Into a New Era

A staffer in Donald Trump’s first administration once said that Trump sees unpredictability as one of his great strengths. Trump’s stern dismissal of the Heritage Foundation’s 900-page “Project 2025” blueprint during the campaign was one example of how a person would act if he did not want you to know his next move. Now that Trump is president-elect, businesspeople are understandably eager to find some predictability in the near future. For lack of any better option, “Project 2025” is again being looked at for clues following some statements from pro-Trump commentators that it is, after all, the real blueprint for the next four years.

The most interesting of these commentators is Steve Bannon. Bannon is doing now what he did in 2016: forcefully pushing an agenda and hoping people will believe it is Trump’s as well as Bannon’s. So it is worth remembering what happened with Bannon in the first administration: He rose quickly, he flourished briefly (7 months), and then he tumbled very far. For a leader who cherishes his own unknowableness, it is useful to have underlings claiming that they know his mind and generating ideas accordingly, but such people and ideas can be abandoned — indeed they must be abandoned occasionally, or the president’s power of unknowability will be lost. Trump has made a mark in a long and dramatic life by what he calls “weaving.” Having secured an extraordinary victory by such methods, he is unlikely to switch approaches now. Apart from his core belief in economic nationalism, Trump was a policy freelancer in his first administration. His own officials simply had to try to keep up. There is little reason to suppose this term will be different, at least until Trump becomes a lame duck and the Republican party, with a strong position in Congress and the justice system, begins to define its post-Trump identity.

In looking ahead to that day, several features of the recent election stand out. The first is that the hard-core view of malevolent liberal hegemony has been proved wrong. The electoral system worked perfectly well. There was no “steal.” There was no fraud. Conservative voices were not suppressed. Silicon Valley liberals did not control the information space to their advantage. None of the distinctively MAGA fears about the political game being rigged seem to have much, if any, basis in reality. Americans voted for Trump in the normal way, and then he won.

The prominent Soviet Communist official Georgi Arbatov famously said to a group of scientists in California in 1988, when he was a top advisor to Mikhail Gorbachev, that “our major secret weapon is to deprive you of an enemy.” Arbatov explained: “So much was built out of this role of the enemy. Your foreign policy, quite a bit of your economy, even your feelings about your country. To have a really good empire, you have to have a really evil empire.” Today, the election results have shown that the MAGA view of its enemies and their power was overblown. Where will the movement be without it?  

A second striking feature of the election was the shattering of the liberal view that voters of color were natural Democrats, if not natural liberals. As SIGnal readers know, this has been some time coming (see, e.g., “Vance Notice,” July 19, 2024). Trump appealed in 2016 to both white and non-white working-class voters; this year, he simply built on that appeal. The Democratic assumption seems to have been that people would vote their race rather than their class. That assumption was wrong. Key states like Texas and Michigan went for Trump not least on the strength of non-white votes.

A third and related feature was the central role of the Hispanic Republican vote. No doubt there are many reasons for Hispanic Republicanism, but surely one is that most Hispanic voters are on or near the front lines of economic competition with immigrants. Working-class opposition to immigration has a long history in the United States. Immigrants undermine the wage-bargaining power of the existing lower class. From a lower-class point of view, the first Trump administration, pre-Covid, was economically a good one. Post-Covid, the Biden administration presided over an economy that returned unemployment to the same low rate (~3.6%) that was achieved by the Trump presidency in 2019. However, it did so against a background of price inflation, which made wage gains seem precarious. Immigration threatened to make that worse. It is no surprise that so many working-class voters, regardless of their ethnic background, embraced a candidate volubly opposed to immigration, especially illegal immigration.

The irony is that the Republican party, which was once revived by its rather frank appeal (the “Southern strategy” of Barry Goldwater and then Richard Nixon) to white Americans whose social position seemed to be threatened by the civil rights movement, is now a party backed by an electorally crucial bloc of nonwhite voters whose politics are evidently driven much more by class than by race.

How will the Trump administration and the Republicans manage government, now that their dark view of American democracy (and liberal power) has been proved wrong and their electoral base has achieved a diversity, and a rootedness in the working class, unimaginable in the days of Goldwater, Nixon, and indeed Reagan? If a new enemy is needed, in Arbatov’s sense, it is unlikely to be a domestic racial one. A revival of the Southern Strategy seems highly unlikely. It would be self-destructive. “Trump’s America,” Kelefa Sanneh wrote in the exceedingly liberal New Yorker, “is a place that is more polarized by education than it used to be and less polarized by whiteness and non-whiteness—by race, broadly understood. This switch, if it holds, may be bad for Democrats, at least in the short term. But if one party no longer represents whiteness so specifically, isn’t that good for America?”

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The Choices of a Generation

One hesitates to predict anything about the US presidential election save that it will occur and then someone will (eventually) take office. What happens afterward is hard to know. Both campaigns have laid out their policy plans, but those greatly depend for their implementation on Congressional election results and the subsequent priorities. Neither candidate will be able to do just what he or she wants when president.

However, there are a few things that might be counted on. In the case of Donald Trump, the odds are extremely high that his prospective administration will have just one term. The 22nd amendment to the Constitution holds that “no person shall be elected to the office of the President more than twice.” Beyond that, he will be the oldest person to have held the office — 7 months older than Biden in the current term. Biden himself has broken Ronald Reagan’s record by 5 years. Reagan was 77 when he left office. Biden will be 82, as would Trump (with an additional 7 months).

What effects might this have? We can assume that Democrats will be devoting themselves to crushing the life out of the Trump White House as best they can. Just as importantly, perhaps more, the Republican Congressional delegation after the inauguration on January 20 will be looking to possible transformative legislation between then and the spring. After the August recess, members will be focused on the midterm elections in 2026. What role Trump will play in the midterms, and whether he will be a boon or a liability, is impossible to foresee, but it is certain that after the midterms he will be a lame-duck president as well as the oldest in history.

Trump’s mesmeric, sometimes brutal hold on the Republican party has lent it vitality but, given the highly personalized nature of Trumpism, cannot also lend the party stamina. The GOP will need to find new ways to configure itself and explain itself as Trump’s power fades. It seems unlikely that the party will be able to continue to press “Make America Great Again” as it will have already had two terms to make America as great as it can. It cannot remain Trump’s party, but it cannot run against itself either. Will it become still more of a states’ rights party, as in its response to the repeal of Roe v. Wade? Will it become more culturally diverse, as its steady growth among non-white voters since 2016 would suggest? Will it continue to be protectionist?

The case of Kamala Harris is very different. She turned 60 this month and is impressively vigorous. (Tim Walz is just 7 months older.) At the same time, her command over the Democratic party is not clear. Certainly the party leaders and the rank and file seem very happy that she is the candidate. The salvage operation after Biden’s debate debacle was relatively swift, ruthless and well executed. The Harris campaign’s discipline was there from the beginning and has held. At the same time, if Harris wins it will be a victory for the party at least as much as for her. The octogenarian knife-fighting that brought down Biden — Nancy Pelosi turned 84 shortly before making the president face reality in July — led to Harris’s candidacy mainly because there was no way it could not. The party had neither the time nor the internal coherence to pass successfully through an open convention or some similar process. But it did have the discipline not only to line up behind Harris but to bend itself toward ensuring she campaigned effectively. Harris had not campaigned well in 2020. No doubt she learned from that experience. Yet the speed and thoroughness of the Democratic effort are owed to the party first of all.

For that reason it is especially important to look at what the Democratic campaign post-Biden has and has not been able to achieve. Perhaps the most striking result is that the Harris campaign has improved support among white voters without a college education, lack of a college degree being the somewhat misleading proxy for “working class.” The party has long known of its weakness among less-educated white voters, particularly women. (A massive effort to raise the party’s traditionally poor scores among white women without college degrees began in 2023.) The Harris campaign has managed to do something about it, however modest. Equally striking is that the Harris campaign has not done so well among nonwhite voters. The Harris campaign has had as little as half the percentages of nonwhite voter groups as Biden had against Trump in 2020. Harris has, however, polled strongly among the college educated, who are 35 percent of the electorate but 40 percent of likely voters. College-educated voters are disproportionately white and disproportionately wealthy.

So the Harris campaign, whether she wins or not, will likely mark a turn in the party’s understanding of the relationship between biology and political destiny. The nonwhite presidential candidate has helped with white voters while trailing her white predecessor among nonwhites. This is more or less the reverse of what was expected. Will the post-election Democratic party lean further toward racial diversity and class exclusiveness? Will it de-emphasize some forms of public identity? Will it emphasize policies that increase its support among the less educated? Would a President Harris simply preside over these choices, or will she shape them?

After next Tuesday, a victorious Republican party would begin the final chapter of Trumpism and the first chapter of its post-Trump future. A victorious Democratic party might or might not begin its Harris years. Both parties will be going through exceedingly complex post-boomer generational shifts that are already under way. Coverage of the presidential race has tended to frame Nov. 5 as the beginning of one or another Armageddon, but it is more likely to mark the intensification of generational change that will transform the American political landscape.

