The chorus of war enthusiasts never loses its enthusiasm for war. Each war is a good idea at the start and, once it turns out not to be a good idea, the answer is more war. The only way to lose is to stop fighting, and this they never suggest, which means that when we do lose, they can invariably say that we lost only because we stopped taking their advice. Convenient.

This is not so much a “forever war” as infinite war—a strategy akin to the unbeatable gambling maneuver of always doubling your bet. If you put $1 on red and the ball lands on black, put $2 on red. If that loses, go to $4. If that loses, go to $8. Then $16, then $32… Sooner or later, you will win, and when you do, you’ll have recovered all your money and then some. The strategy can fail only if you lose your nerve, or if you run out of money. What could go wrong?

Some people are confused by this notion that we lost. We dropped so many bombs! As Daily Wire editor-in-chief Brent Scher enthused in the war’s first week, retweeting Pentagon explosion-porn of an Iranian ship struck by an American torpedo, “I think a lot of the dove sentiment on the right is because it was burnt into people’s brains that the U.S. isn’t good at war anymore. Images from the Afghan withdrawal disaster made us look like a collapsing empire. This is a different team. Recalibrate your minds.” But as any sober-minded observer could have seen, and I explained, “No one doubts that the U.S. can drop large numbers of bombs on Middle Eastern countries and blow up boats in international waters. The skepticism has more to do with seeing what that has and has not accomplished, and where it tends to lead.”

Of course, Iran was going to close the Strait of Hormuz and begin firing missiles at Gulf infrastructure. We had assassinated their senior leadership and declared regime change the goal. We made the fight an existential one for them, and they behaved accordingly.

In the Land of Wars Are Fun, where we get to decide strategy for both sides and then ours always wins, this Iranian reaction was taken as justification for prompting it. “The fact is that Iran’s conduct in the war shows exactly why it must be crippled,” backflipped AEI’s Matthew Continetti in the Wall Street Journal. “True, military action carries a price. Yet in lashing out against the world, the Iranian regime has made its own best case for U.S. intervention.”

Perhaps that would make sense if time were a flat circle and Iran’s lashing out had prompted our already-in-motion campaign. In fact, time moves forward. There was a “before” we had launched the war, an era in which the Iranian regime was not firing its missiles at Gulf infrastructure, or closing the Strait, in part because it was not facing an existential threat and in part because it knew the price of such actions would be steep. And then we just went and imposed the maximal cost anyway.

I say “maximal cost” not because it was the greatest cost we could hypothetically impose, but rather because it was the greatest cost we had any interest in imposing, as was obvious to everyone, including the Iranians. Back in mid-March, I warned:

The United States should only ever go to war as a last resort, only after careful deliberation, only with a just cause and a clear rationale, and only after leaders have built support from the citizenry they are sworn to represent, and from whom the soldiers and resources must be drawn. The Trump administration did none of this, which makes the costs unjustifiable and also weakens the U.S. position, lacking the deep political support necessary to make a “fight until we win” posture credible. Deploying ground troops, as is reportedly under discussion, would compound all these problems.

The quick, limited strikes on Iran in June and Venezuela in January seem to have given the White House a false confidence that “We Can Just Do Things.” But this conflict is two-sided, and the other side currently holds a veto over how and when it ends. The regime could fall, but it appears more likely to survive, solidify control, and radicalize further—with less to lose and no fear of an American threat already carried out.

Wars are not won or lost by a tally of explosions, but by the achievement of strategic objectives and by arriving at a conclusion where one side can further impose its will and advance its interests and the other side cannot. Certainly, the United States destroyed many Iranian ships and missiles and set back the Iranian nuclear program. It may see a benefit from the world’s increased efforts to reduce dependence on Persian Gulf exports. But it did not achieve its constantly shifting goals and it was unwilling to accept the costs of pushing further. The Iranian regime survived, may even have tightened its grip on the nation, and proved that it could persevere in the face of an American onslaught, that it could close the Strait indefinitely, and that its still-intact missile capability could sufficiently menace neighbors to deter further aggression. Thus it is the United States now suing for peace and Iran that, while it sustained the brunt of the physical damage, emerges more credibly powerful and able to assert its geopolitical prerogatives.

War enthusiasts resent all this talk of constraints and reality. They make blanket declarations like “Iran must not have a nuclear weapon” as if their desire for that outcome is somehow determinative. When the conflict does not go as they hoped, the fault lies with anyone who went off script. Iran is firing at other countries? That’s not fair play. The American people have no interest in bearing the economic costs, let alone sending in ground troops? Then the real blame lies with them. President Trump didn’t want to continue escalating, with no end in sight, as costs quickly rose out of proportion to benefits? He just lacks patience and fortitude.

An effective strategist always presumes his opponents will take the action he least wants them to. An effective statesman makes and wins a case of the war’s wisdom and necessity to the citizenry. An effective commentator notes that Trump did try threatening outlandish escalation and fortunately backed down when Iran called his bluff. The medicine men of foreign policy instead insist that the rain will still come and lecture us that we have not done their dance with enough fervor. Our bad.

So here we are now, with the war having gone exactly as badly as should have been expected, driven not by the wishes of the war enthusiasts but rather by the enormous imbalance between participants in preparation, clarity of objective, and willingness to bear costs. The citizens of the United States, for whom their government exists and conducts foreign policy, have shown no appetite for what would be necessary to win, so we cannot.

That’s not a criticism of the American people. To the contrary, they have every right to define the national interest and rule out actions that fail to advance it. Public support is as critical to a military campaign as are munition stockpiles; in the absence of either, proceeding and inevitably failing is folly, and the blame lies with whomever attempts it. Leaders play an important role in assessing the national interest, but they are still left with the obligation to articulate their view and persuade the people of its wisdom. The necessity that they do so, frustrating though they may find it, is one of the chief distinctions between a republic and an empire, and one of the most valuable powers that a republic’s citizens retain. That we could prevail if we were willing to do more is not a defense of an unpopular effort. As the saying goes, if my bubby had balls, she’d be my zayde.

This failure to comprehend the two-sided nature of conflict is reaching absurdist heights in the context of negotiations, with war enthusiasts condemning outcomes they dislike without the faintest awareness that their own preferred actions have led to the situation where their preferred outcomes are not available. “The U.S. shouldn’t be providing economic relief first and seeking security concessions later,” says former Vice President Mike Pence. “We should be securing concessions first. That’s what we used to call ‘America First.’”

Such a fascinating sentence construction, more suitable to psychiatric analysis than policy commentary. It is the language of domestic policy and assumes a level of control over outcomes. “The U.S. shouldn’t be providing tax cuts first and seeking spending cuts later” is a quite reasonable assertion, and a fair basis for criticism of policymakers who take a different approach. But whether the United States has the power to secure concessions is not a matter of choice or will, it is a function of the situation in which we find ourselves. “America First” might mean avoiding entanglement in foreign wars that will lead to unfavorable negotiating dynamics. It cannot mean throwing a tantrum when bad policy leads to unfavorable results, imagining that we have some power to achieve a better one by fiat.

The agreement that we have to reach now with Iran will be a bad one for the United States, as measured against the status quo ante. That result is already baked, a function of the forces that led us here, not of the negotiating team’s skill or the president’s social media posts. The humiliation is not the unfavorable deal but the failure of the war, yet we find our public square jammed with the very people who have been most wrong, jeering at the tow-truck driver trying to pull their car from the ditch. The people acting badly are not the ones trying to conclude a deal and bring this latest foreign misadventure to a conclusion, but the ones who would rather dig deeper than admit they supported a misadventure and left us with no better option.

This political dynamic is one of the great dangers of war, and an important reason to err against starting one. There may hypothetically be a limited downside. But once underway, if it goes poorly, the leader who acknowledges the problem and attempts to correct course is seen as weak and takes the fall, while the peanut gallery clamoring to fight on can always claim victory is just around the corner and they could get a better deal. Who can prove them wrong? Pulling out of the dive requires more strength than many leaders can muster. The sheer predictability and irrationality of the resulting tragedy has been a repeated experience for the American people over the past two generations, indeed it is the only experience younger Americans know, and the elite’s determination to repeat it at every opportunity is a leading cause of cynicism and nihilism.

Insofar as President Trump is prepared to cut bait, he deserves genuine credit for doing the rare, right, and thankless thing. He could help himself by being honest about what has happened and what he is now prepared to accept, instead of trying to sell the deal as great, which obviously it is not. Someone who seems to have no idea of the score will build little trust or support. A clear-eyed, hard-headed assessment of reality and a willingness to do what is best for America, embarrassment be damned, is far more admirable. If we are going to have leaders who start foolish wars, let us hope at least for the kind who are not too foolish to end them. — Oren

GOOD READS FOR YOUR WEEKEND

• In the Wall Street Journal, Treasury Secretary Scott Bessent writes that Hamilton Inspires Trump’s Economic Statecraft.

• Fusionism for the 21st Century | In National Affairs, Henry Olsen writes that there’s “no going back” to the pre-Donald Trump Republican Party and that “the new conservative coalition can only thrive if it understands that compromise and policy innovation, not doctrinal purity and policy dogma, is the price of—and the path to—victory.”

• My New Life With the Palantir Chore Coat | Writing for the Atlantic, Saahil Desai takes Palantir’s made-in-America chore coat for a spin through the streets of New York.

• In UnHerd, Geisha-Marie Bland argues Against “Toddlercore” and the self-infantilization of Gen Z.

MANUFACTURING GAMBLERS

The New York Times reports that Mark Zuckerberg has assigned a small team to build a prediction-markets app, internally called Arena. That app would run independently of Facebook and Instagram, but Meta would steer its users toward it. Arena would likely run on a video-game-style points system first, with real-money wagering coming later, presumably if and when it clears regulatory hurdles. Insiders characterize the project as “experimental” but say it’s one of Zuckerberg’s top priorities, and part of his broader push into products built around “emerging social behavior.”

Meta’s edge over Polymarket and Kalshi is distribution. Where existing prediction-market apps have to “acquire” a gambler, Meta can manufacture one, routing its 3.56 billion daily users across Facebook, Instagram, and WhatsApp—most of whom opened the app to message a relative or read the news—into a betting product. The points system does the habituation before any money is at stake, training the muscle memory of wagering and converting it to revenue once the habits are formed. The behavior gets cultivated first, monetized later, raising the question: is Meta serving “emerging social behavior,” or manufacturing it?

Speaking of manufactured demand: a Wall Street Journal investigation finds that Polymarket, one of the competitors Meta is chasing, is manufacturing its own. The report finds the company paid “creators” to film themselves trading on near-perfect copies of its own site—dummy pages built for the purpose—and many did not disclose they were on the payroll until the Journal asked. Across more than 1,100 videos reviewed, 70% showed a creator placing a bet, every one of them on a fake site; in roughly one in ten, the creators also faked the payoff, splicing in outdated footage and fake headlines to look like they had won. Those faked wins added up to almost $900,000 on bets that would really have lost more than $166,000. Polymarket also paid thousands of low-wage workers, often teenagers in Asia, to repost the clips from sockpuppet accounts scrubbed of any ties to Polymarket, a tactic designed to give the illusion of authentic interest.

• BONUS LINK: The Ethics & Public Policy Center published a new report outlining the problem of online sports gambling, its consequences, and recommendations for policymakers on how to respond.

ONE YEAR IS NOT AN EQUILIBRIUM

A new paper titled “The Effects of a Sudden Stop in Low-Skilled Immigration: Evidence from Korea’s Guest Worker Program,” from Giovanni Peri and coauthors, finds that when pandemic-era border closures froze South Korea’s low-skilled guest worker program—halting new inflows—and the participating workforce fell about 22% over 2020 to 2021; the firms most dependent on those workers were likelier to close. The harm concentrated among low-wage, low-productivity firms; their higher-wage competitors came through largely unaffected. Rather than hire Koreans to fill the gap, surviving firms shifted their existing Korean employees into the vacated lower-skilled jobs—occupational downgrading that shows up in the data as lower measured wages. The authors conclude that low-skilled immigrants cannot be easily replaced and that restricting their supply imposes real costs on firms and native workers.

There are at least two problems here. First, consider what the paper actually measures: a one-year, unanticipated shock that everyone expected to reverse. Firms did what rational firms do when a cheap input disappears for what they take to be a single bad year: they wait for it to return rather than recruit native workers or make major capital expenditures in automation and the like. That is the cost of transition, not the equilibrium that a permanent policy of restriction would eventually result in. Second, the paper treats firm exit as damage. But the firms that closed were the least productive, paying well below the sector average. Their exit is what you would expect when businesses built on a cheap, imported-labor model lose access to that labor. To call their exit a cost is to treat dependence on cheap imported labor as the equilibrium worth preserving.

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ON CAPITOL HILL

This week in Congress, the House of Representatives passed the 21st Century ROAD to Housing Act by a vote of 358 to 32, a day after the Senate passed it 85 to 5. Most of the legislation focuses on supply-side reforms—streamlining environmental reviews, making it easier to build manufactured homes, and conditioning dollars from federal programs on whether localities actually build more housing. But, as we’ve written here in Understanding America, what makes the legislation remarkable is that it addresses both sides of the affordability problem—supply and demand—and affirms a principle the housing debate usually ignores: not all demand is created equal. The version that cleared both chambers retained the provision barring large institutional investors—those controlling 350 or more single-family homes—from buying any more, the demand President Trump put to Congress at January’s State of the Union when he said “homes are for people, not corporations.” A decade ago the provision would have died in committee; the free-market veto that once disciplined the Republican conference would have ruled a purchase ban on private capital out of bounds. Now that same Republican conference has told a class of investors that a category of homes is off-limits to their money.

But if the free-market veto is gone, a presidential one remains—and President Trump may use it. Hours before he was scheduled to sign the bill into law, he cancelled the signing ceremony, saying he would not sign it unless Congress passed the SAVE America Act, legislation that, among other election reforms, mandates voter identification to cast a ballot in federal elections. Despite unified Republican support for the legislation in Congress, the path to passage is narrow, if nonexistent, in the face of Democratic opposition, and Senate Republicans’ reluctance to nuke the legislative filibuster. President Trump routinely uses hardball tactics to extract concessions. But in this case, he has no leverage. Holding the housing bill hostage in a fight he cannot win would mean killing the one provision he demanded, in a package that’s directly responsive to the affordability concerns at the top of voters’ minds. President Trump should sign the bill, and take the win.

Elsewhere in Congress, Sens. Bernie Moreno (R-OH) and Elizabeth Warren (D-MA) published an op-ed in the New York Times, proposing to eliminate the cap on the Social Security payroll tax—the $184,500 ceiling above which wages go untaxed. The proposed change, they estimate, would add some $3 trillion to the program over the next decade, and “extend the solvency of Social Security for another generation.” Moreno, a populist Republican, deserves credit for grabbing the third rail of entitlement reform and pushing conservatives past the Paul Ryan era, when “entitlement reform” was a euphemism for benefit cuts, toward an approach that puts revenue on the table. But revenue alone is not sufficient. Any comprehensive reform must also restrain costs, and reduce spending on high-income households especially, if the nation is to find a fiscally sustainable future.

And some REINDUSTRIALIZATION news to end your week:

U.S. Bets Billions of Dollars in Low-Cost Loans Can Revive Nuclear Power (Wall Street Journal): “The Trump administration is so eager to see a nuclear power renaissance that it is starting to fund billions of dollars for reactor orders…low-interest loans amounting to $17.5 billion from the Energy Department…The loans are intended to speed up construction of 10 reactors in the United States.”

DOD Commits $1.2B in Conditional Loans to Phoenix Tailings, Energy Fuels (Manufacturing Dive): “The funds, provided through the agency’s Office of Strategic Capital, are expected to support the two companies’ scale-up of their domestic rare-earth mineral processing in the United States.”

Army Will Lease Land on Bases for Critical Mineral Production (Wall Street Journal): “The U.S. Army is leasing land on bases across the country to companies that will build and operate critical mineral processing plants…In lieu of cash payments from the companies, the Army will get some percentage of the processed mineral output, officials said. Collectively, the companies are expected to invest about $2 billion on the projects…”

Enjoy the weekend!

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In March, President Donald Trump signed an executive order establishing the Task Force to Eliminate Fraud, a government-wide effort chaired by Vice President JD Vance to root out fraud in federal benefit programs, catalyzed by the exposure of widespread abuse in Minnesota. The Trump administration says the problem is structural: Both means-tested social welfare like Medicaid and food assistance and earned social insurance like unemployment run on a federal-state split. Washington funds or underwrites the program and sets the rules, while the states administer it—a division of labor that rewards states with federal cash for allowing unfettered program growth.

For decades, the federal government’s answer to benefit fraud has been to pay first and investigate later—what the administration calls a “pay-and-chase” model that catches fraud only after the money is gone. Vice President Vance has said that the United States loses about $250 billion to fraud each year, but only recovers about $10 billion of it. The administration wants to put more effort into screening eligibility at the front end, before a bad claim is ever paid, alongside more aggressive investigation and prosecution of fraudsters, who are mostly providers running schemes that milk the programs from the inside.

Since the Task Force began in March, federal prosecutors have moved in waves. In Minnesota, the Department of Justice’s National Fraud Enforcement Division’s takedown of 15 defendants caught more than $90 million in fraud, including $46.6 million billed to Medicaid for children with autism. Eight people have been arrested in a Los Angeles hospice sweep, 15 charged in a $1.4 million Massachusetts benefits scheme, and 7 indicted across three states over fraudulent pandemic-relief loans.

The Trump administration is also widening the aperture from individual fraudsters to the states that house them, charging that lax oversight has let fraud flourish in programs meant for the needy. It has demanded more access to the data of federally funded programs, pressed states to verify eligibility more rigorously, and sought enrollee records—including to screen out the ineligible, among them immigrants here unlawfully. Democratic states have fought the moves in court. In May, the Department of Health and Human Services initiated audits of every state’s Medicaid fraud-control unit, demanding each show it is “effectively and aggressively prosecuting Medicaid fraud” or lose its federal money. The much bigger federal stick is the Medicaid program funding itself, which the administration had already begun freezing for states it judges noncompliant. Last week, the Task Force turned its focus to unemployment insurance, when acting Labor Secretary Keith Sonderling warned all 50 governors that the Labor Department would withhold administrative funds from states that fail to tighten controls.

The activists and states resisting all this, purportedly on behalf of beneficiaries, are in fact the safety net’s worst enemies. Generous welfare and social insurance programs depend upon a promise a people makes to itself, that the resources taken from those who work will reach those who truly cannot, and that the compact will hold when any one of us, in turn, falls on hard times. Social insurance puts that reciprocity into practice—calling upon neighbors and strangers as citizens of a nation, bound together in mutual obligation across the country and between generations. To take from that compact without a claim on it robs someone who has one. Fraud, as Vice President Vance has put it, has two victims—the taxpayer whose contribution is stolen, and the beneficiary whose program is looted by someone who was never owed a cent.

Fraud draws down more than taxpayer money. It draws down trust, the basic currency of the safety net. A program endures only so long as the public believes resources are going where they should—that benefits reach the people who qualify and no one else, whether the ineligible claimant is an immigrant without lawful status or a citizen gaming the rules. Once that belief is gone, widespread support for the most generous safety net curdles into frustration at one more institution betraying the people it was meant to serve. Fraud that goes unpunished invites more of it. The answer is to rebuild institutions worthy of the public’s confidence and to impose real consequences on those who plunder them for private gain—evenhandedly holding the small-time cheat and the big-time schemer to one standard, enforcing the rules without fear or favor, up the income scale and down it. That is the discipline any lasting compact demands of itself.

The case for policing fraud holds whatever the size of these programs. You can believe them too lavish or too stingy, but whatever their size, all should be able to agree that they must be honestly run—program integrity is prior to the fight over parameters. Yet it is ground that supporters of a generous safety net too often abandon, waving off fraud as a stalking horse for cruelty and treating any scrutiny of a program as an assault on the people it serves. That reflex fails the citizen who actually depends on a safety net that can hold, which is all of us, whether we need it now or simply recognize that we might at some point down the road. — Daniel

GOVERNING AFTER A REVOLUTION

Five years ago today, American Compass published Five Principles of Tech Governance:

A free and flourishing nation defends its children and provides a protective sphere within which they can develop into capable citizens.

A free and flourishing nation ensures that each citizen has a private domain inaccessible by the market and the state and obscured from public view.

A free and flourishing nation places its citizens in control of its technology, not the other way around.

A free and flourishing nation has the confidence to insist that its markets and media respect individual agency and promote common understanding.

A free and flourishing nation asserts its sovereignty over the markets in which its citizens participate.

These hold up remarkably well for the AI onslaught that has ensued, perhaps a reminder that principles are upstream of technology and we ought to establish them independent of tech progress. As we concluded then, and remains true today: “Technology leaders present their product designs and business practices as both necessary and inevitable, and any drawbacks as merely the price of progress. But permitting technology to operate in ways that undermine our nation’s social foundations and political freedoms is a political choice.” Read the whole thing.

Bonus link: Britain Announces Social Media Ban for Children (New York Times).

GOOD READS FOR YOUR WEEKEND (ER… MONDAY EVENING)

Vegas Was Once America’s Bargain Vacation. Now It’s a Luxury Destination: Like the U.S. economy broadly, Las Vegas increasingly relies on a smaller group of well-off people (Wall Street Journal). Sorry if we sound like a broken record on this one, but as the dynamic becomes increasingly prevalent, the reported stories are bringing it to life. “Executives told investors on the company’s recent earnings calls that they can make more money by charging fewer customers more” is a good summary of where the invisible hand is pointing, and no, this equates to neither a higher standard of living nor full participation in economic life for the typical American.

JD Vance on the Morality of the Trump Administration (with Ross Douthat, New York Times). Promoting his new book, Communion, the vice president again joins the “Interesting Times” podcast for a discussion about his own faith, life in the Trump administration, and the prospects for a peace deal in the Middle East.

The Paradox of Work (Rob Henderson). “People say they want comfort but feel better when tasked with challenges that match their skills,” writes Henderson. “Free time sounds appealing, but it has no built-in structure. You have to shape it yourself, and most people let time pass them by rather than use it to cultivate their skills, talents, or interests. Most people don’t have an inner Mozart just waiting to be unlocked.” This truth helps to explain the limits of “revealed preferences” in the market and the importance of constraints, obligations, and formative institutions for human flourishing. As we say in Reclaiming American Citizenship:

We reject naked consumerism. The folly of unquestioned deference to “revealed preference” in the marketplace has revealed how easily we can lose all sense of higher purpose, succumb to mind-numbing entertainment, and slide toward utter dependence on outside support. We choose instead a nonnegotiable commitment to agency, competence, self-determination, and the use of technology to enrich lives rather than monetize their decay.

Speaking of which…

The Document That Could Define Post-Trump Conservatism (Henry Olsen, Washington Examiner). Olsen offers a thorough analysis of the Citizenship statement. “The very American idea that all people are created equal, and that people’s self-government exists to ensure that equality in theory becomes equality properly understood in fact,” says Olsen, “has been gaining ground, here and around the world, for the past decade. Expect it to continue to grow, and expect Compass’s magnificent articulation of that idea to be cited and drawn upon for years to come.”

Bonus link: Remarkably, Olsen himself has been making this case for more than a decade, dating at least back to his excellent 2016 essay for National Review, “Trump’s Faction”:

Virtually every one of the major concerns that move Trump’s voters can be tied together under the idea that America is an entity that exists apart from voluntary arrangements of its residents, and that this entity obligates all of its members to act on behalf of all the other members. In this view, citizenship is not simply voting and paying taxes: It is a membership by birth in a body that demands things from everyone and in return protects and supports everyone.

…

The implicit understanding conveyed by many in the ‘never Trump’ movement is that the country is little more than a land mass containing individuals rather than an entity with obligations to, and capable of imposing obligations on, those who belong to it.

BAD STUDIES

One of the sadder habits of the legacy institutions clinging determinedly to their neoliberal dogma is the constant effort to buttress their faith-based commitments with “analysis” that takes the form of serious economics but, in substance, amounts essentially to an unpersuasive press release. A couple of fine examples have popped recently from center-left and center-right…

On your left, from the fine folks at the Yale Budget Lab, it’s “Lower Immigration Means Lower Productivity Growth.” Economist Abhi Gupta obtains this result by observing that restrictive immigration policy will change the country’s demographic profile, the changed demographic profile will have fewer businesses started, and fewer businesses started means less productivity growth. QED. As Gupta notes in Appendix C, Methodology, “the headline results capture solely the business-formation channel of immigration policy.” This is a very polite way to say that the headline is false. Gupta might accurately have published a piece titled “If Lower Immigration Leads to Fewer New Businesses, That Could Have a Barely Noticeable Effect on Productivity Growth, Other Things Equal, Which Of Course They Are Not.” At Breitbart, John Carney wades further through the mud.

Bonus link: Border Enforcement Does Affect American Workers’ Wallets (Wall Street Journal). Last week, we highlighted the Journal’s straightforward reporting on the many things economists had gotten wrong about the economic effects of immigration. This week, the editorial page runs a piece by former Bush administration Treasury and Labor official James Carter, who concludes, “when labor markets tighten, prices and wages respond. That isn’t ideology but simple supply and demand.”

Also notable: “A recent Federal Reserve working paper finds that unauthorized immigration accounted for roughly 30% of house-price growth and 20% of rent growth in the average metro area between 2021 and 2024. As that demand eases, so should price pressure.”

On your right, from the fine folks at Americans Advancing Freedom, it’s “Tariffs Tank Employment: Assessing One Year of Liberation Day Evidence.” This paper has problems. How bad is it? Well, they seem to have already taken it down from their website. Not to worry, though, your trusty Understanding America team had already archived a copy. Problems include a nonsensical methodology; writing that seems, well, not human-generated; failure to account for effects of immigration enforcement (beyond misusing the foreign- versus native-born BLS employment data); and peculiar findings like a slowdown in manufacturing employment, even though the level was falling twice as fast before Liberation Day as afterward.

We’ve inquired as to what happened to the paper and will update you on any further developments.

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UGLY BUSINESS

Spotted: In the New York City subway, “Have Your Best Baby” (PickYourBaby.com). The IVF+ service helps you “choose the best embryo for you.” Brought to you by the good people of Beverly Hills Fertility, just $9,999/mo. Free egg freezing, but the company keeps half.

And hey, here’s an idea: Free egg-freezing, but the company gets half. It’s called “egg sharing,” kind of like ride sharing, see? But if that’s not for you, there’s also a “Keep” option: “Self-fund your egg freezing and keep the eggs retrieved, with access to discounts.”

IN HAPPIER NEWS…

GM in Talks to Supply Weapons Parts to Lockheed Martin (Wall Street Journal): “General Motors is in talks with Lockheed Martin about making parts for the defense contractor’s weapons, according to people familiar with the matter. ... To replenish supplies, Trump administration and Pentagon officials have pressed weapons makers to accelerate production, while seeking to enlist other manufacturers, including GM.” Good. As Oren and Mark DiPlacido explained in Big Stick Economics, “suppliers for all the components of missiles must also make other things too, so that they have viable commercial businesses in times when large numbers of missiles are not being built.”

And a legislative fight to keep an eye on: Schumer Proposes Ex-Im Bank Revamp As Expiration Deadline Looms (Bloomberg).

SURVEY SAYS

A few poll results that caught our eye:

• Semafor: “Most Americans will celebrate the upcoming 250th anniversary of America’s independence, but Republicans are more likely than Democrats to plan on marking the milestone. Eighty-eight percent of Republican voters said they plan to celebrate, according to new Gallup polling, while 60% of independents and 54% of Democrats said the same.”

• Reuters: “Some 38% of respondents in the poll—including 40% of Democrats and 26% of Republicans—said they didn’t think the U.S. will exist as a single country 250 years from now. Just 62% thought their nation would last.”

• Brad Wilcox: “What’s best for the kids? Striking new numbers from Pew on work/family re: the kids: Only half (49%) of parents who both work full-time say it’s good for their children versus 85% of parents with mom at home who say their arrangement is good for their children.”

• Finbarr Bermingham: “Eye-opening findings in Bertelsmann Stiftung survey on the eve of EU leaders debate on China. 77% in the EU feel their countries need to reduce dependency on China ‘even if it hurt your economy in the short term,’ including 80% in Germany, 84% in France, 72% in Spain.”

CHECKING IN ON CHINA

Maybe all those EU poll-takers have a point?

• China Shock 2.0: Surging Chinese Exports Threaten Europe’s Economy, Raising Concern at G7 Summit (Associated Press).

• A Trade War Between the EU and China Seems Inevitable (The Economist).

• Hedge Funds Bet Against European Carmakers on Chinese Competition Fears (Financial Times).

But can they get more than a pinkie promise? Europe Rallies Around Tough New China Strategy Ahead of Key Summit (South China Morning Post):

From free marketeers to long-term interventionists, EU countries of all stripes are converging on the need for urgent action to prevent a Chinese-driven European deindustrialisation ahead of a key summit in Brussels, multiple sources said on Wednesday. A broad coalition of members now support the development of a tough new trade strategy that could involve multiple new instruments and a more rapid-fire, strategic use of existing weapons. One of the tools could be modelled on US President Donald Trump’s Section 301 tariff measures, which have been used against both the EU and China. The idea was first floated by French President Emmanuel Macron, and while there are still concerns over its compatibility with global trading rules, others have expressed interest.

But wait, The Economist’s market fundamentalists have a better free market plan: Couldn’t we just wait for China to change? For Its Own Sake, China Should Change Its Growth Model.

Meanwhile in the United States, the lack of a clear strategy continues to pose challenges. Rules against Chinese vehicle content are beginning to bite—U.S. firms are reshoring production, foreign suppliers are working to circumvent Chinese control—but companies like Ford that have gotten a bit too cozy with the Chinese Communist Party are now asking for exceptions. US Connected-Car Rule Prompts Ford, Other Automakers to Seek Licenses for China-Built Models (Reuters). How about a nice hot cup of “no”?

And, US Holds Off Blacklisting China’s DeepSeek, More Than 100 Firms Deemed Security Risks, Sources Say (Reuters). Is it too much to ask that the Department of Commerce move against obvious foreign security threats with anywhere near the alacrity it moves against American national champions? Ah well.

Enjoy the week!

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Reading the words, I was filled with that at once ethereal and confusing sense of déjá vu: “Who gets to decide the good life? Joe Biden? Donald Trump? How are they going to stop me?”

Jerusalem Demsas, editor of The Argument (tagline: “We’re Libbing Out”), was criticizing American Compass’s recent statement on Reclaiming American Citizenship. But we’d just published it last week. Where had I heard this argument before?

It was several years ago, debating Duke University professor Michael Munger on the issue of industrial policy. He was explaining why we should dismiss the idea of “The State” making investment decisions: “Remember to take out ‘The State’ and replace it with ‘People chosen by parties and elected by voting dominated by large corporate interests.’ In fact, you should replace ‘The State’ with ‘Donald Trump.’”

In each case, the rhetorical implication was that we should reduce the entirety of political decision-making in a democratic republic to the vesting of absolute power in an unpopular individual. The economic libertarian, with his blind faith in free markets, and the social libertarian, with her nonnegotiable commitment to radical autonomy, could allow no middle ground between unfettered license in their respective spheres of concern and a weirdly pat totalitarianism.

Oh, you think policymakers should try to identify and increase the returns in critical industries like semiconductors, where private capital, seeking to maximize profit, might underinvest? Well, that means you must want Donald Trump to make all of the country’s investment choices.

(That will seem like an absurd strawman. Here are Munger’s words: “Say it with me: ‘I think that corporate CEOs and professional investors should have all their funds taken away at gunpoint, and then all investment decisions, for the whole U.S. population, should be made by Donald Trump. He wants what is best for all of us, and he has a longer-term perspective.’”)

Oh, you think policymakers should try to reward success along well-defined paths through life? Who gets to decide the good life? Joe Biden? Donald Trump? How are they going to stop me?

This brings to mind former U.S. Trade Representative Robert Lighthizer’s wise counsel, delivered at the 2022 American Economic Forum in Washington, that “libertarianism is a philosophy for stupid people.”

I think, probably, we can all agree that tyrannical monarchs are bad. But the history of political thought, at least back to Plato, concerns itself with the ways government can “do for a community of people,” in Abraham Lincoln’s words, “whatever they need to have done, but can not do, at all, or can not, so well do, for themselves—in their separate, and individual capacities.”

The U.S. Constitution offers the best framework in human history for accomplishing this. As its preamble emphasizes, the people of the United States ordained and established it “in order to form a more perfect union,” accomplish various important ends, and “secure the blessings of liberty to ourselves and our posterity.” Its elections, its separation of powers, its checks and balances, its federalism, and its Bill of Rights all work to ensure that decisions are rarely vested in one individual and almost always emerge from the intersection of, and competition among, a wide range of interests. When the people constitute a republic and specify the processes by which their government will exercise the powers they grant it, the resulting laws and regulations—that is, constraints—are not invasions of liberty, they are an exercise of liberty in pursuit of its blessings.

For all the bluster, Demsas knows this. She acknowledges, “it is the case that almost all policy decisions carry with them implicit nudges or even shoves towards some decision or away from another,” and goes on to say, “I think it should be easy to build housing, have health care, build abundant energy, and more. It should be easy to start a business and we should push back against the protectionism and occupational licensing that prevents people from living the lives they want to. That’s called liberalism.”

I think a lot of those things sound nice too, but on what basis might one advance the case for them in principle, without some conception of the good life, or advance them in practice, without some willingness to shape public policy toward chosen ends? I suspect she might have particular kinds of abundant energy in mind, and maybe even some processes and restrictions to constrain how and where it can be built. Who’s going to decide? Donald Trump? Joe Biden?

This incoherence is not unique to Demsas. To the contrary, she’s an outspoken representative of a way of thinking about politics and public policy that is widespread, perhaps even dominant, among the technocratic elite. When it comes to the values they want to advance and their vision of the good life, they have all manner of interventions and supports in mind. But they present these preferences as neutral and best for everyone, then attack any alternatives as oppressive and illiberal.

They are liberals in the weeds but libertarians between the screeds.

Unfortunately, this approach to politics is self-defeating. The ends to which today’s faux-neutral liberals are in fact committed, often rightly so, can only be achieved with the sort of substantive and constraining commitments that they want to decry. The real-world social and political equality of full participation in communal, economic, and national life depends upon that life taking particular shapes, buttressed by a particular notion of citizenship.

Demands that today’s citizens incur large costs for the benefit of children not yet born on some particular issue, say climate change, requires a public morality that imposes such intergenerational obligation broadly. Solidarity and a commitment to a strong social welfare system cannot survive an immigration policy that takes admission to the community out of the community’s control. No amount of NIMBY-shaming will persuade the majority of voters who already own homes that they should prefer “low housing prices” over “high home values” if their individual right to make their own meaning reigns supreme. The case for reform requires an appeal to the common good, and thus some definition of it.

Demsas provides a good example of this tension in a tweet that mocks an analysis focused on whether a family with a single earner can achieve middle-class security. A family with two earners could achieve it, she counters. Therefore, “he’s not asking ‘can this family cover it’ just ‘could dad cover it by himself.’” But 50 words later, in the same tweet, she says, “I also want a world where people can opt into being a single-earner household.” In that case, whether one earner could cover the costs himself is exactly the question she wants to answer, too. Why pretend otherwise?

My best guess is that all this cognitive dissonance stems from the gap between what the faux-neutral liberals perceive to be in their own best interest and what they know is best for the community. They want to have their cake and eat it too, claiming radical autonomy for themselves while achieving and living in a nation that is serving ordinary citizens well. Each goal has a moral logic in isolation, but one can only deny the tradeoffs for so long.

I’ve been thinking a lot lately about the saying, “Everyone wants a village, but no one wants to be a villager.” I doubt that’s true. I think most people probably do want to be villagers, embedded in communities that both provide for and demand of them. But we’re left with an adverse selection problem, like in a hypothetical health insurance market where the healthiest individuals don’t want to pay premiums to support those who are likely to need the most care, so they exit, which raises the premiums further for everyone else, so more people exit… until only the costliest patients are left with insurance they cannot possibly afford and isn’t really insurance at all.

There will always be a set of people who have sufficient economic and social resources that they don’t need—or at least believe they don’t need—the benefits of the village and thus do not want to accept its burdens and constraints. But if they opt out, the remaining community has relatively more needs and relatively fewer resources, at which point yet more people will opt out. This is what we mean in Reclaiming American Citizenship when we say, “With their undermining of tradition, respect, and solidarity, American elites released themselves from their own obligations to their fellow citizens, degrading communal life for everyone else in the process.”

I’m not sure there is a real debate over whether we need to grapple as a nation over our understanding of the good life, how to achieve it, and within what constraints. That’s what politics is for. The debate is over whether we should be honest about those realities, and whether we should shape that vision and policy toward the interests of the ordinary citizen or the interests of someone else. If those questions don’t seem like especially close ones, well then, you’ll see why the common sense and clear necessity of Reclaiming American Citizenship makes some people quite mad. — Oren

THE JOURNAL REPORTS AGAINST ITSELF

The Wall Street Journal editorial board has spent decades insisting that immigration is an unalloyed economic good, and that anyone who says otherwise is innumerate or worse. So, it was a pleasant surprise to open its news section to find a report titled “Switzerland’s Radical Proposal on Immigration: Cap the Population” that lays out the opposite case. Ahead of this Sunday’s referendum on capping the nation’s population at ten million, the newspaper’s global economics correspondent documents what a generation of high levels of migration has delivered in Switzerland and other rich, developed countries: adverse impacts on lower-skilled native workers, stagnant productivity growth, higher housing costs, new strain on social services like healthcare, and an aging-population problem no amount of new arrivals can durably solve, since, well, the new arrivals age, too.

The whole debate, the report concedes, turns on a distinction the elite consensus worked hard to blur. Immigration reliably lifts top-line GDP, reflecting the basic arithmetic that more people mean more production and more consumption. But it has done little for GDP per capita, the more relevant measure of whether a nation’s citizens are actually better off. One Swiss lawmaker calls mass migration a sugar high, a metaphor Oren has used for the Biden-era immigration surge—and for what coming down from it will look like.

You should really read the whole thing, and imagine whether a report on U.S. immigration policy from the Journal’s national economics correspondent would contain the same substance, in the same just-the-facts register. But for our money, one of the most damning lines comes from a logistics executive: “The pressure to improve productivity in industries and the service sectors has disappeared.” That is the productivist critique, stated as plainly as we’d put it: mass migration is a subsidy to employers, forestalling investment in machines, new technology, and the workers already here. As one yes-voting centrist politician puts it: “We are buying growth with immigration. Businesses say they’d rather recruit in a bigger market, but we need to train people who are here.” The Swiss are about to vote on whether top-line GDP growth should be the north star of a nation’s immigration policy.

Here in the United States, as the Trump administration’s immigration enforcement agenda has begun to reduce the cheap-labor subsidy many employers have long enjoyed, the answer is surfacing in two places at once: on the farm and in the nursing home.

On the farm, the technology that cheap, abundant labor long kept on the shelf is suddenly worth buying, as the New York Times Magazine reports in “From Cow-Milking Robots to Weed-Zapping Lasers, Farmers Are Embracing A.I.” According to one California onion grower, one reason he’s sinking millions into new equipment is that “labor is expensive and hard to come by,” a reminder that immigration policy is, in fact, technology policy that can induce innovation and incentivize its adoption. And note who turns up to run the machines: a Georgia sod farmer says his autonomous harvesters, piloted from gaming chairs with joysticks, are drawing a younger workforce that “we didn’t even know was possible.” It turns out that “jobs Americans won’t do” can become jobs Americans will do remarkably fast, once the working conditions and wages improve.

In the nursing home, Bloomberg was out with a headline claiming “America’s Seniors to Face Healthcare ‘Calamity’ If Trump Expels Haitians.” At issue are some 350,000 Haitians, around 21,000 of them in eldercare, who are in the United States on Temporary Protected Status, which the Trump administration might strip away. Whatever one concludes about whether these Haitians should be allowed to stay, the report contains a startling admission: we have staked the care of our frailest citizens on the contingent presence of these workers holding a status with “temporary” in its name, working 16-hour shifts at wages no one has tried to make attractive to anyone else. The scandal is not that they might be forced to leave; it’s that we built a system in which their leaving would be a “calamity,” and then branded every effort to unwind that arrangement as cruelty.

An alternative, for industries facing workforce shortages, is to recruit and train domestic workers for the openings—something a growing number of companies, amid the reindustrialization push and the AI buildout, seem increasingly eager to do:

• The U.S. Needs Mechanics and Electricians. Big Business Is Spending to Create Some. (Wall Street Journal)

• Google Launches $50 Million Skilled Worker Initiative (Axios)

• Meta Launches ‘Workforce Academy’ to Train Workers to Build Data Centers (Wall Street Journal)

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GOOD WEEKEND READS (AND A LISTEN)

• The American Family Is at a Breaking Point. Our Politics Have Finally Noticed. “Society has treated parenting as a private endeavor. But what if raising children is also a public good?” An important question from Jia Lynn Yang in the New York Times.

