific.

The U.S. trade deficit with China accounts for about 60 percent of our massive global trade deficit. Those impose a huge drag on the demand for U.S. goods and services and require a massive federal budget deficit to avoid permanent recession and Italian-style unemployment.
Those deficits must be financed by foreign borrowing. Even free trade economists acknowledge the accumulated foreign debt will soon breach levels that instigated financial meltdowns in countries like Spain and Greece.

How China targets U.S. industries

China has targeted a succession of U.S. industries – for example, aluminum, industrial machinery and solar panels – with massive subsidies, high tariffs and administrative barriers to competitive imports and forced joint ventures to gain market access that give away U.S. technology to fledging Chinese competitors.

Now Beijing is going in for the kill – targeting America’s internet giants, artificial intelligence and advanced microprocessors.

Mr. Trump has threatened tariffs on $50 billion to $150 billion of imports across a broad range of industrial machinery and household products to compensate for lost intellectual property exports. China promises retaliation but appears to be offering to phase out joint venture requirements in the auto sector and speed reforms in insurance and other financial services.

The process is degrading down to just another chapter in a long history of U.S.-Chinese bilateral negotiations, which likely will end with a list of promised reforms that may never materialize and won’t resolve broader systemic problems bedeviling bilateral commerce.

U.S. auto companies will face considerable difficulties extricating themselves from established joint ventures, and the Chinese likely have obtained what they need in that sector. They appear to be leading in the race to develop affordable electric vehicles and critical battery technology.

China’s culture

State guidance, support and preferences for domestic firms are deeply imbedded in the culture of China’s ruling oligarchy and any commitments made in a new trade deal could be circumvented with other policies.

For example, Qualcomm’s purchase of Dutch chipmaker NXP has been approved by antitrust regulators in the U.S., Europe and elsewhere but those companies have significant sales in China. Beijing’s regulator has put the deal on hold apparently pending the resolution of U.S.-Chinese trade tensions.

China aims to build a significant indigenous microprocessor industry and with joint ventures off the table, it could require intellectual property transfers through antitrust reviews – much the way European regulators target big American technology companies to pursue industrial policy objectives.

We can’t retreat into absolute protectionism – the supply chains of the two economies are too intertwined to start over – but we can acknowledge what experience has taught us.

The Chinese Communist Party is hell bent on maintaining control over the broad focus and priorities of private sector investment and establishing dominance in high tech – unless America makes it too costly.

President Xi thumbs nose

Shortly after offering the above-mentioned concessions on autos, President Xi pledged massive new subsidies for Chinese technology companies – essentially thumbing his nose at Mr. Trump.
No promised reforms – honored or abandoned – can mitigate that malignancy and negotiations with Beijing have repeatedly proven a fool’s journey.

In 2017, China sent the United States $525 billion in goods and services but Americans only sold $187 billion there. We should impose a system of marketable import licenses that reduce the trade gap by $50 billion to 100 billion each year until it is eliminated.

It’s not pretty or something as an economist I would prescribe in a perfect world, but in a perfect world we won’t need armies.


Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award. (See his economic forecasts here.)



5 Things that Could Derail the Economic Expansion

Economy has weaknesses, but giving innovation freer hand would set off more growth


By Peter Morici


April 30, 2018 –

Despite trade tensions and the Federal Reserve and European Central Bank gradually tightening monetary policy, the International Monetary Fund sees the global economy advancing 3.9% in 2018 – the best year since 2011. This provides a powerful backdrop for a U.S. economy soon to enter its ninth year of recovery.

Yet, even with the economy adding 202,000 jobs monthly in the traditionally soft first-quarter and publicly traded companies posting huge profits, we should not be lured into complacency.

Here are five things that could derail the expansion.

  1. Auto Sales and Emission Standards

In recent years, improvements in fuel efficiency and longer expected vehicle lives helped auto makers sell more high-priced and profitable SUVs and pickups. However, drivers are now saddled with longer loans and gas prices are rising, sales have leveled off and lower priced, thin-margin sedans could become more attractive.