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BRIC by BRIC

The coiner of the BRICs acronym, Jim O’Neill, has made a point of arguing that the bloc is for now little more than a platform for political posturing, even with its expansion over the summer from 5 members to 9. (O’Neill advocates a revivification of the G20 instead.) There was certainly posturing at the most recent meeting of the group, now known in its expanded form as BRICS+. As host, Vladimir Putin did his best to use the event to rebut the idea that Western sanctions and political enmity, due to Russia’s invasion of Ukraine, mean that he is isolated. But most of the meetings and readouts were exceedingly practical, focused on currency issues and security. SIG’s view is that there is an inescapable political momentum behind de-centering the West and particularly the United States. This political trend is increasingly an economic one, as continuing US dominance of global financial institutions (IMF, World Bank) and American use of the dollar’s global indispensability for political purposes combine to alienate a large portion of world markets: the new BRICS+ dwarfs the industrialized G7 not just demographically but also in GDP terms. Even if it is not yet doing it very well, BRICS+ answers a genuine need.

The biggest BRICS+ news was the announcement by Xi and Modi that India and China had reached an agreement of sorts about their border dispute, which shredded India-China ties in 2020. Negotiations had been ongoing and will continue. It is not clear what the two leaders were really agreeing to. What was clear was that Modi and Xi wanted to use the BRICS+ venue to highlight their diplomacy and an easing of tensions. In that sense, BRICS+ proved its worth.

From the Russian perspective, the big push was for a set of policies with a single goal: freeing the global financial system from its vulnerability to US political pressure. These included alternative ways for setting grain prices, the increased use of national currencies to settle trade, and the use of digital currencies by national central banks. In the short term, as ING noted in an excellent paper, none of this is very plausible, but in the long term the use of digital means to depoliticize international transactions by de-centering the US dollar is highly likely.  

What BRICS+ showed was that such a de-centering would itself happen along political lines. The goal is not to “displace” the dollar but to escape its political hold — for political reasons. It is not a neat business. Western sanctions against Russia have led to the sinification of Russian finance. Chinese payments for Russian resources, for example, are often in Chinese currency and parked in Chinese banks, which, with state support, are using Russian events as an opportunity for an experiment in financial innovation. Even Putin does not want Russia to become a ward of China, but sanctions have made that unavoidable. China, for its part, is not about to share any control over its own accounts. “De-dollarization,” in other words, means different things to different states, but they mostly come back to wanting to preserve financial sovereignty, not to share it with some alternative entity that is not the US government.

Meanwhile, Donald Trump in his campaigning has caused near panic in Europe. His comparison of Europe to China is extraordinary. When combined with his and his team’s views on Ukraine — which amount to cutting a deal and insisting Europe do as much of the work as possible — Trump’s tariff threats begin to appear as part of a larger move to split the West. There is no indication at all that this is a deliberate choice, but it is likely to be a real effect. At that point BRICS+ will not look so eccentric.

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.

Wicked Problems and North Carolina

By Dee Smith

The continuously escalating complexity of the world that we have built has arguably outstripped our ability to understand and deal with it. The tools we have are insufficient. Change is becoming more radical, meaning that it takes us further and further away from what we have known, and from what we have assumed would exist in the near future. This accelerated, non-linear, radical change has very real and immediate effects on us all.

Enter the “hyperobject.” This is a term that came to public attention in the mid-2010s through the work of Timothy Morton (it had been used by computer scientists since the mid-1960s). Hyperobjects, as Morton described them, are massive agglomerations of people, institutions, technologies, ideas, and other elements that we can barely comprehend, let alone control or make sensible decisions about. They increasingly constitute the world today. In technical terms, hyperobjects are “n-dimensional non-local entities.”

Examples of hyperobjects include . . . oil spills, all plastic ever manufactured, capitalism, tectonic plates . . . the solar system . . . the sum total of Styrofoam and plutonium we have littered across the Earth over the past century, which will remain for millennia. A human being may see evidence of hyperobjects—pollution here, a hurricane there—but try gazing off into the distance to see the totality of them . . . and they disappear into a vanishing point.

Hyperobjects engender and embody non-linear risk. A great deal was learned about non-linear complex systems during the 20th century. Sophisticated mathematical analytical tools to understand them were developed. Very generally put, the more complex a system is, the more non-linear it becomes. The more non-linear it becomes, the more unpredictable its effects and outcomes will be. And the more suddenly it can change. Since we have the most complex human system ever to exist, we are dealing with levels and types of risks that we never imagined: risks that are unexpected, sudden, long-tailed, fat-tailed, multiplicative, and cascading.

Our incumbent complex systems developed during a time of relative stability, from the end of WWII until just a few years ago. That period, it seems clear, is now ending.

All of these changes drastically increase the incidence of “wicked problems.” A term developed by city planners, a “wicked problem” is a singular problem that typically has no clear definition, in part because it overlaps with other problems. It can probably never be completely solved. Wicked problems have multiple causes and exhibit effects at multiple levels and scales. They also have multiple stakeholders (affected parties), who have conflicting agendas and needs. Wicked problems cut across organizations, disciplines, and sectors. Even attempting to understand them and evaluate possible solutions is very difficult. When applied, such solutions often ricochet unpredictably across the system. Solutions are only better or worse, not right or wrong.

Sound familiar?

Hyperobjects engender such wicked problems, which can manifest in “polycrises”—although that is far too linear a description of the processes, which is filled with hidden, “n-order” feedback loops. According to historian Adam Tooze, a polycrisis represents the “coming together at a single moment of things which, on the face of it, don't have anything to do with each other, but seem to pile onto each other to create a situation in the minds of policymakers, business people, families, individuals.” In other words, a polycrisis occurs when multiple separate but interconnected crises amplify one another, with wide, systemic, sometimes irreversible effects. This “piling on” effect is devastating to our ability to manage such crises—and to our individual or collective physical and psychological well-being. It has always been the American way—the ethos of the entire modern world, really—to tackle problems one piece at a time, until we can wrestle them to the ground. Polycrises make this extraordinarily difficult.

Now to the U.S. elections and North Carolina in particular. An important swing state, North Carolina was devastated by Hurricane Helene’s massive rain in early October: a release of water due to the much warmer-than-“normal” ocean temperatures in the Gulf of Mexico feeding the storm—which is a result of climate change. Large sections of important road arteries were simply washed away, leaving no way to reach many communities by ground. Absentee ballots were in the mail, and many have probably been destroyed. At least one post office in Ashe County is reported to have been flooded and hundreds of mailboxes simply lost. We do not yet have a reliable estimate of the total destruction.

One storm and one election! Think about it. This is not at all theoretical.

What if polling cannot be restored to a sufficient level by Election Day for the votes of North Carolinians to be accurately recorded and counted? Is North Carolina simply ignored? What if the situation randomly skews the results by enabling voting in an area that is strong for one party, while removing it in an area that is strong for the other? What if another storm creates similar effects in another state? (Milton? Florida?) Where is the line crossed . . . and indeed, what is the “line” that might be crossed?

An additional part of this polycrisis concerns the flooded mines in Spruce Pine. This one mountain produces about 90 percent of the world’s ultra-pure quartz, a pristine sand essential for producing the high-grade silicon on which semiconductors rely. It is not known the extent of the damage or length of time that the mines may be offline, nor the effects on global semiconductor manufacturing. It is, however, a clear demonstration of the fragility of our systems, with their single points of failure.

Put simply, socio-economic systems developed in the last 300 years, honed and applied particularly in the last half of the 20th century, were attuned to conditions that no longer exist. We and our legacy systems are woefully unprepared for the kind of future we face. We are on very thin ice.

How the Green Economy Grows

Generals are often accused of fighting the last war. The shift in US and, increasingly, European politics toward industrial policy in reaction to Chinese growth is beginning to look like an economic instance of the same phenomenon. The dominant narrative for many years has been that China accepted inward foreign direct investment in order to copy Western technology while undercutting Western wages and building domestic manufacturing capacity to flood export markets. Therefore, from a US perspective the policy answer has been to bring production back onshore, providing jobs for American workers and stemming the outflow of capital and intellectual property. This narrative and the proffered solution have, however, become outdated. It is China, with high unemployment, that is making greenfield investments outside its borders, while the US is already providing jobs for American workers at close to full employment — not least because of foreign investment in American manufacturing. The old narrative doesn’t apply anymore, so solutions that are based on that narrative are not likely to work.

China’s outward direct investment (ODI) was up by 13 percent in the first quarter of 2024, reaching an eight-year high. But in the second quarter it was up by an extraordinary 80 percent. There has been a striking focus on green-economy sectors. Chinese production of electric vehicles, solar panels and so on has reached the point of satisfying much of domestic Chinese demand. But rather than dump products on foreign markets, Chinese companies have been locating production overseas. Chinese companies are, or will be, making electric vehicles in Thailand, Brazil and Spain. While this will certainly create jobs, the most important effect is the transfer of technology. The greening of the global economy is increasingly being led by Chinese companies outside China.

This is not quite what China’s Communist government had in mind. A more immediately profitable outcome would have been to sell directly into rich-world markets. But of course the US and now Europe — with new tariffs approved this week — have been erecting barriers to Chinese exports. Like Japanese auto exports in the 1980s, Chinese green-economy exports threaten to undermine or even eliminate rich-world production of those same goods. Tariff walls go up accordingly.

The traditional result in this situation has been that the blocked manufacturers would jump the tariff wall and begin producing in the protected country in order to access its consumers. (Geoffrey Jones’s 2005 Multinationals and Global Capitalism is a must read on this.) A century ago, high US tariffs caused European companies to invest in America, a reality that has featured prominently in China’s thinking about its own growth trajectory. The 1980s backlash against Japanese cars brought Japanese investment in the US. Even today, Japan is the single largest foreign investor in US manufacturing.

