The Rival Trading Blocs We Make Along the Way

And more from this week...

As I argued in A Hard Break with China, never in human history have nations with economic and political systems as different as America’s and China’s attempted economic integration. During the Cold War, integration was never permitted, or even seriously considered, by either side—the suggestion would have been regarded as plainly insane. When PepsiCo finally opened a Soviet bottling plant in 1972 after 13 years of effort, it was front page news. Rubles were not convertible to dollars, and so the Soviets paid for the bottling equipment with vodka.

ONE THING TO READ THIS WEEK

Your one thing to read this week is “China’s New Back Doors into Western Markets.” As the Financial Times reports, “an intensifying rivalry between China and the US-led west is driving a fragmentation in the world’s economic order. … In response, company executives and analysts say, Chinese corporations are setting up shop in a host of relatively non-aligned third countries, hoping they can bridge the increasingly hostile gap that divides China from the west.”

Chinese firms are using a series of “connector countries”—Singapore and Vietnam in Asia, Hungary and Ireland in Europe, Mexico in North America—to launder Chinese goods into Western-aligned markets. European countries are especially vulnerable, because the EU grants nations independence in forging external trading relationships but then insists upon free trade within the common market. Thus, for instance, Hungary can welcome Chinese auto manufacturers and the vehicles produced have automatic entrée to the German market. Ireland, long a bad-faith actor in the international tax system, seems to be going the same route on China. Bilateral trade between the two countries has increased by a ludicrous 200% in five years.

For the U.S., the problem is Mexico. “North America’s USMCA free trade agreement,” explains the FT, “means Chinese businesses making everything from fridges and televisions to textiles in Mexico gain privileged US market access. … US patience with Mexico’s role as a tariff-free staging area for Chinese companies to the US market is already running thin. … But some in Mexico City say China is too deeply embedded in Mexico to change course. In any case, there is only so much either country can do to limit China’s reach.”

This is wrong, and repeats the original mistake of the economists and analysts who deemed globalization unavoidable and irreversible. What in fact is unsustainable, and will not continue because it cannot continue, is the attempt to preserve an international trading system that integrates China’s authoritarian, mercantilist, non-market system with Western democratic capitalism. There is no coherent resting point between globalization’s full integration and the retrenchment into rival trading blocs now underway. The sooner American policymakers accept this, the sooner we can turn our attention to forging the best possible bloc on the best possible terms.

BONUS LINK: “China’s top electric-vehicle maker BYD Co. won’t announce a major plant investment in Mexico until at least after the US election,” reports Bloomberg. Clearly the future direction of U.S. policy will still matter a great deal.

BONUS BONUS LINK: Compass advisor Michael Pettis puts the question well: “In a world where globalization has led to the disruptive transfer of industrial policy from mercantilist economies to open economies, countries like Ireland and Singapore are playing a very active role in undermining the ability of the latter to regain control of their national economies. I guess the obvious question is whether this will be ignored, or will instead lead to even more aggressive protectionism that ultimately penalizes the very countries that play this role.”

THIS WEEK AT AMERICAN COMPASS

The Compass Point is from EPPC fellow Brad Littlejohn, on the ways the digital era’s behaviors and habits of mind undermine conservatism and human flourishing: iThink Therefore iAm

Steve Jobs named his company “Apple” after a pleasant trip to an apple orchard. The bite mark in the logo was added to give the silhouette a sense of scale, lest someone think it a cherry. Yet that name and that symbol, evoking consumption of the forbidden fruit for which man was expelled from the Garden of Eden, must be inadvertently the most perfect metaphor in corporate history.

Continue reading…

Also on The Commons:

Bring Back Trump’s China Policy: The Heritage Foundation’s Bryan Burack explains why decoupling is inevitable and must be done on America’s terms.

Potemkin Presidential Politics: American Compass’s Duncan Braid argues that, by choosing not to run on anything, Kamala Harris will have no popular mandate to do anything.

And, on the American Compass Podcast this week, Member of Parliament Nick Timothy joins me to discuss the struggles of the Conservative Party in the U.K. and similarities and differences between political realignments on each side of the Atlantic.

WHAT ELSE SHOULD YOU BE READING?

Re: The Nature of the Firm… Marko Jukic in Palladium considers When the Mismanagerial Class Destroys Great Companies

An excellent deep dive on the collapse of industrial crown jewels GE, Boeing, and Intel:

The problem seems to stem from a particular way of thinking about what a company even is, what its goals are, and what measures are or are not appropriate to achieve those goals. In simplified terms, we can think of companies as organized to create value and sustain themselves by capturing a portion of the created value as financial profit. When executives, board members, and major investors manage companies by and for the bottom line, they operate on a theory of the company as a vehicle solely for capturing profit. When this happens, the difficult and holistic question of creating value in the first place—a question unique for every company—simply goes unaddressed.

Re: Sorry for the TED Talk, but… MIT professor Zeynep Ton’s is quite good, on The Case for Good Jobs — and Why They're Good for Business Too

For more from Ton, read the interview I did with her as part of American Compass’s project on Corporate Actual Responsibility.

Re: Mock the Vote… Tablet Magazine goes deep on the Stealth Revolution in American Voting Laws

The absurd push to do away with both Election Day and the voting booth in favor of a month long bacchanalia of ballot harvesting and mailing follows the classic pattern of dysfunctional progressive reform that has undermined so many American institutions. The value of rules, norms, and constraints that make systems discernible and trustworthy all goes out the window in favor of accommodating every outlier and sob story.  

Re: The Kids Aren’t Alright… in the New York Times, Mireille Silcoff Paid Her Child $100 to Read a Book

Silcoff’s 12-year-old daughter had “never read an entire chapter book for pleasure,” but the real problem isn’t the reading. It’s the smartphone. Of course.

Before the phone, I had a child who was like a gregarious Tigger, squealing with delight at something as simple as a new dessert cooling in the fridge. Post-phone, I had a monosyllabic blanket slug who wanted only to stay in her room with the blinds down, door closed, under a duvet, palming that little rectangle as if unhanding it would make her social life disappear. If it wasn’t her friends or it wasn’t her phone, it was only one thing: “boring.”

Don’t pay the kid to read, help her put down her phone.

Have you ever tried cheerfully to tell a nearly-13-year-old enduring a couple of parentally imposed phone blackout hours to pull out the old watercolors set? Or maybe try origami? Unless you want your hair to instantly fall out from teenage eyeballs laser-hating you through tiny slits, I’d suggest don’t.

She doesn’t need a bribe, she needs to put down the phone…

But I held a candle for reading. Because I could see that what my daughter was looking for, like so many her age, was escape. To me, that felt developmentally appropriate. The problem was that the easiest way for her to find escape was to plunge into the addictive chaos of her smartphone.

For God’s sake, take away the phone! In what other context do parents shrug helplessly that they are willfully subjecting their own children to “addictive chaos”?

BONUS LINK: Watch this clip, in which EPPC’s Clare Morell describes the difference between oxytocin and dopamine, and the effect of the online world’s dopamine hits crowding out the human bonding and sense of accomplishment associated with oxytocin in young minds.

Re: What Schools Didn’t Teach Us… Matthew Crawford at The Free Press on Your Place in the World

And finally, cleanse your soul of the $100-book-bribe woman with Crawford’s experience coming of age in an ashram and doing electrical work on a construction crew. “With manual work, your place in the world is obvious. The effects of your efforts are visible for all to see. Your competence isn’t something you imagine for yourself, but a simple fact—a shared fact, the basis for relationships and transactions, rather than an elusive ‘identity.’”

Enjoy the weekend!