Auto makers are struggling to accommodate higher EPA fuel economy standards and are asking for a reprieve. However, Detroit has been investing big in electric vehicles and bending mileage standards would undermine transition from gasoline and diesel. The Trump administration should back off plans to accommodate manufacturers and let the required fleet average rise to 50 mpg by 2025 as planned – a stampede into electric vehicles could set off another round of robust growth.

  1. Housing and Student Debt

Economists have been counting on a pickup in new home sales to compensate for slower growth in the auto patch but new home construction has not recovered to pre-recession levels.

Millennials should be in their prime years for buying first homes but are saddled with massive student debt. On the supply side, local governments have laid on onerous building codes, zoning laws and compliance costs that make single home and apartment building more costly.

Real debt relief – beyond programs that push college graduates into low paying public-service jobs to obtain write downs – and Trump working with the state governors to release builders from onerous municipal bureaucracies are needed to increase demand and keep home ownership affordable and contributing to growth.

  1. Worker Shortages and Immigration Dysfunction

In many places, jobs go begging for skilled applicants, and state-supported job-training programs have plenty of vacancies. At the same time, the labor-force participation for prime working-age adults remains depressed below pre-financial crisis levels.

Entitlements reform is sorely needed to get more Americans working-for example, one-in-20 prime working-age adults is on Social Security disability. And immigration reform that replaced the diversity lottery with a system favoring labor-force needs would help a lot.

Czech Republic and other Eastern European countries with rapidly growing manufacturing sectors and labor shortages are turning quickly to robots and the artificial intelligence that runs them. Overcoming resistance here will be key to keeping growth going.

  1. Trade and Budget Deficits

The growing trade deficit – especially with China – is a huge drain on aggregate demand, and a large federal budget deficit is required to hoist domestic demand to compensate. The twin deficits must really be fixed simultaneously.

That will require brinksmanship far beyond the targeted tariffs and entitlement reform. If not, too much foreign borrowing could ultimately send interest rates up and out of control-no matter how much money the Fed prints.

  1. Political Demagoguery and Scapegoating

Both political parties are guilty of holding up progress. For the Democrats, it’s resistance to reforming what are plain abuses of the social safety net and insistence that the diversity lottery give low-skilled immigrants continued preferences over new entrants with abilities in short supply. For Republicans, it’s insisting that too many Obama-era regulations, such as automobile mileage standards that will help free us of dependence on imported oil, don’t make economic sense.

Of all the political foolishness, the worst is the recent railing by both Bernie Sanders and Donald Trump that Amazon is too big – throwing cold water on the tech-sector stocks. Any company that can outwit Google, IBM  and Microsoft to accomplish dominance in cloud computing and take on the FedEx and UPS duopoly in express delivery-not to mention stake out major roles in drones, autonomous drive cars and artificial intelligence to compete with industry giants in aerospace and autos-is one we want to feed, not break up.


Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award. (See his economic forecasts here.)




Planning for Retirement in Turbulent Times


By Peter Morici


April 27, 2018 –

If you don’t want to be broke, bored or just not able to retire, it’s best to start planning right now. For most folks that begins with establishing an IRA or similar account where they work, because benefits defined pensions are disappearing and social security won’t be enough.

Most folks don’t have access to private equity deals or exotic real estate plays, and a diversified portfolio of stocks has proven best for the long haul. Over the last 50 years, the S&P 500 has outperformed 10-year Treasuries 2 to 1.

Recent market turbulence has created a lot of anxiety, but the steady gains from the election of Donald Trump through late January were exceptional – big swings are the norm even in a growing economy and long bull market.

Those within 10 years of retirement should gradually adjust their portfolio from mostly stocks to half fixed income – the exact mix at retirement depends on factors, for example like money that may be needed for a child’s wedding.

Most folks often underestimate what they will need in retirement. Mortgages may be paid and children grown, but we tend to spend more on ourselves. For one thing, annual health care expenses can range up to $24,000 per couple, or even more, because Medicare premiums are graded to income and many older folks elect some kind of concierge service like MDVIP. Those provide quick access to a general practitioner and other personalized services, and other doctors who accept Medicare have crowded calendars and waiting rooms.

Most folks underestimate non-medical expenses because regular avocations cultivated during working lives – assuming their kids gave them some time away from soccer, dance lessons, college admissions and the crises adolescent children create – don’t take up nearly all the leisure time available in retirement.

