Rest of World

There is an excellent online magazine called Rest of World that surfaces technology stories from everywhere that is not in the normal Western-focused mainstream of international journalism — which adds up to a lot of places. The concept and its acronym (ROW) have long been used in US and UK diplomacy, not always in a good way: it was sometimes not much better than using “etc.” Rest of World was founded in 2020 by Sophie Schmidt, who has a diverse background in tech as well as whatever advantages accrue to being the daughter of Google’s Eric Schmidt. The tech angle is critical. Like Google itself in its youth, Rest of World saw tech as a spreader of knowledge and, especially, of economic capacity, including in non-industrial economies.

In the AI era, where massive investments in a few familiar companies are expected to generate massive returns, it remains worthwhile for investors not to forget the ROW. As always, India’s tech scene provides examples. SIGnal readers may remember an earlier post or two on this (The America Stack, 5 Feb. 2025; Network Powers - 2 of 2, 7 May 2026). Rest of World itself has always had a strong India game, as in “India’s VCs Are Beating US Investors at Home” just last week.

This kind of analysis isn’t just about national economies and how they deal with balancing inward FDI from major industrialized countries with the desire to build their own tech capabilities. It is also, and increasingly, about ROW capital and expertise themselves going into new markets. After all, part of the rise of Chinese digital technology from zero to global dominance featured tech transfer by Chinese companies into poorer ROW markets that Western and ex-China East Asian powerhouses (such as Samsung) would not bother with. That set a powerful example.

A good case today is Indian and Gulf investors in Africa. In the early days, both India and the Gulf relied on Chinese telecommunications companies to build affordable digital infrastructure. That in turn led to the development of local expertise and experience. Indian and Gulf investors then looked to Africa. Much of the investment has been in telecoms. India’s Bharti Airtel, via Airtel Africa, recently saw Q4 revenues climb by a quarter. It is not an easy market to operate in, but Indian companies can be well positioned to do what Chinese companies did 15 and 20 years ago: leverage their experience of a difficult (but also rather protected) market at home to enable success in difficult markets abroad.

Gulf investors are active at many levels. For example, Emirates Telecommunications Group has long been the top shareholder (now just over 17%) in Vodafone. Vodafone is in turn the main shareholder (65%) of Vodacom, which has more than 200 million customers across the African continent and recently bought control of Kenya’s Safaricom. Vodafone is usually described as a “British company” and Vodacom as a “South African company,” but that kind of shorthand can be a bit misleading. (Bharti Airtel is itself an “Indian company” but its largest shareholder at ~44% is Singapore Telecommunications, or Singtel.) Nigerian fintech companies are now at a point where they can look to expand into the Persian Gulf. They are partly inspired by the success of Kenyan payments system M-Pesa — itself part of Safaricom.

The point is that, even in tech, ROW investment and profits can circulate within the ROW markets without too much reference to the West and other regions that industrialized earlier. The tech future is not simply a choice between the US/Japan/Korea and China.  

Nor is it accurate to see poorer markets, as in Africa, as merely more vulnerable to geopolitical ructions like the closing of the Strait of Hormuz. Nigeria’s Dangote, featured in SIGnal last year (“The Nine Lives of Economic Nationalism” parts two and three), has benefitted, as a seller of petroleum and urea fertilizer, from instability in the Middle East. It is now preparing to list on the London and Nigerian exchanges but also, in smaller portions, on Ghanaian, Kenyan, and South African exchanges. This innovative move, according to Aliko Dangote, is meant to spread African corporate ownership across the continent. Meanwhile Africa’s mining companies are thriving as, in part, a direct result of US-China competition over minerals.

In short, the ROW is increasingly able to look after itself in terms of industrialization and digital development. The dominant global narrative of protectionism, self-reliance, and tech sovereignty is not the only story. There are also diffusion, IP transfer, Global South cross-investment, and much else. Economic power is very gradually becoming decentralized.  Developed-world retrenchment will affect that but it is not likely to change it.

Peak Trump? (4 of 4)

The first three parts of this series (one, two and three) considered US President Donald Trump’s foreign policies, his approach to domestic government agencies, and his handling of the domestic economy. The main arguments made were that, leaving aside bursts of military action paired with peacemaking, President Trump’s foreign policy was propelled by a desire to reverse a perceived Western civilizational decline caused by “wokeness” plus non-Western immigration. On the economic side, it was propelled by a desire to re-balance trade with countries seen as having taken advantage of the US. (“We were ripped off by almost every country in the world,” Trump said in his 20 Feb. press conference.)  The president’s policy toward domestic government was dominated again by a desire to combat “wokeness” as well as to shrink government generally while also strengthening the federal government’s position relative to that of states and localities. In terms of wokeness, there was meant to be a type of re-balancing given that, as the president said, “white people” had been “very badly treated.” On domestic political economy, the series argued that the president’s tariff policies and negotiations for inward investment did not have the effects his opponents expected (economic decline, rampant inflation), but they also did not have the effects the president had promised (non-AI manufacturing investment, job creation, deficit reduction). This final post looks at some implications for investors.

The US Supreme Court’s 6-3 decision on 20 February was consistent with SIG’s analysis over the past year that the real crisis in the United States has been a constitutional one. Trump appointee Neil Gorsuch wrote in his concurrence with the majority, “Americans fought the Revolution in no small part because they believed that only their elected representatives (not the King, not even Parliament) possessed authority to tax them. The framers gave Congress alone ‘access to the pockets of the people.’” The president, in reaction, offered a nearly opposite interpretation, citing Justice Kavanagh’s dissenting view that “the decision might not substantially constrain a president’s ability to order tariffs going forward.” So there is now an open constitutional rift on the US Supreme Court. The conflict will be played out between the White House and Congress.

President Trump argued that, because he has tariff powers under authorities other than those considered in the Supreme Court decision, the policy situation on tariffs will now stabilize. Businesses and investors would therefore be able to invest and grow with confidence. This happy outcome seems unlikely. The president’s own initial reaction to the judgment — to immediately impose a new 10% global tariff under a different authority — does not suggest a reasoned calm. His highly personal attacks on the judges who ruled against him, not to mention his predecessors as president (“we had some real dummies”), do not cast oil on the waters. But beyond that, the tariff issue, for months now, has been that rare topic on which a small but significant number of Republicans in Congress have been willing to diverge from the president.  Meanwhile most indicators point to a weakened president, whether in polls or economic data. Even the president’s core support among white Protestant evangelicals — itself a shrinking group in the past several years — has gone down, while backing for his policies among non-evangelical white Protestants has dropped from 46% to 33% over the course of this presidency.

Investors should therefore expect considerable turbulence in the remaining ten months of 2026.  An embattled President Trump who is losing electoral power might not go quietly. At the same time, perhaps the most remarkable thing about the US economy in 2025 was that it chugged along in a somewhat dull but not unhappy fashion despite the tremendous political noise all around. The signature structural problem, as discussed in the previous post, was the national debt, which could get considerably worse if much tariff income ($134 billion last year) drops out. The president believes lowered interest rates under a new Fed chair will solve the problem. It would certainly help the housing sector, but it would not get at the problem of low non-AI-related capital expenditure and related slow job creation.

In SIG’s view the most likely scenario is continued low-to-moderate growth rooted in consumption as we enter the sixth year of expansion. The population will continue to age, particularly with lower immigration, meaning that sectors like health care and entertainment will continue to provide growth as they did in 2026. AI applications that compensate for a shrinking workforce will prosper. Given an aging housing stock, pent-up demand, and a lack of workers, any businesses that can exploit the need for renovation and updating will also thrive. The automobile sector is unlikely to do well as older people drive less — and any sector, like autos, directly exposed to the coming Washington battles should be treated with great caution. The truly adventurous can try to discover how a widely anticipated megadeal between the US and China might affect trade. This fascinating research by Gerard DiPippo holds some clues. But then, maybe there won’t be a megadeal at all, or even a deal. It is hard to price in this level of chaos.

At the same time, the ongoing transfer of wealth from the large boomer generation to the smaller inheritor generations means that wealth will become yet more concentrated in the upper middle class and in those parts of the United States where they are disproportionately represented. Businesses that serve them will benefit. (Mike O’Sullivan’s last post on The Levelling dug into this.) But when the current expansion does end, investors will need to be prepared for a society whose instability will increase as its prosperity becomes less evenly distributed and the Trump administration’s promises of a working-man’s revival go mostly unfulfilled.

Is this Peak Trump? In several senses, yes. This series has argued that the means the president has used are not likely to achieve the goals he has declared or the promises he has made to his core constituency. So it is very hard to see how his political standing can much improve in the coming year. At the same time, it is equally difficult to see how the socially conservative, working- and middle-class, majority male and majority (but by no means exclusively) white, anti-woke Trump voting group will get less Trumpy even if Trump himself fades. The analysis here suggests that group’s discontent is most likely to increase. 

Peak Trump? (3 of 4)

This is the third in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The first post considered foreign affairs and argued that many presidential actions abroad in 2025 were performances without a useful pattern, although a theory among his advisers of Western civilizational decline, which complements a similar theory about domestic US decline due to immigration, has had serious foreign-policy effects. The second post looked at the White House’s assault on various government departments, usually with the declared goal of eliminating “wokeness” and DEI programs, and argued that these efforts in 2025 did reduce government but not to the economic benefit of the white men who were seen as left behind by wokeness. This third post analyzes the domestic political economy, while the fourth will examine the implications of the arguments for investors.

