February 27, 2020 5:18PM

Technical Inevitability, Strategic Headache? Missile Defense in the 2021 Budget Request

The White House’s fiscal year 2021 budget request released earlier this month asks Congress for $20.3 billion for missile defense and defeat programs. Nearly half of the request ($9.2 billion) is for the Missile Defense Agency (MDA). The rest of the money will go toward a mix of missile defense programs outside of MDA ($7.9 billion) and “left of launch” activities that attempt to disrupt or destroy enemy missiles before they can be fired ($3.2 billion). These request figures are more or less in line with requests from the past two years and should not be regarded as a major increase.

What makes the FY 21 missile defense budget request noteworthy isn’t the amount of money being asked for but the priorities it reveals. Namely, the MDA is focused on erasing the distinction between regional and homeland missile defense systems.

This is not a new line of effort. Greater integration among various missile defense systems is a longstanding policy goal that can now be realized thanks to technical improvements. However, if the MDA is successful the United States will have to wrestle with thorny questions about nuclear stability and the future of arms control.

Missile defense systems can be categorized according to which operational role they play. Regional or theater missile defense systems protect military units, installations, and civil infrastructure. The capabilities that the United States has traditionally used for this mission tend to be mobile and very reliable in testing. Homeland missile defense systems protect the continental United States from intercontinental‐​range ballistic missiles (ICBMs). Currently there is only one option for homeland defense, the Ground‐​based Midcourse Defense (GMD) system, which is both very expensive and notoriously unreliable.

Improvements in interceptor and sensor technology allow for new mission types that have started to blur the lines between this regional vs. homeland distinction. New interceptors can engage a wider range of threats than their predecessors. The most notable example of this is the SM‑3 IIA, the latest generation of the Standard Missile family, that MDA plans to test against an ICBM‐​range target in 2020.

Advances in sensors (e.g. radars) and the ability to rapidly share data across different systems further erase the regional/​homeland distinction by giving interceptors a bigger engagement window.

Without the ability to share data, interceptors are limited by the range of their associated sensors. A long‐​range interceptor might be able to outfly its associated radar, essentially reducing the effective range of the interceptor to less than the associated sensor. But if a different, remote sensor can share its data then an interceptor could make more use of its maximum range. This allows an interceptor to be launched on data provide from a remote source, also known as “launch‐​on‐​remote” or LOR.

Another benefit of improved sensors and data fusion is “engage‐​on‐​remote” or EOR, which is essentially an improved version of LOR. In EOR, remote sensors provide all necessary data to an interceptor, detecting launch, and tracking the target. The interceptor’s associated radar does not have to track the threat in an EOR scenario.

Taken together, new interceptors and sensors will allow capabilities previously used only for regional defense to contribute to homeland defense. The MDA’s FY 21 budget request calls for the SM‑3 IIA and THAAD systems to serve as an additional layer for homeland defense in case the GMD misses its mark. If these efforts are successful, the United States would be able to deploy many more interceptors capable of destroying ICBM‐​range warheads than it currently fields.

This natural evolution of missile defense technology will create some long‐​term strategic headaches. China and Russia won’t view a layered homeland missile shield that has a much larger inventory of interceptors in a vacuum. Taken alongside recent U.S. investments in low‐​yield nuclear weapons and conventional hypersonic strike systems that can destroy “time sensitive” targets (e.g. mobile, second strike nuclear missiles), the FY 21 missile defense budget seems like America rejecting mutual nuclear vulnerability.

This could prompt offensive nuclear buildups to overwhelm a thicker U.S. homeland defense or early attacks against U.S. missile defense sensors that also provide early warning of nuclear strikes against the homeland. China and Russia already have a strong incentive to blind U.S. missile defense sensors in a conventional conflict. Stronger integration of regional and homeland missile defense capabilities will reinforce this incentive. Neither nuclear buildups nor blinding strikes are beneficial for America’s long‐​term interests.

Greater integration of regional and homeland missile defense capabilities will also make it harder for the United States to use missile defense limitations as a bargaining chip in arms control negotiations. Any future U.S.-Russia arms control agreement that reduces offensive weapons, regardless of whether New START is extended, is unlikely to succeed unless the United States is willing to put missile defense on the table. Yet deeper integration of capabilities makes it harder to limit any one system without negatively affecting others.