• The Left Needs to Rediscover Its Patriotism. “A left that rejects a hopeful, empathetic love of the United States can never win the country to its side” writes Michael Kazin in The Atlantic.

• The Family Formation Crisis May Have Started With A Trade Most Americans Gladly Accepted. In the Daily Wire, Patrick T. Brown offers commentary on a recent new paper that further confirms that theory that many of our social ails stem from the rise of the smartphone in your pocket.

• Daniel joined Henry Olsen’s podcast, Conservative Crossroads, to debate the Cato Institute’s David Bier on whether the United States should mandate E-Verify to confirm workers’ authorization status upon hiring. You will not be surprised to see which side of the proposition Daniel defended, nor will you be surprised to learn that Bier’s arguments did not compel us to recant our support of mandatory E-Verify.

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But just as we have highlighted that a low unemployment rate and low-to-no net job growth is perfectly sensible and a good sign in a period of aggressive immigration enforcement, it’s worth noting that something must now be amiss.

How can a labor market add more than 500,000 jobs in three months, in a period when net immigrant participation in the workforce is supposed to be flat or declining, and the native-born prime-age population hasn’t been growing, and labor force participation isn’t increasing, and the unemployment rate stays unchanged? We have fairly good data on most of those variables, and fairly poor visibility into immigration flows. So it would not be unreasonable to worry that a dropoff in immigration enforcement is a driver here.

But for some better news on enforcement in the labor market, let’s hand the mic to Daniel:

On June 2, the U.S. Trade Representative published findings that 60 economies—together the source of more than 99% of American imports—have failed to exclude goods made with forced labor from their markets, and proposed new tariffs in response: 10% on trading partners that have committed to a prohibition but not enforced one and 12.5% on those without a commitment, the latter of which includes China, Japan, and India.

Much of the coverage has treated USTR’s determination as a simple pretext, little more than a respectable justification for tariffs it otherwise wants to levy. After the Supreme Court struck down the tariffs President Donald Trump imposed under the International Emergency Economic Powers Act in February, and with the stopgap tariffs that replaced them set to expire in late July, the administration has been searching for a firmer legal footing to reconstitute the tariff wall.

But whatever the motive, the standard the investigation aims to enforce is sound, and it long predates the present scramble for a durable tariff authority. The policy concern it addresses is the one a factory worker understands and an economics degree somehow obscures. Capital moves not to where labor is most productive but to where it is most easily exploited. Cheap labor paid in proportion to its output is just unproductive labor; what the capitalists want is productive workers they can still pay poorly.

Forced labor is the most extreme form of that arrangement, the kind no trading partner will defend in the open. Goods produced under coercion undercut goods produced by workers able to advance their own interests—in the exporting country and in ours. That concern is not the administration’s alone: when USTR opened the investigation in March, it drew prompt support from the AFL-CIO, the United Steelworkers, and the United Auto Workers, as well as domestic manufacturers competing against goods produced under duress.

Nor is the concern a new one. In 1999, President Bill Clinton famously imperiled WTO negotiations with his assertion that there should be, “core labor standards, and then they ought to be a part of every trade agreement, and ultimately I would favor a system in which sanctions would come for violating any provision of a trade agreement.” As the New York Times noted at the time, “other developing nations abhor the idea… And the system, they say, would be abused by the United States and other countries to do away with one big competitive advantage that the developing nations enjoy: the ability to pay workers less.”

For the Trump administration, two laws are doing the work—a modern tool and a much older standard. The authority the administration invoked is Section 301 of the Trade Act of 1974, the same provision the first Trump administration used to impose tariffs on China over its intellectual-property practices; tariffs that remain in full effect. The standard it enforces is older. Section 307 of the Tariff Act of 1930 bars the importation of goods made with convict or forced labor, and its prohibition of convict-labor goods dates back to the Tariff Act of 1890. Its sponsor, House Ways and Means Chairman William McKinley, said the ban was meant to prevent the admission of “convict-made products of the world to free competition with our free labor.” The worker-protection rationale was there at the creation, not added in hindsight. The International Labor Organization (ILO) counts the United States among only a handful of governments to have imposed and enforced a comparable ban. In other words, the Trump administration has reached for a 1974 tool to make the rest of the world honor an American principle that Congress established in 1930.

The choice of Section 301 also matters for whether the tariffs survive. The emergency-powers tariffs were struck down in February, when the Supreme Court held that the statute behind them—which lets the president “regulate” imports—does not authorize tariffs. Section 301 works differently: it carries a built-in procedure. Before imposing a tariff, USTR must open an investigation, consult the governments involved, take comments and testimony, and issue an on-the-record determination that the targeted practice is unreasonable and burdens American commerce. Those steps are why the first Trump term’s Section 301 tariffs on China survived years of litigation and a change of administrations, and they are what a court will look for now. The forced-labor action is moving through the same machinery (investigation in March, hearings in spring, determination on June 2, comment in July). The durability has to be earned step by step.

The clearest sign that this is more than a convenient rationale is that the administration has been writing the same standard into its trade agreements. Each of the nine Agreements on Reciprocal Trade that USTR has finalized over the past year includes a labor article built from a common template. Every signatory must bar imports made with forced labor and must protect the labor rights recognized by the ILO—enforcing its own labor laws, applying real penalties, refusing to weaken those protections, and expressly applying the protections in the export-processing zones where the race to the bottom is usually run.

Most of the agreements reach further and tie the partner to U.S. enforcement. For example, Guatemala must recognize American forced-labor determinations under Section 307 and, presumptively, turn away the flagged goods, making the signatory an upstream check on the supply chains—polysilicon, cotton—through which Chinese forced-labor inputs are laundered into goods bound for the United States. The forced-labor tariffs, in turn, give Washington fresh leverage to hold those partners to what they have signed.

This builds on the Trump administration’s first-term trade policy. The United States-Mexico-Canada Agreement—the deal that replaced NAFTA—included a labor chapter that requires Mexico to guarantee workers’ rights to organize and bargain, and paired that promise with a Rapid Response Mechanism that allows the United States to act against a violation at a single factory. Both the Biden and the second Trump administrations have enforced it in earnest, bringing dozens of cases since 2021 that have won reinstatements, back pay, and independent-union elections at plants exporting to the United States. USTR credits the mechanism, with the reforms it forced, for helping nearly double Mexican manufacturing wages since 2020, from $2.30 to $4.20 an hour. That’s good for Mexican workers and the American workers who compete with and might sell to them. U.S. Trade Representative Jamieson Greer has told Congress that the administration will press Mexico and Canada to further strengthen enforcement of both countries’ forced-labor import bans during this year’s USMCA review.

The new forced-labor tariffs are the leading edge of a larger ambition: a trade policy that makes capital compete on how productively it employs workers, not on how easily it can exploit them, and that restores a level playing field for Americans. Forced labor sits below the floor of where anyone believes the competition should occur, so its exclusion is the natural place to set a standard the rest of the world can be made to honor. These tariffs make good on a promise the 1930 Congress wrote into the tariff code and never fully kept: that an American worker should not have to compete against someone who was never free to say no. — Daniel

TEACH YOUR CHILDREN WELL

The Court of Appeals for the Fifth Circuit has smacked down a district court’s temporary injunction against Texas’s App Store Accountability Act, which requires age verification and parental consent before a minor downloads or makes purchases within an app. The district judge had accepted Big Tech’s argument that the law violates the First Amendment, writing: “The Act is akin to a law that would require every bookstore to verify the age of every customer at the door and, for minors, require parental consent before the child or teen could enter and again when they try to purchase a book.”

The appeals court rightly rejected that absurd construction, explaining: “App listings propose commercial transactions, regardless of whether any monetary payment is made. In fact, the ‘payment’ for apps that are purportedly ‘free’ is access to user data and private information.”

The analysis closely mirrors the argument that American Compass’s Brad Littlejohn made in a policy brief last month, Age-Gating for Contract, Not Content:

In the digital economy, data is the most valuable currency, which is why so many apps choose to offer their services for “free”; in reality, these terms of service still represent an exchange of great value to app developers. Given the common law principle that a contract exists where the parties have exchanged something of value, there is every reason to treat app terms of service as contracts—contracts that minors are not competent to consent to.

Read Brad’s brief for further background on the importance and promise of this approach to protecting kids online.

And for a rollicking discussion of this and many related issues, check out this terrific episode of The Center Edge on The Post-Human First Amendment with Brad and Lex Politica’s John Ehrett.

Next, your regular reminder that efforts to hook children on obviously harmful technology were an explicit and oft-stated (in internal documents) goal of Silicon Valley’s largest and most profitable companies. In ‘Teachers Are Going to Hate It’: How Social Media Apps Hooked Teens at School, the New York Times takes the latest dive into the discovery from the lawsuits that 1,000+ school districts have filed against Meta, YouTube, and others:

“Teachers are going to hate it,” an employee wrote in 2022 to an internal group focused on child safety, referring to a new feature prodding users to post within the next three minutes. “Kids already have smartphone addiction in class.” In response, a manager said the team’s job was to support as well as challenge the business. Competitors, she said, were doing the same thing. “If we assume teens are going to do this anyway, we’d rather them be here on TikTok,” she wrote.

Let’s not put all the blame on Big Tech, though. Schools have also proven themselves incapable of resisting the Ed Tech craze. No one is holding young people accountable for their own behavior. And also, You Can and Should Blame Young People When They Act Like Lazy Cheaters, Actually, writes Freddie de Boer in a barnburner on the free pass everyone is giving students who use AI to cheat:

I blame them and you should too, if you want the best for them. Blame them as a form of respect, blame them and then help them, blame them and then build something better, blame them while also burning down the credential mill and the surveillance software and the whole rotten edifice that gives people excuses to cheat. But do not, for the sake of your own self-image, for the cheap pleasure of feeling forever young and forever on the right side, pretend that nothing bad happened and no one did anything wrong.

Maybe the only hope is that we get all the way to the bottom of the slippery slope and, sitting miserably in the mud, decide to pull ourselves up and start climbing again. If so, we could celebrate as good news that we seem just about there: University of California Professors Are Begging Schools to Reinstate the SAT (Wall Street Journal). “We now observe preparation gaps so severe that instructors must reteach middle-school mathematics while simultaneously teaching the material students need for sciences, engineering, economics, and other quantitatively demanding fields. … UC has finite resources and can help only so many students.”

YOUR GOOD READS FOR THE WEEKEND

• First of all, if you haven’t already read it, be sure to peruse American Compass’s new statement on Reclaiming American Citizenship. As we explain:

The younger American men and women seduced by the political fringes are rightly outraged by the squandering of their inheritance, made all the more infuriating for its carelessness. Taking for granted and demolishing a social order is easy compared to building and cherishing one. But which are they doing? One side decries America itself and proposes to replace it with a state-dominated collectivism that has never worked. The other adopts a performative nihilism that despairs of progress and embraces transgression and conflict as ends unto themselves. Both are dead ends.

Decline is a choice, and we can choose otherwise…

• Writing on AI Slop, Alastair Roberts provides a good example of true citizenship stripped away and what we must do to reclaim it.

• In his conversation with Treasury Secretary Scott Bessent at Tuesday’s New World Gala (a good listen for the weekend!), Oren pushed on the question of whether we could rebuild our industrial base by focusing only on a few strategic industries: “Are capabilities just synonymous with those critical outputs or are there capabilities we need to be building here? Not because the thing you make with it is particularly high value today, but because if you needed to shift to a war footing, I don’t know, maybe it’s the whoopie cushion factory that also makes the tourniquets.”

• Trade attorney Nick Phillips extends the case in The Case for Flat Tariffs at American Affairs:

The expert consensus is right that tariffs should be strategic. But it is wrong about what strategy requires. A tariff regime designed around planners identifying products for protection will always arrive late, play whack-a-mole with circumvention, ignore key parts of the value chain, and target the current generation of technology instead of the next one.

The more strategic move is simpler, dumber even: tariff everything. Create a durable preference for production in the United States, across the whole industrial base, and let entrepreneurs, engineers, and manufacturers discover where the next breakthroughs will come. The scalpel has its place, but the blunt force object is the tool for this job. For those who really want to “rebuild our manufacturing and our resilience,” it’s time to start hammering.

That might be a bad idea if markets break easily in the face of disruption, but in fact their ability to solve for new constraints is one of their most powerful features. It’s always funny to watch the same market fundamentalists who trumpet this power, in almost any context, suddenly lose their minds at the prospect of a tariff or immigration enforcement. The economy will grind to a halt, prices will skyrocket, crops will rot in fields… and then it doesn’t happen, because, in fact, markets are great, and when constrained in ways that better align the private and public interest, their results can serve us all.

• In the New York Times, Christopher Smart extends this case to the Middle East: The Strait of Hormuz Is Getting Less Dire by the Day. “Just as the Covid-19 pandemic and President Trump’s tariffs forced a significant rewiring of global supply chains, the Strait’s closure has prompted a similar adjustment. … Desperate buyers always manage to find new sellers when the old ones can’t deliver. The longer the world lives without the Gulf’s supplies, the easier it gets.”

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RESHAPING THE INDUSTRIAL COMMONS

Good observations from James Thorne at RealClearPolitics about Bessent and the Hamilton Standard: “He sees the economy not as a series of quarterly data points, but as a system shaped over time by production, energy, capital formation, and national power. That synthesis, of theory, history, and practice, places him firmly in the Hamiltonian tradition, and makes him a natural architect for translating President Trump’s economic doctrine into operational policy.”

How’s that going? “The stealth manufacturing boom continues,” notes the Wall Street Journal’s chief economics commentator, Greg Ip. Why stealth? Probably because no one wants to admit it might be happening.

No, instead we get pieces like this one from the Financial Times: Donald Trump’s Pledge to Unleash a ‘Golden Age’ of US Manufacturing Sputters. Their evidence is lower levels of investment and employment, but both had already been trending downward before President Trump took office. So while it’s true that efforts to turn around 40 years of deindustrialization did not yield an instant “mushroom cloud of explosive growth,” to cite one complaint, the better question is whether the ship is turning.

Putting aside the computer industry, where both the CHIPS Act and the data center build-out are causing large swings, investment in manufacturing structures has started to show significant growth. The decline in manufacturing jobs has reversed—indeed, we’re now on a five-month run of stable or increasing employment.

Not helpful, on the other hand: sending shipbuilding offshore. The Pentagon’s FY2027 budget request included $1.85 billion (with a b) for a feasibility study on sending advanced warship building to Korea and Japan. Rep. Jared Golden (D-ME) has led the fight against this approach and last night the House Armed Services Committee adopted his amendment blocking the proposal from the National Defense Authorization Act. The issue is a good one for an enterprising senator to take up as well.

RESHAPING THE LABOR MARKET

Berkshire Hathaway and Japanese Builders See the Same Opportunity in U.S. Housing (Wall Street Journal). “What does Berkshire Hathaway see in America’s home builders that investors in public markets have missed? Maybe the same thing as Japanese firms eyeing the industry: a chance to boost innovation in one of the least productive parts of the U.S. economy.”

That’s good news. But while the story highlights the shocking fall in labor productivity over the past 50 years, there’s no mention of actual workers, or wages, or the purported labor shortages that afflict an industry that struggles to offer good jobs. Actual innovation that boosts productivity in the sector would be good news for workers, for homebuyers, and for the businesses building them. That’s how capitalism is supposed to work. And it underscores the importance of ignoring proposals to instead address the challenge by importing more cheap labor.

We see the same thing on farms, in The Cheap Foreign Labor Regime Blocking Agricultural Intelligence (American Intelligence). “American firms built much of the underlying technology. American universities produced the foundational research. American workers could be trained to operate it. But the United States will not lead unless it dismantles the cheap labor regime that has allowed agriculture to skip the last revolution while pretending it is ready for the next.”

Far from doing that, today America’s Farms Depend More Than Ever on a Troubled Visa Program (New York Times). “The Trump administration is allowing in more agricultural guest workers under the H-2A program, but preventing abuses is proving difficult.” Who would’ve guessed?

Daniel would. If you haven’t already, you must read his recent Commonplace essay, From Human Bondage to Open Borders, on “the Mudsill Theory of a two-tiered labor system.”

Maybe even the EU is starting to get it: EU greenlights controversial return hubs in ‘strictest-ever’ new migration law (EuroNews).

BUT WHO GETS IT ON CHINA?

Also in his remarks at the New World Gala, Secretary Bessent emphasized the FCC’s important work banning Chinese drones and routers from the American market:

I think that we’ve repositioned the direction of travel for a lot of these industries. I think they’ll go and do it. FCC, a couple months ago, said no more Chinese routers and no more Chinese drones. That’s a perfect example. We cut off China, we gave a market signal, and now can’t believe how many new router and drone companies there are.

More of this, please.

Meanwhile, though…

Canada continues to demonstrate its comparative advantage in spite. Biden’s national security advisor Jake Sullivan is warning on Canadian television: “I do believe that Canada should be cautious about becoming dangerously dependent on China in certain industrial areas at the cost of Canada’s long term industrial and innovation muscle.”

250 years later, the EU may be learning our lesson about the weaknesses of the Articles of Confederation. “Spain is withdrawing its support from a French-led initiative to boost the EU’s trade defenses against China, its economy and trade minister said this week” (Politico).

And remember everyone making fun of the Liberation Day tariffs on obscure countries? Well, they’re not laughing now, per the Financial Times. “Alarm is growing in Brussels that the billions of dollars Chinese companies plan to invest in Morocco could turn the north African nation into a launch pad for heavily subsidised goods that threaten to swamp European industry.”

This, in particular, is an all-time line: “EU officials said it could be difficult to distinguish genuine Chinese industrial collaboration with Morocco from attempts to circumvent EU import tariffs.”

And yes, here in the U.S., many still don’t get it either. Sources: Stephen Curry signs $400M deal with China’s Li-Ning (ESPN). “Li-Ning and several other Chinese companies have been identified by the U.S. government and human rights groups as using forced labor to produce their goods. Li-Ning merchandise was banned in the United States in 2022.”

Does Steph Curry really just not have enough money? Or does he just not care? Someone should ask his coach, Steve Kerr, who enthusiastically speaks out on all manner of social justice issues, so long as they don’t harm the NBA’s opportunities in China.

This is a classic example of a “cultural problem” for which there is indeed a policy solution, outlined in American Compass’s A Hard Break from China:

Policy: Cultural Export Controls. For a unique set of cultural exports, “the people are the product.” U.S. law should designate a class of products and services where the creation of intellectual property, performances, or products is connected to the participation of specific individuals such as actors, singers, athletes, or other entertainers. U.S. law should prohibit revenue-generating exports of such products and services and licensing of associated brands and content to China—including films, musical recordings, broadcasts of sporting events, personalized footwear and apparel lines, and live performances. In many cases, free, unauthorized, or pirated versions of these products will still circulate in China, but this is a feature of the law. While American producers will lose the incentive to kowtow to CCP censors, some American cultural influence and soft power will still reach the Chinese market and create demand within China for greater openness to the free world.

In the meantime, rooting for Steph Curry is a choice. And fortunately, so is imposing Section 301 tariffs on countries around the world for their failure to keep forced labor out of their supply chains.

Enjoy the weekend!

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When delivering remarks at a “Reagan National Economic Forum” at the “Ronald Reagan Presidential Foundation and Institute,” one generally quotes liberally from former President Ronald Reagan, connecting the speech’s themes to the Gipper’s own thinking and legacy. So this morning’s remarks by Secretary Bessent were notable for his choice of Reagan maxim:

One thing that has made our Republic great is that we don’t hide from our mistakes. We learn from them; then we go on and do things better than we did before.

This was not a speech that paid tribute to the former president, but rather one about how we had gotten American economic policy so wrong for so long, and what we now need to do about it. In that respect, it deserves to be heard as a seminal statement about the Republican Party’s return to conservative economics. These were not words you could have found coming from a Secretary of the Treasury in any other GOP administration of the past 50 years:

The truth is that for too long, America had been asleep. We mistook comfort for strength. We treated efficiency as a substitute for resilience, and consumption as a measure of prosperity. We told ourselves that so long as goods were cheaper overseas, it did not matter whether factories went dark in Michigan, Ohio, or Pennsylvania. We assumed that supply chains would always function smoothly, adversaries would always behave responsibly, and the invisible hand would correct vulnerabilities that too few in public life had the courage to confront.

Secretary Bessent argued that, fundamentally, for the nation, economic issues are issues of sovereignty. “We lost sight of a foundational principle that previous generations understood instinctively: economic security is national security,” he said, “for a nation that cannot manufacture, mine, ship, or refine its needs gradually cedes its strength—and sovereignty—to others.” And, later on, “We talked about GDP, but not enough about its composition. And we prized low-cost inputs without first asking whether a nation can remain sovereign when it loses command over the things that matter most.”

The emphasis on sovereignty elevates industrial strength from a local issue of good jobs and strong communities past the macroeconomic drivers of growth and dynamism, past the concerns about resilience in the face of crisis, all the way to the level of national grand strategy. Making things matters, ultimately, because only by making things can a country control its own destiny. In this respect, analyzing manufacturing through a lens like “comparative advantage” overlooks its indispensable role in guaranteeing liberty.

Secretary Bessent makes the point that the root cause of this miscategorization is the notion that the market is solely a tool of consumption. “In reducing economics to consumption, we forgot production. We measured abundance at the checkout counter rather than the factory gate.” And then, in the speech’s best passage, he offers a very effective metaphor:

A country cannot outsource its industrial commons, ignore strategic concentration, and expect to remain secure, for manufacturing is more than output on a balance sheet. It is a reservoir of practical capability: engineers and welders, tool-and-die makers and logistics networks, plant managers and workers who know how to solve problems on the factory floor. When that ecosystem is strong, a country can adapt quickly. When it is hollowed out, adaptation becomes slower, more costly, and less certain.

The notion of industry as “reservoir” articulates more succinctly the point that Mark DiPlacido and I made in our essay on “Big Stick Economics” about what we called industrial depth:

a diversified resource base capable of meeting the demands of wartime production, flexible supply chains in competitive markets without single points of failure, a skilled workforce with a strong talent pipeline, and an industrial commons that fosters the interaction and investment necessary for constant innovation.

The reason for this, we argued, is that:

No nation can afford to maintain a defense sector at permanent wartime scale, nor would such a sector—dependent entirely on government funding and direction—be an innovative, efficient, or flexible one. National power must rest on a foundation of productive peacetime economic activity that not only spreads prosperity but also provides the prerequisites of military force.

Secretary Bessent’s concept of a “reservoir” captures this idea perfectly. A reservoir is constantly drawn from and replenished, maintaining both a steady flow of output and a large stock in reserve that can be deployed at any time. The market will not sustain a reservoir if water can be sourced more cheaply from elsewhere. But a nation that puts its adversary’s hand on the tap is courting disaster.

We are now alert, Secretary Bessent concludes, to the facts: “That secure supply chains matter as much as stock indices. That productive capacity is power. That trade policy, industrial policy, and national security policy must all fit together, or they will each fail separately.” This is precisely the robust national economic policy that has long been part of the American tradition, and may finally be returning to the fore.

On Tuesday, Secretary Bessent will join me on stage at American Compass’s annual New World Gala to discuss these issues and many others. We’ll share those remarks with all of our subscribers later in the week. — Oren

DOUBLING DOWN ON THE MUDSILL

The artificial intelligence labs insist we stand at the precipice of a new industrial revolution, which will not only automate significant segments of the economy’s professional-class cognitive work, but also unleash unprecedented productivity across the physical economy of warehouses, factories, and fields. Word of the revolution has apparently not reached the House Agriculture Committee, whose chairman, G.T. Thompson (R-PA), has begun circulating legislation that would amount to a “dramatic expansion” of the H-2A Temporary Agricultural Workers program. The proposal would redefine any job lasting under 350 days in a year as “temporary”—opening the program to year-round operations like dairy farms—and would include a suite of wage suppression measures: an entry-level wage floor pegged to the 17th percentile of what comparable domestic workers earn in the state, a cap on how fast even that meager floor can rise, and permission for employers to deduct housing costs from workers’ pay.

As a matter of developmental economics, the proposal is folly. Cheap labor is a technology policy by other means. When an apple grower can staff its orchard with cheap and exploitable workers, the robotic harvester that costs tens of thousands of dollars is an uneconomic investment; the machine is never commercialized at scale, and the industry remains locked in a low-technology trap. In other words, permissive immigration policy not only suppresses the wages and conditions under which domestic workers toil, but also the innovation that would make higher wages possible. Thompson’s bill would flood the fields with more cheap labor at the precise moment the technology to replace it may finally be maturing, removing the pressure that would induce farmers to adopt it.

In defending the legislation, a committee aide reached, inevitably, for the oldest line in the cheap-labor playbook: farmers “can’t find Americans willing to do these important jobs.” As Daniel wrote this week in Commonplace, in “From Human Bondage to Open Borders,” the phrase “jobs Americans won’t do” is the latest translation of the “mudsill theory”—one of the oldest arguments in American political economy, which the antebellum South used to justify slavery, most notoriously by a slaveholding senator named James Henry Hammond:

The “mudsill theory” rests on three premises: that certain work is beneath the dignity of citizens, that a civilized society nonetheless requires someone to do it, and that the solution is to source a subordinate class whose legal status forecloses the possibility of refusal. That structure persists to the present day.

Substitute “immigrant” for “slave,” and a modern mudsill theory echoes Hammond’s in its core premise. It does not argue that agricultural work should be improved, mechanized, or made attractive to American workers with better wages and conditions. It argues that Americans are “done” with it, permanently, and that the nation must therefore allow for the importation of a labor force willing to do what its citizens will not. In other words, it does not call for the abolition of the mudsill, but for its outsourcing.

As a matter of both economics and principle, Congress must reject Thompson’s attempt to double down on the modern mudsill theory and the two-tiered labor system it rationalizes.

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GOOD WEEKEND READS (AND LISTENS)

• Pope Leo XIV released his much-anticipated encyclical, Magnifica Humanitas (“Magnificent Humanity”), on Monday. The document addresses the social, economic, and political dimensions of AI, and addresses questions of human dignity, labor, and the common good within the tradition of Catholic social teaching running from Rerum Novarum (1891) through Centesimus Annus (1991).

• BONUS LISTEN: American Compass Policy Director Chris Griswold, Leah Sargeant, and Max Bodach joined Oren to discuss the encyclical on this week’s podcast.

• BONUS READ: Idols of the Valley by Yuval Levin in The New Atlantis

• The New A.I. Money Should Be Spent on Beauty, by Ross Douthat in the New York Times

• How Ben Sasse Raised Me, by Alex Sasse in The Free Press

THE TRADE WAR’S EUROPEAN THEATRE

As we have been arguing in Understanding America for much of the past year, the European Union cannot remain neutral in a global trade war wrought by China’s export-driven growth model and the high tariffs the Trump administration has imposed to protect the American market from it. By walling off the U.S. market, those tariffs push China’s overcapacity toward whatever economies remain open to it, leaving Europe near the front of the line and facing a very simple choice: absorb Beijing’s glut, or build the barriers required to defend its own industrial base.

Evidence this week suggests the Europeans might, at long last, be ready to fight. The New York Times reports that Europe Is Edging Closer to a Trade War With China, writing that “as cheap goods pour in, threatening the continent’s manufacturing sector, a search for solutions is becoming increasingly urgent.” The Financial Times reported that the trading bloc’s industry commissioner, Stéphane Séjourné, said Brussels will broaden its safeguard tariffs and import quotas to cover entire sectors—chemicals, metals, clean technology—in an escalation from heretofore firm-specific duties, describing the Chinese import surge as an “existential” threat.

The Financial Times also published an op-ed by columnist Soumaya Keynes that begrudgingly argues the Europeans must embrace the t-word, international-rules-based order be damned:

I spent years feeling smug, criticising the Trump administration for blowing up the rules-based trading system. It seemed clear that China’s economic model was causing problems elsewhere, but equally clear that chaotic unilateralism was the wrong approach. Better to join with allies and file a big, boring dispute at the World Trade Organization, accusing China of foul play. It’s time to move on. Sadly, navigating today’s era of economic conflict by appealing to the rule book is like turning up to a knife fight with a Scrabble manual. You might feel principled complaining that “stabbing your opponent” isn’t fun and certainly won’t deliver 50 bonus points. But you’ll still lose. Since the game has changed, so must the strategy. Which for the EU means turning to trade barriers—and tariffs.

Keynes is describing, with unusual candor, the basic math problem we’ve been writing about. It remains to be seen whether Europe will be quick enough to defend its manufacturing base before China’s glut turns the continent into a “museum” of a once-great industrial power, and whether it will have the resolve to hold the line in the face of retaliation: China Threatens to Launch Trade Probes Against the European Union (Wall Street Journal).

ON THE HOME FRONT

Writing in the International Monetary Fund’s Finance and Development Magazine, U.S. Trade Representative Jamieson Greer argues that “trade theory must catch up with tariffs, industrial policy, and the costs of globalization” while defending the use of tariffs to remedy persistent global imbalances:

The United States is using tariffs and agreements on reciprocal trade to encourage inbound productive investment, increase incentives for domestic production, and open markets for US exports. The IMF concedes that durable rebalancing requires action by both surplus and deficit economies. Without real pressure a surplus economy has no reason to act, but that does not mean that deficit countries must remain inert. Hence, the United States is taking bold action to lay the foundation for an international economic system grounded in balance, reciprocity, fairness, and resilience.

And speaking of the administration’s Agreements on Reciprocal Trade, Peter Harrell has a new paper in Brill’s journal of Law & Geoeconomics with an exhaustive account of their economic security provisions, and what it means for the future of trade deals and the administration’s China-containment strategy. Read the paper and his Twitter thread.

Meanwhile, as negotiation for the renewal of the United States-Mexico-Canada Agreement heats up, the Trump Administration Wants Autos Under USMCA to Be at Least 50% Made in America (Wall Street Journal), a demand that would significantly increase the amount of U.S. content required in cars to gain preferential access to the American market. And in other reindustrialization news, The Trump Administration Is in Talks to Fund U.S. Drone Companies (Wall Street Journal) “as part of its effort to increase domestic production and lower the costs of the increasingly vital weapons.”

For a Bonus Reindustrialization Weekend Read, Friend of the ‘Stack Patrick McGee asks “Can Intel Save America?”

THE FRUITS OF OUR LABOR

In the Wall Street Journal, Greg Ip writes about a concerning number buried in this week’s GDP report: labor’s share of national income fell to 51%, the lowest since records began in 1947, while profits’ share hit 12%, the highest since 1950. Since the end of 2019, real hourly wages are up 3% and profits are up 50%. The AI boom is widening the gap further.

What can be done? One potential answer comes from Seoul. Samsung’s union just approved a landmark profit-sharing deal, handing 78,000 workers 10.5% of operating profit—an average bonus of nearly $400,000—on the heels of a similar agreement at rival SK Hynix. It is a model of pre-distribution: workers capturing a share of the AI windfall directly, at the point of production, instead of leaving the question to after-the-fact transfer taxes on profits and billionaires. It takes a unionized workforce to pull it off, but the approach could be replicable; the unionized building trades laying the foundations of America’s data center buildout are well placed to claim a share of the boom they are physically constructing.

For too many executives, a successful AI rollout is measured by how many workers it lets them shed. But as American Compass argued in For Whom the Machine Toils, and our colleague Chris Griswold wrote in I, Sharpie, it doesn’t have to be that way.

The latest example comes from Schneider Electric, the French electrical equipment and energy-management conglomerate. As the New York Times reports, the company is deploying AI across its 160,000-person workforce to make employees more productive rather than to replace them. In its call centers, the company uses AI for document hunts that agents once did by hand, surfacing the answer and its source so customers get faster, more reliable responses. And at one of its plants in Normandy that produces the switches used to control motors, elevators, and electric vehicles, Schneider uses AI to tell operators exactly when a production batch has been washed enough (a process that was long a matter of guesswork), cutting waste by nearly three-quarters.

If the gains of the AI boom are going to reach workers, policy will have to make augmenting them the profitable choice, not just the principled one.

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The GOP-controlled House of Representatives had a remarkable week. On Wednesday, the chamber passed a housing affordability bill that would restrict large institutional investors from buying single-family homes. The same afternoon, a discharge petition for the Faster Labor Contracts Act (FLCA) collected its 218th signature, forcing a floor vote in the near future. The legislation would prevent an employer from stalling the process of bargaining a first contract with newly organized workers, using mandatory arbitration as the backstop. Then on Thursday, the House Transportation Committee voted 54–11 to adopt the Railway Safety Act (RSA), legislation introduced after the 2023 Norfolk Southern derailment in East Palestine, Ohio, as an amendment to the surface transportation reauthorization, over the objections of the committee chairman, the rail industry, and a coalition of free-market advocacy groups.

Three bills, each confronting directly the corporate donor base and market fundamentalism long dominant in the Republican Party, all advancing in a Republican-controlled House over two days.

Housing: The 21st Century ROAD to Housing Act passed 396–13. Much of the coverage focused on what the House cut from the Senate-passed version: the requirement that build-to-rent developers sell their homes within seven years. But the more consequential development is that the House kept Section 1001, the provision restricting acquisitions by investors who already own more than 350 single-family homes. In a Statement of Administration Policy issued the same day, the White House called the provision President Donald Trump’s “signature priority” and a framework that “addresses Wall Street’s dominance in the single-family housing market and protects Main Street homebuyers.”

By contrast, an earlier version of the bill had no institutional-investor restrictions. Now the GOP members have voted almost unanimously that the allocation of capital to single-family homes is a legitimate object of public policy, not merely a matter of revealed preference best left to the market.

Labor: Under current law, roughly one-third of workers who vote to unionize never secure a first contract. Employers often bet that by staying just within the law while dragging their feet, they can sap the union’s momentum entirely. The FLCA—sponsored by Sens. Josh Hawley (R-MO) and Cory Booker (D-NJ) in the Senate and Reps. Donald Norcross (D-NJ) and Pete Stauber (R-MN) in the House—sets binding mediation and arbitration timelines so that organizing victories translate into contracts. We covered the discharge petition’s filing in April and its progress last week in Understanding America, and I wrote last year in Commonplace about the broader project of bipartisan labor law reform.

This week, Norcross’s discharge petition—a procedural mechanism that allows rank-and-file members to force a floor vote without the Speaker’s support—reached the required 218 signatures. Successful discharge petitions are very rare because members of the majority party must override their own Speaker’s decision. In this case, seven House Republicans—Reps. Riley Moore (WV), Mike Lawler (NY), Nick LaLota (NY), Brian Fitzpatrick (PA), Don Bacon (NE), Max Miller (OH), and Rob Bresnahan (PA)—signed it over the objections of their leadership, the Chamber of Commerce, and decades of party orthodoxy on labor law. The end-around worked.

Rail: In 2023, after a Norfolk Southern train carrying vinyl chloride derailed in East Palestine, Ohio, the state’s two senators, Republican JD Vance and Democrat Sherrod Brown, introduced the Railway Safety Act. The bill requires two-person crews, expanded use of wayside defect detectors to catch overheated bearings of the kind that derailed in East Palestine, and updated standards for trains carrying hazardous materials. The freight industry it protects has spent the past decade returning hundreds of billions of dollars to shareholders while cutting headcount, deferring investment, and watching its accident rate climb, as Oren noted in the Financial Times.

Yet the legislation has languished ever since, opposed by the Association of American Railroads, by the Republican leadership of the House Transportation Committee, and by a coalition of more than two dozen free-market groups. (Back in 2023, Oren debated the bill with Phil Bell of the now-defunct FreedomWorks on the American Compass Podcast.) On Thursday, the committee adopted an amendment offered by Rep. Troy Nehls (R-TX) to incorporate the RSA, over the objection of Committee Chairman Sam Graves (R-MO). Americans for Tax Reform issued a key vote alert opposing it. “The Railway Safety Act is a war on affordability,” said ATR president Grover Norquist in the accompanying statement. “It raises the cost of everything that moves by rail. The RSA makes everything more expensive for American families while lining the pockets of left-wing union bosses.”

ATR’s “war on affordability” framing assumes that the only costs worth counting are the ones the rail industry pays. The residents of East Palestine, who were evacuated from their homes and continue to live with the consequences of the burn-off of vinyl chloride, paid a different cost. So did the customers and workers along an under-invested freight network. As Oren put it in the FT, “regulation can be far from perfect and yet still far better than the status quo.” A Republican-led committee has now agreed, 54–11.

It would be easy to read these three items as discrete victories on three very different issues, but they are better understood as evidence of one political fact. The intellectual machinery that once disciplined Republicans away from these positions—the Chamber’s scorecard, the Wall Street Journal editorial board, a letter from Norquist—remains operational. But it’s no longer producing the votes it used to produce. The House Republican conference now contains a working majority willing to fight back against the financialization of single-family housing and to impose rail safety measures over industry objections, and a smaller but consequential bloc willing to help labor stand on a level playing field with capital. — Daniel

IT’S THE ECONOMY, STUPID

Kevin Warsh replaced Jerome Powell as chairman of the Federal Reserve today, which is as good an excuse as any to step back and take stock of the macroeconomic picture. (But first, read the Wall Street Journal: Kevin Warsh Wants to Remake the Fed. Here’s What He Is Up Against.)

Unfortunately, with gas prices above $4.50/gallon and still heading higher, inflation is up, interest rates are up, and real wages are down. The direct cost to consumers from higher gas prices now totals roughly $45 billion (Wall Street Journal), U.S. 30-Year Yield Hits Highest Since 2007 as Selloff Deepens (Bloomberg), and Mortgage Rates Hit a Nine-Month High in Blow to Prime Buying Season (Wall Street Journal).

In the short run, things may get worse. Our friendly Econ 101 models tell us that supply constraints lead to rising prices, which in turn lead to investment in more supply. But in the oil market, investment to bring supply online takes a long time and, with the Iran crisis, the constraint is expected to be temporary. No matter how high the price goes, no one is going to initiate expensive new projects or construct new pipelines if the Strait of Hormuz might re-open long before they’re ready. Thus, “Big Oil is making money but losing sleep,” reports Semafor. “Even though US oil executives and insiders are worried that energy market disruption stemming from the war in Iran is poised to get significantly worse, they’re not ready to ramp up drilling to counteract it....The low future price signal is both misleading—because it severely underplays the likelihood of forthcoming major disruptions to airlines, food systems, and other energy users—and a deterrent to drilling investment.”

Consumer confidence remains at an all-time low.

Of course, the stock market keeps setting new records. But those gains are concentrated to an extraordinary degree in the very largest companies whose fortunes depend upon artificial intelligence. Whether or not this is a bubble, it’s important to recognize how different the economic structure looks compared to the peak of the dot-com boom in 2000. Then, the top five companies by market capitalization were Microsoft, General Electric, NTT Docomo, Cisco, and Walmart—tech heavy, to be sure, but relatively balanced from software to hardware to industrial to retail to telecom. And they made up a far smaller share of the stock market’s total value. Now, the top five companies are Google, Apple, Microsoft, Nvidia, and Amazon.

Then come Meta, Broadcom, TSMC, and Tesla (which at this point is a bet on AI and automation too). Berkshire Hathaway holds the tenth spot, but it is sitting on $400 billion in cash and treasuries because it can find nothing it wants to invest in. Next up: IPOs for OpenAI, Anthropic, and SpaceX (including xAI), all three of which may top Berkshire on their first day, and which will tilt the market even further. Andrew Ross Sorkin’s DealBook newsletter for the New York Times has had “A.I.” in the title for five straight days.

Today’s newsletter discusses “Giving Workers a Stake in A.I. Gains Traction.” Just as “Universal Basic Income” was all the rage a decade ago, everyone is now talking about “Universal Basic Capital” or a “Universal Basic Dividend,” the idea being that these company valuations envisage an economic future in which they will capture a far larger share of economic value and workers will capture a far lower share. So why not just give the workers a stake in the companies and let them share in the wealth?

One problem with this view, of course, is that an economy in which workers no longer have a role as productive contributors able to support themselves and their families is a recipe for social collapse, at which point no one will be enjoying themselves. The other problem, though, is that it rather conveniently privatizes the process of redistributing concentrated wealth in a way that locks in today’s Masters of the Universe as the permanent winners. See, we already have a mechanism to ensure that a share of concentrated profit is directed toward supporting the common good. It’s called the tax system. The American people already get a “dividend” from every dollar of corporate profit, because it is paid as corporate tax and spent as our elected representatives determine.