The main fact of US political economy in 2025 was that, with low unemployment and strong GDP growth, federal debt increased to record highs. The main sources of growth in federal spending in 2025 were Medicaid, Medicare, and Social Security. Federal income also grew, due to increases in income and payroll tax payments (about two thirds of the growth) and tariff revenues (one third), but it was not enough to outpace spending. The resulting budget deficit of $1.7 trillion at the end of 2025 drove US debt to $37.9 trillion or 99.8% of GDP, a level reached only in the Covid-19 epidemic and the Second World War. 

The Trump administration did make dramatic efforts to reduce government spending, such as at the Department of Education and the Environmental Protection Agency. The deficit declined significantly over the course of the year, even if it remained higher in December than at various points in the Biden administration. But the Trump administration also reduced corporate income taxes, increased spending on defense and immigration control, and continued many Biden-era projects.

The theory was that tax cuts and tariff income, combined with major foreign and domestic investments (often made in return for tariff or other explicit regulatory relief), would both replace lost tax income (with tariff revenues) and stimulate economic growth to “make the pie higher,” in former president George W. Bush’s famous phrase, thereby increasing tax receipts. The pie indeed got higher in 2025, which led to the growth in income and payroll tax revenues for the government. Tariff income has definitely made a fiscal difference as well, of $118 billion in revenue. From a White House perspective, the difficulties in 2025 arose with investment patterns and job creation. The quantities of investment advertised by the administration, whether from overseas or by US multinationals, have been on a giant scale. Actual investments have been dramatically lower, and fixed business investment apart from Artificial Intelligence and data centers was down in 2025. AI and data centers, if they operate as promised, are likely to reduce employment: the white-collar version of industrial robots. Meanwhile, employers added about a quarter the number of jobs in 2025 as they did in 2024, making last year the worst for job growth since the pandemic struck in 2020. Nonetheless, GDP growth has been strong and unemployment has stayed low, if not quite at the extraordinary 3.5% at the end of the first Trump administration.

Overall, the economy did very well in 2025, despite being five years into the business cycle. How much of this success was due to Trump administration policies? Probably very little. The year, in political-economic terms, seems to have been one more of performance than substance, much as with foreign policy. Most economists played the role of doomsayers as President Trump announced tariff after tariff on flimsy national-security grounds. The president triumphantly pronounced the consensus mind to be wrong as unemployment and inflation stayed reasonably low and the leaders of the UAE, Saudi Arabia, Qatar, India, Japan, South Korea, Apple, Meta, Nvidia, and others pledged investments on a scale that, if realized, would have rolled the New Deal, the railroad boom of the 1880s, and sundry other moments of investment-led optimism into one. It was all incredible theater. Meanwhile, an alarmed private sector battened down (except in AI) for year five of the cycle, with the twins of business investment and job creation lying flat. Neither the tariff-inflation apocalypse nor the MAGA investment boom (except in AI) actually took place, and optimistic forecasts for 2026 put the tariffs down as a temporary fad destined to fade into the past.

The real structural shifts were elsewhere and had to do with the redistribution of political power: from states to the federal government, from local police forces to federal security services, from the legislative and judicial branches to the executive. These shifts had economic effects, above all in the shrinkage of the domestic labor supply through reduced immigration and the brutal reinforcement of a zero-sum, post-globalization international order fixated on defensive self-sufficiency. But these shifts were much more political than economic. What the Trump administration aims at is more a cultural revolution than an economic renaissance, and even its economic policies have to be analyzed in that context because that is what is driving them.  

Peak Trump? (2 of 4)

This is the second in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The first post considered foreign affairs; this one looks at the domestic scene with regard to government (IRS, SEC, Justice Department, ICE, etc.). The third post will analyze the domestic political economy, while the fourth will examine the implications of the arguments for investors.

The first post in this series considered foreign affairs and stressed two points. The first was that the aggressive acts early in the term (February to June), followed by peacemaking efforts (May to September), revealed a pattern only in the sense that they showed a president believing he had a special role to play on the world stage. His actual actions (a peace initiative in Thailand, a bombing in Nigeria) were primarily opportunities for the president to show himself behaving in a particular way. Analytically, it is a mistake to over-interpret them. The second point was that an administration ideology in foreign affairs does exist but on a separate track having much more to do with immigration and what might be called civilizational issues: arguing for the fairness of modern imperialism, followed by the self-inflicted decline of the West, which the Trump administration feels it is in a position to redress.

The second point was discussed in SIGnal almost a year ago (“The Importance of Ideology,” 22 Feb. 2025). At that time, White House policies expressed ideas earlier published by the Center for Renewing America, an NGO founded by Russell Vought, the president’s budget director. At the end of December 2022, the center published “A Commitment to End Woke and Weaponized Government”; Vought and his center went on to strongly influence the Heritage Foundation’s Project 2025, which despite the president’s early denials has proved to be a useful guide to his administration’s policies. As discussed in SIGnal, the center’s research claimed to have identified a wokeness virus that had originated abroad then entered the US via the State Department and CIA with the willing help of Silicon Valley tech platforms. Wokeness was thought to be fundamentally anti-American and to have permeated government to such a degree that it needed to be dramatically cut back, as if one were removing cancerous tissue. This Vought and the White House set out to do, with no important opposition from State, CIA, or any other part of the supposedly powerful “deep state” — with no effective pushback from Democratic or other political opponents — and with the passive assent or active collaboration of supposedly liberal Silicon Valley, most famously Elon Musk and Peter Thiel. This was the DOGE era. Vought’s Office of Management and Budget, as expected, proved to be the key actor in the reduction of government.

With regard to international institutions and the domestic agencies that interact with them, the administration did not so much seek to advance its views as to withdraw money and participation. Since the US was the principal actor in binding the international system together, non-participation and budget cuts were enough to cause it great harm. Congressional misgivings mattered little: the president had no respect for Democratic views or the established rules of the game; court decisions on the scope of executive powers take too much time; and perhaps most important, the president had no respect for Republican politicians who might oppose him, while he nonetheless had influence with their constituents and an eagerness to use it.

Defunding of State or USAID paralleled the defunding of domestic governance. Defunding was never just about State or USAID.  It was about shrinking government commitments generally. The Securities and Exchange Commission was targeted; by the end of FY 2025 the commission had an attrition rate of 17.8% (a fivefold increase year-on-year) and had lost more than a quarter of its contractor personnel.  The Internal Revenue Service lost just over half ($40.8 billion) of the monies appropriated for modernizing it as well as 25% of its workforce. The Treasury Department, US military branches, and the Veterans Administration also experienced significant attrition in 2025, according to federal Office of Personnel Management reporting, with the military shedding 63,400 men and women. DOGE-enforced layoffs (“reductions in force”) were a very small part of this broad picture. Most people either quit, took buyout offers (counted in public OPM statistics as quitting), or retired. Overall, the US government workforce since President Trump’s second inauguration shrank (Jan-Nov 2025) by 335,000.

The ideological justification for this shrinkage, apart from a simple reduction in costs and corporate regulation, was to combat “wokeness” and the “weaponization” of government. That was Vought’s great theme and shaped the trimming of government agencies. The main proximate enemy was Diversity, Equity, and Inclusion (DEI), which proved to have remarkably few defenders. President Trump’s very first moves were to eliminate DEI from government wherever possible, to use the stick of federal funding to accomplish something similar in universities and the educational system, and to deploy the Justice Department to make companies who had adopted DEI, often at federal direction, to now eliminate it, also at federal direction. The Trump administration was itself weaponizing government, but against wokeness.

Implicit in anti-woke initiatives was the idea that there had been a pre-woke equity based on merit that liberal woke efforts had disturbed and which would now be restored. This was symbolized by the official revival of a classic painting, John Gast’s 1872 American Progress, which features a white-draped flying goddess, Miss Columbia, leading a group of white male settlers west as Native Americans and wild animals flee. It was anti-woke trolling, but the Supreme Court’s decision in Ames v. Ohio — that a majority group, such as straight people, can be discriminated against, and be legally protected from discrimination, in just the same way as a minority group — was more substantial. So were the Justice Department’s investigations into discrimination against majority groups. “White people,” the president said, had been “very badly treated.” According to a Justice Department spokesperson, a decade of “DEI insanity” had “led to blatant, widespread race and sex discrimination.” The department and the administration seek to restore what they see as the pre-DEI balance. Since the only groups that could be seen as discriminated against by wokeness were white Americans, straight people, and men, the restoration aimed at by the Trump administration would need to benefit them if it were to be successful.