Folks don’t garden or golf much in the winter and even the most avid reader or knitter wants to get out the house more. Hence, retired folks spend more on travel and entertainment and many take up an additional hobby – I started biking at 65 and was shocked at how much it cost to keep my carbon fiber speedster on the road logging 7,000 miles a year.

Even well-established millennials sometimes need help from parents to get through rough patches or purchase a home – don’t judge them harshly, many baby boomers borrowed down payments from their parents. Provisions are needed for the final decade of life when long-term care is often required, and one-time needs like a new furnace, roof or car still can cost more and come up sooner than anticipated.

After auditing all that, estimating annual needs and subtracting Social Security benefits from the total, it is important to recognize we are living a lot longer these days. Couples who reach 65 in reasonably good health, embrace activities that keep minds active and exercise regularly should count on one partner living to 100.

The minimum annual distribution requirements for tax-sheltered retirement accounts imposed by the IRS at age 70 essentially assume longevity in that range. Simple prudence requires planning for retirement assets to last at least 35 years.

At retirement, if funds are allocated one-half in an S&P 500 index fund and one-half in fixed income – for example a ladder of CDs ranging from one to five or seven years, retirees can conservatively assume a 4 percent annual rate of return. Assuming overall inflation at 2.7 percent – 2.25 for general living expenses and 4.25 for health care – and running down savings at a rate of 3.5 percent, the money should last 35 years.

As a 4 percent rate of return is conservative, the money should last longer and some likely will be left for heirs.

If your savings won’t support your anticipated spending at a 3.5 percent draw down rate, then you should plan to work longer or continue earning some money after leaving full-time employment.

Most folks find complete retirement boring and even stressful. Although it may not be possible to work part-time in your old line, cultivating some independent consulting work, turning a hobby into as sideline that pays or just a part-time gig in a flower shop or as a limo driver – depending on your education, skills and desire for continued responsibilities to others – can be as important as stashing enough cash in an IRA.

Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award. (See his economic forecasts here.)




Over Investing in Higher Education

Trump’s Spot- on Apprenticeships Offer an Alternative to College


By Peter Morici


April 24, 2018 –

After decades worrying about a shortage of good-paying jobs, America has too many – manufacturing, construction and increasingly service businesses can’t find the qualified workers needed to expand. This is a significant barrier to permanently restoring 3 percent to 4 percent growth so that the nation can meet the needs of an aging population, finance its commitments to defend freedom – through our military and costly instruments of soft power – and invest in infrastructure and R&D without becoming dangerously indebted.

America is overinvesting in traditional higher education – it spends a much higher share of GDP than do other countries but gets too little return on these resources. Employers report that 4 in 10 graduates lack the critical thinking skills necessary for entry-level professional work, and too often four years of college adds little to students’ analytical abilities.

No one should be surprised. Universities are pouring millions in attractive amenities and big time sports. Students spend about one-third less time in class and studying than in the 1960s but have plenty of leisure to demonstrate against alleged micro aggression, sexism and racism of conservative professors and engage in social activism enabled by university presidents bent on molding intolerant liberals.

With nearly 70 percent of high school graduates enrolling in two- or four-year colleges, too many lack the academic abilities and interest for the abstract study that goes into calculus, literary criticism or economics. Many would profit more from a skills-based apprenticeship or a year or two of hands-on, focused training.

Parents and students shouldn’t be blamed, because employers give preference to college graduates in hiring for many jobs that hardly require the esoteric stuff we do at universities – for example, insurance adjusters, cellphone sales, makeup artists and the like. Diplomas are used as evidence applicants can follow instructions, navigate a bureaucracy and show up every day – the only real requirements other than a big loan or rich parents for obtaining a B.A. these days.

Finishing college pays 73 percent more than going to work after high school but that’s an average, which includes engineers, accountants and the like. Many land in low-paying dead-end jobs and saddled with a lifetime of debt when more practical alternatives are available.

The Department of Labor certifies apprenticeship programs. Usually completed in well less than four years, those generally offer about $15 an hour while students take courses and get hands-on experience. On completion, 87 percent of students are in positions that pay an average of $60,000 a year – for college graduates the average is about $50,000 and subtracting the above-mentioned skills-based majors, the college average is a lot less.