Conveniently, this dividend applies across all sectors, so we can be entirely indifferent to whether AI companies or others are most successful and generate the most profit. If we wanted, we could also take all of that corporate tax revenue and channel it directly into cash payments made to all households. Fortunately, we don’t do that. But that’s because a UBI is a bad and unpopular idea, and the UBD or UBC is just a repackaged UBI, otherwise inferior in all respects. No wonder it’s popular in Silicon Valley.

APOCALYPSE LATER

But we’re still waiting for evidence that AI will cause these disruptions. Certainly, it has become a popular bogeyman. And everywhere we turn, we see the statistic, attributed to the World Economic Forum, that “entry-level jobs are down 35%.” Except that’s not remotely true. The research, from a private firm called Revelio Labs, finds that job postings for entry-level positions are down 35%, and this decline bears almost no relationship to whether a job is highly exposed to AI.

Far more rigorous data comes from a study released this week at the London School of Economics. Peter John Lambert and Yannick Schindler note the research suggesting a decline in entry-level hiring, but then propose that the shift toward work-from-home is actually responsible. Without considering WFH, their data show the same AI-exposed decline in entry-level hiring. But account for WFH, and AI no longer appears relevant. Twitter thread here, full paper here. Also this week, the Strada Education Foundation released a survey of 1,500 business executives that finds “nearly three times (2.7 times) as many senior talent leaders expect AI use to increase entry-level hiring in 2026 as to decrease it” and “greater use of AI is the most frequently cited significant positive driver of increased entry-level hiring.”

Of course, one lesson from the China Shock two decades ago is that when the public insists a problem exists, while the economists and their models insist otherwise, ignore the economists. But in that case, the data did tell the story: manufacturing jobs were vanishing. The hand-waving assumption was that better jobs would simply take their place. This time around, young Americans are clearly facing serious economic challenges that demand our attention; we just shouldn’t accept the easy excuse that AI is to blame.

What works? Tight labor markets and worker training. The Wall Street Journal reports that This Arkansas Town Is Humming With the Sound of Missile Making.

Lockheed’s immediate strategy: expand the pool of potential workers. It began inviting local high-school seniors and their parents to its Camden facility for tours. The contractor also started working with Southern Arkansas University Tech, a two-year community college in Camden, to ramp up apprenticeships, so it could more readily hire people who had never worked at a factory.

In return, state officials stepped up workforce-development grants and began funneling millions of dollars to SAU Tech. The efforts largely worked, and have helped turn the area into an engine for America’s war machine.

What else works? Worker power. Sectoral bargaining. Per the New York Times, N.Y.C. Hotel Housekeepers Will Earn Over $100,000 Under New Contract.

WHAT’S NOT WORKING?

In Cambridge, Harvard Votes to Cap A’s in Effort to Curb Grade Inflation (“move comes despite sharp student backlash”). In New Haven, Yale administrators now outnumber Yale undergraduates, Aakash Gupta notes in a long post on the slow-motion crash of higher education.

In the New York Times, Stanford senior Theo Baker describes What A.I. Did to My College Class. “Even in the heart of the Silicon Valley techno-utopia, most people know that our tech is bad for us, or at least that it can be. A.I. is often a tremendous productivity boost, yet my friends increasingly refer to both short-form video and their A.I. chat logs in the language of addiction.”

• BONUS LINK: In case you missed it, this viral post on the Bay Area’s woes is interesting: “The vibes in SF feel pretty frenetic right now. The divide in outcomes is the worst I’ve ever seen. Over the last 5yrs, a group of ~10k people - employees at Anthropic, OpenAI, xAI, Nvidia, Meta TBD, founders - have hit retirement wealth of well above $20M (back of the envelope AI estimation). Everyone outside that group feels like they can work their well-paying (but <$500k) job for their whole life and never get there.”

• BONUS BONUS LINK: And if you read that one, be sure to read this one too: “The vibes in NJ feel pretty great right now. The convergence in outcomes is the best I’ve ever seen. Over the last 5yrs, a group of ~10k people - guys who own paving companies, guys who own marinas, ShopRite deli managers, Wawa shift leads, and a guy named Sal - have quietly become millionaires and nobody knows because they still drive a Silverado from 2008…”

And as long as we’re promoting Twitter posts, this one on screens in classrooms is worth considering too: “Teachers need the devices. Not the kids. A typical public school classroom has gotten impossible to manage. They don’t hold kids back anymore. They don’t expel. They don’t really discipline at all.”

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GOOD READS FOR YOUR WEEKEND

How Should We Measure Economic Power? by Chris Miller. It had not occurred to us that some people think economic power is best measured in corporate profits rather than productive capacity. Apparently this is an actual debate!

China is betting that its production advantage will create more durable CATL-style moats that eventually enable both profit and power. Western firms are making a calculated bet that their profitability provides flexibility to recast production networks if needed. Western governments, meanwhile, increasingly fear their firms are naive and that China’s strategy just might work.

Why Birth Rates Are Falling Everywhere All at Once, by John Burns-Murdoch. Not to spoil a great read, but, yes, it’s the phones.

Moment of Truth Podcast on the Future of Small Business. A good listen for you from American Moment’s Nick Solheim: “America is sitting on a time bomb. Over half of our nation’s small business owners are approaching retirement, and most of them don’t have a plan other than selling out to private equity.”

The 2024 DNC Autopsy Is Here! Read the actual document. Read the DNC Chair Ken Martin instantly disavowing it: “I am not proud of this product; it does not meet my standards, and it won’t meet your standards. I don’t endorse what’s in this report, or what’s left out of it.” Read the New York Times on how it “is missing many sections and is filled with annotations questioning its methods.”

BAD READ

Stephen Moore has weighed into the chip-export debate with the bizarre argument that we should be selling advanced AI chips to China because it will generate more tax revenue. Perhaps this would be true if sales in China represented incremental profit from economic activity that would not otherwise occur. But here, every fab is already running flat out producing every chip it can, and every chip is sold before it even comes off the assembly line. Corporate tax rates tend actually to be higher on domestic profits, as Chris McGuire notes.

Likewise, Moore argues a loss of sales in China “also means that these AI companies have less to invest in the next generation of chips.” AI companies are investing and building as fast as they possibly can. Capital markets are flinging money at them. Profits are not the constraint.

But this isn’t really an argument about chips. It’s generic market fundamentalism with the word “chips” inserted in the “[put topic here]” boxes, that conveys no familiarity with the playing field or the players. At one point, Moore even offers an analogy to “an American airline lobbying the federal government to ban Boeing from selling aircraft to a foreign carrier.” But Boeing is one of the nation’s largest defense contractors, and much of what it makes is indeed subject to export controls. He celebrates that “American tech know-how and business acumen are unrivaled in the world—as we learned in the Internet age. That happened with very limited government subsidy and interference. And it happened by selling Apple iPhones and Google search capabilities and microchips across the globe.” Except, of course, that Apple makes almost no products in the United States, and we lost the ability to make the most advanced microchips, until we began implementation of the CHIPS Act, which Moore presumably opposes too.

BUT IF YOU THOUGHT THAT WAS CONFUSING…

…check out these stories:

US Said to Suspect Nvidia Chips Smuggled to Alibaba Via Thailand (Bloomberg). “A key company behind Thailand’s national AI effort is suspected of helping to smuggle billions of dollars worth of Super Micro Computer Inc. servers containing advanced Nvidia Corp. chips to China, with Alibaba Group Holding Ltd. one of multiple end customers, according to people familiar with the matter.” That company was called OBON, which, as Senator Tom Cotton notes, literally stands for “One Belt, One Network.” Really? No one thought to look into that? Nvidia had no idea?

Senators Work to Ban Gambling Ads Targeting Minors (Wall Street Journal). Apparently this is necessary? Seems like a good opportunity to bring back tarring and feathering.

CAPTAINS OF INDUSTRY

The new issue of American Affairs is here! Some highlights:

Michael Starr, Executive Secretary at the Office of the U.S. Trade Representative, on The Last Time We Fixed the Trade Deficit: Lessons from the Plaza Accord.

Three essays on industrial finance:

• Skanda Amarnath and Arnab Datta on How Financialization Can Complement Reindustrialization

• Tanner J. Gebhart on Revitalizing the Export-Import Bank for Great Power Competition

• Jan Jaron on Closing the Strategic Capital Gap: The Case for Modernizing the Export-Import Bank

Speaking of industrial finance, The Economist highlights the rapid expansion of the U.S. Development Finance Corporation:

In December, at the president’s behest, Congress extended the dfc’s life to 2031, lifted a ban on investing in rich countries, including America, and set aside $5bn for equity takes in companies worth up to 40% of their value. Lawmakers also lifted its ceiling for total lending from $60bn to $205bn, not that far off the World Bank’s loan book of $285bn. New loans declined to $4bn in 2025, amid the latest reorganisation after Mr Trump’s return to office. But Conor Coleman, the dfc’s investment chief, insists that the plan is very much to reach that ceiling.

Articles about $2 billion. We have two!

• U.S. to Award Quantum-Computing Firms $2 Billion and Take Equity Stakes (Wall Street Journal)

• Toyota’s $2 Billion Texas Truck Plant Expansion Looks Like a Donald Trump Tariff Survival Move (MotorBiscuit)

Major investment as a “tariff survival move.” Nice.

On rare earths, unfortunately, the news is frustrating. The Financial Times reports on the defense contractors, who had eight years to reconstitute supply chains, did nothing and are now begging for an extension:

Defence companies are pushing Washington to delay a deadline, years in the making and now just months away, banning them from sourcing rare earth magnets from China for the US military. Some defence groups want more time to comply with the prohibition on using Chinese samarium cobalt magnets and neodymium iron boron magnets for defence department contracts from January 1, according to four people familiar with the matter....Under rules introduced by Congress in 2018 during Trump’s first term, defence companies will be banned from supplying the US military with the magnets, as well as the metals tungsten and tantalum, if they have been sourced from China. The rules apply if any stage of the materials’ production has occurred in China, North Korea, Russia or Iran.

The Pentagon must hold the line, and perhaps look for ways to further penalize the laggards. This is a bad joke, and if it’s rewarded with relief, the only lesson learned will be that complying with mandates costs money while ignoring them gets rewarded. That’s how you end up with…

US Needs Another Decade to Fix $1.2 Trillion Rare Earth Crisis (Bloomberg). Another bad joke. Ten years to fix a critical vulnerability? If solving this problem were existential for the companies involved, it would get solved. If they’re not going to solve it until it’s existential, policymakers can help them with that… Still, it’s truly shocking how bad things were allowed to become. For some absolutely crucial inputs, China controls 99% of the market.

Earlier this year, the Pentagon signed a deal to source supplies from the Australian company Lynas Rare Earths Ltd., the only one outside China that refines heavy rare earths, a product it started offering in 2025.

Meeting demand will be hard. Global appetite for dysprosium and terbium alone runs into the thousands of tons annually, according to industry estimates. In the first quarter of 2026, Lynas produced a combined 8 tons of them.

…

While these elements ultimately represent a small share of the total market, tiny amounts strengthen magnets and improve heat resistance, making them essential for F-35 fighter jets, Virginia-class submarines, electric vehicles and other advanced technologies.

AND CHINA CONTINUES TO SHOCK

In the Wall Street Journal, Greg Ip has a column that describes precisely the China challenge and the inevitability of the Trump administration strategy as the only plausible response:

The pervasive nature of China’s industrial policy makes it difficult for competitors to counter. Trump’s tariffs, for example, have driven down the U.S. trade deficit with China. But China has redirected exports to other markets. And because Chinese inputs are omnipresent in global supply chains, the value of Chinese content entering the U.S. can remain steady even as imports drop.

This could be addressed through tariffs on Chinese content, regardless of where the product originated, or through tighter rules of origin, a particular thrust of Trump’s trade negotiators.

But that wouldn’t solve the competitive threat. The U.S. could ban every Chinese-made product, but those products would keep gaining market share abroad, threatening American leadership. For example, Chinese electric vehicles may incorporate Chinese software and artificial intelligence. As those EVs gain market share abroad, Chinese software and AI may supplant U.S. rivals as the global standard.

This calls for a joint response by all market-based democracies to Chinese industrial policy. But U.S. allies’ willingness to coordinate with the U.S. on China, never high to start with, has eroded further under Trump.

Wither the allies? Two steps forward, one step back. EU Plans to Force Companies to Buy Parts from Non-Chinese Suppliers (Financial Times). But, notes the Council on Foreign Relations’s Brad Setser, “it doesn’t matter how many trade instruments Europe has if Europe’s member states are too divided to make use of any of them effectively.”

Setser and Sander Tordoir, chief economist at the Centre for European Reform, have an excellent new paper on China Shock 2.0: The Cost of Germany’s Complacency (Tordoir’s accompanying thread is here.)

It all leads us, and the South China Morning Post, to ask, A Sinking Ship? Why the EU and China Could Be Heading for a Trade War.

Enjoy the weekend!

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We find that households had very different experiences with gasoline spending: in March, high-income households increased nominal spending the most and kept real consumption essentially unchanged, while low-income households decreased real consumption of gasoline but still saw sharply increased nominal spending because of the rise in gas prices.

Thanks, Captain Obvious, I hear you say. When gas prices go up, rich people just pay more for their gas. Poor people use less gas, still end up paying more, and have to cut back elsewhere in their budgets, too. No kidding.

But pause a moment to consider the implications. Faith in market efficiency relies upon the price system allocating resources to their best (most valuable) use, which assumes that our “willingness to pay” provides a fair proxy for how much each of us values something. When it becomes more expensive to supply gasoline to the market, the price rises, encouraging more production and reducing purchases from people with a lower willingness to pay, until total demand and supply come into balance.

This is “efficient” according to economists. Those with a lower willingness to pay, suggesting they assign less value to the marginal gallon of gas, should cut back. Our limited supply goes to those who really value it. Lest you think that an oversimplification, here is Harvard professor Gregory Mankiw in his widely used textbook, Principles of Microeconomics:

Those buyers who value the good more than the price choose to buy the good; those buyers who value it less than the price do not. ... Free markets allocate the supply of goods to the buyers who value them mostly highly, as measured by their willingness to pay. ... Thus, given the quantity produced and sold in a market equilibrium, the social planner cannot increase economic well-being by changing the allocation of consumption among buyers.

And no, that’s not just the theory, after which the textbook notes the weaknesses in this framework. To the contrary, the real-world examples on the next page drive the point home: “If an economy is to allocate its scarce resources efficiently, goods must get to those consumers who value them most highly. Ticket scalping is one example of how markets reach efficient outcomes.”

What the Fed study shows is that this isn’t happening at all. Here on Planet Earth, your “willingness to pay” is often driven less by how much you value something and more by the total resources available to you. Does anyone believe that lower-income households are driving less because they value driving less, in the sense that it does less for their welfare? Come on. To the contrary, given that they already had to make tradeoffs that higher-income households did not before the spike in gas prices, it is safe to assume that the marginal gallon of gas they were consuming was already more valuable to them; when they have to cut back, it is surely more painful.

Colloquially, we can think of this as the Learjet problem. When gas prices go up, families take fewer trips to visit grandma. Corporate executives do not reduce their private jet flights to Davos. That may be “efficient,” but it obviously is not efficient in the sense of allocating resources to their best uses and maximizing welfare. Or, to take Mankiw’s example, when concert and baseball tickets get bid up to the level that real fans are priced out and the front rows are filled with lobbyists and their clients, “changing the allocation of consumption among buyers” would quite obviously “increase economic well-being.”

Maybe we don’t want to do that. For one thing, we might worry about interfering with property rights. For another, we might not have any confidence in policymakers to improve allocations in practice. For a third, we might want to preserve the incentive for people to do productive things and earn money that they can then spend as they wish, buying things that people who earn less money cannot. Those are all reasonable considerations.

What is not reasonable, however, is to pretend that—under conditions of substantial inequality—the price system is rationing resources in a way that maximizes consumer welfare (to say nothing of other forms of welfare about which we might care even more). Whether and when we can improve are important questions to ask. And we should remember that as inequality in disposable income increases, the divergence between efficiency and welfare will increase too, to the detriment of those on the lower end. — Oren

THE ART OF NO DEAL

Ahead of this week’s two-day summit in Beijing, China hawks, like us, were concerned that President Donald Trump might strike a trade and investment deal with President Xi Jinping that could reverse the trend toward decoupling he put in motion during his first term and has accelerated with his second-trade policy. What emerged, based on the initial reporting, was mercifully much less.

China has committed to or affirmed the purchase of American soybeans, beef, and Boeing aircraft. U.S. authorization for Nvidia to sell H200 chips to ten Chinese firms was the headline concession on paper, but that policy had been announced months ago and, in practice, the question remains whether China will accept the chips. A new U.S.-China Board of Trade will reportedly explore tariff cuts on “non-sensitive goods,” a potentially positive arrangement if it amounts to managed exchange in the product categories where two-way trade is genuinely benign. And that’s about it.

A nothingburger summit is, in this case, a good outcome, for the reason Oren laid out in the Financial Times on the summit’s first day: “The best plausible result is simply no deal, beyond efforts to smooth any decoupling that might proceed, giving the US time to come to its own terms with the irreconcilable differences of its great-power competitor.”

That said, the H200 chip authorization is a bad outcome on its own terms, whether or not Chinese firms ultimately take delivery. As American Compass argued last fall in Stop Selling the Rope, advanced AI chip design and manufacturing is one of the few critical sectors where the United States and its allies still hold a decisive lead. The H200 is not the most advanced chip Nvidia produces but it’s close, and exporting non-leading-edge chips still extends China’s AI capabilities by months, if not years. The so-called addiction thesis—that letting U.S. firms get a toehold in the Chinese market will lock China into dependence on U.S. technology—was wrong about China’s accession to the World Trade Organization at the turn of the century, and experience suggests it has only gotten more wrong since.

The American public agrees. New polling from American Compass and YouGov, released this week, finds that 91% of registered voters support restrictions on AI chip exports to China, with majorities in both parties favoring an outright ban. Americans are also three times more likely to view China as a rival or adversary than as an ally or potential partner, and reject by a more than two-to-one margin the idea that the United States can do business with China while steering clear of its military. Read the full report: Americans Reject Chip Exports to China.

Elsewhere in the U.S.-China economic relationship:

In Bloomberg, read about how the Pentagon’s ‘Deal Team Six’ Aims to Challenge China’s Grip on Rare Earth Power: “From an office a few blocks from the White House, a group of former Wall Streeters is at the forefront of the Pentagon’s plan to crack China’s critical-minerals stranglehold…It’s racing to put together creative deals with billions of dollars in equity stakes, long-term price floors, purchase commitments, loans and other financial tools.” And, in the same outlet, on the scale of the hole decades of failed policymaking have dug: US Needs Another Decade to Fix $1.2 Trillion Rare Earth Crisis.

Efforts to “hermetically seal” the U.S. market against the threat posed by the Chinese auto industry’s excess capacity—and the data and security risks that would come with Chinese-built cars on American roads—are gaining traction in Congress. Rep. John Moolenaar (R-MI), chairman of the House Select Committee on the CCP, and Rep. Debbie Dingell (D-MI) introduced the Connected Vehicle Security Act, legislation that would codify and expand existing restrictions by prohibiting the importation, manufacture, and sale of connected vehicles (along with the software and hardware that power them) linked to China. It’s the House companion to the bill introduced last month by Sens. Bernie Moreno (R-OH) and Elissa Slotkin (D-MI), and is backed by the United Auto Workers and General Motors. This week, Sen. Eric Schmitt (R-MO) joined as a cosponsor, and the Teamsters became the second union to issue an endorsement.

Two bonus links from the Wall Street Journal:

• China’s Cars Aren’t in the U.S., But Its Auto Parts Are Everywhere

• China Exports More EVs Than Traditional Cars for First Time in April

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ALSO ON CAPITOL HILL

It looks increasingly likely that the Republican-controlled House will, at some point during the next couple of months, vote on the bipartisan, bicameral, labor-endorsed Faster Labor Contracts Act. The legislation would impose binding mediation and arbitration timelines to ensure that workers who vote to unionize actually secure a first contract. Under current law, roughly a third never do.

Last month, Rep. Donald Norcross (D-NJ) filed a discharge petition for the underlying bill, a measure that could force a floor vote if it receives signatures from 218 members of the House. As of this writing, the petition has 214 signatures, and is supported by four of the 17 Republicans who have cosponsored the bill, including Reps. Mike Lawler (NY), Max Miller (OH), Rob Bresnahan (PA), and Brian Fitzpatrick (PA). Four more signatures and Speaker Mike Johnson will be forced to schedule a vote. You can expect the business lobby— which has spent decades making sure those workers don’t get a first contract—to mobilize in full force, urging the other 13 Republicans not to sign the petition. For why they should, read Daniel’s article in Compact back in September: Can Republicans Help Fix Labor Law?

Over in the upper chamber: Sen. Bill Cassidy, chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, is on the ballot this Saturday, facing off against President Trump-endorsed Rep. Julia Letlow and others in Louisiana’s Senate primary. If Cassidy loses, his replacement as the HELP Committee’s top Republican is an open question. Bloomberg reported this week on one possibility: “Though Republican Sens. Rand Paul (Ky.), Susan Collins (Maine), and Lisa Murkowski (Alaska) outrank him, they hold other premium committee chairs, so Sen. Roger Marshall (Kan.), who is close to the president and founded the Senate’s MAHA caucus, could be next in line.” Notably, Marshall is a Senate cosponsor of the Faster Labor Contracts Act…

In Family Policy news: Rep. David Valadao (R-CA) introduced the Supporting Newborn Parents Act, a new tax credit, separate from the child tax credit, that provides up to $2,000 for families welcoming a newborn child and functions as a de facto baby bonus. Read Patrick Brown’s advocacy of a baby bonus at American Compass back in 2024, and read Leah Sargeant over at the Niskanen Center with analysis of the proposed legislation.

THE GOOD, THE BAD, AND THE DYSTOPIAN

Good: U.S. Drug Overdose Deaths Fall for Third Straight Year (Wall Street Journal). “The number of people who died from drug overdoses dropped again in 2025, a promising trend as the U.S. emerges from a national fentanyl crisis that accelerated these fatalities….Drug-overdose deaths have now declined for three consecutive years, falling to levels closer to those not seen since before the Covid-19 pandemic, which intensified the drug-overdose crisis.”

Bad: ‘A’ Grades Are Suddenly Everywhere Since the Arrival of ChatGPT (Wall Street Journal): “The share of A’s in college classes heavy on writing and coding—in other words, work more prone to artificial intelligence use—has grown more significantly than in other classes since ChatGPT’s debut, according to a paper from the University of California, Berkeley, released Wednesday. Professors teaching AI-exposed classes gave out about 30% more A’s and fewer A-minus and B-plus grades.” Not what we hand in mind by technology improving student outcomes…

No, the real effect of technology on students can be found in this New York Times report, Why U.S. Test Scores Are in a ‘Generation-Long Decline’: “Almost everywhere in America, students are performing worse than their peers were 10 years ago…Compared with a decade earlier, reading scores were down last year in 83 percent of school districts where data was available. Math scores were down in 70 percent.”

Ugly: In Kalshi’s quest to monetize “any difference in opinion,” retail bettors on the prediction market platform reportedly lost more than $100 million on parlays in the first four months of this year. Defenders of prediction markets argue that the market price reveals truth more honestly than polls or punditry, because every trader has put money behind their view. Whatever the merits of that argument for binary contracts on elections or Federal Reserve rate-cut decisions, it is hard to see what truth is being discovered in a six-leg parlay with a 0.3% payout probability. A platform for prediction market parlays is a casino with a Hayek quote on the wall—not a source of information discovery. And as in any casino, the house always wins.

FINALLY, SOME GOOD READS FOR YOUR WEEKEND

• The Nobel-Winning Psychologist Who Believed He Found the Secret to Happiness (New York Times): “Maximizers tend to be less satisfied with their decisions and their lives. They are typically less happy, more prone to regret and more likely to compare themselves endlessly with others. Satisficers don’t necessarily have low standards. Their standard is “good enough for me” rather than “the best out there,” and that makes it possible to feel satisfied with their choices, instead of haunted by the ones they didn’t make. This is critical today because chronic maximizing has never been easier…consumer options available to citizens of modern economies exceed those of preindustrial societies roughly by a factor of 100 million. That is an almost incomprehensible multiplication of choice, and it extends well beyond consumer goods into questions of who to be, how to live, where to work and whom to love.”

• The Feed Is Fake (Vulture): That “viral” song, movie, meme, influencer, and celebrity drama was probably the product of a stealth marketing campaign.

Enjoy the weekend!

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But how to get from here to there? Daniel takes a look this week at key steps the administration is taking that don’t necessarily make the headlines, but do position the United States well to win the long-term competition:

President Trump arrives in Beijing next week for a much-anticipated two-day summit with Chinese President Xi Jinping. The commentary in the lead-up and aftermath of the meetings will focus on whether the détente they struck in Busan, South Korea, last October will hold, and whether they will reach an agreement on trade, investment, and other issues of importance, or lay the groundwork for one.

The summit comes at the end of a rollercoaster year for the bilateral relationship. The Trump administration’s tariff regime drove China’s share of U.S. imports down to 7.5%, erasing more than two decades of growth since China entered the WTO. At the same time, Beijing demonstrated the leverage it has amassed in the intervening decades. Trade disputes led to a series of escalation spirals, with each round of U.S. actions prompting Chinese reactions and additional U.S. actions in turn. The hostilities peaked in October, when Beijing tightened export controls on rare earths and permanent magnets, inputs that China dominates in mining and, more decisively, in processing, and that are foundational to the U.S. industrial base. The Busan summit and the ceasefire that followed began a cooling-off period that has largely held since.

To critics, the ceasefire has confirmed a charge that has dogged the administration ever since: that President Trump, for all his first-term trade hawkishness, has gone soft on China. But that charge mistakes restraint for capitulation. Tariffs and industrial policy cannot quickly reverse decades of failed policy that left the United States badly exposed. Climbing back out of the hole will take years. Even for those like us at American Compass who want to decouple sharply from China, a ceasefire that buys time for that work and minimizes the cost of transition is defensible, as long as that work is in fact proceeding as quickly as practicable.

In many areas, beneath the headline drama, it is. We have been documenting the administration’s critical minerals strategy here at Understanding America as it has unfolded, work designed to release China’s chokehold. And in “A Great Wall Around China,” I wrote about the China-containment architecture the administration has embedded in its reciprocal trade agreements to counter Beijing’s industrial overcapacity.

A third front, less remarked upon, runs through the Federal Communications Commission (FCC). The agency’s authority over electronic devices, telecommunications carriers, and corporate ownership disclosure has given it unusual leverage over China-related risks, and, over the past year, it has used that leverage.

In December, the FCC barred all foreign-made drones (overwhelmingly made in China) from receiving the equipment authorization required to enter the U.S. market, and in March, it did the same for foreign-made routers. Companies can apply for conditional approval by submitting a credible plan to anchor production in the United States. Drones and routers are sectors in which U.S. supply chains have grown deeply dependent on Chinese hardware, and in which a sudden cutoff would have functioned the way the rare-earth squeeze did last fall. Without the FCC’s action, drones and routers could have been the next rare earths. Instead, Skydio, the leading U.S. drone maker, has just announced a $3.5 billion investment to accelerate R&D and expand manufacturing.

The agency is also rebuilding the system that authorizes the sale of electronic devices in the United States in the first place. During peak globalization, the FCC had begun recognizing labs from anywhere. The predictable result was that Chinese labs, many owned or controlled by the Chinese government, came to handle around 75% of the testing for U.S. electronics, from drones to phones to baby monitors. Rules adopted last year and a proposal advanced in April will bar labs owned or controlled by foreign-adversary governments from testing and certifying U.S.-bound electronics, and labs in countries that do not extend reciprocal treatment to American testing will lose recognition. China, predictably, has not—and will not—sign a reciprocity agreement, as it prohibits any foreign-based testing. An evenhanded reciprocity does the explicit work; deconcentration from China does the rest.

The agency has also moved to bar Chinese state-owned carriers from the domestic U.S. telecom market, voting in April to issue a notice of proposed rulemaking that would prohibit them from operating data centers and points of presence in the United States and bar U.S. carriers from interconnecting with them. And in January, the agency finalized a disclosure rule requiring nearly every license and authorization holder in the U.S. tech, media, and telecom sectors to certify whether they are owned, controlled, or directed by a foreign adversary, with Chinese ownership of as little as 10% triggering disclosure. The rule builds a public map of where China’s leverage in the American technology stack actually sits.

Taken together, the FCC’s actions form a coherent program. The agency can, and likely will, use the drones-and-routers tool against any sector in which Chinese supply concentration creates the kind of leverage Beijing exercised last fall. The lab rules harden the gate through which devices enter the market in the first place. The telecom action targets legacy footholds. The disclosure rule provides transparency to identify the next pressure points.

Across critical minerals, trade agreements, and the work at the FCC, China containment is advancing on multiple fronts at once. The work is real, and the work can hold. But as Oren warns in the Times, a grand bargain would undermine all of it. — Daniel

DATA BUMP

The April jobs report released this morning delivered a surprisingly strong number, with payroll employment up 115,000 atop the 185,000 increase last month. Those are relatively healthy numbers in any environment—for instance, choosing ranges that exclude the COVID disruptions, the first three years of the Trump administration averaged 178,000 new jobs per month and the last two years of the Biden administration averaged 146,000 jobs per month.

But as Understanding America readers know better than anyone, we must calibrate job figures during the second Trump administration to the unprecedented reductions in prospective workers caused by rigorous immigration enforcement. AEI’s Stan Veuger and Brookings colleagues Wendy Edelberg and Tara Watson estimate, “in the second half of 2025, breakeven employment growth of 20,000 to 50,000 jobs each month was consistent with immigration flows. That number could dip into negative territory over 2026.” Adding 300,000 jobs in a couple of months against that backdrop is remarkable.

Kudos to Ben Casselman at the New York Times, though, for coming up with this downbeat assessment of an unemployment rate holding steady at 4.3%: “looking out a couple more decimal points, the unemployment rate edged up from 4.26 percent in March to 4.34 percent in April.”

Meanwhile, in the manufacturing sector: “Manufacturing sector labor productivity increased 3.6 percent in the first quarter of 2026, as output increased 3.3 percent and hours worked decreased 0.4 percent. In the durable manufacturing sector, productivity increased 5.3 percent, reflecting a 5.4-percent increase in output and a 0.1-percent increase in hours worked. … Unit labor costs in the total manufacturing sector increased 2.4 percent in the first quarter of 2026, reflecting a 6.1-percent increase in hourly compensation and a 3.6-percent increase in productivity.”

GOOD READS FOR YOUR WEEKEND

In the New York Times, Ross Douthat writes about Slouching Toward Kamala Harris. “The Democrats’ fundamental condition is a late-Trumpian stasis—in which the president’s stark unpopularity encourages his opponents to imagine that they can keep everything basically as it was in the Biden era, with the same broad priorities and deference to activists and interest groups, and float back to power automatically.”

The Wall Street Journal tells the story of The Secret Team Blowing Up Ford’s Assembly Line to Make a $30,000 Electric Truck. “Then they attacked Ford procedures and mandates the team deemed obsolete or even nonsensical. Field described one such rule. All Ford vehicles must be built with a slight lip above the opening to prevent rain from spilling in the window when a driver or passenger cracks it to smoke a cigarette. Nicknamed “smokers window,” it added aerodynamic drag, costing battery range. The new truck won’t have it.”

This is a long one, but if you’re interested in the Department of Justice indictment against the Southern Poverty Law Center, Bits About Money has the details on what the non-profit was doing and its, um, rather poor fit with our nation’s laws is fascinating: Notes on a Non-Profit Indicted for Bank Fraud.

Politico has a great profile of U.S. Trade Representative Jamieson Greer, “The Man Trying to Make Trump’s Tariffs Go on Forever.” It’s a story of the past year’s trade policy too. “He’s secured nine agreements on reciprocal trade so far, deals that trade lawyers say are thorough and gain significant concessions for the U.S.” And it has a great ending:

Of course, one person who loves tariffs is the president. “Almost every day I’m in the Oval Office,” Greer told a crowd at the Whirlpool factory in Clyde, Ohio. “And almost every day, President Trump says, ‘Do you think the tariffs should be higher, Jamieson?’”

“We’re working on it, sir,” he replies.

DEFICITS EVERYWHERE

Trade deficits, budget deficits, logic deficits, oh my… Michael McNair has an excellent essay, “A Surplus of Confusion About America’s Deficits,” that comprehensively rebuts Maurice Obstfeld’s recent argument, “Don’t Blame America’s Current Account Deficit on the Dollar.” Michael Pettis comments on the exchange:

Investors, business managers, workers, policymakers and even the IMF (albeit kicking and struggling) increasingly understand the adverse impacts of large, persistent trade imbalances driven by wage-and demand-suppressing policies, even if it will still be many years before mainstream economists do. The latter seem ideologically averse to any explanation of global imbalances that don’t conclude with calls for more fiscal and wage discipline in the US.

That said, fiscal discipline remains an enormous problem here in the United States, where the national debt now officially exceeds gross domestic product. Of course, that’s an entirely arbitrary marker, but it’s notable that this was the case during only two other years in American history, 1945 and 1946, which you may recall followed after some rather extraordinary one-time expenses.

Will AI help us dig out? Of course, if we suddenly see 10% annual GDP growth, debt and deficits will quickly become a thing of the past. In more likely scenarios, it will contribute some to growth, but not fundamentally change the fiscal picture. Unless, that is, AI itself becomes a significant source of government revenue.

Back in 2017, Bill Gates famously proposed a “robot tax.” Today, the talk is instead of a “compute tax.” See the Wall Street Journal: “What Is a ‘Compute Tax’ and Why Is the Idea Gaining Traction?” These taxes are generally framed and pitched as a way to slow automation or account for the negative externalities associated with rapid job displacement. In other cases, the goal is redistributive: if the AI companies are going to capture all the economic value, let’s collect some of that and mail it out to everyone as a “universal basic dividend.”

But framing automation as a bad thing outright, or telling people its benefit accrues to others and they just get a handout, is neither the right way to think about technological progress nor the right way to sell it. Rather, we should think of AI as a productive force that can help to serve the common good. If a data center cranking through gigawatts of electricity on hundreds of thousands of GPU processors can participate productively in the economy, we can choose to allocate some share of that value toward public goods: better roads, higher pay for teachers, solvent social insurance programs, even as we close our deficits, then reduce our debt, then begin lowering the tax burden on workers… if that were AI’s promise, one imagines the public might be more enthusiastic.

In the Journal, economists offer the usual complaints. “If you ask economists, most of them think this is unnecessary or too blunt,” says one. But any tax, evaluated in isolation, looks bad. If the income tax, or the corporate tax, or the payroll tax, or the sales tax didn’t exist and you proposed it, economists would presumably say the same thing. (Absurdly, organizations like the Tax Foundation actually evaluate taxes without considering how the revenue would be used or what the effect on debts and deficit would be, so all taxes automatically score as unwise and simply eliminating all taxes is predicted to deliver the strongest economy.) The reality is that we need tax revenue, indeed more tax revenue than we collect now. AI’s role as a tax base thus deserves serious consideration.

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DO YOU WANT THE GOOD INDUSTRY NEWS FIRST, OR THE BAD NEWS?

The bad news? OK. “Storied Toolmaker Closes Its Last Hometown Plant—and Blames Its Tape Measures” (Wall Street Journal). While economists will continue to insist that globalization is an inevitable and productive consequence of “comparative advantage” and the relentless pursuit of efficiency gains and economic growth, looking under the hood often reveals the simple laziness of corporate executives doing things like shutting down American production because they installed a machine that prints one-sided tape measures in Connecticut and one that prints double-sided tape measures in Thailand, and people like the double-sided ones better.

But here’s some good news: “Apple Explores Using Intel and Samsung to Build Main Device Chips in the US” (Bloomberg). The economics is important here, but so is the symbolism. Apple’s move away from Intel as the latter fell behind on mobile chips in the 2000s is the inflation point in the latter’s decline. Apple considering a return is a turnaround few would have envisioned until very recently.

Speaking of which, let’s check in on Intel’s stock price since the United States purchased 433 million shares at $20.47 per share in August.

Trading above $125 as of midday Friday, the U.S. government is up about $45 billion. For reference, the entire cost of CHIPS Act support to the semiconductor industry is about $53 billion.

Now look, does this prove that equity investments like these are a good idea? Obviously not. It’s fun, though, to think about what the folks opposed to industrial policy would be saying if Intel were declaring bankruptcy today. One suspects they would consider the case study highly valuable in assessing whether such policy can work.

BACK TO THE LABOR MARKET

If you can’t get a job at Intel, “These Are the Hiring Hot Spots Where College Grads Are Landing Good Jobs” (Wall Street Journal). Birmingham, Alabama is number one. Tampa, Florida is number two. The diffusion of economic opportunity across the United State is one of the most important economic trends to watch, and one where signs continue to be positive.

Also in the Journal, an especially clear articulation of a point we make frequently at American Compass about automation. As Oren put it in Two Cheers for Automation: “A factory that automated half the steps in the production of 10,000 widgets sounds like one poised to eliminate half its jobs. But a factory that trained its workers to produce widgets twice as fast sounds like one poised to double its output to 20,000 widgets daily.” In the Journal’s reporting:

Spotify Technology co-CEO Gustav Söderström puts the choice companies face like this: They can translate productivity improvements right away into cost savings by trimming staff. Or, “the other thing you could do is to say we’re going to be roughly the same amount of people—we’re just going to do more.”

Spotify is doing the latter: “We’re keeping our head count roughly flat and just doing much more shipping, more value to consumers,” he said.

Business leaders risk missing out if their use of AI is overly focused on efficiencies, said Nickle LaMoreaux, chief human resources officer at International Business Machines.

“In your leadership discussions, are you having this idea of moving from AI to productivity to AI to growth?” she said in a recent interview. Though it is hard to predict how many people IBM will employ three years from now, “if I had a crystal ball,” LaMoreaux said, it would be “more.”

That said, the headline here is odd: “AI Is Forcing CEOs to Make a Stark Choice: Lay Off Workers or Make Them Do More.” Rising productivity does not mean “making workers do more.” It means with the same effort they can produce greater output. The actual choice is between “lay off workers or grow their companies.” That is indeed a stark choice, but it shouldn’t be an especially hard one.

In the Financial Times, Gillian Tett writes, “Humans Still Matter More Than AI in Finance.” Expect to see versions of this story a lot over the next year:

A few months ago a New York financier told me he had just experienced a “first”: his 2025 summer interns “were the first true AI natives I have seen”. This meant they had grown up not only among digital tech, but AI too.

So how did it go? He winced. While those wannabe masters of the universe initially seemed wildly impressive, when senior financiers later probed their ideas they found them alarmingly shallow.

Consequently this person’s company made fewer return offers and is now focusing less on graduates in science, technology, engineering and mathematics — and more humanities students instead.

KIDS THESE DAYS

Speaking of the humanities, this is good news: Florida Creates a More Conservative U.S. History Course to Rival A.P.,” (New York Times). Get this: it “recommends a textbook written explicitly to build patriotism.”

Congratulations to Clare Morell on winning a Christian Book Award for The Tech Exit! In “The Christian Book I Didn’t Know I Was Writing,” she reflects on how she “had worked deliberately not to write a ‘Christian book’” although it “did arise from my Christian understanding of the world, of what children are, what true freedom is, what human dignity requires, and the purpose for which human beings are ultimately made.”

And finally, read Clare’s new blockbuster report from the Ethics and Public Policy Center: The Impacts of Digital Technology on Human Relationships: How Smartphones, Social Media, Pornography, and AI Chatbots Threaten Sex, Marriage, and Fertility.

Enjoy the weekend!

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American Compass’s “Cost of Thriving Index” emphasizes that even as particular products and services get cheaper, making ends meet can become harder if you need new or different products and services to participate fully in American life. A wireless plan has been a quintessential example. Yes, the inflation data shows a declining cost every year for having that amazing computer in your pocket. It keeps getting more advanced. It can transfer more data than ever. But that’s a chunk out of the family budget that simply didn’t exist in a prior generation. You can be “better off” in one sense, and find life unaffordable in another, simultaneously.

But… once something does become established in a baseline budget, it’s great to see the price come down. A report from the wireless industry (yes, it’s an industry report, but the data seem reasonable) highlights the real decline in the cost of a phone plan (even as data usage rises) and, most importantly, its declining share of household budgets.

As AI tools become integrated into everyday life—and their cost in at least the short- to medium-term may rise substantially—it’s worth thinking about the effect that will have on household economics. From the perspective of inflation, there will be no price increase relative to a pre-AI baseline. Your wages go further than ever! But if paying large sums for AI access becomes important to participating in everyday life, or succeeding in the competitive races that our schools and workplaces inevitably become, the result will be economists insisting that life has never been better while families feel more squeezed than before.