Is it working? Early evidence suggests it might not be. Consider the US Army. The method used in the case of the US military was to eliminate preferences based on gender or race. These were believed to have led to poor recruitment. US military recruitment did indeed surge in FY2025, and defense secretary Pete Hegseth attributed it to getting rid of “this politically correct garbage” in favor of “war fighting.” So it is striking that US Army statistics for the regular army show an FY2025 increase from FY2024 in female and non-white recruits, and a decrease, as a share of the total, in white recruits and men. Even under the presumably optimal conditions of a Trump administration, then, white-male recruiting at the US Army is down. The female share of recruits under Hegseth has climbed from 18.1% to 19.7%. The “Caucasian” share declined from 40.5% to 40%, continuing a downward trend from at least 2020, when the share was 52.7%.

Something similar has happened in the “DMV” region: Washington DC, Maryland, Virginia. It is the sixth-largest economic region in the country and naturally sensitive to declines in federal employment. In the DMV, white unemployment has risen faster than black unemployment under the Trump administration, a reversal of the usual relationship. In another departure from the norm, unemployment has concentrated in suburbs; black unemployment in DC itself has actually gone down. Bear in mind that the bulk of the shrinkage in federal unemployment under this administration has been through quitting or taking buyouts. What this suggests is that white unemployment in DMV has grown under Trump, primarily from white workers quitting his government.

The Department of Homeland Security (DHS) is the exception to the pattern of federal agency shrinkage. While DHS itself is down slightly and most of its subagencies have declined, Immigration and Customs Enforcement (ICE) is up by 5,200 for the administration to date, and Customs and Border Protection (CBP) is up 1,746. These are OPM figures; ICE itself claims to have hired 12,000 new officers and agents. Either way, it is the one area of federal employment that bucks the downward trend.

DHS is, of course, also the agency charged with enforcing President Trump’s promised mass-deportation policy. DHS has not released demographic statistics on who is working for ICE or CBP. But in 2023 DHS was 51.7% white (below the national average), 22.8% Hispanic (above the average) and 16.7% black (above the average). The new hires might change this balance. Expensive and sophisticated recruitment efforts, according to an internal ICE document, have been focused on people identified as being near UFC fights, gun shows, and NASCAR races as well as country-music fans, self-identified conservatives, the followers of conservative influencers, and so forth. That does sound like a white-male recruiting effort. Then again, the non-white audiences for NASCAR, UFC fights, and country music have all been growing in recent years, and in some cases the female audiences are growing as well.

It therefore seems more than possible that in the federal government, over which the president has considerable control, the elimination and denunciation of DEI policies has not led to an increase in white-male hiring. Several explanations suggest themselves. The main one is that white men either don’t need or don’t want the jobs. The white male unemployment rate over the first year of this administration has been steady and consistently lower than the unemployment rate for most other groups. That needle does not seem to have moved at all. The standout group for worsening job prospects over the same period has been black Americans, particularly women. At the same time, the labor-force participation rate of immigrant men has been significantly higher (roughly 76% versus 65%) as compared to native-born men, and the unemployment rate slightly lower (3.9 versus 4.3). The demographic group that stands out the most in the available BLS statistics for the first year of the second Trump administration is Hispanic men, more than 79% of whom participate in the labor force, with an unemployment rate of 4.3. When you combine these employment figures with the fact that employment improves with education — people with a bachelor’s degree or above have the highest participation rate (72.6) and lowest (2.8) unemployment rate — the picture that emerges is of a growing Asian presence in the upper reaches, as Asians devote far greater resources to education than any other group (including white Americans), and a more Hispanic middle class as Hispanic education rates and English proficiency steadily improve.

So far, the Trump administration’s war on woke, which has been the leading motif in its remaking of US government agencies, does not seem to have made much of a difference in economic terms for white people, straight people, or men. But it has succeeded in showing the weakness of Congress, state governments, and the rest of the American political system when faced with a ruthless executive willing to use physical force and budgetary power to suppress American political traditions of separation of powers and free political speech. This activity looked as though it was directed at undeserving foreigners and an unlamented wokeness. It was really directed at seizing domestic power, supposedly on behalf of the needs of white men — who so far have very little show for it, at least in economic terms.

Peak Trump? (1 of 4)

This is the first in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The series will look at foreign affairs first, the domestic economy with regard to government second (IRS, SEC, Justice Department, etc.), the domestic political economy looking toward the midterm elections, and finally how the analysis advanced here might affect investment.

Donald Trump did not win his second term as president because of his foreign policy goals or record. His first term was not dominated by foreign affairs and was not seen as notable in those terms one way or the other. His confrontational first-term China policy was generally reckoned a success, at least as a strategic re-orientation, and mostly adopted by the Biden administration. There were other innovative policy initiatives, including the Abraham Accords in the Middle East and the Clean Network campaign for exclusion of Chinese telecommunications technology from international networks (also amplified in the Biden years). The renovation of NAFTA into USMC was not especially consequential, although it introduced a 6-year review, which comes due this year. Otherwise the first Trump administration’s foreign policy was mainly about trying to make major deals — with Kim Jong-un of North Korea, with Vladimir Putin, with Xi Jinping — and substituting economic nationalism for overseas commitments to allies and international institutions. The dealmaking was a failure, including when a deal was actually reached (with China). The turn from internationalism to nationalism, however, was a success in its own terms, and the US’s long march away from alliances and international institutions, beginning in the Clinton administration and continuing (with pauses, as in 2008) ever since, became ingrained practice. But Trump’s second presidential campaign did not run on any of this. The only major foreign-policy campaign promise was to resolve the Ukraine conflict within 24 hours of assuming office.

That, of course, did not happen, and the Ukraine war continues a year later, with Europe struggling to replace military aid stopped under Trump and with US-led diplomacy lacking in results. The most striking thing about Trump foreign policy early in the new administration, as discussed in a number of SIGnal posts, was the doubling down on economic nationalism (using tariff policy) and neo-isolationism (the end of USAID and other international commitments). These moves were radical in themselves; more radical still was the degree to which they took power away from the Republican-dominated Congress and the professional civil service. The lack of effective political opposition to the administration’s moves revealed the shallowness of the American political commitment to internationalism. It also revealed the extraordinary freedom of maneuver now available to the president in foreign affairs.

But President Trump did not have an alternative programmatic use for the powers he had succeeded in acquiring. He lacked a positive ideology. His goals were essentially negative, such as spending less money abroad. Beyond that, there was simply the demonstration of power: threatening to take the Panama Canal (December 2024), then Greenland (January 2025), then Gaza (February); confronting the president of Ukraine (February); harshly criticizing European domestic policies (February, via Vice President Vance); and attacking Iran (June).

At the same time, there was the assertion of a special ability to solve long-standing crises through mediation. This began with a diplomatic intervention in an India-Pakistan confrontation in May, which caused Pakistan to nominate Trump for the Nobel Peace Prize, followed by other instances of what he called ending, or in the Balkans preventing, conflict: Rwanda-Democratic Republic of Congo, Kosovo-Serbia and Israel-Iran (all in June), Thailand-Cambodia (July, and again in December), Egypt-Ethiopia (July), Armenia-Azerbaijan (August), and Gaza (September). None of these conflicts are actually solved. In December the State Department announced that the US Institute of Peace, an independent think tank funded by Congressional appropriation since its founding in the Reagan years, had been renamed the Donald J. Trump United States Institute of Peace to “reflect the greatest dealmaker in our nation’s history.”

What should one make of this seesaw pattern, with aggression from January to June, peacemaking from May to September? The Peace Prize went to María Corina Machado of Venezuela on October 10, 2025; the US’s first strike against a Venezuelan vessel was on September 2, followed by 20 more strikes to November 15. After a pause, the pace picked up in early December, and President Maduro was extracted from Caracas on January 3 after announcing he was interested in peace talks with the US. The US also bombed northern Nigeria at the end of December.

It is obviously tempting to think that the president wanted to show strength abroad from his inauguration to the early summer, but to take on the role of peacemaker in the summer and fall in the hope of being recognized outside his administration as the “greatest dealmaker” for peace. He had stated since 2018 that he thought he deserved the Nobel Peace Prize and reiterated this in February and June of 2025. When he did not receive it, his actions abroad became violent again. He appeared very pleased when Machado gave him her peace-prize medal. But with threats against Cuba, Mexico, Colombia, and again Greenland and Panama, the president seemed to swing back to the belligerence with which his presidency began, in the last two cases with the same targets. The US withdrew its support from some 20 international agencies — the result of a long-delayed State Department review ordered nearly a year ago — and froze the visa-approval process for citizens of more than a third of the countries of the world.

So the pattern of military actions and peacemaking in the administration’s first year does seem to have a pronounced personal component. The president’s weekend letter to Norwegian prime minister Støre confirms this. There is nothing else that links Nigeria, Armenia, Thailand, Iran, Greenland, and so forth. It is a mistake to impose more of a pattern than there is.

However, at some point in the summer or fall the reign of budget director Russell Vought, whose task it was to shrink the US government, seems to have given way to the reign of chief policy advisor Stephen Miller, whose ideas stretch beyond dismantling Diversity Equity and Inclusion (DEI) and Environmental, Social and Governance (ESG) projects and intimidating institutions (corporations, universities, law firms) who once pursued them. Miller has a worldview and a theory. It unites the militarization of anti-immigrant policies with foreign policy, including economic policy. The re-focus of US foreign policy on Latin American drug gangs had been a staple of DC gossip since early in the administration. Now it was clear.  In Miller’s words:

Not long after World War II the West dissolved its empires and colonies and began sending colossal sums of taxpayer-funded aid to these former territories (despite have [sic] already made them far wealthier and more successful). The West opened its borders, a kind of reverse colonization, providing welfare and thus remittances, while extending to these newcomers and their families not only the full franchise but preferential legal and financial treatment over the native citizenry. The neoliberal experiment, at its core, has been a long self-punishment of the places and peoples that built the modern world.

