The Last Chance to Defeat China and Win Back the Cyber Domain?

Two months ago, when Zooming In did a story on Huawei and global 5G deployment, Huawei was poised to take control of much of the world’s cyber domain. We talked about the national security implications of that prospect. And we observed the U.S. efforts to raise awareness of that risk. Two months later, when we did another story on this topic, we realized the world knows Huawei a lot better through these efforts, but Huawei’s momentum has not stopped. In fact, Huawei and China are playing a grander game. They have a brilliant strategy that is working well with the very nature of a crony capitalism. Can this battle still be won by the free world? And what does it take to win? Let’s find out in this edition of Zooming In.
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How World Leaders Ruined the Global Economy

They took the best growth picture in a decade and put us in danger of recession.

Why are so many key global leaders pursuing so many stupid economic policies?

As recently as January 2018, the International Monetary Fund issued one of its most upbeat economic forecasts in recent years, extolling “broad based” growth, with “notable upside surprises.”

By last month, the fund had sliced its forecast for expansion this year to 3.2 percent — a significant falloff from the 3.9 percent projection reiterated just six months earlier — and had pronounced the economic picture “sluggish.” American investors are more concerned; the bond market is sounding its loudest recessionary alarm since April 2007.

The deterioration in the economic picture is not the consequence of irresponsible behavior by banks or a natural disaster or an unanticipated economic shock; it’s completely self-inflicted by major world leaders who have delivered almost universally poor economic stewardship.

The trade war initiated by President Trump sits firmly atop the list of bad policies. But Brexit has tipped Britain into economic contraction. With European governments unwilling to pursue structural reforms, the continent is barely growing. President Xi Jinping of China has focused on standing up to Mr. Trump and solidifying his own power. After a promising start reforming the economy, India’s prime minister, Narendra Modi, has turned instead to oppressing his country’s Muslim minority.

None of this was necessary. As the January 2018 I.M.F. report indicated, the world economy was firing on all cylinders — “the broadest synchronized global growth upsurge since 2010” — as jobs were being added and inflation remained subdued.

Yes, Mr. Trump’s trade war and Brexit loomed, but amid hope that the former would prove empty and the latter would be softened.

Not so today.

Often against the recommendations of his more sensible advisers, Mr. Trump has implemented the country’s most protectionist actions since the 1930s. As a result, world trade has begun to fall for the first time in a decade, with noticeable economic impact. Last week, Goldman Sachs cut its already modest projections for fourth-quarter growth to 1.8 percent from 2 percent.

That’s a far cry from the “4, 5, 6” percent that Mr. Trump talked about just before his tax cut passed.

Nor has that been Mr. Trump’s only misstep in economic policy. Instead of nurturing growth with important investments like a robust infrastructure program, Mr. Trump deployed his political capital to secure tax cuts that disproportionately favored business and the wealthy.

The “sugar high” they produced quickly wore off. And now, instead of developing better policies, the president has chosen to attack the Federal Reserve, whose independence is cherished by investors, business people and economists.

Boris Johnson, Britain’s new prime minister, abandoned his predecessor’s notion of a “soft Brexit” that would have maintained some ties with the European Union. Instead, he reaffirmed his promise that his country would leave the E.U. on Oct. 31 with or without a deal. The pound quickly fell to its lowest level against the dollar since 1985. (It has since recovered slightly.)

Then there’s China. By virtue of both its remarkably fast industrialization and its protectionist policies, the nation has long been a trade threat. But four years ago, the government issued its “Made in China 2025” economic manifesto, which put in writing China’s plans to attain a leadership position in key new sectors, including robotics, pharmaceuticals and aerospace.

The notion of China using its state power to take on important American and European industries instead of pursuing market reforms set off alarm bells across the political spectrum and provided a concrete underpinning for Mr. Trump’s trade confrontation.

Mr. Xi, rather than acknowledging China’s protectionist practices, has proved unwilling to accept a new trade agreement with effective enforcement provisions. That has raised doubts about whether China is seriously interested in reforming its unfair trade practices — keeping key markets fully or partially closed, using state subsidies to favor its companies, forcing American companies to transfer technology to China and the like.

Of course, at least in the world’s democracies, voters bear substantial responsibility for electing these inadequate leaders. The rise of populism as a reaction to disaffection about economic and social conditions has been well documented as a principal driving force.

Occasionally, good choices have been made, such as the election of President Emmanuel Macron of France. But even that has not led to progress; public support for Mr. Macron turned to opposition when he instituted the much needed policy changes that he promised.

Any chief executive officer who botched his or her job as badly as most of these leaders have would be fired. Let’s hope that voters come to that realization when given the chance.