An expansion of defensive capabilities could make it easier for the United States to reduce its offensive nuclear forces in future arms control agreements. Stronger defenses would allow for U.S. offensive reductions without increasing vulnerability or risk. A lower requirement for offensive capabilities would also take some pressure off the U.S. nuclear enterprise, which is being stretched thin by the demands of the modernization program. However, such an outcome seems highly unlikely.

February 27, 2020 4:17PM

Who Is Paying for Trump’s Tariffs?

Imagine a president boasting about how he raised your cost of living. Or how he made it more expensive to produce goods at your factory. Imagine that president standing at a lectern under the stars and stripes, smiling and beaming pride, as he announces he’s reduced your real income and impeded your company’s ability to compete at home and abroad. Of course, that is exactly what tariffs do.

But the pols never put it that way. Instead, they tell you that tariffs are needed to protect upstanding American producers from predatory foreign enterprises intent on cornering the market and stealing U.S. jobs. Or that tariffs are imperative to protecting an industry that is vital to national security. Or, as President Trump sees it, that tariffs generate revenue for the Treasury—a pay‐​to‐​play cash cow financed by foreign producers that previous presidents weren’t tremendous enough to figure out how to exploit.

Trump’s announcement last week that he’d tap into that bounty of “massive tariff money coming into the USA!” to provide more subsidies to American farmers—who’ve lost billions of dollars in export sales as a result of the trade war—got me wondering exactly who’s footing the bill for those subsidies. On Sunday, I provided a brief summary at Forbes, which I expand upon below.

Trump is right that tariff revenues are flooding the coffers of the U.S. Treasury. Duties collected reached a record high of $71 billion in 2019, well more than double the $33 billion collected in 2017 (the last year before Trump’s tariffs took effect) and—at 2.85 percent of total import value—more than double the weighted‐​average tariff rate of 1.41 percent that prevailed from 2001–2017.

In 2017, the last year unaffected by Trump’s tariffs, U.S. import value totaled $2.33 trillion and the $33 billion of duties collected on those imports amounted to a trade‐​weighted average tariff of 1.4 percent—precisely, the average over the previous 16 years.

In 2018, Trump’s tariffs began to take effect at different points in the year. The duties collected for the year surged to $48 billion, or 1.9 percent of the $2.55 trillion value of imports.

Then, in 2019, tariffs on steel and aluminum from most countries, and tariffs on most imports from China were in effect for the whole year. Those tariffs reduced import value slightly, to $2.50 trillion, but the duties collected surged to a record $71 billion—a 123 percent increase over 2017 for an annual rate of 2.8 percent. In other words, tariffs paid by U.S. importers to the U.S. Treasury increased from $33 billion in 2017 (last year before the tariffs) to $71 billion (first full year of tariffs). Where did that extra $38 billion come from?

Contrary to Trump’s claims, that money didn’t “[come] into the USA.” The products came in, but the money was already here. It was transferred as a tax from importers—U.S. producers, U.S. wholesalers, and U.S. retailers—to the U.S. government. By raising the costs of manufacturing inputs or final goods purchased by U.S. importers, the tariffs—in every case—amount to an increase in U.S. producers’ costs of production and/​or an increase in Americans’ cost of living. Businesses were made less profitable (which means less investment and less hiring) and individuals and families experienced lower real income, on account of higher prices (which means less consumption and less savings).

So, who paid that $38 billion tax bill?

The table below reveals the imported products accounting for the largest shares of the $38.3 billion tariff “windfall.” The products are identified by the 6‑digit subheading of the U.S. Harmonized Tariff Schedule. In 2019, the total U.S. import value of $2.5 trillion was entered under 5,285 different 6‑digit subheadings or product groups. Close to 60 percent of that value consisted of products classified as raw materials, intermediate goods, and capital equipment—the purchases of U.S. producers.