But in the current landscape of globalization and geopolitical competition, the untraditional result is that Chinese ODI is not so much jumping the rich-world tariff walls — although there is some of that — as going sideways into places like Thailand and Brazil. Yes, part of the goal is to proceed by an indirect route into US and European markets. But Chinese capital is also building a presence in green-economy markets in middle- and low-income countries — while depriving the US and Europe of the technology-transfer benefits that would come from straightforward Chinese ODI in these wealthier markets. In several ways, then, rich-world markets are losing out on the benefits of Chinese green-economy innovation, while other parts of the world are gaining them. In particular, Chinese companies are investing in Southeast Asia. Chinese manufacturing investments in the region quadrupled in 2023, matching those of the US, Japan and South Korea combined.

Meanwhile the US is trying to build domestic green-economy production in an era of both low domestic unemployment and a severe shortage of the skilled labor needed for ramped-up manufacturing. Retirements, in particular, are driving down the supply of native-born skilled labor. This means, of course, that the salvation of US industrial isolationism will almost certainly lie in … increased immigration, which is no more popular in the US than it is in China.

These are all pretty perverse results, from a market-efficiency perspective, but they do offer opportunities. Publicly traded Chinese green-economy companies investing outside China are one. US and European companies investing in green-economy manufacturing outside their home markets are another. Southeast Asian companies positioning themselves to take advantage of Chinese technology transfers are a third. The dominance of political drivers in shaping this global economic landscape makes change unpredictable, but then that has been true since Columbus took a wrong turn in search of India and the modern world economy began.

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Multilateralism’s Long Goodbye?

The regiments of black SUVS and the delighted faces of shopkeepers on Madison and Park avenues in Manhattan this week contrasted sharply with what International Crisis Group’s Richard Gowan characterized as “the real sense of worry and gloom that is quite prevalent in Turtle Bay at the moment,” Turtle Bay being the Upper East Side neighborhood where the UN has its headquarters. The annual UN General Assembly meeting is the only must-do on the global diplomatic calendar, and it was supplemented this year by Climate Week. (There were said to be over 1,000 meet-and-greet events just around Climate Week, with champagne, smoked salmon and a heavy carbon footprint: a harvest of good business for NYC caterers.) The massive attendance in itself suggested a felt need for global, and even globalist, political conversations. Nonetheless, news events and the varied and numerous meetings SIG participated in during the week supported the view of Secretary-General Antonio Guterres that multilateralism in its post-1945 forms is in an accelerating crisis with no clear routes forward.

 

Familiar items on the UN agenda remained unchanged. Israel and the United States, Hamas and Hezbollah, and other regional actors continued to enact their policies without important reference to the United Nations, including the US-backed ceasefire proposal of June. Ukraine’s defense of its territory against Russian arms continued much as it has been, with a slow extension of the battle into Russian territory, Russian pushback, and no near prospect of victory or diplomatic resolution for either side. Guterres’s dire warnings about the climate crisis were generally thought to be hyperbolic. The desperate situation in Sudan was much discussed but there was very little sense that the available multilateral mechanisms were going to be able to advance peace.

 

President Biden’s farewell speech received polite but modest attention. Vladimir Putin, of course, did not attend, nor did Xi Jinping. (They sent their foreign ministers. Xi had already met with Guterres in Beijing earlier in the month.) The domestic political vulnerabilities of Keir Starmer and Emmanuel Macron tempered enthusiasm for their own speeches, which were in any case unremarkable. Such was the UNGA-week presence of the veto-wielding Permanent Five (P5) of the Security Council, the only members of the council with serious power and the generators of any successful council resolutions. France called, as it has before, for Security Council reforms to re-legitimize the council politically by broadening its membership beyond domination by the victors of World War II and modifying its rules. Any momentum for such reform remains doubtful.

 

What was happening beyond the Upper East Side frame of UNGA was more significant. On the weekend prior, President Biden focused on the Quad meeting — India, Australia, Japan and the US — at his home in Delaware. This type of security-driven minilateralism has only grown in importance during the Biden presidency. It is not necessarily to the administration’s taste, and in 2021 Biden had committed, as Obama had 12 years before, to a revival of multilateral engagement, including at the UN. But the significance and productivity of the four-nation grouping did form a contrast to those of the General Assembly with its 193 member states.

 

On the economic front, the dominant theme of the week was protectionism. It is telling that Keir Starmer positioned his announcement of Britain’s return to internationalism in terms of British “self-interest.” Donald Trump and Kamala Harris both ignored the internationalist week with calls for “a new American industrialism” (Trump on Wednesday)  followeed by Harris’s promise on Thursday of $100 billion in new government spending aimed at the same goal by different means. Meanwhile China put forward massive new government plans to stimulate production and consumption in its own economy. In such ways the retreat by major powers from open global markets continued even in this week of internationalism.

 

Fascinatingly, though, the odd nation out during the week was the United Arab Emirates. On one hand, the UAE has come under growing criticism for its backing of one side in the Sudanese civil war. On the other hand, the UAE’s unusual political creativity and energy made it an outsized player in the Climate Week events and in UNGA side meetings. The UAE has become, in a short time, a significant player in the ongoing refurbishment of internationalism, while hardly big enough (except in its budget and ambitions) to begin to qualify as a “middling power.” Among other things, the UAE’s talent for navigating a middle way between the US and China (part of a trend sometimes called “active non-alignment”) was on display, as was that government’s commitment to fielding senior women ministers in international fora.

 

The prospect of Persian Gulf emirates as pioneers of a future-oriented multilateralism does not seem obvious. Multilateralism since 1919, if not 1815, has been Western-based both conceptually and in operational terms. A revival of that model seemed no more likely in New York this week than it has for the past decade or more. There are several reasons for this, but fundamentally, peoples and nations of the world increasingly want to chart their own paths, and increasingly simply do not agree on philosophies, policies and actions. The operational norms governing issues from aircraft movement to satellite positioning remain, but the development of new norms has stalled.

 

This has a number of implications for investors. One is that UN-based multilateral initiatives in areas like climate change and artificial intelligence are not likely to shape the sociopolitical or investment landscape in the near future. Another is that the momentum for open markets will probably come as much from the middling and less-than-middling powers seeking recognition and economic advantage as it will from the greater ones, a reversal of the pattern that held into the Obama administration. With each party fundamentally pursuing its own interests, the need for multilateralism grows but the means for its achievement shrink. Finding investment opportunities then depends less on identifying global patterns than on following the more difficult strategy of betting dynamically on different horses.

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The Energy-Transition Paradox

At this point it seems safe to say that the Green Revolution is not going as planned. In particular, mineral resource extraction was meant to decline as part of the energy transition away from fossil fuels, but it is doing the opposite — even as fossil-fuel consumption also hit a new high last year. Wind and solar power are mineral-intensive.  Mineral resources like manganese, graphite, cobalt and lithium are critical to the batteries used in electric vehicles; electric vehicles are critical to the energy transition; therefore the mining of these minerals, which can be a very environmentally damaging process, is expected to take place on a large scale, damaging the environment in order to save it.

The other main driver for increased mining is digital technology. Part of this is again demand for batteries. Rechargeable batteries require lithium and cobalt. Without them there is no mobile Internet, no laptops or mobile phones. But digital technology also uses other minerals, like rare earths, and above all it uses minerals that produce energy. The data-center infrastructure that digital communications have come to depend on is making huge energy demands that are expected to increase in order to support energy-intensive artificial-intelligence computing. The digital revolution was meant to be good for the planet. All those books and newspapers that would no longer have to be printed, transported, and sold by retailers. All those carbon-footprint business trips that could be replaced by meetings online. Yet digitization seems to be resulting in more rather than less resource extraction. The digital world is damaging the physical world while pretending to transcend it.

The energy transition seems to be entering an era of paradox. It isn’t simply that green and digital technologies are dirty. It is that they are getting dirtier because major states seek both energy independence and secure high-technology supply chains. Climate change, it is often said, is a global problem requiring global solutions. But if the solutions are to be found, it appears that they will be found through the complete opposite of global cooperation. The Biden administration has just announced plans to spend more than $3 billion trying to secure US supply chains of critical minerals and build upstream capacity. That means, for example, $225 million toward the mining of lithium in Arkansas, and $166 million to help extract manganese in Arizona.

As US National Economic Adviser Lael Brainard explained, the goal is “an end-to-end supply chain for batteries and critical minerals here in America, from mining to processing to manufacturing and recycling, which is vital to reduce China's dominance of this critical sector." If a nation other than China were producing 77 percent of the world’s  graphite supply or 60 percent of its rare earths, the situation would be different. As it is, geopolitical circumstance are shaping the energy transition into forms it would not take on a market basis. The desire for national data security, combined with the energy needed for data processing, points in the same direction of nationalized production that is inherently inefficient. 

