Tag Archives: political economy

Maybe this will Prod

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Maybe it’ll prod us both. The People’s Republic of China has cut off export of rare earths and the magnets made from them to Japan over Japanese Prime Minister Sanae Takaichi’s recent commentary about Japan’s strengthening resolve to assist the Republic of China in the event of a PRC invasion.

China has begun choking off exports of rare earths and rare-earth magnets to Japan, a potential blow to Japanese companies that use them to produce components for global chip makers, car companies and defense firms.

It really is getting time, and urgently so, for Japan to pull all of its supply chains out of the PRC. Doing so would eliminate nearly all of the PRC’s economic leverage over Japan short of going to war over the sea lines of communication on which Japan depends.

The PRC’s move also should be a serious prod for us to get off the dime and move all of our supply chains out of the PRC. It’s time we proofed ourselves against PRC economic pressure, along with Japan. Nearly half of our economy’s imports flow through portions of those same SLOCs to our west coast.

A Quick Thought on Tariffs

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The lede sets the table for my thought, even while mixing similes or metaphors or somethings.

The highest tariffs in almost a century haven’t caused the massive surge in inflation many economists feared. But that shouldn’t have come as a surprise, according to two new studies.

Begin with the understanding that today’s economy, both domestic and as we interact and intertwine with other nations’ economies, is far more complex than it was during the 19th and early 20th century heydays of tariffs.

Within that understanding, we don’t know the lags, if any, between tariff implementation and domestic price increases. That’s true whether the tariffs are implemented in specific economic areas or across the domestic board. Nor do we understand the mechanisms by which tariffs on foreign goods and services have their effect on domestic goods and services or on our economy in general. Nor do we understand the pathways by which those mechanisms might work their effects.

Each of these must be determined empirically, and that takes time. Presently, we’re in a nation-wide experiment that will provide the data that will let us understand each of these unknowns.

For how long must this experiment run before we can say reasonably definitively that tariffs are not having more than a minor effect on prices? That’s also unknown, but I suspect an outer bound on that is a couple of years.

Disruptive in the near term the Trump tariffs—or at least his rhetoric about them—might seem to be, it’s much to soon to assess their disruptiveness or lack in the intermediate and longer terms.

State Problem, not Federal

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Amid the moves related to canceling, or not, $160 million in Federal funding if California misses its 5 January deadline for canceling some 17,000 Commercial Driver Licenses illegally issued to illegal aliens, comes this Federal lawsuit objection by the Asian Law Caucus and the Sikh Coalition, along with the law firm Weil, Gotshal & Manges LLP:

the cancellations would “result in mass work stoppages” immediately upon the deadline.

Say that’s true, and it likely is. Their beef is with California’s State government for its decision to act illegally and so broadly so, not with the Federal government for enforcing the law. Suing the Feds to stop their enforcement of law should be a nonstarter.

A Useful Test

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In their Wall Street Journal Tuesday op-ed, Michael O’Hanlon and Marta Wosinska, Brookings Institution Senior Fellows, pointed out that shotgunning moves (vis., universal tariffs on everything a target nation or group of nations exports to us and broadly barring exports to those same targets) as a means of altering the several links to the supply chains our economy needs to make the goods we need along with altering those links our economy wants to make the things we want. They then offered a three part test to better target those supply chain links that are most important and most time critical to us and our security.

  • First, a supply chain warrants special focus when its disruption would quickly threaten lives, core defense missions, or essential economic functions.
  • Second, when substitutes or workarounds can’t be instituted in time to mitigate the disruption.
  • Third, when surge capacity can’t be built on a reasonable timeline.

This approach, as they emphasize, acknowledges that developing resilience is costly and helps ensure that scarce capital goes to the most vital choke points. In fine, it targets links for better allocation of our non-tree-sprouting spending money

This is a good test, and it’s applicable in another way than purely domestically. It needs to be applied in reverse, also. What are the analogous critical choke points in our enemies’ supply chains? Applying the test to those would let us better target our enemies’ ability to wage and sustain war against us, our friends, and our allies.

There’s a Lesson Here

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Recall that the Federal government last summer canceled a $4 billion grant to California’s slower-than-a-sick-snail-in-January bullet train project over that thing’s huge cost overruns and delays that kept the train not far from its drawing board. California’s Progressive-Democrat governor Gavin Newsom had filed suit over the Trump administration’s effrontery in declining to fund, further, this California waste management project. Now we get this:

California dropped its lawsuit against the Trump administration after it pulled roughly $4 billion in federal funding for the state’s high-speed rail project.

The bleats of the California High-Speed Rail Authority in explaining its decision to drop the lawsuit notwithstanding, Transportation Secretary Sean Duffy explained the reason for cancelation.

Governor Newsom and the complicit Democrats have enabled this waste for years. Federal dollars are not a blank check—they come with a promise to deliver results. After over a decade of failures, CHSRA’s mismanagement and incompetence has proven it cannot build its train to nowhere on time or on budget[.]

The lesson: don’t do upfront Federal grants to States for projects. Don’t do grants after the fact without hardy strings attached. Make all grants conditional on the States having let the contracts; construction having begun; and significant, serious construction progress having been underway for six months. Then release the grant money a month at a time, after the State has released its funding for the month, with the granted funds matching, not exceeding, the State’s funding for each month. If the State misses funding its project for two consecutive months, or for any three months out of five consecutive months, the rest of the grant must be canceled. The grant could then be renewed, or funding resumed, conditioned on the State having relet its project contract; construction having been resumed; and significant, serious construction progress having been underway for six months. The month-to-month grant funds then could be released as above.

CHSRA’s CEO Ian Choudri had this in the alternative:

Interest from the private sector in investing in California’s high-speed rail project is strong and continues to grow[.]

Even better. If the private sector really is willing to fund this, then go for it. Just don’t expect the Federal government, or the taxpayers of the other 49 States who are the source of Federal dollars, to pay for it.