And because this apparently needs clarifying, “rising cost of flying to France for a wedding” is not what “squeezed” means. Much has rightly been made of the bizarre New York Times story, “These Couples Wanted to Have Children. Rising Costs Are Stopping Them.” One couple, living in a 2,000-square-foot house that probably cost about $500K “realized that even with one child, they would most likely need more space…”

For a second couple, “the decision not to have children came down to the life they’ve built and what it would take to change it. Married in 2023, they have shaped their relationship around exploring new places together, such as Japan, Bali and Morocco.” You see, “A flight to France for a wedding in September cost them $1,600 round trip. … With a child, they added, going to that wedding would have been more difficult and meant fewer trips this year.”

The third couple, two women, were confronted by the high cost of in vitro fertilization. Let’s put that one aside for a moment.

In none of these cases are “rising costs” the obstacle. The home our first couple seems to own has four bedrooms and three baths, which kind of, by definition, is enough space for one child, or two, or three. Likewise, “we’d rather go to Bali” is a lifestyle choice, not a constraint on achieving economic security in the American middle class. It’s good to tell these stories because everyone should be aware that attitudes like these exist, and perhaps even are prevalent. It’s bad that these couples are hiding behind the very real challenges faced by so many American families, as a way to justify their obvious preference for not having kids. (But galaxy brain, maybe it’s good that these couples feel the need to hide their preference because that means our culture still imposes some negative judgment on such prioritization, and what’s bad is that the Times wants to help them get away with it.)

Definitely bad, while we’re here: The GOP hiding behind the affordability crisis to justify its preference for… a capital gains tax cut: “Republicans Eye Capital Gains Tax Cut to Ease Voters’ Anxieties” (Bloomberg). I am speechless. — Oren

LET’S START WITH SOME GOOD NEWS FOR ONCE

As Commonplace’s Drew Holden reminded us in a recent essay, “Cities Really Can Just Enforce the Law.” The latest example: San Francisco’s BART. Since spending $90 million to install non-jumpable fare gates, crime has plummeted and the need for intensive maintenance to address rider-caused damage is down about 99%. As Aakash Gupta notes, the real return on investment isn’t from getting people to pay their fares. “The $10 million in recovered fares is the smallest line in the return. Fare revenue used to cover 70% of BART operations. After the pandemic it collapsed to 22%. The gates won’t fix that gap directly. They fix the precondition for fixing it: a system that office workers, families, and tourists are willing to use again. Ridership growth at stations with new gates outpaced ungated ones before the rollout finished.”

There is so much low-hanging fruit available to policymakers in simply enforcing the law and fixing the preconditions for fixing our communal problems. And voters will reward them for it.

For even more optimism, read Ivana Greco on, well, The Case for American Optimism. “I was recently talking about a friend about reasons to be optimistic about America, and Lisa came to mind. The fact that she’s been driving around with a carseat for decades is an incredible testament to the amount of love and care she’s poured into other people’s lives.”

GOOD NEWS IN AN UNLIKELY PLACE: FINANCIALIZATION

Maybe one reason we’re in a good mood this week is the remarkably wide range of positive stories coming from the overfinancialized economy this week in the Wall Street Journal. We’ve got:

• U.S. Senators Vote to Ban Themselves From Trading on Prediction Markets. “A representative for Sen. Bernie Moreno (R., Ohio), who introduced the resolution, said the rules apply to senators, officers and staff.”

• Saudi Arabia Pulls Funding From LIV Golf. Its Star Players Face a Painful Road Back. LIV “paid exorbitant fees to put on tournaments with lucrative purses featuring elite players such as Bryson DeChambeau and Jon Rahm. … And one thing has already become clear: The mainstream golf world isn’t ready to simply welcome them back.”

• Bill Ackman’s Stock-Picking Fund Drops 18% in Trading Debut. “Billionaire investor sought to harness his social-media following to attract everyday investors.”

Meanwhile, in the House of Representatives, Chairman Jason Smith had some tough talk for hospital CEOs in his opening statement at a Ways & Means Committee hearing: “Simply put, hospitals are charging an insane amount for care. Hospital prices have skyrocketed 300 percent in just over two decades—more than any other sector of our economy. Hospital consolidation and mergers, that lead to ever-growing market power, are fueling the borderline extortionary prices hospitals charge patients.”

And finally, the Roosevelt Institute published a nice paper on financialization, complementing many of the arguments Oren advanced recently in his New York Times essay: What Is “Financialization” and What Is It Doing to Our Country?

GOOD READS FOR YOUR WEEKEND

Self-recommending from Brian Potter at Construction Physics: How an Oil Refinery Works

Scott Bessent is the Wall Street Journal weekend interview: Donald Trump’s Economic Engineer

A wonderful essay from Brad Littlejohn at Commonplace: The Economics of Vice

In the New York Times, Craig Fuller writes: Truckers Kill More Than 5,000 People a Year. Regulators Are at Fault:

In the Financial Times: What is a city without children?

And for your listening pleasure, Congressman Riley Moore joins Teamsters President Sean O’Brien on his Better Bad Ideas podcast: Can a Republican Be Pro-Union?

And with that, on to the bad news.

WHERE BETTER TO START THAN TECHNOLOGY?

The Wall Street Journal has the best look yet at the unintended consequences of Chromebooks in schools, “How YouTube Took Over the American Classroom.” A few of the anecdotes:

“When [his mother] signed into his school Google account, she was aghast: Her son Ben had accessed more than 13,000 YouTube videos during school hours from December 2024 through February 2025, according to viewing data she provided the Journal.”

“YouTube during snack time, dismissal and indoor recess. YouTube to teach drawing to first-graders. YouTube to read a book to class.”

“A second-grader in New York watched more than 700 videos in two months during school hours, including one featuring pole dancing. A tenth-grader in Oregon scrolled through more than 200 between 9 and 11:40 a.m. on March 6.”

“In Ben Warren’s science class, nearly all educational content has been on the iPad: instead of live science experiments, the teacher showed a YouTube video. ‘Everything is a simulated experience,’ the now-eighth grader says. ‘I would rather use paper and pencil. It’s easier to focus.’”

“YouTube sought to close the 80 million-hours-per-day viewing gap between school days and weekends, according to a 2016 document entitled ‘YouTube edu opportunities’: ‘Increasing usage in schools M-F could decrease this gap!’”

Just read the whole thing. And then call your superintendent. Because…

New York Times: “In Backlash Against Tech in Schools, Parents Are Winning Rollbacks.” See, look at that, even in our bad news section we’ve got good news this week!

Of course, another area where we’re now seeing robust pushback is data-center construction. The idea that we’d slow development and deployment of this revolutionary technology is driving the accelerationists and efficiency hounds mad. But read Tonya Nickol, writing in Commonplace about why “Data Center Proposals Rock Trump Country.” Nickol and her neighbors live in a rural area going through one of these fights… look at things from their point of view and see which, if any, pro-data-center arguments you’d still find convincing.

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JENSEN HUANG HAPPY HOUR

A rough week for our leather-jacketed friend, so sidle up to the bar.

SHOT: Jensen on the BG2 podcast last fall: “They also publicly say, and rightfully I believe they believe this, that they want China to be an open market. They want to attract foreign investment. They want companies to come to China and compete in the marketplace and believe that. I hope, I believe, and I hope that would return to that in our context. Answering your question, what do I see in the future? I do hope because they say it—their leaders say it. And I take it at face value. And I believe it because I think it makes sense for China that what’s in the best interest of China is for foreign companies to invest in China, compete in China, and for them to also have vibrant competition themselves.”

CHASER: “China Bans Meta’s Acquisition of Manus on National Security Grounds” (Wall Street Journal). As Friend of the ‘Stack Chris McGuire explains:

Ultimately, this is a much larger defeat for the Chinese AI ecosystem than for the United States. Meta will be fine without Manus. But Chinese nationals looking to found AI companies will increasingly just start them overseas. The message from the Chinese government here is that every AI company founded in China will forever remain subject to Chinese government regulatory pressure and manipulation, regardless of its legal status or location.

Lastly, given the Chinese government clearly believes that the US and Chinese AI ecosystems should be completely separate, we should stop helping their ecosystem succeed!

SHOT: Also last fall, Jensen told Bloomberg, “Of course, over the years people have speculated about diversion. We chase down every single concern and we’ve repeatedly tested and sampled data centers around the world and found no diversion.”

As Senators Jim Banks and Elizabeth Warren noted in a March letter to Commerce Secretary Howard Lutnick, Jensen has also said previously that “there’s no evidence of any AI chip diversion” and “the important thing is that the countries and the companies that we sell to recognize that diversion is not allowed and everybody would like to continue to buy Nvidia technology. And so they monitor themselves very carefully.” In his proud tradition of condescending non-sequiturs, he has also argued that smuggling Nvidia chips is impossible, because “these are massive systems. The Grace Blackwell system is nearly two tons, and so you’re not going to be putting that in your pocket or your backpack anytime soon.”

CHASER: Epoch AI has a new paper: “How much AI compute has been smuggled to China? We estimate between 290k and 1.6M H100-equivalents by the end of 2025 — representing ~20% to ~60% of China’s total compute.”

The line between vigorously pursuing profit for your company and lying on behalf of the Chinese Communist Party is not a thin one. We should reasonably expect American executives to remain on the right side of it.

SPEAKING OF CHINA, LET’S TALK ABOUT CHINA

With the planned Beijing summit between Presidents Trump and Xi less than two weeks away, it was very encouraging to see “Senators Introduce Bipartisan Bill to Ban Chinese Vehicles and Auto Parts” (NBC). The press release from Senators Bernie Moreno and Elissa Slotkin announcing the bill is notable for the supporters quoted: a Democrat, a Republican, the United Auto Workers, General Motors, and American Compass.

In the House, meanwhile, “Lawmakers Urge Trump to Prohibit China’s Automakers From Building Cars in the U.S.” (Wall Street Journal). This letter was signed by more than 70 Democrats. Speak up, House Republicans!

And good for the FCC: “US Telecom Agency Votes to Expand Tech Crackdown on China” (Reuters). Did you know that electronics made in China could be tested in Chinese labs to win U.S. approval? In fact, the majority of all U.S. electronics are tested in China? No longer!

And the global realignment proceeds apace... on critical minerals, where “Trump Admin Touts 27 Mineral Deals in Bid to Counter China” (Politico). A particularly good case study of the ongoing efforts comes from Malaysia, where the Wall Street Journal reports:

The Pentagon’s push to get its hands on the rarest of the rare-earth elements leads all the way to this small port city in Malaysia. Here, Lynas Rare Earths, an Australian company, has begun pumping out heavy rare earths, the elusive kind that China dominates. “No one had made a separated heavy rare earth outside of China in 20 years,” said Amanda Lacaze, Lynas’s chief executive. The company’s chief operating officer, Pol Le Roux, said it had actually been 30 years. When China cut off exports of heavy rare-earth elements during trade tensions last year, automobile factories in the U.S. and Europe were forced to stop production. Now, Lynas is at the vanguard of an effort by the U.S. and allies to prevent Beijing from using its monopoly power to squeeze the rest of the world. The Pentagon is opening its wallet in unusual ways to ensure supplies. In March 2026, Lynas announced a preliminary $96 million deal in which the Pentagon would purchase Lynas’s rare earths.”

Back on this side of the globe, “The US Geological Survey (USGS) has identified an estimated 2.3 million metric tons of undiscovered, economically recoverable lithium in the Appalachian region. This volume is equivalent to 328 years of US lithium imports based on 2025 levels.”

…and in Europe, China is unhappy with the EU’s rising barriers, according to the Financial Times: “China has warned the EU that it will take ‘countermeasures’ if its companies are hurt by a proposed new European law aimed at bolstering the bloc’s industry against cheaper imports. The law is one of the EU’s most serious attempts yet to push back against Chinese high-tech imports and their perceived threat to important local industries, such as automotives.”

Enjoy the weekend!

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A recent Los Angeles Times report begins with an account of an unauthorized worker from Mexico in his mid-50s. After more than two decades working on dairy farms in the United States, he details the conditions under which he has toiled: frequently laboring for 10 hours without breaks; cleaning milk tanks with harsh chemicals and no protective gear; and being electrically shocked when he stepped into a puddle created by a broken water pump. At his latest job, a dairy farm in Kings County, his boss issued a warning during the height of last summer’s immigration raids in California: if anyone tried to take legal action against him for workplace violations, he’d make sure they ended up in Tijuana. That threat, the worker said, was the final straw. He called it quits and packed his bags, telling the Times, “what if they sent someone after me, or they wanted to get rid of me all of a sudden? I couldn’t bear living there anymore.”

The report frames this as the cruel consequence of immigration enforcement. The Trump administration’s deportation campaign, it argues, has “upped the frequency” of such threats and “the fear they create.” But that framing gets the causality backward. The dairy farmer’s leverage over his workers grew out of years of non-enforcement that allowed him to build a business model on unauthorized labor and to wield the possibility of enforcement as a weapon.

As I explained last year in (Labor) Law and Order, failure to enforce our immigration law undermines enforcement of our labor and employment laws. A porous border, combined with a low risk of consequences for hiring the illegal immigrants who arrive, distorts the U.S. labor market by creating a large pool of employment relationships where employment and labor law cannot readily apply. Workers who fear deportation are less likely to report wage theft, safety violations, or retaliation. That fear, in turn, gives unscrupulous employers a ready-made instrument of discipline: the threat of calling ICE.

These distortions reward companies whose business models are built on unlawful employment, low pay, and substandard working conditions, and undermine the bargaining power of American workers. They also penalize law-abiding employers, who must compete in the marketplace against firms whose labor costs are suppressed by fear. And this will be the case regardless of whether ICE is out patrolling the streets or sitting politely in an office waiting for the phone to ring. It is an inevitable consequence of failing to enforce immigration law in the first place, as Oren discussed on the American Compass podcast last year with Seema Nanda, the Biden administration’s Solicitor of Labor.

The Times report illustrates how this mechanism operates in practice: Roughly 60% of California’s farmworkers are unauthorized. These are the workers most vulnerable to the coercion described above. But consider what this means for the other 40%—the workers who are authorized to work in the United States. In a mixed-status workplace, the leverage an employer holds over his unauthorized workers puts downward pressure on conditions for everyone. When an employer can gesture at an ICE vehicle and say he could easily call it over—as farmworkers in the report described as having occurred—every worker in that field, regardless of their immigration status, receives the message, whether or not the threat is directed at them personally. Any legal worker who threatens to create a headache knows he can be replaced by a more compliant illegal one. The predictable result is concealment and underreporting of labor violations. The California Labor Commissioner acknowledged as much to the Times, noting that the roughly 30,000 complaints her office receives each year do not capture the full picture in a state with more than 18 million workers. Of course they do not. In a labor market where so many workers fear deportation, low complaint volumes reveal very little about the actual frequency of violations.

The United States has created a two-tiered labor market in agriculture, one in which hundreds of thousands of workers harvest the nation’s food while facing serious practical barriers to vindicating rights that the nation’s labor and employment law codifies as the baseline for any worker. This is a political and moral failure, repeatedly defended as an unfortunate necessity to keep grocery prices low and fill “jobs Americans won’t do.” But the fact that the Times’s lead anecdote centers on a dairy farm is especially revealing, because the dairy industry already offers a concrete example of how stronger enforcement can change firm-level incentives.

The Kings County dairy farmer should face enforcement action for employing unauthorized workers and for using the threat of deportation to suppress his employees’ labor and employment rights. But enforcement doesn’t just punish bad actors; it reshapes everyone’s incentives. Earlier this year, in Self-Milking Cow Machines, I wrote about another dairy farmer in upstate New York who, after immigration authorities arrested one of his workers, installed milking robots to mitigate disruptions in his dairy operations. His farm now produces 2.5 million pounds of milk per worker per year, up from 800,000 before mechanization. His remaining employees earn more, work shorter hours, and perform less grueling labor. Faced with enforcement pressure, that farm reorganized around labor-saving technology. The contrast with Kings County is instructive. In one case, lawlessness sustains a low-road labor model; in the other, enforcement pressure pushes investment in technology that makes workers more productive, better paid, and less expendable.

Vigorous front-end enforcement of our immigration law—especially workplace enforcement directed at law-breaking employers—is the most effective way to break the leverage that makes the coercion described by the Times possible. The Kings County dairy farmer and the upstate New York dairy farmer are not two different stories. They are the same story at two different points in time, separated by the presence or absence of immigration enforcement. One shows how a labor market functions when the law is not enforced. The other shows how American workers benefit when it is. — Daniel

ROTTEN APPLE

Tim Cook announced he will step down as Apple’s CEO, a position he has held since 2011, when he succeeded the late Steve Jobs. The business press published countless retrospectives of his tenure, many of which concluded, as the New York Times put it, that Cook was “very, very good at making money.” Under his leadership, Apple’s market capitalization grew from roughly $350 billion to $4 trillion, annual revenue quadrupled, and profits did too.

But over in the newspaper’s opinion pages, Patrick McGee—friend of the podcast and author of the excellent Apple in China—contemplates the other aspect of his legacy. McGee argues that Cook’s financial record is extraordinary but that his legacy “grows more complicated” when measured against American interests, because that success was built by consolidating virtually all of Apple’s manufacturing in China. Since 2008, McGee writes, “Apple has worked with suppliers to train 30 million workers, principally in China. It has invested hundreds of billions of dollars in the mainland and facilitated an epic transfer of practical knowledge in how to make things to hundreds of Chinese factories.” His conclusion: no single company has done more to strengthen China’s industrial base and advance President Xi Jinping’s economic ambitions.

Cook’s instrumental contribution to the buildout of China’s tech ecosystem earns him election to the Corporate America Hall of Shame, alongside the likes of General Electric’s Jack Welch, who pioneered the offshoring and financialization strategies that hollowed out American manufacturing. But as Brad Setser of the Council on Foreign Relations notes, his global legacy isn’t limited to China. Apple pioneered a corporate tax system that other firms have emulated, “explain[ing] why Ireland is flush with corporate tax revenues—and the U.S. is not.”

MORE ON CHINA AND TRADE

Earlier this month, we highlighted U.S. Trade Representative Jamieson Greer’s recent comments that seemed to pour cold water on the prospect of Chinese foreign direct investment as part of any forthcoming U.S.-China trade deal—an eventuality that we strongly oppose. Said Ambassador Greer: “I don’t think we are at the point in our relationship with the Chinese where we want to talk about investment programs either way.” On Chinese autos specifically, he said existing regulations prohibiting connected vehicle technology and software made by so-called foreign entities of concern would likely keep Chinese automakers out of the U.S. market for the foreseeable future: “It would probably be difficult for certain countries to establish new production here, given those sets of rules.”

Now, another cabinet official in the Trump administration is dismissing the possibility: Lutnick Shuts Down Talk of Any Chinese Investment in US Autos. In a recent interview, Semafor’s Ben Smith said, “There are voices in China who want to see Chinese investment in the US and specifically [joint venture] BYD factories in the United States” and asked him if that was “on the table?” Secretary Howard Lutnick responded with a firm “No.” Good answer.

And so, less than a month before President Trump meets President Xi in China for their long-anticipated summit, Semafor reports that the “mood of top White House policymakers responsible for negotiating summit outcomes seems subdued” and that “the Chinese government is in no mood to compromise” with the upshot that there will be “more, rather than less, tension on the horizon.” The fundamental incompatibility between the American and Chinese economic systems means there is no deal worth having—only a divorce.

One potential source of “tension on the horizon”: the Wall Street Journal reports that Rules of Origin Set Up U.S.-China Clash in Asia: “Many countries are caught in a vise: Washington wants them to strip Chinese content from their supply chains, and Beijing is warning them not to.” The article captures well the implications of the China-containment architecture embedded in the Trump administration’s reciprocal trade agreements that Daniel recently wrote about in A Great Wall Around China.

The Financial Times reports that the White House Accuses China of ‘Industrial-Scale’ Theft of AI Technology, with Office of Science and Technology Policy Director Michael Kratsios warning that Chinese entities are using tens of thousands of proxy accounts to distill U.S. frontier AI models. Perhaps a good reason to restrict the sale of advanced semiconductors to China…

Meanwhile, Ambassador Greer continues to make his case to our trading partners for a coordinated response to break free from China’s chokehold on the critical minerals supply chain. “When trading partners express concerns about the economic cost of price floors or mechanisms, I just say: what you’re talking about, which is cost efficiency, this is why we are in the situation we’re in,” Greer told the FT. “There is a premium we pay, and I call it the national security premium, and we will all pay a national security premium to have a secure supply chain.” Godspeed.

And in other reindustrialization news:

• USA Rare Earth to Acquire Serra Verde in $2.8 Billion Deal (Wall Street Journal): “USA Rare Earth has agreed to acquire the owner of a rare-earth mine and processing plant in Brazil, a move that would strengthen its mine-to-magnets supply chain amid geopolitical tensions between the U.S. and China.” The mine is a “one-of-a-kind asset and the only producer outside Asia capable of supplying all four magnetic rare earths at scale.”

• US Steel to Restart Gary Tin Mill Production (Manufacturing Dive): “The company said it will spend up to $20 million to support 225 jobs, as well as pay for costs related to equipment inspections, maintenance and materials to resume operations” in order to “serve growing demand for domestic materials.”

• America’s First Commercial Nuclear-Power Projects in a Decade Just Broke Ground (Wall Street Journal): “The first commercial nuclear-power projects in a decade are now under construction in the U.S., a potential turning point for a segment of the power industry that has been stuck in neutral for years.”

And, “The S&P Global US Manufacturing PMI rose to 54.0 in April, up from 52.3 in March and its highest since May 2022. The expansion means factory business conditions have improved continually since last August. Production growth accelerated to the fastest since April 2022 as new orders showed the largest rise since May 2022.”

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BIPARTISAN LABOR REFORM

On Tuesday, Senator Josh Hawley (R-MO) introduced the Know Your Labor Rights Act, legislation that would require employers to post and maintain notices of workers’ rights under the National Labor Relations Act and to inform new employees of those rights upon hiring. Senator Maggie Hassan (D-NH) is the lead Senate cosponsor; Representatives Riley Moore (R-WV) and Marie Gluesenkamp-Perez (D-WA) introduced companion legislation in the House. The Teamsters have endorsed the bill.

It is the second piece of bipartisan, bicameral labor legislation with organized labor’s backing to be introduced in the 119th Congress. The first was the Faster Labor Contracts Act, which would require employers to reach a collective bargaining agreement with newly organized workers within a defined timeframe. That legislation is also sponsored by Senator Hawley, and is cosponsored by Senator Bernie Moreno (R-OH) and, as of this week, Senator Roger Marshall (R-KS), who, along with Senator Hawley, sits on the Senate Committee on Health, Education, Labor, and Pensions, which has jurisdiction over it. This week, Representative Donald Norcross (D-NJ), the legislation’s champion in the House, filed a discharge petition. This measure could, if it receives 218 signatures from his colleagues in the House, force the legislation onto the floor for a vote, even without the support of House Speaker Mike Johnson. The end-around approach has the support of the House Minority Leader Hakeem Jeffries, the AFL-CIO, and the Teamsters. Notably, 17 House Republicans have cosponsored the underlying legislation. Together, the two developments suggest that bipartisan coalition-building for labor law reform continues apace.

THIS WEEK IN DYSTOPIA

• Trump Administration Reclassifies Marijuana as Less Dangerous Drug (Wall Street Journal), providing an occasion to re-read Oren on Vice President Donald Trump.

• Bonus link: The Marijuana Backlash Is Here by Kevin Sabet in Compact

• AI-Generated Child Pornography Is Overwhelming Law Enforcement (Bloomberg): “Today, law enforcement must parse through abusive material ranging from conversations with AI chatbots like OpenAI’s ChatGPT—where offenders fantasize about sexual acts with kids, or seek advice about how to groom them—to photos and videos generated by AI tools…which can create graphic content from a simple text request. Often, investigators can’t easily tell whether the children in pornographic images are real kids in imminent danger, AI adaptations of regular child photos, or outright fakes. That distinction is important, as it can determine which cases demand urgent attention.”

• DOJ Arrests Soldier Who Made $400,000 Betting on Maduro’s Removal (ABC News): “Federal authorities arrested a special operations soldier who was involved in the capture of Venezuelan President Nicolas Maduro for allegedly pocketing more than $400,000 by betting on his removal from office, the Justice Department announced Thursday.”

And to end the newsletter with some GOOD WEEKEND READS:

• Saving a Lost Generation of Young Men—with Chop Saws | In the New Yorker, Emma Green profiles the College of St. Joseph the Worker, which “combines the trades with a liberal-arts education, is trying to restore its students’ sense of their own competence, and to revive the city of Steubenville, Ohio, along the way.”

• The New Trade Order | In Foreign Affairs, Ambassador Robert Lighthizer writes about what broke the international trading system, and what it will take to build a better one.

• Also writing in Foreign Affairs, A. Wess Mitchell argues for A Grand Strategy of Consolidation: “Going forward, Washington must fully commit to the consolidation blueprint; future administrations need to stay the course to ensure the strategy bears fruit. That means not getting sucked into big wars or lulled back into old policy habits that reinforce the U.S. strategic predicament. If it focuses on consolidation, the United States has a historic chance to regain its bearings as a great power and prevail in a sustained competition with China, the most powerful adversary in U.S. history.”

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I was having dinner with a group of students at an elite university recently, when the conversation turned to social media. They felt it was terrible for them, but also that they could not resist it. They knew it was more-or-less brainwashing them, delivering products designed to “engage” them with rage-bait and conspiracy theories, but they saw this as an excuse for why they were now brainwashed, not a reason to log off. In short, they had surrendered their personal agency. The algorithm had not only hijacked their attention, it had worn down their ability to fight back.

One student was fighting back, in a sense. He had noticed his attention span waning to the point where he could no longer enjoy a movie, or even watch YouTube videos at 2x speed. He’d then found a way to boost that to 4x. With genuine pride, he described determinedly rebuilding the necessary mental muscles until he could again sit through an entire movie. That’s what passes for progress.

The problem is neither anecdotal nor limited to particular age groups. The much-discussed report issued this week by Yale University on “Trust in Higher Education” (of which more is below) has a remarkable paragraph on the issue in its discussion of failures in the classroom:

These challenges are compounded by the technologies that now pervade campus life. In our conversations with faculty and students, few concerns came up more consistently than the problem of sustained attention. Faculty described classrooms in which students are physically present but mentally elsewhere: scrolling, messaging, emailing. Students themselves largely acknowledged the problem. Few disputed that devices in the classroom undermine the learning experience, and many described feeling unable to resist the pull even when they wanted to.

That’s at Yale, mind you, a collection of the most driven and focused and academically inclined young people in the country. How do you think the typical 20-year-old is doing? Or how about the typical 70-year-old? An especially depressing piece in the Wall Street Journal asks “Where Does Our Free Time Go in Retirement? Too Often, It’s Social Media.” Stephen Yoder, a recently retired Journal editor, writes:

Let’s have a show of hands: How many retirees have ended a day looking up from the phone, wondering where the time went and feeling the mental equivalent of having finished off a family-size bag of potato chips?

Yeah, that’s what I thought.

On the job, I did my share of surreptitious video-watching and Twitter-scrolling and e-commercing. But deadlines and bosses drew me back into the real world, much as the schoolday and homework and parents broke my TV trance as a kid.

As a retiree, I have little to rely on but self-control, of which I have little when my phone is in hand.

Recently, Clare Morell wrote an outstanding essay for Commonplace that you should read in full, on “The Adult Side of the Tech Exit,” in which she marshals the overwhelming evidence that the smartphone culture is as bad for adults as for children. We’ve all chosen to focus on “protecting” kids and improving academic achievement, because we are mostly comfortable with the idea that kids can’t be expected to make good decisions for themselves and nanny-state interventionism is in fact common-sense governance, not to mention the obvious table stakes for a public school system. But what if, when it comes to human flourishing, adults are in need of at least as much help? And what if, when it comes to their participation as citizens in a republic, the damage being done by the smartphone and its ecosystem are in fact much more costly?

This is where the debate often devolves into one over the definition of “addiction.” On the side inclined to at least contemplate some sort of intervention, but constrained by the strong assumption that only the physical compulsion of addiction justifies constraining the choices that otherwise-consenting adults might wish to make, people find themselves trying to make the case that the logic of heroin should apply. On the other side, suspicious of any attempt to intervene, people argue that this does not meet the biological definition of “addiction” at the level of brain chemistry.

But so what? Who cares if the challenge is technically “addiction,” or if the challenge has any analog in the annals of public policy? To the contrary, the case is stronger if one starts by stipulating that technologies like the smartphone and social media are sui generis and the effort to reason toward a response by analogy is thus unhelpful. Fundamental transitions in our production system and consumption patterns, from the Industrial Revolution of the 1800s to the mass market of the 1900s, have necessitated entirely new roles for government and modes for policy. As Teddy Roosevelt said in his famous “Man in the Arena” speech (actually titled “Citizenship in a Republic”) in 1910:

We can just as little afford to follow the doctrinaires of an extreme individualism as the doctrinaires of an extreme socialism. Individual initiative, so far from being discouraged, should be stimulated; and yet we should remember that, as society develops and grows more complex, we continually find that things which once it was desirable to leave to individual initiative can, under the changed conditions, be performed with better results by common effort. It is quite impossible, and equally undesirable, to draw in theory a hard-and-fast line which shall always divide the two sets of cases. Thus every one who is not cursed with the pride of the closet philosopher will see, if he will only take the trouble to think about some of our commonest phenomena.

One rule that does hold in every case: the time it takes to realize the need for adaptation is a period of worsening outcomes and outlandish abuses that seem both horrifying and puzzling in hindsight. No one reads The Jungle and thinks, well that makes sense, after all, it’s pretty much how Ezekiel used to butcher cows on his farm. In every case, the people who are driving the change, profiting from it, and insulated from its costs also hold most of the economic, cultural, and political power. Change happens when everyone else becomes sufficiently outraged to demand it. You might call it populism.

For the modern technology ecosystem, that moment may be upon us, and if not we had better get there quickly. Because unlike with those prior challenges, this one directly undermines our ability to respond. We’ve entered a vicious cycle where institutions are accommodating rather than confronting the consequences of the transformation. As covered here previously, universities are lowering standards rather than holding students accountable for being able to read whole books, or even watch whole movies. Schools are “gamifying” the math lesson on the Chromebook the students all stare at, in hopes of recapturing attention by reinforcing its absence. Newspapers are investing in short-form video, other media optimizes output for “the clip,” political campaigns fight to win the meme battle.

Simultaneously, we are beginning to adopt a form of artificial intelligence that will compound the problem: sycophantic chatbots that will tell you whatever you want, services and devices that promise convenience and efficiency but only if you’ll reorganize your entire life around generating data for them to process, outright “cognitive surrender.” At American Compass, we’ve started referring to all this as “WALL-E-fication,” in reference to the state to which humans reduced themselves in the Pixar film: blobs on floating recliners staring at personal screens. If someone watching the movie today looks up, instead of just down at their phone, they’re likely to see the same thing all around them—except that our recliners don’t float.

That we all know people will inevitably find themselves falling into this kind of life if given the choice, that we see ourselves in fact falling into it right now, is not an argument in favor of letting it proceed as fulfillment of a free people’s revealed preference, but rather an argument for stopping it now, whatever the cost, before the muscle atrophy deprives us of the ability to fight back at all. In WALL-E, the human blob who must literally take initiative to wrest control of the ship back from the AI barely has the strength to hold himself upright. Do we?

If so, we’ll need to transform our educational institutions from pre-school through graduate-level professional school quickly—pretty much rip the technology out at the roots. Even if that were to harm test scores or conventional measures of academic achievement, those outcomes would need to take a back seat to forming citizens capable of self-government. Fortunately, test scores were also better when screens were too expensive to put anywhere but the computer lab. It’s not clear what the cost is for removing them now, except to the purveyors of Ed Tech.

For children and grown-ups alike, we’ll need to build from first principles of human flourishing and communal life. Those, not click-throughs, are the nonnegotiable. The analogy from which to reason is not about how we’ve treated a particular challenge, but rather the meta observation that for each new challenge we’ve needed new answers: organized labor after industrialization, antitrust and strict product liability in a national market, environmental standards when the air really did become unbearably dirty, the public health campaign in response to cigarettes. We should ask ourselves the extent to which it is the devices versus the applications versus the content that are the root of the problem. And then we should figure out how best to alter economic incentives, cultural norms, and legal constraints in response.

None of this is an argument against technological progress. The printing press, industrialization, electricity, the internal combustion engine, the digital age, a device that provides instant access to humanity’s knowledge and instant communication with friends and family around the world—these are good. Artificial intelligence can be good. But they are good only to the extent that the technology is serving people, not the other way around.

The same goes for liberty, and innovation, and efficiency—all are important, none are necessarily served by blind faith in the free market and unquestioning deference to individual choice. A useful question to ask defenders of the status quo is: How would their arguments apply to the Buy n Large Space Ship experience? Are those blobs enjoying the fruits of extraordinary freedom and progress? And if not, at what point would our “closet philosophers,” to use Roosevelt’s term, have stepped in and said no, this has gone too far? A worldview that has no case or vocabulary for resisting WALL-E-fication is a dangerous one for this moment. Anyone who would want our civilization to stop short of that point should be slamming the brakes now.

WHICH BRINGS US TO OUR INSTITUTIONS OF HIGHER LEARNING

The aforementioned Yale report is worth a perusal. As the New York Times reports, it offers “a brutal assessment of academia’s role in creating the forces challenging American colleges and universities,” for which a panel of Yale professors should be given their due. That said, the framing around “trust” underscores the distance left to travel. Focusing on “trust” is what you do when you don’t want to address your substantive failures—kind of like a political party attributing its losses to a “messaging problem.” Universities don’t have a trust problem, they have a trustworthiness problem. As elite institutions, their goal should not be figuring out how to keep the public on board with their own agenda, it should be serving the public well.

(For more, I wrote about this at length last year, in “Of the Elite, by the Elite, for the People,” one of the most popular things we’ve published in Understanding America.)

Among the other things going poorly, the Wall Street Journal describes “The Small Private Colleges Dying in a Winner-Take-All University Marketplace.” Just days after that story went to press, Hampshire College (a small, private, and, it should be said, radically progressive college) announced it would be closing its doors next semester after 50 years (New York Times). Meanwhile, reports Bloomberg, “Anxious Parents Are Spending More Than $50,000 to Land Their Kid a Job”:

Her six-month programs run from $4,000 to $15,000. “I call it part two,” says Hendler-Grunt, who advertises a placement rate of more than 80% for her clients. “You make all of this investment with college advisers and SAT prep to get them in. Our goal is to get them out.”

Across the pond, they seem still to be making things worse. The European Conservative reports, “King’s College London Urges Lecturers to Overlook Poor Grammar to ‘Embrace Diversity.’”

GOOD READS FOR YOUR WEEKEND

Let’s stick with Europe for a moment, because the New York Times has a remarkable story on the wonderful Sam Samson, “The 27-Year-Old Diplomat Waging Trump’s Cultural War With Europe.” Seems like they were going for a hit piece, but it comes out mostly illustrating the embarrassing inability of elite progressive institutions to comprehend that their own preferences are neither the neutral baseline nor the permanent state of the world:

The memo’s subtext appeared clear — and alarming — for mainstream leaders in Europe. In country after country, the United States was drastically shifting its approach. Groups fighting for gender equality, women’s rights, gay rights and electoral reform were out. Organizations dedicated to religious freedom, right-wing speech and fighting abortion rights were in.

The United States, under Mr. Trump, was preparing to loosen its support of the continent unless its politics shifted rightward.

Yes, if you impose the White House’s domestic political preferences on relationships with countries around the world, then when the White House changes hands, those preferences will change dramatically. Would it be more sensible not to use diplomatic pressure to export our domestic fights? Absolutely. In part for this exact reason. Is that something that seems every to have occurred to a left-leaning State Department and commentariat before this Trump administration? Apparently not.

Good research on family policy from Jonathan Hartley and Benjamin Jaross: Do Baby Bonuses Increase Fertility? Evidence From Michigan. They find a substantial effect with one additional birth per approximately $100K spent.

Some conservative economics in the Wall Street Journal from Senator Bernie Moreno: “This worker-first conservatism demands guardrails. Being pro-business doesn’t mean giving corporate bad actors a free pass to prey on the people who make their profits possible. Corporate greed that kneecaps American workers—whether through offshoring, union-busting or wage suppression driven by an excess of H-1B visa workers—undermines the free-enterprise system.”

Sohrab Ahmari in UnHerd on “The Pope Versus the President.”

And, on one of Daniel’s favorite recurring themes, capitalism is once again surviving a tight labor market! The Wall Street Journal reports, “Restaurants Are Finding It Harder Than Ever to Hire Someone to Wash the Dishes.” Owners say “immigration crackdown and tepid interest among teens make it tough to fill jobs marked by grueling work, low pay and high turnover” and suggest, you guessed it, “a visa program for lower-skilled immigrant workers”! What happens when they don’t get that? “Sushi chain Kura Sushi is going so far as to import robotic dishwashers from Japan for $15,000 each to ease the strain.” At John’s Food and Wine in Chicago, which “charges a 20% service fee across all orders, divided up among hourly staff”:

…the restaurant’s dishwashers averaged earnings of $70,000 as a result.

“They are highly valued and their value comes with being paid well,” said Tom Rogers, the restaurant’s co-owner. The restaurant has had two of its three dishwashers since around the time it opened two years ago.

Looks like they found some essential jobs Americans will do.

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SPECIAL BONUS GOOD READ FOR THE WEEKEND

The Financial Times has a great series on China Shock 2.0.

Part One: The Flood of High-Tech Goods That Will Change the World

Part Two: Should Europe Welcome Chinese Investment?

(Answer: No! And neither should the United States, as we wrote to President Trump last month.)

Part Three: The Countries Feeling the ‘Chinese Squeeze’

(No kidding. Read Daniel on why, “On China, Our Trading Partners Have Only One Choice.”)

WHITHER THE FREE TRADERS

As the FT series indicates, the transformation of the economic consensus on free trade, its limitations, and the importance of balance is almost complete.

In the Wall Street Journal this week, you could read “There’s a Case for Tariffs,” by Hillsdale College’s Paul Rahe: “Tariffs, if well designed, can promote and protect domestic production. When they are deployed to forestall disruptions, the U.S. sacrifices some efficiency for economic protection. This is a price we should be willing to pay.”

In The Atlantic, you could learn, “A Pillar of the Economics Establishment Admits That It Was Wrong.” (“In a new report, the World Bank thinks better of its old free-market absolutism.”)

And at the same time, the IMF admits domestic policy does drive trade imbalances: “Against the backdrop of persistent and recently widening global imbalances, the paper presents a structured framework for understanding how domestic policies can influence current account positions by altering domestic saving and investment decisions.” Brad Setser and Michael Pettis both provide good context for the significance of this shift.

As Bloomberg’s Anna Wong highlights: “Bank fund meeting this week in DC…very interestingly the topic is ‘Global Imbalances is back.’ Even more interestingly, France is pushing this topic at G7. (For once, it is not just US.) This is an entirely forecastable outcome after Liberation Day.”

Anna and I discuss the year since Liberation Day, the results far better than what economists had predicted, and the work still to be done, on this week’s Trumponomics podcast.

REINDUSTRIALIZATION, TODAY AND TOMORROW

One of the key debates about the Trump administration’s tariff regime is whether the intermediate inputs to manufacturing should be tariffed (to encourage reshoring of those inputs as well) or exempted (to lower input costs for manufacturers that are reshoring). We prefer the broad-based tariff and a focus on reshoring all stages in the supply chain, in part because the key opportunity for reshoring producers is not exports but servicing the domestic market. I wrote about this last year in the tastefully titled “Don’t Cry for Me, Argentinian Import Substitution.”

A good example of the benefits of this approach is aluminum. The Wall Street Journal reports on “How Oklahoma Landed America’s First Aluminum Smelter in Half a Century: Aluminum makers EGA, Century plan to break ground later this year on facility that would more than double U.S. smelting capacity.”

Conversely, our failure to attend to industrialization is now creating an enormous obstacle for a technology on which we’re determined to lead: “The US Data Center Boom Is Hitting a Transformer Crunch: More than half the US data centers planned for this year are expected to be delayed,” reports Bloomberg. Transformers are a great example of a technology we decided we could just import from China, creating enormous security vulnerabilities and leaving us unable to expand output when the race is on to build AI infrastructure. Oops! Perhaps our policy going forward should aim to prevent rather than entrench that dynamic.