From an investor perspective, one clear option is to invest in extractives. However, the political risks can be high. If the US-China race to create mutually exclusive economies can be taken as a constant for the next generation or two, the specific policies will vary. If Donald Trump returns to the White House, he could well de-fund the EV battery projects, endangering new mining in Arizona and Arkansas. More interesting are investments that, in effect, eliminate political competition over a resource. For several years, electric-vehicle automakers have been trying to reduce their political exposure to Chinese dominance of rare-earths production. Of course one way to do that is through diversifying mineral supplies. A new project in Canada aims at just that. But another way is to engineer EV batteries that do not require rare earths. BMW in its newer EV lines has eliminated rare earths. In that instance, geopolitical supply-chain worries led to a reduction in resource extraction. Private-sector innovation could yet produce more ways of avoiding politically driven supply constraints. It would be a peculiar way to move toward the global transition away from carbon but it might be one way that really works.

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Bipartisan Consensus on US-China Policy: Will Continuity Mean Instability?

The US presidential debate re-affirmed the centrality of an industrial policy aimed at confronting China. Donald Trump rightly pointed out that the Biden administration continued his China tariff policy. Kamala Harris attacked Trump for not having taken his own (Trump’s) policy a step further in the way Biden did — to cover semiconductor chips. The actionable point is that the two candidates were outdoing each other in advocating US industrial policy as a way to combat the rise of China and the Chinese Communist Party. Whatever else happens in the next presidential administration, this area of policy should remain roughly the same.

How is it likely to roll out? The benign version, advanced by both political parties, involves blocking the export of military technologies to China, keeping Chinese technology out of Western and allied markets and digital networks, and resisting Chinese dumping of export products that are subsidized by the government, such as electric vehicles. When the policy is expressed in these broad terms, it seems sensible and measured. It is not surprising that the House on Thursday voted through an extraordinary set of China bills that had been teed up for this first week after the Congressional recess. The proposed laws, covering biotechnology, drones, and more, will now go to the Senate. Most received bipartisan support in the House and are expected to pass in the Senate and be signed by President Biden.

Unfortunately, what seems straightforward as policy — keeping Chinese-made drones out of US skies, for example, sounds simple enough — will be extremely murky in its results. As discussed previously in SIGnal, the concept of “dual use” technologies — ones that have both civilian and, at least potentially, military uses — has become infinitely expandable. Keeping Chinese technology out of Western and allied markets is possible at the retail level but nearly impossible at the component level. And Chinese subsidization of electric-vehicle manufacture is both hard to distinguish from other governments’ subsidization of the green economy and a crucial source of support for green efforts on a global scale. Chinese companies like BYD (electric vehicles) and CATL (batteries) have been pioneers in developing technological solutions to address climate change. These advances cannot be undone or ignored.

That is why Europe’s leading car-making states (Germany and Spain) oppose shutting Europe off from Chinese electric vehicles as the US has done. In essence, European partnerships with Chinese companies make it possible for European companies to stay in the game, whether by using Chinese components, manufacturing in China itself, or selling to Chinese consumers. The current EU tariff proposal — up for a decision next month, with a term of five years — could very well result in an increase in Chinese exports to the European market, because Chinese EV-maker profit margins are sizable enough that companies could pass the tariffs on to consumers and still make money. Meanwhile higher prices are likely to dampen European consumer demand, slowing the green transition.

The proposed US biotech law could have a similar effect of driving up prices of drugs without pushing the Chinese government to any change in policy. Higher prices could shrink demand. US biotech corporate margins could be thinned, with negative effects on R&D and innovation.

It was only a decade or so ago that analysts were wondering whether Chinese companies would ever be able to get beyond copying (or stealing) Western technology and compete at innovation. That question has been answered. The terrible irony of current tariff and industrial-policy moves in Western markets is that they could have the effect of reducing Western innovation rather than increasing it. Meanwhile, Chinese companies look to demographically younger markets with increasingly empowered consumers — in Africa, Asia and Latin America — where wider margins make them more competitive than their Western counterparts.

For investors, the US bipartisan consensus on China and US industrial policy looks like a promise of continuity, and in the obvious sense it is. But in many other ways it is the opposite: It distorts market mechanisms to such a degree that the results are exceedingly difficult to predict. Investors not only have to integrate political and policy analysis into investment decisions, they also have to do so on a dynamic basis as the landscape is constantly changing. Chinese biotech, for example, was meant to be the sector that would be left alone, and it attracted Western FDI accordingly. But then it all changed.

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Before the Debate: Could There Be a Harris Doctrine?

Kamala Harris’s campaign has been impressively disciplined at saying very little about her potential policies as president. This has left commentators scrambling to discover what her intentions might be. In foreign policy, for example, analysts have been reduced to sifting the published writings of two senior advisors, Philip Gordon and  Rebecca Lissner. But writing a book and making policy are radically different activities. Harris’s economic policies, as outlined this week, are much more articulated, but they are essentially continuations of Biden policies or, in the case of keeping tips free from income tax, borrowed from Trump. Her social policies are also continuous with Biden’s. Her biggest departures from Biden have been in her refusal to participate in “identity politics” or to position Trump as an imminent danger to democracy. At the same time, she has made it clear that she is running against Trump and not against Republican voters.  The lack of discipline in her first presidential campaign has been overturned. How does that happen?

First, it would be very difficult for a sitting vice president to run against the policies of her own administration. Second, depriving the Trump campaign of policy specifics to criticize could provoke it into making more personal attacks, which Harris seems to parry much more easily than Biden did. (She is unlikely to be baited into an argument about golf handicaps, for example, as Biden was.) Third, Harris did relatively little as vice president, as compared to recent holders of the office such as Al Gore or Dick Cheney. The one policy she was associated with was not really a policy so much as a hopeless errand: to address the ”root causes” of migration to the U.S. on a two-day trip to Central America.

Fourth, Harris’s four years as a junior senator from California were not strong on policy innovation. Rather, she was noted mainly for her ferocious attacks on the Trump administration, its policies and its nominees for office. She demonstrated a composed fearlessness, and a precision, that made her stand out. These qualities led her famously to attack Biden on the second night of the first Democratic debate in June 2019 after distinguishing herself by attacks on Trump. It was focused confrontation that built her national-level political career.

That might be expected from someone whose earlier career, from 1990 (when she was 26) to 2017, was almost entirely that of a prosecutor. As San Francisco district attorney and then California attorney general, both elected positions, Harris was innovative as well as forceful. But that was in the context of the legal profession, where there are many guardrails on innovation, and where a prosecutorial manner is a valued skill rather than a personal characteristic. It can be turned off as well as on.

This may help explain how Harris was able to go from being very forceful as a senator to being a loyal lieutenant as vice president.

Now she is having to shift again, potentially to a position of profound leadership that has to be creative as well as confrontational, and emollient as well as combative.

The debate on September 10 will be an opportunity to see whether Harris is able to hit these different registers.

From an investment point of view, the key thing to bear in mind is that Harris, while demonstrably unafraid of the power of the private sector when she was a prosecutor, does not have any known radical views or declared positions on reorganizing the existing distribution of economic power. Her declared policies are directed at expanding the middle class in the sense of providing a stronger floor for working people (especially with health care and child care) and increasing opportunities for small businesses, to be paid for with moderately higher taxes on corporations and the wealthy, and to a modest degree on capital gains. These are essentially small-c conservative policy positions aimed at the aspirational working and middle classes, understood to be the core of the American economy and polity.  

In many ways the candidate Harris most resembles is Bill Clinton. Clinton used to refer to “doctrine” as “the D word.” Over eight years as president he resisted developing anything that could be called a Clinton Doctrine. Commentators are now searching for a Harris Doctrine. There is not likely to be one.

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Looking for Silver Bullets

By Dee Smith

 

Recently, I hosted a not-for-attribution presentation on the causes and effects of climate change with a colleague who has expert scientific knowledge in the field. Discussion focused on causes (both human and natural), and particularly on the very dire consequences that we have already missed the opportunity to prevent or even mitigate. For example, it now seems inevitable that some parts of the world that are currently occupied will become uninhabitable by humans.

The question on quite a few people’s minds was “Okay, what should we do? Give us some action steps.” As one said: “What’s the silver bullet?”

If only it were that simple.

Instead, it is almost insuperably complex. Elements affecting climate change range from human factors, including not only increased CO2 emissions, but also increased methane emissions—and methane is between 24 and 80 times more powerful in the atmosphere as a greenhouse gas than carbon. Methane also comes from the melting of permafrost, itself a consequence of warming arctic climates.

Natural elements affecting the climate include solar radiation cycles, the El Niño/La Niña oscillation, the strength of the Gulf Stream, the temperatures and amount of ice in the Arctic and Antarctic, the stability of the jet stream and global ocean temperatures.

We were already in a part of the natural climate cycle in which temperatures were increasing. Human activity since about 1980 tipped the cycle into a real crisis. The consequences are almost too catastrophic to think about: mass migration (something like the equivalent of the entire population of the US in forced relocation around the globe), heat in which humans cannot live, potentially extreme food shortages, increased military confrontation over resources, and so forth. As much of this is now unavoidable, preparation and attempted mitigation are our only choices.

So, of course we are looking for silver bullets.

The truth is that silver-bullet solutions are much more complex than mainstream media proclaim. For example, the latest silver bullet in the climate change arena is Stratospheric Aerosol Injection: putting large quantities of substances such as sulphur dioxide (SO2) into the upper atmosphere to block the amount of sunlight reaching the earth and thereby slow warming.