There is something to dispute in almost every word in those sentences, but the point here is that the role of Miller and Vice President Vance appears to be to give some intellectual structure to what might otherwise — given the lack of effective political or public opposition to the concentration of decision-making power in the White House — be simply a personal foreign policy. The criticism of Europe, in the US National Security Strategy, for engaging in its own “civilizational erasure” by not having enough children, sapping the vitality of nations by imposing a European Union on them, and admitting immigrants is part of a larger idea about imperialism and the West. Europe is seen as a betrayer of the West, and the US under Trump as its lone defender. The global economy for perhaps a century is seen as having been an unfair deal for the US and the once-imperial Western powers. The emotional power of this view comes from the sense of internal Western betrayal and of being besieged by the undeserving poor wanting to take what is left of the once splendid West. The chief mode of response, in Miller’s words, must be “strength,” “force,” “power”: “These are the iron laws of the world.”

This is the emergent ideology of the Trump administration with regard to foreign affairs, with ample room allowed for the president’s personal reactions to people and events, such as not winning a famous prize. Trump has never demonstrated a historical sensibility, so it is difficult to know how much he himself believes in this ideology. Nonetheless, it has been foreshadowed for nearly a year and does seem to be the one his administration has. We will look at some of the implications for investors in the conclusion to this series.

Mexico’s Tariff Solutions

Are US tariffs good for Mexico? You would not expect so. Yet Mexican exports to the US grew by 6.5% between January and July of 2025, an almost 18 percent increase over the same period last year under the Biden administration. As noted previously in SIGnal, the tariffs imposed by US President Donald Trump to date have not yet produced their intended results. Fentanyl use seems to have been unaffected (see “The New Pessimism,” 31 Oct. 2025). Manufacturing employment has not improved (“The Jobs Conundrum, Part Two,” 2 Aug. 2025). A new report from Deloitte found that US manufacturing construction spending has been going down as the cost of intermediate goods used in manufacturing has climbed. Now there is a growing Mexican trade surplus with the US, and it is based mainly in manufacturing.

How did this happen? The main reason is of course that Mexican exports to the United States are most often duty-free under the US-Mexico-Canada free trade agreement known as USMCA in the US, T-MEC in Mexico and CUSMA in Canada. (Each nation wanted to put itself first in the local acronym…) Roughly 85 percent of Mexican exports to the US are unaffected by the various tariffs the Trump administration has placed on Mexico.

It is also relevant that Mexican exports in general have been thriving, not just those destined for the US. Mexican exports as a whole have jumped 4.3 percent in 2025. Mexico’s manufacturing sector is simply improving, with happy results for its exports.

But the US is by far Mexico’s biggest market, the destination for 80 percent of its exports.  Mexico’s trade surplus with the world is mainly its surplus with the United States. There have to be reasons other than the USMCA — after all, Canadian exports to the US, equally covered by USMCA, have gone down over the same period — and general improvement in Mexican manufacturing.

One explanation is that Mexico has taken market share from China. While Mexican exports to the US were going up by 6.5 percent China’s went down by 18.9 percent. Part of the Chinese decline was in intermediate manufactured goods, that is, manufactured products that are inputs for final products made elsewhere. This is the big sweet spot of Mexican manufacturing exports and China’s loss is Mexico’s gain. In addition, intermediate goods from, say, Vietnam that, in a pre-tariff-war world, went to China for further incorporation into products that went on to the US are now sent to Mexico. This has the double benefit for Mexico of placing its manufacturing higher in the value chain and protecting it from being penalized by political actions the US takes against China. The Sheinbaum administration has made it policy to de-risk Mexico’s economy from exposure to US-China struggles. Given Mexico’s dependence on US demand, this is the only sensible path.

Intermediate goods are central to another explanation for Mexico’s manufacturing trade surplus with the US, in two ways. The first is that US companies like Ford and General Motors manufacture a significant portion of each “US” car in Mexico, and as long as 40 percent or more of such a US car is made in the US then only the remaining 60 percent or less will be subject to the tariff. Other, non-US auto manufacturers who build cars in Mexico for the US market — Japanese and German companies mainly — cannot take advantage of this in the way US companies can, which redounds to the benefit of Mexican auto factories working directly with US companies. And autos are the biggest sector for Mexican exports to the US.

The second way in which intermediate goods affect the surplus is inflation. There is excellent reason to think that cost increases caused by tariffs result in an inflation of intermediate-good prices more than consumer prices. In other words, the prices of Mexican-manufactured intermediate goods that are then used in US production — and they account for a great deal of Mexican exports to the US — go up, increasing the value of Mexican manufactured exports to the US while Mexico also benefits from the reduction of competition by China and others, a reduction that is itself caused by tariffs. In this peculiar way, US tariffs are a win-win for Mexico.

US tariffs do have negative effects for Mexico, notably a reduction in inward investment. But on the whole tariffs seem to have made Mexican exports to the United States stronger, and in industries (autos and other vehicles, electronics) that, in the US, were supposed to be helped by tariffs.

The reduction in foreign investment into Mexico is driven in large part by the unpredictability created by US trade policy. That policy is not likely to become more predictable any time soon. The US Supreme Court will rule on the question of the president’s arrogation of tariff authority before the end of the year. Whichever way that decision goes, it will not mark the end of the struggle between the White House and Congress over tariff and budgetary authority. And then the USMCA will go through a mandated review in July 2026. There is actually a striking optimism in Mexican (understandably) and Canadian (less so) circles about being able to manage the USMCA review. That may yet lead to more investment in Mexico as its manufacturing sector grows.

Changing Patterns of Foreign Direct Investment

The McKinsey Global Institute has published a report on patterns of foreign direct investment (FDI), specifically greenfield (new project) investment. It is both a thorough and  a methodologically innovative report. Interestingly, the report rather buries its headlines. This might well be because the MGI, like McKinsey itself, to the limited degree that it has a political perspective, is for efficient global markets based on mainstream economics, and therefore “for” globalization. It is not the McKinsey Institute for Successful Economic Nationalism. Given that this is an era dominated by economic nationalism, the MGI’s commitment to political neutrality probably makes it hard to rank its findings by significance.

For example, is it good news or bad news to show that announced greenfield FDI flows into China have decreased by 70 percent since 2022, in the teeth of Chinese policy? Is that finding more, or less, important than the related finding that Chinese outward FDI investment is dominated by what MGI calls “future-shaping industries,” which mainly means AI data centers? Similarly for the US, the report finds that announced inward greenfield FDI has soared but it is mainly in semiconductor manufacturing and, again, AI data centers. The report also notes the huge role of Gulf Cooperation Council countries such as the UAE and delicately acknowledges that much depends on “the ultimate form of trade deals between the United States and its partners.” It would take a brave investor to decide with confidence what that form would be or indeed whether those deals will ever have an “ultimate form.”

Another possible headline might have been built around the finding that FDI announcements in advanced economies other than the US have been anemic since 2024, with data centers barely picking up the slack from drop-offs in energy and advanced manufacturing.

Yet another headline is in the finding that announced greenfield FDI investments in 2025 (to May) “in each of the emerging Asia, Latin America, MENA, and sub-Saharan Africa regions are at 20-year lows….FDI investments across these regions have fallen by 50 percent from their levels during the 2022-24 period, on an annualized basis.” So while total global FDI has grown, it has gone down in all the poorer parts of the global market, as well as barely straggling along in most advanced economies.

This could be seen as a victory of sorts for the US and the Trump administration, if victory is measured by the signing (not execution) of deals in AI data centers and semiconductor manufacture. However, the Trump administration gained power with promises to bring back traditional manufacturing, and the MGI report finds investment in that sector plummeting nearly everywhere in the world, including the United States.

There are several other possible headlines that could be gathered from the MGI report, which amounts to a map of the intentions or hopes of mega-scale capital. (The corporate drivers in the report are dominantly major multinationals signing megadeals — yet another headline.) In a crowded field, SIG’s own choice would perhaps be that investments in low-emissions technology, which doubled from the 2015-2019 period to 2022-2024, have fallen by 70 percent in 2025 for low-emissions hydrogen and offshore wind. Other energy forms have remained about the same or, as for conventional fossil fuels, gone down. Geothermal and nuclear announcements have more than doubled but from such a relatively low base that “they hardly dent the aggregate energy FDI numbers.”    

What this suggests is that even the biggest investment decisions made by the largest corporations having (as with energy companies) the longest and deepest experience of greenfield FDI are being decisively shaped by political developments, above all in the US and China but also in the Gulf. If the political winds of January-May 2025 were to change, as they almost certainly will, then further massive shifts in FDI flows will also occur.