One place where we have learned our lesson and are making progress is critical minerals. Even the Europeans seem to understand this one.

• EU, US Near Critical Minerals Deal to Combat Chinese Control (Bloomberg)

• EU Launches Critical Minerals Procurement Platform to Cut China Dependence (SCMP)

AS USUAL, IT ALL COMES BACK TO CHINA

The supply chains really are moving. “The US Supply Chain Shakeup After Tariffs, in Five Charts,” from Harvard Business School provides some good data. “Last year’s US-imposed tariffs sped up significant trade shifts,” they report, “toward Mexico and away from China.”

China is not pleased. “China Imposes New Rules to Block Foreign Companies From ‘Decoupling’” (New York Times):

As China’s mammoth trade surplus stokes global tensions, Beijing has enacted sweeping new regulations to investigate and punish foreign companies that stop using Chinese suppliers in response to political pressure at home. Foreign business groups expressed strong concern about the vaguely worded rules, which took effect when Premier Li Qiang signed them last Tuesday. Analysts warned that the regulations could make it harder for foreign companies to divest from joint ventures in China or shift orders to overseas suppliers. The new regulations are part of Beijing’s broader effort to counter what it sees as rising protectionism in the West, driven by a surge in Chinese exports and growing concerns about trade imbalances. China’s exports exceeded imports by almost $1.2 trillion last year, and the country notched another large surplus in the first quarter.

Not a good look for the CCP. The Brookings Institution’s Kyle Chan notes, “the thing is this may cause foreign firms to hesitate before moving supply chains out of China, but it will really cause foreign firms to think twice about investing in China in the first place going forward.”

Separately, Chan highlights that the China export machine continues to run full throttle: “I normally don’t comment on China’s quarterly data, but these numbers are mind-boggling. Q1 2026 year-over-year export growth: All exports: 14.7%; Semiconductors: 77.5%; Auto: 58.5%; Laptop & tablets: 26.7%.” Where’s it going? Europe. SCMP’s Finbarr Bermingham notes that year-to-date Chinese exports to the EU are up more than 20% from last year. Not to worry, we have Daniel over there explaining this to them.

And what do you do once you’ve established export dominance? You start using more export controls! “China Flexes Trade Power with Soaring Use of Export Controls” (Financial Times). But that’s irrational, say the free traders. Isn’t profit maximizing. Won’t happen. Wrong again.

Clean-up on aisle Detroit. Not the headlines you want to see from Bloomberg less than two days apart:

• “Ford CEO Farley Says Chinese Carmakers Should Be Kept Out of US”

• “Ford CEO Seeks to Expand Partnerships With Chinese Automakers”

Finally, watch this terrific video from Kite & Key about “Foreign Influence on Universities” (from, yes, China).

DID SOMEONE SAY UNWISE ENTANGLEMENT WITH CHINA?

I picture Nvidia’s Jensen Huang bursting through the wall like the Kool-Aid Man right here.

As has been well documented at Understanding America, particularly in “More Like Jensen Wrong, Amirite?”:

Nvidia and its CEO, Jensen Huang, have consistently said things that are, well, just not true, in an obvious, “we know they’re not true, and you know they’re not true, and you know that we know, and we know that you know, and yet you’re still saying them” sort of way.

Jensen’s PR tour has generally steered clear of any interview that might turn even slightly adversarial, or any interviewer who might be prepared to challenge him on basic facts, but even that hasn’t gone especially well. There’s no protecting him from himself when he believes H-1B visa reform is a way to tackle illegal immigration, or blurts out assertions like, “They want companies to come to China and compete in the marketplace and I believe that. … I do hope because they say it—their leaders say it. And I take it at face value.”

Still, his sitdown this week with podcaster Dwarkesh Patel was going to be a more serious test for him and, well, he failed about as badly as you’d expect. Dwarkesh excerpts the exchange on export controls here. The Institute for Progress’s Alec Stapp goes right to the heart of the issue. Dwarkesh asks Jensen:

If Chinese companies and Chinese labs and the Chinese government had access to the AI chips to train a model like Claude Mythos with these cyber-offensive capabilities and run millions of instances of it with more compute, the question is, is that a threat to American companies, to American national security?

Jensen responds:

First of all, Mythos was trained on fairly mundane capacity, and a fairly mundane amount of it. By an extraordinary company. The amount of capacity and the type of compute it was trained on is abundantly available in China. So you just have to first realize that chips exist in China.

They manufacture 60% of the world’s mainstream chips, maybe more. It’s a very large industry for them.

Nope. Sorry. The “world’s mainstream chips” that China manufactures bear no resemblance to the “the AI chips to train a model like Claude Mythos.” Jensen knows this. Dwarkesh knows this. Dwarkesh calls him out a moment later. That’s why Nvidia’s expertise is not a basis for trusting its analysis, and indeed why its arguments are not entitled to a presumption of good faith.

AND FINALLY, HAPPY 249th BIRTHDAY HENRY CLAY!

The White House proclaimed a “Day of Celebration in Honor of the Life of Henry Clay.” Well deserved! You can watch Secretary Marco Rubio deliver American Compass’s own Henry Clay Lecture, back in 2021, here.

We were especially pleased to see the White House “redesignate Room 208 of the Eisenhower Executive Office Building, the historic office of the Secretary of State, as the Henry Clay Room.” Previously, it had been called the Cordell Hull Room.

For more on Henry Clay’s rejection of free trade and centrality to the robust policy agenda that fostered American economic dominance, read Wells King’s seminal essay on “Recovering a Genuine American System.”

For more on Cordell Hull’s blinkered embrace of free trade and centrality to building a global economic system that eroded American economic dominance, read Mark DiPlacido’s likewise seminal essay on “Ideology Over Interest.”

Enjoy the weekend!

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On Tuesday, Oren posted a short commentary on Twitter on President Trump’s early morning threat that “a whole civilization will die tonight.” It circulated quickly online and received widespread international media coverage, but of course, that audience is a very different one from our Understanding America readership. And while that particular day’s crisis has passed, the Strait of Hormuz does not in fact appear to have opened, so the analysis remains relevant to whatever may come next. As such, we share it with you here:

I mostly avoid commenting on what President Trump says from day to day, while pulling no punches in my assessments, whether positive or negative, of his policy. His Iran ultimatums feel different. Making such threats is a policy. If he were to follow through on them, the consequences would be immediate, irreversible, and catastrophic on a world-historical scale.

So while some will inevitably insist he should be “taken seriously rather than literally,” or that he is executing a sophisticated “madman” strategy in a complex game of 5-D chess, or that he needs everyone’s steadfast support to maximize his leverage, now rather than later seems the time to say that the actions that he is proposing would be a disaster for our country, both strategically and morally, which makes the remarks themselves a terrible mistake.

Simply put, what’s the point of all this? If these are empty threats that we all know he will not carry out, then they are ineffective threats (the Iranians are on X too!), merely making the president and our nation look foolish. If they are not empty threats, then the president is asserting the American position that such actions are acceptable in this situation and ones we are willing to take. We are not living in some quantum thought experiment where he simultaneously is and is not serious. We cannot expect the Iranians, but only the Iranians, will believe him.

Whether the threats are empty or not, we should be willing to say: This is wrong. We should not establish a pattern of threatening escalation from a blockaded strait to elimination of a civilization. We should not launch strikes intended to devastate the lives of millions of people and take our nation to total war without indisputable justification, or before the American people have deliberated upon and assented to the path with full understanding of what total war might mean for them. Those principles are vital to our Republic, independent of whether the strategy could “work.”

But it’s also worth emphasizing that the strategy is a dead end. This war is actively weakening American power, increasing the danger to American citizens, and frustrating the president’s important efforts at addressing our many domestic challenges. It has closed a strait that was previously open, strengthened the incentive for other nations to pursue nuclear weapons, and in this most recent rhetoric made more plausible their use. Our choices for continuing the war appear to be catastrophic escalation of the air war or extensive deployment of ground troops, neither of which were planned or had support at the outset.

Stepping back from these threats and admitting such actions do not offer a path to resolving the conflict may be unpalatable, but it is by far the least unpalatable option available. Let us all hope cooler heads prevail. – Oren

GOOD READS FOR THE WEEKEND

Shadi Hamid had a provocative column in the Washington Post, “Muslims Shouldn’t Have to Assimilate to Belong,” to which Glenn Loury offers a sharp rebuttal in UnHerd, “Muslims and the Uneasy Truth About Assimilation.” Muslims are an illustrative example here, but the issue is fundamental.

Hamid’s core point: “The assimilation defense — look how well we’ve integrated — is satisfying to make. But it concedes a premise I no longer accept: that a minority community’s right to be in the United States depends on its willingness to converge with the cultural mainstream. It shouldn’t depend on that. It shouldn’t depend on anything.”

Loury’s core point: “Societies are not sustained by declarations of inclusion alone. They are held together by what I have elsewhere called an informal social economy: a web of expectations, judgments, and norms through which trust is allocated, and cooperation becomes possible. These norms are not written into law. They are enforced through reputation, honor, shame, and the quiet but consequential decisions people make about whom to trust. Hamid’s argument abstracts from this reality. It treats belonging as a moral entitlement rather than as a social achievement. But in practice, belonging is mediated through relations, not merely proclaimed through rights.”

Both worth reading in full.

The New Yorker, of all places, has an excellent review of Lead Like Jael, the new book by Emma Waters (who joined Oren on the podcast this week): Will Biblical Womanhood Box You In or Set You Free? It’s a good look at some of the conservative arguments that land best across the political spectrum.

And a really great listen for you from Ross Douthat’s podcast: How Ben Sasse Is Living Now That He Is Dying.

BAD READ

Ever since Jeff Bezos announced that “we are going to be writing every day in support and defense of two pillars: personal liberties and free markets,” the decline of the Washington Post’s editorial board has been fascinating to watch. They reached a new low this week with “A Bipartisan Bill That Would Hurt Employers and Unions,” which criticizes the Faster Labor Contracts Act, legislation that would impose arbitrated labor agreements when a newly formed union and management cannot reach a deal after several months.

The cynic would note that just last week, as we told you here:

Lest you forget, the workers at that Amazon warehouse who organized four years ago are still trying to negotiate a contract. The Republican-majority National Labor Relations Board has just ruled that Amazon illegally refused to bargain, which means… the parties head into federal court. It’s a classic illustration of how the legal rights granted to workers under the National Labor Relations Act can be nearly impossible to exercise in practice, in the face of employer intransigence and endless litigation. And it helps explain why Republicans Senators Josh Hawley and Bernie Moreno are helping lead the push for the Faster Labor Contracts Act.

But it’s actually funnier, and more appalling, to think that the editorial board received no directive on the matter from Mr. Bezos and simply, of their own accord, thought this was a good time to take up the issue and try to argue that:

Unions hope that the mere threat of arbitration would force employers to make concessions. It’s not exactly a ringing endorsement of their own abilities to negotiate that they think they need this heavy-handed approach to make deals. And rather than being able to hold out indefinitely for better terms, the legislation would force unions to accept provisions from the arbitrators that they vociferously oppose.

Mmhmm. That’s definitely the problem.

The Post’s argument rests on the same bizarre framing one hears often in the “right-to-work” context, that “Americans have a right to how to use their own labor” and “because of the monopolistic nature of American labor law, all workers in the bargaining unit — union members or not — would be bound by the contract that the arbitrators impose. This is not a power that the federal government should have.” But obviously, no one is forcing anyone to work at a particular firm under particular conditions. Indeed, it is the exact same “free market” advocates who always and eagerly note that employees have the freedom to leave any time they want. The question is what terms and conditions will obtain in any given workplace. The choices are (a) ones set broadly by regulators, (b) ones set for particular worksites by collective bargaining or, in this case, arbitration, or (c) ones set unilaterally by the employer.

The hypothetical scenario in which individual Americans with their “right to how to use their own labor” negotiate independent terms and conditions with their employer does not exist in practice for the frontline workers in large firms that labor law primarily addresses (and indeed, a voluntary choice to unionize is perhaps the best indicator of that reality in a particular place). The Post is just advocating for option (c). Workers, when they choose to unionize, are indicating that at least a majority of them would prefer (b). One can make various arguments for (c) over (b), but in the process, one should not pretend this has anything to do with the rights or interests of workers.

ELSEWHERE IN THE ECONOMY

Good news for sports fans: Justice Department Opens Investigation Into NFL (Wall Street Journal). In many respects, the league is a victim of its own success: instead of fans mainly wanting to watch their home team (for which the broadcast is still almost always available in the home market), they want access to all the big games. Teams require an antitrust exemption to negotiate the deals for those broadcast rights as a collective league, and pushing the games onto subscription-only services may be pushing things too far.

Bad news for sports fans: Private Equity is Destroying Youth Sports (American Economic Liberties Project). They’ve got some great examples that illustrate the problem we’ve called “moral arbitrage.”

But this week’s award recognizing absurdity in financialization goes to: Nicholas Wealth Management! They’ve launched an ETF that buys Bitcoin when American markets close in the afternoon and sells when markets open again in the morning, allowing you to bet on Bitcoin consistently performing better at night. So much value.

As for artificial intelligence, the talk this week has been all about Anthropic’s new Mythos model and its implications for cybersecurity, but for a good discussion of AI’s broader economic implications and potential policy responses, read Jennifer Harris’s New York Times op-ed, We Are Witnessing the Rise of a New Aristocracy. While some analysts have been optimistic that AI could reverse the oft-cited “skills-based bias” in technological change, which has tended to benefit knowledge workers at the expense of others, Harris warns we may instead get yet another instance of it: “In a recent survey, 750 chief financial officers were twice as likely to say that A.I. could lead to job cuts in low-skill office work as they were to say it would enhance this work. And a majority thought A.I. would augment, rather than replace, higher-skill roles — especially those requiring high levels of education.”

What is to be done? (Two Lenin references in one newsletter!) OpenAI made a big splash this week with the release of Industrial Policy for the Intelligence Age: Ideas to Keep People First, which it described as “a slate of people-first policy ideas⁠ (opens in a new window) designed to expand opportunity, share prosperity, and build resilient institutions—ensuring that advanced AI benefits everyone.” Some small measure of credit is due for working on the issue, but the remarkable feature of the final product is its complete lack of ambition. It reads roughly like a mid-2000s neoliberal tract about opportunity in the new economy. The policy recommendations fall under the heading of “Building an Open Economy” and land in categories like:

• “Worker perspectives” (though not power, mind you)

• “AI-first entrepreneurs”

• “Right to AI” (“Support the education, infrastructure, connectivity, and training…”)

• “Modernize the tax base”

• “Public Wealth Fund”

You get the idea. There’s also a safety net with automatic stabilizers, portable benefits, more investment in scientific research, and so on. On the one hand, some of these may be good ideas and relevant regardless of what trajectory AI takes. On the other, they are so miscalibrated to the scale of change the OpenAI claims is coming (“superintelligence”), that they raise the question which half of the equation is just unserious: Is “superintelligence” just a talking point, and “portable benefits” are a key response to the technology’s actual capabilities? Or is the world about to be unrecognizably transformed, and “portable benefits” are just something to keep everyone busy reading and writing white papers in the meantime? Discussion of a new social contract would be interesting and may indeed be necessary. Reprinting the social contract with AI-generated cover art, less so.

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MEANWHILE, AMONG THE HUMANS…

Why the U.S. Fertility Rate Has Hit a Record Low (Wall Street Journal): “The nation’s fertility rates hit record lows in 2025 as childbearing continued to shift toward older women, according to new federal data released Thursday. For the sixth straight year, the number of children born in the U.S. remained at roughly 3.6 million. … The lack of growth in births continues to be driven by uncertainty about the future, including concern over finances, relationship stability and the political climate, according to Wendy Manning, a demographer at Bowling Green State University.” Not noted anywhere in the article, oddly: the declining marriage rate.

See also Patrick Brown’s excellent essay in Commonplace, The Long Shadow of the Population Bomb.

Definitely not helping: the continued failure of basic public services. Failure to shovel the snow was bad enough. But even now that the sidewalks are clear… ‘Open the school!’ Hundreds of parents demand Fairfax County add more 5-day school weeks (WJLA-7News)

ALSO NOT HELPING: THE WTO

Be sure to read Jamieson Greer’s Wall Street Journal op-ed, “Another Fish Story From the WTO,” declaring the WTO era ended:

The U.S. isn’t going to spend 30 years waiting for the WTO to respond to the needs of American workers and businesses. The WTO was of no use during the first “China shock,” which crushed American manufacturing, and it’s no help amid today’s huge trade imbalances. So the U.S. is charting its own course on trade policy—working regionally, bilaterally and, where necessary, unilaterally. The Trump administration’s recent wave of reciprocal trade agreements has been the most successful effort in years to open foreign markets while protecting domestic production and disciplining out-of-control imports. The U.S. is driving reform on trade globally, tackling tariffs and nontariff barriers, addressing structural imbalances in trade, and diversifying and securing supply chains. The WTO is nowhere to be seen on these issues. Instead, it’s spending time on silly fish songs.

You may be wondering if “fish song” is just some trade negotiator term of art with which you are not familiar. But no, the Ambassador is referring to “the triumphant finale of the four-hour opening session of the 14th Ministerial Conference in Yaoundé, Cameroon, on March 26. The WTO’s leadership was playing a self-congratulatory song about progress on an incomplete agreement on fisheries subsidies.” We thank him for his service in sitting through it.

Fund the Trade Police. Especially as trade policy moves toward bilateral agreements and begins to hold bad actors accountable, enforcement of deal provisions becomes increasingly vital. In the New York Times: “‘Definitely a Sham’: As Tariffs Climb, Trade Fraud and Accounting Tricks Proliferate.”

Daniel also has a great piece at Commonplace this week on the archetypical case: new agreements struck between the United States and trading partners that commit both sides to holding the line against China:

A tariff barrier, however, is only effective if other countries help reinforce the perimeter. Most commentary on the U.S.-China trading relationship focuses on the headline drama: tariff hikes, retaliation, ceasefires, and summits. Less attention has gone to the quieter construction of that perimeter, embedded in the nine Agreements on Reciprocal Trade that USTR has finalized with Malaysia, Cambodia, El Salvador, Guatemala, Argentina, Bangladesh, Taiwan, Indonesia, and Ecuador,and which will likely feature in agreements to come.

To that end, “Trump budget asks for major funding increases for USTR, BIS,” per Politico—a 45% increase for USTR (including 70 additional staffers) and a doubling for the Commerce Department’s Bureau of Industry and Security.

AS FOR CHINA…

Narrative Reinforcement: “In ever more technologies, China is moving towards monopoly.” The Australian Strategic Policy Institute, which has been publishing research that shows China overtaking the U.S. in nearly all critical technologies, reports in its 2026 update that “China’s research leadership is no longer a trend; it’s a structural condition in most of the domains that will define military capability, economic competitiveness and technological sovereignty over the next two decades.” For the first time, it now characterizes the Chinese lead as “monopolistic” in the majority of the 74 technologies tracked.

Narrative Violation: In some ways, though China is still catching up. It’s important to note that the ASPI analysis focuses on which countries are publishing the most important research, a sign of who will have leadership going forward, not who has it at the moment. Likewise, the latest report from the International Federation of Robotics finds that China still lags significantly in robot density (robots installed per 10,000 employees), at just 166 compared to 307 in the United States and more than 1,200 in Korea.

On one hand, western industrial powers still have advantages they can build upon. On the other hand, if China’s industry is dominating already, imagine what it will look like as it further deepens its capital base. On robotics especially, China has established itself as the leader. As the Wall Street Journal reports, “Under the Skin of America’s Humanoid Robots: Chinese Technology.” Whether the United States will try to stay in the game is a major question on the table for the upcoming summit between Presidents Trump and Xi, says Politico:

The White House is weighing how aggressively to target China’s booming robotics industry, a decision that now hinges on how President Donald Trump leaves his summit with Chinese President Xi Jinping next month. If the meeting hardens Trump against Xi, the administration could impose strict trade restrictions or tariffs on robots focusing on national security risks. But if the summit extends the current trade detente, as the administration hopes, the strategy could take a softer tone towards China’s robotics dominance. For now, the White House wants to avoid inflaming tensions with Beijing ahead of the summit, said a Trump administration official, in line with the administration’s effort to tread carefully in managing its fragile truce with China.

Trump’s careful treading on China may be prudent up to a point, but it is also attracting a lot of attention and concern. In Politico, last weekend, “‘Walking on eggshells’: How Trump is managing his delicate China truce.” And in the Wall Street Journal this morning, “Trump Quietly Scraps His Own Playbook on China”:

The dramatic reversals, which have alarmed some of Trump’s own national security aides, are in part aimed at laying the groundwork for Trump’s May meeting with Xi, according to current and former U.S. officials. Many China hawks in the administration have taken to gallows humor, calling the shift the ‘Busan Freeze,’ named for the South Korea meeting between the leaders that produced a fragile trade detente.

It’s not clear, though, to what extent these policy decisions represent “reversals” as opposed to continuation of President Trump’s long-held perspective: that China is ripping us off and he will get a better deal. Across two presidential terms, he has consistently focused on getting a deal, alternating between pressure and conciliation as it suited him. While the desire to challenge China, or to see the trading relationship as a damaging one, once marked him as a China hawk. Today that exact same strategy makes him the dove in a room of people who believe there is no deal to be had.

The most important question on the table in Beijing next month: foreign direct investment into the United States. Last month, we sent a letter to the president on this point:

Pursuing Chinese FDI would repeat the mistake that the world made a generation ago when it welcomed China into the World Trade Organization. As with cheap imports then, the decision by North American, European, and East Asian countries to welcome large-scale Chinese investment now, and accept the Chinese industrial dominance that follows, may deliver the appearance of a short-term gain. Economists will undoubtedly cheer. But the result will be the much greater long-term pain of American decline.

In remarks this week at the Hudson Institute, Ambassador Greer articulated an encouraging position on the issue (Politico): “I don’t think we are at the point in our relationship with the Chinese where we want to talk about investment programs either way — we really need to get that trade deficit under control.”

And when it comes to cars in particular, Greer says regulations in progress are likely to keep China out for the foreseeable future (Bloomberg):

The top US trade official said restrictions on foreign technology will likely keep Chinese carmakers out of the US for the foreseeable future, throwing cold water on the prospect of those manufacturers establishing a foothold in the domestic auto market.Rules prohibiting connected vehicle technology and software made by so-called foreign entities of concern pose a steep barrier for many Chinese companies, US Trade Representative Jamieson Greer told reporters Thursday. Those rules are taking effect over the next 12 to 18 months, he said. “We don’t see any change in that,” Greer said during a tour of a Stellantis NV plant in Michigan. “It would probably be difficult for certain countries to establish new production here, given those sets of rules.”

Here, too, U.S. industry will need to get its act together. In recent comments about the Chinese auto sector, Toyota’s CEO has said, “unless things change, we will not survive,” Honda’s CEO has said, “we have no chance against this,” and Ford’s CEO has said, “they have enough capacity in China with existing factories to serve the entire North American market, put us all out of business.”

As Canada tries to show its toughness and independence by… welcoming BYD dealerships, we should probably consider a policy that stops them at the border.

Enjoy the weekend!

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Here at American Compass, we’ve been pumping out everything you might need for the occasion, including:

• Chris Griswold on employment trends

• Daniel’s rundown last Friday of all the past year’s developments

• Oren’s essay on lessons learned for economists

• A Compass Atlas with all the relevant economic data

• Julius Krein on investment and Sander Tordoir on Europe

But all good things must come to an end. Time to get back to work. And we’re firing back up with some thoughts from Oren on the new White House budget proposal:

Presidential budgets are always unserious, but the one released by the White House this morning is unserious in an especially unfortunate way. We are all accustomed to the wish-list of program expansions or cuts that Congress will not pass and the optimistic economic assumptions that will not come to pass. It is a political document. But President Trump has done something different.

The Fiscal Year 2027 President’s Budget, released this morning, calls for reorienting the nation’s priorities around an unprecedented military expansion. The proposed $446 billion increase, which comes on top of a $164 billion increase for the current year, would represent a 44% increase in Pentagon spending, and the largest single-year increase in defense spending as a share of GDP since at least 1962. Larger than any year of the spiraling Vietnam War. Larger than the total increase over President Ronald Reagan’s Cold War build-up. This all appears to come on top of the additional $200 billion that the Pentagon wants to ask for during the current year to support the war in Iran.

This spending does not come at a time when the federal government is flush with cash, to say the least. Rather, the nation is expected to run record-breaking deficits indefinitely, with interest payments on the debt consuming an ever-rising share of GDP. Just last year, a new round of tax cuts expanded those deficits dramatically. (Yes, it was deeply concerning that interest on the debt exceeded defense spending. No, this is not a good fix.)

Nor does the spending come at a time when a military build-up should be the national priority. In its “Military Fact Sheet,” the White House asserts proudly that the amount approaches “the historic increases just prior to World War II, a level that recognizes the current global threat environment and restores the readiness and lethality of our forces.” In what way does the threat environment resemble the prelude to a world war, and what role are we expecting to play in such a conflict?

And more importantly, who is going to pay for it? If the uber-hawks so committed to war spending on this scale were prepared to accept that taxes would need to increase substantially, at least they would be putting their money where their enthusiasm for dropping bombs is. But that’s not going to happen. Instead, the plan is to fund all this through more borrowing and cuts to other programs and services, many of which lower-income households rely upon.

If there is a silver lining, it would be that some of the new spending will be targeted toward investment in rebuilding the industrial base, from critical minerals to shipyards. But while Pentagon investments are a vital component of a comprehensive strategy, subsuming reindustrialization within military expansion is unwise, substantively and politically. On substance, focusing support on the defense industrial base while ignoring the broader industrial ecosystem has been a horrible mistake and a total failure, as Mark DiPlacido and I explained in “Big Stick Economics” last year. We wrote:

Security at home, functional alliances, and deterrence all require industrial depth: a diversified resource base capable of meeting the demands of wartime production, flexible supply chains in competitive markets without single points of failure, a skilled workforce with a strong talent pipeline, and an industrial commons that fosters the interaction and investment necessary for constant innovation. The measure of the conservative commitment to a strong defense is not the size of the Pentagon’s budget or the number of invasions launched, but the willingness to adopt economic policy that ensures market forces strengthen rather than erode the foundations of national power.

Orienting the effort so narrowly on the military as the end customer will ensure the industrial base remains brittle and dependent on state support.

Politically, making defense spending and war-fighting the purpose of reindustrialization will reduce its popularity and raise a reasonable concern: if the main thing a rebuilt industrial base is going to do is reinforce an American commitment to empire and military involvement around the world, is that even something we want?

As I wrote a couple of weeks ago about “Trump’s Biggest Mistake on Iran,” by starting a war there “he has given priority to the ambitions of American empire over the interests of American citizens, in exactly the manner of the ‘globalist elites’ he had sought to replace.” This budget plunges his administration much further down that path. The increased spending should be a hard no from both parties in Congress, and from anyone who still hopes to see the United States return to a focus on the well-being of its own citizens. If Republicans allow cutting other spending to fuel an unprecedented military expansion to become their top priority for the year, they will deserve the rebuke that the midterms will deliver. — Oren

THAT SAID, IF THE AIR FORCE HAD TO HOLD A BAKE SALE FOR A NEW BOMBER…

…schools would have even more money to waste on dysfunctional Ed Tech. Thankfully, the backlash is building daily, and perhaps even fast enough to pull the AI wave back out to sea before it crashes down over our classrooms.

The New York Times reported Monday on “Chromebook Remorse: Tech Backlash at Schools Extends Beyond Phones,” which helpfully provides an answer to this mother, who asks in the Washington Post, “‘Why is my kindergartner watching ‘KPop Demon Hunters’ in school?”

Once a screen enters the classroom, it rarely stays limited to “educational” use. The introduction of classroom devices opens the door to the broader internet, including platforms such as YouTube that were never designed for young children or for classroom use.

What starts as just a little KPop Demon Hunters instead of storytime eventually becomes college kids who can’t read good. The latest on that front comes from AEI’s Daniel Buck, who highlights that Harvard faculty report they’ve “had to trim some readings and drop others entirely, switch from novels to short stories, and that it’s difficult to keep assigning reading in the face of increasing student complaints.” Suggested solution: Fail kids who don’t read. Although, that comes with a prerequisite step: Don’t give everyone an A just for showing up.

Good luck. In the meantime, Vanderbilt just announced it accepted 1,382 out of 48,720 regular decision applicants, a 3% acceptance rate. Better weather and a better football team, too.

SPEAKING OF VANDERBILT…

Shoutout to Friend of the ‘Stack Ganesh Sitaraman, director of the Vanderbilt Policy Accelerator, for a terrific New York Times op-ed, “This Is Why Flying Is So Awful.” Ganesh is the authority on the excessive industry deregulation begun in the Carter administration and accelerated under Reagan. As he explains:

Led largely by Democrats, including Senator Ted Kennedy and the future Supreme Court justice Stephen Breyer, policymakers argued that if airlines could fly wherever they wanted and charge whatever they wanted, there would be more competition, lower prices and the same geographical access. In 1978, Congress passed the Airline Deregulation Act, which eliminated route and price regulation and ultimately disbanded the Civil Aeronautics Board altogether…

Read the whole thing to learn about how “unbridled competition soon led to destruction and reconsolidation. Airlines declared bankruptcy and merged; union wages were rolled back; small communities lost service; the flying experience got worse; big airport hubs became the norm.”

MORE GOOD READS

Capitalism, Modified, in a Conservative Town | Tim Carney, Washington Examiner

“The Inn, the bars, the antique stores: They’re all for-profit businesses, but they’re also not entirely for-profit. The community leaders of Bluffton are the furthest things from socialists, but they see capitalism is a tool for creating economic value, which is not always the same thing as — and is less important than — fostering the good life. The government’s heavy hand often crushes when it tries to create, but the market’s invisible hand often smothers, they argue.”

Think Tanks Have Defeated Democracy | Sam Hammond, Palladium

“Advocacy organizations on both sides are trapped in something of a prisoner’s dilemma: even if progressive and conservative funders recognize that they’re burning hoards of money while making our politics less functional, the incentive to defect is too great, as unilateral disarmament would simply cede territory to the other side.”

No Learning Please, We’re Democrats! | Ruy Teixeira, The Liberal Patriot

“Democrats have convinced themselves that their problems have essentially been solved. Here at The Liberal Patriot, we know all about that. Funding for our modest enterprise, always precarious, has now completely dried up. Our view that the party has neither solved its problems nor is even very close to doing so has tanked our appeal among partisan Democratic donors, even reform-oriented ones, who now tend to regard us with suspicion. A little heterodoxy is fine but there’s a limit! Hence: no money.”

They’re Rich but Not Famous—and They’re Suddenly Everywhere | Rachel Ensign, Wall Street Journal

“Because there are so many more multimillionaires, products and services that cater to this group are also booming. Hermès, Brunello Cucinelli and Ferrari all recently reported strong sales from the richest customers, while some companies that target the merely well-off are facing flagging demand. Since the start of the pandemic, demand has picked up for the most expensive homes and the highest-end travel.”

Corporate Governance as Foreign Policy | Remarks by Assistant Secretary of State Caleb Orr

“Corporate governance tools are all about enabling coordination and aligning incentives: between directors and shareholders, active investors and passive asset managers, or management and other stakeholders. Used in foreign policy, these same tools apply to relations among states, governments, and the companies that are instrumental to achieving their political and economic objectives. Critics who label these efforts ‘state capitalism’ are being too facile. The Administration is using well-established legal tools and private sector expertise, including the global gold standard of U.S. corporate law to advance our national security interests.”

BAD READS

We would be remiss, having highlighted all of American Compass’s fine work on tariffs this past week, if we did not also direct you to “Liberation Day, One Year Later,” an appallingly inadequate attempt to marshal data in opposition to tariffs from the Wall Street Journal editorial page and frequent collaborators Phil Gramm and Donald Boudreaux. See how many of the errors you can spot, then surf over to Oren’s thread on the matter to check your score.

A LOT OF IMMIGRATION NEWS RECENTLY

Starting with this important analysis from the Dallas Fed that tells you exactly what Oren told you more than seven months ago in “Coming Down from the Open-Border Sugar High.” As Oren explained then:

How low would potential employment growth fall if immigrants are in fact departing at a rate four to five times higher? Probably to roughly zero, reflecting steady continued job growth for native-born Americans and legal immigrants, offset by rapid declines for departing illegal immigrants. From this perspective, the average of 35,000 jobs added over each of the past three months is substantially higher than could fairly have been expected, not the disastrous slowdown presented in the media. Yet commentators have not only ignored this reality but tried actively to obscure it. Break-even employment declines as unauthorized immigration outflows continue

As the fine economists at the Federal Reserve have finally calculated now:

Incorporating these updated estimates of net unauthorized immigration into our full model—allowing the labor force participation rate to vary over time—yields substantially lower break-even employment growth than previously estimated (Chart 2, yellow line). The break-even rate peaked at about 250,000 jobs per month in 2023, fell to roughly 10,000 by July 2025, and declined to near zero thereafter, averaging about –3,000 jobs per month from August to December 2025, indicating, if anything, a modest net jobs loss over this period.

In other words, even with no weakening in the economy, you should expect to see a negative figure in the monthly jobs report about half the time.

And hey, here’s a negative number: 4. As in, U.S. citizens who graduated from the University of Massachusetts’ master’s program in computer science in 2022 are 4 times as likely to be unemployed as their foreign classmates. Kevin Lynn of the Institute for Sound Public Policy explains here.

For a more positive number, read this story from the New York Times, “A Republican Farmer Relies on Immigrant Work. He Sees His Party Erasing It.” Doesn’t sound positive. Times reporter Peter Baker says, “undocumented immigrants perform roughly 70% of the labor on [Wisconsin]’s dairy farms. At the O’Harrow farm, the Republican family owners worry that the immigration crackdown will hurt their workers and their business.” But as Daniel noted on X, the positive number is three. As in, the Times had also recently told the story of a New York farm facing an immigration enforcement action, which responded with technology: “The farm now produces three times more milk per worker, while employees earn more, work shorter hours, and do less grueling work.”

Daniel covered that story earlier this year in “Self-Milking Cow Machines,” where he wrote: “The machines exist, or soon will. They are simply not standard on American farms, for the same reason milking robots are not: cheap labor makes them unnecessary. We should wonder what other such innovations American firms might have developed, had demand existed here all along—and what they might develop if demand emerges.”

Finally, on the enforcement front, Aaron Renn writes “Why America Needs to Pause Mass Immigration” while both the Mass Deportation Coalition and the Democratic-aligned Searchlight Institute have new reports calling for tougher enforcement against unauthorized employment, with a greater enforcement focus on employers that hire illegal immigrants. The MDC lists “Substantially Enhance Worksite Enforcement” as its number one recommendation. Searchlight says the government should “make it easy, and mandatory, for employers to verify work authorization online” while focusing more of its interior enforcement on “employers who knowingly hire illegal immigrants.”

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MORE LABOR MARKET NEWS

Immigration restriction is necessary for a healthy labor market, but a healthy labor market needs much more than immigration restriction. The Wall Street Journal has a really good dive into “How Five Americans Made It to the Middle Class,” by, who else, Te-Ping Chen (and co-author Lauren Weber), highlighting unconventional pathways and the institutions that support them.

Lest you forget, the workers at that Amazon warehouse who organized four years ago are still trying to negotiate a contract. The Republican-majority National Labor Relations Board has just ruled that Amazon illegally refused to bargain, which means… the parties head into federal court. It’s a classic illustration of how the legal rights granted to workers under the National Labor Relations Act can be nearly impossible to exercise in practice, in the face of employer intransigence and endless litigation. And it helps explain why Republicans Senators Josh Hawley and Bernie Moreno are helping lead the push for the Faster Labor Contracts Act.

AS FOR ARTIFICIAL INTELLIGENCE

Interesting new analyses of human interaction with large language models are highlighting the damage they may cause to human agency.

In Thinking—Fast, Slow, and Artificial: How AI is Reshaping Human Reasoning and the Rise of Cognitive Surrender, researchers introduce the concept of “cognitive surrender” as distinct from “cognitive offloading.” Use of LLMs doesn’t just free up human time, it weakens human judgment.

In Who’s in Charge? Disempowerment Patterns in Real-World LLM Usage, “analysis of historical trends reveals an increase in the prevalence of disempowerment potential over time. We also find that interactions with greater disempowerment potential receive higher user approval ratings, possibly suggesting a tension between short-term user preferences and long-term human empowerment.”

This brings to mind Oren’s commentary from November, “For Big AI, the Creepiness Is the Point,” where Sam Altman offered the half-baked approach that, “there are going to be a lot of edge cases, and generally we plan to follow the principle of ‘treat adult users like adults,’ which in some cases will include pushing back on users to ensure they are getting what they really want.” I think what they really want, Sam, is to spend less time with your chatbot.

Speaking of which, we were happy to read about “The Sudden Fall of OpenAI’s Most Hyped Product Since ChatGPT.” That’s right, Sora is gone. Who could have guessed, as the Wall Street Journal reports, that “AI chips are the most precious commodity at any leading research lab, and at OpenAI, Sora was eating up far too many of them”? Oren could. As he wrote in October, in “Let Them Eat Slop”:

Imagine my excitement this week when OpenAI announced its next major product release. Which was it doing first—curing cancer, or educating the world for free?

Oh.

Sora 2 lets you make videos of a figure skater dancing with a cat or a man doing a backflip on a paddleboard (yes, those are OpenAI’s first two examples) and share them in an addictive infinite-scroll app designed to compete with TikTok. “It’s the most powerful imagination engine ever built,” explains fake-AI-generated-Sam-Altman in the creepy intro. Well, no, Sam, whatever generates your talking points about curing cancer or educating the world for free next year surely holds claim to that title.

What a gift to humanity that the company is now pivoting away from the slop because it is… “weeks away from finishing work on a new AI model, code-named Spud, and needed to free up more computing resources to power the coding and enterprise products that would run on it.” But they’ll get to educating the world for free right after that.

IT COULD ALWAYS BE WORSE

Credit where due, the AI labs are at least innovating, and creating new and useful products. That’s more than we can say for private equity’s efforts in health care. This new report from NYU’s Stern School of Business provides “a series of case studies documenting how financial engineering plays out in the real world,” revealing “a consistent pattern: debt accumulation, sale-leaseback transactions, and cost-cutting that ultimately harms patients and communities.”

Wanna bet on it? The Trump administration, meanwhile, is pushing ahead with plans to put private equity, private credit, and cryptocurrency in 401(k)s. This American Compass policy brief explains the details, and why it’s such a bad idea. And given what’s happening in financial markets at the moment, Axios notes that the “Move to open 401(k)s to private credit and crypto comes at awkward time.”

WELCOME TO THE PARTY, MR. DIMON

We were pleased to see these remarks last week from JPMorgan CEO Jamie Dimon: “I think you have to use industrial policy now—I say that reluctantly.” Next time with enthusiasm!

One reason for enthusiasm is the continued push in critical minerals, where the news is coming fast and furious:

• US Gets Another Magnet Plant in Push to Tackle China’s Dominance (Bloomberg)

• In Win for Trump, U.S. Firm Acquires Huge Congolese Cobalt Miner (Wall Street Journal)

• US Secures Rare Earths Supply as Part of $565mn Loan to Brazil Mining Group (Financial Times)

One reason we have no choice is China’s own industrial policy, which has become especially disruptive in the global automotive market.

In some places, we see capitulation. Stellantis in Talks to Make Chinese EVs at Idle Canada Plant (Bloomberg).

In others, the will to push back. Republican Senator Proposes to Widen US Ban on Chinese Autos (Reuters); Chinese Cars Can’t Cross From Canada to US, Trump’s Envoy Says (Bloomberg).

And always, reminders of why it matters. They Came to Build China’s EV Future. Investigators Found Conditions Akin to ‘Slavery,’ reported the Washington Post last month. And now, according to The World, Chinese EV Giant BYD Faces ‘Forced Labor’ Investigation at Hungary Factory. Peter Harrell highlights how “a sudden, widespread shutdown of Baidu robotaxis in China drives home the security vulnerabilities of connected cars and why the US restricts Chinese connected vehicles.”

Finishing with some good news on pharmaceuticals, in the Financial Times, “Europe Must Pay More for Medicines, Says Bayer”:

Stefan Oelrich, head of Bayer’s pharmaceuticals division, told the FT that the longstanding model, under which US patients in effect subsidise pharmaceutical innovation through higher prices, was becoming untenable. ‘The American government has made it clear it does not see why the US should finance global R&D alone,’ he said, adding that Europe would ‘have to reorient’ towards higher price levels over time.