This is said to be supported by an analysis of the eruption of Mt. Pinatubo in June 1991. The eruption injected 15 million tons of SO2 into the atmosphere. But a comprehensive analysis indicates that it did not lower global temperatures by 0.5 degrees Celsius for 18 months, as claimed. Global temperatures did not decline for the rest of 1991 after the eruption. They did decline by 0.2 °C from March to December 1992, but that timeframe coincided with a sharp drop in solar radiation and a shift from a weak El Niño effect to a neutral one. It was the combination of factors that accounted for the drop in temperature. The 1815 eruption of Mt. Tambora was about 18 times the size of the Mt. Pinatubo eruption and did have an impact for 2-3 years in lowering temperature. However, the effects were wildly uneven and often calamitous: no monsoons, disastrous floods, crop failures, and droughts.

The amount of SO2 injection needed to make an impact is a magnitude higher than generally believed and its effects are beyond our ability to predict. Unintended consequences are a real danger with planetary engineering projects like SAI. The system is too complex, and we simply do not know what the outcomes of SAI would be. For example, it might cool some areas and dramatically heat others.

We have created the most complex civilization that has ever existed, but more and more — or perhaps because of its very complexity — people want simple solutions. And climate change is arguably the most complex global problem we have ever faced.

“Just tell me what to do . . .” The well-intentioned will then generally try to do it for a while, until they forget, or it becomes too inconvenient, or the exceptions to doing it start to surmount complying with it. Or until it is imposed in a Draconian manner.

A few years ago, when the mantra of the day was reducing travel to reduce carbon emissions, someone closely involved with a very influential environmental organization said to me: “Well, I’m certainly not going to stop flying around . . .” And that is the attitude most of us have in the end. Most humans only make changes that we don’t want to make when there is literally no alternative.

But sometimes surviving requires very significant changes, whether in one's personal life or far beyond. Your leg is diseased and has to come off, if you want to live. The more you ignore the warning signs, the longer you put it off, the harder it will be to deal with.

We simply don’t want to hear any of this. And so, denial wins out. Or at least, things go along, business-as-usual, until it is too late.

But if we can accept that there are no silver bullets, and deny our denial, we may be able to find some partial — yet real, cumulative and productive — ways to proceed.

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The New Geography of Semiconductors

The US CHIPS and Science Act just passed its two-year anniversary, and most coverage focused on the part President Biden emphasized: “America is now on track to produce nearly 30% of the global supply of leading-edge chips by 2032, up from zero only two years ago. … [M]y CHIPS and Science Act is bringing chips manufacturing back to America, strengthening global supply chains.” But strengthening global supply chains and increasing American production are two very different activities. SIG’s view is that the US is playing several distinct games at once: improving US production, isolating the Chinese technology industry, and strengthening certain alliances. The last game is the most interesting one, because it involves US industrial policy as an aspect of US foreign policy.

The US has been somewhat coy so far at naming the countries that will be part of the CHIPS Act-related International Technology and Security Innovation (ITSI) Fund, but the leading candidates are Vietnam, the Philippines, Indonesia, Costa Rica, Panama, Mexico and possibly Kenya. ITSI is administered by the State Department, and Jose Fernandez, undersecretary of state for economic growth, energy and the environment, has said there will be seven core partners without committing to a specific list. He has been promoting the effort as connected to the US wish to secure semiconductor supply chains that avoid China, a window of opportunity he said “may not be here forever.” 

One reason for the vagueness is probably that the Commerce Department has its own priorities, including the Indo-Pacific Economic Framework (IPEF) Agreement Relating to Supply Chain Resilience. IPEF includes three of the possible seven: Indonesia, the Philippines and Vietnam. Then again, Secretary of State Anthony Blinken, before the Americas Partnership for Economic Prosperity, stressed the Western Hemisphere Semiconductor Initiative, which also encompasses three ITSI countries (Mexico, Panama and Costa Rica). 

Some overseas coverage has even mentioned Puerto Rico as being on the CHIPS list, probably confusing the US territory with Costa Rica — although Puerto Rico would also be happy to get involved.

But if inter-departmental rivalry and confused ambitions have made the details a bit murky, the fundamental policy thrust is clear. The US is using the CHIPS and Science Act to both strengthen US semiconductor production and turn a difficult fact — that US domestic wages are high and US engineering talent has better options — into a strategic win. 

The seven countries that have apparently been selected are wildly different. In many ways, the most interesting is Vietnam. It has been making a very strong push to educate engineers, who then become available at a much lower wage than engineers elsewhere: Vietnamese engineers earn half the pay of their Malaysian peers and a sixth of the going rate in Taiwan. This industrial planning is occurring under a Communist government undergoing a leadership transition after 13 years of tight-fisted rule by party general secretary Nguyen Phu Trong, who recently died at age 80. His successor, To Lam, was the tough public-security chief under Trong. His first official trip in his new position will be to China, Vietnam’s largest (and growing) trading partner. Vietnam has a very long history of conflict with China, but of course it also has a shorter but intense history of conflict with the US.

From a distance, it does look odd that the US, hoping to secure its supply chain for vital semiconductor technology, would be relying in part on one Communist state to help weaken another Communist state. 

However, US relations with all seven of the countries on the CHIPS list have had their fraught moments, with the exception of Costa Rica. The technology struggle with China is forcing the US alliance structure into strange new forms. The cold reality is that traditional allies like Japan, South Korea, Australia, Taiwan and others are at demographic plateaus and are priced out of the lower reaches of semiconductor production. A new tier of alliances is being created to deal with this problem. 

The choices being made are often more economic than political — Vietnam’s economy is simply excelling at taking advantage of US-China conflict, as is Mexico’s under left-wing governments that cannot be described as pro-US. However, China was once itself a favored partner despite its ideological coloring — and then, as Xi Jinping’s power and political direction became clear, it was no longer. 

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Trade and the US Presidential Campaign

One of the less heralded political-economic transformations of the past decade has been the shift from a bipartisan consensus for free trade to a bipartisan consensus against it. This was not due to any change in economic thinking; professors continue to teach the logic of comparative advantage. Rather, it was mainly due to a political reaction against income inequality and deindustrialization in wealthy democracies combined with fears of Chinese weaponization of international dependence on Chinese production. The current presidential campaign is being portrayed in apocalyptic terms by both sides. Yet on the critical question of how the United States interacts with the global economy there is an identifiable bipartisan center that is likely to grow.

Donald Trump’s aggressive use of tariffs as president was criticized by Democrats and most economists, but many of those tariffs were kept under President Biden. Biden’s use of industrial policy to direct federal resources at helping certain US industries do better in international competition was itself a variant of the “economic nationalism” that Trump had advocated, but one that involved spending tax dollars rather than imposing costs on imports and thereby on consumers. The Biden administration’s recent imposition of 100% tariffs on Chinese electric vehicles, while symbolic — Chinese electric-vehicle sales in the US are negligible — continues the theme of imposing costs on imports.

In his campaign, Trump has doubled down on promising to implement tariffs, even saying that he would use them to replace some types of tax as government revenue. Such proposals have alarmed Republican officials as well as Democrats. 

Kamala Harris’s position is difficult to locate. In public statements before becoming vice-president, she vigorously attacked what she called “Trump’s trade tax” which resulted in “American families spending as much as $1.4 billion more on everything from shampoo to washing machines” and “farmers in Iowa with soybeans rotting in bins, looking at bankruptcy.” At the same time, she stressed that she wanted trade deals to “protect American workers” and to address climate change. Her opposition on these grounds to NAFTA, USMCA (NAFTA’s replacement, negotiated under Trump) and the Obama-negotiated Trans-Pacific Partnership (TPP) was, taken as a whole, unusual for a Democrat of generally mainstream views aspiring to national office.

Harris did not work directly on trade issues as vice-president. The Indo-Pacific Economic Framework (IPEF) is the only Biden-era international agreement that has embodied the types of environmental initiatives that Harris has praised. She supported it in Thailand in 2022. While it is unclear how much priority would be given to it under Harris, the reality is that multilateral trade talks are popular among American allies but not Americans. The leading examples are the Asian Regional Comprehensive Economic Partnership (RCEP, led by China); the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); and the IPEF.

The CPTPP is a particularly egregious example, given that it was a US initiative until President Trump withdrew. (Hillary Clinton, in her campaign against Trump, distanced herself from the pact.) Democrats had perceived the political power of Trump’s economic nationalism and tacked in his direction. Ever since, there has been little domestic political support for re-engaging with the TPP. Yet the US-brokered past has lived on, its membership including such key US allies and trading partners as Japan (which picked up leadership when the US left), Australia, Canada and, in 2023, Britain.

Harris will at least be less likely than Biden to ignore or downplay such multilateral talks as those that are ongoing for the IPEF. But Harris needs working-class and union voters, who tend to distrust international trade, and she and Tim Walz have green commitments that are not easy to honor in trade deals. Harris is unlikely to declare new tariffs although she might continue existing ones, such as on EVs and their components. Her environmental and jobs priorities will find positive expression in continuing Biden’s industrial policies, with their strong green and strategic anti-China aspects.

Trump’s prioritization of tariffs is likely to be tempered in office. In addition, he does not have Harris’s environmentalist commitments and he was, after all, the last president to bring in a major trade deal, the USMCA.

Whoever is in the White House, that agreement will be due for a review in July 2026. Measured by the growth in US trade deficits with Mexico and Canada, the USMCA cannot be reckoned a great success. Yet the bipartisan consensus on trade and industrial policy suggests it will be celebrated anyway.