About two-thirds of apprenticeships are in construction and manufacturing, but President Trump sees great opportunity in the service sector and has doubled the DOL budget for cultivating apprenticeships. Private actors like Wells Fargo, professional services firm Aon PLC and the National Restaurant Association are building out programs.

In the tech sector, Course Report connects students to some 95 coding schools – those annually matriculate about 23,000 graduates through programs that last about 14 weeks, cost about $11,000 and place graduates in jobs with starting salaries averaging nearly $71,000.

Through the online portal Coursera, Google offers an 8-to-12 month IT Support Professional Certificate program that connects graduates with employers like Bank of America, Walmart and GE Digital.

More formalized schools are emerging like Holberton School in San Francisco, which trains software and operations engineers in two years and the fees are 17 percent of students’ internship and first three years post-graduation earnings.

These less-expensive alternatives are not available in enough industries and enough places, making the vast network of community colleges and state four-year colleges the default option for most high school counselors and parents. Many are too often located far from potential students in economic depressed areas hard hit by globalization.

The available seats in many programs fill up too quickly – often the one-to-two-year programs noted above have acceptance rates that rival Ivy League institutions.

Redirecting federal and state funding from higher education is sorely needed to encourage more of these innovative programs – fewer students in college and more in skills-based training would make young workers more productive and prosperous, less indebted and better enabled to embark on independent adult lives.

Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award. (See his economic forecasts here.)




America’s Youth Losing Confidence in Democracy and Capitalism

Neither Political Party Is Offering What Young People Want


By Peter Morici


April 23, 2018 –

As the United States and China face over trade – and more systemically about the extent and practicality of pro-market reforms in the Middle Kingdom – the commitment of President Xi Jinping and his government’s commitment to Communist Party rule and a socialist-market economy has emerged as a significant challenge to the viability of the World Trade Organization.

At home, however, the success of the Chinese system – posting consistently strong growth – challenges the legitimacy of our own democratic and free-market institutions among our youth.

An October 2017 study found 46% of Americans between 18 and 29 indicated they believe states are more effectively governed by experts than elected officials – among those over 50, the figure was only 36%. Similar polls demonstrate wide youth dissatisfaction with capitalism.

Youth behavior on college campuses-demands for strict adherence to leftist orthodoxy from faculty, fellow students and visiting intellectuals, and reflexive dismissal of anything advocated by President Donald Trump-displays an alarming contempt for the essential building blocks of any democracy.

Those are free speech, respect for disagreeing opinions and the absolute obligation of the losing side in an election to accept the outcome, honor the winner and work with the new government until the next round of voting.

Young people have terrible examples to guide them. Academic administrators systematically punish faculty who fail to sanitize syllabi and classroom dialogue to the tyranny of political correctness and purge conservatives who challenge theology of identity politics.

Politicians like Charles Schumer, who obstructs Senate votes on nominations to staff the Trump administration, and Nancy Pelosi, who never admits value in anything the GOP proposes, refuses to collaborate on most legislation and disrespectfully protests during the State of the Union address. And Republicans were hardly wholesome in their conduct toward President Barack Obama when they were in the opposition-stonewalling Obama’s final Supreme Court nomination and Rep. Joe Wilson shouting “liar” during Obama’s 2009 State of the Union address.

For generations, universities have been run by pious ideologies and political parties populated by vainglorious sore losers. Nowadays, however, young people are quitting the faith for the same reasons so many rural and smaller city Americans rejected the establishment Republican Party of Jeb Bush during the primaries and Hillary Clinton in the general election to put Donald Trump in the White House. America has failed many of them, and the leadership of the major political parties is callous to their pain.

From the 1930s to 1960, most workers had less than a high-school education, and many more were on farms, in factories, unionized and identified with the Democratic Party, which won most elections. Republicans represented the merchant class, financiers and industrialists, who were generally better educated and resisted New Deal redistributionist policies and encroachments on free markets.

Since then, freer trade, more open immigration, the digital revolution in production and communications, and the civil rights and women’s movements have greatly changed the economy and realigned political parties-omitting the genuine interests of many millennials and blue-collar workers.

