The US and Internationalism

A deadline has come and quietly gone for the US State Department’s mandated review of American overseas commitments. Presumably a report will be forthcoming soon. SIG’s view is that the report will be mild in substance, for two main reasons: the political force of the Trump administration’s January attack on the “globalist” agenda within the US government and in multilateral organizations has reached a limit; and the lack of pushback against that attack (by allies and foreign partners, the Democratic Party, or the American people) has revealed the lack of any effective pro-globalist or even internationalist lobby. 

Within days of taking office, the Trump administration issued several executive orders withdrawing from certain international bodies (the World Health Organization, Unesco, the UN Office of the High Commissioner for Human Rights) and putting the whole of US commitments to international organizations under review with a report from State due Aug. 4. Some of this was less dramatic than it sounded. Withdrawing from the WHO is a year-long process and funding remains through the end of the fiscal year (Sept. 30). President Trump in his first term also withdrew from the WHO but the clock ran out before it happened and President Biden reversed the order. Unesco withdrawal would not be effective until July 2026. But the White House’s intentions are crystal clear and were reflected in its fiscal-year 2026 proposal to Congress, submitted at the end of May. This is the “National Security, Department of State, and Related Programs” bill, known as the NSRP. The House Appropriations Committee’s markup of it in mid-July was consistent with the president’s priorities and reduced the previous year’s total spend by 22%.

De-funding of international organizations was consistent with the de-funding of the State Department and the elimination of the US Agency for International Development. The handling of the World Trade Organization is interestingly different. President Trump in his first term wanted to withdraw from the WTO as he believed it unfairly favored China. He embraced and escalated the Obama administration’s blocking of appointments to the WTO’s appellate body. (The Biden administration also did nothing to get the appellate-body issue out of deadlock.) But the EU initiated a workaround, the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), which effectively could do the work of the old appellate body. By June 2025, when Britain joined, the MPIA included 57 WTO members (out of 166) covering 57.6% of world trade. All of the US’s traditional allies are in the MPIA, including Canada and Mexico, as is China. The most important countries staying outside the MPIA are the US, with about 15% of world trade, and, as a political actor, India. (India has long taken a special interest in global trade negotiations.) The WTO provides a valuable measure of stability and rule of law to international trade. The success of the MPIA in attracting most of the world’s biggest national economies is striking, as it is a very curious and jerry-rigged body.

The second Trump administration, rather than attacking the WTO, has sent one of its leading economic advisors, Jennifer Nordquist, to serve as one of four deputy directors-general. (She has been a counselor to the White House Council of Economic Advisors and was Trump’s appointee in his first administration as US executive director at the World Bank.) Trump has also nominated Joseph Barloon, general counsel for the US Trade Representative in his first administration and a former law partner at Skadden, Arps, as ambassador to the WTO in Geneva. In his confirmation testimony to the Senate, Barloon stressed the importance of not accepting large non-market economies, by which he means China, as equal players at the WTO.

President Trump’s tariff policies have been advanced in both his administrations without much reference to WTO rules and practices. They go against the basic idea of the WTO and before it the General Agreement on Tariffs and Trade (GATT), which began chipping away at tariff barriers in 1947. Nonetheless the WTO, as seen in the strange career of the WPIA, does have a purpose in the estimation of most of the world’s industrialized economies. IT also has a place in the struggle between the US and China. And it cannot be accused of wokeness (as was the case in White House criticism of USAID), “ideological” manipulation of science (WHO), or enmity toward Israel (as is the case with the UN Human Rights Council and other UN bodies facing defunding). Of course in one sense the WTO can certainly be described as “globalist” — theorists of neoliberal globalization often root it in economic policy more than politics — but it is not, in the Trump perspective, ideologically or culturally globalist. It is not part of the America First global culture war. And it serves a purpose for US corporations as well as for every other nation’s corporations.