And the Wall Street Journal reports on the latest Section 232 action to induce domestic production and ensure reciprocity, “Trump Administration Unveils Up to 100% Tariff on Branded Drugs”:

The 100% tariff will apply to patented imported pharmaceuticals from companies that haven’t committed to invest in the U.S. and haven’t entered into “most favored nation” agreements to match their U.S. prices to the lowest they charge in other developed countries, a senior administration official said Thursday.

But the full 100% tariff might apply to only a few drugmakers or none at all. If a company pledges to invest in U.S. drug manufacturing in the coming years, its tariff rate will fall to 20%, the senior administration official said. The company would have to complete the factory by the end of President Trump’s term in the White House, the official said, or tariffs could be increased.

No wait, first more bad news on AI chips: The Institute for Progress has just published a thorough analysis finding “strong evidence that new H200 production would divert manufacturing capacity for US customers of comparable or more advanced AI chips. … In the current conditions of AI chip supply inelasticity, the United States loses more computing power than China gains from every H200 exported.” Read the report, or at least the tweet.

OK, we’ll go out on this: The Wall Street Journal notes that “Chinese share of American imports drops to lowest level since 2001,” the year China joined the World Trade Organization.

Enjoy the weekend!

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To mark the anniversary, we wanted to use this week’s newsletter installment to take stock—think of it as a Very Special Collector’s Edition. If you’ve been following along every week and have an instant recall of a year’s rapid developments across countries and sectors, well then we’ve got nothing new for you here. But that’s more than we can say for ourselves. We found assembly of the full picture to be extraordinarily valuable, noticing themes and connections that had escaped us, and we hope you will too.

What follows is a country-by-country and sector-by-sector account of Liberation Day, broadly defined. It covers not only tariff policy and bilateral trade agreements, but also the investment commitments extracted from trading partners and major companies, the government’s expanding role in industrial policy and financing, and the defense industrial base’s renewed commitment to capital investment under pressure from the administration. It is not comprehensive—much more has happened than can fit in one document—but it covers the major developments for the major trading partners and the sectors most directly implicated by the new international trading order.

President Trump made his administration’s theory of the case clear on Inauguration Day when he signed the America First Trade Policy memorandum, ordering a government-wide review of our trading partners’ unfair trade practices, the impact of large and persistent trade deficits, and other areas where he believed the United States had surrendered too much leverage over the terms of trade. The core argument was that, to be free and fair, trade must be balanced: persistent trade deficits in goods, combined with foreign tariffs and non-tariff barriers, had hollowed out U.S. manufacturing capacity, weakened domestic supply chains, and threatened our national security.

To move quickly, President Trump invoked the International Emergency Economic Powers Act—a novel use of an emergency statute that had never before provided the basis for tariffs. The resulting trade agenda unfolded in stages. The reciprocal tariffs announced on Liberation Day took effect in early April; however, shortly thereafter, the administration suspended the higher country-specific rates for most partners and replaced them with a 10% global tariff while opening space for bilateral negotiations. When that pause expired, country-specific reciprocal rates resumed in August at adjusted levels. At the same time, the administration pursued a parallel track with national-security trade actions under Section 232 of the Trade Expansion Act of 1962 in sectors such as steel, aluminum, autos, semiconductors, pharmaceuticals, and copper, while separately moving to eliminate duty-free de minimis treatment for low-value imports.

In practice, the reciprocal tariffs became less a static schedule than an instrument of negotiation. The leverage that they created provided the impetus for a series of bilateral Agreements on Reciprocal Trade, or ARTs. The administration has since signed ARTs with Malaysia, Cambodia, El Salvador, Guatemala, Argentina, Bangladesh, Taiwan, Indonesia, and Ecuador, and announced framework deals with the European Union, India, Japan, South Korea, Switzerland, Thailand, the United Kingdom, Vietnam, and others—covering the majority of U.S. trade. Review and renegotiation of the U.S.-Mexico-Canada Agreement (USMCA) is now underway.

In February, the Supreme Court held that the IEEPA authority to “regulate … importation” does not include tariffs, invalidating the reciprocal and fentanyl tariffs imposed under the statute. In response, President Trump terminated the IEEPA tariffs, imposed a temporary 10% surcharge under Section 122 of the Trade Act of 1974 (which expire in July), and moved to preserve the broader strategy through new investigations under Section 301 of the Trade Act of 1974, ongoing and new Section 232 cases, and the bilateral agreements already negotiated under the shadow of the reciprocal tariff regime. As we explained in “Keep Calm, the Tariffs Are On,” the Court’s decision had little substantive effect on the administration’s trade agenda. One consequence, however, is that countries that negotiated a higher reciprocal rate now pay only the 10% Section 122 surcharge on most goods, absent product-specific exclusions or higher Section 232 rates. That gap will persist until the administration deploys a new tariff authority.

And that is where the United States finds itself now: not a finished settlement but an active campaign on favorable terrain, with a range of obstacles but a strategic logic that remains intact.

COUNTRY ANALYSIS

CHINA

• China’s Trade Surplus Climbs Past $1 Trillion for First Times | New York Times

• Trump’s Tariffs Send US Trade Deficit With China to 21-Year Low | Bloomberg

• The American and Chinese Economies Are Hurtling Toward a Messy Divorce | Wall Street Journal

• Why China Is Doubling Down on Its Export-Led Growth Model | Financial Times

• China’s Growth Target Is a Global Problem | Financial Times

• On Trade, China Isn’t As Strong as It Looks | Commonplace

• On China, Our Trading Partners Have Only One Choice | Commonplace

Even before Liberation Day, the average U.S. tariff on Chinese goods had already reached almost 40% after IEEPA actions in February and March 2025 over China’s role in the fentanyl supply chain were layered by President Trump atop his first-term Section 301 tariffs. Liberation Day pushed the effective rate far higher, and the ensuing tit-for-tat escalation drove U.S. tariffs on China above 145% and Chinese tariffs on U.S. goods above 125% by mid-April. In May, the two sides agreed to a ceasefire, cutting net tariff additions in 2025 to 30% and 10%, respectively, for 90 days. The first-term Section 301 tariffs remained in effect.

The truce did not end the confrontation. In October, the United States moved to expand the list of Chinese companies targeted by export controls, China responded with broader and tighter export controls on rare earths and magnets, and Trump then threatened 100% tariffs and new software restrictions. Meeting in Busan, Korea, Presidents Trump and Xi reached a second detente that reduced tariffs again, withdrew the expansion of U.S. export controls, deferred China’s expanded export controls for a year, and paused several other non-tariff escalations on both sides. The power of China’s critical-minerals chokehold, perceived by some as the trump card in the economic conflict, brought the sector into focus alongside semiconductors as the highest-priority supply chains for rapid reshoring.

As the primary driver of global imbalances, the Chinese export machine has been a key focus of the administration’s policy. China suppresses domestic consumption, overproduces manufactured goods, and relies on foreign markets to absorb the surplus—an economic model that delivered a record $1 trillion trade surplus in 2025 even as Chinese exports to the United States fell by nearly one fifth. By late 2025, China’s share of U.S. imports had fallen to roughly 7.5%, erasing more than two decades of growth since China’s ascension to the WTO at the turn of the century. Rather than landing in the United States, China’s surplus has flowed into Europe, Southeast Asia, and other markets, threatening their industrial bases and forcing them to choose: capitulate to China’s industrial dominance or join the United States in raising barriers against it.

That basic logic has shaped the entire trade agenda. The administration’s reciprocal trade agreements, tighter rules of origin, anti-circumvention provisions, and pressure on partners not to serve as waystations for Chinese goods are all China policy by other means. At the same time, as the semiconductor and shipbuilding sections show, the administration has been softening its posture toward China in important respects, cutting against the broader strategy. The oscillation between maximal pressure and negotiated reprieve has been a defining feature of the second-term trade war.

In March, U.S. officials met their Chinese counterparts in Paris to discuss tariff arrangements, agricultural and critical minerals purchases, and proposals for formal mechanisms to manage the commercial relationship. A summit in Beijing between Presidents Trump and Xi, postponed from the end of March due to the war in Iran, is currently scheduled for mid-May.

UNITED KINGDOM

• The Art of the Possible: Britain Settles for Quick Win in US Trade Deal | Reuters

• US-UK Trade Deal Squeezes China Supply Chains | Financial Times

• Trump Tells U.K. and Canada That Boosting Trade With China Is ‘Dangerous’ | New York Times

• U.S., U.K. Strike Deal on Higher Drug Prices | Wall Street Journal

In May, the UK became the first major trading partner to negotiate a post–Liberation Day agreement, which left a baseline 10% tariff in place while providing relief in selected sectors. Most notably, the first 100,000 vehicles imported annually from the UK face the 10% rate; additional autos face the 25% rate. The June implementing order provided relief for certain aerospace products and set terms for a broader Economic Prosperity Deal rather than a full trade agreement.

The precedent this set is notable: even close allies must negotiate for market access, and any relief comes in narrow, negotiated carveouts. The UK avoided the eventual increase in steel and aluminum tariffs on other countries from 25% to 50%, but did not secure full metals relief; any future cuts will be tied to U.S. demands on supply-chain security (i.e. limiting China-related exposure). The UK is subject to the administration’s Section 301 investigation into forced labor, though not the overcapacity probe.

December brought an agreement in principle on pharmaceutical pricing, under which the UK would raise net prices paid for new medicines by 25%, while the United States agreed to exempt UK-origin pharmaceuticals, ingredients, and medical technology from future Section 232 tariffs and not to target UK pricing practices in future Section 301 investigations during the president’s term. A February MOU concerns building more secure non-Chinese supply chains for critical minerals.

EUROPEAN UNION

• Europe Got Tough With Trump, but It Needs the U.S. as Much as Ever | Wall Street Journal

• Europe’s China Shock Worsens as Trade Deficit Widens | Politico

• How Germany Fell Out of Love with China | The Economist

• French Advisers Urges EU Tariffs or Weaker Euro to Counter China | Reuters

The U.S.-EU framework, reached in July, set a 15% tariff on most EU goods—including autos, pharmaceuticals, and semiconductors—down from the 20% reciprocal rate announced on Liberation Day. Tariffs on steel, aluminum, and copper remained at 50%, with future relief tied to joint action on supply chains and overcapacity. In exchange, the EU agreed to eliminate tariffs on U.S. industrial goods, provide preferential access for U.S. agricultural exports, and address longstanding non-tariff barriers. An August joint statement included commitments on $750 billion in U.S. energy purchases through 2028, $600 billion in EU investment in the United States, defense procurement increases, strong rules of origin to ensure the agreement’s benefits accrue to the United States and the EU rather than third countries, and economic security cooperation. September’s implementing notice zeroed out duties on EU-origin aircraft, generic pharmaceuticals, and natural resources unavailable in the United States.

The EU deal may be the most structurally fragile of the recent investment agreements. The energy pledge depends on private buyers, while the $600 billion investment target carries no legally binding commitment and is difficult for Brussels to direct or enforce. After months of delay amid broader tensions with the United States—including Trump’s threats over Greenland and the uncertainty following the Supreme Court’s IEEPA decision—the European Parliament voted in March to advance the implementing legislation. The measure now moves to negotiations with member governments, with a final parliamentary vote expected no earlier than June. In the meantime, the EU is subject to the administration’s new Section 301 investigations, covering structural manufacturing overcapacity and failures to enforce forced-labor import bans.

In June 2025, NATO members committed to spending 5% of GDP in defense and defense-related spending by 2035. A trilateral critical-minerals partnership with the EU and Japan, announced in February 2026, aims at supply-chain resilience, including a possible plurilateral trade initiative with tools such as border-adjusted price floors.

JAPAN

• Inside Trump’s $550bn ‘Shakedown’ of Japan Inc | Financial Times

• Trump Hails Japan’s First Batch of U.S. Investments | New York Times

• Japan to Spend Nearly $63 billion In Second Phase of US Investment | Reuters

• The Global Industrial Development Toolkit: Unpacking Trump’s Investment Deals with Japan and South Korea | American Affairs

The July trade and investment agreement with Japan subjects nearly all imports from Japan to a baseline 15% tariff, down from the 24% reciprocal rate announced on Liberation Day. The 27.5% tariff rate on autos also fell to 15%—a significant change for an export economy heavily reliant on autos. In exchange, Japan agreed to provide greater market access for American producers, including large purchases of U.S. agricultural and energy products, 100 Boeing aircraft, and billions in defense equipment, while it also accepted U.S. automotive safety standards for vehicles sold in the Japanese market. Japan is subject to both of the administration’s new Section 301 investigations, covering structural overcapacity and failures to enforce forced-labor import bans.

But the real novelty was the creation of an allied-financing mechanism for American industrial policy. A September MOU commits Japan to a $550 billion capital infusion into U.S. strategic industries through January 2029. The structure is asymmetric: the United States selects the projects, Japanese capital funds them, and the overwhelming share of returns ultimately flows to the United States. Japan can decline specific investments, but doing so risks forfeiting preferred distributions and prompting renewed tariff pressure. By October, Japan had identified up to $390 billion in potential projects; in February, the first $36 billion tranche was announced.

Critical mineral coordination shows the broader strategic logic of the partnership. An October framework focused on financing, stockpiling, mining, and processing to secure an alternative supply of critical minerals outside China. In February, that effort widened into a trilateral track with the European Union and Japan, with action plans to develop new coordinated trade tools and to broaden plurilateral cooperation. Further steps were announced in March 2026.

SOUTH KOREA

• Samsung and Other South Korean Firms Pledge Larger Domestic Investments after U.S. Tariff Deal | CNBC

• Understanding the $350 Billion MOU Putting Seoul Under Pressure | Korea Economic Institute of America

• The Global Industrial Development Toolkit: Unpacking Trump’s Investment Deals with Japan and South Korea | American Affairs

A July 2025 preliminary deal with South Korea, later expanded to include a $350 billion investment framework, placed a 15% tariff on Korean goods, down from a 25% reciprocal rate announced on Liberation Day. Sector-specific caps ensure Korean automakers, pharmaceutical producers, and chipmakers receive rates no less favorable than those offered to competing exporters. In exchange, Korea agreed to ease market access for American producers by removing a 50,000-unit cap on qualifying U.S.-made cars, reducing emissions paperwork, streamlining approvals for agricultural biotechnology products, and pledging non-discrimination against U.S. digital firms. Also included: a 103-aircraft Boeing order and an additional $150 billion in private foreign direct investment from Korean companies during President Trump’s second term. As with Japan, South Korea is subject to both of the administration’s new Section 301 investigations.

As with Japan, the real novelty was the extension of the allied-financing model. The package totals $350 billion, with $150 billion earmarked for U.S.-approved shipbuilding investment—turning one of Korea’s industrial advantages into a pillar of the administration’s maritime revitalization. The other $200 billion is tied to an investment MOU for strategic sectors. Like Japan’s, the structure is asymmetric: the United States selects projects, Korea funds them, and after investments break even 90% of distributions flow to the United States. Korea secured protections Japan did not: a $20 billion annual funding cap, greater reliance on loans and guarantees, and a consultative role in project review. But the leverage remained clear. After delays in Korea’s implementing legislation, January tariff threats were followed by March legislation authorizing a public corporation to manage the promised investments.

TAIWAN

• Taiwan and TSMC Rush to Head off Donald Trump’s Tariff Threat | Financial Times

• US and Taiwan Reach Trade Deal, with Semiconductor Chips and China in Focus | Reuters

• Taiwan Reaches Trade Deal With Trump and Pledges More U.S. Chip Factories | New York Times

Taiwan’s Liberation Day rate was 32%, reset to 20% when country-specific tariffs resumed in August. A January investment MOU and February trade agreement then capped the reciprocal tariff on most Taiwanese goods at 15%, set future Section 232 treatment on Taiwanese auto parts, timber, and lumber at no more than 15%, and zeroed out reciprocal duties on generic pharmaceuticals, aircraft components, and natural resources unavailable in the United States. Taiwan zeroed out tariffs on over 6,300 U.S. products, and agreed to accept U.S.-standard vehicles and FDA-approved medical devices and facilitate roughly $85 billion in purchases of U.S. liquified natural gas and crude oil, power equipment, and civil aircraft and engines through 2030. Taiwan is also among the economies targeted by the administration’s new Section 301 probes into overcapacity and forced-labor enforcement.

The deal was principally structured around semiconductor reshoring. Taiwanese firms committed at least $250 billion in direct investment and at least $250 billion in credit guarantees to support additional investment in the United States in semiconductors, energy, and AI. The agreement tied future semiconductor Section 232 relief directly to domestic buildout: Taiwanese firms constructing new U.S. capacity may import up to 2.5 times that planned capacity without paying Section 232 duties during construction; firms that complete new U.S. projects may import up to 1.5 times their new U.S. capacity duty-free. The agreement links trade treatment to economic-security alignment. The United States reserves the right to consider Taiwan’s cooperation on export controls, investment reviews, and shared national-security concerns when granting future preferential treatment—and can terminate it if Taiwan enters a new preferential agreement with a covered nation, such as China.

INDIA

• Trump’s Surprise Trade Deal With India Resets Fractured Ties | Bloomberg

• Trump and India Call Off Their Trade War, but the Terms of Peace Are Murky | New York Times

India’s Liberation Day rate was 26%. By August, it faced a 25% reciprocal tariff under IEEPA plus a 25% tariff because of continued purchases of Russian oil, pushing the headline rate on many products to 50%. Here, the administration was using tariffs to pursue foreign policy objectives beyond balanced trade. Consequently, India faced among the heaviest tariff pressure of any trading partner.

A February 2026 interim, nonbinding deal released the pressure. The United States removed the Russia-related tariff and lowered India’s reciprocal tariff to 18%; India committed to stop buying Russian oil and expand market access for U.S. exports. India agreed to eliminate or reduce tariffs on industrial goods and a range of agricultural products, address non-tariff barriers in priority areas, establish rules of origin to prevent third-country circumvention, and develop bilateral digital-trade disciplines. The package also included U.S. commitments on specific sectors, including tariff relief for aerospace goods, autos and parts, and pharmaceuticals. Tariff relief for India was paired with monitoring and a possible snapback if Russian oil purchases resumed, though the administration will need to use a different authority to retain the pressure absent IEEPA authority. India is subject to both of the new Section 301 investigations, covering structural overcapacity and failures to enforce forced-labor import bans.

The administration says India intends to purchase more than $500 billion in U.S. energy, information and communications technology, coal, and other products over five years (though such figures may be aspirational; India bought around $40 billion in U.S. goods in 2024). Unlike Japan and South Korea, India didn’t offer an investment package, and domestic politics—especially regarding the agricultural sector—limited the concessions it could make.

NORTH AMERICA

• Bessent Urges Canada, Mexico to Match US tariffs on China as Deadline Looms | CNBC

• Trump’s Tariff Threats Freeze Out BYD and Other Chinese Firms in Mexico | Bloomberg

• Mexico to Raise Tariffs on Imports From China After US Push | Bloomberg

• Lighthizer Has Bad News for Mexico | Bloomberg

• No Pain, No Gain on Canada and Mexico Tariffs | Commonplace

• Canada Doesn’t Have the Cards | Understanding America

For North America, President Trump’s second-term trade war began before Liberation Day. In February 2025, citing concerns relating to fentanyl and immigration, his administration imposed IEEPA tariffs of 25% on goods that did not claim and qualify for USMCA preference. That same structure persisted after Liberation Day and the later pivot to Section 122, with USMCA-compliant goods remaining exempted from the broader tariff action. The practical effect was to make USMCA more valuable, not less: more trade was pushed under its terms, turning it into the operating platform for regional trade even as tariff pressure intensified around it. Estimates indicate that 85% of imports from Mexico and Canada claimed USMCA preference in January, up considerably from a year before. Both countries face separate Section 232 actions on steel and aluminum, autos, and medium- and heavy-duty trucks (with USMCA-compliant trucks and parts receiving narrower treatment based on their U.S. content).

The administration has made a common regional demand: neither Mexico nor Canada can serve as an export hub for China and other non-market economies into the U.S. market. Likewise, it has signaled interest in building a “fortress North America” by tightening rules of origin, limiting third-country content, and reducing imports from non-market economies. That strategic logic will inform this summer’s USMCA sunset review. The stakes are high; Trump has mused about replacing USMCA and pursuing separate bilateral deals with Mexico and Canada

Mexico

Mexico is further along in adapting to the new U.S. economic framework. In December, it authorized tariffs of up to 50% on goods from countries with which it has no trade agreement, including China, signaling willingness to align more closely with the U.S. push to keep non-market-economy content out of North American supply chains. Bilateral talks began in March ahead of July’s Joint Review, putting Mexico ahead of Canada as the administration moves to tighten rules of origin and harden the region’s trade perimeter. Washington is pressing Mexico on discriminatory energy policies, biotech corn, and unresolved digital and customs barriers. In February, the two governments launched a first-of-its-kind Action Plan for critical minerals focused on coordinated trade tools, stockpiling, project development, and possible border-adjusted price floors. Mexico is nonetheless named in both Section 301 investigations.

Canada

Canada enters the review from a weaker and less settled position than Mexico. The administration is demanding movement on dairy access, digital rules, discriminatory procurement, customs frictions, and tighter regional rules of origin, alongside stronger alignment against non-market economies. Bilateral relations have been rocky; pressure deepened after Prime Minister Mark Carney’s Davos speech in January—which urged middle powers to resist American dominance—and after Carney’s subsequent move to open Canada’s market to Chinese autos as part of a “new strategic partnership.” Both actions drew strong criticism from the administration. U.S. and Canadian officials are only expected to begin formal USMCA review meetings in the coming weeks. Canada is subject to the administration’s Section 301 investigation into forced labor, but not the overcapacity probe.

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SECTORAL ANALYSIS

CRITICAL MINERALS

• America Gave Away Rare Earths | Commonplace

• Pentagon to Take Stake in Rare-Earth Company, Challenging China’s Control | Wall Street Journal

• New ‘Project Vault’ Critical Minerals Stockpile Is ‘First Step of Many’ Needed for U.S. to Break China’s Supply-Chain Chokehold | Fortune

China’s chokehold on critical minerals and rare earths has been in constant focus since Liberation Day. The real bottleneck is not the rocks themselves, but the refining, separation, and magnet-making capacity that transforms them into industrial inputs. China spent decades building dominance through state-directed industrial strategy and acquiring foreign competitors.

As the tit-for-tat trade war between the United States and China escalated in April 2025, China imposed export controls on rare earth elements and magnets; in October, it tightened those controls further to cover products tied to mining, processing, and magnet-making. Together, the measures created a licensing regime broad enough to disrupt global manufacturing. Shortly thereafter, Presidents Trump and Xi struck a detente that prevented a de facto trade embargo; however, the underlying vulnerability had been exposed for all to see.

In response, the administration took action across nearly every lever of federal power. In February, Trump unveiled Project Vault, a public-private critical minerals reserve designed to give manufacturers a buffer against supply shocks. That same week, Secretary of State Rubio convened a Critical Minerals Ministerial with 54 countries, during which Vice President Vance proposed a preferential trade zone protected by enforceable price floors. The same day, USTR announced a U.S.-Mexico Action Plan and a separate track with the European Union and Japan, while the State Department signed an MOU with the United Kingdom and announced the United States has mobilized more than $30 billion to build critical mineral capacity through loans, exploration deals, stockpile purchases, and direct equity stakes, including a $400 million equity deal with MP Materials backed by a 10-year price floor and magnet offtake agreement.

DEFENSE INDUSTRIAL BASE

• You Can’t Spell ‘Defense Industrial Base’ Without ‘Industrial Base’ | Understanding America

• ‘There’ll Be Consequences’: Trump WH Warns Defense Contractors | RealClearPolitics

• US Defense Firms Boost Spending After Trump Calls for Expedited Arms Deliveries | Reuters

• Pentagon Headhunting Goldman, JPMorgan Bankers for ‘Economic Defense Unit’ | Semafor

For years, major defense contractors returned far more capital to shareholders through buybacks and dividends than they reinvested in production capacity. In January, President Trump directed the Department of War to identify contractors that underperform on delivery, underinvest in capacity, or prioritize shareholder payouts over government production needs. Such contractors face a prohibition on buybacks until they deliver “a superior product, on time and on budget,” while future contracts must tie executive compensation more closely to production performance. Capital expenditures are now expected to rise by more than a third this year; allied demand is also expanding. In June, NATO members committed to spending 5% of GDP on defense by 2035, and bilateral frameworks with the EU, Japan, and South Korea each include commitments to increase procurement of U.S. military equipment.

In November, the Pentagon unveiled a new acquisition architecture that concentrated authority in new Portfolio Acquisition Executives, replaced analyses of alternatives with competitive prototyping, expanded other transaction authorities, cut documentation to statutory minimums, and aims to provide “investable demand signals” such as multi-year procurements, guaranteed purchase orders, and long-duration contracts to catalyze private investment. The Department of War has also begun recruiting for a new Economic Defense Unit to help deploy expanded financing authorities across six key portfolios. Together with the Office of Strategic Capital’s expanded lending authority—reportedly up to $200 billion over several years—the administration is turning the Department into a more active investor in the industrial base on which it depends.

SHIPBUILDING

• Trump Wants the U.S. Shipbuilding Industry to Be Great Again. Here’s What It Will Take | CNBC

• White House Outlines Trump Plan for Shipping Industry | New York Times

• Trump’s Shipbuilding Imperative | Commonplace

• Rebuilding America’s Sea Power | American Affairs

In April 2025, President Trump signed an executive order on “restoring America’s maritime dominance,” noting that decades of neglect had left the United States building less than 1% of the world’s commercial ships while China produced roughly half. China’s shipbuilding capacity is higher by more than 20,000%.

The administration imposed Section 301 port-entry fees on China-operated and Chinese-owned vessels, as well as on operators using Chinese-built vessels, which were finalized in April, modified in October, and then suspended for a year in November after the U.S.-China detente. The effort provides a good illustration of how aggressive the administration was willing to be, and the difficulty of sustaining escalation in sectors that China dominates.

A February 2026 Maritime Action Plan fulfilled the 2025 EO, calling for a Maritime Security Trust Fund to provide durable funding, Maritime Prosperity Zones (modeled on Opportunity Zones) to channel domestic and allied capital into shipyards, and stronger enforcement against transshipping cargo through Mexico or Canada to evade U.S. fees. It also proposed a “Bridge Strategy” under which the first ships in a multi-ship contract could be built in allied foreign yards while direct investment simultaneously expands U.S. production capacity. The objective is to use trade leverage and allied cooperation to rebuild an industry the United States cannot revive on its own. Bipartisan legislation introduced in April 2025 proposed many of the same tools.

The Action Plan called for international agreements linking market access to joint industrial development, and singled out South Korea and Japan as central to revitalizing U.S. shipbuilding. The South Korea deal included $150 billion in U.S.-approved shipbuilding investment, alongside a working group on shipyard modernization, workforce development, maintenance and repair, and supply-chain resilience.

SEMICONDUCTORS

• Trump, Intel Agree to 10% U.S. Stake as President Promises More Deals | Wall Street Journal

• TSMC is Set to Expand Its $165 Billion U.S. Investment | CNBC

• TSMC to Delay Japan Chip Plant and Prioritize U.S. to Avoid Trump Tariffs | Wall Street Journal

• Trump Sets Up ‘Pax Silica’ Fund to Reduce Global Dependencies | New York Times

• Trump Administration Delays Tariffs on Chinese Semiconductors | New York Times

The United States had already embraced industrial financing of semiconductors before Liberation Day. The CHIPS Act has remained operative and the administration layered trade leverage over that existing subsidy pipeline. In April 2025, President Trump initiated a Section 232 investigation into semiconductors, semiconductor manufacturing equipment (SME), and derivative products. A January 2026 proclamation implements an immediate 25% tariff on a narrow category of advanced chips and derivatives that do not contribute to domestic semiconductor manufacturing capacity while deferring broader action.

As with autos and pharmaceuticals, the Section 232 action became leverage in bilateral talks. Taiwan’s agreement capped most reciprocal tariffs at 15%, and tied future semiconductor tariff relief directly to expanding U.S. capacity. South Korea secured a guarantee that future semiconductor tariffs would be no less favorable than those offered to a later major chip partner, while Japan’s $550 billion investment vehicle explicitly targeted semiconductor manufacturing and research.

In August, the administration converted remaining CHIPS support for Intel into an $8.9 billion equity investment that granted the government a 9.9% passive stake. In December, it launched Pax Silica, a State Department initiative to build trusted semiconductor and silicon supply chains with allies. In March, the Department said it would work with Congress to launch a $250 million Pax Silica Fund to support that effort.

As with shipbuilding, however, sustaining pressure on China on semiconductors has proved difficult: in December, the administration delayed new Section 301 semiconductor tariffs on China for 18 months as part of the broader detente, illustrating the tension between industrial strategy and managing an unstable relationship.

PHARMACEUTICALS

• Global Drugmakers Rush to Boost US Presence as Tariff Threat Looms | Reuters

• Eli Lilly Plans at Least $27 Billion in New U.S. Manufacturing Investments | CNBC

• AstraZeneca Unveils $50 Billion US Investment as Pharma Tariff Threat Looms | Reuters

In April, President Trump initiated a Section 232 investigation into imports of finished drugs, active pharmaceutical ingredients (APIs), and related products. In September, he threatened 100% tariffs on branded drug imports from companies without U.S. factories under construction, turning a live Section 232 investigation into a tool for inducing domestic investment commitments. The administration then delayed the tariffs to negotiate lower drug prices with manufacturers that also invest in U.S. production.

The strategy for supply-chain resilience and domestic production extended beyond tariffs. In May, Trump signed an executive order on regulatory relief to promote domestic production of critical medicines, aimed at accelerating approvals and removing barriers to reshoring. In August, he ordered the filling of the Strategic Active Pharmaceutical Ingredients Reserve, arguing that stockpiling APIs and their inputs could protect the United States from foreign disruption and strengthen domestic pharmaceutical manufacturing.

The domestic manufacturing push was paired with a broader campaign to reduce prices. In May, Trump issued an executive order to develop a most-favored-nation (MFN) policy for prescription drugs, arguing that Americans pay far more than patients in other rich countries, effectively subsidizing global innovation. In July, the administration sent letters to manufacturers urging negotiations; in September, it announced the first series of MFN agreements; and by February, it said it had announced 16 agreements, alongside the launch of TrumpRx.gov.

AUTOS

• Volvo to Build New Hybrid Car to Meet U.S. Demand and Avoid Tariffs | New York Times

• Stellantis Unveils $13 Billion U.S. Investment Plan | New York Times

• South Korea’s Hyundai Motor Increases U.S. Investment to $26 Billion | Wall Street Journal

• GM Wants Parts Makers to Pull Supply Chains from China | Reuters

• Tesla Wants Its American Cars to Be Built Without Any Chinese Parts | Wall Street Journal

On autos, a first-term Section 232 threat became a second-term tariff reality. An investigation initiated in 2018 concluded the following year that imported autos and parts impaired national security; however, President Trump never imposed tariffs, instead using tariff threats as leverage in USMCA negotiations. That changed in March 2025 when the administration imposed a 25% tariff on imported passenger vehicles and auto parts.

North American trade, including USMCA-compliant goods, was not fully spared. For USMCA-qualifying autos and parts, the 25% duty applies only to non-U.S. content (for parts, the process for calculating that share remains pending). As with other sectoral actions, these tariffs became bargaining chips in reciprocal trade talks. The UK secured a 10% total rate on the first 100,000 vehicles, while the EU, Japan, and South Korea each reduced their rate to 15%. In October, the administration imposed Section 232 tariffs on medium- and heavy-duty trucks, parts, and buses, again at 25%, again applied only to non-U.S. content.

This tariff action has prompted investment commitments. Toyota agreed to export U.S.-made vehicles to Japan, Korean automakers accelerated U.S. production plans, and the EU committed to mutual recognition of US automotive standards. Separately, the One Big Beautiful Bill Act repealed the Inflation Reduction Act’s clean vehicle tax credits, removing the subsidy architecture that had been steering capital toward domestic electric vehicle production and reshaping the investment landscape for automakers planning expansions. The legislation also provided a new deduction for interest on auto loans for U.S.-assembled vehicles.

STEEL, ALUMINUM, AND COPPER

• Trump’s Steel Tariffs Are Triggering Counterstrikes From US Neighbors Against China | Bloomberg

• E.U. Proposes 50% Steel Tariffs as Trump Effect Ripples Around World | New York Times

• Trump Invokes ‘Golden Share’ to Block U.S. Steel Plans for Illinois Plant | Wall Street Journal

• U.S. Steel to Restart Blast Furnace at Plant Trump Pushed to Preserve | Wall Street Journal

• U.S. Getting Its First New Aluminum Production Plant in Nearly 50 Years | Design & Development Today

With steel and aluminum, President Trump converted a Section 232 action from his first term into a broader industrial weapon. The tariffs began in 2018 but, by the end of the Biden administration, they had been reduced via country-specific quotas and product exemptions. In February 2025, the Trump administration restored them to full force—resetting steel at 25% and raising aluminum to 25%, ending country exemptions, tightening origin rules, and expanding coverage to more downstream products. In June, the administration doubled both tariffs to 50%, arguing that the earlier rates had not restored the capacity utilization needed for national defense. It also widened the tariffs to cover additional downstream and derivative goods, including household appliances and certain auto parts. Meanwhile, in July, Trump imposed a 50% tariff on semi-finished copper products and intensive copper derivative products under Section 232.

Action on metals widened beyond tariffs into direct state participation. In June 2025, the administration approved Nippon Steel’s controversial acquisition of U.S. Steel, but only after receiving a “golden share” through a national security agreement. The golden share gives the U.S. government extraordinary rights over a wide range of corporate decisions, including plant closures, offshoring, major capital investments, and changes to production commitments—an atypical level of control in a private-sector transaction. In September, Trump used that authority to block U.S. Steel from halting production at its Granite City, Illinois plant.

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Editor’s note: We interrupt your regularly scheduled Understanding America for this comment from Oren on Iran.

The decision of whether to start a war is the most consequential a president can make, and President Trump has chosen wrong. If the operation in Iran tips the economy into recession and devolves into a military quagmire, his decision will more obviously be wrong. If the Iranian regime falls tomorrow, he will still have been wrong. He has given priority to the ambitions of American empire over the interests of American citizens, in exactly the manner of the “globalist elites” he had sought to replace.

In the decades after the Cold War’s end, the United States adopted a framework in which American dominance of the global system was the ultimate imperative. As I observed last year in Foreign Affairs, President George H. W. Bush’s seminal Defense Planning Guidance in 1992 called for the United States to “promote increasing respect for international law, limit international violence, and encourage the spread of democratic forms of government and open economic systems,” and to “retain the pre-eminent responsibility for addressing selectively those wrongs which threaten not only our interests, but those of our allies or friends, or which could seriously unsettle international relations.”

The following year, President Bill Clinton ratified this bipartisan consensus in a speech at the United Nations. “We cannot solve every problem,” he said, “but we must and will serve as a fulcrum for change and a pivot point for peace.” Four years later, in his second inaugural address, Clinton went further, anointing the United States the world’s “indispensable nation.” At around the same time, neoconservatives Bill Kristol and Robert Kagan assigned the American people “fundamental interests in a liberal international order, the spread of freedom and democratic governance, an international economic system of free-market capitalism and free trade,” and a “responsibility to lead the world.”

Prioritizing the American empire over American citizens and then claiming this would somehow redound to their benefit, hollowing out the Heartland to stitch global markets together, giving more attention to upholding abstract principles on the other side of the world than to helping families make ends meet—these are the kinds of tradeoffs that the American elite embraced. The strategy worked so poorly, and became so despised by so many Americans, that they elected Donald Trump president instead of continuing to go along with it.

In January, debating the Hudson Institute’s Michael Doran on the future of U.S. policy toward Israel, I argued against action in Iran, because “there is not a lot of good reason to believe that the United States attempting to intervene in Iran would be successful or push it in a better direction in any reasonable timeframe.” Instead, it seemed to me, “the United States should take its limited resources, both literally and figuratively, and focus on those things that are most relevant to the interests of the American people,” including “strengthening the architecture of our existing alliances, which is not especially strong right now, and focusing on the very many problems that we have here on this side of the ocean.”

Of course, the first-order cost of this war, like any war, is the death, destruction, and instability that it causes. That’s why the United States should only ever go to war as a last resort, only after careful deliberation, only with a just cause and a clear rationale, and only after leaders have built support from the citizenry they are sworn to represent, and from whom the soldiers and resources must be drawn. The Trump administration did none of this, which makes the costs unjustifiable and also weakens the U.S. position, lacking the deep political support necessary to make a “fight until we win” posture credible. Deploying ground troops, as is reportedly under discussion, would compound all these problems.

The quick, limited strikes on Iran in June and Venezuela in January seem to have given the White House a false confidence that “We Can Just Do Things.” But this conflict is two-sided, and the other side currently holds a veto over how and when it ends. The regime could fall, but it appears more likely to survive, solidify control, and radicalize further—with less to lose and no fear of an American threat already carried out. (Already, this has become an argument for regime change as the only option.)

When it comes to the Middle East, a second-order concern must always be energy. One reason past presidents have not attacked Iran is that it was expected to respond by shutting the Strait of Hormuz, as has been diligently war-gamed for decades, sharply reducing global supplies of oil and natural gas. Destruction of energy infrastructure by both sides would deepen the crisis and impose continuing costs for years after a shooting war ended. Sharp price increases are already hitting the American family directly in its pocket book and will likely get worse before they get better.

Those increases also pose a rather serious political challenge ahead of the midterm elections for a White House that had insisted it was advancing an “affordability agenda.” The Trump trade agenda has come at a remarkably low cost to consumers and offers a tangible and vital domestic payoff; igniting a contest to destroy Persian Gulf infrastructure is a different story. As the New York Times headlined ominously last week, “U.S. Inflation Stayed Subdued Before Onset of Iran War.”

The energy shocks pose a direct threat as well to the objectives of rebalancing the global trading system and reindustrializing the American economy. Rising energy prices are not conducive to major industrial investments, or flourishing manufacturing and agricultural sectors. If they tip the economy into recession, the president’s vision for a new “golden age” will recede over the horizon. The positions of trading partners more reliant on the Gulf, whose investments in the American economy and demand for American exports are vital to American growth, are quickly weakening as well. For instance, Politico reported on Wednesday:

The meeting between President Donald Trump and Japanese Prime Minister Sanae Takaichi in Washington on Thursday was meant to be a celebration involving cherry blossoms, big investment checks and an affirmation of close ties between the two allies. The U.S.-Israeli war on Iran has scrambled that agenda. Japan depends heavily on oil shipped through the Strait of Hormuz…

President Trump also announced this week that he would postpone the long-anticipated summit with China’s Xi Jinping because of the war.

And then there is the cost in resources. The war has already meant moving vital strategic assets out of other regions and expending limited munitions, reminding the world that the United States can barely fight one limited war for a few weeks, let alone fulfill its purported commitments to deter more powerful adversaries around the world. The Pentagon has reportedly asked the White House for $200 billion in supplemental spending to support the war effort, an outrageous request that underscores the folly of the entire mission.

Recall, the White House position (backed by much commentary) is that the war is going well, perhaps as well as could have been hoped or anticipated. And yet, after less than three weeks, the price tag could be $200 billion? Will anyone in the administration promise that even that amount will prove sufficient? This is why our Constitution rightly requires the president to secure authorization from Congress before initiating a conflict. No member of Congress should vote for that spending unless they are prepared to identify the people whose taxes they will raise to fund it. Even then, the list of other priorities that such outlays could instead have funded is too depressingly long to include here.

Finally, there is the simple matter of distraction. The attention of the White House is among the most valuable resources available to policymakers. Politically, the American people rightly take the president’s focus to signal what their government considers to be the nation’s most pressing problems. When a war is on, not much else happens. And so much else needs to happen—not only on trade and reindustrialization, but also on immigration, on technology, on health care, on education, on housing, on family. All must take a back seat to, well, whatever it is we are accomplishing 6,000 miles away.

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Against all these considerations, the argument for the war (depending on which you pick and attempt to decipher) usually requires a circular worldview in which American hegemony is vital to the goal of preserving American hegemony. We are dropping bombs on Islamic Revolutionary Guard Corps bases from which attacks might otherwise be launched at the American bases we must have in the region for situations where we want to drop bombs. We have taken steps that led predictably to the closing of the Strait, because it was dangerous for Iran to have the power to close the Strait. To prevent nuclear proliferation, we must demonstrate our willingness to flatten countries that do not yet have nuclear weapons. How this helps the American people is unclear, once you turn your eyes away from the hand-waving assumption that global empire benefits the typical citizen.