So both investment capacity and policy influence, when it comes to global greenfield FDI flows, are being concentrated and profoundly politicized. That clearly does not mean that they are becoming more predictable, only that there are fewer decision-makers. In the global struggle for political-economic power, this could mean that victory will go to the major power that is most stable and predictable, which is presumably China. The high degree to which Chinese multinationals, as the MGI found, are engaging in greenfield investment outside China — as well as, of course, outside the US, where they are not currently welcome — also suggests as much.

The Nine Lives of Economic Nationalism – Part Four of Four

Earlier posts in this series considered the multi-century trajectory of economic nationalism in reaction to empire, the resurgence of import substitution and major-power resource competitions, and the ways in which major-power economic nationalisms have made non-market-based economic development policies more popular than they have been in decades, almost regardless of levels of industrial development or economic size.

This final post considers some likely near futures of economic nationalism and economic sovereignty, with particular attention to AI.

First, the United States. The US was born in a determination to end external imperial dictation of economic policy and has, for the most part, guarded a relative autonomy from other economies ever since. The unification and then expansion of the 13 colonies across the continent integrated conquered territories into a “domestic” economy in a way that had few comparators elsewhere in the world. The resulting extent of US natural resources, from fresh water to arable land to natural gas, also proved to be unique. The US was peculiarly well suited to economic sovereignty, and with large-scale immigration it was able to grow on domestic demand better than anywhere else. Exports therefore accounted for a relatively smaller share of GDP than was the case in other industrial countries.

The constraining factor in the US case was not a lack of petroleum or fresh water or food but labor productivity. This was addressed through numerous means, from transport infrastructure to compulsory public education to industrialized agriculture. It helped that the US economy, unlike other industrialized economies, benefitted from both world wars. Productivity entered a crisis in the 1970s. It was eased, in a way, by the Internet and industrial globalization: your wage might be stagnant but it bought much more. But that improvement depended on production outside the US under working conditions that would be rejected in the US itself.

The extraordinary US investment in artificial intelligence comes from this.  AI holds out the promise of increasing productivity. But will it be global productivity or national productivity? Differently put, will the gains be captured by transnational capital and consumers or by tax-paying domestic markets and citizens? Will it be international or nationalist? Low unemployment, very slow job creation and high government and corporate debt all suggest that, absent an AI productivity miracle, the US will head into recession. That might well make the American people more nationalistic and insistent on economic sovereignty, but economic nationalism will not be able to solve their problems.

Chinese economic nationalism faces other constraints. A shrinking workforce and resistance to immigration mean productivity gains will have to come from labor-saving technology and investment in the non-Chinese global workforce. The first would be economically nationalistic. The second would be more like what US companies did in the 1980s and 1990s, and it could hollow out the Chinese jobs market as it once did the American. This would fuel the popular appeal of economic nationalism but, again, economic nationalism is not likely to be able to solve China’s labor productivity problems. An AI productivity miracle would help China as it would help the US. But it would be a miracle.

AI looks different outside the US and China. Those two countries thoroughly dominate the AI space. In AI terms, most other countries are takers, not makers. Africa’s population, a bit larger than China’s, captures 2.5% of the global AI market and is expected to attract 0.3% of global AI investment. The European Union attracts 7%. Britain, Canada, Israel and India also have significant investment, with Britain’s spend twice that of Canada’s. Nonetheless, the US and China attract 80%, with four fifths of it in the US. If an AI productivity miracle occurs in the existing economic-nationalist environment, it is difficult in political terms to imagine the benefits being rapidly diffused across the globe, since the goal of the investment is roughly the opposite.

AI aside, the resurgence of discredited 1960s-era development economics, from “national champions” and import substitution to infant-industry protection and tariffs, is becoming widespread. These policies were celebrated by the Left half a century ago as a way to withstand US corporate domination. Today their appeal is close to universal. They are even seen in the US as ways to ensure the US domination that they were once meant to block.

The essential point seems to be sovereignty. It is a phenomenon rich in paradox. The US-led Internet boom made possible a globalization that dramatically increased the wealth of once-poor countries, above all China but also India and others. These states could then afford to oppose what had just made them wealthy and to revive policies that had not helped them at all the first time around. China, India and other once-colonized nations wrap this in a rhetoric of anti-imperialism while hurrying to lock up poor-world resources before their once-imperial competitors do.

This is the central reason why China’s alternative global-governance schemes will go only so far: they are motivated by economic nationalism. Yet the same is true of US, Indian and European efforts, although European economic nationalism plays out on two levels at once, the national and the supranational. The major EU reform initiatives of 2024 were all premised on consolidating nation-based sectors into a super-nation capable of competing with the US and China.

For investors, at the national (or for the EU, supra-national) level, the play is in policy arbitrage, which is also political arbitrage. At the global level, as between major economic-nationalist actors like China, the US, India and the European Union, it makes sense to hedge with presences in at least two, navigating the relationship in each market among affirmative industrial and financial policy, protection, and market-based competitiveness. (A simpler way to do this, of course, is to invest in multinationals and funds with the proven capacity to do this kind of multi-market navigation themselves.) Beyond that, in countries like Nigeria and Ethiopia, which aim at economic sovereignty but lack much of what is necessary to achieve it, there are opportunities in the state-favored sectors themselves, the import and domestic sectors that provide the necessary inputs (such as electricity and raw materials), and the export sectors that ultimately make imports possible.

Little of this was featured in business school and Adam Smith would be appalled, but for the time being economic nationalism is the way of the world. 

The Nine Lives of Economic Nationalism – Part Three

Part one of this series discussed the roots of modern economic nationalism in anti-imperialism, then went on to consider how US-Chinese economic nationalism has scrambled established ideas about both empire and economics. Part two examined two cases in Africa: the first involved two formerly colonized countries (India and China) competing for dominance of resource extraction in other formerly colonized countries; the second focused on the successful import-substitution (oil refining, cement, fertilizer) companies of Nigeria’s Aliko Dongate and his new, $2.5 billion fertilizer-production deal with Ethiopia. In both posts, the through-line was the defense of national economic sovereignty in a world deeply interconnected through trade.

The third post in the series looks at the blowback created by US-China economic nationalism.

The first case of blowback must surely be the US reaction to Made in China 2025 itself. The original Chinese program was a sovereignty play. China did not want its economic future (green energy, smart manufacturing, biotech, etc.) to be dominated by US companies with massive first-mover and other advantages. Made in China 2025 was a project aimed at economic self-determination. It did not cause much concern at first in the US: President Barack Obama met China’s President Xi Jinping for positive talks in 2016, after the project had been launched, and visited him again in Beijing in 2017 after leaving office. But Trump’s signature economic nationalism, once he settled into the White House in 2017, gradually fastened onto Made in China 2025 as a legitimizing opponent. Much of corporate America and the Democratic Party went along with this, for reasons of their own. The economic nationalism of a still relatively poor country — Chinese GDP per capita in 2015 was less than a third of what it would be in 2025 — begat the economic nationalism of the dominant economy in the world.

The US elaboration of economic nationalism in reaction to, and often in imitation of, Chinese economic nationalism inspired similar reactions elsewhere, most notably in the world’s most populous nation, India. In May 2020, while Trump was still in office, Prime Minister Narendra Modi launched a Made in India campaign. He made free use of a term, swadeshi, deeply resonant of the anti-imperial movement a century before. It was probably Modi’s move, combined with the breakout of border conflict with China (also May 2020) and the ensuing expulsion of Chinese tech companies from the Indian networks they mostly built, that led China to reframe Made in China 2025 in a longer history of anti-imperialism and attempt to rival India as a leader of the Global South.

The die was cast. An economic nationalism, including import substitution and “food sovereignty,” that had seemingly left the world stage in the early 1970s was back, led by the two dominant economies in the world and its most populous nation.

At the same time, the US, China and India all knew that actual isolation from the global economy was impossible in any imaginable near term. Modi’s atmanirbhar (“self-reliance”) coincided with much closer relations with the US and US companies, for example, including military and tech cooperation, right up to Trump’s sudden and wrenching disenchantment with India in August of this year. US economic nationalism was also not just about autonomy in North America. It involved, for example, throttling Chinese export industries and doing whatever was necessary for “locking in dollar supremacy,” in Treasury Secretary Scott Bessent’s words, to preserve “extraterritorial power.” Similarly, Chinese self-reliance (zili gongsheng) developed alongside a lengthening list of quite internationalist projects, from the Belt and Road Initiative to promoting the Shanghai Cooperation Organization as a pseudo-NATO. Each of these large economic powers preached economic nationalism but also practiced internationalisms of various kinds and showed no actual desire to stay contentedly within its borders tending its own gardens.

Yet if major-economy economic nationalism in practice had a strong internationalist cast, it was nonetheless nationalistic in terms of the barriers erected against foreign participation in domestic economies. It was also exceedingly transactional, before Trump’s re-election and all the more so after. Friendly meetings at the beginning of September of this year among Modi, Putin, and Xi were often spun — not least by China — as evidence of an emerging international unity when faced with US trade and security policies. But there were no principles involved beyond sovereignty itself, and each of these actors, as well as Trump, has shown himself able to switch sides at will, and to switch back again.

So the sensible conclusion for countries in the rest of the world is to avoid alignment with any of these changeable states and to pursue their own self-sufficiency (“economic sovereignty”) — because you really never do know any more when your foreign supply chains will be reshaped by political policies over which you have no influence.