The WTO (along with the International Telecommunications Union and some others) may simply be the exception that proves the rule: the US is nonetheless withdrawing from and de-funding previous long-term commitments to the institutions of multilateral diplomacy and international governance. But the leisurely pace of State’s mandated review, the compliance of the House Appropriations Committee, the uninterest of Democratic leaders, and the almost complete lack of any public or media attention to this US withdrawal suggest that the administration’s anti-globalist fervor has weakened. It might return in the fall for the UN General Assembly, an occasion Trump has used before to attack globalization and defend economic nationalism. But he might also take the moment to declare victory and seize some credit for the reform and whittling down of the UN, which has been going on for many years now but quickened after January. Either way, the anti-internationalist momentum is likely to wane after UNGA closes shop in October. On the US political scene, it is an issue that no one is motivated to fight over. This will leave the next moves in multilateral diplomacy and governance up to other actors.

The Jobs Conundrum, Part Two

The US jobs report by the Bureau of Labor Statistics for July once again proved economists wrong, or appeared to — the number of jobs added, 73,000, was far below expectations. The numbers for May and June (see SIGnal, “The Jobs Conundrum,” July 6, 2025) were revised downwards by an extraordinary 88%. President Donald Trump reacted by saying the numbers were “politically motivated” and firing the Biden-era head of the BLS, Erika McEntarfer, now temporarily replaced by her Obama-era deputy. (McEntarfer had been confirmed with strong Republican support in January 2024, including from Senator J.D. Vance.) Presidents do not often fire agency heads in quite this fashion and the dismissal dominated headlines. But investors pay attention to facts and the facts about the US job market are not very good.

There is really no reason to think that the BLS was falsifying statistics to create bad news any more than it was falsifying them when the news was good. BLS mid-month estimates are based on a somewhat small sample (560,000 business are surveyed) and as the sample gets more complete after the 12th of the month the statistics change and grow more accurate. Sometimes they go up, sometimes they go down. They don’t often stick right at the mid-month estimate, although the May-June revision was of a steepness not seen since 2021.

SIG’s analysis of July 6, for better or worse, has mostly held up. The jobs market was soft then and still is, although the symptoms in July were different than in June. But unemployment as such has been relatively low and steady. The problems are in job creation. In June, job gains were led by state and local government (overwhelmingly in education), “health care and social assistance,” and “leisure and hospitality.” The downward revisions were accounted for mainly (40%) by revised education-job figures; the other 60% was spread across industries. In July, the gains were led by health care and social assistance, retail, and leisure and hospitality. Manufacturing continued its steady decline.

The Trump administration has never aimed at creating more government jobs, so the large downward revision in public-education employment, which is paid for by taxes, should not, strictly speaking, have drawn such a severe reaction from the White House. But the headlines were negative and they drew a headline-based response. The drama masked the deeper problem that the US economy continues to lose employment for American workers “who makes things with their hands,” as Vance said at the Republican convention last year.  It is gaining jobs for those who look after the elderly and the infirm in an aging population and those who entertain and accommodate people who have money to spend. Overall, it is not growing. The pace of hiring is increasing at the slowest rate in a decade, excluding the pandemic.

 When President Trump was elected last year it was greatly on the back of increased support among working and lower-class constituencies, most distinctively black, Hispanic and Asian voters and younger voters. It was an aspirational demographic that did not think Biden policies were good for the economy that mattered to them. Republican politicians hearing from their constituencies over the summer recess will have to explain why their expectations of the economy have not been met.

The president is likely to blame Federal Reserve chairman Jerome Powell for not lowering rates. Presidents blame the Fed on a regular basis. But the pressure on Powell and others on the board is likely to ratchet up significantly. After all, Powell did say on Wednesday that the job market was sound, and two days later the BLS statistics indicated the opposite. Inflation is still relatively steady. The Fed’s dual mandate is to boost employment and fight inflation. So a rate cut seems more than likely. Powell and many others believe this will fuel inflation. If it does, Trump in the fall will have an economy with many of the problems that the Biden economy had, with an increased decline in manufacturing and very little job creation in other sectors. And the economic renaissance predicted by the administration as a result of government support for AI will not have had enough time to occur, if it occurs at all. The huge increase in Big Tech valuations based on AI expectations could very well be a bubble.