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Are We Already in World War III?

By Dee Smith

The question in the title has been asked in policy forums, and often dismissed. But there are recent developments that make it important to take the possibility more seriously.

First in importance is what is being called an “Axis of Disruption”: China, Russia, Iran, North Korea. These states are arguably more coordinated today than the old Axis powers were at the beginning of World War II. They have mutually reinforcing interests. Primary among these is an interest in weakening the United States, Western allies and the so-called rules-based international order.

It is not so much that Axis of Disruption goals are shared as it is that the interests of the players are self-reinforcing. China would welcome a situation in which the military and diplomatic attention of the US is drawn into simultaneous conflicts in the Middle East, centered on an Israel-Iran confrontation, and in the North China Sea, focused on sharpened tensions between North and South Korea. The focus of the US on these two theaters of action would draw its capabilities away from other areas, particularly Taiwan. Russia likewise would prefer to have the attention of the US pulled away from Ukraine. In this analysis, China would be the sub rosa moving force behind seemingly disparate actions — all of which satisfy the interests of it and its allies.

Simultaneous major military action by members of the Axis of Disruption in the Korean Peninsula, Taiwan/South China Sea, the Middle East and Ukraine could be considered to constitute world war.

Is this realistic?

It depends to a significant extent on whether China really wants to pursue a forceful reunification with Taiwan, and if so, when. China considers Taiwan a breakaway province, and in some ways sees it as the last pillar standing of the “century of humiliation” Chinese schoolchildren are taught: “100 years of national disgrace” of China at the hands of Western powers and Japan. Chinese leader Xi Jinping has clearly stated that he sees his legacy as the reunification of Taiwan with the mainland, by force or otherwise. For several reasons, including changing demographics (an older population and the results of the one-child policy in the 20th century), his own advancing age, and the changes resulting from ever closer ties between tech sectors and defense, Xi may see his window of opportunity closing.

On the other side, the outlines of a broad counter-alliance are emerging. NATO has significantly expanded its territory along the border of Russia. A number of cooperative groups of nations who share strategic interests in various ways — the European Union, the “Five Eyes” (Australia, Canada, New Zealand, the UK and the  US, with varying collaboration with France, Israel, Singapore, South Korea and Japan), AUKUS (Australia, UK, US), the Quad (Quadrilateral Security Dialogue: Australia, India, Japan, and the US), the Abraham Accords (Bahrain, Israel, the UAE and, indirectly, Morocco and the US) — seem also to be consolidating into something like an informal alliance.

The US has just entered into an expanded defense agreement with Japan. And Israeli Prime Minister Benjamin Netanyahu’s speech before the US Congress on 24 July could almost be read as a statement of intent to go to war with Iran.

The situation is unlike the Cold War, in which there were more clearly delineated sides. There are many countries sitting on the fence with regard to their alliances. The new non-aligned movement is expanding, with significant “middle powers” like Turkey exploring options outside its long-standing associations with the West. It is no longer outlandish to ask if Turkey might leave NATO. The BRICS (Brazil, Russia, India, China, South Africa) group of nations is expanding, with countries like Egypt joining, and is seeking to introduce its own currency.

India is both a member of the US-oriented Quad and of the BRICS group, and the UAE of BRICS and the Abraham Accords. Which way would they fall if the proverbial push comes to shove?

Adding further instability, the US dollar — the world’s reserve currency — is under mounting pressure due to continuing US government budget deficits and the US debt load of over $35 trillion. A number of nations, China among them, have been dumping dollars and buying gold (this includes Chinese households). The US may eventually find it difficult to finance its debt.

When a world war begins is often a matter of hindsight. It still seems unimaginable to many, and it is to be fervently hoped it never happens. “Recency bias” is the belief that the near future will be like the recent past. Most people cannot believe things outside their experience can happen. But they can . . . and do.

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Private Fusion Takes Off

US-led Western policies aimed at the technological and, in effect, commercial isolation of China — exacerbated by China’s ongoing cooperation with Russia despite sanctions over its invasion of Ukraine — have created a situation in which leading-edge innovation is becoming fragmented in both the private and the governmental spheres. This is inherently inefficient. Yet it is also spurring state investment at new levels, such that the overall effect, over the medium term, could well net out as positive. Nuclear fusion is a particularly interesting example that merits a closer look.

Fusion has always seemed five years away, rather as Brazil has proverbially been called “the country of the future … and it always will be.” (The unkind line is attributed to De Gaulle.) But as the US-China dynamic has become an enduring feature of geopolitics investment in fusion has increased dramatically, particularly in terms of public-private partnerships.

The main global fusion project since the 1980s has been the International Thermonuclear Experimental Reactor, known as ITER. Born from a meeting between Ronald Reagan and Mikhail Gorbachev and based in southern France, ITER has the US, China and Russia among its permanent members. Each member state contributes some particular part of the central project, a reactor based on the tokamak method. There is no practical way to excise one or another ITER participant. Sanctions against Russia for invading Ukraine have so far not dislodged Russia from ITER, although its participation has been controversial since the invasion.

ITER illustrates a type of international cooperation typical of the Reagan-Gorbachev era and now apparently a thing of the past. However, the swift decline of globalist cooperation has been matched in the fusion sector by a growth in government financing, private investment and public-private partnerships. Public funding, according to a new report from the Fusion Industry Association, went from $271 million in 2023 to $426 million in 2024 so far, or roughly half the private share of $900 million. (Funding to date is on the order of $7 billion.) The US, EU, British and Japanese governments have all shown significantly increased interest in working with private fusion companies. ITER itself is turning more toward private partnerships. Meanwhile the Chinese government continues to prioritize fusion work in government labs, universities like Tsinghua, and the (Chinese-style) private sector.

The growth of the fusion industry is a demonstration of how private-sector approaches differ from governmental ones. Tokamak is just one of several leading technologies for fusion, and companies are placing a wide variety of bets on various technologies, any one of which could prove to be the winner. The number of private fusion companies has doubled in the past six years. Some major companies, like Shine (US, $800 million in funding to date), are working to develop viable revenue streams, such as producing Lutetium for cancer treatment, while keeping an eye on the moonshot of clean, cheap energy. Others, like tiny Terra Fusion, also in the US, are startups pursuing one particular technology that they hope will be the breakthrough. Roughly half of fusion companies are in the US. Globally, most fusion companies have university and defense partners — in the US case, the national labs (managed by the Department of Energy, as their earliest priority was nuclear power) and the Department of Defense.

There is also significant US participation from ARPA, one of many echoes of the Internet  development process of the 1970s. (The earliest Internet was the ARPAnet.) Unlike in that era, geopolitical fears are now combined with climate change.  Fusion promises an end to carbon-based energy systems. However inefficient it might be to have politically structured private sectors, it could also prove to bring a technological solution to climate change sooner than would otherwise have been the case.

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Vance Notice

This post was published on Friday, 21 June, two days before President Biden renounced his candidacy for reelection.

The current high level of partisanship in the media, even the business press, has made it difficult at best to find objective analysis that favors neither party. For example, former President Donald Trump’s announcement of J.D. Vance as his running mate was generally met with a certain dismissiveness. The Economist’s midweek newsletter read: “Mr Vance will not swing many votes. A 39-year-old articulate anti-globalist, anti-big business, anti-immigration, pro-worker, MAGA enthusiast, he does little to broaden Mr Trump’s electoral appeal.” SIG’s analytical view is that Vance will indeed broaden Trump’s appeal to working-class, lower-middle-class, and non-white voters. Trump has been steadily taking these formerly core Democratic constituencies into his column since the 2016 campaign. And in a number of states they could very well make the difference between a Trump presidency and a Biden (or Harris) one.

Trump’s remarks at the convention Thursday night included an appeal to “every citizen, whether you are young or old, man or woman, Democrat, Republican, or independent, Black or White, Asian or Hispanic,” and in the previous days convention-goers had heard from a Muslim woman offering a prayer in Arabic, a black pastor, and a variety of non-white lawmakers and officials. The Republicans’ big-tent approach began in the campaign of the younger George Bush but Trump has steadily extended it. He did better in 2016 with nonwhite voters than Mitt Romney had four years before, and somewhat worse with white voters as a whole. Trump also could not have won without taking some Obama voters away from Hillary Clinton. Trump did noticeably well with working-class and less-educated voters. Those two groups, of course, contain a great many non-white voters. Given the national white majority and the realities of racial discrimination, working-class politics and non-white politics have often been treated as highly distinct and even antagonistic. Trump seemed to be following a different path.

Biden and the Democrats, meanwhile, were losing their once solid hold on the non-white vote. In 2012, Barack Obama carried the non-white working class (non-college-educated) by 67 points over Romney. In 2020, running against Trump, Biden carried the same demographic by just 48 points. By February 2024, one reputable poll was finding that Biden’s margin had slipped to 6 points: 47 percent to 41 for Trump. The same poll found that white and non-white voters without college degrees were converging in their views on the respective qualities of Biden and Trump and on the state of the economy. Indeed, non-white voters in this category were slightly less likely than their white counterparts to feel that Biden’s policies had benefitted them.