Economic nationalism fosters more economic nationalism. The unpredictability created by economic nationalism among major players — including the European Union with its quest for “autonomy” and resistance to becoming a US tech “colony” — has come to outweigh the profound efficiency costs. Better to slog through building your own fertilizer or cement industry or AI “stack” than give up what autonomy you have to politicized global markets.

The fourth and final post in this series will consider the future of economic nationalism.

The Nine Lives of Economic Nationalism – Part Two

Part one of this post discussed the roots of modern economic nationalism in anti-imperialism, then went on to consider how US and Chinese policies of economic nationalism over the past decade have scrambled established ideas about both empire and economics. The US-China model of economic nationalism, combining a desire for economic autonomy within the state’s borders and one for the projection of economic power outside them, has been embraced by powers both formerly imperial and formerly colonized. It is an episode in a very long history.

Two recent developments exemplify this. The first has to do with Indian-Chinese competition and Africa. India (and others ) now aims at securing African resources to compete with, and avoid dependence on, China. Writing in The Hindu, Samir Bhattacharya of the Observer Research Foundation argued, “African nations are growingly asserting their rights to value-added development. The old model of raw resource extraction in exchange for infrastructure or investments is no longer tenable in a region demanding agency, accountability, and economic sovereignty. … By challenging opaque contracts, enforcing environmental standards, and demanding value addition, they are redrawing the terms of engagement. If these trends continue, African countries are poised to reshape the global supply chain for minerals and their role within it, moving from exporters of raw materials to integral partners in the emerging green economy. This change would come at the expense of China’s long-standing dominance in the African mining sector.”

Bhattacharya neglected to mention that competing with China to secure African raw materials for Indian industries, with the goal of ending Chinese dominance of African mining, is Indian policy. And that policy is not solely motivated by a wish to help African nations achieve greater “agency” and economic sovereignty. Nurturing the economic sovereignty of Ghana or the Democratic Republic of Congo is not in itself a leading goal for Indian policy. Nonetheless, the language is important because it marks the enduring significance of anti-imperial politics when negotiating contracts with African states — and because it shows two former very large colonized nations competing to show which is less imperial in its motivations than the other. They would not be bothering to do that if it didn’t promise to improve business.

A century and a half ago, empires themselves competed in roughly this way, each claiming to be more liberal than its competitors — or, in the case of the Japanese empire circa 1910, claiming to be the champion of other non-white peoples, or at least Asian peoples, in rallying “the yellow races against the white as a common enemy,” as a Japanese professor put it in 1918. China and India in Africa today are marketing themselves in ways that stretch back to the late 19th century.

Of course, from an economic-nationalism perspective, on the ground in Lagos or Kinshasa, the key point is not to find more comrades for a united anti-imperialist front but to secure investment that can bring local production out of the raw-materials trap and advance it up the value chain. Just as Americans on both continents in 1800 did not want London, Lisbon or Madrid to keep them forever digging in the mines, felling the forests or laboring on export-oriented farms, the inhabitants of less-developed countries today do not want only to produce petroleum or cocoa or strategic minerals for refinement elsewhere. But actual transfers of intellectual capital, such as production methods, are not simple or easy. They often require a great deal of “agency” from local actors. Such actors will not always be loyal followers of mainstream economic theory.

A remarkable recent example is the deal struck at the end of August between Dangote Group, of Nigeria, and the government of Ethiopia. The story of Aliko Dangote, sometimes called the richest black man in the world, is well known, but in brief: Born in 1957 to a wealthy business family, Dangote was educated in a madrasa and public schools, then at Cairo’s celebrated Al-Azhar University. He began importing cement to Nigeria in the 1970s but his biggest business was in sugar refining. He formed the idea that he would lead in freeing Nigeria, and perhaps Africa, from dependence on imported refined materials — the classic post-imperial goal. When a friend became president of Nigeria, Dangote seized the moment. He acquired formerly state-owned cement plants and established a highly successful cement business, expanding to production elsewhere in Africa. His efforts were self-consciously mocking, in a gentle way, the Smithian economic doctrine that there was no point in Nigeria developing its own cement industry because it could import cement from countries that already excelled at cement production. Such “import substitution,” popular in the 1960s, had become deeply out of international favor. Dangote did it anyway and was hugely successful. By 2024 Nigeria was a net exporter of cement.

Petroleum is the biggest industry in Nigeria, but it has long been mainly a matter of exporting raw materials for refinement elsewhere. Dangote became a major player in oil refining, such that in 2024 Nigeria was a net exporter of petroleum products for the first time in decades. His other major sector has been fertilizer, which uses natural gas as its main input. Nigeria has immense natural-gas deposits. The $2.5 billion deal with Ethiopia last month involves Dangote (with a 60% share) developing Ethiopia’s fertilizer capacity using Ethiopian natural gas.

On X, Ethiopia’s prime minister, Abiy Ahmed, framed the deal as one ensuring “food sovereignty” and “food security.” Ethiopia currently enjoys neither, and the Trump administration’s cuts in food aid — Ethiopia had been the single largest recipient — made matters worse.

“Food sovereignty” has been a recurring issue in both US and, especially, Chinese economic nationalism. Now that their rivalry has so disrupted international markets, the reliability of food imports has gone down for everyone. The same is true of strategic-minerals imports, now such an important focus of Indian Africa policy. Indeed, one could say that US-China economic nationalism has created a world of economic nationalisms. The repudiated “import substitution” of yesteryear has returned, not from preference (or ideology) but from a necessity created principally, if unintentionally, by the policy decisions of the world’s two largest economies. One nearly certain result will be increased production outside of the US and China that will provide new competition to those dominant countries.

The next post in this series will look at how economic nationalism came to dominate the international scene.

The Nine Lives of Economic Nationalism – Part One of Four

To say that economists think poorly of US President Donald Trump’s economic policies is to understate matters. Most see him as an unhappy combination of a 19th-hole savant and that student — there is one in every classroom — who insists on the rationality and inevitability of socialism. President Trump differs from the student in that his own guiding star is economic nationalism rather than socialism.

But, as many have pointed out since the administration decided to take a 10 percent stake in Intel and cull 15 percent of Nvidia’s and AMD’s China revenues, economic nationalism and socialism are not so far apart. Each leans toward state self-sufficiency and tends to involve state control of the means of production. Both involve the state imposing its priorities on the market. Economists since Adam Smith in The Wealth of Nations (1776) have seen such state control as less efficient than market allocation of resources. Thus, in part, economists’ anxieties about Trump policy. 

This four-part series will look at how economic nationalism has persisted despite its theoretical irrationality. The question is significant for investors because investments are often based on assumptions about economic maximization in free markets. Economic nationalism confounds such assumptions and complicates investment. It might also make the global economy’s “weaponized interdependence,” in Henry Farrell and Abraham Newman’s phrase, exceptionally dangerous. This series tries to assess that threat.

Adam Smith argued that, whether inside a state or between states, producers should specialize in what they already do best. Trade would then ensure that the best products at the lowest prices would reach customers and the overall economy would produce the most and best for least. Restraining trade would by definition reduce efficiency.

That was a leading reason why Smith and most economists after him were anti-imperialist. To take over territory, people and resources and bend them to making things the imperial center wanted, rather than what they might do best, ran contrary to market economics. The American revolutions, from Buenos Aires to Haiti to Boston, were led by people who wanted to take control of production away from empires. Settler colonialism was, in this sense, a school for radicalism.

It was also, of course, a school for economic nationalism. Newly ex-colonial states like the US appreciated that their former masters had a head start in developing the most productive technologies and business methods. The point of anti-imperial revolution circa 1800 was not simply to exchange formal domination for informal subordination by superior economies. Economic nationalism was animated by the desire for sovereignty: the business of states, so to speak, rather than of businesses. Restraints on trade, in the service of economic nationalism, always operated alongside their opposite, namely free trade. This was true in the 18th century as it is today. It was a feature, not a bug, of modernity.

The first Trump administration, running contrary to modern economic theory, embraced such an economic nationalism and the restraints on trade designed to advance it. The proximate cause was China and its set of policies gathered under the name of Made in China 2025 (launched in 2015). If the state-controlled 18 percent of humanity known as China was going to structure its economy to further its own economic nationalism, then the US was going to do the same. Tellingly, in arriving at Made in China 2025, Chinese economic thought took the anti-imperial US economy of the late 19th century as one model in combining restraints on trade with a conditional embrace of free-market forces, both aimed at the political goal of economic sovereignty and the historical goal of catching up to the modern world’s first movers, which were primarily empires. (Industrializing, imperial Japan circa 1890, one of whose aims was unfortunately supremacy over imperial China, was a similar and powerful model, especially for non-Europeans.)