The New AI Action Plan

The Trump administration’s AI action plan got a surprisingly warm welcome this week from US tech-industry and foreign-policy experts. The plan was unusual for this administration, and for the Republican Party, in that it advocates complex government-led initiatives, requiring considerable government funds, to advance political goals in a sector that is overwhelmingly made up of private companies. This is Trumpian industrial policy, and on paper at least it is even more interventionist than Biden-era industrial policies aimed at the tech sector. With its invocation of “renaissance” it is also more optimistic about technological innovation than any administration since Bill Clinton’s: “An industrial revolution, an information revolution, and a renaissance—all at once. This is the potential that AI presents.” In announcing the plan Trump also called AI “pure genius.” SIG’s view is that the AI action plan is both inspiring and well done but that implementing it will be extremely challenging.

Some of the challenges are obvious. The Trump administration has been cutting government bureaucracies, including in tech, yet this plan has numerous policy prescriptions that require government bureaucrats to implement them. The initiatives also require funding, which it is up to Congress to give. While there is general bipartisan support for AI investment, primarily as part of the strategic confrontation with China, the new AI action plan revived the White House’s effort to prevent states from legislating on AI. A similar provision in President Trump’s signature tax bill was defeated in Congress by a crushing majority. The AI action plan’s tactic is to say the federal government will withhold funds from any state that regulates AI in a way that would be “burdensome” or “unduly restrictive to innovation” — as judged by the White House on the advice of federal officials. Congress members represent state and local constituencies, not a national one. That is where their power comes from. Many of their constituents have very grave concerns about AI and expect their representatives to do something about it. When the AI section of the tax bill was rejected by Congress, Republicans, who have been much more for states’ rights (for example on abortion) than Democrats, were overwhelmingly against the president’s proposal.  In several senses, then, the AI action plan is primed for conflict with Congress.

The action plan is also primed for conflict with allies. The AI “dominance” foreshadowed by Vice President Vance in his speech earlier this year in Paris is transformed in the action plan to advocating export of the full American-made “AI stack” to allied countries. An American hardware-and-software suite, deliberately cleansed of any technology produced by “adversary countries” (China), would then become the infrastructure for whatever applications companies in other countries might be able to build. In other words, AI infrastructure would resemble the Internet of 2003: an American platform that others could participate in subject to US rules and US intelligence surveillance, and at a tremendous competitive disadvantage to US companies. This is exactly what other countries want to avoid, especially European countries who are still at the core of the US’s alliance structure. Just as the Trump administration wants US AI to be US-made and reflect US values, Europe wants its own AI sector to do the same — just as China insists on its AI companies reflecting “socialist values.” The action plan rightly stresses that for US AI to have maximum strategic benefits it must be on open rather than closed models and build on alliances rather than going alone. But in a geopolitical environment where allies are considering a tech-driven Buy European Act — and in which US tech giants are setting up “sovereign data clouds” just to keep European customers happy — it is hard to see how exporting the US AI stack in toto (once such a stack exists) will be welcomed abroad. China’s more subtle, and affordable, approach seems more likely to succeed.

The most serious challenge to the administration’s AI action plan is the challenge that faces any government regulation of digital technology: the systems are run by private companies according to market logic, more or less. Silicon Valley’s reaction to the AI action plan has been very positive. It is, after all, a strikingly pro-business and pro-technology plan. The plan’s urging of more government and private spending on the electric grid and data centers will certainly boost industry.

But what if capacity is overbuilt, or the wrong kind? Energy expenditures for AI so far have been fantastically high. If AI is to succeed it will need more energy and more data centers. Nonetheless, AI companies also want to reduce costs, which is why a great deal of investment is going into finding less energy-intensive ways to get AI results. (Data-center companies are also striving to find ways to lower their energy requirements.) The government could end up financing with taxpayer money an infrastructure that won’t be what is needed in five or ten years. Investors should be cautious of extrapolating investment opportunities from the areas that the AI action bill is targeting. The obstacles to the plan are many, and the record of government-led innovation policies is decidedly mixed.