Critics of the war have been quick to call Trump’s decision impulsive, egotistical, and indefensible. But he is proceeding in precisely the proud tradition that policymakers, commentators, and scholars promoted for decades, in which addressing the cost of health insurance for American families takes a backseat to addressing the cost of shipping insurance for boats carrying oil to China.

Trump has not so much gone out on a limb as climbed up the wrong tree—one already filled with neoconservatives who spent years condemning him as reckless, vulgar, uninterested in constitutional imperatives, and dangerous to global stability… until he became their kind of reckless, vulgar, uninterested in constitutional imperatives, and dangerous to global stability.

In 2020, Bill Kristol warned against Trump’s “recklessness, his irresponsibility” and the prospect of him “unleashed, unbridled with a bunch of sycophants working for him,” without military advisors like Jim Mattis and John Kelly to guide him. John Bolton said that Trump was “dangerous” because “I don’t think he understands enough about international affairs to be able to recognize threats to America unless and until they have a direct impact on his personal political circumstances.”

But last June, Kristol told the New York Times, “you’ve got to go to war with the president you have. … If you really think that Iran can’t have nuclear weapons, we have a chance to try to finish the job.” In January he said the administration “should be helping the brave people of Iran overthrow a cruel and terror-sponsoring dictatorship.” As the first missiles landed last month, Bolton told the Free Press, “I tried to convince Trump to do this in the first term. I’m sad that I didn’t succeed then, but if there were ever a moment to do this, this is it.”

In 2016, John Podhoretz called Trump “an unspeakable human being” and “an emetic” who was “about to be vomited up.” Now he waxes rhapsodic: “The six weeks of diplomatic dithering following the Iranian slaughter were, in fact, simply temporizing. We got our ducks in a row… Today, February 28, 2026, may be the most important day of the 21st Century so far.”

This tree in which Trump and his war chorus now find themselves together is dead, its core long since rotted. Americans tried its bitter fruit and turned away in disgust. If the weight of this foreign adventure finally causes it to keel over, the president will have quite a distance to fall.

There is another tree, far from the online swamp of identity politics and ethnic hatreds, where most Americans sit, uninterested in empire and yearning to live in a republic with representatives focused on the interests of their fellow citizens. President Trump should climb down and head on over. Regardless, it represents the nation’s well-rooted future, and we all share responsibility for ensuring it grows.

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At the think tank’s “New World” gala last June, Cass interviewed Vance on stage, and the vice president took a trip down memory lane. “Maybe the first time I ever met Marco was in a conference room in his Senate office with Mike Needham and Oren Cass talking about some of the very things we’re talking about here tonight,” Vance said. “It’s kind of amazing to see it come full circle to where we are today.”

Another place where we are today: the midst of a battle over bipartisan housing legislation, the 21st Century ROAD to Housing Act, which passed the Senate yesterday by an overwhelming margin of 89-10 and has strong support from President Trump. In the House, Republican French Hill, chair of the financial services committee, is threatening to block passage over his opposition to proposed restrictions on large institutional investors controlling the housing supply. Daniel dives in:

The housing legislation before Congress is a consequential package of supply-side reforms, years in the making, designed to encourage building new housing and clear away some of the obstacles that Washington has helped erect. And yet the legislation now risks being derailed in the House because of one provision.

That provision is Section 901, added after President Trump argued that “people live in homes, not corporations,” issued an executive order acting on the point, and urged Congress to turn it into law. The section advances the principle by prohibiting large institutional investors from buying up single-family homes and building new ones to hold in perpetuity and offer only for rent.

The backlash from industry groups, allied analysts, and some members of Congress has been intense. Critics call it “protectionism” and warn that it will make the build-to-rent model harder to finance, thereby reducing the single-family housing available as long-term rental stock. They have captured the provision’s purpose well; the question is whether these effects are features or bugs.

Section 901 is, in fact, protectionism for families over funds. The rest of the bill advances reforms to increase housing supply. But housing policy does not only shape supply. It shapes demand too, including who gets first claim on single-family homes. Section 901 answers the question too few housing bills are willing to ask: who is all this housing for?

A single-family home occupies a special place in American life. The problem in this part of the market is not an abstract shortage of “units.” It is that working- and middle-class Americans increasingly cannot buy single-family homes in or near the communities where they want to build lives. For most American families, a single-family home is the primary vehicle for building wealth. It is how a household stores savings, accumulates equity, and benefits from appreciation. When a family buys the home, those gains flow to the family. When an institutional investor buys the home, those gains flow to the fund and its shareholders. A family that owns a home has a stake in its community that a family renting a home controlled by Wall Street simply does not. The family may occupy the home either way, but the economic and social consequences are fundamentally different. That is the distinction Section 901 is meant to protect.

Critics cast that protection as an assault on the market itself, wildly overstating the scope and effect of the section’s prohibitions. The law would not abolish rental housing or force a mass liquidation of existing portfolios. It applies only to large institutional investors—firms with control over at least 350 single-family homes—because the target is not ordinary landlord activity but Wall Street-scale acquisition-and-hold strategies. It covers only single-family homes and duplexes, not apartment buildings or manufactured housing, and leaves room for rental housing and new construction through a series of exceptions. The large-scale build-to-rent model it does obstruct is a relatively new phenomenon, not a necessary component of a healthy housing market.

At its core, then, Section 901 says: as we work to expand housing supply, we should not be doing so in a way that makes single-family homes a permanent institutional asset class. That is a useful guardrail to install, and indeed the right one. And this is the time to install it, at a moment when we are taking action to make building easier, and before a worrying trend hardens into a permanent feature of the market.

The claim that Section 901’s ban on large institutional investors acquiring existing single-family homes reduces supply is wrong on its face. If a large institutional investor is prohibited from buying an existing single-family house, the house does not disappear. The number of homes does not change. The only thing that changes is who gets to compete for it. What Section 901 does is give families trying to buy a home a better shot against institutional buyers with access to cheaper capital, more favorable tax treatment, and the ability to submit all-cash offers. Calling that a reduction in supply is simply false.

The more serious objection concerns build-to-rent. Here, the critics have a real point: the provision requires a large institutional investor to sell a new house within seven years, which changes the economics of building. Some long-duration capital will be less interested, some projects that work under a perpetual-hold structure will no longer pencil out, and the exit itself becomes harder to underwrite and execute. At the margin, some single-family rental supply that could have come online may be lost.

So be it. Section 901 is meant to make one particular business model—permanent institutional control of single-family homes—harder to finance, harder to justify, and harder to scale. The provision does not ban build-to-rent. It preserves it, but on terms meant to prevent single-family homes from becoming a permanent stock of institutional rentals. Some projects will not go forward. Others may shift toward for-sale development, or some mix of ownership and rental. The land, labor, and materials not used for one form of construction will be available for another. Advocates for housing reform have spent years insisting that regulatory barriers to construction were the immediate constraint on housing supply. Only now, with the opportunity here to remove barriers, have they decided that new homes still won’t get built, unless it is with the relatively novel build-to-rent model. That’s less an argument from economics than a principled objection to public policy having any say in how the American housing market should function. They are of course entitled to their preference for a market optimized solely for efficiency, in which considerations of tax arbitrage and cash flow optimization on Wall Street override any preferences that the American people might have about how they will live their lives and build their communities. But they should not be surprised when that is not the majority view.

In their final objection to Section 901, critics directly rebut this framing of the tradeoff, and argue instead that they are the ones vindicating the preferences of families. Some, of course, prefer renting a single-family home. They want the yard, the good school district, the extra bedroom, but not the down payment, the burden of maintaining a property, or the immobility that comes with owning. Why, critics ask, should Congress override that preference?

The first answer is simple: Section 901 does not eliminate single-family rentals. There will still be rental homes. There will still be small landlords. There will still be families for whom renting is the best arrangement. What Section 901 targets is Wall Street-scale ownership of single-family homes as a permanent business model.

The second answer is that “preference” is doing too much work here. The rise of build-to-rent does not reflect some newly discovered preference among American families for institutionalized single-family renting. It reflects a shift in the preferences of builders and capital providers, who found it less risky and often more lucrative to hold the homes themselves rather than sell them. In many cases, the family renting a single-family home is not expressing some deep lifestyle commitment to tenancy over ownership. The family is constrained. It may not have enough savings for a down payment. It may not have access to financing on acceptable terms. It may be shut out of ownership precisely because the structure of the market increasingly favors investors over households. The institutional model does not solve that problem. It monetizes it.

Thus, Section 901 is vital to the broader bill’s moral and economic coherence. It is not mainly an affordability provision. It is a provision about the kind of housing market that will best promote the nation’s liberty and prosperity. The rest of the 21st Century ROAD to Housing Act is about making it easier to build homes, as it should be. But a housing bill that says nothing about who ends up owning those homes is incomplete. Section 901 fills the gap: single-family homes should be places where households build equity, not where large investors harvest it. — Daniel

TRADEOFFS, TRADEOFFS, EVERYWHERE

Almost two weeks into the war with Iran, the public’s response remains unsettled. A recent Washington Post poll finds that opposition to the U.S. campaign has softened since the opening strikes. But more Americans still want the strikes to stop than continue, a majority say the Trump administration has not clearly explained the war’s objectives, and most say the current level of U.S. casualties is unacceptable. As the New York Times notes, wars are rarely more popular than at the outset—and this one is off to an unprecedentedly unpopular start.

Whatever one thinks of the war on its merits, there is a strategic reality in the background: our resources are not infinite, and even an expansion of the defense industrial base’s capacity does not eliminate the tradeoffs imposed by fighting in multiple theaters at once. As A. Wess Mitchell—who served as assistant secretary of state for Europe and Eurasia in the first Trump administration—argues in a Wall Street Journal letter, “Elbridge Colby’s Warnings Are Coming True,” munitions used in the Middle East are munitions unavailable elsewhere, including in East Asia, where a conflict with China over Taiwan would place enormous demands on the same finite stockpiles. The “simultaneity problem,” Mitchell writes, is not longer just a theory; it is the basic arithmetic of fighting in one theater while trying to deter a larger war in another.

TRADE WARS, TRADE WARS, EVERYWHERE

China published a new tranche of trade data, confirming that China Shock 2.0 continues to barrel forward. Exports surged 22% in January and February compared to the prior year—three times faster than the median analyst expected. China’s trade surplus for the first two months of 2026 hit a record $213.6 billion, up 25% from the same period last year. Exports to the United States fell 11%, while exports to Southeast Asia rose 29% and exports to the EU rose 28%, with individual country figures that are even more striking: Germany up 31%, France up 32%, Italy up 36%.

Numbers like these continue to confirm the logic of Daniel’s piece from earlier this year: when the United States refuses to absorb China’s excess capacity, the surplus does not vanish; it gets diverted. Much of that pressure is now landing on European shores, where leaders face the same choice we did—defend the home market and industrial base, or submit to another round of deindustrializing import penetration, and the economic, social, political, and security problems that result. As the Centre for European Reform’s Sander Tordoir put it, “Second China Shock to Europe in full motion. Europe’s policy response is weak, fragmented and haphazard. Buckle up.” Quite so. Europe is beginning to confront reality, but has yet to act with the urgency it demands.

• Also read: In the Financial Times, Ruchir Sharma writes that China’s Growth Target Is a Global Problem: “Beijing has been overinvesting for years, but lately it has been dumping the excess output it can’t sell at home. In the past, China’s export volumes rose with prices; this decade, Beijing has dropped export prices by nearly 20 per cent, producing a 40 per cent surge in volume. … China’s dumping offensive is deindustrialising rival exporters the world over.”

• And worth a listen: At the Official Monetary and Financial Institutions Forum, Michael Pettis and Mark Sobel, chief economist and vice chair at OMFIF, discuss China’s Flailing Growth Model and Challenges, and the economic and political consequences that will result if the Chinese government takes the necessary step of boosting household consumption.

On the home front, the Trump administration’s effort to restore the Liberation Day package of tariffs in the aggregate through different, more clearly established trade authorities continues apace, with the launch of two new Section 301 investigations into dozens of countries’ policies related to “structural excess capacity” and forced labor. In the Wall Street Journal, “Trump Targets Industrial Subsidies and Forced Labor in Tariff Probes.” The Office of the United States Trade Representative’s press releases provide more information here and here. Both investigations implicate China and could serve as the basis for higher tariffs, something to bear in mind as Treasury Secretary Scott Bessent and Ambassador Jamieson Greer travel to France this weekend to meet with Chinese officials ahead of President Donald Trump’s summit with Xi Jinping later in the month (Reuters).

The trade war, of course, is only one component of the competition with China. Another concerns efforts to deploy new technology most effectively across the real economy. That is the point of Kyle Chan’s new Brookings essay, “China Is Running Multiple AI Races.” While the United States remains fixated on the development of frontier models, the construction of giant data centers, and the race to AGI—with the viability and broader economic payoff still uncertain—China is competing on several other margins at once, embedding AI in factories, robotics, and logistics, and diffusing it more deeply through physical production processes. That is an alternative theory of technological power, and one the United States cannot afford to ignore.

Toward that end, this looks a promising opportunity to leverage America’s deep and liquid capital markets toward objectives that actually serve the national interest: Pentagon Headhunting Goldman, JPMorgan Bankers for ‘Economic Defense Unit’ (Semafor): “The Pentagon is building a new team of investment bankers steeped in private equity to invest $200 billion over three years in defense deals, aiming to counter China’s rise.” The pitch deck for prospective hires has been circulating on X and showcases the project’s ambition and scale.

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GOOD WEEKEND READS

• Josh Hawley: We Must ‘Bend’ AI to Serve the Good | Compact published the transcript of the conversation between its editor, Matthew Schmitz, and Senator Hawley, at the Summit on AI and Labor, which American Compass co-hosted a couple of weeks ago.

  • Bonus Link: Our co-host for that event, Palantir Technologies, has put together a handsome website and published the videos for all four panels—two of which were moderated by Oren and Daniel—with wide-ranging discussion on AI’s implications for labor, faith, and industrial policy. Check it out.

• Lincoln, the Great Economist | In the New Outlook, Scott Howard argues that America’s 16th president was more than an emancipator.

• This Law Enforcer Is Rewriting the Playbook for Policing Companies in Trump 2.0 | The Wall Street Journal profiles Federal Trade Commission chair Andrew Ferguson and assesses his efforts to harmonize competing strains of thinking about competition policy and enforcement..

• A Double Dose of Dystopia: First, in the Atlantic, McKay Coppins wrote about his year as a Sucker and “degenerate gambler”: “It made us all care much more about the games, but it had also atomized us—taking the last and purest expression of American monoculture and turning it into a hyper-individualized, every-man-for-himself portfolio of micro-bets.” And for the implications for America’s young men read “I’m a College Student. Gen Z Sports Betting Is Wrecking My Friends’ Lives” (Wall Street Journal).

• Bonus Dose, lest anyone think this problem is not painfully, absurdly obvious, or attempt an if-only-we-had-realized lament at some point in the future: “Gen Z’s ‘Financial Nihilism’ Finds Outlet in Prediction Bets, Crypto” (Bloomberg).

SPEAKING OF DYSTOPIA

OpenAI’s Sam Altman continues his one-man campaign to confirm everything his critics say about him, and the dangerously warped worldview of technologists generally, telling an interviewer this week: “We see a future where intelligence is a utility, like electricity or water, and people buy it from us on a meter.”

Two observations. First, intelligence is not like electricity or water. People do not “buy” and consume it. They develop, cultivate, and refine it through study, experience, and judgment. To treat the accumulated knowledge of human civilization as something dispensed through a meter is the Sam Altman project in miniature.

Second, has anyone told his investors? If AI really becomes a metered service, that would make it… a utility. His analogy points toward a business model defined by heavy capital requirements, growing commoditization, and inevitable and necessary regulation. That’s hardly the sort of business that usually commands the miraculous multiples OpenAI has.

That said, not every OpenAI development this week was quite so absurd. North America’s Building Trades Unions (NABTU) announced a partnership with the company to “train the next generation of skilled construction workers.” If AI really is going to become a utility, as Altman now claims, then the infrastructure for that utility will still have to be built the old-fashioned way: with workers, materials, and physical capital. NABTU says the collaboration will ensure that AI-related buildout—from computing facilities to transmission to new energy generation—supports union careers and registered apprenticeships, while OpenAI has also committed support for the building trades’ pre-apprenticeship network.

This is precisely the kind of business-labor collaboration American Compass’s recent report on workforce development, Learning by Doing, argues is necessary: if the country is serious about rebuilding productive capacity, it needs employers, unions, and training institutions working together to create actual career pathways into skilled work.

Bonus Link: Read Oren’s related column in the Financial Times: America Rethinks How to Train Its Workforce.

LABOR-DYSTOPIA CROSSOVER EPISODE

In “Punching, Slamming, Screaming: A Chef’s Past Abuse Haunts Noma, the World’s Top-Rated Restaurant,” the New York Times tells a fascinating and outrageous story that illustrates the importance of worker power across workplace contexts. It also has this gem of a line, on the politics of the culinary scene: “Some local chefs have posted that they find it offensive that Noma is swooping in and drawing deep-pocketed diners, when Los Angeles restaurants are facing existential threats from climate change, inflation and immigration enforcement.”

And finally, not quite a labor-dystopia synergy event, but in some senses it is, and also an incredible story from the past week… so, um, it turns out that the NBA’s Atlanta Hawks were planning to host a special promotional night for a recent game, “Magic City Monday.” Thing is, Magic City is, um, a strip club. This ranks high in the what-were-they-thinking pantheon, but it was actually going to happen until Luke Kornet, backup center for the San Antonio Spurs and part-time blogger on all manner of subjects, wrote a thoughtful condemnation of the plan and the NBA told the Hawks to cut it out. The Athletic has the full story, “Luke Kornet on spurring ‘Magic City Monday’ cancellation: ‘Needed to be done.’” Score one for the limitations of management’s judgment and the importance of employee voice.

And unless you are in Atlanta and had been looking forward to Monday night’s game a little too much, enjoy the weekend!

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As Michael Brendan Dougherty notes at National Review, “without the administration fully articulating the ends, it becomes almost impossible to judge whether the means are sufficient to get us there.” And while one can find much excitement on X for American excellence in ordinance, Oren points out, “no one doubts that the U.S. can drop large numbers of bombs on Middle Eastern countries and blow up boats in international waters. The skepticism has more to do with seeing what that has and has not accomplished, and where it tends to lead.”

In the meantime, speaking of Oren and excitement on X, he has a story to recount:

I found myself in a Twitter fight last week with the University of Chicago’s Richard Thaler, a Nobel laureate in economics and the best-selling author of Nudge. Twitter fights are tedious. I try not to subject readers to them too often, but we are here to understand America, and realizing that even the most accomplished economists are so frequently undeserving of our respect is important to that understanding. So humor me for a moment.

The catalyst for this particular discussion was my recent American Compass podcast episode with Thaler’s colleague, Luigi Zingales, who had sent out a tweet promoting the conversation. Out of nowhere, Thaler piped in: “do you agree with Oren Cass that share repurchases are evil? What about dividends?”

This is what the kids call “catching a stray.”

So I observed, in response, “economics as religion... If you construe a case for banning share buybacks as an argument that they are ‘evil,’ you may be afflicted by a case of market fundamentalism.” And off we went…

Richard Thaler: Why do you want to ban them if they are not evil?

Oren Cass: I think we should prohibit via regulation a firm’s management trading in its own stock because the incentives to do so are badly misaligned with the firm’s and economy’s long-term health.

But I’m much more interested in your idea that regulatory prohibitions should be applied only to things that are “evil.” Is that really your view? I mean, in securities regulation alone, it seems like that is pretty far off the mark, unless you’re saying we shouldn’t have securities regulation?

RT: You are reading too much into “evil”. Harmful? What about dividends? Share issuance à la GameStop is pretty bad but buybacks on average signal that the price was too low. Insider trading is bad. So is trading by members of Congress. Only ban bad stuff. Am I then religious?

OC: You made an assertion that Oren believes “share repurchases are evil.” I thought it was possible you really do think people only support bans for “evil” things, but clearly not. So it was just a baseless and inappropriate attempt to malign me. Fine.

What is your evidence that “buybacks on average signal that the price was too low”? The empirical evidence that I’m aware of suggests the opposite, with the exception of small-cap companies with large information asymmetries (which would then bring us to the insider trading inquiry...).

RT: Ok done here. Send me an email if you want to have a civil discussion. Firms buy back shares for lots of reasons including using them to give employees stock options. Yes they can be mis-used by top execs to meet targets, but go after that!

[Editor’s Note: He was not done here. He returned the next day…]

RT: Some useful background from my friend and co-author Owen Lamont. Failing to read his blog posts is an own-goal.

RT: Nice quote from Ken French: “Buybacks are divisive. They divide people who understand finance from those who don’t.”

So what can we learn from this dialogue?

1. The dysfunctional culture in economics runs deep. Thaler is a behavioral economist. “He investigates the implications of relaxing the standard economic assumption that everyone in the economy is rational and selfish, instead entertaining the possibility that some of the agents in the economy are sometimes human.” These are the people who are supposed to save us from the market fundamentalists, injecting more realistic assumptions about real-world decisionmaking into foolishly abstract economic models.

But Thaler cannot help himself. For some reason, he feels drawn to jump publicly into a discussion with Zingales, not to make some learned point, but to try to make fun of somebody whose views are insufficiently Economics(tm). We can infer, using tools from behavioral economics, that he anticipates such behavior will elicit a positive reception.

2. Unfortunately for Thaler, the joke is on him. It turns out he doesn’t know as much as he thinks he does about stock buybacks; rather, he’s operating on precisely the unsophisticated assumption of market efficiency that has gotten his discipline into so much trouble.

He seems to believe that we would never ban something unless it is evil. (Much better to “nudge,” using the superior wisdom of the technocrat to manipulate the common man into making the decision preferred at the University of Chicago.)

He makes an empirical claim, “buybacks on average signal that the price was too low,” but declares the conversation over rather than providing support for the claim. Probably a wise move, because he’s simply wrong, having gone with the generic theoretical assertion of efficiency without any concern for how buybacks actually function.

In fact, as the Harvard Law School’s Forum on Corporate Governance explained in 2020, “management teams often say they like to buy their stock when it is undervalued, but companies do a poor job of timing the market, often buying at market peaks rather than troughs.” For instance, “a 2019 study by Fortuna Advisors shows that 64 percent of companies in the S&P 500 had negative buyback effectiveness, implying that a company’s buyback return on investment (ROI), though positive, was lower than its total shareholder return (TSR), usually due to poor buyback timing and suboptimal capital allocation decisions.” Yes, “some studies suggest that companies are good at taking advantage of undervalued stock prices during buybacks. Further examination by McKinsey & Company, however, concludes that this finding is driven almost entirely by small-cap companies with large information asymmetry.”

What’s going on here? Morgan Stanley explains, “in theory, buybacks should add value to ongoing shareholders and provide them with an ability to time their tax liabilities. In practice, companies regularly tie the magnitude of their buyback programs to the dilution that [stock-based compensation (SBC)] causes and look to buybacks as a means to manage [earnings per share (EPS)].”

Thaler’s follow-up the next day makes for a bizarre coda. Having finally thought of some evidence, he returns to the conversation. This is reminiscent of one of my favorite Seinfeld plotlines, in which George, after being insulted at a meeting, thinks of a lame comeback too late to deliver it. He then orchestrates a whole ‘nother meeting just to deliver the line (“the jerk store called, and they’re all outta you”), only to get to one-upped and mocked yet again.

Thaler doesn’t have evidence, he has a friend’s blog post. It’s mostly a blog post about stock issuance, not stock buybacks. The one study it cites on under/overvaluation is mostly about issuance, too. And it’s two decades old. That’s significant because one key, more recent finding is that buybacks used to reflect undervaluation. But not anymore. “Repurchases in the 2000s are weaker undervaluation signals than in the 1980s and 1990s,” according to the Handbook of Corporate Finance (2022). “Although stock prices still tend to jump at the announcement of repurchases, they no longer consistently rise in the long-term.”

In this respect, the whole debate is reminiscent of the one about private equity, which indeed generated impressive returns in its early years, but now fails to beat a simple public market index.

3. Thaler is exceedingly confident in his ignorance. Thaler concludes with a quote from Ken French, that “buybacks are divisive. They divide people who understand finance from those who don’t.” Good one. Ironically, this attitude is precisely the one that Zingales critiqued on the podcast, when he observed: “Economics is so hierarchical and so homogeneous. ... [Economists] believe in meritocracy, but then we look at people’s pedigrees and whether you graduate ... I can have as many citations as I want. It doesn’t make me right.”

By the end, Thaler has even conceded the case. While he initially said of buybacks, “I have not heard a case against them,” he concludes that, “yes they can be mis-used by top execs to meet targets, but go after that!” So there is a case against them, and one he would support going after. How exactly would policymakers go after “mis-use by top execs” while permitting what he apparently considers the vital other uses? Perhaps that’s just another question that divides people who understand finance from those who don’t.

But it does bring us back to where we started: Thaler’s question of whether the criticism of buybacks also applies to dividends, which likewise return capital to shareholders. It does not, precisely because dividends do indeed facilitate the legitimate purpose of payouts to shareholders while allowing much less room for gaming. Banning buybacks while permitting dividends is exactly the way to go after misuse by top execs without interfering at all with capitalism’s valuable operation.

But that kind of thinking requires clear-eyed analysis rather than the dogmatic recitation and performative in-group signaling that economists now tend to offer. The Jerk Store seems unlikely to run out any time soon. — Oren

GOOD WEEKEND READS FROM US

American Compass has just released a major new paper on which we both worked, Learning by Doing: Case Studies in Building the Infrastructure for Career Pathways. Everyone loves “apprenticeship” in theory, but what do good pathways look like in practice? We profile six programs across innovative high schools, technical colleges, employers, unions, and partnerships therein. Start with the Foreword:

A startling transformation is underway, in the economy, in the culture, and among policymakers. The ironclad, bipartisan belief in college as the “ticket to the middle class,” in former President Barack Obama’s preferred phrase, that every child should go to college, that the public education system’s primary task is to prepare everyone for college, has begun to crumble.

And this one’s a watch or listen, but last week American Compass helped host a fascinating AI + Labor Summit in Washington, which featured a conversation between Palantir CEO Alex Karp and Teamsters President Sean O’Brien, moderated by Oren. We’ve released it as this week’s podcast.

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SPEAKING OF TECH AND LABOR…

Don’t believe corporate press releases with “AI” in the title. From the Wall Street Journal: Jack Dorsey Blamed AI for Block’s Massive Layoffs. Skeptics Aren’t Buying It.

Rather than leading American corporations into a brave new future, some Wall Street analysts say, he is capitalizing on a chance to slash costs at a company with excessive staffing. What began as a company focused on card-payment systems expanded into buy-now, pay-later loans, Jay-Z’s music-streaming platform and bitcoin investments.

But this new working paper from Erik Brynjolfsson is worthy of contemplation: Minimum Wages and Rise of the Robots.

This paper studies how minimum wage policy affects firms’ adoption of automation technologies. Using both state-level measures of robot exposure and novel plant-level data on industrial robot imports linked to U.S. Census microdata from 1992–2021, we show that increases in minimum wages raise the likelihood of robot adoption in manufacturing. Our preferred identification exploits discontinuities at state borders, comparing otherwise similar firms exposed to different wage floors. Across specifications, a 10 percent increase in the minimum wage increases robot adoption by roughly 8 percent relative to the mean.

On X, Brynjolfsson asks, “Does raising the minimum wage accelerate the ‘Rise of the Robots’?” One might ask the corollary question, “Would eliminating the H-2A temporary agricultural visa program accelerate the Rise of the Robots?” The idea that higher labor standards lead to technological innovation, capital investment, and higher productivity is precisely the argument for such standards.

This was the thrust of American Compass’s recent collection, For Whom the Machine Toils:

Are American workers’ interests and American techno-industrial strength in tension? Many say yes, from labor activists who treat technological innovation as a threat, to libertarians who view worker power as an obstacle to technological dynamism, to economists who say that upholding labor standards and protecting domestic industry are both misguided.

They are wrong. An economy in which worker power and industrial power reinforce each other is possible. Rapid technological progress is precisely the formula for increasing both productivity and wages. Worker power, properly deployed, forces capital to invest accordingly, improves the return on that investment, and ensures labor enjoys its fair share. Protection of the domestic market—both workers and industry—was a central tenet of American economic strategy for decades.

Especially, read Michael Lind: “High Wages and Technological Innovation: There Is No Alternative.”

Prediction market Kalshi is allowing people to bet on the likelihood of the “Citrini scenario” that Daniel wrote about last week (i.e., sudden waves of white-collar unemployment sending the economy crashing in a vicious cycle). Supposedly, the benefit of these “markets” is that people put their money where their mouths are, providing better information than the newscycle competition for most outlandish clickbait. Unfortunately, courage here seems rather lacking. Kalshi’s version of the scenario amounts to such milquetoast milestones as 10% unemployment, a 30% decline in the S&P 500, and annual inflation falling below zero.

That’s called… a recession. Those figures were hit, or nearly so, in 1983, in 2009, and in 2020. And even still, our wise wagerers have the probability at 14%. Let’s get some more of these markets going. OpenAI CEO Sam Altman says we’ll either cure cancer or educate the world for free this year. Anthropic AI CEO Dario Amodei says AI might wipe out 50% of white-collar jobs and spike unemployment to 20% by 2030. We’d like to bet against them.

At least prediction markets are good for something: capitalizing on classified military plans. “The US attack on Iran was preceded by a number of unusually large and well-timed bets that made a combined profit of $330,000 and were placed by 12 suspicious accounts in the days before Saturday morning’s air strikes,” reports the Financial Times. So much value creation.

MORE GOOD WEEKEND READS

In the Claremont Review of Books, Michael Anton gives Laura Field’s Furious Minds its, er, due.

The various endowed-chair professors, think tank senior fellows, national newspaper columnists, and other assorted luminaries who have heaped praise on this book should be embarrassed. That they can, with a straight face, praise it as good scholarship calls into question whether they can any longer recognize even passable scholarship. More likely, however, they know bilge when they see it—but laud this particular bilge nonetheless because it furthers a common partisan interest.

And then kudos to the Wall Street Journal for a clean sweep of the week’s most interesting coverage:

What Is a City When Its Wealthiest Leave? The stickiness that once anchored people and capital to great cities is gone. It is not coming back.

America’s Ranks of Immigrant Truckers Find a Roadblock: English Tests. Over the past year, more than 10,700 truckers failed an English test, disqualifying them from driving.

High Schools Are Losing the Struggle to Block Pot—Even During Class. Legalization makes marijuana culturally acceptable and easy to get; “it was a party in the bathroom.”

CHECKING IN ON TARIFFS

Much has happened since the Supreme Court’s ruling. While some have questioned President Trump’s authority to re-impose a 10% global tariff via Section 122 of the Trade Act of 1974, Peter Harrell (who helped litigate the case against the IEEPA tariffs) argues at Commonplace that the move will very likely withstand judicial scrutiny.

Harrell also emphasizes, though, that seemingly arbitrary moves by the administration—such as quickly increasing the rate to 15%, attempting to impose different rates on different countries, and so forth—would raise more serious issues. So keep an eye on: Bessent Says Global Tariffs Will Rise to 15 Percent This Week (New York Times).

And in the meantime, what happens to the old tariff revenue? The Court of International Trade has ordered refunds (New York Times), delays of which may cost taxpayers billions more in interest (Cato Institute).

Legislation, people… legislation. Like the bipartisan Secure Trade Act, that would codify the global 10% tariff. Rep. Jared Golden, co-sponsor of that bill, has an excellent piece on it all: Our Trade Imbalance Is a Risk to Our Future.

In better news, investment from Japan continues apace. Japan, US Aim to Add Nuclear Power Project to $550 Billion Investment Package (Reuters).

AS FOR CHINA

Let’s wrap up with a couple of interesting stories about cars and chips, where things are not going well for the Chinese.

The Financial Times reported that BYD saw a 41% decline in domestic vehicle sales, offset partly by a 50% rise in export sales. This is the China problem in microcosm: insufficient domestic demand, overreliance on exports, and nowhere to turn if those get shut down.

Speaking of nowhere to turn, China’s efforts to buy advanced AI chips are also struggling. But so is the American case for selling them. The latest news is that “U.S. Considers Capping Nvidia H200 Chips at 75,000 per Chinese Customer” (Bloomberg), but of course that cuts against the stated rationale for selling Nvidia chips in the first place: the desire to “addict” China to the American technology stack. Indeed, such a cap is essentially the exact policy one might expect the CCP to impose if it wanted to ensure both that its companies had access to the Nvidia ecosystem and the best chips for the highest-value uses while also keeping up the pressure to invest in indigenous alternatives.

With exports in doubt, “Nvidia Stops Production of Chips Intended for Chinese Market” (Financial Times) and “has reallocated manufacturing capacity at Taiwan Semiconductor Manufacturing Company away from making H200 chips to its next-generation Vera Rubin hardware.” Doesn’t that imply a tradeoff between manufacturing chips for the Chinese and for the American market?

If we’re not going to get the Chinese hooked on American chips, and more chips for China means fewer chips for the United States, the rationale for these sales is…

While you’re thinking about that, enjoy the weekend!

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This week, a 7,000-word thought experiment published by Citrini Research ricocheted across the political and financial press. The research note described a hypothetical future in which AI advances so rapidly that mass white-collar layoffs destabilize the consumer economy, trigger a credit crisis, and send the S&P 500 down 38% from its highs. The Wall Street Journal called it a “doomsday report” that laid bare “Wall Street’s deep anxiety” about the future of AI.

The speculation commanded so much attention because it pinpointed a mechanism that investors, executives, and journalists intuitively understand. In the 1930s, economist Michal Kalecki identified what has since become known as Kalecki’s Paradox of Costs. His insight is simple: What is rational for any individual firm—cutting labor costs to boost margins—is catastrophic when every firm does it simultaneously, because workers are also consumers. The wages that firms suppress are the same income streams that generate the demand on which their revenues depend. A firm that replaces ten workers with a new technology saves money. But an economy in which every firm does the same destroys the consumer base that provides the revenue to keep all firms solvent, unless entrepreneurs seamlessly redeploy the labor in new and more productive pursuit—a phenomenon that economists like to assume with waving hands, but that the real world does not accommodate.

The Citrini scenario applies this logic to AI-driven headcount reduction. Companies cut staff and invest in AI, AI improves, workers become less necessary, displaced workers spend less, companies cut more: a feedback loop that doesn’t have a natural brake (unless government steps in).

Suffice to say, Citrini’s predictions may not materialize. The pace of AI progress may be slower. The buildout of physical infrastructure to support widespread deployment faces real resource constraints. Effective integration into enterprises often takes longer than technologists expect. And political backlash against a sector with a trust deficit could throw sand in the gears at every level of government. But whether or not Citrini’s scenario unfolds, the dynamic it describes is well worth contemplating, and being prepared to address.

A few days after the Citrini note was published, American Compass hosted a Summit on Labor and AI in partnership with the New American Industrial Alliance and Palantir Technologies. The program was both high-powered and eclectic:

• Compact editor Matthew Schmitz interviewed Senator Josh Hawley

• I moderated a conversation between Julius Krein and Edward Luttwak on industrial policy

• Compass policy director Chris Griswold moderated a conversation between Catholic University’s Father Aquinas Gilbeau, Valar Atomics CEO Isaiah Taylor, and Cluny Institute director Luke Burgis on how religious faith informs these issues

• Oren moderated a conversation between Teamsters President Sean O’Brien and Palantir CEO Alex Karp that covered, well, a lot

The Citrini note’s underlying prediction—that the AI revolution will replace the worker rather than augment his abilities, and that it will hit white-collar workers hardest—was a throughline in each of the panel discussions. O’Brien, in his conversation with Karp, put it plainly: For once in his lifetime, the people who have never been economically vulnerable are about to experience what most working people have experienced for decades.

O’Brien’s observation is worth dwelling on. For 30 years, the organizing logic of the American economy has been a flight from the physical: from atoms to bits, from factories to platforms, from making things to managing things. The professional class built its security on the assumption that the future would always reward credentialed, cognitive symbol manipulation and that the people who worked with their hands were on the wrong side of history. It was a reasonable bet that paid handsomely for a long time—and may now be wrong.

The same qualities that made white-collar work seem secure—its abstraction, its scalability, its distance from physical constraint—are precisely what make it vulnerable to a technology that processes information more quickly and cheaply. The professional class watched the nation’s industrial base atrophy and drew the wrong conclusion: that cognitive work was insulated from the logic of substitution. AI is correcting that assumption.

That logic has a history that animates much of our work at American Compass. Stagnant wages and productivity growth that didn’t accrue to the typical worker were the consequence of a market deliberately unbound from any recognition of mutual obligation and from a misalignment between that which generates profit and that which advances the national interest. Globalization made cheap foreign labor abundant and sent capital abroad. Mass immigration suppressed wages and discouraged investment at home. Financialization enabled profit from arbitrage rather than expansion of domestic capacity.

AI arrives in that same unbound system. If the gains flow the same way—to capital and away from the workers whose labor it displaces—the Kaleckian feedback loop Citrini describes becomes the default.

Julius Krein, editor of American Affairs and one of the sharper analysts on matters of political economy, closed the panel I moderated on an optimistic note. The professional class, he argued, shouldn’t be understood as AI’s inevitable victim. In a political moment defined by reindustrialization, AI, and competition with China, there will be ample opportunities for credentialed talent to redirect itself toward building the physical economy rather than managing the financial one. The engineers, lawyers, and financiers who spent three decades optimizing a globalized system could spend the next three building a national one. And the capital markets that exploited arbitrage opportunities could instead finance a reinvigorated industrial base.

Blue-collar workers were the losers of the last 30 years. AI threatens to make the professional class the losers of the next 30. Inversion of their fortunes is the wrong goal, as is managing the decline of one class while celebrating the revival of another. What we should strive for instead, and aim to have well-structured and well-supported markets deliver, is convergence: the talents of the professional class and the resources of our capital markets redeployed in the service of all workers. The last 30 years unbound the market from the nation. The next 30 must reconstitute and celebrate the ties that bind us together. — Daniel

SPEAKING OF LABOR AND AI

We’ve got the reliably awful: Sam Altman, foot reliably in mouth, one-upped himself in India this week, arguing:

One of the things that is always unfair in this comparison is people talk about how much energy it takes to train an AI model relative to how much it costs a human to do one inference query. But it also takes a lot of energy to train a human. It takes, like, 20 years of life and all of the food you eat during that time before you get smart.

The audience laughs awkwardly, but Altman is not joking and plows ahead. Regular reminder: If Nobody Trusts You, They’re Not the Problem.

A new standard in awful: Not to be outdone in the dehumanization derby, Secretary of Agriculture Brooke Rollins took to Fox Business to lament the rise in fertilizer, fuel, interest rates, and labor costs, then proudly tweeted the clip. One of these things is not like the others! Oren often laments the economist’s tendency to treat labor as just another input, like lumber or electricity. Equating workers instead with fertilizer and debt manages to be even more demeaning.

Some interesting progress: In 2018, Annie Lowery wrote Give People Money, which was supposed to show how Universal Basic Income “has the potential to solve some of our most intractable economic problems, while offering a new vision of citizenship and a firmer foundation for our society in this age of turbulence and marvels.”

Eight years later, contemplating the prospect of widespread unemployment for white-collar workers that Daniel discusses above, she has come to a very different conclusion: “UBI is a dystopian outcome, not a utopian one.” She explains:

For families to thrive in this new post-work paradigm, the government would need to redistribute a lot more than $1,500 per person per month, necessitating confiscatory taxes on corporations—taxes they would fight tooth and nail. The bigger problem would be that Americans would hate a world without work, where the jobless rate floats at 30 percent instead of 4 percent. Many Americans like working. They like having somewhere to go during the day. They like trading watercooler stories with their colleagues. They like getting promoted and starting their own firms. They are proud of earning a living. Long-term unemployment destroys people’s mental and physical health, and generates toxic societal unrest. Politicians love saying that Americans want a hand up, not a handout—and they aren’t wrong.

Well said.

And a more reasoned take: In the Wall Street Journal, Greg Ip takes a look at the evidence on how AI has actually affected employment and how it most likely might (given the typical trajectory of revolutionary technologies), concluding “Tech Has Never Caused a Job Apocalypse. Don’t Bet on It Now.” Even in software development, he notes, “if such a revolution were upon us, we should see some sign of it. We don’t, at least not yet. The ranks of software developers, widely assumed to be acutely vulnerable to AI, are up 5% in January from a year earlier, a pace largely consistent with the past 23 years.”