These days both political parties reflect the values of highly educated elites. Democrats champion the mind set of liberal academics, successful professionals on the two coasts who profit from globalization and the digital economy, and professional advocates of race and gender issues.

Republicans still hue to an agenda advocated by high-income, high-wealth individuals who also have benefited grandly from changes in our economy. One need only point to their success cutting corporate taxes and failures on health care to see the ties that bind.

The typical 26-year old is not a Harvard or University of Michigan graduate with a promising career at a software startup, law firm or investment house, but rather a second-tier, private or public college graduate-or less-often stuck in a dead end, low-paying job and burdened with huge student debt he may well take to the grave.

Millions of young adults bought into a capitalist promise – borrow thousands of dollars for college to get a good job – and got stiffed.

Ultimately, young people will assess the efficacy of our political and economic systems-and assign their loyalties-by how well those address their basic needs.

American democracy and capitalism are not doing well in the eyes of young people and the marginalized.


Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award. (See his economic forecasts here.)





The Optimists May Be Right (about Productivity and Economy)


By Peter Morici


April 19, 2018-

In January, Wall Street investors were optimistic tax cuts would sustain economic growth and the Trump bull market. As spring arrives, the world has proven decidedly more uncertain.

The administration has not articulated end game goals for the trade standoff with China. President Xi Jinping is offering some concessions but his commitment to industrial policies that target vital American industries remains clear and menacing. An all-out trade war could disrupt global supply chains, nix planned investment spending, stall both economies and tank stocks.

The Facebook imbroglio raises prospects of tighter regulations on the tech sector, and the kind of Washington overreach that gave us Dodd-Frank, which crippled regional bank lending and substantially slowed the Obama recovery.

Along with President Trump’s vitriolic remarks about Amazon, those combined to take the stock market well off its January highs. And now Federal Reserve Chairman Jerome Powell could face the tough choice of easing back on planned interest rate hikes to keep the economy growing or accelerating those to keep inflation from flying out of control but pushing America into a recession.

The March jobs report indicates businesses continue to hire at a nice clip – the three-month average is 202,000 and wages were up only 2.7 percent on a year over year basis. Along with productivity growth at its recent pace of about 1 percent a year, that should keep inflation right in line with the Fed’s 2 percent target.

Indeed, core inflation – prices less the volatile food and energy sectors – has been hovering at just about that pace.

This wage and price performance puzzles economists. Unemployment at 4.1 percent is quite low, and even in the interior in places hard hit by globalization – for example, Indiana, Iowa and Nebraska – economic development officials report businesses scurrying to find workers.

This is hardly new – we have heard reports of worker and skill shortages for many months – but those hardly seem to show up in the wage or consumer price inflation statistics.

During the recent recovery, four factors have kept inflation in check – the revolutions in shale oil and advanced recovery technics, non-oil commodity prices depressed by excess capacity from the overhang of the Great Recession, expanded competition from inexpensive imported manufactures and increased retail competition enabled by Internet commerce – but those mostly have run their course.

Investors are pushing smaller U.S. oil producers to finally turn profits and domestic oil prices are up, broader import prices are now rising at a 3.6 percent annual clip and stronger global growth has pushed up costs for critical items like building materials.

The housing sector is particularly squeezed. The combination of tighter building codes, higher material prices and shortages of essential skilled workers keep new home construction below pre-recession levels and are boosting new home and resale prices.

Amazon and other Internet retailers have eliminated many of the weaker brick and mortar competitors, and now must squeeze better margins out of their supply chains or expand into other activities to grow. For example, Amazon is both raising prices and expanding into package delivery, drones, ocean freight and a host of other activities.

Stronger productivity growth could mitigate all these pressures on inflation.

White House economists are confident that deregulation, business investment prodded by tax cuts and deregulation will restore the lost era of strong productivity gains – those averaged 2.3 percent a year from 1947 to 2009.

Economists mostly sort into two camps – those who believe the post-World War II period was exceptional and those at the White House and a few others (count me in) who believe the best is yet to come – that artificial intelligence and robotics is about to break loose progress on the scale of the Industrial Revolution.

That’s why the former see tax cuts as primarily demand stimulus and after a brief period of stronger growth, the economy slowing to a pace in line with the Obama recovery. In contrast, the White House and a few others see growth speeding up to about 3 percent longer term.