The Jobs Conundrum

The US jobs numbers last week were chaotic, to say the least. The 0.1% drop in unemployment was yet another instance in which economists’ predictions were wrong. It is getting to be a habit, and the Donald Trump administration is reaping the political gains. The last few weeks have seen more and more articles attempting to explain why the predicted catastrophe after the Liberation Day tariffs announcement has not materialized. SIG’s view is that, now that the administration’s giant tax-and-spending bill has passed and members of Congress return to their constituencies for the summer recess, the real political work will concern jobs. So it is worth looking deeper into the new numbers.

Jobs in June increased by 147,000. However, the workforce itself shrank by more than that: The number of people characterized by the Bureau of Labor Statistics as “not in the labor force,” and therefore not counted as “unemployed,” grew by 490,000. The unemployment rate went down not just because jobs were added but also because the size of the workforce decreased. 

In sectoral terms, the biggest job adds (73,000) were in government. The biggest source of those jobs was growth in the public education sector, which is mainly K-12 schools. Of the 47,000 state-government jobs gained, 40,000 were in education. Of the 33,000 jobs added in local government, 23,000 were in education. Federal government employment was down by 7,000 for June and has dropped by 69,000 since the beginning of the Trump administration, in line with the president’s commitment to shrink government.

The increase in state and local education jobs should not be a surprise. The 2008 recession hit those sectors very hard. They recovered at a much slower rate than the private sector. When Covid hit, their subsequent recovery, compared to that of the private sector, was even worse. Massive federal aid got schools through the pandemic but it was always going to dry up and eventually did. States, looking to the longer term, realized they needed to increase spending. Populous states like Texas, California, and New York have recently broken records for education spending. Much of it goes into teacher salaries, which have been increasing in response to a chronic teacher shortage. (Credentialing in many states has also become much more lenient to attract more teachers.) In short, the state and local public education sector was overdue for a boost, got it, and jobs have been created.

The other major sectors driving job gains in June were “health care and social assistance” (58,600) and “leisure and hospitality” (20,000).  “Social assistance,” in the world of the Bureau of Labor Statistics, is not governmental but includes services like child care, vocational rehabilitation for the disabled, community food banks, and emergency services. The remaining major gains were in construction (15,000) and transportation/warehousing (7,500).

Overall, the private sector did not do as well as the public sector. Private payrolls were up by 74,000, the weakest growth since last October. An ADP Research study earlier in the week identified numerous indicators of weakening in the private labor market. Job losses in June were concentrated in mining and logging (down 2,000), wholesale trade (down 6,600), manufacturing (7,000), and professional and business services (7,000).

The problem, of course, is that the Trump administration’s goal has been to reduce government and favor the private sector, while the reality of the labor market so far is going in the opposite direction. Meanwhile, CEOs were spreading the word that AI would eliminate jobs on a grand scale. Ford’s Jim Farley thought that AI would “replace literally half of all white-collar workers in the U.S.” Of course, AI could also eliminate jobs in the public sector, including education. But the impetus for the current, very high levels of investment in AI is to increase productivity by making private-sector workers more efficient, not by hiring more of them. Overall, then, AI could well shift the balance of employment in the US economy further toward government.

It is possible that reducing taxes, as the new bill does, on upper-income groups could increase consumer demand, probably in the leisure category, and even free up capital for productive investment. It is also possible that a tariff program could result in increased investment in American manufacturing. However, neither of those results is going to be quick. In the meantime, Congress members will meet their constituencies as private-sector employment weakens and the federal government’s willingness or ability (given extraordinary debt levels) to solve problems, much less provide jobs, is weakening as well. Whether President Trump’s economics will work out in the end might not matter, because the end will be after the midterms, which in political terms could be too late.

Déjà vu All Over Again

By Dee Smith

With his entry into the Israel-Iran war, Donald Trump seems to have gone over to neoconservatism, even invoking the goal of regime change, an old neocon favorite. It remains to be seen at this writing what will happen to the cease-fire he has imposed, but the interesting thing from a policy standpoint is how much this is both in accordance with — and violates — legacy patterns of US foreign policy.