GOOD WEEKEND READS

Snaps for our friends at American Affairs, who just published an especially interesting issue. Start with:

• Rebuilding America’s Sea Power, by Senator Todd Young

• The Global Industrial Development Toolkit: Unpacking Trump’s Investment Deals with Japan and South Korea, by Peter Harrell

• Between Hype and History: Conversations with the AI Elite, by Sophia Brown-Heidenreich

Friend of the ’stack Ruy Teixeira has an excellent essay on “No Populism Without Cultural Populism”:

This is a bitter pill for most Democratic elites to swallow. In today’s America, they are the “Establishment” even if in their imaginations they are sticking it to the “Man” and fighting nobly for social justice. The failure to understand that they themselves are targets of populist anger is a central reason their populist pitch fails—and will fail—to get traction among the working class.

Panka Bencsik and Tyler Giles have posted a fascinating new paper, “Local Prosecutors and Public Health,” that finds “narrow election of a Republican prosecutor reduces all-cause mortality rates among young men ages 20 to 29 by 6.6%. This decline is driven predominantly by reductions in firearm-related deaths, including a large reduction in firearm homicide among Black men…” (h/t Santi Ruiz)

• Related: In case you missed it, be sure to read our own Drew Holden’s essay from last week, “Cities Really Can Just Enforce the Law.”

And in Fortune, a devastating deep-dive into technology in schools: “The U.S. spent $30 billion to ditch textbooks for laptops and tablets: The result is the first generation less cognitively capable than their parents.” (h/t Jonathan Haidt, who observes, “putting computers and tablets on students desks in K-12 may turn out to be among the costliest mistakes in the history of education.”)

KEEPING CALM AND TARIFFING ON

Checking in on the data: At the American Enterprise Institute, Derek Scissors takes a very fair look at the data on the first year of the global economic reset, acknowledging, “12 months of financial success worth trillions and nine months of trade success, at least on Trump’s view.” But, he says, “that’s not the end of the story. The last three quarters of the 2025 also saw manufacturing employment decline each month.”

As we emphasize repeatedly, manufacturing job growth is not the right barometer of reindustrialization’s first year. Even if one wanted to look there, the sector’s job decline slowed by half from the prior year. Scissors acknowledges as much, and then notes, “it can take time for trade and financial changes to affect employment.”

To summarize his analysis, then: the economic results from the administration’s trade policies look promising, except for the job numbers, which also improved and are not yet relevant. OK, then! (Perhaps, “2025 Trade and Investment Didn’t Yield Manufacturing Jobs” was not the right title for the piece?)

Speaking of data, Bloomberg highlights the growing gap between what China says it exports to the United States and what the United States says it imports from China, suggesting substantial underreporting by importers to evade tariffs. As one importer who does obey the law puts it, “the tariffs are just the cost of doing business, but the tariff cheats are the ones that are very, very damaging.” The problem is parallel in many ways to the employment of illegal immigrants, where law-abiding employers get undercut.

Solution: Fund the trade police. More detailed solution: Build an AI model that filed reports by importers with local data on the originating source of the products.

But what about the Supreme Court? Well, be sure to listen to this week’s episode of the American Compass podcast, in which senior political economist Mark DiPlacido and I go through the details of the ruling, the alternative authorities on which the administration is now relying, and what to expect next.

If reading is more your thing, Peter Harrell’s analysis at Lawfare is excellent.

Or, if you prefer badly uninformed commentary, there’s always economist Justin Wolfers, who seems confused by the Court’s decision regarding the interpretation of the regulatory power under IEEPA and thinks, instead, that the tariffs were declared unconstitutional.

Now underway: The Wall Street Journal explains how the administration will use new Section 232 tariffs to target sectors vital to national security. And U.S. Trade Representative Jamieson Greer announces the initiation of investigations under Section 301 to address unfair practices of trading partners.

Ambassador Greer also delivered an excellent speech at his alma mater, the University of Virginia School of Law, on international law. Of particular note: “The United States raised the alarm again and again, but it became clear that this problem could not be resolved using old, slow moving, and outdated international tools.”

This is the point where even the most ardent enthusiasts of the “rules-based trading system” ultimately get stumped. The conclusion of Oren’s interview with Ernesto Zedillo, former Mexican president and professor at the Yale Jackson School of Global Affairs, was a particularly good example.

Prior to Trump, was the WTO working as intended? No.

Was there any plausible path to WTO reform, given its failure to conclude a successful negotiating round after its establishment in 1995? No.

If the WTO was not working and could not be reformed, should the United States simply have lived with a dysfunctional status quo indefinitely? Hmmm, well things get harder there…

So then what was the alternative to abandoning the broken system and starting anew?

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BROKEN SYSTEM, CHINA EDITION

China, of course, is exhibit A in this broken system. The rest of the world largely ignored the problem as the United States absorbed its imbalances, but with Trump saying no mas, the problem is everyone’s now.

What Say You, Germany? As Thorsten Benner, Jakob Hensing, and Florian Klumpp write in an especially comprehensive look at “Germany’s China Shock” in the new issue of Internationale Politik Quarterly, “for a long time, Germany’s political and business elites have chosen to ignore the economic threat emanating from Xi Jinping’s China. It’s now time to confront it.”

Will they confront it? The Economist gives reasons for hope, and reasons for doubt:

Exports of German cars and other goods to China have fallen off a cliff, and surging imports from Chinese companies facing price pressure at home have driven the trade deficit to €90bn ($105bn), a head-spinning 2% of German gdp. With domestic demand subdued, Chinese exporters of cars and other goods are seizing market share from German rivals in third countries (see chart 1). Parts of German industry are crying foul over Chinese subsidies and a grossly undervalued yuan. “Our companies are competing not only with Chinese rivals, but with the Chinese state budget,” says Oliver Richtberg, head of foreign trade at the VDMA, an association of mainly German machinery firms….

Still, industry does not speak with one voice. Some multinationals, like basf, a chemicals giant, have doubled down on their investments in China. A growing number of German firms are “localising”: using Chinese supply chains, developing products with local workers and reinvesting profits in China. Volkswagen, among others, is accelerating its plans to use China as an export hub to the rest of the world. Meanwhile it is slashing jobs in Germany.”

What Say You, Japan? According to the Financial Times, “China has restricted exports of rare earth magnets and other critical materials to dozens of leading Japanese companies in an escalation of a dispute with Tokyo. China’s commerce ministry on Tuesday said it would freeze the flow of ‘dual-use’ materials, which have applications to both civilian and military industries, to 20 Japanese companies. Another 20 groups are being added to a new ‘watch list.’”

And What Will We Say? In the New York Times, Jonas Nahm explains that the decline in U.S. competitiveness is a function of not only unfair trade practices and economic distortions, but also a genuine productivity shortfall:

The barriers are practical rather than technological, especially for small and midsize companies. In many factories, production data is incomplete or still recorded manually, making it impossible to use digital tools that rely on continuous information. Three-quarters of manufacturers surveyed struggle to connect older machines to systems that could help them run more efficiently. And eight in 10 report shortages of workers who can use A.I.-powered manufacturing tools. More than half say the upfront cost of A.I. projects is prohibitive.

…

America has emphasized invention and breakthroughs over deployment. But sometimes, technology needs to be treated as factory work — unsexy and perhaps boring, but essential for being competitive.

REINDUSTRIALIZATION

The New York Times goes into the details of the U.S. dependence on Taiwanese semiconductors, landing on this stumper of an “intractable problem”: “New plants won’t be built in the United States unless companies agree to buy the chips produced in them, which would be more expensive and cut into profits. It has been a Catch-22 that federal intervention has struggled to solve.” What a Catch-22! How could federal intervention possibly make the purchase of domestic semiconductors more attractive than the purchase of foreign semiconductors, when the foreign ones are cheaper? Think, people, think.

And be sure to read on for this anecdote:

In an Oval Office meeting, the president told Mr. Huang that he planned to put tariffs on semiconductors because making them in Taiwan was risky, two people familiar with the meeting said. Mr. Trump told Mr. Huang that when he spoke with Mr. Xi about the island, China’s leader would breathe heavily, said one of these people who was briefed on the conversation. The president didn’t like it. He urged Mr. Huang to make chips in America.

What has us breathing heavily here at Understanding America? “Apple Plans to Manufacture Mac Mini in Houston” (Wall Street Journal). Read also the inside story of the reshoring:

The scale of construction, at TSMC and other suppliers, shows Apple’s effort to reshore its chip supply chain is bearing fruit. The Wall Street Journal toured the desert Southwest with Apple executives to see facilities that its purchasing heft and investments are helping to build.

But what has us huffing angrily? SemiAnalysis reports: “Micron spent 612 days on the environmental impact study, including a 45 day public input period. Yet hours before groundbreaking, they were hit with a lawsuit calling the process ‘unnecessarily rushed.’”

This sort of garbage has to stop. Maybe we could start a “Concerned Citizens for Reindustrialization” non-profit that goes around filing onerous litigation against whatever clowns file this sort of litigation? As SemiAnalysis notes:

The lawsuit itself didn’t come from a ground roots uprising. A CA-based workers rights group went door to door in NY seeking plaintiffs. They eventually found just 6 people willing to sign on. But that’s enough to potentially halt the project. … One member of the suit, who as a former lawyer you might expect to be smart, says that “Syracuse has the highest child poverty rate in the country. What is Micron doing about that?”

“Permitting reform” isn’t going to fix this, we need to repeal the procedural environmental statutes. Their costs wildly exceed their benefits.

FINANCIALIZATION

And finally, on Wall Street, hyper-rational financial actors whose value creating innovations are questioned only by unsophisticated rubes are up to their old value creation again.

Rubes like Jamie Dimon: “Dimon Sees Pre-Crisis Parallels as Rivals Do ‘Dumb Things’” (Bloomberg).

Rubes like this “senior partner at a leading international law firm and an adjunct professor at a leading United States law school,” who just published anonymously an article in the University of Chicago Business Law Review, which “argues that the core tools of PE value creation—high leverage, cash extraction, and short-term exit incentives—externalize predictable risks to third parties including workers, healthcare patients, consumers, unsecured creditors, communities and the environment.” Huh. Could the fact that such insider-experts feel that they cannot say these things publicly have anything to do with the fact that not a lot of insider-experts say these things publicly?

At least private equity continues to deliver tremendous value for its investors, like pension funds and universities, by… nope, not true either. “Private Equity’s Dry Spell Worse Than 2008 Crisis, Bain Says” (Bloomberg).

At least we found one good use for financialization. If you’ve made it this far, you’ll definitely want to take a few minutes to read about hero policy wonk Alan Cole betting his life savings against DOGE’s ability to reduce government spending (Wall Street Journal). Alan, we salute you.

Enjoy the weekend!

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I am surprised by how broadly and bluntly the Supreme Court blocked the use of IEEPA tariffs, when it could more easily have issued some guidelines cabining the authority and then sent them back to lower courts to work out. The decision that IEEPA allows no tariffs under any circumstances, by contrast, creates the rather bizarre situation—as President Trump noted in his press conference—where he could restrict trade, license trade, embargo trade, mandate quotas on trade, but never collect any tax or fee on it. That’s a somewhat ironic position for the Chief Justice to adopt, after he saved President Obama’s signature health care policy by rather creatively construing a tax where only a mandate existed.

But as trade experts across the political spectrum have been noting since the start of the case, and as President Trump emphasized this afternoon, the decision does not have much substantive effect on the administration’s trade agenda. One could even interpret the opinion from Chief Justice Roberts, who knew all this too, as emulating the style of John Marshall in Marbury vs. Madison: taking the opportunity to lay down principles that will constrain executive authority for all time (in this case, via the Major Questions Doctrine) at a moment when the executive would not be all that bothered.

And indeed, Trump seemed unperturbed and in downright good humor in his reaction. To understand why, and what’s likely to happen now, let’s return to the framework we’ve been using since Liberation Day, which breaks the tariffs into three categories: the Global Tariff, the Reciprocal Tariffs, and China.

1. The Global Tariff. The baseline 10% tariff is an important policy for rebalancing global trade and also raises substantial revenue, but was always difficult to fit within IEEPA’s parameters. Ideally, it would be legislated; indeed legislation has already been introduced. In the interim, the president announced he will use Section 122 of the Trade Act of 1974, which allows him to address the trade deficit by imposing a baseline tariff of up to 15% on all countries. So little will change in the short run, though that authority will expire after 150 days unless Congress votes to extend it, finally setting up an unavoidable moment of action at that end of Pennsylvania Avenue.

2. Reciprocal Tariffs. These are the targeted, country-by-country tariffs that the president has used for negotiating leverage to reach bilateral agreements with a wide range of allies. The minimal process required by IEEPA before regulating trade (which, per the Supreme Court, cannot include imposing tariffs) made it an especially potent tool for negotiations, but the president can impose comparable—or higher—tariffs through Section 301 of the 1974 Act and Section 232 of the Trade Expansion Act of 1962. Those require a more thorough process, but imposition is an entirely credible threat, and countries that have already entered negotiations or reached deals will likely recognize that they would be unwise to back out now.

The ongoing renegotiation of the USMCA with Mexico and Canada is an especially important subset of the many negotiations. Successfully concluding an agreement with those countries (whether among all three, or as two bilateral deals) that provides a framework for ensuring fair and balanced trade on our continent will provide a crucial cornerstone for trade among the U.S.’s broader set of allies. Here, again, renegotiation is underway and the president retains ample leverage through these other trade laws, and other facets of the North American relationship, to reach satisfactory terms.

3. China. On one hand, China is the easiest situation. The president imposed wide-ranging tariffs on China under well-established authorities in his first term, President Biden mostly maintained them, and now they have been expanded further. IEEPA tariffs were adding to the total, but no one really questions that Trump can use other authorities to go as high as he might want with tariffs on China, given its status both as an obvious adversary and national security threat, and as an obvious bad actor in the trading system.

On the other hand, China is where the president’s strategy has been most unclear. Since his meeting with President Xi in October, Trump has mostly tried to dial back pressure and avoid confrontation, and with the next summit now slated for the week of March 30, no one is quite sure whether he is looking to strengthen his leverage or signal a commitment to détente. If he uses the loss of IEEPA tariffs as an excuse to let the rate on China drift lower, that would be a concerning sign for the summit and it would undermine the ongoing effort to push supply chains out of China, which depends on keeping tariffs there meaningfully higher than they are on other countries.

Here is the most obvious opportunity for Congress to act, by revoking China’s permanent normal trade relations (PNTR) status. Revoking PNTR is a bipartisan recommendation of both the U.S.-China Economic and Security Review Commission and the House Select Committee on the Chinese Communist Party. Secretary of State Marco Rubio, while in the Senate, cosponsored legislation that would accomplish the task, and it has a bipartisan companion in the House. Congress could reassert its role in trade policy and settle the question of the U.S.-China relationship’s future direction, along exactly the lines where there is broadest consensus.

The ruling’s most obvious complication for the president’s agenda may come on the issue of transshipment. The U.S. can put up its own barriers to Chinese goods, but if it wants to maintain free trade with Mexico, or even Malaysia, and those countries put up no such barriers, the goods will soon make their way into the American market anyway. The president had used the IEEPA tariffs as leverage to extract commitments on blocking transshipment, and the threat of re-instituting such tariffs offered an especially potent enforcement mechanism if the commitments were not fulfilled. This is another issue on which both parties in Congress and even the most strident free traders can agree, and could provide the basis for new legislation as well.

Whatever the Court thought it was doing, Trump is correct that in many respects it “made the president’s ability to regulate trade and impose tariffs more powerful and more crystal clear, rather than less.” He had made a strategic choice to move quickly with the authority that was most flexible, even if not the one on firmest legal ground. The year since has given his team time to make enormous progress on negotiations and to initiate processes that will provide a more stable foundation for continued efforts.

Peter Harrell has been one of the sharpest commentators on the case throughout (and bested me on our respective predictions for it!). He concluded his own rundown with an assessment that I share of the tools now coming to the fore: “The greater discipline those authorities will require will make for a more orderly, disciplined, rational, and stronger tariff policy going forward.” A better framework for the global trading system, and better incentives for domestic investment, were always going to require firmer foundations than IEEPA. It is good to move toward them.

Just after Liberation Day, I wrote about the need for the administration to “move from its embattled beachhead into a sustainable forward position.” It seems likely that, in time for Liberation Day’s first anniversary, we will be celebrating such a position established.--Oren

MORE ON TARIFFS

It was good to see U.S. Trade Representative Jamieson Greer on the mic for a few minutes at the president’s press conference. Who is Ambassador Greer? The New York Times just published a great profile:

As the United States trade representative, Mr. Greer, 45, has been a powerful but behind-the-scenes force in transforming the global economy. His calm demeanor is often overshadowed in a cabinet filled with outspoken, brash billionaires. Yet few have done more in Mr. Trump’s second term to put into practice the president’s vision of altering the system governing how trillions of dollars of goods move around the world.

And what is it we’re all fighting about, again? IMF Calls on China to Halve Industrial Subsidies (Financial Times):

The IMF has called for China to slash state support for industry as international concerns mount about overcapacity in the world’s second-largest economy. The fund estimated that China spends about 4 per cent of its GDP subsidising companies in critical sectors, and said it should reduce that by 2 percentage points in the medium term. China’s industrial policies “are giving rise to international spillovers and pressures” and have combined with weak domestic demand to make China “more reliant on manufacturing exports as a source of growth”, the fund said.”

Here’s betting that asking really nicely doesn’t work.

On one hand, it’s worth noticing how quickly things have changed. “The 2024 staff report didn’t mention external imbalances at all—so there has been an important evolution in the IMF’s thinking in the last couple of years,” notes Brad Setser from the Council on Foreign Relations. On the other hand, as the Carnegie Endowment’s Michael Pettis explains:

China spends a lot more than 4% of GDP subsidizing critical manufacturing sectors, not just through direct central-government subsidies, but also through local-government subsidies and mainly through indirect subsidies. …

Rather than target a tiny part of the distortions that create large, persistent trade imbalances, the IMF should be targeting the imbalances themselves. Rather than tell Beijing which measures it must manage, it should let Beijing decide what measures it will use to rebalance domestic demand.

Asking Beijing to reduce specific subsidies is pretty meaningless and suggests more of lawyer’s approach to understanding trade than an economist’s approach.

Thus, the wisdom in the Trump administration’s strategy of imposing tariffs (rather than asking nicely), and of making its core demand from trading partners that they achieve balance, not that they correct this or that distortion, which may achieve little.

A less wise approach? Whatever it is the EU continues to do. Reports early in the week from the Financial Times indicated that “Brussels is planning to force electric-vehicle manufacturers benefiting from state support to ensure that at least 70 per cent of the components in their cars are made in the EU, as it seeks to protect the bloc’s industries from intense Chinese competition.” Good idea. But the EU commissioners voted it down, punting a decision to March. Bad idea.

These are exactly the issues USMCA will be renegotiated over. China’s BYD and Geely are seeking now to buy a Mexican car factory (per Reuters). Will they be allowed to do so? Would their product be “local content”? Hopefully not.

GOOD WEEKEND READS, EUROPEAN DIPLOMACY EDITION

Starting with the interesting and substantive, it’s worth taking a look at both Secretary of State Marco Rubio’s speech at the Munich Security Conference and Under Secretary of Defense for Policy Elbridge Colby’s speech at the NATO Defense Ministerial.

In Munich: Reiterating the key themes from Vice President JD Vance’s speech in Munich last year, Rubio criticized the Europeans harshly—on the destabilization of mass migration, their failure to maintain a robust defense, and the dangerous complacency of the post-Cold War consensus. Where Vance questions “what exactly it is that you’re defending yourselves for,” Rubio asked “what exactly are we defending?”

The same European diplomats wildly offended by Vance gave Rubio a standing ovation, confirming as always the shallow and performative nature of European diplomacy. Which style better served America? Probably both. Sometimes you need your friends to understand how upset you are, sometimes you need them to understand you still want to be friends.

In Brussels: We will give Colby a pass on the “1.0, 2.0, 3.0” cliche because this is an extraordinarily sharp way of framing the past and future of the Atlantic alliance:

Throughout the Cold War, “NATO 1.0” as we might describe it, was defined by a hard-nosed, realistic, clear-eyed approach to deterrence and defense. Allies from the beginning were expected to pull their weight, as evidenced as early as Article III of the Washington Treaty and the Lisbon Commitments of 1951…

This model was tremendously successful. It made sure that the USSR never saw military aggression against the Western Alliance as a viable strategy. It thus saw us through the Cold War with peace in Europe - an incredible achievement for which we must all be grateful.

When the Soviet Union collapsed, however, NATO transformed into something else - perhaps what one might call “NATO 2.0”. This version of the Alliance was typified by a shift of effort and focus away from Europe’s defense toward “out of area” operations and substantial disarmament on the continent, as well as a change in frame from the hard-nosed, flexible realism of the Cold War “NATO 1.0” to much more of a liberal internationalist mindset of the “rules-based international order.”

It is clear, however, that this approach of “NATO 2.0” is no longer fit for purpose - certainly not for the United States and, we would submit, not for our allies either. The times are changing, and we must adapt - in terms of how we think about the world and the Alliance’s role in it and how we posture to meet it in practical terms.

What is needed is a “NATO 3.0” - something much closer to “NATO 1.0” than the approach of the last thirty-five years…

Read the whole thing.

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GOOD WEEKEND READS, BAD WSJ READS EDITION

These missives by the Wall Street Journal’s editorial board are good reads in an America’s Funniest Home Videos sort of way.

First up, The UAW’s Southern Strategy, where the editorial board laments Volkswagen’s neutral stance in the UAW’s efforts to organize its Chattanooga plant, leading to a successful union election. “VW had also agreed not to oppose the union, perhaps to curry favor with its Biden overlords doling out electric-vehicle subsidies,” lamented the Journal, which is funny, because VW had adopted neutrality in 2014, as the Journal complained about back then.

Why would VW want a union? Because, per the Journal’s 2014 article, “Volkswagen believes that setting up a works council in Chattanooga would promote labor comity and flexibility. The UAW has promised to delegate to the council ‘many of the functions and responsibilities ordinarily performed by unions as bargaining representatives.’” The remarkable thing about the Chattanooga plant was that, in 2014, despite no opposition from VW, workers voted the union down anyway. That it has now won their support speaks to the broader national fight the Journal’s editors are badly losing.

Speaking of losing battles, be sure to also read GOP Doesn’t Know Smith From Adam, by editor Jason Riley. “Thanks to [Adam] Smith,” he writes, “today we judge the performance of an economic system based on how efficiently it allocates resources to satisfy consumers.” That this is a self-evidently inadequate way to evaluate an economic system seems lost on Riley, as does the role that industrial policy played in American economic progress for most of our history. “Industrial policy,” according to Riley, is “the antithesis of free-market economics,” which isn’t true and, if it were, might say more about the latter than the former.

GOOD WEEKEND READS, FAMILY EDITION

They Lied To Us About Having It All, And It’s Costing Us Our Children (Evie Magazine)

“Last week the internet lost its mind over Brad Wilcox’s piece in Compact. The sociologist laid out the data with the cold precision of a coroner: women who reach thirty without starting a family have roughly a fifty-two percent chance of ever having children. Not great odds. Not the odds we were sold. The outrage was immediate. ‘How dare he?’ ‘Misogyny!’ ‘Stop telling women when to have babies!’ But here’s the thing no one wants to say out loud: the people sounding the alarm aren’t the villains. The villains are the ones who spent decades lying to us.”

When Politics Comes to the Parenting Group Chat (Washington Post)

“‘I think that’s a part of why the aggression is so surprising to me and the, for lack of a better word, the rudeness and kind of how everything evolved.’ McCune, the Peanuts president, told me. ‘Like, we’re neighbors. I’m still gonna see you guys.’ But one parent’s aggression or rudeness is another’s righteousness. ‘Folks in Free Range tried everything, like, to engage in good faith,’ Stackl told me in September, listing the petition, numerous emails and formal requests for meetings.”

THE AI SLOP WILL CONTINUE UNTIL SUPPORT GROWS

Data centers remain deeply unpopular, with a new issue arising: “Land Grab for Data Centers Is One More Obstacle to Much-Needed Housing” (Wall Street Journal). But it also seems to be the case that people don’t like data centers because, well, they just don’t like AI. As Oren wrote about in “If Nobody Trusts You, They’re Not the Problem,” every dumb move by OpenAI to launch an infinite-scrolling social media app premised on deepfakes makes Americans think about AI more like the last generation of life-degrading apps, and they’re more than smart enough to recognize data centers as the tip of the spear for deployment.

“Donald Trump’s AI push fuels revolt in Maga heartlands,” reports the Financial Times, leading with Lisa Garrett, “who lives beside the site of a rapidly greenlit $6.6bn, 400-acre data centre development in the satellite city of Independence, just east of Kansas City.”

A worker for a local ministry, Garrett’s unease extends beyond the project’s demand on local water and electricity supplies to the broader social impact of the industry it is being built to support. “I have grandchildren . . . It does concern me that they’re being drawn into a world that isn’t real,” she said.

If the AI overlords want support for what they’re building, they may want to think about building something that people support. Because this isn’t getting it done:

HR Teams Are Drowning in Slop Grievances: Employees can now effortlessly create complaints using AI, leaving firms with the time-consuming job of responding (Financial Times).

And neither is this:

Ring Ends Deal to Link Neighborhood Cameras After Super Bowl Ad Backlash: A commercial about a lost dog being reunited with his family ignited concerns (New York Times).

And just wait until we get to this:

The Financialisation of AI is Just Beginning: Get ready for a new wave of securities, hedges and collateral (The Economist).

Eventually, the combination of trusted benchmarks and liquid derivatives markets could support bonds collateralised by baskets of GPUs, much like those backed by bundles of individual loans. Few investors possess detailed knowledge of Californian consumers or Ohio’s office market. Many nevertheless snap up bonds collateralised by credit-card debt and commercial mortgages.

There are some financial market innovations that not even The Economist can sell with a straight face.

SPEAKING OF FINANCIALIZATION…

Three Wall Street Journal headlines for you:

• Gen Z, Locked Out of Home Buying, Puts Its Money in the Market

• The Ivies Are Having Second Thoughts About Investing in Private Equity

• Private-Credit Warning Signs Flash After Blue Owl Unloads $1.4 Billion in Assets

But, good news too: Substack is partnering with Polymarket! Place your bet, er, thoughtfully hedge your risk now on whether Oren or Daniel will be writing the top item next week. We recommend buying Daniel, currently trading at $0.54.

AT LEAST WE CAN STILL BUILD

Encouraging movement on a number of fronts in reindustrialization. The administration released its Maritime Action Plan. Good rundown of the elements here from gCaptain. The U.S. is proceeding with plans for a critical minerals price floor, which it is pitching to allies (Bloomberg). And the U.S. and Japan announced the first $36 billion in capital investment from Japan planned as part of the recent trade agreement (Financial Times).

But our favorite story was Boeing defense headquarters to return to St. Louis after leaving the area in 2017 (NPR):

In a statement, Boeing Defense, Space and Security CEO Steve Parker said the move is part of an effort for the company’s leaders to work “side-by-side” with teammates in the area. “The headquarters move, coupled with our senior leaders being based at and spending their time at major engineering, production and manufacturing centers across the U.S., reflects our continued focus on disciplined performance across our business,” he said in a statement.

Having management close to major engineering and manufacturing centers helps to promote disciplined performance? The good news for Boeing is that, as a defense contractor, its manufacturing had never moved overseas and relocating its headquarters was thus viable. But where else besides the defense sector might that apply?

Enjoy the weekend, and your three days without the global tariff!

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Another month, another jobs report beating expectations, another inflation report beating expectations, another set of economists working on explanations for how really this just goes to show that economists had it right all along, and also things would definitely be even better if everyone had listened to them.

And another journalist stumped by how the agricultural sector could ever possibly create jobs Americans would do, even as he stares right at them. Daniel explains:

In a recent New York Times column, Binyamin Appelbaum argues that immigration restrictionism is a fool’s errand for the agricultural sector. The argument is familiar: these are jobs Americans won’t do; robots can replace some workers, but not all; and if farms cannot import foreign labor, our nation will be forced to import foreign food instead. Policymakers, he concludes, should accept second-class immigrant labor as a permanent feature of American agriculture. But as happens so often with these narratives, the story he tells points precisely the opposite way.

Appelbaum’s central exhibit is Dale Hemminger, a dairy farmer in upstate New York who installed milking robots in 2007—after immigration authorities arrested one of his workers. His farm now produces 2.5 million pounds of milk per worker per year, up from 800,000 before mechanization. His remaining employees—about half the headcount he would otherwise need—earn more, work shorter hours, and do less grueling work.

Appelbaum presents Hemminger as a vision of the future without asking what created the conditions for his success. The answer is obvious: immigration enforcement drove the investment. The result was not the collapse of his dairy farm, but a transformation: higher productivity, better jobs, and a more resilient enterprise. This is precisely the outcome a serious agricultural policy concerned with feeding the nation and respecting its workers should replicate at scale. However, Appelbaum describes the solution and then spends the rest of the piece arguing that we should preserve the conditions that prevent it.

Consider what Hemminger’s example implies about untapped opportunity. A milking robot is a fun piece of technology. (Check out this video from Hemminger’s farm where cows enter the barn when they want to be milked and have their udders cleaned and pulled by a robotic arm.) But it’s not new or exotic. The Dutch company Lely commercialized the first such system in 1992, more than three decades ago, and the technology is common across Northern Europe. About 25% of dairy farms in Denmark and the Netherlands use automated milking systems, compared with about 5% in the United States. That adoption delta is not about engineering capabilities but incentives. American dairy farmers have access to cheap, abundant immigrant labor, which makes investment in mechanization economically irrational. The technology exists and is proven, but most farmers have not deployed it because they have not needed to. The difference between what is available and what farmers have deployed represents enormous potential for productivity growth that immigration enforcement and a reduction in temporary visas would unlock, by altering the firm-level incentive structure.

The deeper problem is Appelbaum’s static analysis of a dynamic market. “There are no robots to do that work,” he writes of crops on Hemminger’s farm, like cabbage, which are still planted and harvested by hand. But the Danish company ASA-LIFT has been manufacturing commercial cabbage harvesters for decades (watch a demonstration here). And the frontier is advancing: a 2024 paper from researchers in South Korea describes the development of an autonomous self-propelled cabbage harvester with AI-based attitude control for cutting on uneven terrain, while a separate team is developing an electric harvester using computer vision to detect and sort cabbages onto a conveyor. The machines exist, or soon will. They are simply not standard on American farms, for the same reason milking robots are not: cheap labor makes them unnecessary. We should wonder what other such innovations American firms might have developed, had demand existed here all along—and what they might develop if demand emerges.

America’s enormous supply of cheap labor is neither a demographic inevitably nor an accident: it was created through distortion of the labor market for the benefit of employers. Visa issuances under the H-2A Temporary Agricultural Workers program have grown from roughly 50,000 in 2005 to more than 385,000 today. And a large share of the broader agricultural workforce lacks legal work authorization, a reality sustained by decades of lax enforcement that functions as a de facto subsidy. Each additional worker, legal or otherwise, reduces the pressure to mechanize and create jobs Americans will do.

Appelbaum concludes by writing that Hemminger’s dairy farm is “a vision of a better future,” but that current policy won’t get us there. On that last point, he is right, just not for the reason he thinks. Progress towards a high-wage, high-tech agricultural economy requires immigration restriction. But it also requires an agricultural industrial policy to facilitate the transition away from labor-intensive production processes, one that provides public investment in research and development, capital subsidies for farms that cannot absorb the upfront costs, and institutional capacity to move technology from the laboratory to the field. Restriction creates pressure. Industrial policy ensures our nation can transition while not losing domestic capacity to import competition.

The phrase “jobs Americans won’t do” is an admission that businesses within certain sectors of our economy have broken business models, premised on working conditions and compensation we do not expect our fellow citizens to tolerate. This framing treats a job’s characteristics as fixed. It suggests incorrectly that agricultural work is inherently incompatible with decent wages, when the real culprits are policy choices, the market structures they create, and the rational ways employers respond. For too long, the United States has organized segments of its agricultural sector around labor access rather than labor productivity. It’s somewhat bizarre that journalists like Appelbaum, usually quick to advocate better for workers and demand more of employers, choose in this instance to shrug and look away. “A vision of a better future” for American agriculture requires policy that creates necessity and provides the conditions and the means. — Daniel

STAYING ON THE LABOR MARKET…

…and woefully bad journalism therein, the Wall Street Journal’s editorial board does not disappoint. Commenting on “Mass Deportation and Florida Jobs,” the Journal laments:

In May 2023, Florida Republicans passed legislation aimed at countering Joe Biden’s porous border policies. The law’s centerpiece requires private employers with 25 or more employees to use the federal government’s E-Verify system to confirm the work authorization of new hires ... .U.S. Labor Department data suggest that Florida’s E-Verify law has harmed job growth. In the year before the law took effect, Florida led the country in job creation. But employment growth fell by half in 2024 and has been flat since last February.

Just so we have this straight: Florida moved aggressively to reduce the presence of illegal workers, and so the number of workers stopped rising as quickly? Gasp. If only there were some measure of job quality for those legal Floridians still working, maybe a measure of their wages? There is! Average wage isn’t the best measure, but it’s what we’ve got at the state level, and in the past 32 months, since May 2023, the average real wage in Florida is up 6.4%. Strong, to quite strong.

How about in the 32 months before passage of E-Verify? Down 3.0%. OK, but that was during COVID. How much did Florida’s average wage rise from pre-COVID to the passage of E-Verify? 0.0%. In fact, it took from mid-2015 to mid-2023 for wages to rise as much in Florida as they did in the two-and-a-half years since passage of E-Verify. So there’s that.

Elsewhere, Howard University’s Ron Hira highlights a new paper from Harvard University’s George Borjas that finds “on average, H-1B workers earn 16 percent less than comparable natives.”

Comparable natives? But H-1Bs are supposed to be for job openings where the employer can’t find a native worker. So how could Borjas even… OK, when you’re done laughing, move to the next item.

One group that might include many comparable natives would be young college grads. Which might help provide Alyssia Finley’s effort in the Wall Street Journal with an answer to: Why Unemployment Is Rising Among Young College Grads. She focuses on another issue, surely part of the problem as well, that “their skills, experience and ability to function are increasingly out of step with employers’ needs.” As she sees it:

Artificial intelligence isn’t taking their jobs. Young grads’ struggles started before AI went mainstream. Between 1990 and 2014, unemployment for young college grads was generally 1 to 3 percentage points lower than for all workers. The gap started to tighten around 2014 and reversed in late 2018. Unemployment for young college grads is now about 1.4 points higher than for all workers. The real problem is a mismatch between labor supply and demand.

Supply and demand! That sounds like a job for Mr. Market, if only policymakers were not instead filling the mismatched demand with alternative, foreign supply.

GOOD READS FOR THE WEEKEND

In the Financial Times, Martin Sandbu has an excellent profile of philosopher Michael Sandel, “the pessimist who became a prophet.”

In the Wall Street Journal, Gavin Bade goes into “The Chinese Factory That Opened in the U.S. and Clobbered Its Rivals.” Or rather, he doesn’t go into it, because he was not allowed in. So all the photos are from the rivals getting clobbered. Wonder why? Could it have anything to do with illegal labor practices so blatantly illegal that the Biden administration was sending in raids?

In RealClearInvestigations, Nancy Rommelmann tells the heartbreaking story of how “Caring for Mom Is an Education in Scams and Fraud.” If we could take 5% of the “serious thinker” attention dedicated to pondering AI, and redirect it to addressing the extraordinary social challenges we will encounter as history’s wealthiest generation continues to age and then passes on, America would be a much better place.

And your academic paper of the week is Work from Home and Fertility, from a bevy of researchers who find “estimated lifetime fertility is greater by 0.32 children per woman when both partners WFH one or more days per week as compared to the case where neither does.”

• Bonus read: One of the first features ever published at Commonplace was on this topic, from EPPC’s Patrick Brown: Remote Work Created a Baby Boom. Can We Keep It Up?

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DEPRESSING READS

The New York Times reports, “In South Korea, Questions About Cram Schools, Success and Happiness. Academic pressure has become so intense that even preschoolers are taking private extracurricular classes, raising worries about children’s rights.”

The Times also profiles “Clavicular” (we didn’t know who that was either), in “Handsome at Any Cost.” This one’s pretty crazy. But so is the Times’ conclusion. “Guns, drugs, misogyny, body dysmorphia: The miasma of nihilism swirling around Clavicular has made him an irresistible symbol of social decline — a freakish avatar for the hopelessly fallen, social-media-addled state of the young American man. At the same time, he may simply be ahead of the curve.”

This echoes back to the recent Times profile of professional prediction-market gamblers, where it suggests, “making a living betting on prediction markets just might be one of those era-defining occupations.” The helpless resignation is an inevitable function of a progressive culture that precludes judging any set of choices as worse than any other, but the airy and ironic tone with which the stories are thus told is badly out of step with the challenges we face.

Sticking with the Times, it’s worth reading the editorial board’s far-too-little-too-late mea culpa on marijuana legalization: “This editorial board has long supported marijuana legalization ... .At the time, supporters of legalization predicted that it would bring few downsides….It is now clear that many of these predictions were wrong.” Go figure.

From ABC News, “MLB Players Strike Deal to Be Turned Into AI Characters That Can Chat with Fans.”

From the Financial Times, “Prediction Market Kalshi Seeks US Approval to Offer Margin Trades.” Thank goodness. Only “$24 million Was Bet On Whether Mark Wahlberg Would Attend the Super Bowl” (NBC Sports). But if people could bet borrowed money, we might have a truly liquid and predictive market. Then they’d also have more money to bet in derivative markets predicting how high the prices will go in the prediction markets.

FREE TRADE, FREE MARKETS, CHOOSE ONE

This week’s illustration comes from the OG example of drug pricing. As Oren wrote in the introduction to The Once and Future Worker, nearly a decade ago:

Things become even more complicated when we introduce an international boundary and conflicting legal regimes. We protect patents on new drugs, but what should we do when drugmakers voluntarily sell those patented drugs in Canada at prices far below what they charge in the United States—because the Canadian government requires the lower price? Should someone be allowed to buy the drug in Canada and then resell it in the United States, undercutting a drugmaker’s U.S. price? We call this drug reimportation, and we prohibit it, again on the basis of bolstering the free market, again with strong support from libertarians. Some politicians will offer a rationale of “safety,” as if we can’t trust Canadians to monitor their drug supply as well as we do. The actual rationale is that we wish to insulate what we consider to be our freer market in drugs from contamination by the more controlled Canadian market.

Canada is hardly the archetypal case of market distortion. China, for instance…

Indeed, when one allows multinational corporations to operate across legal jurisdictions that intentionally distort markets to their benefit, one becomes quickly disoriented while trying to stay true to “free market principles.” Like, for instance, the “more than 50 conservative leaders sign[ing a] letter against Trump drug pricing policy codification,” who warn that a Most Favored Nation drug pricing regime (i.e., you can’t charge more for your drugs in America than you charge in other developed countries) would “import socialist price controls and values into our country.” In fact, it is the free trade advocated by said leaders that has done just that, leaving us no choice but to respond.

AS FOR OTHER TRADE NEWS

Wall Street Journal: “The American and Chinese Economies Are Hurtling Toward a Messy Divorce.” Good.

Rhodium Group: “Over the past year, German political leaders, central bankers, business associations, and unions have begun talking openly about the risks of a ‘China shock.’ The rhetoric, however, has not been matched by decisive policy action.” Some brutal charts. Bad.

Reuters: “French Advisers Urges EU Tariffs or Weaker Euro to Counter China.” Good.

Bloomberg: “Ford Falls Behind China’s BYD in Global Sales For the First Time.” Bad.

Politico: “Warren and Banks to Introduce AI OVERWATCH Act.” Good.

Semafor: “NSA Pick Warns of China Pursuing AI Chips for Weapons.” Bad.

If the U.S. and Europe teamed up to exclude imports from China, restrict exports of advanced technology to China, and rebuild industrial supply chains, much would be achieved. Doing what we are doing right now may end less well.

And finally, from an interesting paper, Industrial Policies, Global Imbalances and Technological Hegemony:

We provide a framework that connects industrial policies to global imbalances and technological hegemony, and describe some empirical facts consistent with our model. We study the international spillovers triggered by industrial policies promoting high-tech sectors. Since high-tech goods and services are typically traded internationally, these policies boost the supply of tradable goods. Moreover, industrial policies lead to trade surpluses if the government pursues an unbalanced policy mix, such that domestic demand does not rise as much as supply. These surpluses are absorbed by the rest of the world, which in response runs trade deficits. Absent policy interventions, trade deficits reduce the competitiveness of the domestic tradable sector, stifling innovation and productivity growth. Innovation policies can help the rest of the world to mitigate these negative spillovers.

Tl;dr thread from one of the authors, and one from Michael Pettis.

Enjoy the weekend!

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