As Trump’s and then Joe Biden’s economic policies developed, it became clear that China and the US were jointly reconfiguring the global economy to advance their respective economic nationalisms. What neither the US nor China seems to have anticipated was that this dynamic would solidify among other large economies as well, from the European Union to India, to create the global economy we have now, raising up sovereignty and self-sufficiency at the sacrifice of overall economic efficiency. Such an economy is inherently conflictual as well as inefficient. Indeed Adam Smith’s economics was an important inspiration for 19th-century peace movements: a reduction in economic sovereignty was thought to create an interdependence and frequency of cross-border exchange that would tend to reduce interstate conflict. Smith would have seen today’s worldwide rise in military spending and investment as a dead weight on the economy. He would have seen today’s goal of economic self-sufficiency as hopeless and misguided. But the relationship between economic nationalism and economics is complicated. Businesses of many different kinds now find they have to negotiate both simultaneously.

The next post will look at two recent examples of how complicated, and unexpected, such negotiations can be.

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 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.

Can AI Make a Country Great Again?

Much recent commentary on artificial intelligence (AI) has focused on the prospect of a company or a country winning a race for artificial general intelligence (AGI) or more-than-human “superintelligence.” However, that goal, which seems rather more religious than technological, is both elusive and, should it ever be achieved, fragile (see SIGnal, “Mutual Assured Malfunction,” March 13, 2025). Investors are focusing instead on “little tech” and firm-level or industry-level AI that uses specific data sets to engineer specific productivity gains. In SIG’s view, this more modest course seems both economically more promising and politically much more sustainable. But it definitely does have risks of its own.

The appeal of “little tech” AI is partly that it leaves to one side the many serious questions about data privacy and other more existential matters that are posed by AGI. Smaller AI systems can run on the contained, often proprietary data sets involved in industrial processes, especially in manufacturing. The goal is not to replicate the human brain but to make industrial processes more efficient, raising productivity. It is a type of automation, using new technology yet still familiar enough from the history of industrial production.

With little-tech AI, startups can focus on specific problems whose solutions will provide a payoff in the relatively short term. In other words, AI would be monetizable. This has an obvious appeal not just to startup investors but also to industrial incumbents whose processes would be improved and whose productivity would be raised in competition with their rivals. Startups are not alone in this sphere. The German giant Siemens, for example, has put industrial AI at the core of its offering.

Politically, this approach to AI is much more appealing to most governments, only a few of which (the US, China) can have much hope of achieving global dominance by winning a race for AGI, at which point they might well regret getting what they wished for. Leaving aside the large question of AI data-center electricity demands, it offers the attractive prospect of raising productivity while reducing carbon use — because your factory in Texas, enhanced by AI, will no longer have to source so many of its components from East Asia, with all the carbon-using transport that entails. The little-AI approach also means states would not have to expose their citizens’ data to foreign tech multinationals, possibly based in hostile or overweening states, in order to participate in the later 21st century. That would be a gain for state sovereignty; and given that so many of the tensions around globalization have had to do with the way it threatens sovereignty and the democratic (or otherwise) accountability of governments to citizens, the little-AI approach could conceivably enhance global stability and the prospects for peace. Little AI, by improving productivity within a given national domestic workforce, could help states that are facing demographic stagnation — which is pretty much all industrialized states and many less-industrialized ones — to nonetheless grow on the basis of domestic labor (see SIGnal, “AI Family Values,” May 3, 2024). As Marc Andreessen and Ben Horowitz wrote in July 2024, “little tech” could make it possible “to reconstruct the American manufacturing sector around automation and AI, reshoring entire industries and creating millions of new middle class jobs” while also having green benefits. Technology could, in effect, provide the “labor” that would solve the biggest challenge facing President Trump’s vision of a more self-sufficient US: the lack of workers operating at a sufficient level of productivity (see SIGnal, “Trade Wars and US Labor,” April 11 2025).

Less carbon use, stabilization of the international sovereign-state system, a growing middle class, a renewal of rich-world domestic manufacturing but with higher wages and less grim manual work…What could possibly go wrong?

AI-enhanced production aimed at reshoring manufacturing to high-wage economies would square the circle of productivity growth and de-globalization. It would revive the pre-1975 global industrial status quo with the crucial addition of China (but not so much India or Southeast Asia). If you have the good fortune to live and work in a benefitting state, this would be a positive outcome. It could, however, also fuel techno-nationalism in the rich world (plus China) and make growth outside the AI-enhanced nations highly problematic. One key issue raised by the US-China struggle — a protected US market deprives non-American producers of consumers, while a protected Chinese economy, likewise deprived, dumps its production for the pre-tariffs US market onto the rest of the world’s economies — would be gravely worsened as the world’s two largest economies reduce their dependence on the rest of the world for both supply and demand.

AI-enhanced de-globalization could, in short, reverse the global redistribution of labor productivity that led to the greatest poverty reduction in human history. In theory, the gains from little AI could be more equally distributed. After all, the AI enhancements that would lift an underemployed person in Oklahoma or eastern Germany into the middle class of his or her domestic economy could do the same for a person in Nigeria or Thailand. But that outcome is not the goal for the people, states, and companies that are driving the growth in AI monetization. Their goal is nearly the opposite. For investors, the greatest gains will come from identifying companies and sectors best positioned to gain from AI-enhanced de-globalization.

A View From Europe

By Dee Smith

I recently returned from 6 weeks in Europe — Austria, Italy, Switzerland, and the United Kingdom. My trip coincided with the build-up to President Trump’s tariff announcement on “Liberation Day” and the reactions that followed it. The most interesting element of the trip was the evolution, or devolution, in views of the United States.

At the end of February, the attitude I first encountered was a mix of perplexity about the changes in the US and sadness that they were occurring. Even people who were disposed to dislike the US discovered that they had nonetheless kept within themselves a kind of hope based on belief in America and its distinctive experiment in democracy and freedom. Even with all its flaws the US seemed, so they said, to represent a possibility that humans might be better than we fear we are. One remark I heard summarized the attitude: “It seems that the lights have gone off in the shining city on the hill.” It was a sense of tragedy, almost of grief. Now, some said, they see that the U.S. is “just another country.”

But as the tariffs were imposed, this recessional mood changed. The attitude of heartache began palpably to transform into fear, and into anger. It was not as if the winds of change had not been blowing, and they knew that. There had, for example, been warning signs over the years that the US was pulling back militarily from Europe. And the Europeans were certainly aware of the fractures in US political structures, as in their own.

However, the tariffs were something different. The universality of them, the suddenness, and the way they were applied — with a chart apparently developed with the help of ChatGPT based on an arbitrary calculation — was disorienting, then frightening, and finally angering.

When the White House suddenly, and apparently temporarily, backed away from the tariffs soon after they were announced, it simply added confusion to the fear and anger around the entire issue and in many minds further undermined the stability of the US governance and financial system. “I really don’t know what to think” was a comment I heard more than once, sometimes followed by “but I’m angry.”

Although they may not have known what to think, they did know how they felt. People have cancelled trips to the US and taken other personally expensive measures, so off-putting have they found the developments.

There was still, amid the feelings of loss and anger, the wish that the old US would come back to something like what it was and an ember of hope that it might. But the dominant note was fear, driven by US actions but not only about them. People fear the Ukraine war continuing while they also fear it being settled: they fear Russia’s intentions once it is loosed from the constraints of fighting in Ukraine. They fear war in other hot spots: Iran, Taiwan, the Koreas. They fear the non-sustainability of their economic situation. They fear having to dial back their social support systems to increase their military budgets. They fear they will be outcompeted by other areas of the world. They fear for their supply chains. They fear more and larger waves of immigration from the Middle East and Africa, particularly if war escalates in the Middle East. They fear for the social and political stability of their countries. They fear unfair competition from China, and they fear what kinds of collusion China and Russia may be up to. And, as a constant, chronic theme, many fear the impact of climate change.

Europe is, like the rest of the world, in the midst of extraordinarily large transformations with unknown trajectories. The changes seem to have come on very suddenly, although of course they have not: there have been harbingers for years. The causes of the changes also elude many. That of course is for history to judge, but I did not find a single person who disagreed with the idea that fundamentally, beneath it all, lie broken promises. I have written about this previously, and will not go into any detail here, but people see that, although they played by the rules, the implied promises they believe were made by the political and economic system — that their children’s lives would be better than theirs, for example — have been irreparably broken.

Most surprising to me, I heard more than a few people in Europe, including investors and businesspeople, say quite seriously that they thought we were at the point of a very big change. And a number said the period between the end of the old and the beginning of the (unknown) new will be very tumultuous and dangerous.

Europe was the birthplace of the Enlightenment, and it was on Enlightenment ideas and ideals that not only the American system but also every system in Europe, and now far beyond, were based. Holding that the world is fundamentally comprehensible, the Enlightenment posited that humans make decisions rationally, in their own best interests, and thus that society can be rationally organized in a purposeful and predictable way. Not just democracy and capitalism, but socialism, Marxism, and communism are all based on different views of how to apply European Enlightenment ideas about organizing society rationally, purposefully, and predictably. Unfortunately, this rationalism simply does not seem to be an accurate take: we make our decisions emotionally.

So I found I was asking myself many times on this trip: if this whole superstructure of concepts does not in the end work — if it cannot work because of the nature of the drivers of human behavior — well . . . then what? That is the largely unspoken fear lying underneath all the other fears, perhaps not just in Europe.