The table shows the 100 products most burdened by Trump’s tariffs (I have the full table of 5,285 products offline, if anyone’s interested). The product accounting for the largest share of the $38.3 billion tariff increase was HTS‑6 code 8517.62 or “MACHINES FOR THE RECEPTION, CONVERSION AND TRANSMISSION OR REGENERATION OF VOICE, IMAGES OR OTHER DATA, INCLUDING SWITCHING AND ROUTING APPARATUS.” This subheading likely consists of products that are both intermediate and final goods. The subheading accounted for $1.2 billion of the $38.3 billion tariff increase, or 3.23 percent of the total increase. In 2017, the $47.3 billion of imports of this subheading were subject to no tariffs. The tariffs in 2019 amounted to 3.1 percent of the import value, which had declined considerably—and presumably on account of the tariffs—from $47.3 billion to $39.8 billion. (Note the other fields in the table.)

Going through the table (which is sortable by any of the field headings), it should become apparent that these products bearing the brunt of Trump’s tariffs are mostly inputs used to produce manufactured goods in the United States. The cost of production in the United States for things such as solar panels, which use HTS 8541.40 (“PHOTOSENSITIVE SEMICONDUCTOR DEVICES, INCLUDING PHOTOVOLTAIC CELLS; LIGHT-EMITTING DIODES); computing devices, which use HTS 8473.30 (“PARTS AND ACCESSORIES FOR AUTOMATIC DATA PROCESSING MACHINES AND UNITS THEREOF, MAGNETIC OR OPTICAL READERS, TRANSCRIBING MACHINES, ETC., NESOI”); and machinery, which uses HTS 8537.10 (“BOARDS, PANELS, CONSOLES, ETC. WITH ELECTRICAL APPARATUS, FOR ELECTRIC CONTROL OR DISTRIBUTION OF ELECTRICITY, FOR A VOLTAGE NOT EXCEEDING 1,000 V”) are all higher on account of these tariffs. Higher costs mean lower profits, which means businesses have fewer resources to investment and create jobs. Or higher costs mean higher prices, which mean consumers have less to spend and save. Indeed, the tariffs on the dozens of items on this list that are consumer products directly reduce real income, unless retailers absorb the costs, which then translate into lower profits, less investment, and less hiring.

The bottom line is that the costs of Trump’s tariff are being shouldered by U.S. businesses and consumers. Producers and consumers of exactly what can be discerned from the table above.

February 26, 2020 1:38PM

Handouts, Helicopters, Hong Kong Dollars, and Hogwash

This morning, upon logging in to my Twitter account, I found it brimming with reports that the Hong Kong government was about to embark upon an unprecedented experiment with helicopter money. "Helicopter Money is Here," blurts an FT Alphaville headline. "Hong Kong Embraces Helicopter Money," says Zero Hedge. The foreign press has also chimed in: "Helicopter Money Comincia a Hong Kong," writes Italian financial journalist Maurizio Blondet.

In typically understated fashion, Zero Hedge's report concludes thus:

So Hong Kong is about to unleash the mother of all stagflations on its people—who were already on the brink of massive social unrest before the virus forced lockdowns. Supply chains have collapsed, therefore there is no supply of goods or services, but demand is about to soar (thanks to free money drops from the government)…What happens to prices we wonder?

To which the correct answer is, not much—or nothing, at any rate, that can be blamed on exceptional additions to Hong Kong's money stock. Why not? Because Hong Kong's plan doesn't actually involve any extraordinary growth in the supply of Hong Kong dollars. That is, Hong Kong isn't planning to resort to helicopter money at all. Nor does its plan even come close.

Been There, Done That

This isn't to say that the Hong Kong government isn't planning to give away money. According to the more sober FT piece, under the proposed plan

Hong Kong permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200) in a HK$120 billion (US$15 billion) relief deal rolled out by the government to ease the burden on individuals and companies, while saving jobs.

So far so good. But what the FT fails to note is, first, that such handouts are nothing new, and, second and more importantly, that fiscal handouts aren't the same thing as helicopter money.

Read the rest of this post »
February 25, 2020 9:21PM

Florida Avoids E‑Verify Mandate — for Now

Governor DeSantis has been pushing Florida’s legislature to enact an E‑Verify mandate for all new hires as a way to “turn the spigot off the incentive that drives illegal immigration,” as state Senator Joe Gruters said.

So far, state legislators have resisted his efforts and watered down any potential bill that could pass—exempting some small businesses and agriculture. There was then a fierce debate over the exemptions and whether they should stand as the legislature has decided to pause briefly. The compromise bills are better than a mandate, but E‑Verify should be rejected outright.