Many Iranians outside Iran are pleased at Trump’s decision, even as they are desperately concerned about their families who remain there. Anne Applebaum cites an article from an anonymous Iranian source published last weekend in Persuasion:

knowing that the men who’ve held us hostage for forty-six years, who’ve ransacked our country, raped and killed our daughters and executed our men for asking for their basic human rights, are finally getting what they deserve—that brings me peace.

That view of the recent American action comes very close a classic element of the liberal international order in its later form: the “Responsibility to Protect” or R2P. Under this doctrine, the international community has a responsibility to intervene inside states that do not protect their populations from atrocities such as war crimes or genocide.

All of this is to say — with apologies to Mark Twain — that reports of the death of neoconservatism and of the liberal international order have been greatly exaggerated. They are gone, but also not gone. They are there, but so radically mutating they are no longer themselves.

That is characteristic of our entire world today. We are living in a time in which ideologies are both more important than ever, and the varieties of thinking and expressing ideologies are more confused and at odds with one another than ever, and in which many people are not sure whether they actually believe what they claim to believe … or want to believe.

This multi-directional confusion is characteristic of most elements of global society and culture: Multiple ideas, trends, and styles from the past are reinvoked and mixed together, often haphazardly. This extends to culture, both popular and “elevated.” It has been said that there is no direction in fashion today: you can wear whatever you want. This is also true in the visual arts. And “serious” or classical music currently includes almost any style—you can compose like Bach, Schumann, Ravel, Prokofiev, Stockhausen, or Glass and be taken seriously, and you can even mix those up in the same piece and get away with it. Beyond that, the lines dividing classical and popular music are dissolving. And popular music has 1001 idioms, genres, and styles, not to mention the almost uncountable “mash-ups.” Really, anything goes.

That is also true in philosophy and even in science, as new and resuscitated interpretations of new and old discoveries create visions and theories that are directly at odds with one another — in areas ranging from particle physics to vaccination science to the study of the nature of consciousness (which is of vital interest to AI) — all claiming to be supported by evidence and each taken seriously by knowledgeable people. It is certainly true in politics, ethics, behavior, and mores. There is simply no overall direction, and certainly no center. That is always true to a degree, but it is much, much more pronounced now.

It is all of a piece only by virtue of being, as Elvis Presley said, “all shook up.”

Some see this as a form of decadence. But it also represents a flailing about to try to find something that works … anything … in the radically divergent situations we face. We seem only to know how to look inside the old boxes we have, and they no longer contain anything fit for purpose. We are all, fearfully, practicing the politics of nostalgia. But the past does not work today, our current systems and ideas do not work, and we don’t see where a future lies that might work. We find ourselves at sea with no life-raft we can grab onto.

Sometimes this is called a “horizon problem” — meaning that the solution is over a horizon beyond which we cannot see from our present vantage point. During the energy crisis of 1979, President Jimmy Carter exaggerated when said we were in a civilizational crisis of confidence. That is no exaggeration today.

In Hemingway’s novel The Sun Also Rises, Mike Campbell answers the question of how he went bankrupt: “Two ways: Gradually, then suddenly.” This is how major change often happens. We would be wise to recall how quickly the Soviet Union fell in December 1991. It had seemed robust, threatening, and indeed almost impervious less than 5 years earlier, and looked reasonably secure even a few months before. But the decay had in fact been eating away at the system for decades.

The old Chinese curse, now repeated with tiresome regularity because it is so apropos to our day, says “may you live in interesting times.” We are indeed there.

Where will our situation lead? And how do we navigate it? These are among the most urgent questions for all of us today, and they extend across all the domains of life. If you have little idea where the future is heading, and you can’t rely on the elements you could in the past, then how do you prepare for it? How, for example, do you ensure the well-being of your family? How does an investor manage, let along hedge, a portfolio in circumstances like this? Aside from intensive vigilance, the ability and willingness to move quickly, and hope, it is very hard to answer these questions.

Writing in another tumultuous time at the end of the 17th century, the English poet John Dryden closed his Secular Masque with:

All, all of a piece throughout;

Thy chase had a beast in view;

Thy wars brought nothing about;

Thy lovers were all untrue.

'Tis well an old age is out,

And time to begin a new.