The Democratic party has long prioritized the non-white vote as such. What seems to be happening is not that Biden and the Democrats are losing non-white voters so much as losing working class-voters, among whom non-whites are disproportionately represented. (A 2024 poll found that 55 percent of non-whites identified themselves as in the lower or working classes, compared to 36 percent of non-Hispanic whites. The white-non-white ratio in the US is roughly 60-40.) At the same time, Democrats’ association with prioritizing the non-white, and particularly the black, vote might also have led some less-educated whites to back Trump. Both lines point in the same direction.

Trump’s working-class support is a principal reason why he is doing well against Biden in polls. In Virginia, for example, Biden has gone from a 10-point margin in 2020 to 3 points in recent polls, and possibly less. Trump, meanwhile has seen his margin of the Virginia working-class vote grow from 6 points in 2020 to 24. In the battleground state of Pennsylvania, Trump’s lead among likely working-class voters has doubled over the same period. Nationally, Trump carried the working-class vote by 4 points in 2020 and now is polling at a 17-point margin or above.

Trump and Republican officials know all this, and the party platform, which Trump had a decisive hand in shaping, reflected it. The platform was noticeably less strong than in the past on fiscal rectitude, more supportive of Social Security and Medicare, more emphatic about creating jobs (particularly in manufacturing) and less emphatic about abortion. These new positions are all in line with data about working-class policy preferences.

This waxing working-class and non-white Republican constituency is the large target at which J.D. Vance is aimed. His convention speech on Wednesday was preceded by an introduction from his nonwhite, Hindu wife, Usha Chilukuri Vance, a child of immigrants, who went on to take a seat next to Trump. Vance then gave a speech squarely focused on promoting Trump and the party as ardent defenders of the American working class against their enemies foreign and domestic. His biography enabled him to do this with a believable passion that Trump has not been able to reach. But more than that, Vance brought to bear the skills of a correspondent and public-affairs specialist (his position in the Marines), an undergraduate student of political science and philosophy, and a successful author (Hillbilly Elegy). (Usha Vance studied history as an undergraduate at Yale then went on to get a history MPhil from Cambridge as a Gates scholar.) Vance was able to position his working-class story within a 250-year narrative of patriotic struggle. He referred repeatedly to his family’s graves on a hillside in Kentucky, generations of poor ancestors whom he expected to join, and whom he expected his family — the Vances have two sons, Ewan and Vivek, and a daughter, Mirabel — to one day join as well.

Vance brings a distinctive and potentially quite powerful kind of patriotic narrative in support of the years-long trend of growing working-class and non-white support for Trump and his party. That trend in turn is likely to be decisive in this year’s contest. Among the many implications for investors are the solidification of industrial policy and protectionism in the world’s most important economy, government prioritization of onshoring and the preservation of the existing social safety net.

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After the New Cold War

To what extent will the U.S.-China struggle take the rest of the world along with it? Recent developments in the technology sector suggest that containment of China has a long way yet to run, regardless of who becomes the next U.S. president. At the same time, China is showing no signs of abandoning its core strategy of using state policy to control citizens at home, build Chinese companies that can crush competition abroad, and exert maximal autarkic control of its domestic market. However, the great success of globalization has been the creation of a global middle class with incomes, educations and expectations all on an unprecedented scale. There is now a generation or two in adulthood that has grown up watching the West destroy itself and slowly abandon the freedom of movement of capital, goods, services and people that was the premise of globalization. This generation, outside the West and (perhaps) China, does not think it is helpless. SIG’s view is that the global generation in its late 20s and early 30s is already pivoting away from attachment to the world of their parents and the disastrous end-game that appears to be their parents’ legacy.

U.S. policy for the technological isolation of China has been steady and focused since about halfway through the first Trump administration. It has expanded in breadth and sophistication under the Biden administration. Technology companies have integrated this into their strategies, giving what began in the government sector strong private momentum. Consider a project with the very Bondian acronym HEIST. It is a private-public-academic partnership now backed by NATO. Its goal is to create ways for Internet traffic to be switched from undersea cables to networked outer-space satellites in the event an ocean cable is disrupted. (Students of Internet history will recall that the Internet itself was developed out of private-public-academic programs for ensuring continuity of communications in the event that land-based systems were disrupted.) HEIST is just one example of how the private and academic sectors are factoring in a long-term tech conflict between the U.S. and China. Another is OpenAI’s decision to clamp down on use by Chinese developers of ChatGPT. China was never on OpenAI’s list of “supported countries and territories,” but the move is nonetheless significant.

Of course, moves like this all call forward responses from China and Chinese companies. China’s GPS alternative, BeiDou, has had this problem set firmly in view for over 20 years. Coverage of the OpenAI decision has emphasized how quickly — measured in days if not hours — Chinese tech companies offered “moving packages” to OpenAI customers on the mainland whose VPN and other outward connections to OpenAI would no longer work. Huawei has retooled itself to deal with the expanding bans on its use overseas. It is too much to say that U.S. tech containment of China has been a good thing for Chinese businesses but it has been a spur, if of a peculiar kind.

The Trump policies on China that Biden kept and developed were guided by people such as Robert Lighthizer (Trump’s trade representative) and Matt Pottinger (Trump’s deputy national security advisor), who are expected to be part of any second Trump administration. There is every reason to anticipate policy consistency, in this particular field, regardless of the victor in November. The same is true in China.

In a real Cold War, this bifurcation between two hostile major powers would extend itself to the rest of the world. There is an element of that today. Germany, for example, after years of U.S. pressure, has decided to take Chinese technology (from Huawei and state-owned ZTE) out of its 5G networks. However, most states and national economies with any choice in the matter have opted either to blend U.S. and Chinese systems or, better yet, to develop their own.

To opt out of a forced choice between major-power antagonists while opting in to the cross-border platforms that are being shaped by that antagonism is a characteristic move for the generation that is now starting its first companies and reaching the lower rungs of government. Chinese autarky and U.S. industrial policy alike have made it clear to the rest of the world that its interests are not of lasting concern to the major powers. At the same time, the spread of middle-class wealth, education and expectations has empowered people around the world to feel they have options. Their politics is shaped by the possibilities for identifying and exercising those options. Ironically, perhaps, for a generation formed by borderless globalization, the chosen venue for exercising those options is not a transnational one but the nation and national or regional economies.

This should not be surprising. Neither the U.S. nor the EU is in any mood to guarantee the sanctity of the global public sphere. China, despite its protestations, is even less globally minded. The fact that addressing global climate change, the signature challenge of the coming generation, is being hobbled by electric-vehicle and solar-panel legislation is truly telling. The major powers that are alone in a position to see through global solutions to global problems are now the very powers making them impossible.

In such a situation, for the world outside the West and China (plus Russia), nationalism and regionalism are the least-worst solutions. The coming generation will be elderly by the time COP75 rolls around and the U.S., EU, Russia and China all bury their many hatchets and rediscover globalism. Meanwhile, away from the current agon, a busy world is identifying problems and designing solutions with no expectation of rising to the universal plane. Globalization has lost its teleology.  But it has created a world in which ambitious people can remain anchored and protected in national economies while also staying closely connected to the world outside, steering their diverse courses with as little reference as possible to great-power conflict.

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Our Age of Political Nostalgia

By Dee Smith

If homo sapiens has been around for about 300,000 years, then we have lived all but 3 percent of that in circumstances almost entirely different from the present day. To put it another way: even with a generous allowance of 10,000 years or so for settled life in something like cities (which is what “civil”-ization means), for 97 percent of our existence we lived in very small groups and, except for wide-ranging nomads, with very little change over vast periods of time (centuries or even millennia). And even the nomads could usually count on migration routes leading them to familiar places, over and over again.

We are now thrust into a world where we are clustered into groups of a size unimaginable to our ancestors. They would seldom encounter anyone outside their little bands; now we all meet people every day whom we don’t know and who are different from us, and we need to co-exist with them. We are required to deal with levels of novelty, complexity and social regulation for which we are not adapted.

This goes a long way, I think, towards explaining what is happening politically and socially around the world today. Our lives are full of what scientists call “baseline resets” — we have to recalibrate our understandings and expectations over and over. We hardly become accustomed to a certain configuration of things, and then it changes. And it changes yet again. Some people embrace this. The “move fast and break things” entrepreneurs claim to do so. For most of us, however, it is highly disorienting, uncomfortable and emotionally distressing.

If we could just go back to the way things were! Vast numbers of people, of all socio-economic groups, pine for a world in their past — often a world that never existed in the way that they believe it did.

In the US, for example, so-called “liberals” — Democrats and their ilk — bemoan the loss of a US-led Liberal International Order, a rules-based international system that many analysts believe never actually existed in the way that it is remembered. This brand of nostalgics sees the post-WWII era, and particularly the “long decade” between the fall of the Berlin Wall and the 9/11 attacks, as a golden age of international cooperation, when in fact it was a short period of unipolar U.S. dominance following the collapse of the Soviet Union, a period in which there was a great deal of conflict. Of course, it seems like a golden age to those who found themselves briefly its masters! But they fear an approaching age when the “progressive” system and message no longer resonate or hold, and overt authoritarians, operating from positions that they abhor and see as threatening, are ascendant.