E‑Verify is a federal system that checks the identity documents of new hires, even Americans, against government data to guarantee that they are legally eligible to work. If they are illegal immigrants, the businesses have to fire the new hires. In theory, E‑Verify is supposed to keep businesses from hiring illegal immigrants. In reality, it doesn’t work and, in the process, harms American workers.

We know this because of what’s happened in some states. E‑Verify is just a federal program that isn’t required nationally, but some states like Alabama, Arizona, Mississippi, and South Carolina mandated it for all new hires. Arizona was the first to do so in 2008. Rich Crandall, a Republican former state Senator from Mesa, Arizona, said that E‑Verify “was promised as the silver bullet to immigration problems. E‑Verify was going to solve our challenges with immigration.”

Instead of a silver bullet, E‑Verify turned out to be a misfire for many reasons.

First, an E‑Verify mandate would require everyone to ask permission from the federal government to get a job—even American citizens. This is a step too far. Getting a job is hard enough. Adding another layer of approval from Washington, D.C. is too much.

Even worse, E‑Verify makes mistakes and sometimes marks American citizens and legal immigrants as illegal immigrants. For instance, a noncitizen who is legally authorized to work in the U.S. is over twenty‐​seven times as likely to be subject to an E‑Verify error than a U.S. citizen is. Green card holders are four times more likely to be subject to an E‑Verify error than a U.S. citizen is. Given that Florida has nearly four million immigrants and naturalized U.S. citizens, the impact would be devastating.

Second, and most seriously, E‑Verify won’t stop the hiring of illegal immigrants. E‑Verify barely impacts the wages and employment rates of illegal immigrants. Recent immigration raids at several meat processing plants in Mississippi show just how ineffective E‑Verify is.

Last August, the federal government raided and detained 680 illegal immigrant workers, eventually letting 300 go, at several Mississippi plants. But zero workers in Mississippi were supposed to be illegal immigrants because Mississippi had a universal E‑Verify mandate just like the one proposed by Governor DeSantis.

Illegal immigrants get around E‑Verify in many ways. The easiest is using somebody else’s documents. E‑Verify just approves the documents, not the person holding the documents, so all illegal immigrants have to do is steal an identification or borrow a friend’s. That’s why about 54 percent of illegal immigrant workers are approved to work by E‑Verify according to a recent audit of the program.

But many businesses are also adept at getting around E‑Verify. The easiest way is to just not use it. In Mississippi, for instance, only about half of all new hires were even run through the system even though 100 percent were supposed to be. E‑Verify use rates in the other mandated states aren’t much better. Since the Florida bill exempts small businesses, larger ones can get around the mandate by subcontracting with smaller firms that don’t even have to use E‑Verify.

And that doesn’t even include the firms that check documents and try to follow the law—which is most of them. The government can’t expect businessmen to be experts at identifying fake IDs as not every business is a liquor store, a bar, or a nightclub. Businessmen are busy running their businesses. Perhaps the government should send bureaucrats around to check the authenticity of documents that it issued to enforce its own laws? Businesses shouldn’t be saddled with that.

Third, President Trump doesn’t even believe in E‑Verify anymore. His most recent budget does not call for mandatory E‑Verify like his previous budgets did. If President Trump has lost faith in E‑Verify, why is Governor DeSantis still a believer?

E‑Verify is an unnecessary regulatory burden that will cost some Americans their jobs. Even worse, it won’t stop illegal immigrants from getting jobs in Florida, as the failure of E‑Verify mandates in other states show. With all pain and no gain, the Florida legislature has every reason to reject E‑Verify. President Trump has seen through E‑Verify’s failures and abandoned it—Governor DeSantis and the Florida state legislature should too.

February 25, 2020 1:52PM

Senator Sanders Is Wrong on Cuban Education and Healthcare

The current frontrunner among the contenders vying to become the Democratic Party’s presidential candidate, Senator Bernie Sanders (D‑VT), sang Cuba’s praises in a recent 60 Minutes interview on CBS. Senator Sanders applauded Cuba’s education and healthcare system. Potential Sanders supporters should know that Cuba’s literacy rate and healthcare system are nothing to lionize.