Jeff Bezos vs. Peter Thiel and Donald Trump | Jeff Bezos, CEO Amazon | Code Conference 2016

Amazon CEO Jeff Bezos talks with The Verge’s Walt Mossberg about the “gigantic” potential of artificial intelligence to change everything from shopping to self-driving cars. Bezos also discusses his purchase of the Washington Post in 2013, which he says is transforming from a local to a global institution. He explains why he opposes both Peter Thiel’s campaign against Gawker Media and Donald Trump’s attempts to “freeze or chill” press scrutiny. Plus: Why Bezos’s other company, Blue Origin, is trying to lower the cost of entrepreneurship in space.

Why Was Trumponomics a Flop?

Neither tax cuts nor tariffs are working.

Donald Trump has pursued two main economic policies. On taxes, he has been an orthodox Republican, pushing through big tax cuts for corporations and the wealthy, which his administration promised would lead to a huge surge in business investment. On trade, he has broken with his party’s free(ish) trade policies, imposing large tariffs that he promised would lead to a revival of U.S. manufacturing.

On Wednesday, the Federal Reserve cut interest rates, even though the unemployment rate is low and overall economic growth remains decent, though not great. According to Jay Powell, the Fed’s chairman, the goal was to take out some insurance against worrying hints of a future slowdown — in particular, weakness in business investment, which fell in the most recent quarter, and manufacturing, which has been declining since the beginning of the year.

Obviously Powell couldn’t say in so many words that Trumponomics has been a big flop, but that was the subtext of his remarks. And Trump’s frantic efforts to bully the Fed into bigger cuts are an implicit admission of the same thing.

To be fair, the economy remains pretty strong, which isn’t really a surprise given the G.O.P.’s willingness to run huge budget deficits as long as Democrats don’t hold the White House. As I wrote three days after the 2016 election — after the shock had worn off — “It’s at least possible that bigger budget deficits will, if anything, strengthen the economy briefly.” And that’s pretty much what happened: There was a bit of a bump in 2018, but at this point we’ve basically returned to pre-Trump rates of growth.

Republican faith in the magic of tax cuts — and, correspondingly, belief that tax increases will doom the economy — is the ultimate policy zombie, a view that should have been killed by evidence decades ago but keeps shambling along, eating G.O.P. brains.

The record is actually awesomely consistent.

  • Bill Clinton’s tax hike didn’t cause a depression,
  • George W. Bush’s tax cuts didn’t deliver a boom,
  • Jerry Brown’s California tax increase wasn’t “economic suicide,”
  • Sam Brownback’s Kansas tax-cut “experiment” (his term) was a failure.

Nevertheless, Republicans persist. This time around, the centerpiece of the tax cut was a huge break for corporations, which was supposed to induce companies to bring back the money they’ve invested overseas and put the money to work here. Instead, they basically used the tax savings to buy back their own stock.

What went wrong? Business investment depends on many factors, with tax rates way down the list. While a casual look at the facts might suggest that corporations invest a lot in countries with low taxes, like Ireland, this is mainly an illusion: Companies use accounting tricks to report huge profits and hence big investments in tax havens, but these don’t correspond to anything real.

What about the trade war? The evidence is overwhelming: Tariffs don’t have much effect on the overall trade balance. At most they just shift the deficit around: We’re importing less from China, but we’re importing more from other places, like Vietnam.

And there’s a good case to be made that Trump’s tariffs have actually hurt U.S. manufacturing. For one thing, many of them have hit “intermediate goods,” that is, stuff American companies use in their production processes, so the tariffs have raised costs.

Beyond that, the uncertainty created by Trump’s policy by whim — nobody knows what he’ll hit next — has surely deterred investment. Why build a manufacturing plant when, for all you know, next week a tweet will destroy your market, your supply chain, or both?

Now, none of this has led to economic catastrophe. As Adam Smith once wrote, “There is a great deal of ruin in a nation.” Except in times of crisis, presidents matter much less for the economy than most people think, and while Trumponomics has utterly failed to deliver on its promises, it’s not bad enough to do enormous damage.

On the other hand, think of the missed opportunities. Imagine how much better shape we’d be in if the hundreds of billions squandered on tax cuts for corporations had been used to rebuild our crumbling infrastructure. Imagine what we could have done with policies promoting jobs of the future in things like renewable energy, instead of trade wars that vainly attempt to recreate the manufacturing economy of the past.

And since everything is political these days, let me say that pundits who think that Trump will be able to win by touting a strong economy are almost surely wrong. He most likely won’t face a recession (although who knows?), but he definitely hasn’t made the economy great again.

So he’s probably going to have to do what he’s already doing, and clearly wants to do: run on racism instead.