On the other side, in the US, many Republicans and members of right-wing movements harken back to a lost age of white social dominance. To some extent, this did exist, but it was not the halcyon period they that think they remember. Firstly, most of them were not actually alive at the time. It was a period filled with hatred and civil violence. Furthermore, the definition of who and what is “white” has never been clear. For example, Italians in the US were not, and then they were. Some Hispanics would be considered, or consider themselves, white; others would not. Besides, return to a lost white world is no longer even a possibility. The US has become “minority-majority.” White nostalgics fear an age when what are remembered as traditional white values, if not white people, become sidelined.

Similarly, the term “conservative” has been warped beyond recognition. What is it, exactly, that conservatives wish to conserve? The fact that “move fast and break things” tech leaders call themselves conservative and support conservative politicians is an oxymoron in the most literal sense.

The situation is similar in many other places around the world, whether the past is Soviet Russia, Maoist China, or various strongman dictatorships or ephemeral democratic Camelots. For much of the last couple of centuries, the Enlightenment doctrine of progress imagined the golden era in the future. As human life seemed to improve (or was said to be improving) through new systems of governance and technology, life would generally become better and better. We have now reverted to what has been the norm for most of our history, an assumption that golden ages lay in a mythic past.

The political and social status quo is increasingly seen as having failed to deliver. Life is not better than it was—and it is not getting better—for most people. They do not believe that the lives of their children will be better than their own. In fact, they increasingly just “don’t believe” in the current system, wherever they live and whatever the system is. When I presented the television series A World on the Brink in 2017, I found that there was one phrase with which everyone agreed, regardless of where they lived: “what we have is not working.” That was already 7 years ago! Since then, the needs and concerns of most peoples have really not been addressed.

The bottom line is this: conditions have changed radically; whatever happens next, they are going to change even more. The answers are unlikely to be found in any of the dominant political systems of the past few centuries. We need to think again and we need to think quickly. We need to come up with new approaches that are relevant and adaptive to the very different age we are living in and the even more different ages that are emerging. I say “approaches” because need to give up on universalism — there can be no universal system that will fit the bill, or so it seems. There may well be, and will probably be, many different and divergent systems in different places and for different people.

But they won’t be like it is now, or like it was. And that is hard.

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The European Union's Right-Wing Future

Elections for the European Union’s parliament more than confirmed predictions of a nationalist rise and of a decline in support for environmentalist parties. The initial reaction was nonetheless one of shock, a reaction compounded by French President Emmanuel Macron’s surprise decision to dissolve the National Assembly and force an election as a sort of referendum on French extremism. (“The rise of nationalists, of demagogues, is a danger for our nation but also for our Europe, for France’s place in Europe and in the world,” Macron declared.) News cycles being what they are, there then followed a calming line of argument that emphasized European Commission President Ursula von der Leyen’s insistence that “the center is holding.” Finally, the argument was made that the center might be holding for now but the mainstream political groupings that provide that center need to change course now, before the political support for European union really does decline.

SIG’s view is that the European parliamentary election results fundamentally reflect the victory of economic concerns over moral ones. The project of European unity has always had a moral proposition at its core: that nationalist competition within Europe leads to war, and therefore European unity is a project of peace. European unification since the 1940s has been animated by a sense that it was morally superior to all the political alternatives. For a number of reasons, that sense of moral direction is being lost.

One reason is the structural problem of democratic representation. The “democratic deficit” of the European Union and its predecessors has been a chronic complaint that has been ameliorated in various treaties but cannot be entirely resolved. National governments are more truly representative and therefore more legitimate than the delegations each member state sends to Brussels/Strasbourg.

The political response to this has been twofold. The first response is to reject the EU as unrepresentative and unaccountable and revive the nation-state as the best available alternative. Alice Weidel, of the German party Alternative für Deutschland (AfD), put it with characteristic bluntness: “We’ve done well because people have become more anti-European.” AfD recorded its best performance yet in European elections, moving into second place ahead of Germany’s current governing party.

The second response has been to increase the power of the European Commission and its president, that is, to increase the power of the European executive. On the face of it, this would seem to be the opposite of democratic: the empowerment of a very indirectly elected president and of commissioners approved by her after being proposed by national governments. But the rise of the Commission was in response to a strongly felt political need, during the 2007-08 financial crisis and the euro crisis that followed, for there to be greater power in Brussels. This was not a reward for Brussels’s political successes. Rather it was a response by the European political class to the inability of national governments to solve the financial crisis on an individual basis — and to the realization that if Brussels were not strengthened Germany, because of its economic dominance, would come uncomfortably close to being master of Europe. Then-Chancellor Angela Merkel shepherded a process by which German power was both acknowledged and contained within the reforms of the 2009 Treaty of Lisbon. Since 2019, President von der Leyen, who rose to prominence as a long-serving member of Merkel’s government, has enlarged the Commission’s effective power, pushing forward policies on the environment, defense, technology, competition policy, foreign policy, agriculture, the euro, and much else. Her presidency has made the EU more effective and thereby more worth voting about. The turnout last week was the highest in 30 years. In that quite real sense, the democratic deficit is shrinking.

However, if the European Union has become more responsive to voter needs since 2019 and a more plausibly effective companion to member states’ national governments, it has also become a prosecutor of war (in Ukraine), raised the barriers to immigration, and utilized regulatory, competition and other industrial policies as weapons against, principally, the US and China, though also Russia. In short, the EU is losing that sense of peace-loving, internationalist moral distinction that differentiated it from the patriotic model of nationalism it was invented to replace. The EU is becoming a center-right power tolerant of illiberal identitarian and economic policies and engaged in war.

The consensus opinion has been that the European parliamentary elections were a struggle between a morally legitimate, internationalist center and a demagogic, nationalist right surging upward from the murk of history. What seems more likely is that the EU is becoming a political manager for a European nationalism that can be relatively at ease with the sub-European nationalisms currently thriving in Germany, the Netherlands, Austria, Italy, Belgium and France. Austria aside (and adding Luxembourg), that has been the core group of European unification since 1951. It may prove to be the core of a right-leaning Continent.

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Re: Re-globalization

Two substantial articles this week argued, in different ways, that ‘de-globalization’ is an indiscriminate and misleading term. What we are truly entering is a period of ‘re-globalization’. The First Law of Punditry is to always contradict, and contradicting those who speak of de-globalization is true to pundit tradition. De-globalization has indeed been frequently used over the past few years, along with subsidiary terms such as de-linking, de-risking, friend-shoring, and near-shoring. It may well have had its season. With ‘re-globalization’, we could be witnessing the rise of a new analytical cliche from the husk of an old one. SIG’s view, however, is that de-globalization still has room to run

In Foreign Affairs, the economist and former senior Biden official Brad Setser argues, under the commanding headline ‘The Dangerous Myth of Deglobalization’, that US-China de-linking has mainly resulted in lengthier supply chains for US imports: Chinese components have to travel longer as they detour through Vietnam, Malaysia, and Mexico on their journey to American markets. As he underlines, China’s manufacturing exports in general have risen under so-called de-globalization, spectacularly so in electric vehicles and other sectors that have been the focus of Chinese industrial policy. Setser also emphasizes that corporate tax avoidance, by US multinationals in particular, has proved to be a resilient form of capital globalization despite recent regulatory initiatives. These two examples lead him to conclude that deglobalization ‘offers analysts a simple story to tell’ but ‘the reality is more complex’, a conclusion that is inevitably true: reality is always reliably more complex than any one-word descriptor.

In World Politics Review, Roland Benedikter has advocated for ‘re-globalization’ as a more accurate term that escapes the disadvantages of de-globalization. His argument has three main contentions: that the pro-globalization alliance of neoliberal capitalism and ‘leftist cosmopolitanism’ has been broken in favor of economic nationalism; that autocratic non-Western states are leading a charge against globalization that feeds on and encourages a revival of non-alignment in the global South; and that globalization depended on the military umbrella of American power. The umbrella, he maintains, is being withdrawn by American unwillingness to continue paying for it, the determination by China and others to challenge it, and the displacement of it by economic, political, technological, and military competition in space, from low-earth orbit to the moon and beyond.

Setser’s two main points and Benedikter’s three are all well made. Several will be familiar to SIGnal readers. None benefit much from being shoehorned into a debate over the proper definition of de-globalization (Setser) or the substitution of a new term like re-globalization (Benedikter), but they all have the virtue of drawing attention to how subtle and complex the ongoing reconfiguration of political and economic internationalism actually is.

SIG’s view is that de-globalization continues to be a useful shorthand term for describing that reconfiguration, but it is only a shorthand, a point of departure rather than a destination. The main factor remains the re-emergence of states as economic actors maximizing their autonomy on behalf of their respective peoples, most often ethnically and culturally defined. This phenomenon is consistent across democratic and un-democratic societies, rich and poor ones, ex-imperial states and ex-colonial ones. It can probably be dated from the Asian financial crisis of 1997, when China showed that state management of international capital flows was not a first step on the road to serfdom. The triumphal period of the US-led post-Cold War liberal international order then amounts to the six years from 1991 to 1997 — not notably long.

The principal counterforces remain the diffusion of technology and education, the cross-border movement of people (driven principally by economic inequality, at one end, and demographic stagnation or decline at the other), and the mobility of capital in terms of both investment and the securing of profits (very much including offshore). None of this is necessarily liberal or orderly. Globalization and de-globalization are twin forces in a single dynamic that does not resolve into one or the other. ‘Re-globalization’ is a valiant attempt to be neither here nor there, but the reality it confronts is both at once.

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