First, consider literacy. According to Sanders, “When Fidel Castro came into office, you know what he did? He had a massive literacy program. Is that a bad thing?” Sanders is surely old enough to know that all communist dictatorships throughout history have ensured that their people were literate—in part so that the people might take in the disinformation printed by government propaganda ministries.

Furthermore, a look at the data reveals that all of the progress regarding literacy that happened under communism in Cuba would almost certainly have happened under a different political and economic system. While trustworthy data, defogged of Cuban propaganda, are difficult to come by, the U.S. Department of State tried to do just that by comparing improvements in human well‐​being in Cuba between the 1950s (the last decade of the hated Batista regime) and 2000.

Accordingly, Cuba’s literacy rate rose by 26 percent between 1950/53 and 2000. But literacy rose even more, by 37 percent, in Paraguay. Food consumption in Cuba actually declined by 12 percent between 1954/57 and 1995/97. It rose by 19 percent in Chile and by 28 percent in Mexico over the same time period. Between 1954/57 and 1995/97, the rate of change in car ownership per 1,000 people in Cuba declined at an annual rate of 0.1 percent. It increased at an annual rate of 16 percent in Brazil, 25 percent in Ecuador and 26 percent in Colombia.

Next, consider healthcare. Sanders has repeatedly extolled Cuba’s healthcare system, opining that in Cuba the communist revolutionary and dictator Fidel Castro “gave them [the Cuban people] health care, totally transformed the society, you know?” Yet a recent study has found that Cuba’s seemingly impressive health performance is partly due to data manipulation and coercion.

Life expectancy is the best proxy measure of health. According to Cuba’s official data, it rose by 25 percent between 1960 and 2017. Yet life expectancy increased even faster in comparable countries: in Mexico it improved by 35 percent, in the Dominican Republic by 43 percent, and in impoverished Haiti by 51 percent.

The data make clear that Cuba’s education and healthcare system are unremarkable. Cuban‐​Americans and others familiar with Castro’s record are rightly appalled by Sanders’ apparent affection for socialism on the island.

Castro committed numerous crimes against humanity. He enslaved thousands of Cubans in forced labor camps for being attracted to members of the same sex, harboring “counter‐​revolutionary” thoughts, practicing minority religions or even simply for looking unkempt (like a “hippie”).

The slave labor of those Castro called “social deviants” provided an important source of income for the young communist regime, and any accomplishments of the regime must be viewed with that system of forced labor in mind.

“We’re very opposed to the authoritarian nature of Cuba but you know, it’s unfair to simply say everything is bad,” Senator Sanders told CNN’s Anderson Cooper during the interview. We cannot help but wonder if the senator would offer a similarly nuanced portrayal of a right‐​wing dictator.

The 60 Minutes interview is only the most recent episode in Sanders’ lengthy history of acting as an apologist for socialism. From his infamous honeymoon in the Soviet Union that led him to extoll what he called “the strengths” of the communist system, to his 1980s praise for Castro’s Cuba and the Sandinista dictatorship in Nicaragua, Sanders has often had sympathetic words for left‐​wing dictatorships.

As recently as February 2019, Sanders even refused to describe Venezuela’s Nicolás Maduro as a “dictator” (in the September Democratic debate, when pressed, Sanders finally admitted Maduro was a “tyrant”).

Sanders, at age 78, should know better than to exalt the alleged accomplishments of communist dictatorships. Hopefully Americans will take a look at the data instead of taking Sanders’ claims about Cuba’s education and healthcare systems at face value.

February 25, 2020 1:04PM

Green Cards for Skilled Indian Workers Drop in 2019, Despite More Petitions by Employers for Them

Indian skilled workers received just 10 percent of the available green cards in 2019—down from 14 percent in 2018—even as the share of petitions filed for Indians by employers increased from 50 percent to 53 percent. Because this disparity has persisted for years, the result is that nearly all (93 percent) of the immigrants waiting for green cards solely because of the low immigration limits are from India.

The reason for this disparity is that the law prevents green cards from being issued in proportion to the number of applicants from each country. Instead, the per‐​country limits cap the number of green cards that immigrants from any single country can receive. Since Indians are more than half of the workers employers want to hire, they are effectively the only immigrants who suffer due to this constraint (Chinese are also at the limit, but they wait about the same length as they would without the limits).