We can’t wholly relive the Reagan-Clinton decades, because of slower adult population growth and the effects of expanded entitlements on labor-force participation among prime-working-age adults.

However, if the optimists are right about productivity, the Trump economy will be saved and the Fed will have a lot easier time than many expect.


Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award.




Here’s Why Trump Needs a More Realistic Approach to Trade with China

By Peter Morici


April 16, 2018-

President Trump does not take on small tasks – confronting North Korea after predecessors kicked the can, reforming taxes and business regulations and now America’s corrosive trade deficit.

Nothing he does is without drama – repeatedly shaking up the White House staff, personal legal troubles, and tariffs that aggravate allies and the moribund WTO.  Yet, the economy has proven resilient – stocks notwithstanding,  consumer confidence and business activity are strong, and forecasts for economic growth in 2018 are close to 3 percent.

To keep his promise to resurrect communities decimated by globalization, he has to do a lot more to address America’s flood of imports than slap tariffs on aluminum and steel.

Reawakening shuttered factories in the vast expanse between Manhattan and the Silicon Valley requires halving the $650 billion trade gap. That’s what it will take to sustain growth in excess of 3 percent, bring in tax revenues to tame budget deficits and rein in foreign borrowing that threatens another financial meltdown.

Otherwise, the Democrats will take back control, and we know what their brand of economics does to working class Americans-diminished lives, opioid addiction and the indignity of government charity.

China accounts for more than 60 percent of the trade gap, and it’s not cheap labor that’s harpooning American industry.  Beijing has been carefully guiding investment toward mid-technology activities like auto parts and targeting high tech industries like microprocessors and artificial intelligence-the latter is increasingly abundant in new products across a broad span of new products.

For those, Beijing’s mercantilism is key-vast subsidies, high tariffs and a myriad of administrative barriers to imports that compel U.S. firms to invest in China to sell there, forced joint ventures on U.S. firms establishing facilities in China that virtually guarantee technology theft and state-directed industrial espionage.

Competing with China is like playing football against a team outfitted with guns and knives.

Enforcing U.S. trade laws and relying on the WTO is hardly an answer. The U.S. has imposed more than 150 antidumping and subsidy duties, but WTO rules require riffle shots-narrowly focused measures that hardly match the breath and systemic scope of Chinese commercial aggression.

WTO rules were written to police the protectionism of governments overseeing market economies and are not well applied to a central authority puppeteering state owned enterprise and private firms with substantial communist party participation in their management.

Once again, China and the United States are engaged in discussions to permit more U.S. exports and stop the abuse of American MNCs investing there. And once again Beijing is floating limited, as opposed to comprehensive reforms-and without credible enforcement.

If China is not more forthcoming, the Trump administration is readying another set of unilateral measures. Some make sense-for example, imposing restrictions on Chinese investments in American technology sectors that mirror those imposed on U.S. firms in China-but others don’t.

The administration is threatening tariffs on $150 billion in Chinese exports to offset U.S. losses from intellectual property piracy-against a $335 bilateral deficit, that’s chump change.

We have learned that targeted trade actions don’t change Beijing’s behavior. Chinese exporters find ways around those-for example, by routing goods through third counties, either cleverly disguised or incorporated into other products.

And Beijing can easily retaliate against Mr. Trump’s targeted tariffs by levying duties on U.S. agricultural products like pork, sorghum and soybeans from states that went for Mr. Trump in 2016. Causing discomfort for China’s unelected President Xi is more difficult.

It would be better to prepare broad measures aimed at rebalancing trade if China will not provide a specific timetable and credible measures to eliminate the trade deficit.

The United States could require licenses to import Chinese goods. Exporters could be issued resalable import permits equal to the value of their sales in the Middle Kingdom. Those wishing to purchase items from China would then bid for these through an online marketplace-similar to eBay. Those would be purchased by those businesses and consumers placing the highest value of products from China.

Phasing in this regime over three years would give businesses time to adjust but still create crises for Beijing policymakers and the WTO. That’s what it’s going to take to reorder our relationship with China and reform the WTO.

Peter Morici is a professor at the University of Maryland Smith School of Business, former Chief Economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award.

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