Reversion to Mean

By Dee Smith

About a decade ago, we entered into a period of escalating social and political chaos, increasingly “hot” geopolitical conflict, and growing economic crises — a time that seems uncharacteristic given the previous decades. Unfortunately, the current period may represent a return to the norms of human history. The relatively peaceful, prosperous time we lived through may have been the deviation.

While not halcyon days, the 70 years after 1945 were a period in which great-power conflict was avoided, more than a billion people were lifted out of poverty, life expectancy — due to advances in sanitation, medicine, and living conditions — increased significantly, and norms regarding the value of human life changed dramatically. Murder, for example, was very common in most societies 200 years ago as a means of “solving problems.” Today, it is much less so.

The financial stability of recent decades was also new. There were no true global depressions, and highly disruptive events like sovereign defaults by major economies were absent. This was not true in the past.

Simply put, this relative economic stability was purchased by an overwhelming surfeit of debt. Two occasions on which this debt was used stand out: to rescue institutions deemed “too big to fail” in the financial crisis of 2008, and to stabilize world economies during the Covid pandemic. But debt has mounted continuously in most countries. In the US, public (government) debt is over $36 trillion. Private US debt is between $20 trillion and $30 trillion, depending on how it is counted. The extreme efforts to avert financial disasters mean that markets have never been allowed to clear. Like a forest in which fires are suppressed and undergrowth is never cleared by smaller burns, the fire, when it comes, may be cataclysmic.

After many years of increases in democratic governance in the 20th century, the 21st is seeing considerable backsliding. According to Transparency International:

In every region of the world, democracy is under attack by populist leaders and groups that reject pluralism and demand unchecked power to advance the particular interests of their supporters, usually at the expense of minorities and other perceived foes.

The form of democracy endures. In 2024, more people voted in elections than ever before in history. But with the rise of illiberal democracies, many countries are preserving the form but not the substance of democracy as it has been defined over the past 250 years. It is of particular interest that young people in many places are increasingly dissatisfied with democracy.

Why is all this happening? There are many interacting reasons, but I would suggest that four factors should be singled out.

First, as I have written before, are the broken promises so many people perceive in their lives. They feel that they played by the rules and were promised that their lives would improve and their children’s lives would be even better than their own. If anyone reading this sincerely believes this now, I would be surprised.

Second, the underlying conviction that economic well-being is the primary motivation of almost everyone and the most reliable source of human happiness — and that humans are rational self-interested agents who pursue and maximize their own well-being. This is the basis of not only capitalism, but also socialism and communism.

But, as it turns out, Marx was wrong in his estimation that economics is the moving force of history. It could rather be said that economic forces are moving history away from economics and toward identity politics. As people move or are moved en masse for jobs and economic production, community structures come apart, engendering an urgent need for identity. That need frequently takes the form of a desire to belong to some group that excludes others (social, religious, political, economic, even place-based).

A third factor is technology, particularly the technology of connectivity, and most particularly, mobile visual connectivity (smart phones, tablets, etc.). Not only do these devices demonstrably increase loneliness and affect cognition, as continues to be shown in studies, they also contribute two additional, crucial elements. The first is transparency. People now are intimately aware of how other people live to an extent that has never occurred previously. Whether such accounts are exaggerated, false, or accurate doesn’t matter much, the effects are often the same: envy, sadness, depression, and anger.

Second, mobile visual connectivity allows people with similar interests and thoughts —  including politically aggressive and polarizing ideas or destructive and self-destructive desires — to find one another, create relationships, share and develop ideas, and then act on them. It is perhaps most important that they are all able to do this from a distance and almost instantly. In the past, it was much more difficult for people whose thoughts were outside the norm to find one another and act in concert.

Fourth, much of the avoidance of major wars during the past 8 decades was due to the so-called Pax Americana, a system imposed on the world by the United States and made possible by American military power. Recently, with changes in military technology and the rise of other powers as near peers in military terms, this superiority begun to erode. Other factors are contributing to the eclipse of the Pax Americana, especially the debt load mentioned above. For the first time, the US last year spent more on government debt service than on its military.

All of these factors augur a more conflictual, impoverished, and insecure world. In other words, reversion to the conditions of most of human history. Perhaps some change or series of changes can avert this fate, and we should hope that they do. But if trends continue on their current path, life may be very different.

Trade Policy's Brave New World

As SIGnal readers will recall, the American shift away from free markets to government-guided industrial policy began with President Trump’s “economic nationalism” policies and became bipartisan dogma during Biden’s 2020 campaign. Its public face at the time was Jake Sullivan, a foreign-policy Wunderkind (and famously nice guy) in Hillary Clinton’s State Department who spent the Trump years leading a crack team of Obama administration exiles in search of a “foreign policy for the middle class.” Their boss at the Carnegie Endowment for International Peace was State Department legend Bill Burns, now with four years as CIA director under his belt, just as Sullivan has spent those years as national security adviser. A middle-class foreign policy might even be best understood as a Democratic re-conception of economic nationalism. In both cases, it is security, a/k/a China, that is driving economic policy, which is why the guiding principle for both parties has become economic dominance and supply-chain security rather than efficiency of production within a global market.

It is worth pausing to consider what a profound change this is proving to be. At the Council on Foreign Relations yesterday, Benn Steil, who is no one’s idea of a socialist, crossed the Rubicon and affirmed that the post-Cold War dogma of free trade, based on the venerable theory of maximal production rooted in the pursuit of comparative advantage, has had its day. As he put it, “competitive advantage can be manufactured by a government.” The government he had in mind was that of the Chinese Communist Party. His example was electric vehicles.

The New York Times’s economy reporter Lydia DePillis rather pointedly asked what took so long. Hadn’t free-market purism been dead for a while already? The CFR discussion was occasioned by an article Steil co-wrote with Columbia Law School tax professor Alex Raskolnikov. The latter responded to DePillis’s question by lightly acknowledging that the experts, attached as always to their theories, had lagged behind reality. Steil took a different tack, arguing that economists had been misled by their ingrained assumption that technological change is “exogenous” to an economy and therefore to economics. Steil believes that is not quite the case, and CCP investment in electric-vehicle technologies was the illustration. In that sector and others, China had “manufactured” its comparative advantage rather than acquiring it by the more “natural” (or “endogenous”) means that have underpinnned economic theory since David Ricardo (1772-1823) and Britain’s definitive embrace of free trade over protectionism (1846). Technological change, or innovation, has always been the joker in the pack of mainstream economics. Now the world’s major economies are playing that card. Who knows where it will lead?

One answer can be found in a contest co-sponsored by Jordan Schneider’s indispensable substack ChinaTalk. (The other sponsors were the Federation of American Scientists, economics blogger Noah Smith, and the Fletcher School’s Chris Miller, author of Chip Wars). The contest challenge was to develop policies to counter China’s manufactured competitive advantage in making basic semiconductor chips — “trailing edge” technologies as distinct from “leading edge” ones. As with EVs, batteries, solar panels and much else, China is grabbing market share in basic semiconductors through state-led policy even as the U.S. labors mightily to prevent its advance in leading-edge innovation. As ChinaTalk explained, the problem is that Chinese trailing-edge chips are ubiquitous in today’s products and the microelectronic networks that tie together the digital world. That presents at once a security and an economic vulnerability.

The contest winners generated a fantastic set of out-of-the-box policy options. They include “weaponizing” the U.S. advantage in electronic design automation (EDA) software and imposing an “open design” framework for basic semiconductor production. It would undercut China’s pricing power and be enforced through a production cartel dominated by the U.S. and politically like-minded states together bending their tech sectors to strategic purposes. The long arc of technology innovation that began with the Cold War policy milieu that birthed transistorization, semiconductors and the Internet in the 1960s, then ran through the Silicon Valley privatization of digital networks in the 1980s, ’90s and 2000s, is returning to its public-private roots. This is perhaps not quite what Trump and Steve Bannon had in mind with economic nationalism circa 2016, but it is what we have got.

The ChinaTalk proposals are both arresting and somewhat disturbing. Would the Austrian School philosopher-economist Friedrich Hayek — referenced as a touchstone in Steil and Raskolnikov’s article — have embraced a Free World software-design cartel? Is the expansion of freedom and open societies really served by such market-manipulating strategies? An important article earlier this month by CFR’s new president (and former U.S. trade representative), Michael Froman, makes clear that this is the question of the day.

The economics answer is probably still no. The security answer seems to be a reluctant yes. There remains the sphere of retail politics in leading democracies. (Autocracies like China and Russia have long since decided that free global markets were an imperialist trick to secure first-mover advantages circa 1890. CCP policy can be seen as a descendant of the McKinley Tariffs of that year.) Voters cannot be expected to have the ins and outs of Ricardian theory at their fingertips as they weigh whom to choose for president. Kamala Harris, advocating subsidies rather than tariffs, has tried to portray Donald Trump’s tariff proposals as a tax hike. Economics is on her side; as Froman wrote, “the costs of tariffs are ultimately born by the purchaser,” and disproportionately by poorer consumers. But simply calling your opponent’s tariff a tax and standing pat is unlikely to register with many voters.

Economic policy will always be made by experts. As Raskolnikov said, experts are now catching up with reality. But their willingness to accommodate economic nationalism will only go so far. For now, politics is likely to continue to run ahead of policy.