All Indian green card applicants waiting in the backlog applied since 2009. Figure 1 below shows the share of petitions by employers for Indian skilled workers compared to the share of green cards issued to Indians from 2009 to 2019. As it shows, this inequity is about an all‐​time high. In 2019 there was a 43 percentage point gap between the share of green cards for Indians and the share of petitions for them—up from 37 percent in 2018.

The share of green cards for Indian workers could fall even further, despite the massive backlog and demand. The per‐​country limit provides that immigrants from any single birthplace cannot receive more than 7 percent of the green cards unless green cards would not otherwise be used. The only reason that Indians received 10 percent is because demand from the rest of the world was low enough to leave some unused. But demand from the rest of the world is increasing, shrinking the numbers for Indians.

The shrinking numbers will have devastating consequences for recent Indian applicants, effectively guaranteeing that they will not receive green cards at all. Many Indians would die waiting for green cards if they could stick it out, so most will leave the line before then. The House voted to repeal this exceptionally unjust system last year, but the Senate has yet to take up legislation to address it.

February 25, 2020 9:53AM

Failed Humanitarian Interventions and the “Good Intentions” Dodge

In a new National Interest Online article, I discuss how advocates of “humanitarian” military interventions resort to a variety of excuses to evade responsibility once their crusades go awry. One especially maddening deflection of responsibility is when proponents insist that their intentions were good, and that the missions should be judged according to that standard.

Even Barack Obama seemed to recognize the insufficiency of that defense when he first met Samantha Power, an advocate of the “responsibility to protect” (R2P) doctrine and U.S. involvement in multilateral military interventions for humanitarian goals. Obama reportedly observed to her that it “seemed like malpractice to judge one’s prospects by one’s intentions, rather than making a stren­uous effort to anticipate and weigh potential consequences.”

Obama was right, but he didn’t heed his own advice. Not only did he select Power for a series of high‐​level policy posts when he became president, culminating in her appointment as ambassador to the United Nations, but he launched several catastrophic interventions, most notably in Libya and Syria. The unintended negative results of those crusades continue to reverberate nearly a decade after the initial U.S. actions.

The situations in both Libya and Syria are substantially worse than they were before the United States and its NATO allies began to meddle. Overthrowing Libyan dictator Muammar Qaddafi produced pervasive chaos that has now coalesced into a bloody armed struggle between two rival autocratic regimes claiming to be Libya’s “legitimate” government.

The author of a new UN report states that that the adverse impact of the country’s 9‑year internecine turmoil on civilians “is incalculable. Washington’s effort to oust Assad not only appears to have failed, but it helped lead to the rise of ISIS. More recently, nasty contests for influence between Turkey and Russia have erupted in Syria and Libya, raising the prospect of a dangerous clash between those two powers, especially in Syria. In both arenas, the Western‐​exacerbated turmoil displaced vast numbers of civilians, and the resulting refugee flows caused severe societal tensions in neighboring countries—including Washington’s European allies.

One striking, consistent feature that humanitarian interventionists exhibit is undiminished confidence that more robust and determined U.S.-led efforts can succeed, despite logic and evidence to the contrary. Another maddeningly consistent feature is their assertion that Washington has a moral and strategic obligation to make the attempt, even when the previous meddlesome policy has imploded.

Daniel Larison, senior editor at the American Conservative, provides a compelling thesis on why humanitarian interventionists focus so heavily on their supposed good intentions. “Interventionists rarely anticipate and weigh potential consequences, because if they did that it would be much harder for them to get the interventions they want. Advocates for military action routinely minimize the risks and costs of war in order to reduce opposition to it.” Self‐​proclaimed humanitarian interventionists have another incentive to downplay negative consequences, he argues. To admit that one of their interventions failed and made things worse “would be to bring discredit” on the entire concept—an outcome they will never risk.

But policies must be judged by their consequences, not their intentions. The observation that the road to Hell is paved with good intentions is especially true with respect to regime‐​change wars and armed humanitarian crusades. The architects of such debacles as the interventions in the Balkans, Iraq, Libya, and Syria finally need to accept responsibility for their horrible handiwork. The “good intentions” excuse does not exonerate them.